What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-11 compared with 2022-11-10 · 158 added, 267 removed, 76 unchanged (85% of the section changed)

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This management’s discussion and analysis

of financial condition as of September 30, 2022 and results of operations for the three and nine months ended September 30, 2022 and 2021

should be read in conjunction with the audited financial statements included in our Annual Report on Form 10-K for the year ended December

31, 2021, which was filed with the Securities and Exchange Commission (the “ SEC ”) on March 22, 2022.

of financial condition as of March 31, 2023 and results of operations for the three months ended March 31, 2023 and 2022 should be read

in conjunction with the audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022,

which was filed with the Securities and Exchange Commission (the “ SEC ”) on March 22, 2023 (the “2022 Form 10-K”).

This report contains forward-looking statements

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results to vary from expected results expressed in our forward-looking statements include, but are not limited to, the impact to our business

and operations by the ongoing coronavirus pandemic, military conflict between Ukraine and Russia, inflationary pressures, rising interest

rates, recession fears, the development of our product candidates, our ability to execute on business strategies, our ability to develop

our product candidates with collaboration partners, and the success of any such collaborations, the timeline and duration for advancing

our product candidates into clinical development, results from our preclinical and clinical activities, the timing or likelihood of regulatory

filings and approvals, the success of our efforts to commercialize our product candidates if approved, our ability to manufacture and

supply our product candidates for clinical activities, and for commercial use if approved, the scope of protection we are able to establish

and maintain for intellectual property rights covering our technology platform, and our ability to obtain future financing.

results and financial condition may differ materially from those indicated in the forward-looking statements as a result of a number of

important factors, including those identified in our Annual Report on Form 10-K for the year ended December 31, 2021 under the heading

“Risk Factors” and in other filings the Company periodically makes with the SEC.

Therefore, you should not rely on any of

these forward-looking statements.

Forward-looking statements contained in this Quarterly Report on Form 10-Q speak as of the date hereof

and the Company does not undertake to update any of these forward-looking statements to reflect a change in its views or events or circumstances

that occur after the date of this report except as required by law.

Phio Pharmaceuticals Corp.

(“ Phio ,” “ we ,” “ our ” or the “ Company ”) strives to address

the biggest challenges in immuno-oncology by working to create 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 to the treatment of cancer where other modalities may be ineffective.

are developing a pipeline of immuno-oncology therapies using our INTASYL technology, which are designed to attack cancers in multiple

Our INTASYL-based therapeutics are designed to:

(1) directly modify cells in the tumor microenvironment (the “ TME ”)

to weaken a tumor’s defense mechanisms and (2) strengthen immune cells, including those administered as part of adoptive cell therapy

We believe these two strategies will allow for multiple therapeutic applications of our INTASYL products.

contrast to other RNA technologies and platforms, we believe the self-delivering nature of our INTASYL platform makes it ideally suited

for direct therapeutic use, as well as for use with ACT treatments.

Multiple inhibitory mechanisms restrain immune cells from effectively

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

The immunosuppressive TME can pose a formidable

barrier to immune cell infiltration and function.

By using INTASYL-based therapeutics administered directly, we believe we can reprogram

cells in the TME to help overcome these immunosuppressive mechanisms.

Furthermore, by using our INTASYL technology during the manufacturing

of ACT cell products we believe we can improve the characteristics and function of these cells, potentially leading to better therapeutic

Direct Therapeutic Use of INTASYL

Cancer cells have evolved

natural defenses that can suppress the immune system surrounding the tumor, an area called the TME, 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 genes and are being developed for use as direct therapeutics to

reprogram the TME, including by local administration and activation of immune cells in the TME, and/or lowering the tumor cell’s

Therefore, we believe INTASYL-based therapeutics can be 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.

lead product candidate, and our most advanced program in human clinical trials being developed by us in our direct therapeutic programs,

PH-762 is an INTASYL compound designed to activate 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, which are 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.

the expression of PD-1 can thereby reduce the ability of cancer cells to avoid T cell detection.

have shown that we can reprogram the TME with PH-762 and achieve local activation of immune cells.

Preclinical studies conducted by us

demonstrated 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

In vivo data has shown that intratumoral treatment with PH-762 inhibits tumor growth in a dose dependent fashion in PD-1

responsive and refractory models.

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

Importantly, local 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 checkpoint blockade

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

In January 2022, we were granted

clinical trial authorization 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 subjects with melanoma at the Gustave Roussy Institute, one of the largest cancer centers

This first clinical trial with PH-762 is 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 subjects.

The clinical trial features a dose escalation of PH-762 monotherapy with a maximum of 5 dose escalation cohorts

and up to a maximum of 21 subjects.

Subjects eligible for enrollment include those with Stage IIIB/IIIC or Stage IV resectable oligometastatic

Enrolled subjects receive a weekly dose of PH-762 for four weeks and receive surgical resection surgery of their tumor(s) four

weeks after treatment with PH-762.

