Oncolytics Biotech (US:ONCY)2021-03-05 20:03Identity of Directors, Senior Management and Advisers This section identifies the company's directors, senior management, and advisers Offer Statistics and Expected Timetable This section provides details on offer statistics and the expected timetable Key Information This section presents key information about the company, including risk factors RESERVED This section is reserved and contains no information Capitalization and Indebtedness This section is not applicable and contains no information Reasons for the Offer and Use of Proceeds This section is not applicable and contains no information Risk Factors Investment in common shares involves high risks related to R&D, financial condition, regulatory approvals, intellectual property, and intense competition - All products, including pelareorep, are in the research and development stage and require further development and testing before commercialization, making investments speculative1819 - The company has no operating revenues and a history of significant losses, with an accumulated deficit of $367.1 million as of December 31, 2020, and anticipates continued losses, necessitating additional future financing424445 - Pharmaceutical products are subject to intense, lengthy, and costly regulatory approval processes by agencies like the FDA and EMA, with no assurance of timely approval or broad market applications535458 - The biotechnology industry is extremely competitive, with many established competitors possessing greater financial and human resources, potentially developing more effective, safer, or less expensive products787980 - The company relies on third-party manufacturers for clinical product production and third parties for clinical trial conduct, introducing risks of supply disruptions, quality control issues, and delays8691929597 - The company believes it was classified as a Passive Foreign Investment Company (PFIC) in 2020 and expects to be in future tax years, which may have adverse U.S. federal income tax consequences for U.S. shareholders126 Information on the Company This section provides comprehensive information on the company's history, business, structure, and assets History and Development of the Company Oncolytics Biotech Inc., formed in 1998, focuses on pelareorep R&D and has been in a development stage without profitability - Incorporated on April 2, 1998, under the Business Corporations Act (Alberta)131 - Since inception, the company has been in the development stage, focusing on research and development of pelareorep, a systemically administered immuno-oncology viral agent for various cancers135 - The company has not been profitable since its inception and expects to continue incurring substantial losses, not anticipating significant revenues until pelareorep becomes commercially viable135 Business Overview Oncolytics Biotech develops pelareorep, an immuno-oncology viral agent, for cancer treatment, focusing on combination therapies and patent protection - Pelareorep, an unmodified reovirus, is a first-in-class systemically administered immuno-oncology (I-O) viral agent for the treatment of solid tumors and hematological malignancies136 - Pelareorep's anti-tumor activity is based on three complementary modes of action: selective viral replication in permissive cancer cells, activation of innate immunity, and induction of adaptive immunity137138141143146 - Clinical data indicates pelareorep is generally well-tolerated and can improve outcomes in various cancer types, including metastatic breast cancer (IND 213 showed statistically significant improvement in overall survival) and pancreatic ductal adenocarcinoma (REO 017 showed encouraging median OS)139 - The clinical development plan aims for regulatory approval of pelareorep, focusing on its role in immuno-oncology mechanisms, particularly in combination with immune checkpoint inhibitors, to demonstrate enhanced antitumor efficacy149 - Ongoing and planned studies include BRACELET-1 (breast cancer with paclitaxel and avelumab), IRENE (triple-negative breast cancer with retifanlimab), and GOBLET (gastrointestinal cancers with atezolizumab)152 - The company holds 377 issued patents (40 in the U.S., 17 in Canada) and 12 pending applications, relying on these and unpatented trade secrets to protect its technology154159 Organizational Structure As of December 31, 2020, the company had two material wholly-owned operating subsidiaries: Oncolytics Biotech (Barbados) Inc. and its U.S. subsidiary - As of December 31, 2020, the company had one material wholly-owned operating subsidiary, Oncolytics Biotech (Barbados) Inc. ("OBB"), which in turn wholly-owned Oncolytics Biotech (U.S.) Inc179 Property, Plant and Equipment The company leases its head office and other office spaces, with no owned manufacturing facilities or plans for new construction - The company leases its head office in Calgary, Alberta, Canada, and office spaces in San Diego, California, U.S., and Barbados180 - The company does not own or lease any other office space, manufacturing facilities, or equipment and has no current plans to construct or acquire any facilities180 Unresolved Staff Comments This section addresses any unresolved staff comments from regulatory bodies Operating and Financial Review and Prospects This section provides an operating and financial review, including results, liquidity, and R&D Operating Results Operating results are incorporated by reference from the company's 2020 Management Discussion and Analysis - Operating results are detailed in the 2020 Management Discussion and Analysis, incorporated by reference184 Liquidity and Capital Resources Liquidity and capital resources information is incorporated by reference from the company's 2020 Management Discussion and Analysis - Liquidity and capital resources information is detailed in the 2020 Management Discussion and Analysis, incorporated by reference185 Research and Development, Patents, and Licenses, etc. Information on the company's research and development policies is provided in Item 4.B. Business Overview - Information on the company's research and development policies is disclosed in 'Item 4. Information on the Company B. Business Overview'188 Trend Information Historical expenditure