What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2023-03-22 compared with 2022-03-22 · 245 added, 403 removed, 65 unchanged (91% of the section changed)

9 unchanged sentences

Phio Pharmaceuticals Corp.

“ we ,” “ our ” or the “ Company ”) is seeking to address the biggest challenges in

immuno-oncology by creating new pathways to a cancer-free future for patients.

We are developing therapeutics that leverage our INTASYL™

technology to target both tumor and immune cells by regulating genes to strengthen a patient’s immune system while weakening tumor

defense mechanisms.

With our INTASYL self-delivering RNAi technology, we aim to bring the benefits of RNA therapeutics into cancer care

where other modalities may fall short.

are developing a pipeline of immuno-oncology therapies using our INTASYL technology that has the ability to attack cancers in multiple

Our INTASYL-based therapeutics are used to:

(1) strengthen immune cells, for example those administered as part of adoptive cell

therapy (“ ACT ”), and (2) directly modify cells in the tumor microenvironment (the “ TME ”) to weaken

a tumor’s defense.

These two strategies allow for multiple therapeutic applications of our INTASYL products.

In contrast to other RNA

technologies and platforms, the self-delivering nature of our INTASYL platform makes it ideally suited for use with ACT treatments, as

well as for direct therapeutic use.

By using INTASYL technology during the manufacturing of ACT cell products we can improve the phenotype

and function of these cells, potentially leading to better therapeutic outcomes.

Multiple inhibitory mechanisms restrain immune cells

from effectively eradicating tumors, including immune checkpoints, reduced cell fitness and cell persistence.

Furthermore, the immunosuppressive

TME can pose a formidable barrier to immune cell infiltration and function.

By using INTASYL based drugs administered directly, we can

also reprogram cells in the TME to help overcome these immunosuppressive mechanisms.

INTASYL Use To Improve

Adoptive Cell Therapy Products

ACT consists of the administration of immune cells

with antitumor properties to patients to fight cancer after growing the cells in a lab to large numbers.

These cells can be derived from

unmodified (i.e.

naturally occurring) immune cells, immune cells isolated from resected tumors or genetically engineered immune cells

that recognize tumor cells.

These cells have several shortcomings that inhibit their full therapeutic potential in patients with solid

There are several types of ACT, including:

non-engineered cell therapy in which immune cells are grown from the patient’s tumor or blood, such as tumor infiltrating lymphocytes

(“ TILs ”), or from donor blood or tissue such as natural killer (“ NK ”) cells, dendritic cells (“ DC ”)

and macrophages, and b.) genetically engineered immune cells that are genetically modified to recognize specific tumor proteins and to

remain in an activated state (such as T cell receptor technology (“ TCRs ”), chimeric antigen receptor (“ CAR ”)

T cells, or CAR-NK cells).

inhibitory mechanisms restrain immune cells used in ACT from effectively eradicating tumors, including immune checkpoints, reduced cell

fitness and cell persistence, and other barriers to immune cell infiltration and function mainly in solid tumors.

When used in ACT, we

believe our INTASYL compounds can improve immune cell function, differentiation and metabolism, in order to make these immune cells more

effective without the need for additional complicated manufacturing steps and/or genetic engineering.

Our approach builds on

well-established methodologies of ACT and involves the treatment of immune cells with our INTASYL compounds ex vivo while

they are grown in the lab and before administering them to the patient.

In contrast to other RNA

technologies, our INTASYL compounds do not require a delivery vehicle to penetrate into the cells, therefore we are able to enhance

the function of these cells by merely adding our INTASYL compounds during the expansion process and without the need for genetic engineering,

complex delivery vehicles or formulations, or additional complex manufacturing steps, which in themselves

may be detrimental to the cells.

By adding INTASYL to the cell culture media used during the cell expansion, we can reduce or eliminate

the expression of genes that make the immune cells less effective.

Our lead product candidate,

and our most advanced program being developed by the Company in ACT, is PH-762.

PH-762 is an INTASYL compound that activates immune cells

to better recognize and kill cancer cells by reducing the expression of the checkpoint protein PD-1, a clinically validated target for

immunotherapy.

Checkpoint proteins, such as PD-1, normally act as a type of “off switch” that prevent T cells, immune cells

that protect the body from cancer cells and infections, from attacking certain cells in the body, such as cancer cells.

The expression

of PD-1 enables the cancer cell to evade the T cell.

Reducing the expression of PD-1 can thereby reduce the ability of cancer cells to

avoid T cell detection.

Data has shown that PH-762

silences PD-1 checkpoint expression in T cells, thereby removing the “off switch” and enabling T cells to overcome tumor resistance

mechanisms, and thus improving their ability to destroy tumor cells.

Preclinical studies show that PH-762 can silence the expression of

PD-1 in target human T cells in a potent and durable manner and can increase their tumor cell-killing ability.

Patient derived T cells

treated with PH-762, in comparison to untreated T cells, were shown to have increased tumor killing potency against tumor cells of the

same patient.

As a result, we believe that PH-762 in ACT is well-positioned to enhance therapeutic responses in cancer.

In March 2021, the Company announced that it entered

into a clinical development collaboration with AgonOx, Inc.

(“ AgonOx ”), a private company developing a pipeline of

novel immunotherapy drugs targeting key regulators of the immune response to cancer, in which the companies will collaborate on the development

of novel T cell-based therapies using PH-762 and AgonOx’s “double positive” TIL (“ DP TIL ”) technology.

