SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
Form 6-K
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934
For the month of July 2008
Commission File Number 000-31062
Oncolytics Biotech Inc.
(Translation of registrant’s name into
English)
Suite 210, 1167 Kensington Crescent NW
Calgary, Alberta, Canada T2N 1X7
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.
| Form 20-F þ | Form 40-F o |
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): o
Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): o
Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submitted to furnish a report or other document that the registrant foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant’s “home country”), or under the rules of the home country exchange on which the registrant’s securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant’s security holders, and, if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.
Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
| Yes o | No þ |
If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82 -
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Oncolytics
Biotech Inc. (Registrant) |
||||
| Date: July 29, 2008 | By: | /s/ Doug Ball
Doug Ball Chief Financial Officer |
||
 |
210, 1167 Kensington Crescent N.W. Calgary, Alberta Canada T2N 1X7 |
FOR IMMEDIATE RELEASE
Oncolytics Biotech Inc. Announces 2008 Second Quarter Results
CALGARY, AB, — July 29, 2008 - Oncolytics Biotech Inc. (“Oncolytics”) (TSX:ONC, NASDAQ:ONCY)
today announced its financial results and highlights for the three and six month periods ended June
30, 2008.
“Oncolytics experienced a strong second quarter with the reporting of durable clinical responses to
REOLYSIN® combination therapy treatment in refractory head and neck cancer patients,”
said Dr. Brad Thompson, President and CEO of Oncolytics. “We are enrolling increasing numbers of
patients in our clinical program for REOLYSIN®, and the positive results from these
trials are helping us to plan the later-stage development program for REOLYSIN®.”
Second Quarter Highlights
Significant Clinical Advances
| • | Presented positive interim U.S. Phase II sarcoma trial results at the American Society of Clinical Oncology (ASCO) annual meeting, showing 8 of 16 evaluable patients experienced stable disease for periods ranging from two to more than ten, 28-day cycles. | ||
| • | Presented positive interim results from a U.K. combination REOLYSIN® and paclitaxel/carboplatin trial at the British Society of Gene Therapy (BSGT) conference in Edinburgh. Three head and neck patients evaluated at that time had excellent clinical and radiological responses without appreciable toxicity. The dose escalation portion of this trial was completed in the second quarter. | ||
| • | Received approval for U.K. and U.S. Phase II clinical trials investigating REOLYSIN® in combination with paclitaxel and carboplatin, and started patient enrolment in the U.K. trial. | ||
| • | The U.S. National Cancer Institute started patient enrolment in a Phase I/II ovarian, peritoneal and fallopian tube cancer trial using systemic and intraperitoneal administration of REOLYSIN®. | ||
| • | Started patient enrolment in a U.K. combination REOLYSIN® and cyclophosphamide trial. | ||
| • | Subsequent to the quarter end, announced that the 200th patient had been treated with REOLYSIN®. |
Preclinical Advances
| • | Two presentations were delivered at the American Society of Gene Therapy (ASGT) meeting covering work using the reovirus against mesothelioma, and also to purge lymph nodes of tumor cells. | ||
| • | Another two presentations were delivered at the American Association for Cancer Research (AACR) covering work using the reovirus in combination with radiation for pediatric sarcomas, and reovirus as a purging agent for autologous stem cell transplants. | ||
| • | A paper covering preclinical work demonstrating that reovirus can kill melanoma cell lines and freshly resected tumour was published in Gene Therapy. | ||
| • | A paper covering preclinical work demonstrating that reovirus can activate dendritic cells to promote innate, antitumor immunity was published in the Journal of Immunology. |
Manufacturing
| • | Successfully transferred cGMP production of REOLYSIN® at the 40-litre batch size to SAFC Pharma™, a Division of Sigma-Aldrich Corporation. Yields at the 40-litre scale should provide sufficient doses to support future development plans leading to registration and also early-stage commercial requirements. Development work at the 100-litre scale is continuing. |
Intellectual Property
| • | One U.S. patent and one Canadian patent were secured in the second quarter. Oncolytics has secured more than 180 patents worldwide, including 27 U.S. patents and 9 Canadian patents. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion and analysis should be read in conjunction with the unaudited interim consolidated
financial statements of Oncolytics Biotech Inc. as at and for the three and six months ended June
30, 2008 and 2007, and should also be read in conjunction with the audited financial statements and
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)
contained in our annual report for the year ended December 31, 2007. The financial statements have
been prepared in accordance with Canadian generally accepted accounting principles (“GAAP”).
FORWARD-LOOKING STATEMENTS
The following discussion contains forward-looking statements, within the meaning of Section 21E of
the Securities Exchange Act of 1934, as amended. Forward-looking statements, including our belief
as to the potential of REOLYSIN® as a cancer therapeutic and our expectations as to the
success of our research and development and manufacturing programs in 2008 and beyond, future
financial position, business strategy and plans for future operations, and statements that are not
historical facts, involve known and unknown risks and uncertainties, which could cause our actual
results to differ materially from those in the forward-looking statements. Such risks and
uncertainties include, among others, the need for and availability of funds and resources to pursue
research and development projects, the efficacy of REOLYSIN® as a cancer treatment, the
success and timely completion of clinical studies and trials, our ability to successfully
commercialize REOLYSIN®, uncertainties related to the research, development and
manufacturing of pharmaceuticals, uncertainties related to competition, changes in technology, the
regulatory process and general changes to the economic environment. Investors should consult our
quarterly and
annual filings with the Canadian and U.S. securities commissions for additional information on
risks and uncertainties relating to the forward-looking statements. Forward-looking statements are
based on assumptions, projections, estimates and expectations of management at the time such
forward-looking statements are made, and such assumptions, projections, estimates and/or
expectations could change or prove to be incorrect or inaccurate. Investors are cautioned against
placing undue reliance on forward-looking statements. We do not undertake to update these
forward-looking statements.
OVERVIEW
Oncolytics Biotech Inc. is a Development Stage Company
Since our inception in April of 1998, Oncolytics Biotech Inc. has been a development stage company
and we have focused our activities on the development of REOLYSIN®, our potential cancer
therapeutic. We have not been profitable since our inception and expect to continue to incur
substantial losses as we continue our research and development. We do not expect to generate
significant revenues until, if and when, our cancer product becomes commercially viable.
General Risk Factors
Prospects for biotechnology companies in the development stage should generally be regarded as
speculative. It is not possible to predict, based upon studies in animals, or early studies in
humans, whether a new therapeutic will ultimately prove to be safe and effective in humans, or
whether necessary and sufficient data can be developed through the clinical trial process to
support a successful product application and approval.
If a product is approved for sale, product manufacturing at a commercial scale and significant
sales to end users at a commercially reasonable price may not be successful. There can be no
assurance that we will generate adequate funds to continue development, or will ever achieve
significant revenues or profitable operations. Many factors (e.g. competition, patent protection,
appropriate regulatory approvals) can influence the revenue and product profitability potential.
In developing a pharmaceutical product, we rely upon our employees, contractors, consultants and
collaborators and other third party relationships, including our ability to obtain appropriate
product liability insurance. There can be no assurance that these reliances and relationships will
continue as required.
In addition to developmental and operational considerations, market prices for securities of
biotechnology companies generally are volatile, and may or may not move in a manner consistent with
the progress being made by Oncolytics.
See also “RISK Factors Affecting Future Performance” in our 2007 MD&A.
REOLYSIN ® Development Update for the Second Quarter of 2008
We continue to develop our lead product REOLYSIN® as a potential cancer therapy. Our
goal each year is to advance REOLYSIN® through the various steps and stages of
development required for potential pharmaceutical products. In order to achieve this goal, we
actively manage the development of our clinical trial program, our pre-clinical and collaborative
programs, our manufacturing process and supply, and our intellectual property.
Clinical Trial Program
During the second quarter of 2008, our clinical trial program expanded to eleven clinical trials of
which nine are being conducted by us and two are being sponsored by the U.S. National Cancer
Institute (“NCI”).
Clinical Trials — Positive Interim Results
U.K. Combination REOLYSIN® and Carboplatin/Paclitaxel Clinical Trial
In the second quarter of 2008, we announced positive interim results and completed the dose
escalation portion of our U.K. combination REOLYSIN® and carboplatin/paclitaxel trial.
Four of the first eight patients treated in the study to date have a diagnosis of carcinoma of the
head and neck. All three head and neck patients evaluated to date have had excellent clinical and
radiological responses without appreciable toxicity. Preliminary assessment after recruitment of
the first two cohorts has suggested that patients with head and neck carcinomas represent a group
of patients for whom the combination of carboplatin/paclitaxel and REOLYSIN® may prove
effective.
In the first cohort, the patient with head and neck cancer received 8 cycles of treatment (the
maximum allowed) and achieved a clinical complete response. In the second cohort, the two patients
with head and neck cancers with widespread disseminated disease have each received seven cycles of
treatment to date and both have achieved significant partial responses. Two of the three patients,
including the patient with the clinical complete response, had previously received cisplatin/5-FU
treatment and all three had previously received radiotherapy.
