What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-09 compared with 2023-11-09 · 124 added, 150 removed, 105 unchanged (72% of the section changed)

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This management’s discussion and analysis

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

Form 10-K ”).

of financial condition as of March 31, 2024 and results of operations for the three months ended March 31, 2024 and 2023 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, 2023,

which was filed with the Securities and Exchange Commission (the “ SEC ”) on April 1, 2024 (the “2023 Form 10-K”).

This report contains forward-looking statements

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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

to execute on business strategies, our ability to develop our product candidates with collaboration partners, if any, 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

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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.

company whose proprietary INTASYL™ small interfering RNA gene silencing technology 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.

Rationalization

2023, we implemented a cost rationalization program driven by our transition from a research company to a product development company.

This transition resulted in a decision not to renew the lease for our corporate headquarters and primary research facility in Marlborough,

Massachusetts, which expired on March 31, 2024.

As of April 1, 2024, we have continued operations primarily as a remote business with

a laboratory facility in Worcester, Massachusetts.

Additionally, we rationalized research personnel and reduced our headcount by approximately

These expense reductions have been redirected to funding the Phase 1b clinical trial with PH-762 directed toward skin cancer.

PH-762 is an INTASYL compound

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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.

PH-762 is currently being

evaluated in a U.S.

multi-center Phase 1b dose-escalating clinical trial through the intratumoral injection of PH-762 for the treatment

of patients with cutaneous squamous cell carcinoma, melanoma and Merkel cell carcinoma.

The 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 and is expected to enroll up to 30 patients.

In November 2023, we announced the dosing of the first patient

under a previously cleared Investigational New Drug (“ IND ”) application by the U.S.

Food and Drug Administration.

first two patients enrolled in our first cohort have completed treatment with PH-762 with no reported adverse events.

The trial is currently

open for the continued enrollment of patients and expects to complete enrollment of patients in the second quarter of 2025.

AgonOx Collaboration

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 their tumor killing activity by two-fold.

In March 2021, we entered

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 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.

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 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

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

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 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

submission for PH-894.

of administration, we have shown that our compounds can easily be incorporated into current adoptive cell therapy (“ 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

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 their tumor killing activity by two-fold.

In February 2021, we

entered 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 had agreed to

reimburse AgonOx up to $4 million in 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 were 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.

On May 8, 2024, we terminated

the Clinical Co-Development Agreement with AgonOx, effective immediately.

Effective as of the date of the termination, the Clinical Co-Development

Agreement and our continuing obligations and those of AgonOx thereunder will be terminated in their entirety.

We will no longer be required

to provide financial support for the development costs incurred under the Clinical Co-Development Agreement or be entitled to certain

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

We will pay to AgonOx all payment obligations that have accrued prior to the termination of the Clinical Co-Development Agreement.

intend to pay to AgonOx future fees to be incurred for patients that were treated in the Phase 1 clinical trial as of the date of termination.

We estimate that such payments to be made to AgonOx will amount to approximately $388,000, which primarily relate to our accrued obligations

under the Clinical Co-Development Agreement as of March 31, 2024, as well as future fees to be incurred for patients that were treated

in the Phase 1 clinical trial and other miscellaneous costs as of the date of termination.

Pursuant to the terms of the Clinical Co-Development

Agreement, we and AgonOx shall meet and discuss the orderly wind-down of the Phase 1 clinical trial.

Each of us and AgonOx shall be responsible

for its own costs and expenses incurred in connection with the wind-down of the Phase 1 clinical trial.

Other Information

included elsewhere in this Quarterly Report for further information.

Prior to the termination of

the Clinical Co-Development Agreement with AgonOx, PH-762 treated DP TIL were 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 AgonOx.

The primary trial objectives were to evaluate

the safety and to study the potential for enhanced therapeutic benefit from the administration of PH-762 treated DP TIL.

AgonOx had enrolled

three patients.

The first two patients were treated with DP TIL only and the third patient was treated with a combination of DP TIL and

Critical Accounting Policies and Estimates

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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,

Operating expenses

Operating loss

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

Comparison of the Three Months Ended March 31, 2024 and 2023

Operating Expenses

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Three Months Ended

September 30,

Nine Months Ended

September 30,

Research and development

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Research 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

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 agreement, expenses associated with preclinical and

clinical development activities and other operating costs.

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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.

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

General and Administrative Expenses

for the three months ended March 31, 2024 decreased 46% as compared with the three months ended March 31, 2023.

The decrease in research

and development expenses was primarily driven by our cost rationalization measures in transitioning from a research company to a product

development company resulting in a decrease of $305,000 of expense due to the wind-down of preclinical studies, $170,000 in salary-related

costs, including stock-based compensation expense, and $108,000 in lab supplies associated with the reduction in headcount, in addition

to a decrease in clinical consulting fees of $225,000 incurred in connection with our IND filing for PH-762 in the prior period and a

decrease of $131,000 in manufacturing fees for PH-762.

General and Administrative

General and administrative

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

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General and administrative

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.

expenses for the three months ended March 31, 2024 decreased 28% as compared with the three months ended March 31, 2023.

in general and administrative expenses was primarily due to decreases in consulting expenses of $102,000 and legal expenses of $211,000

as compared to the prior year period.

Liquidity and Capital Resources

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the foreseeable future.

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.

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.

At March 31, 2024, we had cash of $6,475,000 as compared with $8,490,000 at December 31, 2023.

We have limited cash resources,

have reported recurring losses from operations since inception and have 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.

have reported recurring losses from operations since inception, have negative operating cash flows and have 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 condensed consolidated financial

statements included elsewhere in this Quarterly Report.

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 condensed consolidated 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 provided by (used in) financing activities

Net decrease in cash and restricted cash

Net cash used in financing activities

Net decrease in cash, cash equivalents and restricted cash

Net Cash Flow from Operating Activities

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 used in operating

activities for the three months ended March 31, 2024 decreased 26% as compared to the three months ended March 31, 2023, primarily due

to a decrease in net loss of $1,448,000, a decrease in non-cash related items of $89,000 primarily related to reduced stock-based compensation

expense, and a decrease in the changes in operating assets and liabilities of $662,000 primarily as a result of liabilities owed to support

our IND filing for PH-762 and manufacturing fees related to the fill/finish of PH-762 drug product in the prior year period.

Net Cash Flow from Investing Activities

Net cash used in investing

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

There were no net cash flows

from investing activities for the three months ended March 31, 2024 and 2023.

Net Cash Flow from Financing Activities

Net cash provided by 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.

Net cash used in financing

activities for the three months ended March 31, 2024 decreased 89% as compared to the three months ended March 31, 2023, primarily due

to the amount of payments made for taxes on the net share settlements of RSUs.

Contractual Obligations

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.

under the Clinical Co-Development Agreement with our former collaboration partner AgonOx can be found in Note 2 of

the condensed consolidated financial statements.

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

as disclosed in our 2023 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