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Item 2. Management’s Discussion and Analysis

2023-11-09 compared with 2023-08-10 · 94 added, 86 removed, 161 unchanged (53% of the section changed)

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This management’s discussion and analysis

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,

of financial condition as of September 30, 2023 and results of operations for the three and nine months ended September 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

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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.

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.

Our preclinical studies 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 November 2023, we announced

the first patient dosed in our U.S.

multi-center Phase 1b clinical trial with PH-762 under a previously cleared Investigational New Drug

(“ IND ”) application by the Food and Drug Administration.

Intratumoral injection of PH-762 in this dose-escalating trial

will treat patients with cutaneous squamous cell carcinoma, melanoma and Merkel cell carcinoma and is currently open for continued enrollment

This trial 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.

Given our intention to focus

our efforts and resources on our U.S.

clinical trial with PH-762, we have completed the winding down process for 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.

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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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 patients with advanced melanoma and other advanced solid tumors.

Phio is also eligible to receive certain future development

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 patients with advanced melanoma and other advanced solid tumors.

We are 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.

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.

tumors by 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 Company announced the first patient was dosed in August 2023 and the trial is open

for the continued enrollment of patients.

As of September 30, 2023,

there is approximately $2,964,000 of remaining costs not yet incurred under the Clinical Co-Development Agreement.

PH-894 is an INTASYL compound

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operations for the periods indicated, in thousands:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended

September 30,

Nine Months Ended

September 30,

Operating expenses

Operating loss

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

Comparison of the Three and Nine Months Ended September 30, 2023

Operating Expenses

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expenses, for the periods indicated, in thousands:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended

September 30,

Nine Months Ended

September 30,

Research and development

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Total operating 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 collaboration, expenses associated with preclinical and clinical

development activities and other operating costs.

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 collaboration, expenses associated with preclinical and

clinical development activities and other operating costs.

Our research and development programs are focused on the development of immuno-oncology

therapeutics based on our INTASYL therapeutic platform.

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 future.

Research and development expenses

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.

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 future.

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

for the three months ended September 30, 2023 decreased 28% as compared to the three months ended September 30, 2022.

The decrease in

research and development expenses was primarily due to the completion of our IND-enabling preclinical studies for PH-894 of approximately

$1,515,000, partially offset by an increase in clinical-related costs of approximately $788,000 for our two U.S.

PH-762 Phase 1 clinical

trials as compared to the prior year period.

Research and development

expenses for the nine months ended September 30, 2023 decreased 1% as compared to the nine months ended September 30, 2022.

change in research and development expenses was primarily due to a decrease in costs related to the completion of our IND-enabling

preclinical studies for PH-894 of approximately $1,562,000 and reduced lab supplies of approximately $218,000 as a result of a

decrease in lab personnel, partially offset by an increase in clinical-related costs of approximately $1,647,000 for our two

PH-762 Phase 1 clinical trials 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

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

General and Administrative Expenses

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General and administrative

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.

expenses for the three months ended September 30, 2023 decreased 9% as compared to the three months ended September 30, 2022.

was primarily due to the reduced use of business development consultants of approximately $73,000 as compared to the prior year period.

General and administrative

expenses for the nine months ended September 30, 2023 increased 8% as compared to the nine months ended September 30, 2022.

in general and administrative expenses was primarily due to higher legal fees of approximately $359,000 and audit fees of $62,000, partially

offset by decreases in payroll-related expenses, including executive search-related fees, of approximately $190,000 due to changes in

headcount as compared to the prior year period.

Liquidity and Capital Resources

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the foreseeable future.

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

At September 30, 2023, we had cash of $8,407,000 as compared with $11,781,000 at December 31, 2022.

During the nine months ended

September 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.

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We have limited cash resources,

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

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

These factors raise substantial

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our cash flows for the periods indicated, in thousands:

Six Months Ended

Nine Months Ended

September 30,

Net cash used in operating activities

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Net Cash Flow from Operating Activities

Net cash used in operating

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 used in operating activities for the nine months ended September

30, 2023 decreased 11% as compared to the nine months ended September 30, 2022, primarily due to decreased cash outflows from changes

in operating assets and liabilities of $1,311,000 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 $182,000 and non-cash related items of $84,000.

Net Cash Flow from Investing Activities

Net cash used in investing

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 .

activities for the nine months ended September 30, 2023 decreased 96% as compared to the nine months ended September 30, 2022, primarily

due to changes in laboratory and computer equipment purchases for our facility over the comparative

Net Cash Flow from Financing Activities

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.

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

months ended September 30, 2022, primarily due to the completion of our April 2023 Financing and June 2023 Financing.

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 June 30, 2023 can be found in Note 2 of the condensed consolidated interim financial statements

included elsewhere in this Quarterly Report.

The Company does not intend

to renew the lease for its corporate headquarters and primary research facility in Marlborough, Massachusetts, which will expire on March

Beginning in April of 2024, we expect to continue operations as a fully remote business.

Details of our obligations

under the Clinical Co-Development Agreement with our partner AgonOx as of September 30, 2023 can be found in Note 2 of the condensed consolidated

interim financial statements included elsewhere in this Quarterly Report.

Outside of the above, there have been no material changes to

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

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