This clinical trial has two components. The first is an open-label, dose-escalating, non-randomized
study of REOLYSIN® given intravenously with paclitaxel and carboplatin every three
weeks. Standard dosages of paclitaxel and carboplatin were delivered to patients with escalating
dosages of REOLYSIN® intravenously. The second component of the trial includes the
enrolment of a further 9 patients for a total of 12 patients at the maximum dosage of
REOLYSIN® in combination with a standard dosage of paclitaxel and carboplatin.
Eligible patients include those who have been diagnosed with advanced or metastatic solid tumours
such as head and neck, melanoma, lung and ovarian cancers that are refractory (have not responded)
to standard therapy or for which no curative standard therapy exists. The primary objective of the
trial is to determine the Maximum Tolerated Dose (“MTD”), Dose-Limiting Toxicity (“DLT”),
recommended dose and dosing schedule and safety profile of REOLYSIN® when administered
in combination with paclitaxel and carboplatin. Secondary objectives include the evaluation of
immune response to the drug combination, the body’s response to the drug combination compared to
chemotherapy alone and any evidence of anti-tumour activity.
U.S. Phase II Sarcoma Clinical Trial
During the second quarter of 2008, we announced interim results from our Phase II study of
intravenous REOLYSIN® in patients with sarcomas metastatic to the lung which were
presented at the American Society of Clinical Oncology (“ASCO”) annual meeting. The presentation,
entitled “A Phase II Study of Intravenous REOLYSIN (Wild-type Reovirus) in the Treatment of
Patients with Bone and Soft Tissue Sarcomas Metastatic to the Lung” was delivered by Dr. Monica
Mita, the study principal investigator and her team at the Institute of Drug Development (IDD), the
Cancer Therapy and Research Center at the University of Texas Health Science Center, (UTHSC), San
Antonio, Texas.
The interim results demonstrated that the treatment had been well tolerated to date, with 8 of 16
evaluable patients experiencing stable disease for periods ranging from two to more than twelve,
28-day cycles. As well, the third patient treated in the study was demonstrated to have stable
disease by RECIST criteria for more than six months as measured by CT scan. A PET scan taken at
the same time showed that any residual mass was metabolically inert.
Clinical Trials — Actively Enrolling
During the second quarter of 2008, we commenced enrollment in two additional U.K. chemotherapeutic
co-therapy clinical trials and the NCI began to enroll in its Phase I/II ovarian cancer clinical
trial in the U.S. At the end of the second quarter of 2008, eight of our nine sponsored clinical
trials were enrolling patients along with one of the NCI sponsored clinical trials.
Clinical Trials — Expanded Trial Program
U.K. Phase II Combination REOLYSIN® with Paclitaxel and Carboplatin
During the second quarter of 2008, we received a letter of approval from the U.K. Medicines and
Healthcare products Regulatory Agency for our Clinical Trial Application (“CTA”) to begin a Phase
II clinical trial using intravenous administration of REOLYSIN® in combination with
paclitaxel and carboplatin in patients with advanced head and neck cancers. The principal
investigator is Dr. Kevin Harrington of The Institute of Cancer Research and The Royal Marsden NHS
Foundation Trust.
This trial is a 14 patient, single arm, open-label, dose-targeted, non-randomized, multi-centre
trial of REOLYSIN® given intravenously in combination with a standard dosage of
paclitaxel and carboplatin. Eligible patients include those with advanced or metastatic head and
neck cancer that are refractory to standard therapy or for which no curative standard therapy
exists. The primary objective of the Phase II trial is to measure tumour responses and duration of
response, and to describe any evidence of antitumour activity. The secondary objective is to
determine the safety and tolerability of REOLYSIN® when administered in combination with
paclitaxel and carboplatin to patients with advanced or metastatic head and neck cancer. The trial
began enrolling patients in June, 2008.
U.S. Phase II Combination REOLYSIN® with Paclitaxel and Carboplatin
During the second quarter of 2008, following a U.S. Food and Drug Administration (“FDA”) review, we
initiated a U.S. Phase II clinical trial using intravenous administration of REOLYSIN®
in combination with paclitaxel and carboplatin in patients with advanced head and neck cancers. The
Principal Investigator is Dr. Monica Mita of the CTRC at UTHSCSA.
This trial is a 14-patient, single arm, open-label, dose-targeted, non-randomized trial of
REOLYSIN® given intravenously in combination with a standard dosage of paclitaxel and
carboplatin. Eligible patients include those with advanced or metastatic head and neck cancers
that are refractory to standard therapy or for which no curative standard therapy exists. The
primary objective of the Phase II trial is to measure tumour responses and duration of response,
and to describe any evidence of antitumour activity. The secondary objective is to determine the
safety and tolerability of REOLYSIN® when administered in combination with paclitaxel
and carboplatin to patients with advanced or metastatic head and neck cancers.
Pre-Clinical Trial and Collaborative Program
Presentations
In the second quarter of 2008, Dr. Anders Kolb of the Nemours Center for Childhood Cancer Research
presented a poster entitled “Radiation in Combination with Reolysin for Pediatric Sarcomas” at the
American Association for Cancer Research (“AACR”) Annual Meeting.
The poster covered preclinical work using reovirus in combination with radiation in mice implanted
with pediatric rhabdomyosarcoma and Ewing’s sarcoma tumours. The results demonstrated that the
combination of reovirus and radiation significantly enhanced efficacy compared to either treatment
alone in terms of tumour regression and event-free survival.
As well, Dr. Chandini Thirukkumaran of the Tom Baker Cancer Centre, Calgary, presented an oral
presentation entitled “Targeting Multiple Myeloma with Oncolytic Viral Therapy” at the AACR Annual
Meeting.
The presentation covered preclinical work using reovirus as a purging agent during autologous
(harvested from the patient themselves) hematopoietic stem cell transplants for multiple myeloma.
The results demonstrated that up to 70% of multiple myeloma cell lines tested showed reovirus
sensitivity and reovirus induced cell death mediated through apoptosis. The investigators
concluded that this preclinical data supports initiating a Phase I purging trial using reovirus
against multiple myeloma.
Publications
In the April 10, 2008 online issue of Gene Therapy, Prof. Alan Melcher and his research group at
St. James’s University Hospital in Leeds, U.K. published the results of their work entitled
“Inflammatory Tumour Cell Killing by Oncolytic Reovirus for the Treatment of Melanoma.”
The investigators showed that reovirus effectively kills and replicates in both human melanoma cell
lines and freshly resected tumour. They demonstrated that reovirus melanoma killing is more potent
than, and distinct from, chemotherapy or radiotherapy-induced cell death. They concluded that
reovirus is suitable for clinical testing in melanoma.
In the May 1, 2008 online issue of the Journal of Immunology, Prof. Alan Melcher and his research
group at St. James’s University Hospital in Leeds, U.K. published the results of their work with
reovirus in a paper entitled “Reovirus Activates Human Dendritic Cells to Promote Innate Antitumor
Immunity.”
The researchers studied the ability of reovirus to activate human dendritic cells (“DC”), key
regulators of both innate and adaptive immune responses. The data demonstrated that reovirus
directly activates human DC, which in turn stimulate innate killing of cancer cells by natural
killer (“NK”) and T cells, suggesting a novel potential role for T cells in oncolytic virus-induced
local tumor cell death. Combined with the virus’s ability to directly kill cancer cells, the
researchers concluded that reovirus recognition by DC may enhance the efficacy of reovirus as a
therapeutic agent.
Manufacturing and Process Development
During the second quarter of 2008, we successfully transferred our cGMP manufacturing process for
REOLYSIN® at the 40-litre batch size to SAFC Pharma™, a Division of Sigma-Aldrich
Corporation and commenced production. Yields at the 40-litre scale should provide sufficient doses
to support future development plans leading to registration and also anticipated early stage
commercial requirements.
During the second quarter of 2008, we continued our process development work examining further
scale-up to the 100-litre level and lyophilization.
Intellectual Property
During the second quarter of 2008, one U.S. patent and one Canadian patent were issued. At the end
of the second quarter of 2008, we had been issued over 180 patents including 27 U.S. and nine
Canadian patents as well as issuances in other jurisdictions. We also have over 180 patent
applications filed in the U.S., Canada and other jurisdictions.
Financial Impact
We estimated at the beginning of 2008 that our average monthly cash usage would be approximately
$1,660,000 for 2008. Our cash usage for the six month period ending June 30, 2008 was $7,224,814
from operating activities which includes our intellectual property expenditures which is lower than
our expected monthly average but continues to be in line with our expectations for 2008. Our net
loss for the six month period ending June 30, 2008 was $8,648,903.
Cash Resources
We exited the second quarter of 2008 with cash resources totaling $17,930,270 (see “Liquidity and
Capital Resources”).