Per the terms of the clinical development agreement, AgonOx will receive financial support from Phio to conduct a clinical trial in ACT

with their DP TIL technology and PH-762, and Phio will be entitled to certain future development milestones and sales-based royalty payments

from AgonOx’s DP TIL technology.

AgonOx has demonstrated that their DP TIL enriched cell populations have increased tumor killing

activity when compared to TILs that were not enriched prior to expansion.

Preclinical data from our research collaboration with AgonOx

has shown that treating DP TILs with PH-762 increases the tumor killing activity of the DP TILs even further (a two-fold increase).

a result, we expect the use of PH-762 treated DP TILs to enhance therapeutic responses in cancer.

Based on this data, our clinical development

collaboration will focus on conducting a clinical study for PH-762 treated DP TILs.

As a result of impacts from the coronavirus pandemic,

the availability of certain materials for the clinical trial are delayed.

Based upon current information, the Company expects to start

the clinical trial evaluating the use of PH-762 and DP TILs in ACT in the second quarter of 2022.

PH-762 use in ACT is not

limited to TILs, but can also be used on other forms of T cell-based cell therapy.

We recently presented in vivo data

showing that PH-762 significantly enhanced the antitumor efficacy of HER2-targeted CAR-T cells (“ HER2CART ”) in solid

Compared to untreated HER2CART cells, HER2CART cells treated with PH-762 showed a statistically significant and durable inhibition

of tumor growth.

Analysis of the PH-762 treated HER2CART cells isolated from the tumors suggest that PH-762 enhances CAR-T function through

multiple mechanisms including enhanced efficiency, degranulation and promotion of memory/stem populations.

We believe that this data provides

proof of concept for the application of PD-1 checkpoint silencing with INTASYL in CAR-T cells prior to ACT to enhance the therapeutic

efficacy of CAR-T cell therapy in solid tumors.

Our second product candidate in development for

use in ACT is PH-894.

PH-894 is an INTASYL compound that silences the epigenetic protein BRD4, which is an intracellular regulator of

gene expression that impacts cell differentiation, and hence, cell function.

Like other epigenetic targets, BRD4 is a protein that has

been shown to be difficult to target with current drug modalities.

Since BRD4 is an intracellular protein, antibody therapies cannot be

used and small molecule inhibitors tested to date typically lack the required specificity.

As our INTASYL compounds can target intracellular

proteins as well as extracellular proteins with a high level of specificity, we believe that PH-894 has significant potential.

In collaboration

with the Karolinska Institutet in Sweden, PH-894 has been shown to improve T cell function and persistence by differentiating T cells

into a more active state (stem-cell like memory phenotype).

We have demonstrated that the application of PH-894 is shown to silence BRD4

in human T cells during expansion for ACT, which has the potential to confer superior anti-tumor activity.

Our INTASYL compound PH-804

is also being developed for use in ACT.

PH-804 targets the suppressive immune receptor TIGIT, which is a checkpoint protein present on

immune cells, such as T cells and NK cells.

Similar to PD-1, cancer cells can suppress the activity of these immune cells by activating

This triggers an “off switch,” resulting in tumor immune evasion, which can be prevented by blocking or silencing TIGIT.

PH-804 provides powerful dose-dependent silencing of TIGIT that can be seen in both T cells and NK cells and we have shown that PH-804

can silence the expression of TIGIT in these cells, overcoming their “off switch” and thereby becoming “weaponized”

to kill cancer cells.

Direct Therapeutic Use of INTASYL Towards the Tumor Microenvironment

have evolved natural defenses that can suppress the immune system surrounding the tumor, in an area called the tumor microenvironment,

which decreases the effectiveness of many traditional immunotherapies.

Reprogramming different cell types in the TME, such as cancer cells

and immune cells, may overcome these natural tumor defenses and decrease resistance to immunotherapy.

An optimal treatment therapy should

have the ability to address targets both inside and on the surface of tumor and immune cells, creating multiple ways to prevent tumors

from evading immune detection.

Our INTASYL compounds can target both intracellular and extracellular targets, and are also being developed

for use as direct therapeutics to reprogram the TME, for example, by in situ transfection and activation of immune cells

Therefore, INTASYL-based drug therapy is a novel way of fighting cancer by reprogramming the cells in the TME to make cancer

more responsive to a patient’s immune system and to other anti-cancer drugs.

most advanced program being developed by the Company in our direct to tumor therapy programs, is PH-762.

We have shown that we can reprogram

the TME with PH-762 and achieve local activation of immune cells.

Preclinical studies conducted by the Company showed that local administration

of PH-762 through intratumoral injection resulted in potent anti-tumoral effects.

Treated animals showed a complete and statistically

significant inhibition of tumor growth, whereas placebo treated animals displayed exponential tumor growth.

Recently announced in

vivo data showed that intratumoral treatment with PH-762 inhibits tumor growth in a dose dependent fashion in PD-1 responsive

and refractory models.

Furthermore, on target efficacy was supported by modulation of immune cell populations toward anti-tumor phenotypes.

Importantly, local administration of PH-762 resulted in activity against distal untreated tumors, indicative of a systemic anti-tumor

The Company believes this data further supports the potential for PH-762 to provide a strong local immune checkpoint blockade

without the dose immune-related adverse effects seen with systemic antibody therapy.