The clinical trial design allows for a data driven evaluation of the recommended Phase 2 dose.

initiated dosing of subjects and the site is open for continued enrollment.

We anticipate top-line data from the first group of subjects

in the first quarter of 2023, however, the impact of the ongoing coronavirus pandemic on the enrollment of subjects in the clinical trial

is not yet known and highly difficult to predict;

and therefore, may result in delays to our expected timelines.

second direct therapeutic product candidate is PH-894.

PH-894 is an INTASYL compound designed to silence 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.

have presented data demonstrating 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 demonstrated potent and statistically significant

anti-tumoral effects when administered locally.

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

TME to provide enhanced therapeutic activity.

Similar to PH-762, we have shown that local administration of PH-894 in vivo has

resulted in a systemic anti-tumor response.

After local administration of PH-894 in in vivo studies conducted in colon and liver

cancer models, strong anti-tumor activity was seen in directly treated and in distant untreated tumors.

Additionally, PH-894 enhanced

the anti-tumor activity of systemic anti-PD-1 antibody therapy for both the locally treated tumors and the untreated tumors.

data, there is potential for PH-894 to be used in treating patients who do not respond to anti-PD-1 therapy, or with patients who progress

after initially responding to such therapy.

PH-894 demonstrates 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.

We currently expect

to finalize IND-enabling studies for PH-894 in the fourth quarter of 2022.

Use of INTASYL 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.

There are several

types of ACT, including:

(1.) 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 or macrophages and (2.) 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, chimeric antigen receptor (“ CAR ”)

T cells, or CAR-NK cells).

Regardless of the source,

most of the immune cells used for ACT have several shortcomings that inhibit their full therapeutic potential in patients with solid tumors,

which we believe can be overcome with INTASYL-based therapeutics.

For example, multiple inhibitory mechanisms restrain immune cells used

in ACT from effectively eradicating tumors, including immune checkpoints, reduced cell fitness and cell persistence in addition to other

barriers to immune cell infiltration and function occurring 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.

approach builds on well-established methodologies of ACT and involves the treatment of immune cells with our INTASYL compounds ex

vivo , or outside the body, while they are growing 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 or specialized delivery tools to deliver the RNA drugs into

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.

lead product candidate, and our most advanced program being developed by us in ACT, is PH-762.

Data has demonstrated 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, which improves their ability to destroy tumor cells.

Preclinical studies have shown 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 patients.

and operations by inflationary pressures, rising interest rates, recession fears, the development of our product candidates, our ability

to execute on business strategies, our ability to develop our product candidates with collaboration partners, and the success of any such

collaborations, the timeline and duration for advancing our product candidates into clinical development, results from our preclinical

and clinical activities, the timing or likelihood of regulatory filings and approvals, the success of our efforts to commercialize our

product candidates if approved, our ability to manufacture and supply our product candidates for clinical activities, and for commercial

use if approved, the scope of protection we are able to establish and maintain for intellectual property rights covering our technology

platform, and our ability to obtain future financing.

Our actual results and financial condition may differ materially from those indicated

in the forward-looking statements as a result of a number of important factors, including those identified in our 2022 Form 10-K under

the heading “Risk Factors” and in other filings the Company periodically makes with the SEC.

Therefore, you should not rely

on any of these forward-looking statements.

Forward-looking statements contained in this Quarterly Report on Form 10-Q speak as of the

date hereof and the Company does not undertake to update any of these forward-looking statements to reflect a change in its views or events

or circumstances that occur after the date of this report except as required by law.

Phio is a clinical stage biotechnology

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

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.

Our efforts are focused

on developing immuno-oncology therapeutics using our INTASYL platform.

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.

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 in 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 dose levels.

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;

and to 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 open for enrollment of subjects.

We also expect to commence

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 lymphocytes (“ 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 Agreement ”) with AgonOx, Inc.

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

AgonOx has demonstrated that its DP TIL enriched cell populations have increased tumor killing activity when compared to TILs

that were not enriched prior to expansion.

Further, 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).

As a result, we expect the

use of PH-762 treated DP TILs to enhance therapeutic responses in cancer patients.

Based on these data, our collaboration with AgonOx

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

Under the Clinical Agreement, we will provide financial support

of up to $4 million to AgonOx to conduct a clinical trial in ACT with their DP TIL technology and PH-762.

We will be entitled to certain

future development milestones and low single-digit sales-based royalty payments from AgonOx’s licensing of its DP TIL technology.

Financial support to AgonOx under the Clinical Agreement has not yet commenced.

We expect to initiate the clinical trial evaluating the

use of PH-762 and DP TILs in ACT in the fourth quarter of 2022.

Our second product candidate

in development for use in ACT is PH-894.