Expected REOLYSIN® Development for the Remainder of 2008
We plan to continue to enroll patients in our clinical trials throughout 2008. We expect to
complete enrollment in a number of our co-therapy trials in the U.K. and our sarcoma study in the
U.S. We believe that the results from these trials will allow us to broaden our Phase II clinical
trial program and choose a pivotal trial path.
We expect to produce REOLYSIN® for our clinical trial program throughout 2008. We
believe we will complete our 100-litre scale up activities and will continue our examination of a
lyophilization (freeze drying) process for REOLYSIN®.
We continue to estimate, based on our expected activity for 2008 that our average monthly cash
usage will be $1,660,000 per month (see “Liquidity and Capital Resources”).
INITIAL ADOPTION OF NEW ACCOUNTING STANDARD
On April 1, 2008, we early adopted the new Canadian Institute of Chartered Accountants’ (the
“CICA”) Handbook Section 3064 “Goodwill and Intangible Assets”. Pursuant to the transitional
provisions set out in Section 3064, we retroactively adopted this standard with restatement.
The adoption of Section 3064 impacted the treatment of our patent costs. Prior to Section 3064, we
accounted for our patent costs as an intangible asset under CICA Handbook Section 3450 “Research
and Development Costs”. Section 3450 allowed us to capitalize our third party legal costs
associated with our patent portfolio as a limited-life intangible asset which was then amortized
over the estimated useful life of the patents. Section 3064 does not permit the capitalization of
these third party legal costs. Consequently, the third party legal costs previously capitalized as
intellectual property are required to be expensed and any previously recorded related amortization
charges are to be reversed. The intellectual property costs which remain capitalized and subject
to amortization relate to the initial acquisition of our business by SYNSORB Biotech Inc.
In order for us to capitalize our intellectual property expenditures we would be required to
demonstrate all of the following:
| 1. | The technical feasibility of completing the intangible asset so that it will be available for use or sale. | ||
| 2. | Our intention to complete the intangible asset and use or sell it. |
||
| 3. | Our ability to use or sell the intangible asset. | ||
| 4. | How the intangible asset will generate probable future economic benefits. Among other things, we are able to demonstrate the existence of a market for the output of the intangible asset or the intangible asset itself or, if it is to be used internally, the usefulness of the intangible asset. | ||
| 5. | The availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset. | ||
| 6. | Our ability to measure reliably the expenditure attributable to the intangible asset during its development. |
Therefore, all of our future intellectual property expenditures will be expensed as incurred until
we meet all of the capitalization criteria set out above. We plan to regularly monitor our
research and development activity in conjunction with these six criteria to ensure we record our
intellectual property expenditures in line with Section 3064.
The impact of the early adoption of Section 3064 on our previously reported consolidated balance
sheets is as follows:
| March 31, 2008 |
December 31, 2007 |
December 31, 2006 |
||||||||||
| Consolidated Balance Sheet | $ | $ | ||||||||||
Intellectual Property |
||||||||||||
Intellectual property, previously reported |
5,006,297 | 5,026,540 | 5,079,805 | |||||||||
Adjustment, adoption of Section 3064 |
(4,554,422 | ) | (4,484,290 | ) | (4,176,055 | ) | ||||||
Intellectual property, restated |
451,875 | 542,250 | 903,750 | |||||||||
Deficit |
||||||||||||
Deficit, previously reported |
(83,846,498 | ) | (80,522,257 | ) | (65,030,066 | ) | ||||||
Adjustment, adoption of Section 3064 |
(4,554,422 | ) | (4,484,290 | ) | (4,176,055 | ) | ||||||
Deficit, restated |
(88,400,920 | ) | (85,006,547 | ) | (69,206,121 | ) | ||||||
The impact of the early adoption of Section 3064 on our previously reported consolidated statements
of loss, comprehensive loss and cash flows is as follows:
| Three Month Period |
Cumulative from inception on |
|||||||||||||||
| Ending March 31, |
Year Ended December 31, |
Year Ended December 31, |
April 2, 1998 to December 31, |
|||||||||||||
| 2008 | 2007 | 2006 | 2007 | |||||||||||||
| Consolidated Statements of Loss and Comprehensive Loss | $ | $ | $ | $ | ||||||||||||
Net loss and comprehensive loss, previously reported |
3,324,241 | 15,642,191 | 14,297,524 | 80,522,257 | ||||||||||||
Adjustment, adoption of Section 3064 |
70,132 | 308,235 | 330,767 | 4,484,290 | ||||||||||||
Net loss and comprehensive loss, restated |
3,394,373 | 15,950,426 | 14,628,291 | 85,006,547 | ||||||||||||
Basic and diluted loss per share, previously reported |
(0.08 | ) | (0.39 | ) | (0.39 | ) | — | |||||||||
Basic and diluted loss per share, restated |
(0.08 | ) | (0.39 | ) | (0.40 | ) | — | |||||||||
| Three Month Period |
Cumulative from inception on |
|||||||||||||||
| Ending March 31, |
Year Ended December 31, |
Year Ended December 31, |
April 2, 1998 to December 31, |
|||||||||||||
| 2008 | 2007 | 2006 | 2007 | |||||||||||||
| Consolidated Statements of Cash Flows | $ | $ | $ | $ | ||||||||||||
Operating activities, previously reported |
(2,991,234 | ) | (13,569,594 | ) | (12,155,372 | ) | (66,551,036 | ) | ||||||||
Adjustment, adoption of Section 3064 |
(257,304 | ) | (852,498 | ) | (842,610 | ) | (6,351,778 | ) | ||||||||
Operating activities, restated |
(3,248,538 | ) | (14,422,092 | ) | (12,997,982 | ) | (72,902,814 | ) | ||||||||
Investing activities, previously reported |
3,602,844 | 4,678,785 | 11,894,126 | (22,987,619 | ) | |||||||||||
Adjustment, adoption of Section 3064 |
257,304 | 852,498 | 842,610 | 6,351,778 | ||||||||||||
Investing activities, restated |
3,860,148 | 5,531,283 | 12,114,394 | (16,635,871 | ) | |||||||||||
SECOND QUARTER RESULTS OF OPERATIONS
(for the three months ended June 30, 2008 and 2007)
(for the three months ended June 30, 2008 and 2007)
Net loss for the three month period ending June 30, 2008 was $5,254,530 compared to $3,837,244 for
the three month period ending June 30, 2007.
Research and Development Expenses (“R&D”)
| 2008 | 2007 | |||||||
| $ | $ | |||||||
| [Restated] | ||||||||
Manufacturing and related process development expenses |
1,284,955 | 828,602 | ||||||
Clinical trial expenses |
1,633,445 | 983,896 | ||||||
Pre-clinical trial and research collaboration expenses |
82,624 | 331,379 | ||||||
Intellectual property expenditures (1) |
401,468 | 325,331 | ||||||
Other R&D expenses |
644,412 | 562,498 | ||||||
Research and development expenses |
4,046,904 | 3,031,706 | ||||||
Note
| 1 | Upon adoption of CICA Handbook Section 3064, intellectual property expenditures are now recorded as an expense for the period. |
For the second quarter of 2008, R&D increased to $4,046,904 compared to $3,031,706 for the second
quarter of 2007. The increase in R&D was due to the following:
Manufacturing & Related Process Development (“M&P”)
| 2008 | 2007 | |||||||
| $ | $ | |||||||
Product manufacturing expenses |
1,089,357 | 774,883 | ||||||
Technology transfer expenses |
— | — | ||||||
Process development expenses |
195,598 | 53,719 | ||||||
Manufacturing and related process development expenses |
1,284,955 | 828,602 | ||||||
Our M&P expenses for the second quarter of 2008 increased to $1,284,955 compared to $828,602 for
the second quarter of 2007.
In the second quarter of 2008, we completed the 40-litre production run that started earlier in the
year and began the vial and packaging process. As well, we commenced an additional 40-litre
production run. In the second quarter of 2007, we completed the 20-litre production runs that had
been scheduled earlier in 2007.
Our process development activity in the second quarter of 2008, continues to focus on scale up to
100-litre production runs and also includes lyophilization (freeze drying) studies. In the second
quarter of 2007, our process development activity focused on completing our 40-litre scale up
studies.
Clinical Trial Program
| 2008 | 2007 | |||||||
| $ | $ | |||||||
Direct clinical trial expenses |
1,603,171 | 913,360 | ||||||
Other clinical trial expenses |
30,274 | 70,536 | ||||||
Clinical trial expenses |
1,633,445 | 983,896 | ||||||
During the second quarter of 2008, our direct clinical trial expenses increased to $1,603,171
compared to $913,360 for the second quarter of 2007. In the second quarter of 2008, we incurred
direct patient costs in our eight enrolling clinical trials compared to only six actively enrolling
clinical trials in the second quarter of 2007.