In January 2022, the Company was granted

clinical trial authorization (CTA) by the French National Agency for the Safety of Medicines and Health Products to

proceed with our first-in-human clinical trial for PH-762 to treat patients with melanoma at the Gustave Roussy Institute, one

of the largest cancer centers in Europe.

This first clinical trial with PH-762 will be a Phase 1b study to evaluate the safety,

tolerability, pharmacokinetics and anti-tumor activity of PH-762 in a neoadjuvant setting in subjects with advanced melanoma.

Currently, there are no neoadjuvant treatment options approved for these patients.

The clinical study will feature a dose escalation

of PH-762 monotherapy and is designed to allow for a data driven evaluation of the recommended Phase 2 dose.

The Company expects to

start patient enrollment in the first quarter of 2022.

Our second direct to

tumor product candidate is PH-894.

In a study conducted in collaboration with the Karolinska Institutet, we demonstrated that PH-894

resulted in a strong, concentration dependent and durable silencing of BRD4 in T cells, and in various cancer cells.

Data published

with PH-894 in a hepatocellular carcinoma model showed potent and statistically significant anti-tumoral effects when administered

These data show that our PH-894 compound can reprogram T cells and other cells in the TME to provide enhanced

immunotherapeutic activity.

Recent in vivo data showed that local administration of PH-894 also resulted in a systemic

anti-tumor response, similar to PH-762.

PH-894 shows the power of our INTASYL compounds to modulate the expression of intracellular

and/or commonly considered “undruggable” targets, a limitation for small molecule and antibody therapies.

currently expects to finalize IND-enabling studies for PH-894 in the second half of 2022.

We are also investigating the use of INTASYL to

target multiple genes in a single formulation.

New study data showed that PH-3861, a dual-targeting INTASYL towards PD-1 and BRD4, elicited

complete cure of tumors in an in vivo hepatoma model and outperformed the efficacy of the small molecule and antibody

control treatments toward the same targets.

In addition, local INTASYL therapy was shown to induce a systemic anti-tumor response with

clearance of untreated distal tumors.

The animals which showed complete cure of their tumors were then rechallenged over two months after

the original treatment of PH-3861 by re-implanting hepatoma cancer cells at a different location to the original tumor.

All of the mice

that were rechallenged with new tumors were cured again without requiring further treatment, while tumors grew steadily in the control

group as expected.

We believe that these data demonstrate that local administration of PH-3861 provides a durable and systemic anti-tumor

immune response that can combat tumor growth.

Impact of COVID-19

on our Business

While measures to contain

and prevent the spread of coronavirus and its variants may be modified or extended, we expect that our activities, including our internal

research and development functions, will continue to remain largely operational, though we have experienced and may continue to experience

delays in our clinical activities.

We have implemented safety measures following the guidance provided by the World Health Organization

(the “ WHO ”), the Centers for Disease Control (the “ CDC ”) and governmental authorities, such as working

remotely and flexible scheduling.

We expect to continue following these safety measures and may take further actions as we require, as

government authorities require or recommend, or as we determine to be in the best interests of our employees.

and future pandemic-related restrictions may further impact our operations and may slow or diminish our research and development activities.

As a result of the coronavirus pandemic, certain

of our third-party suppliers and service providers on which we rely have seen impacts to their operations.

The Company has undertaken

efforts to mitigate potential future impacts by identifying and engaging alternative third-party service providers and suppliers, and

because of that, the Company has been able to limit the impact of delays from our third-party service providers to our program’s

anticipated timelines.

However, the continued impacts to our third-party service providers, including, for example, limited availability

of certain services and supplies, began to significantly affect our operations in the second quarter of 2021, resulting in delays to

certain of our clinical program timelines.

Further, while the steps required for us to initiate our clinical trials with PH-762 are ongoing,

the commencement of new clinical trials and the enrollment and participation of patients in clinical trials have been impacted as a result

of the coronavirus pandemic, and the Company does not yet know the full extent of similar potential delays or impacts related to its

planned clinical activities.

If measures to overcome the pandemic are insufficient, the availability of supplies and services that we

purchase and rely on could be further reduced or delayed, which may in turn further slow or delay our preclinical and clinical activities.

In May 2020, the Company applied for and received

a loan of $231,252 under the Paycheck Protection Program (the “ PPP ”) as part of the Coronavirus Aid, Relief and Economic

Security Act (the “ CARES Act ”).

In February 2021, the Small Business Administration (the “ SBA ”)

approved the Company’s application for full loan forgiveness, and the full amount of the PPP loan was remitted to the lender for

We believe this loan helped to mitigate the financial impact to us of the coronavirus pandemic on our financial condition.

While we believe

that the coronavirus pandemic has not had a significant impact on our financial condition to date, the extent to which the pandemic

impacts our results will depend on future developments, which are highly uncertain and cannot be predicted.

developments outside of our control that require us to adjust our operating plans, including new information which may emerge

concerning the actions to contain the coronavirus or treat its impact, among others.

We do not yet know the full extent of potential

delays or impacts on our business or our preclinical and clinical trial activities, and, therefore, given the nature of the

situation, we cannot reasonably estimate the impact of the coronavirus on our financial condition, results of operations or cash

flows in the future.