patterns are not indicative of future R&D costs, and no other material trends are expected to significantly affect liquidity - Historical patterns of expenditures are not indicative of future expenditures, which vary substantially depending on the level of research and development activity and funding availability189 - No known trends, uncertainties, demands, commitments, or events are reasonably likely to have a material effect on liquidity or capital resources or cause reported financial information to be unindicative of future operating results or financial conditions, except as disclosed elsewhere190 Critical Accounting Estimates This section is not applicable and contains no information Directors, Senior Management and Employees This section details information on the company's directors, senior management, employees, and share ownership Directors and Senior Management This section lists directors and senior management as of December 31, 2020, and their collective share ownership as of March 1, 2021 - The company's directors and senior management as of December 31, 2020, include Deborah M. Brown, Matthew C. Coffey (President & CEO), Andrew de Guttadauro, Allison Hagerman, Thomas C. Heineman, Angela Holtham, Leonard Kruimer, Kirk J. Look (CFO), Wayne Pisano (Chair), William G. Rice, and Bernd R. Seizinger192193194195196 - As at March 1, 2021, the directors and senior management as a group beneficially owned 677,068 common shares, representing 1.17% of the issued and outstanding common shares197 - Directors are required to disclose material interests in contracts and abstain from voting on related resolutions, in accordance with the Alberta Business Corporations Act198 Compensation This section details 2020 compensation for directors and senior management, including salaries, awards, and severance arrangements 2020 Director Compensation | Name | Fees Earned ($) | Share Based Awards ($) | Total ($) | | :---------------- | :-------------- | :--------------------- | :---------- | | Deborah Brown | 57,294 | 56,912 | 114,206 | | Angela Holtham | 82,758 | 39,162 | 121,920 | | Leonard Kruimer | 60,477 | 52,541 | 113,018 | | Wayne Pisano | 51,724 | 107,877 | 159,601 | | William Rice | 70,026 | 39,162 | 109,188 | | Bernd Seizinger | 45,835 | 77,992 | 123,827 | 2020 Senior Management Compensation | Name and principal position | Salary ($) | Option Based Awards ($) | Bonus ($) | All other compensation ($) | Total compensation ($) | | :-------------------------- | :--------- | :---------------------- | :-------- | :------------------------- | :--------------------- | | Dr. Matthew C. Coffey | 540,750 | 631,970 | 243,000 | 73,657 | 1,489,377 | | Kirk J. Look | 396,550 | 526,642 | 142,758 | 60,950 | 1,126,900 | | Dr. Thomas C. Heineman | 212,200 | 346,507 | 57,294 | 24,992 | 640,993 | | Dr. Rita Laeufle | 313,916 | — | — | 279,758 | 593,674 | | Andrew de Guttadauro | 381,960 | 421,314 | 85,941 | 14,247 | 903,462 | | Allison Hagerman | 225,000 | 421,314 | 50,625 | 41,378 | 738,317 | | Michael Moore | 168,604 | — | — | 219,279 | 387,883 | 2021 Approved Base Salaries for Senior Management | Name and principal position | Year | Salary ($) | | :-------------------------- | :--- | :--------- | | Dr. Matthew C. Coffey | 2021 | 637,200 | | Kirk J. Look, C.A. | 2021 | 473,800 | | Dr. Thomas C. Heineman | 2021 | 410,000 | | Andrew de Guttadauro | 2021 | 322,900 | | Allison Hagerman | 2021 | 380,500 | Termination of Employment or Change of Control Severance (as of Dec 31, 2020) | Name | Termination without Cause Severance ($) | Change of Control Severance ($) | | :-------------------------- | :-------------------------------------- | :------------------------------ | | Dr. Matthew C. Coffey | 613,942 | 1,227,884 | | Kirk J. Look, C.A. | 457,845 | 915,691 | | Dr. Thomas C. Heineman | nil | 438,196 | | Andrew de Guttadauro | 160,014 | 640,057 | | Allison Hagerman | 133,406 | 266,813 | - The company does not provide pension plan benefits to its senior management and employees214 Board Practices Directors are elected annually, and the Board has independent Compensation and Audit Committees overseeing governance and financial matters - Directors are elected by shareholders at each Annual General Meeting and typically hold office until the next meeting, at which time they may be re-elected or replaced219 - Each non-salaried director receives a base retainer of US$40,000, with additional fees for committee involvement (e.g., Board chair $40,000, Audit Committee chair $20,000)223224 - The Compensation Committee, composed of four independent directors, aims to attract and retain key personnel, align executive interests with shareholders, and reward performance226227228240 - The Audit Committee, consisting of four independent and financially literate directors (including at least one financial expert), oversees the company's internal controls, financial reporting, and financial risk management processes, and monitors the independence and performance of external auditors246249253 - The company does not have any contracts with its directors that provide for benefits upon the termination of employment222 Employees As of December 31, 2020, the company had 25 employees, primarily in R&D and operations, with most located in Canada Number of Employees by Activity | Activity | 2020 | 2019 | 2018 | | :-------------------- | :--- | :--- | :--- | | Research and development | 14 | 12 | 10 | | Operating | 11 | 11 | 12 | | Total | 25 | 23 | 22 | Number of Employees by Geographic Location | Geographic location | 2020 | 2019 | 2018 | | :------------------ | :--- | :--- | :--- | | Canada | 15 | 14 | 13 | | United States of America | 6 | 5 | 5 | | Other | 4 | 4 | 4 | | Total | 25 | 23 | 22 | Share Ownership This section details director and officer share, option, RSU, and PSU ownership as of March 1, 2021, and outlines equity compensation plans Director and Officer Share Ownership (as of March 1, 2021) | Category | Common Shares | % of Ownership | Options | % of Outstanding (fully diluted) | | :-------- | :------------ | :------------- | :-------- | :------------------------------- | | Officers | 69,188 | ** | 2,272,611 | 3.97% | | Directors | 604,906 | ** | 129,472 | ** | | TOTAL | 677,068 | 1.17% | 2,492,083 | 4.31% | Restricted Share Units (RSUs) Held by Directors (as of March 1, 2021) | Name | RSUs Granted | RSUs Vested and Released | RSUs Vested and Undistributed | RSUs Unvested | | :---------------- | :----------- | :------------------------ | :---------------------------- | :------------ | | Deborah Brown | 81,859 | (73,725) | — | 8,134 | | Angela Holtham | 114,949 | (97,880) | — | 17,069 | | Leonard Kruimer | 22,294 | — | 22,294 | — | | Wayne Pisano | 187,836 | (160,259) | — | 27,577 | | William Rice | 98,581 | (90,447) | — | 8,134 | | Bernd Seizinger | 163,863 | (132,161) | — | 31,702 | | Total | 669,382 | (554,472) | 22,294 | 92,616 | Performance Share Units (PSUs) Held by Officers (as of March 1, 2021) | Name | PSUs Granted | PSUs Vested and Released | PSUs Vested and Undistributed | | :------------ | :----------- | :------------------------ | :---------------------------- | | Matthew Coffey | 34,736 | — | 34,736 | | Kirk Look | 22,105 | — | 22,105 | | Total | 56,841 | — | 56,841 | - The Stock Option Plan reserves up to 10% of total issued and outstanding common shares for issuance, with options generally vesting over one to three years and expiring in 10 years275282 - The Share Award Plan allows for Performance Share Awards (PSAs) and Restricted Share Awards (RSAs), with awards generally vesting on the third anniversary of the grant date287288 Major Shareholders and Related Party Transactions This section covers major shareholders and any related party transactions Major Shareholders As of March 5, 2021, no shareholder owned over 5% of voting rights, with 84.35% of common shares held by U.S. record holders - As of March 5, 2021, the company was not aware of any shareholder who beneficially owns, directly or indirectly, or exercises control or direction over, common shares carrying more than 5% of the voting rights297 Common Shares Held by U.S. Holders of Record (as of Feb 26, 2021) | Total Number of Holders of Record | Total Number of Common Shares Issued and Outstanding | Number of U.S. Holders of Record | Number of Common Shares Held by U.S. Holders of Record | Percentage of Common Shares Held by U.S. Holders of Record | | :-------------------------------- | :------------------------------------------------- | :------------------------------- | :----------------------------------------------------- | :------------------------------------------------------- | | 197 | 52,083,924 | 59 | 43,933,581 | 84.35 % | - As of March 5, 2021, there were no arrangements known to the company which may, at a subsequent date, result in a change of control of the company300 Related Party Transactions The company has employment contracts with senior management, but no other related party transactions or loans occurred between 2020 and 2021 - The company has entered into employment contracts with each of its senior management members (see Item 6)302 - Between January 1, 2020, and March 5, 2021, the company did not enter into any other related party transactions and had no loans outstanding with any officer, director, or major shareholder302 Interests of Experts and Counsel This section is not applicable and contains no information Financial Information This section provides financial information, including consolidated statements and significant changes Consolidated Statements and Other Financial Statements Consolidated financial statements are filed under Item 18; the company has no material legal proceedings and retains earnings for growth - The consolidated financial statements are filed as part of this annual report under Item 18303 - The company is not involved as a plaintiff or defendant in any material, active, or pending legal proceedings305 - The company has not declared or paid any dividends since its incorporation and intends to retain earnings to finance business growth and development306 Significant Changes No significant changes have occurred since the date of the annual financial statements included in this report - No significant changes have occurred since the date of the annual financial statements included in this annual report on Form 20-F307 The Offer and Listing This section details the company's offering and listing information Offering and Listing Details Common Shares are traded on TSX (ONC) and Nasdaq Capital Market (ONCY), relisted on Nasdaq in June 2018 - Common Shares are traded on the TSX under the symbol ONC and on the Nasdaq Capital Market under the symbol ONCY308309 - Common Shares were delisted from Nasdaq on November 5, 2015, quoted on OTCQX, and subsequently approved for listing and commenced trading on the Nasdaq Capital Market on June 1, 2018308 Plan of Distribution This section is not applicable and contains no information Markets Common Shares are traded on Nasdaq (ONCY) and TSX (ONC) - Common Shares are traded/quoted on the Nasdaq and the TSX under the symbol "ONCY" and "ONC", respectively309 Selling Shareholders This section is not applicable and contains no information Dilution This section is not applicable and contains no information Expenses of the Issue This section is not applicable and contains no information Additional Information This section provides additional information on share capital, corporate governance, and taxation Share Capital This section is not applicable and contains no information Memorandum and Articles of Association The company is governed by Alberta's Business Corporations Act, with directors' powers and common shareholder rights outlined, and no major non-resident ownership restrictions - The company is governed by its amended articles of incorporation and by-laws under the Business Corporations Act (Alberta)311 - Directors are entitled to remuneration determined by the Board and have the ability to exercise the company's borrowing power without shareholder authorization312 - Holders of common shares have the right to receive dividends (if declared), cast one vote per share, and receive a pro rata share of assets on winding-up313314 - There are no limitations imposed by Canadian federal or provincial laws, or the company's organizing documents, on the rights of non-resident or foreign owners to hold or vote securities, except that the Investment Canada Act may require review and approval of certain acquisitions of 'control' by a 'non-Canadian'318324 Material Contracts Material contracts primarily include officer employment agreements, with no other significant contracts outside the ordinary course of business - The company's material contracts include employment contracts with each of its officers, as summarized in Item 6B322 - Other than employment contracts, the company has not entered into any other material contracts outside the ordinary course of business over the last two years322 Exchange Controls Canada has no exchange controls on capital repatriation, but the Investment Canada Act may review certain non-Canadian control acquisitions - Canada currently has no system of exchange controls or restrictions on the repatriation of capital or earnings of a Canadian public company to non-resident investors, except as discussed under taxation323 - The Investment Canada Act may require review and approval by the Minister of Industry (Canada) of certain acquisitions of 'control' (generally one-third or more of voting shares) of the company by a 'non-Canadian'324 Taxation This section summarizes Canadian and U.S. tax implications, including Canadian withholding tax and potential adverse PFIC consequences for U.S. Holders - Dividends paid to a Non-Resident Holder are subject to Canadian withholding tax at 25%, generally reduced to 15% under the Canada-United States Tax Convention335 - A Non-Resident Holder is generally not subject to Canadian tax on capital gains from common share disposition unless the shares constitute 'taxable Canadian property' and are not 'treaty-protected property'337 - The company believes it was classified as a Passive Foreign Investment Company (PFIC) during the tax year ended December 31, 2020, and expects to be a PFIC for the current and future tax years, which may have adverse U.S. federal income tax consequences for U.S. Holders348 - U.S. Holders that do not make a Qualified Electing Fund (QEF) Election or a Mark-to-Market Election will be subject to Section 1291 rules, which tax gains and 'excess distributions' as ordinary income with an interest charge355356 - U.S. Holders making a timely QEF Election are subject to U.S. federal income tax on their pro rata share of the company's net capital gain and ordinary earnings annually, regardless of distribution359 - U.S. Holders making a Mark-to-Market Election include in ordinary income the annual excess of the fair market value of common shares over their adjusted tax basis, but this election does not apply to Subsidiary PFICs368371 Dividends and Paying Agents This section is not applicable and contains no information Statements by Experts This section is not applicable and contains no information Documents on Display The company files reports with SEC and SEDAR, is exempt from certain U.S. proxy rules as a foreign private issuer, and provides document copies upon request - The company is subject to informational requirements of the Exchange Act and files reports with the SEC (www.sec.gov) and Canadian securities commissions (www.sedar.com)[388](index=388&type=chunk)389 - As a foreign private issuer, the company is exempt from the rules under the Exchange Act prescribing the furnishing and content of proxy statements to shareholders391 - Copies of any documents incorporated by reference in this annual report are provided without charge upon written or oral request392 Subsidiary Information This section is not applicable and contains no information Quantitative and Qualitative Disclosures About Market Risk The company's financial instruments expose it to credit, interest rate, and foreign exchange risks, which are managed through specific policies - Financial instruments consist of cash and cash equivalents, other receivables, other liabilities, accounts payable, and a warrant derivative595 - The warrant derivative is a recurring Level 2 fair value measurement, with a fair value of $531,228 as of December 31, 2020595 - The company is exposed to credit risk (mitigated by maintaining primary bank accounts with Schedule I banks in Canada), interest rate risk (mitigated by investing excess cash in investment-grade vehicles), and foreign exchange risk (primarily CAD vs. USD, GBP, EUR, mitigated by maintaining sufficient foreign currencies)596599600602603 Foreign Currency Balances (as of December 31, 2020) | Currency | Amount ($) | | :------------- | :----------- | | U.S. dollars | 22,261,287 | | British pounds | 24,524 | | Euro | 36,417 | - The company does not currently have any long-term debt, nor does it utilize interest rate swap contracts or other financial instruments for trading or hedging purposes395396 Description of Securities Other Than Equity Securities This section describes securities other than equity securities Debt Securities This section is not applicable and contains no information Warrants and Rights This section is not applicable and contains no information Other Securities This section is not applicable and contains no information American Depository Shares The company's Common Shares are not represented by American Depository Receipts - The Company's Common Shares are not represented by American Depository Receipts397 Defaults, Dividend Arrearages and Delinquencies This section addresses defaults, dividend arrearages, and delinquencies Material Modifications to the Rights of Security Holders and Use of Proceeds This section covers material modifications to security holder rights and use of proceeds Controls and Procedures This section details the company's controls and procedures, including disclosure and internal controls Evaluation of Disclosures and Procedures The CEO and CFO concluded that disclosure controls and procedures were effective as of the reporting period end - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by this annual report400 Management's Annual Report on Internal Control Over Financial Reporting Management affirmed responsibility for internal control over financial reporting, concluding it was effective as of December 31, 2020, with no material weaknesses - Management is responsible for establishing and maintaining adequate internal control over financial reporting401 - Management assessed the effectiveness of the company's internal control over financial reporting as of December 31, 2020, based on criteria set forth by the COSO 2013 Framework, concluding it was effective403439 - Based on this assessment, management determined that there were no material weaknesses in internal control over financial reporting as at December 31, 2020439 Attestation Report of the Registered Public Accounting Firms Ernst & Young LLP issued an unqualified attestation report on management's assessment of internal control over financial reporting - Ernst & Young LLP, the registered public accounting firm, issued an attestation report on management's assessment of the company's internal control over financial reporting404405 - The auditor's report expressed an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2020442449 Changes in Internal Controls over Financial Reporting No material changes in internal controls over financial reporting occurred during the reporting period - There were no changes in internal controls over financial reporting that occurred during the period covered by this annual report that have materially affected, or are reasonably likely to materially affect, internal controls over financial reporting406 Reserved This section is reserved and contains no information Audit Committee Financial Expert This section identifies the audit committee financial expert Code of Ethics This section outlines the company's code of ethics Principal Accountant Fees and Services This section details fees and services provided by the principal accountant Exemptions from the Listing Standards for Audit Committees This section addresses exemptions from audit committee listing standards Purchase of Equity Securities by the Issuer and Affiliated Purchases This section covers purchases of equity securities by the issuer and affiliated parties Change in Registrant's Certifying Accountants This section reports any change in the registrant's certifying accountants Corporate Governance This section describes the company's corporate governance practices Mine Safety Disclosure This section provides mine safety disclosure Financial Statements. This section refers to the company's financial statements Financial Statements This section contains the company's financial statements Exhibits This section lists all exhibits filed with the report Signatures This section contains the required signatures for the report Consolidated Financial Statements This section presents the company's consolidated financial statements STATEMENT OF MANAGEMENT'S RESPONSIBILITY Management is responsible for preparing IFRS-compliant consolidated financial statements and MD&A, with oversight from the Audit Committee - Management is responsible for the preparation and presentation of the consolidated financial statements and Management's Discussion and Analysis (MD&A) in accordance with International Financial Reporting Standards (IFRS)432433 - Systems of internal controls, including internal controls over financial reporting, are designed and maintained by management to provide reasonable assurance that assets are safeguarded and reliable records are produced435 - Ernst & Young LLP audited the company's consolidated financial statements and the effectiveness of its internal control over financial reporting as of December 31, 2020436 - The Board of Directors, through the Audit Committee, is responsible for ensuring management fulfills its financial reporting and internal control responsibilities437 MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Management affirmed effective internal control over financial reporting as of December 31, 2020, based on the COSO 2013 framework - Management is responsible for establishing and maintaining adequate internal control over the company's financial reporting439 - Management assessed the effectiveness of the company's internal control over financial reporting as at December 31, 2020, based on criteria established in the COSO 2013 framework, and concluded it was effective439 - Based on this assessment, management determined that there were no material weaknesses in internal control over financial reporting as at December 31, 2020439 Report of Independent Registered Public Accounting Firm Ernst & Young LLP issued unqualified opinions on consolidated financial statements and internal control over financial reporting for 2020 - Ernst & Young LLP issued an unqualified opinion on the consolidated financial statements as of December 31, 2020 and 2019, stating they present fairly the financial position, performance, and cash flows in conformity with IFRS441 - The firm also issued an unqualified opinion on the company's internal control over financial reporting as of December 31, 2020, based on COSO criteria442 - No critical audit matters were identified during the audit445 - Ernst & Young LLP has served as the company's auditor since 1999446 Report of Internal Control over Financial Reporting Ernst & Young LLP audited the company's internal control over financial reporting as of December 31, 2020, based on COSO criteria, and expressed an unqualified opinion that it was maintained effectively in all material respects - Ernst & Young LLP audited Oncolytics Biotech Inc.'s internal control over financial reporting as of December 31, 2020, based on COSO criteria449 - In their opinion, Oncolytics Biotech Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020449 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION Total assets increased to $34.35 million in 2020, driven by cash, while liabilities decreased, and equity turned positive Consolidated Statements of Financial Position Summary | Item | As at December 31, 2020 ($) | As at December 31, 2019 ($) | | :-------------------------------- | :-------------------------- | :-------------------------- | | Assets | | | | Cash and cash equivalents | 31,219,574 | 14,148,021 | | Total assets | 34,345,567 | 19,657,865 | | Liabilities | | | | Warrant derivative | 531,228 | 8,508,764 | | Total liabilities | 9,592,574 | 19,765,759 | | Shareholders' Equity (Deficit) | | | | Total shareholders' equity (deficit) | 24,752,993 | (107,894) | - Total assets increased by $14.69 million from 2019 to 2020, primarily due to a $17.07 million increase in cash and cash equivalents457 - Total liabilities decreased by $10.17 million, largely driven by a $7.98 million decrease in the warrant derivative liability457 - Shareholders' equity