Pre-Clinical Trial Expenses and Research Collaborations
| 2008 | 2007 | |||||||
| $ | $ | |||||||
Research collaboration expenses |
82,624 | 331,379 | ||||||
Pre-clinical trial expenses |
— | — | ||||||
Pre-clinical trial expenses and research collaborations |
82,624 | 331,379 | ||||||
During the second quarter of 2008, our research collaboration expenses were $82,624 compared to
$331,379 for the second quarter of 2007. Our research collaboration activity continues to focus on
the interaction of the immune system and the reovirus and the use of the reovirus as a co-therapy
with existing chemotherapeutics and radiation. In the second quarter of 2008, we continued to
review our collaborations, only renewing certain contracts. In the second quarter of 2007, we
incurred costs associated with a number of previously contracted collaborations.
Intellectual Property Expenditures
| 2008 | 2007 | |||||||
| $ | $ | |||||||
| [Restated] | ||||||||
Intellectual property expenditures |
401,468 | 325,331 | ||||||
In the second quarter of 2008, our intellectual property expenditures were $401,468 compared to
$325,331 for the second quarter of 2007. The change in intellectual property expenditures reflects
the timing of filing costs associated with our expanded patent base. At the end of the second
quarter of 2008, we had been issued over 180 patents including 27 U.S. and nine Canadian patents as
well as issuances in other jurisdictions. We also have over 180 patent applications filed in the
U.S., Canada and other jurisdictions.
Other Research and Development Expenses
| 2008 | 2007 | |||||||
| $ | $ | |||||||
R&D consulting fees |
66,337 | 50,114 | ||||||
R&D salaries and benefits |
449,330 | 395,166 | ||||||
Other R&D expenses |
128,745 | 117,218 | ||||||
Other research and development expenses |
644,412 | 562,498 | ||||||
Our R&D salaries and benefits costs in the second quarter of 2008 were $449,330 compared to
$395,166 in the second quarter of 2007. The increase is a result of increases in staff levels
during the second quarter of 2008 compared to the second quarter of 2007.
Operating Expenses
| 2008 | 2007 | |||||||
| $ | $ | |||||||
Public company related expenses |
1,066,933 | 719,501 | ||||||
Office expenses |
252,565 | 272,806 | ||||||
Operating expenses |
1,319,498 | 992,307 | ||||||
During the second quarter of 2008, our public company related expenses increased to $1,066,933
compared to $719,501 for the second quarter of 2007. In the second quarter of 2008, we continued
to incur additional professional fees associated with the expansion of our corporate structure and
an increase in our investor relations activity.
YEAR TO DATE RESULTS OF OPERATIONS
(for the six months ended June 30, 2008 and 2007)
(for the six months ended June 30, 2008 and 2007)
Net loss for the six month period ending June 30, 2008 was $8,648,903 compared to $8,047,335 for
the six month period ending June 30, 2007.
Research and Development Expenses (“R&D”)
| 2008 | 2007 | |||||||
| $ | $ | |||||||
| [Restated] | ||||||||
Manufacturing and related process development expenses |
1,788,048 | 2,666,795 | ||||||
Clinical trial expenses |
2,676,237 | 1,705,513 | ||||||
Pre-clinical trial and research collaboration expenses |
82,940 | 437,660 | ||||||
Intellectual property expenditures(1) |
669,054 | 562,809 | ||||||
Other R&D expenses |
1,224,022 | 1,114,643 | ||||||
Research and development expenses |
6,440,301 | 6,487,420 | ||||||
Note:
| 1. | Upon adoption of CICA Handbook Section 3064, intellectual property expenditures are now recorded as an expense for the period. |
For the six month period ending June 30, 2008, our R&D expenses were $6,440,301 compared to
$6,487,420 for the six month period ending June 30, 2007. The change in R&D was due to the
following:
Manufacturing & Related Process Development (“M&P”)
| 2008 | 2007 | |||||||
| $ | $ | |||||||
Product manufacturing expenses |
1,705,017 | 2,523,301 | ||||||
Process development expenses |
83,031 | 143,494 | ||||||
Manufacturing and related process development expenses |
1,788,048 | 2,666,795 | ||||||
Our M&P expenses for the six month period ending June 30, 2008 decreased to $1,788,048 compared to
$2,666,795 for the six month period ending June 30, 2007.
During the six month period ending June 30, 2008, we completed a 40-litre cGMP production run of
REOLYSIN® that will be used to supply our clinical trial program. As well, towards the
end of the first half of 2008, we began the fill and packaging process of this 40-litre run and
commenced an additional 40-litre production run. During the first half of 2007, we completed and
initiated production runs at the 20-litre scale.
Our process development expenses for the six month period ending June 30, 2008 were $83,031
compared to $143,494 for the six month period ending June 30, 2007. During the first half of 2008,
we continued examining further scale up to the 100-litre level and lyophilization. During the
first half of 2007, our process development focus was on our earlier 40-litre scale up studies.
We now expect that our M&P expenses for 2008 will decrease compared to 2007. We are realizing the
benefit of our increased scale and better production yields resulting from our prior process
development activities allowing us to reduce the number of production runs for 2008. We initiated
our final 40-litre production run for 2008 which we expect will be completed in the third quarter.
We plan to fill and package enough REOLYSIN® to meet our immediate clinical trial
requirements during the third quarter. We still expect to finalize our 100-litre scale up studies
and continue the examination of a lyophilization process for REOLYSIN® in 2008.
Clinical Trial Program
| 2008 | 2007 | |||||||
| $ | $ | |||||||
Direct clinical trial expenses |
2,597,818 | 1,596,467 | ||||||
Other clinical trial expenses |
78,419 | 109,046 | ||||||
Clinical trial expenses |
2,676,237 | 1,705,513 | ||||||
During the six month period ending June 30, 2008, our direct clinical trial expenses increased to
$2,597,818 compared to $1,596,467 for the six month period ending June 30, 2007. In the first half
of 2008, we incurred direct patient costs in our eight enrolling clinical trials of which six were
enrolling throughout the six month period. During the first half of 2007, we were actively
enrolling in six clinical trials of which only three had been enrolling throughout the six month
period.
We still expect our clinical trial expenses to increase in 2008 compared to 2007. The increase in
these expenses is expected to arise from continued enrollment and continued re-treatments in our
existing clinical trials.
Pre-Clinical Trial Expenses and Research Collaborations
| 2008 | 2007 | |||||||
| $ | $ | |||||||
Research collaboration expenses |
82,940 | 400,530 | ||||||
Pre-clinical trial expenses |
— | 37,130 | ||||||
Pre-clinical trial expenses and research collaborations |
82,940 | 437,660 | ||||||
During the six month period ending June 30, 2008, our research collaboration expenses were $82,940
compared to $400,530 for the six month period ending June 30, 2007. Our research collaboration
activity continues to focus on the interaction of the immune system and the reovirus and the use of
the reovirus as a co-therapy with existing chemotherapeutics and radiation. During the first half
of 2008, we have been reviewing our collaborations and renewing only certain contracts which has
resulted in fewer ongoing collaborations compared to the first half of 2007.
We now expect that our pre-clinical trial expenses and research collaborations in 2008 will be less
than 2007.
Intellectual Property Expenditures
| 2008 | 2007 | |||||||
| $ | $ | |||||||
| [Restated] | ||||||||
Intellectual property expenditures |
669,054 | 562,809 | ||||||
During the first half of 2008, our intellectual property expenditures were $669,054 compared to
$562,809 for the first half of 2007. The change in intellectual property expenditures reflects the
timing of filing costs associated with our expanded patent base. As well, we have benefited from
fluctuations in the Canadian dollar as our patent costs are typically incurred in U.S. currency.
At the end of the second quarter of 2008, we had been issued over 180 patents including 27 U.S. and
nine Canadian patents as well as issuances in other jurisdictions. We also have over 180 patent
applications filed in the U.S., Canada and other jurisdictions.
Other Research and Development Expenses
| 2008 | 2007 | |||||||
| $ | $ | |||||||
R&D consulting fees |
93,746 | 141,891 | ||||||
R&D salaries and benefits |
927,448 | 767,553 | ||||||
Quebec scientific research and experimental development refund |
— | (15,927 | ) | |||||
Other R&D expenses |
202,828 | 221,126 | ||||||
Other research and development expenses |
1,224,022 | 1,114,643 | ||||||
During the six month period ending June 30, 2008, our R&D consulting fees were $93,746 compared to
$141,891 for the six month period ending June 30, 2007. During the first half of 2007, we incurred
consulting activity associated with our co-therapy clinical trial applications that was not
incurred in the first half of 2008.
During the six month period ending June 30, 2008, our R&D salaries and benefits costs were $927,448
compared to $767,553 for the six month period ending June 30, 2007. The increase is a result of
increases in staff and salary levels for 2008 compared to 2007.
We now expect that our Other R&D expenses will increase compared to 2007 due to increases in our
staff levels.