(“ Phio ,” “ we ,” “ our ” or the “ Company ”) is a clinical stage

biotechnology company whose proprietary INTASYL™ self-delivering RNAi technology platform is designed to make immune cells more

effective in killing tumor cells.

We are developing therapeutics that are designed to leverage INTASYL to precisely target specific proteins

that reduce the body’s ability to fight cancer, without the need for specialized formulations or drug delivery systems.

We are committed

to discovering and developing innovative cancer treatments for patients by creating new pathways toward a cancer-free future.

Our development efforts are based on our proprietary

INTASYL self-delivering RNAi technology platform.

INTASYL compounds are designed to precisely target specific proteins that reduce the

body’s ability to fight cancer, without the need for specialized formulations or drug delivery systems, and are designed to make

immune cells more effective in killing tumor cells.

Our efforts are focused on developing immuno-oncology therapeutics using our INTASYL

We have demonstrated preclinical efficacy in both direct-to-tumor injection and adoptive cell therapy (“ ACT ”)

applications with our INTASYL compounds.

PH-762 is an INTASYL compound designed to reduce

the expression of cell death protein 1 (“ PD-1 ”).

PD-1 is a protein that inhibits T cells’ ability to kill cancer

cells and is a clinically validated target in immunotherapy.

Decreasing the expression of PD-1 can thereby increase the capacity of T

cells, which protect the body from cancer cells and infections, to kill cancer cells.

Preclinical studies conducted by the Company have

demonstrated that direct-to-tumor application of PH-762 resulted in potent anti-tumoral effects and have shown that direct-to-tumor treatment

with PH-762 inhibits tumor growth in a dose dependent fashion in PD-1 responsive and refractory models.

Importantly, direct-to-tumor administration

of PH-762 resulted in activity against distant untreated tumors, indicative of a systemic anti-tumor response.

We believe these data further

support the potential for PH-762 to provide a strong local immune response without the dose immune-related adverse effects seen with systemic

antibody therapy.

PH-762 is currently being

evaluated in a Phase 1b dose escalation clinical trial in France that is expected to enroll up to 21 subjects with advanced melanoma.

PH-762 will be administered as a neoadjuvant monotherapy intratumorally once a week, for a total of four injections, across five escalating

Dosing will be followed by tumoral excision after an additional two weeks.

The primary study objectives are to evaluate the

safety and tolerability, and pharmacokinetics of PH-762;

to determine the potential immunologic and pathologic tumor responses;

determine the recommended dose for later clinical trials.

Safety data from the initial cohort of three subjects in the clinical trial

was evaluated by a Data Monitoring Committee in the first quarter of 2023.

The safety data review disclosed no dose-limiting toxicity,

and no drug-related severe or serious adverse events, and the Data Monitoring Committee recommended proceeding to the enrollment of the

subsequent dose cohort.

The next cohort is now open for enrollment of subjects.

In addition to the French

clinical trial, we expect to commence a U.S.

Phase 1b clinical trial with PH-762 in the second half of 2023.

trial is expected

to focus on the application of PH-762 to treat cutaneous squamous cell carcinoma (“ cSCC ”) and other selected cutaneous

malignancies.

Due to INTASYL’s ease

of administration, we have shown that our compounds can easily be incorporated into current ACT manufacturing processes.

In ACT, T cells

are usually taken from a patient's own blood or tumor tissue, grown in large numbers in a laboratory, and then given back to the patient

to help the immune system fight cancer.

By treating T cells with our INTASYL compounds while they are being grown in the laboratory, we

believe our INTASYL compounds can improve these immune cells to make them more effective in killing cancer.

Preclinical data generated

in collaboration with AgonOx, Inc.

(“ AgonOx ”), a private company developing a pipeline of novel immunotherapy drugs

targeting key regulators of the immune response to cancer, demonstrated that treating AgonOx’s “double positive” tumor

infiltrating lymphocyte (“ DP TIL ”) with PH-762 increased by two-fold their tumor killing activity.

In March 2021, we entered

into a clinical co-development collaboration agreement (the “ Clinical Co-Development Agreement ”) with AgonOx to conduct

a Phase 1 clinical trial using DP TIL and PH-762.

Under the Clinical Co-Development Agreement, we paid AgonOx $0.3 million as an upfront

payment in December 2022 and have agreed to provide up to $4 million in total financial support to AgonOx to conduct a Phase 1 clinical

trial of PH-762 treated DP TIL.

Phio is also eligible to receive certain future development milestones and low single-digit sales-based

royalty payments from AgonOx’s licensing of its DP TIL technology.

PH-762 treated DP TILs are

expected to be evaluated in a Phase 1 clinical trial in the United States with up to 18 subjects with advanced melanoma and other advanced

solid tumors.

The primary study objectives are to evaluate the safety and to study the potential for enhanced therapeutic benefit from

the administration of PH-762 treated DP TILs.

Enrollment of subjects is expected to commence in the second quarter of 2023.

PH-894 is an INTASYL compound that is designed

to silence BRD4, a protein that controls gene expression in both T cells and tumor cells, thereby effecting the immune system as well

as the tumor.

Intracellular and/or commonly considered “undruggable” targets, such as BRD4, represent a challenge for small

molecule and antibody therapies.

Therefore, what sets this compound apart is its dual mechanism:

PH-894 suppression of BRD4 in T cells

results in T cell activation, and suppression of BRD4 in tumor cells results in tumors becoming more sensitive to being killed by T cells.

