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Item 2. Management’s Discussion and Analysis

2023-08-10 compared with 2023-05-11 · 95 added, 82 removed, 152 unchanged (54% of the section changed)

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This management’s discussion and analysis

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”).

of financial condition as of June 30, 2023 and results of operations for the three and six months ended June 30, 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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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.

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.

In May 2023, we announced

that the U.S.

Food and Drug Administration (the “ FDA ”) cleared our Investigational New Drug (“ IND ”)

application to proceed with a U.S.

clinical trial of PH-762.

The initial multi-center, dose-escalating, Phase 1b clinical trial under

our cleared IND is designed to evaluate the safety and tolerability of neoadjuvant use of intratumorally injected PH-762, assess the tumor

response, and determine the dose or dose range for continued study of PH-762.

We plan to initiate our Phase 1b clinical trial of intratumoral

PH-762 in patients with cutaneous squamous cell carcinoma, melanoma and Merkel cell carcinoma in the second half of 2023.

We intend to focus our efforts

clinical trial with PH-762 and have commenced winding down our first-in-human clinical trial for PH-762 in France, which was

limited to the treatment of patients with metastatic melanoma.

Safety data from the initial cohort of three patients in the French clinical

trial were 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.

Due to INTASYL’s ease

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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.

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

In March 2021, we entered

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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.

DP TIL in patients 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.

As of June 30, 2023,

there is approximately $3,570,000 of remaining costs not yet incurred under the Clinical Co-Development Agreement.

PH-762 treated DP TIL are

being evaluated in a Phase 1 clinical trial in the United States with up to 18 patients with advanced melanoma and other advanced solid

tumors by our partner AgonOx.

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

benefit from the administration of PH-762 treated DP TIL.

The trial is open for the enrollment of patients.

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.

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

Preclinical studies conducted

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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

significant anti-tumoral effects against distant untreated tumors, indicative of 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 IND-enabling studies and are in the process of continuing to finalize 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

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Results of Operations

The following data summarizes the results of our

The following table summarizes the results of our

operations for the periods indicated, in thousands:

Three Months Ended

Three Months Ended June 30,

Six Months Ended June 30,

Operating expenses

Operating loss

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

Comparison of the Three and Six Months Ended June 30, 2023 and 2022

Operating Expenses

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expenses, for the periods indicated, in thousands:

Three Months Ended

Three Months Ended June 30,

Six Months Ended June 30,

Research and development

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Total operating expenses

Research and Development Expenses

and Development Expenses

Research and development expenses

relate to compensation and benefits for research and development personnel, facility-related expenses, supplies, external services, costs

to acquire technology licenses, research activities under our research collaborations, expenses associated with preclinical and clinical

to acquire technology licenses, research activities under our research collaboration, expenses associated with preclinical and clinical

development activities and other operating costs.

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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.

for the three months ended June 30, 2023 increased 6% as compared to the three months ended June 30, 2022.

The increase in research and

development expenses was primarily due to increased clinical-related costs of approximately $329,000 to support the two PH-762 Phase 1

clinical trials in the U.S., partially offset by decreased costs related to the completion of the Company’s IND-enabling preclinical

studies for PH-894 of approximately $207,000 as compared to the prior year period.

Research and development expenses

for the six months ended June 30, 2023 increased 22% as compared to the six months ended June 30, 2022.

The increase in research and development

expenses was primarily due to increased clinical-related costs to support the two PH-762 Phase 1 clinical trials in the U.S.

of approximately

$789,000, partially offset by decreased lab supply costs of $92,000 as a result of a change in headcount as compared to the prior year

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

General and Administrative Expenses

General and administrative

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General and administrative

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.

expenses for the three months ended June 30, 2023 decreased 4% as compared to the three months ended June 30, 2022.

The decrease was primarily

due to a total net reduction of approximately $28,000 in payroll-related expenses as a result of the changes in the Company’s Chief

Executive Officer (“ CEO ”) position as compared to the prior year period.

and administrative expenses for the six months ended June 30, 2023 increased 16% as compared to the six months ended June 30, 2022.

increase in general and administrative expenses was primarily due to higher legal fees of approximately $378,000, partially offset by

a total net reduction of approximately $52,000 in payroll-related expenses as a result of the changes in the Company’s CEO

position as compared to the prior year period.

Liquidity and Capital Resources

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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

At June 30, 2023, we had cash of $11,307,000 as compared with $11,781,000 at December 31, 2022.

During the quarterly period

ended June 30, 2023, we completed the April 2023 Financing and June 2023 Financing (each as defined in Note 6 to our condensed consolidated

interim financial statements) and received total net proceeds of $5,048,000 after deducting placement agent fees and offering expenses.

For further information regarding the April 2023 Financing and June 2023 Financing, see Note 6 to our condensed consolidated interim financial

statements included elsewhere in this Quarterly Report.

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our cash flows for the periods indicated, in thousands:

Three Months Ended

Six Months Ended

Net cash used in operating activities

Net cash used in investing activities

Net cash used in financing activities

Net cash provided by (used in) financing activities

Net decrease in cash and restricted cash

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Net cash used in operating

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.

activities for the six months ended June 30, 2023 decreased by 7% as compared to the six months ended June 30, 2022, primarily due to

decreased cash outflow from changes in operating assets and liabilities of $1,468,000 as a result of liabilities owed for the payments

related to the IND-enabling studies with PH-894 and clinical supply manufacturing of PH-762 and PH-894 in the prior year period partially

offset by an increase in net loss of $978,000.

Net Cash Flow from Investing Activities

Net cash used in investing

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 .

activities for the six months ended June 30, 2023 decreased 96% as compared to the six months ended June 30, 2022, primarily due to changes

in laboratory and computer equipment purchases for our facility over the period .

Net Cash Flow from Financing Activities

Net cash used in financing

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

Net cash provided by financing

activities for the six months ended June 30, 2023 increased as compared to the net cash used in financing activities for the six

months ended June 30, 2022, primarily due to the completion of the Company’s April 2023 Financing and June 2023 Financing.

Contractual Obligations

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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.

Agreement with our partner AgonOx as of June 30, 2023 can be found in Note 2 of the condensed consolidated interim financial statements

included elsewhere in this Quarterly Report.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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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