Oncolytics Biotech (ONCY) - 2022 Q4 - Annual Report

PART I Key Information This section outlines significant investment risks, focusing on product development, financial condition, and funding Risk Factors The company identifies numerous material risks, including early R&D stage, clinical trial failures, reliance on third parties, and financing needs - The company's lead product, pelareorep, is in the research and development stage, requiring significant further testing before it can be commercially marketed[17][26] - The company relies on third-party drugs for its combination therapies and has limited control over their supply, which could delay product development if collaborations are unsuccessful[17][34] - The company has a history of losses, with an accumulated deficit of $418.3 million as of December 31, 2022, and anticipates needing additional financing to fund future research and development[18][47][50] - The company believes it was classified as a passive foreign investment company (PFIC) for the 2022 tax year, which may have adverse U.S. federal income tax consequences for U.S. shareholders[19][130] Information on the Company Oncolytics Biotech Inc. is a clinical-stage biopharmaceutical company developing pelareorep for cancer treatment, focusing on clinical trials and strategic partnerships History and Development of the Company Oncolytics Biotech Inc. was incorporated in Alberta, Canada on April 2, 1998, with its principal business in Calgary - The company was incorporated in Alberta, Canada on April 2, 1998[139] Business Overview The company develops pelareorep, an immunotherapeutic agent for cancer, advancing clinical programs for breast and pancreatic cancers, and leveraging its patent portfolio - Oncolytics is a clinical-stage biopharmaceutical company developing pelareorep, an intravenously delivered immunotherapeutic agent that activates the immune system to fight cancer[141] - The primary strategic focus is advancing pelareorep programs for hormone receptor-positive / human epidermal growth factor 2-negative (HR+/HER2-) metastatic breast cancer (mBC) and advanced/metastatic pancreatic ductal adenocarcinoma (PDAC) to Phase 3 studies[146] - Pelareorep's mechanism of action is threefold: selective viral replication leading to tumor cell lysis, activation of innate immunity (NK cells), and priming a specific adaptive immune response (T cells) against tumors[149] - Interim results from the GOBLET study's pancreatic cancer cohort showed an Objective Response Rate (ORR) of 69% and a Clinical Benefit Rate (CBR) of 85%, substantially higher than historical controls[151][168] - The company holds a robust intellectual property portfolio with 243 issued patents globally, covering compositions of matter, pharmaceutical use, combination therapies, and manufacturing methods for reovirus[170][172] Organizational Structure As of December 31, 2022, Oncolytics Biotech Inc. operates through its wholly-owned subsidiaries in Barbados and the U.S - The company's main subsidiaries are Oncolytics Biotech (Barbados) Inc. and Oncolytics Biotech (U.S.) Inc[194] Property, Plant and Equipment The company leases all its office spaces in Calgary, San Diego, and Barbados, owning no manufacturing facilities or real estate - The company leases all its office spaces and does not own any real estate or manufacturing facilities[195] Operating and Financial Review and Prospects This section discusses operating results, liquidity, capital resources, and R&D activities, noting future expenditures are uncertain and depend on funding - The company's Management Discussion and Analysis (MD&A) for 2022 is incorporated by reference to provide details on operating results and liquidity[199][200] - Future expenditures are subject to significant uncertainty, depending on the timing and costs of R&D activities and the availability of funding[202] Directors, Senior Management and Employees This section details leadership, compensation, board practices, and employee statistics, including equity compensation plans and share ownership Directors and Senior Management The report lists directors and senior management as of December 31, 2022, including their positions and share ownership - As of February 27, 2023, the directors and senior management as a group beneficially owned 847,866 common shares, representing 1.35% of the issued and outstanding shares[210] Compensation Details of 2022 compensation for directors and senior management are provided, including base retainers, bonuses, and equity awards | Name | Position | Salary ($) | Option-based awards ($) | Bonus ($) | Total compensation ($) | | :--- | :--- | :--- | :--- | :--- | :--- | | Dr. Matthew C. Coffey | President and CEO | 654,404 | 136,616 | 310,842 | 1,185,060 | | Kirk J. Look | CFO | 486,593 | 109,293 | 184,905 | 850,145 | | Dr. Thomas C. Heineman | CMO | 599,999 | 109,293 | 228,000 | 981,971 | - Non-employee directors receive a base retainer of US$40,000, with additional retainers for the Board Chair (US$40,000) and committee chairs (US$10,000-US$20,000)[217] - Employment agreements include severance provisions. In the event of a change of control, the CEO would be entitled to a severance payment of $1,475,205, and the CFO would be entitled to $1,111,894, as of December 31, 2022[228][229] Employees The company's workforce grew from 25 in 2020 to 29 in 2022, with employees split between R&D and general/administrative functions | Year | Total Employees | R&D | General & Admin | | :--- | :--- | :--- | :--- | | 2022 | 29 | 17 | 12 | | 2021 | 26 | 15 | 11 | | 2020 | 25 | 14 | 11 | Share Ownership This subsection details common share and stock option holdings of directors and officers, and describes the company's equity compensation plans - As of February 27, 2023, directors and officers collectively held 847,866 common shares and 4,034,942 outstanding options[249][250] - The company's Stock Option Plan and Share Award Plan combined cannot exceed 10% of the total number of issued and outstanding Common Shares[254][267] Major Shareholders and Related Party Transactions The company reports no shareholders owning over 5% of voting shares and no material related party transactions for the fiscal year - As of March 3, 2023, the company is not aware of any shareholder beneficially owning more than 5% of its voting shares[274] | Date | Total Shares Outstanding | U.S. Holders of Record | Shares Held by U.S. Holders | % Held by U.S. Holders | | :--- | :--- | :--- | :--- | :--- | | Feb 24, 2023 | 62,826,958 | 59 | 54,495,601 | 86.74% | Financial Information This section confirms consolidated financial statements are filed under Item 18, reports no material legal proceedings, and states no dividends will be paid - The company has not paid any dividends since its incorporation and does not intend to in the foreseeable future, retaining earnings to finance growth[284] - There are no material, active, or pending legal proceedings against the company, its directors, or management[283] Additional Information This section covers corporate governance, Canadian exchange controls, and material Canadian and U.S. federal income tax considerations for shareholders - The company is governed by the Business Corporations Act of Alberta. A quorum for shareholder meetings requires representation of at least 5% of issued and outstanding shares[289][295] - Canada has no system of exchange controls, but acquisitions of 'control' (generally one-third or more of voting shares) by a non-Canadian may require review under the Investment Canada Act[301][302] - Dividends paid to non-resident holders are subject to a 25% Canadian withholding tax, which may be reduced by applicable tax treaties (e.g., to 15% for eligible U.S. residents)[311] - The company believes it was a Passive Foreign Investment Company (PFIC) for the 2022 tax year, which has significant and potentially adverse U.S. federal income tax implications for U.S. Holders, who are advised to consult their tax advisors[322] Quantitative and Qualitative Disclosures About Market Risk The company discloses exposure to credit, interest rate, and foreign exchange risks, noting it does not use financial instruments for trading or hedging - The company does not currently have long-term debt or use derivative instruments for hedging against interest rate or other market risks[368] PART II Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2022 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the fiscal year 2022[373] - Management assessed the company's internal control over financial reporting as effective as of December 31, 2022, using the COSO framework[376] Corporate Governance As a foreign private issuer, the company follows Canadian corporate governance practices, which differ from Nasdaq's requirements, notably in quorum rules - As a foreign private issuer, the company is exempt from certain Nasdaq corporate governance rules and follows Canadian practices[388] - A significant governance difference is the shareholder meeting quorum, which is 5% of outstanding shares, lower than the Nasdaq minimum requirement of one-third[389] PART III Financial Statements This section contains audited consolidated financial statements for 2022, showing a net loss of $24.8 million and an unqualified auditor opinion Consolidated Statements of Financial Position As of December 31, 2022, total assets decreased to $37.3 million, total liabilities increased to $10.8 million, and equity decreased to $26.5 million | (in thousands of CAD) | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $11,666 | $41,262 | | Marketable securities | $20,472 | $0 | | Total Assets | $37,334 | $45,880 | | Total current liabilities | $3,945 | $2,690 | | Total Liabilities | $10,832 | $9,781 | | Accumulated deficit | ($418,251) | ($393,416) | | Total Shareholders' Equity | $26,502 | $36,099 | Consolidated Statements of Loss and Comprehensive Loss For 2022, the company reported a net loss of $24.8 million, a decrease from $26.3 million in 2021, primarily due to lower G&A expenses | (in thousands of CAD) | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Research and development | $15,432 | $12,920 | $12,945 | | General and administrative | $11,492 | $13,315 | $12,514 | | Net Loss | ($24,835) | ($26,304) | ($22,505) | | Loss per common share | ($0.43) | ($0.49) | ($0.56) | Consolidated Statements of Cash Flows In 2022, cash used in operations was $23.4 million, resulting in a net decrease of $31.6 million, with year-end cash at $11.7 million | (in thousands of CAD) | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Cash used in operating activities | ($23,355) | ($22,433) | ($22,068) | | Cash used in investing activities | ($20,403) | ($286) | ($29) | | Cash provided by financing activities | $12,205 | $33,015 | $39,773 | | (Decrease) increase in cash | ($31,553) | $10,296 | $17,676 | | Cash, end of year | $11,666 | $41,262 | $31,220 |