Preclinical studies conducted have demonstrated that

PH-894 resulted in a strong, concentration dependent and durable silencing of BRD4 in T cells and in various cancer cells.

PH-762, preclinical studies have also shown that direct-to-tumor application of PH-894 resulted in potent and statistically significant

anti-tumoral effects and demonstrated a systemic anti-tumor response.

These preclinical data indicate that PH-894 can reprogram T cells

and other cells in the tumor microenvironment to provide enhanced immunotherapeutic activity.

The Company has completed the investigational

new drug (“ IND ”)-enabling studies and is in the process of finalizing the study reports required for an IND submission

As a result of the reprioritization to advance the Company’s clinical trial with PH-762 in the U.S., the Company has

elected to defer the IND submission for PH-894.

of the Coronavirus Pandemic

continues to respond to and monitor the ongoing coronavirus pandemic.

The Company believes that the coronavirus pandemic has not had a

significant impact on our financial condition and results of operations, however, the extent to which the coronavirus pandemic may materially

impact our financial results and operations will depend on a number of factors, including the availability of supplies and services we

rely on, the ability to enroll subjects in our clinical trials, the emergence of variant strains of the coronavirus, the development,

availability, and public acceptance of effective treatments and vaccines, and the duration of the coronavirus pandemic, which remain difficult

to predict and are highly uncertain.

Inflation has

increased during the period covered by this Annual Report and is expected to continue to remain at elevated levels or even increase in

the near future.

Inflation generally affects us by increasing our cost of labor and third party contract costs.

We do not believe inflation

has had a material effect on our results of operations during year ended December 31, 2022.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition

and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting

and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting

principles generally accepted in the United States (“ GAAP ”).

7 unchanged sentences

While our significant accounting policies

are more fully described in the notes to our consolidated financial statements included elsewhere in this Annual Report, we believe the

following accounting policies to be the most critical in understanding the judgments and estimates we use in preparing our financial statements.

are more fully described in Note 1 to our consolidated financial statements included elsewhere in this Annual Report, we believe the following

addresses the Company’s accounting policies to be the most critical in understanding the judgments and estimates we use in preparing

our financial statements.

Research and Development Expenses

and development expenses are charged to expense as incurred.

Payments made by the Company in advance for research and development services

not yet provided and/or for materials not yet received are recorded as prepaid expenses and expensed when the service has been performed

or when the goods have been received.

Accrued liabilities are recorded with respect to services provided and/or materials that it has

received for which vendors have not yet billed the Company.

The financial terms of these contracts are subject to negotiation, vary from

provider to provider and may result in uneven payment flows.

There may be instances in which payments made to our vendors exceed the level

of services provided and result in a prepayment of the expense.

In other instances, payment depends on factors such as the successful

completion of milestones.

We are required

to estimate our accrued research and development expenses, of which a significant portion relate to third party providers the Company

has contracted with to perform various research activities on our

behalf for the continued development of our product candidates.

process includes reviewing open contracts and purchase orders, estimating the service performed and the associated cost incurred

for research and development services not yet billed or otherwise notified of actual cost.

liabilities for the services provided by contract research organizations are recorded during the period incurred based on such estimates

and assumptions as expected cost, passage of time, the level of effort to be expended in each period, the achievement of milestones and

other information available to us.

Estimates of our research and development accruals are assessed on a quarterly basis based on an evaluation

of the progress to completion of specific tasks using information and data provided to us by our vendors and facts and circumstances known

to us at that time, and adjusted accordingly.

Actual results

may differ from these estimates and could have a material impact on the Company’s reported results.

The Company’s historical

accrual estimates have not been materially different from its actual costs.

Due to the nature of estimates, we cannot provide assurance

that we will not make changes to our estimates in the future as we become aware of additional information about the conduct of our research

Stock-based Compensation

The Company follows the provisions of the Financial

Accounting Standards Board (the “ FASB ”) Accounting Standards Codification (“ ASC ”) Topic 718, “ Compensation

– Stock Compensation ” (“ ASC 718 ”), which requires the measurement and recognition of compensation expense

for all stock-based payment awards.

The fair value of restricted stock units is based upon our closing stock price at the grant date.

We use the Black-Scholes option-pricing model to estimate the fair value of stock options at the grant date.

The Black-Scholes valuation

model requires the input of valuation assumptions to calculate the value of stock options, including expected volatility, expected term,

risk-free interest rate and expected dividends.

Stock-based compensation expense is recognized over the requisite service period, which

generally represents the vesting period, and commences at the date of grant based on the fair value of the award.

compensation expense recognized in the financial statements is based on awards that are ultimately expected to vest.

Accordingly, we are

also required to estimate forfeitures at the time of grant and to revise those estimates in subsequent periods if actual forfeitures differ

from estimates.

We use historical data to estimate pre-vesting award forfeitures and record stock-based compensation expense only for

those awards that are expected to vest.

Our forfeiture rate estimates are based on an analysis of our actual forfeiture experience, employee

turnover behavior, and other factors.

The impact of any adjustments to our forfeiture rates is recorded as a cumulative adjustment in

the period of adjustment.

To the extent that actual forfeitures differ from our estimates, the difference is recorded as a cumulative

adjustment in the period the estimates are revised.