As our INTASYL compounds can address intracellular as well as extracellular gene targets with

a high level of specificity, we believe there is potential for PH-894 to play a role in boosting the potency of the next generation of

T cell products to enhance ACT for solid tumors, and without using genetic manipulation.

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).

Recent preclinical data was presented

showing that silencing BRD4 with PH-894 may be used to improve the characteristics of CAR-T cell products during the activation and expansion

phases of the cell manufacturing process.

These data demonstrate that PH-894 could enhance the activity of CAR-T cells by improving the

quality of the final CAR-T cell product by overcoming immunosuppression, reversing exhaustion, and preserving the characteristics associated

with cell persistence.

of the Coronavirus Pandemic

continue to respond to and monitor the ongoing coronavirus pandemic.

Our corporate headquarters and research facility have

seen limited impact and, during the three and nine months ended September 30, 2022, continued to operate with safety measures in place

for the health and well-being of our employees, such as working remotely and flexible scheduling, in accordance with guidance from federal,

state and local authorities.

We believe that that coronavirus pandemic has not had a significant impact on our financial condition and

results of operations for the three and nine months ended September 30, 2022.

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.

While we believe that the coronavirus pandemic has not had a significant impact on our financial condition and results of operations at

this time, the potential economic impact brought by the coronavirus pandemic, which may be exacerbated by the global macroeconomic uncertainty

from the ongoing conflict between Russia and Ukraine, is difficult to assess or predict.

There may be developments outside of our control

that require us to adjust our operating plans.

Given the nature of the situation, we cannot reasonably estimate the impact of the coronavirus

pandemic on our financial condition, results of operations or cash flows in the future.

has increased during the period covered by this report and is expected to continue to remain at elevated levels or even increase for the

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 the three and nine months ended September 30, 2022.

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

a T cell-based therapy using PH-762 and AgonOx’s DP TIL.

Under the Clinical Co-Development Agreement, we committed to provide financial

support for development costs of up to $4 million to AgonOx for expenses incurred to conduct a Phase 1 clinical trial of PH-762 treated

DP TIL in subjects with advanced melanoma and other advanced solid tumors.

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.

To date, the Company

has recognized approximately $0.3 million of expense under the Clinical Co-Development Agreement.

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 TIL.

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

Similar to 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.

We have completed the investigational

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

As a result of the reprioritization to advance our clinical trial with PH-762 in the U.S., we have elected to defer the IND

submission for PH-894.

Critical Accounting Policies and Estimates

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There have been no material

changes to our critical accounting policies and estimates as compared to those disclosed in the Company’s most recent Annual Report

on Form 10-K for the year ended December 31, 2021 .

changes to our critical accounting policies and estimates as compared to those disclosed in our 2022 Form 10-K.

Results of Operations

The following table summarizes the results of our

The following data summarizes the results of our

operations for the periods indicated, in thousands:

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended

Operating expenses

Operating loss

Comparison of the Three and Nine Months Ended September 30, 2022

Comparison of the Three Months Ended March 31, 2023 and 2022

Operating Expenses

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expenses, for the periods indicated, in thousands:

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended

Research and development

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portion of our total operating expenses and are expected to constitute the majority of our spending for the foreseeable future.

and development expenses for the three months ended September 30, 2022 decreased 6% as compared with the three months ended September

The decrease in research and development expenses was primarily due to manufacturing costs for PH-762 and PH-894 totaling approximately

$828,000 and the expense of $736,000 related to the preclinical studies required for our PH-762 intratumoral clinical trial incurred in

the prior year period offset by increases in research and development expenses for the preclinical studies required for our planned clinical

trial with PH-894 conducted in the current year period of approximately $1,465,000.

and development expenses for the nine months ended September 30, 2022 decreased 19% as compared with the nine months ended September 30,

The decrease in research and development expenses was primarily due to manufacturing costs for PH-762 and PH-894 totaling approximately

$1,296,000 and the expense of $1,717,000 related to the preclinical studies required for our PH-762 intratumoral clinical trial incurred

in the prior year period offset by increases in research and development expenses for the preclinical studies required for our planned

clinical trial with PH-894 conducted in the current year period of approximately $1,500,000 and PH-762 intratumoral clinical trial expenses

Research and development expenses

for the three months ended March 31, 2023 increased 35% as compared with the three months ended March 31, 2022.

The increase in research

and development expenses was primarily driven by a ramp up in clinical-related expenses for our planned intratumoral and ACT clinical

trials with PH-762 of approximately $460,000 as compared to the prior year period.

We anticipate research and

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

General and Administrative

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.

General and administrative

expenses for the three months September 30, 2022 overall were consistent with the three months ended September 30, 2021.

in our payroll-related expenses as a result of the departure of our former Chief Executive Officer of $103,000 were offset by increases

in legal fees of $44,000 and the use of outside consultants to support operations of $55,000.