Operating Expenses
| 2008 | 2007 | |||||||
| $ | $ | |||||||
Public company related expenses |
1,793,543 | 1,301,377 | ||||||
Office expenses |
576,849 | 597,646 | ||||||
Operating expenses |
2,370,392 | 1,899,023 | ||||||
During the six month period ending June 30, 2008, our public company related expenses were
$1,793,543 compared to $1,301,377 for the six month period ending June 30, 2007. During the first
half of 2008, we incurred an increase in professional fees associated with the expansion of our
corporate structure and an increase in our investor relations activity.
During the six month period ending June 30, 2008, our office expenses were $576,849 compared to
$597,646 for the six month period ending June 30, 2007. Our office expense activity has remained
consistent in the first half of 2008 compared to the first half of 2007.
Stock Based Compensation
| 2008 | 2007 | |||||||
| $ | $ | |||||||
Stock based compensation |
37,616 | 103,969 | ||||||
Stock based compensation for the six month period ending June 30, 2008 was $37,616 compared to
$103,969 for the six month period ending June 30, 2007. In the first half of 2008 and 2007, we
incurred stock based compensation associated with the vesting of options previously granted.
Commitments
As at June 30, 2008, we are committed to payments totaling $1,992,000 for activities related to
manufacturing, clinical trial activity and collaborations. All of these committed payments are
considered to be part of our normal course of business.
SUMMARY OF QUARTERLY RESULTS
The following unaudited quarterly information is presented in thousands of dollars except for per
share amounts:
| 2008 | 2007 | 2006 | ||||||||||||||||||||||||||||||||||
| June(1) | March(1) | Dec.(1) | Sept.(1) | June(1) | March(1) | Dec.(1) | Sept.(1) | |||||||||||||||||||||||||||||
Revenue |
— | — | — | — | — | — | — | |||||||||||||||||||||||||||||
Interest income |
174 | 180 | 265 | 319 | 359 | 268 | 286 | 320 | ||||||||||||||||||||||||||||
Net loss(3) |
5,255 | 3,394 | 4,116 | 3,786 | 3,837 | 4,210 | 4,907 | 3,460 | ||||||||||||||||||||||||||||
Basic and diluted loss per common
share(3) |
$ | 0.13 | $ | 0.10 | $ | 0.10 | $ | 0.09 | $ | 0.09 | $ | 0.11 | $ | 0.13 | $ | 0.09 | ||||||||||||||||||||
Total assets(4) |
19,011 | 22,854 | 26,298 | 29,444 | 33,269 | 37,502 | 29,390 | 33,911 | ||||||||||||||||||||||||||||
Total cash(2),(4) |
17,930 | 21,963 | 25,214 | 28,191 | 31,533 | 35,681 | 27,614 | 31,495 | ||||||||||||||||||||||||||||
Total long-term debt(5) |
— | — | — | — | — | — | 150 | 150 | ||||||||||||||||||||||||||||
Cash dividends
declared(6) |
Nil | Nil | Nil | Nil | Nil | Nil | Nil | Nil | ||||||||||||||||||||||||||||
| (1) | Subsequent to the adoption of CICA Section 3064 “Goodwill and Intangible Assets”. See note 2 to the unaudited interim consolidated financial statements for June 30, 2008. | ||
| (2) | Included in total cash are cash and cash equivalents plus short-term investments. | ||
| (3) | Included in net loss and loss per common share between June 2008 and July 2006 are quarterly stock based compensation expenses of $18,023, $19,593, $396,278, $38,909, $82,573, $21,396, $109,670, and $34,671, respectively. | ||
| (4) | We issued 4,600,000 units for net cash proceeds of $12,063,394 during 2007 with each unit consisting of one common share and one half of one common share purchase warrant. (2006 — 284,000 common shares for cash proceeds of $241,400) | ||
| (5) | The long-term debt recorded represents repayable loans from the Alberta Heritage Foundation. On January 1, 2007, in conjunction with the adoption of the CICA Handbook section 3855 “Financial Instruments”, this loan was recorded at fair value (see note 3 of the December 31, 2007 audited financial statements). | ||
| (6) | We have not declared or paid any dividends since incorporation. |
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
As at June 30, 2008, we had cash and cash equivalents (including short-term investments) and
working capital positions of $17,930,270 and $14,267,085, respectively compared to $25,213,829 and
$22,732,987, respectively for December 31, 2007. The decrease in our cash and cash equivalent
position reflects the cash usage from our operating activities which includes intellectual property
expenditures for the six month period ending June 30, 2008. The larger decrease in our working
capital position during the first half of 2008 reflects the increase in our accounts payable and
accrued liabilities at June 30, 2008. During the second quarter of 2008, our clinical trial and
manufacturing activities increased compared to the first quarter of 2008. As a result of the
growth in our operating activities, our accrued expenses increased as we have yet to receive the
related invoices from our suppliers. All of our trade accounts payable are current.
We desire to maintain adequate cash and short-term investment reserves to support our planned
activities which include our clinical trial program, product manufacturing, administrative costs,
and our intellectual property expansion and protection. In 2008, we expect to continue to enroll
patients in our various clinical trials and we also expect to continue with our collaborative
studies pursuing support for our clinical trial program. We will therefore need to ensure that we
have enough REOLYSIN® to supply our clinical trial and collaborative programs. We still
expect our average monthly cash usage to be $1,660,000 in 2008 and we believe our existing capital
resources are adequate to fund our current plans for research and development activities well into
2009. Factors that will affect our anticipated monthly burn rate include, but are not limited to,
the number of manufacturing runs required to supply our clinical trial program and the cost of each
run, the number of clinical trials ultimately approved, the timing of patient enrollment in the
approved clinical trials, the actual costs incurred to support each clinical trial, the number of
treatments each patient will receive, the timing of the NCI’s R&D activity, and the level of
pre-clinical activity undertaken.
In the event that we choose to seek additional capital, we will look to fund additional capital
requirements primarily through the issue of additional equity. We recognize the challenges and
uncertainty inherent in the capital markets and the potential difficulties we might face in raising
additional capital. Market prices and market demand for securities in biotechnology companies are
volatile and there are no assurances that we will have the ability to raise funds when required.
To manage the risk of availability of raising additional capital, we filed a base shelf prospectus
on June 16, 2008 which qualifies for distribution up to $150,000,000 of common shares, subscription
receipts, warrants, debt securities and/or units. Establishing a base shelf provides us with
additional flexibility when seeking additional capital as, under certain circumstances, it shortens
the time period to close a financing and is expected to increase the number of potential investors
that may be prepared to invest in our company. As of June 30, 2008, we have not registered or
distributed any securities under this shelf.
Investing Activities
Under our Investment Policy, we are permitted to invest in short-term instruments with a rating no
less than R-1 (DBRS) with terms less than two years. We have $9,750,929 invested under this policy
and we are currently earning interest at an effective rate of 3.77% (2007 — 4.08%).
INITIAL ADOPTION OF ACCOUNTING POLICIES
Capital Disclosures
On January 1, 2008, we adopted the new recommendations of the Canadian Institute of Chartered
Accountants (“CICA”) for disclosure of our objectives, policies and processes for managing capital
(CICA Handbook Section 1535), as discussed further in Note 6 of our interim consolidated financial
statements.
Financial Instruments — Disclosures
On January 1, 2008, we adopted the new recommendations of the CICA for disclosures about financial
instruments, including disclosures about fair value and the credit, liquidity and market risks
associated with financial instruments (CICA Handbook Section 3862), as discussed further in Notes 7
and 8 of our interim consolidated financial statements.
Financial Instruments — Presentation
On January 1, 2008, we adopted the new recommendations of the CICA for presentation of financial
instruments (CICA Handbook Section 3863). Adoption of this standard had no impact on the Company’s
financial instrument related presentation disclosures.
Goodwill and Intangible Assets
On April 1, 2008, we early adopted the new recommendations of the CICA for the accounting for
goodwill and intangible assets (CICA Handbook Section 3064). The impact of adopting Section 3064
is further discussed under “Initial Adoption of New Accounting Standard” and in Note 2 of our June
30, 2008 interim consolidated financial statements.
OTHER MD&A REQUIREMENTS
We have 41,180,748 common shares outstanding at July 29, 2008. If all of our warrants (4,220,000)
and options (3,870,493) were exercised we would have 49,271,241 common shares outstanding.
Additional
information relating to Oncolytics Biotech Inc. is available on SEDAR
at www.sedar.com.
Controls and Procedures
There were no changes in our internal controls over financial reporting during the quarter ended
June 30, 2008 that materially affected or are reasonably likely to materially affect, internal
controls over financial reporting.
Oncolytics Biotech Inc.