Derivative Financial Instruments

During the normal course

of business we may issue warrants to vendors as consideration to perform services.

We may also issue warrants as part of a debt or equity

Warrants and other derivative financial instruments are accounted for either as equity or as an asset or liability, depending

on the characteristics of each derivative financial instrument.

Financial instruments that do not meet the definition of a derivative

are classified as equity and measured at fair value and recorded as additional paid in capital in stockholders’ equity at the date

No further adjustments to their valuation are made.

Financial instruments that meet the definition of a derivative are classified

as an asset or liability are measured at fair value on the issuance date and are revalued on each subsequent balance sheet date.

in the fair value are recognized as current period income or loss.

At the inception of a contract, the Company determines

whether the contract is or contains a lease based on all relevant facts and circumstances.

For contracts that contain a lease, the Company

identifies the lease and non-lease components, determines the consideration in the contract and recognizes the classification of the lease

as operating or financing.

For leases with a term greater than one year, the Company recognizes a liability to make lease payments and

an asset representing the right to use the underlying asset during the lease term at the commencement date of the lease.

Lease liabilities and the corresponding right of

use assets are recorded based on the present value of lease payments to be made over the lease term.

The discount rate used to calculate

the present value is the rate implicit in the lease, or if not readily determinable, the Company’s incremental borrowing rate.

Company’s incremental borrowing rate is the rate of interest that the Company would have to pay to borrow on a collateralized basis

over a similar term an amount equal to the lease payments in a similar economic environment.

Certain adjustments to the right of use asset

may be required for items such as initial direct costs or incentives received.

Lease payments, including scheduled increases, on operating

leases are recognized on a straight-line basis over the expected term of the lease.

Lease payments on financing leases are recognized

using the effective interest method.

Research and development expenses are charged to

expense as incurred.

Payments made by the Company in advance for research and development services not yet provided and/or for materials

not yet received are recorded as prepaid expenses and expensed when the service has been performed or when the goods have been received.

Accrued liabilities are recorded with respect to services provided and/or materials that we have received for which vendors have not yet

The financial terms of these contracts are subject to negotiation, vary from provider to provider and may result in

uneven payment flows.

There may be instances in which payments made to our vendors exceed the level of services provided and result in

a prepayment of the expense.

In other instances, payment depends on factors such as the successful completion of milestones.

We are required to estimate our accrued research

and development expenses, of which a significant portion relate to third party providers the Company has contracted with to perform various

research activities on our behalf for the continued development of our product candidates.

This process includes reviewing open contracts

and purchase orders, estimating the service performed and the associated cost incurred for research and development services not yet billed

or otherwise notified of actual cost.

Accrued liabilities for the services provided by contract research organizations are recorded during

the period incurred based on such estimates and assumptions as expected cost, passage of time, the level of effort to be expended in each

period, the achievement of milestones and other information available to us.

Estimates of our research and development accruals are assessed

on a quarterly basis based on an evaluation of the progress to completion of specific tasks using information and data provided to us

by our vendors and facts and circumstances known to us at that time, and adjusted accordingly.

Actual results may differ from these estimates

and could have a material impact on the Company’s reported results.

The Company’s historical accrual estimates have not been

materially different from our actual costs.

Due to the nature of estimates, we cannot provide assurance that we will not make changes

to our estimates in the future as we become aware of additional information about the conduct of our research activities.

Collaborative Arrangements

follows the provisions of the Financial Accounting Standards Board (the “ FASB ”) Accounting Standards Codification

(“ ASC ”) Topic 808, “ Collaborative Arrangements ,” (“ Topic

808 ”) when collaboration agreements involve joint operating activities in which both parties are active participants and that

are also both exposed to significant risks and rewards.

The Company also considers the guidance in the FASB ASC Topic 606, “ Revenue

from Contracts with Customers ,” (“ Topic 606 ”) in determining the appropriate treatment for activities between

the Company and our collaborative partners that are more reflective of a vendor-customer relationship and therefore, within the scope

of Topic 606.

Under Topic 808, we determine an appropriate recognition method, either by analogy to appropriate accounting literature

or by applying a reasonable accounting policy election.

Generally, the classification of transactions under the collaborative arrangement

is determined based on the nature and contractual terms of the arrangement along with the nature of the operations of the participants.

The Company recognizes its share of costs arising from research and development activities performed by collaborators in the period its

collaborators incur such expense.

Payments or reimbursements that are the result of a collaborative

relationship instead of a customer relationship, such as co-development activities, are evaluated on a quarterly basis and recorded as

an offset to research and development expense incurred.

Financial Operations Overview

1 unchanged sentence

generated revenues through government grants.

We have not generated any commercial product revenue.

We have not generated any commercial product revenue and do not expect to do so in the foreseeable

In the future, we may

15 unchanged sentences

immuno-oncology therapeutics based on our INTASYL therapeutic platform.

Since we commenced operations, research and development has composed

a significant portion of our total operating expenses and is expected to compose the majority of our spending for the foreseeable future.

Since we commenced operations, research and development expenses

have been a significant portion of our total operating expenses and are expected to constitute the majority of our spending for the foreseeable

General and Administrative Expenses

and administrative expenses relate to compensation and benefits for general and administrative personnel, facility-related expenses, professional

fees for legal, audit, tax and consulting services, as well as other general corporate expenses.