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

legal and patent-related activities, audit, tax and consulting services, as well as other general corporate expenses.

General and administrative

expenses for the nine months ended September 30, 2022 decreased 2% as compared with the nine months ended September 30, 2021.

in general and administrative expenses was primarily due to decreases in legal and patent fees of approximately $197,000 offset by increases

in Board of Directors and recruiting fees of $114,000 to support our operations as a result of the departure of our former Chief Executive

Total Other (Expense) Income

Total other expense for the

three months ended September 30, 2022 and 2021 was consistent quarter over quarter.

Total other income for the nine months ended September

30, 2022 decreased by $242,000 as compared with the nine months ended September 30, 2021, primarily due to the full forgiveness of the

Company’s Paycheck Protection Program (“ PPP ”) loan in the first quarter of 2021.

expenses for the three months ended March 31, 2023 increased 39% as compared with the three months ended March 31, 2022, primarily due

to increased professional service fees totaling approximately $420,000 for legal, patent and public relations related services as compared

to the prior year period.

Liquidity and Capital Resources

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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 September 30, 2022, we had cash of $14,484,000 as compared with $24,057,000 at December 31, 2021.

We believe that our existing

cash at September 30, 2022 should be sufficient to fund operations for at least the next 12 months from the date of the release of

the associated financial statements.

For information regarding

our cash commitments related to the clinical co-development agreement with AgonOx, see Note 9 to our condensed consolidated financial

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.

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 March 31, 2023, we had cash of $9,035,000 as compared with $11,781,000 at December 31, 2022.

In April 2023, we completed

the April 2023 Financing and net proceeds received are estimated to be approximately $1,654,000 after deducting placement agent fees and

offering expenses.

For further information regarding the April 2023 Financing, see Note 9 to our condensed consolidated interim financial

statements included elsewhere in this Quarterly Report.

We have limited cash resources,

have reported recurring losses from operations since inception and has not yet received product revenues.

These factors raise substantial

doubt regarding our ability to continue as a going concern, and our 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 Quarterly

Our continuation as a going concern depends upon our ability to raise additional capital through equity offerings, debt offerings

and/or strategic opportunities to fund our operations.

There can be no assurance that we will be successful in accomplishing any of these

plans in order to continue as a going concern.

The financial statements included elsewhere in this Quarterly Report do not include any

adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary

should we be unable to continue as a going concern.

The following table summarizes

our cash flows for the periods indicated, in thousands:

Nine Months Ended

September 30,

Three Months Ended

Net cash used in operating activities

Net cash used in investing activities

Net cash (used in) provided by financing activities

Net (decrease) increase in cash and restricted cash

Net cash used in financing activities

Net decrease in cash and restricted cash

Net Cash Flow from Operating Activities

Net cash used in operating

activities for the nine months ended September 30, 2022 increased as compared with the nine months ended September 30, 2021, primarily

due to an increase of $1,392,000 in the changes in operating assets and liabilities primarily due to payments made for the required preclinical

studies for PH-894 and for the manufacturing of clinical supply batches of PH-762 and PH-894 offset by decreases in net loss of $1,087,000

and non-cash related items of $268,000 as a result of the full forgiveness of the Company’s PPP loan in the prior year period offset.

activities decreased primarily due to decreases of $1,801,000 in operating assets and liabilities from the payments for the IND-enabling

studies required for PH-894 and for the manufacturing of clinical supply batches of PH-762 and PH-894 in the prior year period and $80,000

in non-cash related items related to a decrease in stock-based compensation expense partially offset by an increase in net loss of $960,000.

Net Cash Flow from Investing Activities

Net cash used in investing

activities for the nine months ended September 30, 2022 increased as compared with the nine months ended September 30, 2021, primarily

due to an increase of $70,000 in purchases of laboratory and computer equipment for the Company’s facility as compared to the prior

activities for the three months ended March 31, 2023 decreased as compared with the three months ended March 31, 2022, primarily due to

laboratory and computer equipment purchases for our facility that occurred during the prior year

period, which purchases did not repeat during the three months ended March 31, 2023 .

Net Cash Flow from Financing Activities

Net cash from financing activities

for the nine months ended September 30, 2022 decreased as compared with the nine months ended September 30, 2021, primarily due to the

net proceeds of $21,723,000 received by the Company from capital raising activities and warrant exercises in the comparable prior year

Net cash used in financing

activities for the three months ended March 31, 2023 was consistent with the three months ended March 31, 2022.

Contractual Obligations

There have been no material

changes to the contractual obligations as disclosed in our 2022 Form 10-K.

Details of our obligations under the Clinical Co-Development

Agreement with our partner AgonOx as of March 31, 2023 can be found in Note 2 of the condensed 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-Q

Item 2. Management’s Discussion and Analysis