CONSOLIDATED BALANCE SHEETS
(unaudited)
(unaudited)
As at,
| December 31, 2007 | ||||||||
| June 30, | $ | |||||||
| 2008 | [Restated see | |||||||
| $ | note 2] | |||||||
ASSETS |
||||||||
Current |
||||||||
Cash and cash equivalents |
8,179,341 | 6,715,096 | ||||||
Short-term investments [note 7] |
9,750,929 | 18,498,733 | ||||||
Accounts receivable |
47,283 | 80,085 | ||||||
Prepaid expenses |
435,727 | 260,300 | ||||||
| 18,413,280 | 25,554,214 | |||||||
Property and equipment |
236,468 | 201,103 | ||||||
Intellectual property [note 2] |
361,500 | 542,250 | ||||||
| 19,011,248 | 26,297,567 | |||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||
Current |
||||||||
Accounts payable and accrued liabilities |
4,146,195 | 2,821,227 | ||||||
Shareholders’ equity |
||||||||
Share capital |
||||||||
Authorized: unlimited number of common shares
|
92,759,665 | 92,759,665 | ||||||
Issued: 41,180,748 (December 31, 2007 — 41,180,748) |
92,759,665 | 92,759,665 | ||||||
Warrants |
5,346,260 | 5,346,260 | ||||||
Contributed surplus [note 3] |
10,414,578 | 10,376,962 | ||||||
Deficit [notes 2 and 4] |
(93,655,450 | ) | (85,006,547 | ) | ||||
| 14,865,053 | 23,476,340 | |||||||
| 19,011,248 | 26,297,567 | |||||||
| See accompanying notes |
Oncolytics Biotech Inc.
CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
(unaudited)
(unaudited)
| Cumulative | ||||||||||||||||||||
| Three Month | Six Month | from inception | ||||||||||||||||||
| Period | Period | on April 2, | ||||||||||||||||||
| Three Month | Ending | Six Month | Ending | 1998 to | ||||||||||||||||
| Period | June 30, 2007 | Period | June 30, 2007 | June 30, 2008 | ||||||||||||||||
| Ending | $ | Ending | $ | $ | ||||||||||||||||
| June 30, 2008 | [Restated see | June 30, 2008 | [Restated | [Restated see | ||||||||||||||||
| $ | note 2] | $ | see note 2] | note 2] | ||||||||||||||||
Revenue |
||||||||||||||||||||
Rights revenue |
— | — | — | — | 310,000 | |||||||||||||||
| — | — | — | — | 310,000 | ||||||||||||||||
Expenses |
||||||||||||||||||||
Research and development |
4,046,904 | 3,031,706 | 6,440,301 | 6,487,420 | 67,540,017 | |||||||||||||||
Operating |
1,319,498 | 992,307 | 2,370,392 | 1,899,023 | 22,976,028 | |||||||||||||||
Stock based compensation |
18,023 | 82,573 | 37,616 | 103,969 | 4,742,421 | |||||||||||||||
Foreign exchange loss/gain |
(58,347 | ) | (10,855 | ) | (49,085 | ) | (16,088 | ) | 608,625 | |||||||||||
Amortization — intellectual property |
90,375 | 90,375 | 180,750 | 180,750 | 3,253,500 | |||||||||||||||
Amortization — property and equipment |
12,194 | 10,009 | 23,380 | 19,864 | 471,777 | |||||||||||||||
| 5,428,647 | 4,196,115 | 9,003,354 | 8,674,938 | 99,592,368 | ||||||||||||||||
Loss before the following: |
5,428,647 | 4,196,115 | 9,003,354 | 8,674,938 | 99,282,368 | |||||||||||||||
Interest income |
(174,117 | ) | (358,871 | ) | (354,451 | ) | (627,603 | ) | (6,369,200 | ) | ||||||||||
Gain on sale of BCY LifeSciences Inc. |
— | — | — | — | (299,403 | ) | ||||||||||||||
Loss on sale of Transition Therapeutics Inc. |
— | — | — | — | 2,156,685 | |||||||||||||||
Loss before income taxes |
5,254,530 | 3,837,244 | 8,648,903 | 8,047,335 | 94,770,450 | |||||||||||||||
Future income tax recovery |
— | — | — | — | (1,115,000 | ) | ||||||||||||||
Net loss and comprehensive loss
for the period [note 2] |
5,254,530 | 3,837,244 | 8,648,903 | 8,047,335 | 93,655,450 | |||||||||||||||
Basic and diluted loss per share |
0.13 | 0.09 | 0.21 | 0.20 | ||||||||||||||||
Weighted average number of shares (basic
and diluted) |
41,180,748 | 41,120,748 | 41,180,748 | 39,701,859 | ||||||||||||||||
| See accompanying notes |
Oncolytics Biotech Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(unaudited)
| Cumulative | ||||||||||||||||||||
| Three Month | Six Month | from inception | ||||||||||||||||||
| Period | Period | on April 2, | ||||||||||||||||||
| Three Month | Ending | Six Month | Ending | 1998 to | ||||||||||||||||
| Period | June 30, 2007 | Period | June 30, 2007 | June 30, 2008 | ||||||||||||||||
| Ending | $ | Ending | $ | $ | ||||||||||||||||
| June 30, 2008 | [Restated see | June 30, 2008 | [Restated | [Restated see | ||||||||||||||||
| $ | note 2] | $ | see note 2] | note 2] | ||||||||||||||||
OPERATING ACTIVITIES |
||||||||||||||||||||
Net loss for the period |
(5,254,530 | ) | (3,837,244 | ) | (8,648,903 | ) | (8,047,335 | ) | (93,655,450 | ) | ||||||||||
Deduct non-cash items |
||||||||||||||||||||
Amortization — intellectual property |
90,375 | 90,375 | 180,750 | 180,750 | 3,253,500 | |||||||||||||||
Amortization — property and equipment |
12,194 | 10,009 | 23,380 | 19,864 | 471,777 | |||||||||||||||
Stock based compensation |
18,023 | 82,573 | 37,616 | 103,969 | 4,742,421 | |||||||||||||||
Other non-cash items [note 5] |
— | — | — | — | 1,383,537 | |||||||||||||||
Net changes in non-cash working capital
[note 5] |
1,157,662 | (485,372 | ) | 1,182,343 | (362,794 | ) | 3,663,185 | |||||||||||||
| (3,976,276 | ) | (4,139,659 | ) | (7,224,814 | ) | (8,105,546 | ) | (80,141,030 | ) | |||||||||||
INVESTING ACTIVITIES |
||||||||||||||||||||
Capital assets |
(56,080 | ) | (3,558 | ) | (58,745 | ) | (38,305 | ) | (760,912 | ) | ||||||||||
Purchase of short-term investments |
(115,009 | ) | (253,395 | ) | (252,196 | ) | (487,165 | ) | (49,321,159 | ) | ||||||||||
Redemption of short-term investments |
5,000,000 | — | 9,000,000 | — | 39,151,746 | |||||||||||||||
Investment in BCY LifeSciences Inc. |
— | — | — | — | 464,602 | |||||||||||||||
Investment in Transition Therapeutics Inc. |
— | — | — | — | 2,532,343 | |||||||||||||||
| 4,828,911 | (256,953 | ) | 8,689,059 | (525,470 | ) | (7,933,380 | ) | |||||||||||||
FINANCING ACTIVITIES |
||||||||||||||||||||
Proceeds from exercise of warrants and
stock options |
— | — | — | — | 15,259,468 | |||||||||||||||
Proceeds from private placements |
— | — | — | — | 38,137,385 | |||||||||||||||
Proceeds from public offerings |
— | (4,778 | ) | — | 12,063,394 | 42,856,898 | ||||||||||||||
| — | (4,778 | ) | — | 12,063,394 | 96,253,751 | |||||||||||||||
Increase (decrease) in cash and cash
equivalents during the period |
852,635 | (4,401,390 | ) | 1,464,245 | 3,432,378 | 8,179,341 | ||||||||||||||
Cash and cash equivalents, beginning of the
period |
7,326,706 | 11,325,279 | 6,715,096 | 3,491,511 | — | |||||||||||||||
Cash and cash equivalents, end of the period |
8,179,341 | 6,923,889 | 8,179,341 | 6,923,889 | 8,179,341 | |||||||||||||||
| See accompanying notes |
Oncolytics Biotech Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(unaudited)
June 30, 2008
1. INCORPORATION AND NATURE OF OPERATIONS
Oncolytics Biotech Inc. (the “Company” or “Oncolytics”) was incorporated on April 2, 1998 under the
Business Corporations Act (Alberta) as 779738 Alberta Ltd. On April 8, 1998, we changed our name
to Oncolytics Biotech Inc.
We are a development stage biopharmaceutical company that focuses on the discovery and development
of pharmaceutical products for the treatment of cancers that have not been successfully treated
with conventional therapeutics. Our product under development may represent a novel treatment for
Ras mediated cancers which can be used as an alternative to existing cytotoxic or cytostatic
therapies, as an adjuvant therapy to conventional chemotherapy, radiation therapy, or surgical
resections, or to treat certain cellular proliferative disorders for which no current therapy
exists.
2. ACCOUNTING POLICIES
These unaudited interim consolidated financial statements have been prepared in accordance with
Canadian generally accepted accounting principles. The notes presented in these unaudited interim
consolidated financial statements include only significant events and transactions occurring since
our last fiscal year end and are not fully inclusive of all matters required to be disclosed in our
annual audited financial statements. Accordingly, these unaudited interim consolidated financial
statements should be read in conjunction with our most recent annual audited financial statements.
The information as at and for the year ended December 31, 2007 has been derived from our annual
audited financial statements.
The accounting policies used in the preparation of these unaudited interim consolidated financial
statements conform to those used in our most recent annual financial statements except for the
following:
Principles of Consolidation
The consolidated financial statements include our accounts and the accounts of our subsidiary,
Oncolytics Biotech (Barbados) Inc. All intercompany transactions and balances have been
eliminated.
Adoption of New Accounting Policies
Intangible Assets
Prior to the adoption of Section 3064, we accounted for our intellectual property expenditures
under CICA Handbook section 3450 “Research and Development Costs”. Section 3450 permitted the
capitalization and amortization of intangible assets in order to match the benefit of the
intangible asset to the life of the research project.
On April 1, 2008, we early adopted the Canadian Institute of Chartered Accountants (“CICA”)
Handbook section 3064 “Goodwill and Intangible Assets”. Pursuant to the transitional provisions
set out in Section 3064, we retroactively adopted this standard with restatement.
Oncolytics Biotech Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(unaudited)
June 30, 2008
Section 3064 does not permit the capitalization of certain previously capitalized intellectual
property costs. Consequently, these intellectual property expenditures, previously capitalized as
intellectual property, are required to be expensed and any previously recorded related amortization
charges are to be reversed. The intellectual property costs which remain capitalized and subject
to amortization relate to the initial acquisition of our business by SYNSORB Biotech Inc.
There has been no change to the treatment of our research and development costs.
The impact of the early adoption of Section 3064 on our previously reported consolidated balance
sheets is as follows:
| March 31, | December 31, | December 31, | ||||||||||
| 2008 | 2007 | 2006 | ||||||||||
| Consolidated Balance Sheet | $ | $ | $ | |||||||||
Intellectual Property |
||||||||||||
Intellectual property, previously reported |
5,006,297 | 5,026,540 | 5,079,805 | |||||||||
Adjustment, adoption of Section 3064 |
(4,554,422 | ) | (4,484,290 | ) | (4,176,055 | ) | ||||||
Intellectual property, restated |
451,875 | 542,250 | 903,750 | |||||||||
Deficit |
||||||||||||
Deficit, previously reported |
(83,846,498 | ) | (80,522,257 | ) | (65,030,066 | ) | ||||||
Adjustment, adoption of Section 3064 |
(4,554,422 | ) | (4,484,290 | ) | (4,176,055 | ) | ||||||
Deficit, restated |
(88,400,920 | ) | (85,006,547 | ) | (69,206,121 | ) | ||||||
The impact of the early adoption of Section 3064 on our previously reported consolidated statements
of loss, comprehensive loss and cash flows is as follows:
| Cumulative | ||||||||||||||||
| Three Month | from | |||||||||||||||
| Period | inception on | |||||||||||||||
| Ending | Year Ended | Year Ended | April 2, 1998 to | |||||||||||||
| March 31, | December 31, | December 31, | December 31, | |||||||||||||
| 2008 | 2007 | 2006 | 2007 | |||||||||||||
| Consolidated Statements of Loss and Comprehensive Loss | $ | $ | $ | $ | ||||||||||||
Net loss and comprehensive loss, previously reported |
3,324,241 | 15,642,191 | 14,297,524 | 80,522,257 | ||||||||||||
Adjustment, adoption of Section 3064 |
70,132 | 308,235 | 330,767 | 4,484,290 | ||||||||||||
Net loss and comprehensive loss, restated |
3,394,373 | 15,950,426 | 14,628,291 | 85,006,547 | ||||||||||||
Basic and diluted loss per share, previously reported |
(0.08 | ) | (0.39 | ) | (0.39 | ) | — | |||||||||
Basic and diluted loss per share, restated |
(0.08 | ) | (0.39 | ) | (0.40 | ) | — | |||||||||
Oncolytics Biotech Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(unaudited)
June 30, 2008
| Cumulative | ||||||||||||||||
| Three Month | from | |||||||||||||||
| Period | inception on | |||||||||||||||
| Ending | Year Ended | Year Ended | April 2, 1998 to | |||||||||||||
| March 31, | December 31, | December 31, | December 31, | |||||||||||||
| 2008 | 2007 | 2006 | 2007 | |||||||||||||
| Consolidated Statements of Cash Flows | $ | $ | $ | $ | ||||||||||||
Operating activities, previously reported |
(2,991,234 | ) | (13,569,594 | ) | (12,155,372 | ) | (66,551,036 | ) | ||||||||
Adjustment, adoption of Section 3064 |
(257,304 | ) | (852,498 | ) | (842,610 | ) | (6,365,180 | ) | ||||||||
Operating activities, restated |
(3,248,538 | ) | (14,422,092 | ) | (12,997,982 | ) | (72,902,814 | ) | ||||||||
Investing activities, previously reported |
3,602,844 | 4,678,785 | 11,894,126 | (22,987,619 | ) | |||||||||||
Adjustment, adoption of Section 3064 |
257,304 | 852,498 | 842,610 | 6,365,180 | ||||||||||||
Investing activities, restated |
3,860,148 | 5,531,283 | 12,736,736 | (16,622,439 | ) | |||||||||||
Capital Disclosures
On January 1, 2008, we adopted the new recommendations of the CICA for disclosure of our
objectives, policies and processes for managing capital (CICA Handbook Section 1535), as discussed
further in Note 6.
Financial Instruments — Disclosures
On January 1, 2008, we adopted the new recommendations of the CICA for disclosures about financial
instruments, including disclosures about fair value and the credit, liquidity and market risks
associated with financial instruments (CICA Handbook Section 3862), as discussed further in Notes 7
and 8.
Oncolytics Biotech Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(unaudited)
June 30, 2008
Financial Instruments — Presentation
On January 1, 2008, we adopted the new recommendations of the CICA for presentation of financial
instruments (CICA Handbook Section 3863). Adoption of this standard had no impact on our financial
instrument related presentation disclosures.
3. CONTRIBUTED SURPLUS
| Amount | ||||
| $ | ||||
Balance, December 31, 2006 |
8,529,326 | |||
Stock-based compensation |
539,156 | |||
Expired warrants |
1,308,480 | |||
Balance, December 31, 2007 |
10,376,962 | |||
Stock-based compensation |
37,616 | |||
Balance, June 30, 2008 |
10,414,578 | |||
4. DEFICIT
| Amount | ||||
| $ | ||||
Restated balance, December 31, 2006 [note 2]
|
69,206,121 | |||
Adjustment — Alberta Heritage Foundation loan1
|
(150,000 | ) | ||
Restated net loss and comprehensive loss for the year [note 2]
|
15,950,426 | |||
Restated balance, December 31, 2007 [note 2]
|
85,006,547 | |||
Net loss and comprehensive loss, June 30, 2008
|
8,648,903 | |||
Balance, June 30, 2008
|
93,655,450 | |||
| 1. | On January 1, 2007, the Company adopted, without restatement, CICA Handbook Section 3855 “Financial Instruments — Recognition and Measurement” and Section 1530 “Other Comprehensive Income”. Pursuant to the transitional provisions of Section 3855, the Company classified its short-term investments as held-to-maturity fixed income securities and recorded its Alberta Heritage Foundation interest free loan at fair value. As a result, there were no adjustments made to short-term investments or other comprehensive income and there was a decrease in the Alberta Heritage Foundation loan of $150,000 with a corresponding decrease of $150,000 in the Company’s deficit. |
Oncolytics Biotech Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(unaudited)
June 30, 2008
5. ADDITIONAL CASH FLOW DISCLOSURE
Net Change in Non-Cash Working Capital
| Three | Three | Cumulative | ||||||||||||||||||
| Month | Month | Six Month | Six Month | from | ||||||||||||||||
| Period | Period | Period | Period | inception on | ||||||||||||||||
| Ended | Ended | Ended | Ended | April 2, 1998 to | ||||||||||||||||
| June 30, | June 30, | June 30, | June 30, | June 30, | ||||||||||||||||
| 2008 | 2007 | 2008 | 2007 | 2008 | ||||||||||||||||
| $ | $ | $ | $ | $ | ||||||||||||||||
Changes in: |
||||||||||||||||||||
Accounts receivable |
37,816 | 4,231 | 32,802 | 37,286 | (47,283 | ) | ||||||||||||||
Prepaid expenses |
(274,249 | ) | (16,233 | ) | (175,427 | ) | (159,650 | ) | (435,727 | ) | ||||||||||
Accounts payable and accrued liabilities |
1,394,095 | (473,370 | ) | 1,324,968 | (240,430 | ) | 4,146,195 | |||||||||||||
Net change in non-cash working capital |
1,157,662 | (485,372 | ) | 1,182,343 | (362,794 | ) | 3,663,185 | |||||||||||||
Other Non-Cash Items
| Three | Three | Cumulative | ||||||||||||||||||
| Month | Month | Six Month | Six Month | from | ||||||||||||||||
| Period | Period | Period | Period | inception on | ||||||||||||||||
| Ended | Ended | Ended | Ended | April 2, 1998 to | ||||||||||||||||
| June 30, | June 30, | June 30, | June 30, | June 30, | ||||||||||||||||
| 2008 | 2007 | 2008 | 2007 | 2008 | ||||||||||||||||
| $ | $ | $ | $ | $ | ||||||||||||||||
Foreign exchange loss |
— | — | — | — | 425,186 | |||||||||||||||
Donation of medical equipment |
— | — | — | — | 66,069 | |||||||||||||||
Loss on sale of Transition Therapeutics Inc. |
— | — | — | — | 2,156,685 | |||||||||||||||
Gain on sale of BCY LifeSciences Inc. |
— | — | — | — | (299,403 | ) | ||||||||||||||
Cancellation of contingent payment
obligation settled in common shares |
— | — | — | — | 150,000 | |||||||||||||||
Future income tax recovery |
— | — | — | — | (1,115,000 | ) | ||||||||||||||
| — | — | — | — | 1,383,537 | ||||||||||||||||
Oncolytics Biotech Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(unaudited)
June 30, 2008
6. CAPITAL DISCLOSURES
Our objective when managing capital is to maintain adequate cash resources to support planned
activities which include the clinical trial program, product manufacturing, administrative costs
and intellectual property expansion and protection. We include shareholders’ equity, cash and
short-term investments in the definition of capital. We do not have any debt other than trade
accounts payable and we have potential contingent obligations relating to the completion of our
research and development of REOLYSIN®.
In managing our capital, we estimate our future cash requirements by preparing a budget and a
multiyear plan annually for review and approval by our board of directors (the “Board”). The
budget establishes the approved activities for the upcoming year and estimates the costs associated
with these activities. The multiyear plan estimates future activity along with the potential cash
requirements and is based on our assessment of our current clinical trial progress along with the
expected results from the coming year’s activity. Budget to actual variances are prepared monthly
and reviewed by management and are presented quarterly to the Board.
Historically, funding for our plan is primarily managed through the issuance of additional common
shares and common share purchase warrants that upon exercise are converted to common shares.
Management regularly monitors the capital markets attempting to balance the timing of issuing
additional equity with our progress through our clinical trial program, general market conditions,
and the availability of capital. There are no assurances that funds will be made available to us
when required.
On June 16, 2008, we filed a short form base shelf prospectus (the “Base Shelf”) that qualifies for
distribution up to $150,000,000 of common shares, subscription receipts, warrants, debt securities
and/or units (the “Securities”). Under our Base Shelf, we may sell Securities to or through
underwriters, dealers, placement agents or other intermediaries and also may sell Securities
directly to purchasers or through agents, subject to obtaining any applicable exemption from
registration requirements. The distribution of Securities may be effected from time to time in one
or more transactions at a fixed price or prices, which may be changed, at market prices prevailing
at the time of sale, or at prices related to such prevailing market prices to be negotiated with
purchasers and as set forth in an accompanying Prospectus Supplement.
Establishing the Base Shelf provides us with additional flexibility when managing our cash
resources as, under certain circumstances, it shortens the time period required to close a
financing and is expected to increase the number of potential investors that may be prepared to
invest in our company. Funds received from a Prospectus Supplement will be used in line with our
Board approved budget and multiyear plan. This Base Shelf expires on July 16, 2010 and as of June
30, 2008 we have not registered or distributed any securities under this shelf.
We are not subject to externally imposed capital requirements.
Oncolytics Biotech Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(unaudited)
June 30, 2008
7. SHORT-TERM INVESTMENTS
Short-term investments, consisting of bankers’ acceptances, are liquid investments that are readily
convertible to known amounts of cash and are subject to an insignificant risk of changes in value.
The objectives for holding short-term investments are to invest our excess cash resources in
investment vehicles that provide a better rate of return compared to our interest bearing bank
account with limited risk to the principal invested. We intend to match the maturities of these
short-term investments with the cash requirements of our activities and treat these as
held-to-maturity short-term investments. We do not hold any asset backed commercial paper.
| Effective | ||||||||||||||||||||
| Original | Accrued | Carrying | Fair | Interest | ||||||||||||||||
| Cost | Interest | Value | Value | Rate | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||
June 30, 2008 |
||||||||||||||||||||
Short-term investments |
9,601,966 | 148,963 | 9,750,929 | 9,757,805 | 3.77 | % | ||||||||||||||
December 31, 2007 |
||||||||||||||||||||
Short-term investments |
18,230,340 | 268,393 | 18,498,733 | 18,499,173 | 4.26 | % | ||||||||||||||
Fair value is determined by using published market prices provided by the Company’s investment
advisor.
8. FINANCIAL INSTRUMENTS
Our financial instruments consist of cash and cash equivalents, short-term investments, accounts
receivable, and accounts payable. As at June 30, 2008, there are no significant differences
between the carrying values of these amounts and their estimated market values.
Credit risk
Credit risk is the risk of financial loss if a counterparty to a financial instrument fails to meet
its contractual obligations. We are exposed to credit risk on our cash and cash equivalents and
short-term investments in the event of non-performance by counterparties, but we do not anticipate
such non-performance. Our maximum exposure to credit risk at the end of the period is the carrying
value of our cash and cash equivalents and short-term investments.
We mitigate our exposure to credit risk by maintaining our primary operating and investment bank
accounts with Schedule I banks in Canada. For our foreign domiciled bank accounts, we use
referrals or recommendations from our Canadian banks to open foreign bank accounts and these
accounts are used solely for the purpose of settling accounts payable or payroll.
We also mitigate our exposure to credit risk by restricting our portfolio to investment grade
securities with short-term maturities and by monitoring the credit risk and credit standing of
counterparties.
Oncolytics Biotech Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(unaudited)
June 30, 2008
Interest rate risk
Interest rate risk is the risk that future cash flows of a financial instrument will fluctuate
because of changes in market interest rates. We are exposed to interest rate risk through our cash
and cash equivalents and our portfolio of short-term investments. We mitigate this risk through
our investment policy that only allows investment of excess cash resources in investment grade
vehicles while matching maturities with our operational requirements.
Fluctuations in market rates of interest do not have a significant impact on our results of
operations due to the short term to maturity of the investments held.
Currency risk
Currency risk is the risk that future cash flows of a financial instrument will fluctuate because
of changes in foreign exchange rates. We are exposed to currency risk from the purchase of goods
and services primarily in the U.S. and the U.K. We mitigate our foreign exchange risk through the
purchase of foreign currencies in sufficient amounts to settle our foreign accounts payable.
Balances in foreign currencies at June 30, 2008 are as follows:
| U.S. | British | |||||||
| dollars | pounds | |||||||
| $ | £ | |||||||
Cash and cash equivalents |
636,260 | 505,812 | ||||||
Accounts payable |
(600,369 | ) | (113,318 | ) | ||||
| 35,891 | 392,494 | |||||||
Liquidity risk
Liquidity risk is the risk that we will encounter difficulty in meeting obligations associated with
financial liabilities. We manage liquidity risk through the management of our capital structure as
outlined in note 6 to the unaudited financial statements.
Accounts payable are all due within the current operating period.
About Oncolytics Biotech Inc.
Oncolytics is a Calgary-based biotechnology company focused on the development of oncolytic viruses
as potential cancer therapeutics. Oncolytics’ clinical program includes a variety of Phase I/II
and Phase II human trials using REOLYSIN®, its proprietary formulation of the human
reovirus, alone and in combination with radiation or chemotherapy. For further information about
Oncolytics, please visit www.oncolyticsbiotech.com.
FOR FURTHER INFORMATION PLEASE CONTACT:
For Canada:
|
For Canada: | For United States: | ||
Oncolytics Biotech Inc.
|
The Equicom Group | The Investor Relations Group | ||
Cathy Ward
|
Nick Hurst | Erika Moran | ||
210, 1167 Kensington Cr NW
|
325, 300 5th Ave. SW | 11 Stone St, 3rd Floor | ||
Calgary, Alberta T2N 1X7
|
Calgary, Alberta T2P 3C4 | New York, NY 10004 | ||
Tel: 403.670.7377
|
Tel: 403.538.4845 | Tel: 212.825.3210 | ||
Fax: 403.283.0858
|
Fax: 403.237.6916 | Fax: 212.825.3229 | ||
cathy.ward@oncolytics.ca
|
nhurst@equicomgroup.com | emoran@investorrelationsgroup.com |
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