Other Income, net

Other income consists

primarily of interest income and expense and various income or expense items of a non-recurring nature.

General and administrative

expenses relate to compensation and benefits for general and administrative personnel, facility-related expenses, professional fees for

legal, audit, tax and consulting services, as well as other general corporate expenses.

Other (Expense) Income, net

Other (expense) income

consists primarily of interest income and expense and various income or expense items of a non-recurring nature.

Results of Operations

The following data summarizes

The following table summarizes

our results of operations for the periods indicated, in thousands:

9 unchanged sentences

Research and Development Expenses

Research and development expenses for the year

ended December 31, 2021 increased 139% compared with the year ended December 31, 2020.

The increase in research and development expenses

was primarily due to manufacturing costs for the Company’s PH-762 and PH-894 INTASYL compounds, fees for the required preclinical

studies in support of the Company’s clinical trials for PH-762 and CRO and consulting related costs to support the initiation of

the Company’s clinical trials as compared to the same period in the prior year.

and development expenses for the year ended December 31, 2022 decreased 21% compared with the year ended December 31, 2021.

in research and development expenses was primarily driven by manufacturing related costs of approximately $2,000,000 for our PH-762

and PH-894 compounds and approximately $195,000 in preclinical studies with PH-762 that were required for the Company’s clinical

trial in France, both of which were completed in the prior year period, offset by increases in clinical-related costs for the Company’s

clinical trials with PH-762 in France and in ACT with our partner AgonOx of approximately $334,000.

The Company anticipates

research and development expenses to increase as a result of clinical-related activities as our pipeline programs progress in clinical

General and Administrative Expenses

General and administrative expenses for the

year ended December 31, 2021 decreased 9% compared with the year ended December 31, 2020.

The decrease in general and administrative

expenses was primarily due to a decrease in patent and legal fees partially offset by increases in the use of an outside consultant

to support business development activities and corporate insurance premiums.

income for the year ended December 31, 2021 increased by $225,000 as compared with the year ended December 31, 2020, primarily due to

the full forgiveness of the Company’s PPP loan by the SBA in the first quarter of 2021.

General and administrative expenses for the year ended

December 31, 2022 decreased 4% compared with the year ended December 31, 2021.

The decrease in general and administrative expenses was

primarily due to decreases in total payroll-related expenses of approximately $156,000 as a result of the departure of our former Chief

Executive Officer and a reduction in the use of consultants and outside professional services of approximately $141,000 offset by approximately

$55,000 in executive search fees.

Total Other (Expense) Income

Total other income for the year ended December 31,

2022 decreased by $242,000 as compared with the year ended December 31, 2021, primarily due to the full forgiveness of our Paycheck Protection

Program (“ PPP ”) loan in 2021.

Liquidity and Capital Resources

Historically, the Company’s primary source

of funding has been through the sale of its securities.

In the future, we will be dependent on obtaining

funding from third parties, such as proceeds from the issuance of debt, sale of equity or strategic opportunities, in order to maintain

our operations.

We have reported recurring losses from operations since inception and expect that we will continue to have

negative cash flows from our operations for the foreseeable future.

At December 31, 2021, we had cash of $24,057,000 as compared with

$14,244,000 at December 31, 2020.

August 2019, the Company entered into a purchase agreement (the “ Purchase Agreement ”)

with Lincoln Park Capital, LLC (“ LPC ”), pursuant to which the Company

has the right to sell to LPC up to $10,000,000 in shares of the Company’s common stock, subject to certain limitations and conditions

set forth in the agreement.

The Company is initially limited to the issuance of 19.99% of the Company’s shares outstanding on the

date of the Purchase Agreement unless stockholder approval is obtained to issue more than such amount or the average price of all sales

under the Purchase Agreement exceeds certain amounts set forth in the agreement.

The Purchase Agreement expires in May 2022.

no shares of common stock have been sold to LPC under the Purchase Agreement.

In January 2021, the Company sold 4,420,863 shares

of Company common stock at a purchase price per share of $3.07, pre-funded warrants to purchase an aggregate of 140,065 shares of Company

common stock at a purchase price per pre-funded warrant share of $3.069, and warrants to purchase an aggregate of 3,420,696 shares of

the Company’s common stock with an exercise price of $3.00 per warrant share in a private placement transaction.

Net proceeds to

the Company were $12,669,000 after deducting placement agent fees and offering expenses.

In February 2021, the Company sold 2,246,784 shares

of Company common stock at a purchase price of $3.42 per share in a registered direct offering under the Company’s Form S-3 “shelf”

registration statement.

Net proceeds to the Company were $6,908,000 after deducting placement agent fees and offering expenses.

We believe that our existing cash at December 31,

2021 should be sufficient to fund operations for at least the next 12 months from the date of the

release of the associated financial statements.

The following table summarizes our cash flows for

the periods indicated, in thousands:

Historically, our primary

source of funding has been through the sale of our securities.

In the future, we will be dependent on obtaining funding from third parties,

such as proceeds from the issuance of debt, sale of equity or strategic opportunities, in order to maintain our operations.

reported recurring losses from operations since inception and expect that we will continue to have negative cash flows from our operations

for the foreseeable future.

At December 31, 2022, we had cash of $11,781,000 as compared with $24,057,000 at December 31, 2021.

