Small-Cap Research. Oncolytics Biotech Inc. November 28, 2017 John D. Vandermosten, CFA (ONCYF - OTCQX) Cash & Validation: REOLYSIN is Going to Asia

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1 Small-Cap Research November 28, 2017 John D. Vandermosten, CFA / jvandermosten@zacks.com scr.zacks.com 10 S. Riverside Plaza, Suite 1600, Chicago, IL Oncolytics Biotech Inc. Cash & Validation: REOLYSIN is Going to Asia Based on our DCF model and a 15% discount rate, Oncolytics is valued at approximately $2.00 per share. Our model applies a 40% probability of approval for second line metastatic breast cancer based on interpolation of historical success ratios. Our valuation includes contributions from the US, EU and Japan. Current Price (11/27/2017) $0.55 Valuation $2.00 (ONCYF - OTCQX) OUTLOOK Oncolytics is developing an oncolytic virus as a cancer therapy employing the reovirus in its clinical work. The company is currently focused on breast and pancreatic indications where its sole product, REOLYSIN, functions as an immuno-oncology agent. The company s two key indications in breast and pancreatic cancer use REOLYSIN in conjunction with chemotherapy. Oncolytics will present data from its Phase II trial to regulatory agencies targeting a conditional marketing authorization and breakthrough designation. A Phase III trial has been designed and is expected to begin in mid-year The duration of the trial is expected to be 2.5 to 3 years and it is targeted to enroll from 400 patients. Assuming a 2022 launch of REOLYSIN, we believe the company s shares represent attractive value. Our target price of $2.00 per share is based solely on success in high mutation breast cancer. SUMMARY DATA 52-Week High Week Low 0.14 One-Year Return (%) 221 Beta 2.08 Average Daily Volume (sh) 145,821 Shares Outstanding (mil) Market Capitalization ($mil) 76.8 Short Interest Ratio (days) 2.67 Institutional Ownership (%) 1.0 Insider Ownership (%) 0.4 Annual Cash Dividend $0.00 Dividend Yield (%) Yr. Historical Growth Rates Sales (%) Earnings Per Share (%) Dividend (%) P/E using TTM EPS P/E using 2017 Estimate P/E using 2018 Estimate Risk Level Type of Stock Industry ZACKS ESTIMATES Above Average Small-Growth Med-Biomed/Gene Revenue (In millions of CAD) Q1 Q2 Q3 Q4 Year (Mar) (Jun) (Sep) (Dec) (Dec) 2016 $0.0 A $0.0 A $0.0 A $0.0 E $0.0 E 2017 $0.0 A $0.0 A $0.0 A $0.0 E $0.0 E 2018 $0.0 E 2019 $0.0 E Earnings per Share Q1 Q2 Q3 Q4 Year $0.03 A -$0.02 A -$0.03 A -$0.04 A -$0.13 A $0.03 A -$0.03 A -$0.02 A -$0.03 E -$0.11 E $0.12 E $0.12 E Zacks Rank Copyright 2017, Zacks Investment Research. All Rights Reserved.

2 WHAT S NEW Oncolytics Signs $87 Million Deal with Adlai Nortye In a previous article we discussed Oncolytics Biotech s (OTCQX: ONCYF / TSE: ONC) agreement with Adlai Norte for Asian development of REOLYSIN. The company announced this licensing deal with Adlai Nortye (NEEQ: ) on November 14, 2017 which will provide upfront licensing and milestones of $21.2 million to support the Phase III effort for REOLYSIN. There are additional amounts totaling $65.4 million that will be paid upon achieving clinical, regulatory and commercialization milestones. The deal also provides double digit royalties to Oncolytics from sales in the targeted regions. In return for the funds, Oncolytics will grant Adlai Nortye a regional license that covers China, Hong Kong, Macau, Singapore, South Korea and Taiwan. Adlai is responsible for all clinical, regulatory and commercialization efforts in its licensed areas. Adlai Nortye is a Chinese biotech firm with several molecules in preclinical stages focused on the cancer space. It is also cooperating with a Chinese academic institution to develop a PD-1/L1 inhibitor; a checkpoint inhibitor that could potentially be used in conjunction with REOLYSIN. Adlai s executive bench is deep and includes M.D.s and Ph.D.s with North American associations including JNJ, GSK, Merck, Duke University, US Veteran s Administration, UT Southwestern, University of Illinois, MD Anderson and others. REOLYSIN will now become Adlai Nortye s lead product and the only one in clinical trials. The partner is expected to pursue additional indications and, given the successes that have been observed in pancreatic cancer, we anticipate that this may be one of the areas where Adlai will begin. This deal will enable Oncolytics to begin registration of its Phase III study for REOLYSIN, which we expect to start mid-year The funding from Adlai will provide about 75% to 90% of the patient cost 1 throughout the trial s duration. Oncolytics continues to pursue additional relationships for development in Europe and Japan, which should begin to accelerate now that they have consummated a deal and shown outside interest. Agreement Details (in $USD) Upfront licensing and milestone payments of $21.2 million o o Upfront of $5.3 million Two milestones of $8 million comprised of callable share purchase warrants Clinical, regulatory and commercialization milestones of $65.4 million Double digit royalties from REOLYSIN sales Regulatory milestones of $7.9 million Concurrent with the Adlai deal and communications with other potential partners, Oncolytics is interacting with the EMA to obtain additional input for trial design prior to an anticipated mid-2018 launch of this global study. At this point, we anticipate that there will be trial sites in the US, China and Europe, of which about 10% will be contributed by Adlai. Key Milestones End of Phase II Meeting with the FDA (completed) MUK Eleven study first patient treated (September 2017) File for BTD with FDA (September/October 2017) Final analysis of REO 024 (REOLYSIN with Pembrolizumab) for pancreatic cancer Pursue additional collaborations for Phase III trial for metastatic breast cancer Launch Phase III trial for HR+/HER2- mbc (mid-2018) 1 Anticipated expenses of $60,000 to $70,000 per patient in 400 patient trial. Zacks Investment Research Page 2 scr.zacks.com

3 Summary Oncolytics inked a deal to access the notoriously difficult Chinese market through partner Adlai Nortye which has provided additional validation for REOLYSIN and capital to support the Phase III registrational trial. The company is also concurrently interacting with the EMA and other potential partners to develop other regions and obtain financial support for REOLYSIN. The company has made clear that they intend to pursue a co-development deal in North America, with royalties comprising a large part of the agreement. The Adlai Nortye licensing agreement is a beneficial deal in our opinion and we believe it may accelerate other negotiations in place. The deal increases our confidence in Oncolytics strategy and we maintain our price target of $2.00 per share. Zacks Investment Research Page 3 scr.zacks.com

4 PROJECTED FINANCIALS Oncolytics Biotech, Inc. - Income Statement Oncolytics Biotech Inc A Q1 A Q2 A Q3 A Q4 E 2017 E 2018 E 2019 E Total Revenues $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 R&D $9.8 $2.3 $2.9 $1.7 $2.3 $9.2 $10.0 $11.0 Operating $5.5 $1.3 $1.4 $1.3 $1.6 $5.7 $7.0 $7.2 Other expenses $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 Operating Income ( $15.3) ($3.6) ( $4.4) ($3.0) ( $3.9) ($14.9) ( $17.0) ( $18.2) Op erating M argin Interest Expense $0.2 $0.1 $0.0 $0.0 $0.0 $0.1 $0.1 Total Other Income $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 Pre-Tax Income ($15.1) ($3.5) ($4.3) ($3.0) ($3.9) ($14.8) ($16.9) ($18.2) Taxes & Other ($0.0) $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 Tax R ate $0.0 0 % 0% 0 % 0% 0 % 0 % 0 % Net Income ($15.1) ($3.5) ($4.3) ($3.0) ($3.9) ($14.8) ($16.9) ($18.2) Reported EPS ($0.13) ( $0.03) ($0.03) ( $0.02) ( $0.03) ($0.11) ( $0.12) ( $0.12) Y OY Growth Shares Outstanding S ource: Co mpany Filing // Zacks Investment R esearch, Inc. Estimates Copyright 2017, Zacks Investment Research. All Rights Reserved.

5 HISTORICAL STOCK PRICE Oncolytics Biotech, Inc. Price Chart 2,3 2 Price chart is for ONC as traded on TSE due to limited data availability for ONCYF. Share value is measured in Canadian Dollars. 3 Chart generated by Google Finance. Zacks Investment Research Page 5 scr.zacks.com

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