transitioned from a deficit of $107,894 in 2019 to a positive $24,752,993 in 2020457 CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS Net loss improved to $22.51 million in 2020, primarily due to a positive change in warrant derivative fair value, despite increased R&D and operating expenses Consolidated Statements of Loss and Comprehensive Loss Summary | Item | 2020 ($) | 2019 ($) | 2018 ($) | | :------------------------------------ | :----------- | :----------- | :----------- | | Research and development | 12,944,510 | 10,817,997 | 10,027,994 | | Operating | 12,514,496 | 9,558,641 | 7,244,791 | | Change in fair value of warrant derivative | 3,491,928 | (12,608,808) | — | | Net loss | (22,505,057) | (33,122,888) | (17,037,225) | | Net comprehensive loss | (22,568,933) | (33,266,291) | (16,803,451) | | Basic and diluted loss per common share | (0.56) | (1.50) | (1.06) | | Weighted average number of shares | 40,338,789 | 22,137,990 | 16,016,366 | - Net loss decreased from $33.12 million in 2019 to $22.51 million in 2020460 - Research and development expenses increased by $2.13 million (19.6%) from $10.82 million in 2019 to $12.94 million in 2020460 - Operating expenses increased by $2.96 million (31.0%) from $9.56 million in 2019 to $12.51 million in 2020460 - A positive change in the fair value of warrant derivative of $3.49 million in 2020 significantly reduced the net loss compared to a negative change of $12.61 million in 2019460 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICIT) Shareholders' equity shifted from a deficit to a positive $24.75 million in 2020, driven by share issuances and warrant exercises Total Shareholders' Equity (Deficit) Trend | As at December 31, | Total ($) | | :----------------- | :---------- | | 2017 | 8,283,846 | | 2018 | 6,195,363 | | 2019 | (107,894) | | 2020 | 24,752,993 | - Share capital increased by $45.75 million from $311.08 million in 2019 to $356.82 million in 2020462 - Key drivers for the increase in share capital in 2020 include $40.04 million from 'At the Market' equity distribution agreements and $6.33 million from warrant derivative exercises462 - The accumulated deficit increased by $22.51 million from $(344,606,273) in 2019 to $(367,111,330) in 2020462 CONSOLIDATED STATEMENTS OF CASH FLOWS Cash and cash equivalents significantly increased to $31.22 million in 2020, primarily due to $39.77 million from financing activities Cash and Cash Equivalents (End of Year) Trend | Year | Amount ($) | | :--- | :----------- | | 2018 | 13,699,881 | | 2019 | 14,148,021 | | 2020 | 31,219,574 | Cash Flow Summary by Activity | Activity | 2020 ($) | 2019 ($) | 2018 ($) | | :-------------------------- | :----------- | :----------- | :----------- | | Cash used in operating activities | (22,068,441) | (19,906,124) | (11,920,238) | | Cash used in investing activities | (29,305) | (10,905) | (107,466) | | Cash provided by financing activities | 39,773,804 | 21,015,596 | 13,299,136 | | Increase in cash | 17,676,058 | 1,098,567 | 1,271,432 | - Cash provided by financing activities significantly increased to $39.77 million in 2020, up from $21.02 million in 2019464 - The primary source of financing cash in 2020 was $38.30 million from 'At the Market' equity distribution agreements464 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS This section provides detailed notes supporting the consolidated financial statements Note 1: Incorporation and Nature of Operations Oncolytics Biotech Inc., incorporated in 1998, develops pelareorep, an immuno-oncology viral agent for cancer treatment - Oncolytics Biotech Inc. was incorporated on April 2, 1998, under the Business Corporations Act (Alberta) and is domiciled in Canada466467 - The company is a development stage biopharmaceutical company focused on the discovery and development of pharmaceutical products for cancer treatment, with its lead product being pelareorep468 - Pelareorep is a potential immuno-oncology viral-agent for certain types of cancer, with its clinical development program centered on key immunotherapy combinations468 Note 2: Basis of Financial Statement Presentation Consolidated financial statements are presented in Canadian dollars under IFRS, including subsidiaries, based on historical cost with fair value measurements - The consolidated financial statements are presented in Canadian dollars, which is the company's functional currency469 - Statements are prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB)470 - The accounts include Oncolytics Biotech Inc. and its subsidiaries: Oncolytics Biotech (Barbados) Inc., Oncolytics Biotech (U.S.) Inc., and Oncolytics Biotech (U.K.) Ltd469 Note 3: Summary of Significant Accounting Policies This note details significant accounting policies for deferred taxes, financial instruments, fair value, foreign currency, R&D, and revenue recognition - Deferred income taxes are recognized using the liability method for temporary differences, measured with substantively enacted income tax rates474 - Financial assets (cash, receivables) are measured at amortized cost, while financial liabilities (payables, warrant derivative) are measured at amortized cost or fair value through profit or loss (FVPL) for the warrant derivative479480 - Research and development costs are expensed as incurred, net of recoveries, and accruals for third-party activities are estimated496 - Revenue from the regional licensing agreement is recognized over time using the input method, based on the ratio of costs incurred to total estimated costs499 - Share-based payments (stock options, RSUs, PSUs) are accounted for using the fair value based method, with compensation expense recognized over vesting periods508510 Note 4: Significant Judgments, Estimates and Assumptions Financial statement preparation involves significant judgments and estimates regarding COVID-19 impact, revenue, clinical trial expenses, valuations, income taxes, and leases - The COVID-19 pandemic had no material impact on 2020 financial statements, but future developments are highly uncertain and could result in a material impact513 - Significant estimates include revenue recognition (total estimated costs, completion time for licensing), clinical trial expenses (accruals for third-party services), and valuation of share-based payments and warrant derivatives (using Black-Scholes model inputs)516517518521 - Management judgment is required to determine the amount of deferred tax assets that can be recognized, based on the likely timing and level of future taxable profits522 - Judgments are made in determining whether a contract contains an identified asset and whether the company has the right to control its use for lease accounting purposes524525 Note 5: Cash Equivalents Cash equivalents, primarily interest-bearing deposits, totaled $30.36 million as of December 31, 2020, earning 0.36% interest - Cash equivalents consist of interest-bearing deposits with the company's bank527 Cash Equivalents | As at December 31, | Amount ($) | | :----------------- | :----------- | | 2020 | 30,361,591 | | 2019 | 13,058,092 | - The current annual interest rate earned on these deposits was 0.36% in 2020 (compared to 1.17% in 2019)527 Note 6: Property and Equipment Net book value of property and equipment decreased to $236,664 in 2020, reflecting additions and depreciation Net Book Value of Property and Equipment | As at December 31, | Amount ($) | | :----------------- | :----------- | | 2020 | 236,664 | | 2019 | 296,768 | Property and Equipment Activity (2020) | Item | Amount ($) | | :-------------------------- | :----------- | | Additions, net of foreign exchange impact | 28,853 | | Disposals | (15,137) | | Depreciation expense | (88,957) | Note 7: Leases Leases for office spaces have terms of 3-5 years, with right-of-use assets at $372,468 and lease liabilities at $402,059 in 2020 - The company's lease portfolio consists of office spaces with lease terms generally between 3 to 5 years530 - In 2020, the company entered into an office space lease, recognizing a $297,373 right-of-use asset and a lease liability of the same amount531 Right-of-Use Assets | As at December 31, | Amount ($) | | :----------------- | :----------- | | 2020 | 372,468 | | 2019 | 430,713 | Lease Liabilities | As at December 31, | Amount ($) | | :----------------- | :----------- | | 2020 | 402,059 | | 2019 | 506,275 | - The total undiscounted lease liability as at December 31, 2020, was $458,512535 Note 8: Warrant Derivative Warrants with USD exercise prices are derivative liabilities, with fair value decreasing to $531,228 in 2020, resulting in a $3.49 million positive change - Warrants with an exercise price denominated in a currency different from the entity's functional currency are treated as a derivative measured at fair value through profit and loss539 Fair Value of Warrant Derivative | As at December 31, | Number of Warrants Outstanding | Fair Value of Warrant Derivative ($) | | :----------------- | :----------------------------- | :----------------------------------- | | 2019 | 1,684,126 | 8,508,764 | | 2020 | 265,757 | 531,228 | - The change in fair value of the warrant derivative was a gain of $3,491,928 in 2020, compared to a loss of $12,608,808 in 2019540 - The fair value is estimated using the Black-Scholes valuation model, with key assumptions including expected volatility (90.00% in 2020) and risk-free interest rate (0.10% in 2020)542543 Note 9: Share Capital Share capital increased to $356.82 million in 2020, driven by ATM equity distributions and warrant exercises, following a 2018 share consolidation Share Capital and Common Shares Outstanding | As at December 31, | Share Capital ($) | Common Shares Outstanding | | :----------------- | :---------------- | :------------------------ | | 2019 | 311,077,859 | 32,198,453 | | 2020 | 356,824,172 | 46,166,980 | - A share consolidation was completed on May 22, 2018, on the basis of 9.5 pre-consolidation common shares for each one post-consolidation common share544 - In 2020, the company issued 12,182,532 common shares for $40,037,786 through 'At the Market' equity distribution agreements545 - In 2020, 1,418,369 common shares were issued for $6,332,778 due to warrant derivative exercises545 - As of December 31, 2020, 16,443,500 equity warrants were outstanding, exercisable into 1,730,894 common shares552 Note 10: Share-Based Payments The company's share-based payment plans include stock options, RSUs, and PSUs, with total compensation expense of $2.56 million in 2020 Stock Options Outstanding and Exercisable (as of Dec 31, 2020) | Item | Stock Options | Weighted Average Exercise Price ($) | | :-------------------- | :------------ | :-------------------------------- | | Outstanding, end of year | 3,764,055 | 4.08 | | Options exercisable, end of year | 2,164,551 | 4.84 | Restricted Share Units (RSUs) Outstanding | As at December 31, | Outstanding | | :----------------- | :---------- | | 2019 | 209,657 | | 2020 | 134,618 | Performance Share Units (PSUs) Outstanding | As at December 31, | Outstanding | | :----------------- | :---------- | | 2019 | 61,051 | | 2020 | 56,841 | Share-Based Compensation Expense | Year | Amount ($) | | :--- | :----------- | | 2018 | 1,415,833 | | 2019 | 1,470,153 | | 2020 | 2,558,974 | - The company has reserved 4,616,698 common shares for issuance relating to its outstanding equity compensation plans564 Note 11: Loss Per Common Share Basic and diluted loss per common share was $(0.56) in 2020, with potential dilutive instruments excluded as anti-dilutive Basic and Diluted Loss Per Common Share | Year | Loss per common share ($) | Weighted average number of shares | | :--- | :------------------------ | :-------------------------------- | | 2020 | (0.56) | 40,338,789 | | 2019 | (1.50) | 22,137,990 | | 2018 | (1.06) | 16,016,366 | - The effect of any potential exercise of outstanding stock options and warrants was excluded from the calculation of diluted loss per common share, as it would be anti-dilutive565 Note 12: Contract Liability and Receivable A regional licensing agreement with Adlai Nortye resulted in a $6.73 million non-current contract liability as of December 31, 2020 - The company entered into a regional licensing agreement with Adlai Nortye Biopharma Co., Ltd. in November 2017 for exclusive development and commercialization rights to pelareorep in China, Hong Kong, Macau, Singapore, South Korea, and Taiwan566 Contract Liability Balance | As at December 31, | Amount ($) | | :----------------- | :----------- | | 2020 | 6,730,287 | | 2019 | 6,730,287 | - No revenue was recognized from the regional licensing agreement in 2020567 Note 13: Commitments The company has $9.36 million in commitments for clinical trials, manufacturing, and collaboration programs over the next two years - The company is committed to payments totaling $9,360,653 for activities related to its clinical trial, manufacturing, and collaboration programs, expected to occur over the next two years569 - Commitments include payments for the BRACELET-1 clinical trial, which is jointly funded by Oncolytics and Pfizer Inc570 - As of December 31, 2020, other receivables related to an upfront payment from Pfizer for BRACELET-1 were nil (down from US$1,500,000 in 2019), and other liabilities for future trial costs were US$97,381 (down from US$652,306 in 2019)570 - An agreement with the Alberta Cancer Board includes an obligation to repay up to $400,000 plus $100,000 overhead upon sales of a specified product, with annual installments of 5% of gross sales or $100,000571 Note 14: Contingencies Contingencies include a $1.0 million milestone payment upon pelareorep marketing approval and various royalty obligations - A milestone payment of $1.0 million is outstanding, due within 90 days of the first receipt of marketing approval for pelareorep573 - The company is obligated to pay founding shareholders 10.75% of royalty payments from partnerships or 2.15% of Net Sales if it commercializes the reovirus treatment575 - A royalty of 0.5% of Sales Revenue or $20,000 per year is due to the Biotechnology Research Institute until December 31, 2028, for a 'work in kind' contribution576 Note 15: Income Taxes The company reported a $(22.51) million loss before taxes in 2020 and has significant non-capital losses and tax credits, but no deferred tax assets recognized Loss Before Income Taxes | Year | Amount ($) | | :--- | :----------- | | 2020 | (22,505,057) | | 2019 | (33,122,888) | | 2018 | (16,489,183) | - As of December 31, 2020, the company had $78,994,000 in non-capital losses for income tax purposes in Canada, with expiry dates ranging from 2026 to 2040579 - As of December 31, 2020, the company had $5,304,980 in non-refundable federal investment tax credits for income tax purposes in Canada, with expiry dates ranging from 2021 to 2039582 - The company has approximately $27,660,000 in unclaimed scientific research and experimental development expenditures available to reduce future taxable income583 - No deferred tax assets have been recognized due to the company's history of losses and the uncertainty of future taxable income against which these losses and credits can be utilized523584 Note 16: Capital Disclosures Capital management aims for a strong financial position, with $31.22 million in cash and $24.75 million in equity, supported by a $150 million shelf prospectus - The company's capital management objective is to maintain a strong statement of financial position, defined as shareholders' equity and cash and cash equivalents587 Capital Position | Item | 2020 ($) | 2019 ($) | | :---------------------- | :----------- | :----------- | | Cash and cash equivalents | 31,219,574 | 14,148,021 | | Shareholders' equity (deficit) | 24,752,993 | (107,894) | - Funding for the company's plan is primarily managed through the issuance of additional common shares and common share purchase warrants590 - The company renewed its short form base shelf prospectus on June 12, 2020, qualifying for distribution of up to $150,000,000 of securities, effective until July 12, 2022, to provide additional financing flexibility591592 - The company is not subject to externally imposed capital requirements and there have been no changes in how capital is defined or managed in 2020594 Note 17: Financial Instruments Financial instruments include cash, receivables, payables, and a warrant derivative, exposing the company to credit, interest rate, and foreign exchange risks - Financial instruments consist of cash and cash equivalents, other receivables, other liabilities, accounts payable, and a warrant derivative595 - The warrant derivative is a recurring Level 2 fair value measurement, with a fair value of $531,228 as of December 31, 2020595 - The company is exposed to credit risk (mitigated by maintaining primary bank accounts with Schedule I banks in Canada), interest rate risk (mitigated by investing excess cash in investment-grade vehicles), and foreign exchange risk (primarily CAD vs. USD, GBP, EUR, mitigated by maintaining sufficient foreign currencies)596599600602603 Balances in Foreign Currencies (as of December 31, 2020) | Currency | Amount ($) | | :------------- | :----------- | | U.S. dollars | 22,261,287 | | British pounds | 24,524 | | Euro | 36,417 | Note 18: Additional Cash Flow Disclosures Net change in non-cash working capital for operating activities was $209,779 in 2020, with $189,720 cash interest received Net Change In Non-Cash Working Capital (Operating Activities) | Year | Amount ($) | | :--- | :----------- | | 2020 | 209,779 | | 2019 | (1,795,777) | | 2018 | 3,904,339 | Other Cash Flow Disclosures | Item | 2020 ($) | 2019 ($) | 2018 ($) | | :-------------------- | :--------- | :--------- | :--------- | | Cash interest received | 189,720 | 274,094 | 173,496 | | Cash taxes paid | 12,080 | 5,448 | 15,728 | Note 19: Indemnification of Officers and Directors By-laws require unlimited indemnification for officers and directors, supported by insurance, with no known pending litigation - The company's corporate by-laws require indemnification of officers and directors against all costs, charges, and expenses related to their services, with no limit609 - Directors' and officers' insurance coverage is maintained, believed to be adequate, but full protection against all risks is not guaranteed609 - There is no pending litigation or proceeding involving any officers or directors as to which indemnification is being sought, nor is the company aware of any threatened litigation610 Note 20: Economic Dependence The company is economically dependent on a primary U.S. toll manufacturer for pelareorep production, a risk mitigated by advance production - The company is economically dependent on its toll manufacturers, primarily one in the U.S., to produce clinical grade pelareorep for its clinical trial program611 - Any significa