In August 2019, we entered

into a purchase agreement (the “ Purchase Agreement ”) with Lincoln Park Capital, LLC (“ LPC ”), pursuant

to which we had the right to sell to LPC up to $10,000,000 in shares of our common stock, subject to certain limitations and conditions

set forth in the Purchase Agreement.

The Purchase Agreement expired in May 2022 and no shares of common stock were sold to LPC under the

Purchase Agreement.

has limited cash resources, has reported recurring losses from operations since inception and has not yet received product revenues.

These factors raise substantial doubt regarding the Company’s ability to continue as a going concern, and the Company’s current

cash resources may not provide sufficient capital to fund operations for at least the next 12 months from the date of the release of

the financial statements included elsewhere in this Annual Report.

The continuation of the Company as a going concern depends upon the

Company’s ability to raise additional capital through equity offerings, debt offerings or strategic opportunities to fund its operations.

There can be no assurance that the Company will be successful in accomplishing any of these plans in order to continue as a going concern.

The financial statements included elsewhere in this Annual Report do not include any adjustments to the recoverability and classification

of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going

The following table summarizes our cash flows for the periods indicated, in thousands:

Net cash used in operating activities

Net cash used in investing activities

Net cash provided by financing activities

Net increase in cash and restricted cash

Net cash (used in) provided by financing activities

Net (decrease) increase in cash and restricted cash

Net Cash Flow from Operating Activities

used in operating activities was $11,858,000 for the year ended December 31, 2021, as compared

with $8,802,000 for the year ended December 31, 2020.

The increase in cash used in operating

activities was primarily due to increases in net loss and changes in operating assets and liabilities as a result of increased spending

primarily related to the Company’s manufacturing activities and preclinical studies in support of the clinical trials for PH-762.

Net cash used in operating activities for the year

ended December 31, 2022 increased as compared with the year ended December 31, 2021, primarily due to an increase of $2,246,000 in the

changes in operating assets and liabilities primarily due to payments made for the preclinical studies conducted for PH-894 and for the

manufacturing of our PH-762 and PH-894 compounds and an increase of $168,000 in non-cash related items primarily as a result of the full

forgiveness of the Company’s PPP loan in the prior year period offset by a decrease in net loss of $1,807,000.

Net Cash Flow from Investing Activities

used in investing activities was $51,000 for the year ended December 31, 2021, as compared

with $19,000 for the year ended December 31, 2020.

The increase in cash used in investing

activities was primarily related to laboratory and computer equipment purchases.

Net cash used in investing activities for the year

ended December 31, 2022 increased as compared with the year ended December 31, 2021, primarily due to an increase of $70,000 in laboratory

and computer equipment purchases for the Company’s facility as compared to the prior year period.

Net Cash Flow from Financing Activities

provided by financing activities was $21,722,000 for the year ended December 31, 2021, as

compared with $16,131,000 for the year ended December 31, 2020.

The increase in cash provided

by financing activities was primarily due to the net proceeds received by the Company from capital raising activities and warrant exercises.

Off-Balance Sheet Arrangements

In connection with certain license agreements,

we are required to indemnify the licensor for certain damages arising in connection with the intellectual property rights licensed under

the agreement.

In addition, we are a party to a number of agreements entered into in the ordinary course of business that contain typical

provisions that obligate us to indemnify the other parties to such agreements upon the occurrence of certain events.

These indemnification

obligations are considered off-balance sheet arrangements in accordance with ASC Topic 460, “ Guarantor’s Accounting and

Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others .” To date, we have not encountered

material costs as a result of such obligations and have not accrued any liabilities related to such obligations in our financial statements.

See Note 9 to our consolidated financial statements for further discussion of these indemnification agreements.

Net cash from financing activities

for the year ended December 31, 2022 decreased as compared with the year ended December 31, 2021, primarily due to the net proceeds of

$21,722,000 received by the Company from capital raising activities and warrant exercises in the comparable prior year period.

Contractual Obligations

In March 2021, we entered into

a Clinical Co-Development Agreement with AgonOx to develop a T cell-based therapy using PH-762, and AgonOx’s DP TIL technology.

Under the Clinical Agreement, we committed to make future payments of up to $4,000,000 to reimburse AgonOx for expenses incurred

to support the Phase 1 clinical trial with PH-762 treated DP TIL.

During the year ended December 31, 2022, the Company paid AgonOx $250,000

as an upfront payment.

No amounts were paid to AgonOx during the year ended December 31, 2021 under the Clinical Co-Development Agreement.

License Commitments

We enter into licensing agreements with third parties

that often require milestone and royalty payments based on the progress of the asset through development stages.

Milestone payments may

be required, for example, upon progress through clinical trials, upon approval of the product by a regulatory agency and/or upon a percentage

of sales of the product pursuant to such agreements.

The expenditures required under these arrangements may be material individually in

relation to any product candidates covered by the intellectual property licensed under any such arrangement, and material in the aggregate

in the unlikely event that milestones for multiple products covered by these arrangements were reached in the same period.

years ended December 31, 2022 and 2021, we did not trigger any milestone payments.

Our contractual license obligations that will require

future cash payments as of December 31, 2022 are $700,000, which result from payments expected in connection with annual license

Lease Commitments

Future lease payments under our

non-cancellable operating lease are expected to be approximately $175,000 over the remaining duration of our lease, or through March 31,

For further information regarding

our future cash commitments see Note 8 to our consolidated financial statements.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

2 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis