|
ITEM 1.
|
FINANCIAL STATEMENTS
|
PHIO PHARMACEUTICALS CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and
per share data)
(Unaudited)
|
|
|
March 31,
2019
|
|
|
December 31,
2018
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
12,746
|
|
|
$
|
14,879
|
|
|
Restricted cash
|
|
|
50
|
|
|
|
50
|
|
|
Prepaid expenses and other current assets
|
|
|
117
|
|
|
|
221
|
|
|
Total current assets
|
|
|
12,913
|
|
|
|
15,150
|
|
|
Right of use asset
|
|
|
592
|
|
|
|
–
|
|
|
Property and equipment, net
|
|
|
155
|
|
|
|
172
|
|
|
Other assets
|
|
|
18
|
|
|
|
–
|
|
|
Total assets
|
|
$
|
13,678
|
|
|
$
|
15,322
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
721
|
|
|
$
|
550
|
|
|
Accrued expenses
|
|
|
703
|
|
|
|
1,194
|
|
|
Lease liability
|
|
|
92
|
|
|
|
–
|
|
|
Total current liabilities
|
|
|
1,516
|
|
|
|
1,744
|
|
|
Lease liability, net of current portion
|
|
|
500
|
|
|
|
–
|
|
|
Total liabilities
|
|
|
2,016
|
|
|
|
1,744
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
|
Preferred stock, $0.0001 par value, 10,000,000 shares authorized
|
|
|
–
|
|
|
|
–
|
|
|
Common stock, $0.0001 par value, 100,000,000 shares authorized; 23,389,132 and 18,841,814 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively
|
|
|
2
|
|
|
|
2
|
|
|
Additional paid-in capital
|
|
|
99,690
|
|
|
|
99,487
|
|
|
Accumulated deficit
|
|
|
(88,030
|
)
|
|
|
(85,911
|
)
|
|
Total stockholders’ equity
|
|
|
11,662
|
|
|
|
13,578
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
13,678
|
|
|
$
|
15,322
|
|
The accompanying notes are an integral part
of these condensed consolidated financial statements.
PHIO PHARMACEUTICALS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
(Amounts in thousands, except share and
per share data)
(Unaudited)
|
|
|
Three Months
Ended March 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Revenues
|
|
$
|
21
|
|
|
$
|
23
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
1,089
|
|
|
|
1,361
|
|
|
General and administrative
|
|
|
1,078
|
|
|
|
901
|
|
|
Total operating expenses
|
|
|
2,167
|
|
|
|
2,262
|
|
|
Operating loss
|
|
|
(2,146
|
)
|
|
|
(2,239
|
)
|
|
Total other income, net
|
|
|
27
|
|
|
|
–
|
|
|
Net loss
|
|
$
|
(2,119
|
)
|
|
$
|
(2,239
|
)
|
|
Net loss per share:
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.10
|
)
|
|
$
|
(0.90
|
)
|
|
Weighted average shares: basic and diluted
|
|
|
20,419,440
|
|
|
|
2,494,464
|
|
The accompanying notes are an integral
part of these condensed consolidated financial statements.
PHIO PHARMACEUTICALS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF
STOCKHOLDERS’ EQUITY
(Amounts in thousands, except share data)
(Unaudited)
|
For the Three Months Ended March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional Paid-in
Capital
|
|
|
Accumulated Deficit
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Balance at December 31, 2018
|
|
|
18,841,814
|
|
|
$
|
2
|
|
|
$
|
99,487
|
|
|
$
|
(85,911
|
)
|
|
$
|
13,578
|
|
|
Issuance of common stock
upon the exercise of pre-funded warrants
|
|
|
4,304,286
|
|
|
|
–
|
|
|
|
43
|
|
|
|
–
|
|
|
|
43
|
|
|
Issuance of restricted
stock
|
|
|
243,032
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
Stock-based compensation
expense
|
|
|
–
|
|
|
|
–
|
|
|
|
160
|
|
|
|
–
|
|
|
|
160
|
|
|
Net
loss
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(2,119
|
)
|
|
|
(2,119
|
)
|
|
Balance at March 31,
2019
|
|
|
23,389,132
|
|
|
$
|
2
|
|
|
$
|
99,690
|
|
|
$
|
(88,030
|
)
|
|
$
|
11,662
|
|
|
For the Three Months Ended March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional Paid-in Capital
|
|
|
Accumulated Deficit
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
|
|
|
|
|
|
Total
|
|
|
Balance at December 31,
2017
|
|
|
2,429,993
|
|
|
$
|
–
|
|
|
$
|
80,384
|
|
|
$
|
(78,551
|
)
|
|
$
|
1,833
|
|
|
Cash paid in lieu of fractional
shares for 1:10 reverse stock split
|
|
|
(31
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
Issuance of common stock
under 2017 Lincoln Park Capital, LLC purchase agreement
|
|
|
270,000
|
|
|
|
–
|
|
|
|
932
|
|
|
|
–
|
|
|
|
932
|
|
|
Stock-based compensation
expense
|
|
|
–
|
|
|
|
–
|
|
|
|
41
|
|
|
|
–
|
|
|
|
41
|
|
|
Net
loss
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(2,239
|
)
|
|
|
(2,239
|
)
|
|
Balance at March 31,
2018
|
|
|
2,699,962
|
|
|
$
|
–
|
|
|
$
|
81,357
|
|
|
$
|
(80,790
|
)
|
|
$
|
567
|
|
The accompanying notes are an integral part
of these condensed consolidated financial statements.
PHIO PHARMACEUTICALS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(Amounts in thousands)
(Unaudited)
|
|
|
Three Months Ended
March 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,119
|
)
|
|
$
|
(2,239
|
)
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
18
|
|
|
|
20
|
|
|
Non-cash stock-based compensation
|
|
|
160
|
|
|
|
41
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and other assets
|
|
|
86
|
|
|
|
13
|
|
|
Right of use asset
|
|
|
28
|
|
|
|
–
|
|
|
Accounts payable
|
|
|
171
|
|
|
|
10
|
|
|
Accrued expenses
|
|
|
(491
|
)
|
|
|
248
|
|
|
Lease liability
|
|
|
(28
|
)
|
|
|
–
|
|
|
Net cash used in operating activities
|
|
|
(2,175
|
)
|
|
|
(1,907
|
)
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Cash paid for purchase of property and equipment
|
|
|
(1
|
)
|
|
|
–
|
|
|
Net cash used in investing activities
|
|
|
(1
|
)
|
|
|
–
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Net proceeds from the issuance of common stock
|
|
|
–
|
|
|
|
932
|
|
|
Proceeds from the exercise of pre-funded warrants
|
|
|
43
|
|
|
|
–
|
|
|
Net cash provided by financing activities
|
|
|
43
|
|
|
|
932
|
|
|
Net decrease in cash and restricted cash
|
|
|
(2,133
|
)
|
|
|
(975
|
)
|
|
Cash and restricted cash at the beginning of period
|
|
|
14,929
|
|
|
|
3,631
|
|
|
Cash and restricted cash at the end of period
|
|
$
|
12,796
|
|
|
$
|
2,656
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
–
|
|
|
$
|
–
|
|
|
Supplemental disclosure of non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
Right of use asset
|
|
$
|
620
|
|
|
$
|
–
|
|
The accompanying notes are an integral part
of these condensed consolidated financial statements.
PHIO PHARMACEUTICALS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
1. Nature of Operations
Phio
Pharmaceuticals Corp. (“
Phio
,” “
we
,” “
our
” or the “
Company
”)
is a biotechnology company developing the next generation of immuno-oncology therapeutics based on its self-delivering RNAi (“
sd-rxRNA®
”)
therapeutic platform. The Company’s efforts are focused on developing sd-rxRNA therapeutic compounds to be used in the context
of immunotherapy by targeting checkpoints or other gene targets, by local or intravenous injections. We aim to maximize the power
of our sd-rxRNA therapeutic compounds by weaponizing therapeutic immune effector cells to overcome tumor immune escape, providing
patients with a powerful new treatment option that goes beyond current treatment modalities.
2. Significant Accounting Policies
Basis of Presentation
The
accompanying condensed consolidated financial statements are unaudited and have been prepared in accordance with accounting principles
generally accepted in the United States of America (“
GAAP
”). Certain information and footnote disclosures included
in the Company’s annual financial statements have been condensed or omitted. The year-end condensed balance sheet data was
derived from audited financial statements, but does not include all disclosures required by GAAP. In the opinion of management,
all adjustments (including normal recurring accruals) considered necessary for a fair presentation of the condensed consolidated
financial statements have been included. Interim results are not necessarily indicative of results for a full year.
Principles of Consolidation
The consolidated financial statements include
the accounts of Phio and its wholly-owned subsidiary, MirImmune, LLC. All material intercompany accounts have been eliminated in
consolidation.
Uses of Estimates in Preparation of Financial Statements
The preparation of financial statements
in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ materially from these estimates.
Restricted Cash
Restricted cash consists of certificates
of deposit held by financial institutions as collateral for the Company’s corporate credit cards.
Leases
The Company follows the provisions of the
Financial Accounting Standards Board (“
FASB
”) Accounting Standards Codification (“
ASC
”) Topic
842, “
Leases
” (“
ASC 842
”). At the inception of a contract, the Company determines whether
the contract is or contains a lease based on all relevant facts and circumstances. For contracts that contain a lease, the Company
identifies the lease and non-lease components, determines the consideration in the contract and recognizes the classification of
the lease as operating or financing. At the commencement date of the lease, the Company recognizes a liability to make lease payments
and an asset representing the right to use the underlying asset during the lease term. The Company has elected not to recognize
on the balance sheet leases with a term less than one year.
Lease liabilities and the
corresponding right of use assets are recorded based on the present value of lease payments to be made over the lease term.
The discount rate used to calculate the present value is the rate implicit in the lease, or if not readily determinable, the
Company’s incremental borrowing rate. The Company’s incremental borrowing rate is the rate of interest that we
would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar
economic environment. Certain adjustments to the right of use asset may be required for items such as initial direct costs
or incentives received. Lease payments on operating leases are recognized on a straight-line basis over the expected term of
the lease. Lease payments on financing leases are recognized using the effective interest method.
Derivative Financial Instruments
The Company follows the provisions of the
FASB ASC Topic 815, “
Derivatives and Hedging
” (“
ASC 815
”). Financial instruments that meet
the definition of a derivative are classified as an asset or liability and measured at fair value on the issuance date and are
revalued on each subsequent balance sheet date. The changes in fair value are recognized as current period income or loss. Financial
instruments that do not meet the definition of a derivative are classified as equity and measured at fair value and recorded as
additional paid in capital in stockholders’ equity at the date of issuance. No further adjustments to their valuation are
made.
Fair Value of Financial Instruments
The carrying amounts reported in the balance
sheet for restricted cash, accounts payable and accrued expenses approximate their fair values due to their short-term nature.
Research and Development Expenses
Research
and development costs relate to compensation and benefits for research and development personnel, facility-related expenses, supplies,
external services, costs to acquire technology licenses, expenses associated with preclinical and clinical development activities
and other operating costs. Research and development expenses are charged to expense as incurred. Payments made by the Company in
advance for research and development services not yet provided and/or for materials not yet received are recorded as prepaid expenses
and expensed when the service has been performed or when the goods have been received. Accrued liabilities are recorded related
to those expenses for which vendors have not yet billed the Company with respect to services provided and/or materials that it
has received.
The
Company contracts with third parties to perform various preclinical and clinical activities on our behalf for the continued development
of our product candidates. Accruals and expenses are recorded during the period incurred based on such estimates and assumptions
as expected cost, passage of time, the achievement of milestones and other information available to us and are assessed on a quarterly
basis. Actual results may differ from these estimates and could have a material impact on the Company’s reported results.
The Company’s historical accrual estimates have not been materially different from its actual costs.
Stock-based Compensation
The Company follows the provisions of the
FASB ASC Topic 718, “
Compensation — Stock Compensation
” (“
ASC 718
”), which requires
the measurement and recognition of compensation expense for all stock-based payment awards. Stock compensation expense is based
on the grant date fair value estimated in accordance with the provisions of ASC 718 and is recognized as an expense over the requisite
service period.
Comprehensive Loss
The Company’s comprehensive loss
is equal to its net loss for all periods presented.
Net Loss per Share
The
Company accounts for and discloses net loss per share in accordance with the FASB ASC Topic 260, “
Earnings per Share
.”
Basic and diluted net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding.
Diluted earnings per share is computed by dividing the Company’s net loss by the weighted average number of common shares
outstanding and the impact of all dilutive potential common shares.
3. Recent Accounting Pronouncements
In February 2016, the FASB issued Accounting
Standards Update (“
ASU
”) 2016-02, “
Leases (Topic 842)
” (“
Topic 842
”),
which requires lessees to recognize a right-of-use asset and lease liability on the balance sheet for most leases that do not meet
the definition of a short-term lease and to disclose key information about leasing arrangements. Leases will continue to be classified
as either operating or financing. The Company adopted Topic 842 on January 1, 2019 using the modified retrospective approach and
elected to apply the transition method that allows companies to continue applying guidance under the lease standard in effect at
that time in the comparative period financial statements and recognize a cumulative-effect adjustment to the balance sheet on the
date of adoption. The Company has also elected the package of practical expedients to not reassess our prior conclusions about
lease identification, lease classification and indirect costs and to not separate lease and non-lease components.
Upon adoption of Topic 842 on January 1,
2019, the Company recorded a right of use asset of $28,000 and an operating lease liability of $28,000. Comparative periods have
not been restated. For additional information regarding how the Company is accounting for leases under Topic 842, refer to Note
4.
4. Leases
The Company adopted Topic 842 on January
1, 2019 using the modified retrospective approach and elected to apply the transition method that allows companies to continue
applying guidance under the lease standard in effect at that time in the comparative period financial statements and recognize
a cumulative-effect adjustment to the balance sheet on the date of adoption. The Company has also elected the package of practical
expedients to not reassess our prior conclusions about lease identification, lease classification and indirect costs and to not
separate lease and non-lease components. With the adoption of Topic 842, the Company’s balance sheet now contains line items
for right of use asset, current lease liability and noncurrent lease liability.
The Company determined that it held an
operating lease for its office and laboratory space as of January 1, 2019. The Company held no other lease agreements. The Company
leases 7,581 square feet of office and laboratory space for its corporate headquarters and primary research facility in Marlborough,
Massachusetts. On January 1, 2019, the Company recorded a right of use asset and corresponding lease liability of $28,000.
On January 22, 2019, the Company amended
the lease for its office and laboratory space to extend the term by five years, such that the lease will expire on March 31, 2024.
With the amendment, the Company also has the option to terminate the lease after two or three years by providing advance written
notice. Due to the extension of the lease agreement, the Company increased the right of use asset and corresponding lease liability
by $592,000.
Additionally, the lease agreements did
not contain information to determine the rate implicit in the lease. The Company calculated its incremental borrowing rate based
on what the Company would have to pay to borrow on a collateralized basis over the lease term for an amount equal to the remaining
lease payments. At March 31, 2019, the weighted average incremental borrowing rate and the weighted average remaining lease term
for the Company’s operating lease was 4.46% and 3.91 years, respectively.
As of March 31, 2019, the right of use
asset and liability arising from the Company’s operating lease was $592,000. During the three months ended March 31, 2019,
cash paid for the amounts included in the measurement of liabilities was $28,000 and the Company recorded operating lease expense
of $28,000, which was included in operating expense.
Aggregate future minimum non-cancellable
commitments under the operating lease as of March 31, 2019 was as follows, in thousands:
|
|
|
2019 (remaining)
|
|
$
|
94
|
|
|
2020
|
|
|
128
|
|
|
2021
|
|
|
132
|
|
|
2022
|
|
|
135
|
|
|
2023
|
|
|
139
|
|
|
Thereafter
|
|
|
35
|
|
|
Total lease payments
|
|
|
663
|
|
|
Less: Imputed interest
|
|
|
(71
|
)
|
|
Total operating lease liabilities
|
|
$
|
592
|
|
5. Stockholders’ Equity
Lincoln Park Capital Fund, LLC –
On August 8, 2017, the Company entered into a purchase agreement (the “
Purchase Agreement
”) and a registration
rights agreement with Lincoln Park Capital Fund, LLC (“
LPC
”), pursuant to which the Company has the right to
sell to LPC shares of the Company’s common stock, subject to certain limitations and conditions set forth in the Purchase
Agreement.
No shares of common stock were sold to
LPC under the Purchase Agreement during the three months ended March 31, 2019. During the three months ended March 31, 2018, the
Company sold 270,000 shares of common stock to LPC for net proceeds of approximately $932,000.
Warrants —
The following table
summarizes the Company’s outstanding equity-classified warrants at March 31, 2019:
|
Summary of Warrants
|
|
Exercise
prices
|
|
|
Number
of Shares
Underlying Warrants
|
|
|
Expiration
|
|
June 2015 Warrants
|
|
$
|
52.00
|
|
|
|
130,007
|
|
|
June 2, 2020
|
|
December 2016 Warrants
|
|
$
|
9.00
|
|
|
|
1,277,793
|
|
|
December 21, 2021
|
|
April 2018 Warrants
|
|
$
|
3.15
|
|
|
|
1,132,953
|
|
|
May 31, 2023
|
|
Placement Agent Warrants
|
|
$
|
4.0546
|
|
|
|
75,530
|
|
|
April 9, 2023
|
|
Pre-Funded Warrants
|
|
$
|
0.01
|
|
|
|
2,864,286
|
|
|
No expiration
|
|
October 2018 Warrants
|
|
$
|
0.70
|
|
|
|
21,428,572
|
|
|
October 3, 2025
|
|
Underwriter Warrants
|
|
$
|
0.875
|
|
|
|
1,607,143
|
|
|
October 1, 2023
|
|
Total warrants outstanding
|
|
|
|
|
|
|
28,516,284
|
|
|
|
During the quarter ended March 31, 2019,
the Company received proceeds of $43,000 from the exercise of Pre-Funded Warrants for a total of 4,304,286 shares of common stock.
There were no warrant exercises during the quarter ended March 31, 2018.
6. Net Loss per Share
The following table sets forth the potential
common shares excluded from the calculation of net loss per share because their inclusion would be anti-dilutive:
|
|
|
March 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Options to purchase common stock
|
|
|
149,402
|
|
|
|
52,180
|
|
|
Restricted stock units
|
|
|
387,500
|
|
|
|
–
|
|
|
Warrants to purchase common stock
|
|
|
28,516,284
|
|
|
|
1,408,000
|
|
|
Total
|
|
|
29,053,186
|
|
|
|
1,460,180
|
|
7. Stock-based Compensation
Stock Options
The Company uses the Black-Scholes option-pricing
model to determine the fair value of all its option grants. For valuing options granted during the three months ended March 31,
2019 and 2018, the following assumptions were used:
|
|
|
For the Three Months Ended
March 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Risk-free interest rate
|
|
|
2.58%
|
|
|
|
2.70 – 2.84%
|
|
|
Expected volatility
|
|
|
98.87%
|
|
|
|
91.28 – 91.48%
|
|
|
Weighted average expected volatility
|
|
|
98.87%
|
|
|
|
91.38%
|
|
|
Expected lives (in years)
|
|
|
5.31
|
|
|
|
10.00
|
|
|
Expected dividend yield
|
|
|
0.00%
|
|
|
|
0.00%
|
|
The weighted average fair value of options
granted during the three months ended March 31, 2019 and 2018 was $0.29 and $3.35, respectively.
The risk-free interest rate used for each
grant is based upon the yield on zero-coupon U.S. Treasury securities with a term similar to the expected life of the related option.
The Company’s expected stock price volatility assumption is based upon the Company’s own implied volatility. The expected
life assumption for option grants is based upon the simplified method provided for under ASC 718. The dividend yield assumption
is based upon the fact that the Company has never paid cash dividends and presently has no intention of paying cash dividends.
The following table summarizes the activity
of the Company’s stock options for the three months ended March 31, 2019:
|
|
|
Number
of Shares
|
|
|
Weighted-
Average
Exercise
Price
Per Share
|
|
|
Aggregate
Intrinsic
Value
|
|
|
Balance at December 31, 2018
|
|
|
141,677
|
|
|
$
|
66.29
|
|
|
|
|
|
|
Granted
|
|
|
10,000
|
|
|
|
0.38
|
|
|
|
|
|
|
Exercised
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
Cancelled
|
|
|
(2,275
|
)
|
|
|
283.39
|
|
|
|
|
|
|
Balance at March 31, 2019
|
|
|
149,402
|
|
|
$
|
58.57
|
|
|
$
|
701
|
|
|
Exercisable at March 31, 2019
|
|
|
39,499
|
|
|
$
|
215.56
|
|
|
$
|
–
|
|
Stock-based compensation expense related
to stock options for the three months ended March 31, 2019 and 2018 was $19,000 and $41,000, respectively.
Restricted Stock Units
In addition to options to purchase shares
of common stock, the Company may also grant restricted stock units (“
RSUs
”). RSUs are generally subject to graded
vesting and the satisfaction of service requirements, similar to our stock options. Upon vesting, each outstanding RSU will be
exchanged for one share of the Company’s common stock. The fair value of the RSUs awarded are based on the Company’s
closing stock price at the grant date and are expensed over the requisite service period.
The following table summarizes the activity
of the Company’s RSUs for the three months ended March 31, 2019:
|
|
|
Number
of Shares
|
|
|
Weighted-
Average
Grant Date Fair Value
|
|
|
Unvested units at December 31, 2018
|
|
|
137,500
|
|
|
$
|
1.79
|
|
|
Granted
|
|
|
250,000
|
|
|
|
0.36
|
|
|
Vested
|
|
|
–
|
|
|
|
–
|
|
|
Forfeited
|
|
|
–
|
|
|
|
–
|
|
|
Unvested units at March 31, 2019
|
|
|
387,500
|
|
|
$
|
0.87
|
|
Stock-based compensation expense related
to RSUs for the three months ended March 31, 2019 was $35,000. There was no stock-based compensation expense related to RSUs recorded
in the same prior year period.
Restricted Stock
On August 31, 2018, and through
subsequent amendments on December 19, 2018 and February 14, 2019, Geert Cauwenbergh, Dr. Med. Sc., the Company’s former
Chief Executive Officer, elected the right to receive, in lieu of cash, for the period from September 15, 2018 to February
28, 2019, up to 50% of his base salary and cash bonuses, if any, (collectively, the “
Compensation
”)
payable in the form of unvested, restricted shares of the Company’s common stock. Such restricted shares were received
in the form of a series of grants made on each Company payroll date in lieu of cash payment of the Compensation. All shares
issued in lieu of Compensation shall vest in full on June 1, 2019.
The fair value of the restricted stock
is based on the Company’s closing stock price on the date of grant and is expensed over the vesting period. During the three
months ended March 31, 2019, the Company granted 243,032 shares of restricted stock in lieu of Compensation to Dr. Cauwenbergh.
Stock-based compensation expense related to restricted stock for the three months ended March 31, 2019 was $106,000. There were
no restricted stock issuances under this election during the three months ended March 31, 2018.
Compensation Expense Related to Equity Awards
The following table sets forth total stock-based
compensation expense for the three months ended March 31, 2019 and 2018, in thousands:
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Research and development
|
|
$
|
7
|
|
|
$
|
9
|
|
|
General and administrative
|
|
|
153
|
|
|
|
32
|
|
|
Total stock-based compensation
|
|
$
|
160
|
|
|
$
|
41
|
|
8. Subsequent Events
Subsequent to the balance sheet date, the
Company received proceeds of $5,000 from the exercise of Pre-Funded Warrants for a total of 500,000 shares of common stock.
|
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
In this document, “we,” “our,” “ours,”
“us,” “Phio” and the “Company” refers to Phio Pharmaceuticals Corp. and our subsidiary, MirImmune,
LLC and the ongoing business operations of Phio Pharmaceuticals Corp. and MirImmune, LLC, whether conducted through Phio Pharmaceuticals
Corp. or MirImmune, LLC.
This management’s discussion and analysis of financial
condition as of March 31, 2019 and results of operations for the three months ended March 31, 2019 and 2018 should be read in conjunction
with the financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2018, which was filed
with the Securities and Exchange Commission (the “SEC”) on March 27, 2019.
This report contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as
“intends,” “believes,” “anticipates,” “indicates,” “plans,” “expects,”
“suggests,” “may,” “should,” “potential,” “designed to,” “will”
and similar references, although not all forward-looking statements contain these words. Forward-looking statements are neither
historical facts nor assurances of future performance. These statements are based only on our current beliefs, expectations and
assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the
economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties,
risks and changes in circumstances that are difficult to predict and many of which are outside of our control. 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 Annual Report on Form 10-K for the year ended December 31, 2018 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.
Overview
Phio Pharmaceuticals
Corp. is a biotechnology company developing the next generation of immuno-oncology therapeutics based on our self-delivering RNAi
(“
sd-rxRNA
®
”) therapeutic platform. The Company’s efforts are focused on developing sd-rxRNA
therapeutic compounds to be used in the context of immunotherapy by targeting checkpoints or other gene targets, by local or intravenous
injections. We aim to maximize the power of our sd-rxRNA therapeutic compounds by weaponizing immune effector cells to overcome
tumor immune escape providing patients a powerful new treatment option that goes beyond current treatment modalities.
Our development efforts are based on our
broadly patented sd-rxRNA technology platform. Our sd-rxRNA compounds do not require a delivery vehicle to penetrate into tissues
and cells and are designed to “silence” or down-regulate, the expression of a specific gene which is over-expressed
in cancer. We believe that our sd-rxRNA platform uniquely positions the Company in the field of immuno-oncology because of this
and for the following reasons:
|
|
·
|
Efficient uptake of sd-rxRNA to immune cells obviating the need for facilitated delivery (mechanical or
formulation);
|
|
|
·
|
Can target multiple genes (i.e. multiple immunosuppression pathways) in a single therapeutic entity;
|
|
|
·
|
Gene silencing by sd-rxRNA has been shown to have a sustained, or long-term, effect
in vivo
;
|
|
|
·
|
Favorable clinical safety profile of sd-rxRNA with local administration; and
|
|
|
·
|
Can be readily manufactured under current good manufacturing practices.
|
Checkpoint
Inhibition in Adoptive Cell Transfer
The Company has
developed sd-rxRNA targeting PD-1, TIGIT and other undisclosed checkpoints in adoptive cell transfer (“
ACT
”)
for the treatment of solid tumors. The Company has selected RXI-762, our sd-rxRNA targeting PD-1, and RXI-804, our sd-rxRNA targeting
TIGIT, for development in melanoma, ovarian cancer and head and neck cancer, as well as other undisclosed indications. When used
in ACT, RXI-762 and RXI-804 are expected to result in an improved efficacy to targeted tumors. We plan to enter the clinic with
RXI-762 as part of an investigator sponsored clinical trial with one of our collaborators in ACT therapy for solid tumors, such
as in melanoma, by Q1 2020.
The Center for Cancer Immune Therapy (CCIT)
at Herlev Hospital is a leading European cancer center for use of tumor-infiltrating lymphocytes (“
TILs
”) for
ACT. CCIT has carried out numerous clinical trials based on a direct translation of the discoveries from the laboratory. Our collaboration
with CCIT is evaluating the potential of our sd-rxRNA technology platform to enhance the function of TILs for use in the treatment
for a number of cancer types, including melanoma and ovarian cancer. To date, CCIT has evaluated sd-rxRNA compounds targeting immune
checkpoints in preclinical screening models of matched TIL/tumor cell pairs from melanoma and cancer patients. Results have shown
a marked PD-1 reduction on the surface of TILs in a pilot rapid expansion protocol.
Iovance Biotherapeutics,
Inc. is a biotechnology company focused on the development and commercialization of autologous cellular immunotherapies optimizing
personalized, tumor-directed TILs. Our research collaboration with Iovance will evaluate the potential synergies with our novel
sd-rxRNA therapeutic compounds and Iovance’s autologous cell therapy based on TILs for the use in the treatment of cancer.
Data from this collaboration has shown that a sd-rxRNA mediated knock-down of PD-1 was associated with phenotypic changes indicative
of TIL activation. Our next steps with Iovance include further evaluation of the impact of sd-rxRNA mediated gene silencing on
TIL tumor reactivity and implementation of optimized silencing protocols and scale-up thereof.
Cell Maturation
and Metabolism in Adoptive Cell Transfer
We are also able to use our sd-rxRNA in
T-cells and other immune cell types, such as natural killer (“
NK
”) cells and dendritic cells, for targets other
than immune checkpoints in order to weaponize and improve cell persistence and cell viability in the immunosuppressive tumor micro-environment.
We believe this shows the broad applicability of our platform technology, and that our potential impact in immuno-oncology is not
limited to checkpoints and TILs.
We have shown that sd-rxRNAs are rapidly
and efficiently taken up by immune effector cells without the use of transfection reagents. Using sd-rxRNA compounds against checkpoint
inhibitors, we can suppress their expression levels up to 95% in immune cells, including T-cells and NK cells. Furthermore, we
have demonstrated potent silencing activity as well as a phenotypic effect (enhanced degranulation activity) of NK cells treated
with sd-rxRNA compounds targeting checkpoints. By treating NK cells
ex-vivo
, prior to ACT with sd-rxRNA reducing the
expression of proteins such as Cbl-b and TIGIT, the anti-tumor response of these cells can be improved. Ongoing work expands these
findings to include compounds for more specific NK targets, including NK specific inhibitory receptors, which could be used alone
or in combination.
Our recently announced collaboration with
Glycostem Therapeutics BV, a leading cellular immunotherapy company, will explore potential synergies of our sd-rxRNA in combination
with Glyostem’s proprietary NK cell generation technology, oNKord
®
, to develop cellular immunotherapies for
cancer treatment with enhanced efficacy and/or safety. This collaboration will examine the applicability of our sd-rxRNA technology
to be integrated into Glycostem’s processes to produce NK cells with the ultimate goal to further improve Glycostem’s
immunotherapies for the treatment of cancer patients.
Through
our collaboration with Medigene AG, a German biotechnology company developing highly innovative, complementary treatment platforms
to target various types and stages of cancer, we are exploring the potential synergies of our sd-rxRNA technology in
combination with Medigene’s recombinant TCRs to develop modified T-cells with enhanced efficacy and/or safety with
the ultimate goal to further improve Medigene’s T-cell therapies for the treatment of cancer patients. In the studies
completed, Medigene observed the reduction of PD-1 surface levels in T-cells transduced with TCRs and treated with our sd-rxRNA
compound, RXI-762. While these studies utilized the Company’s PD-1 targeting sd-rxRNA for proof of concept, Medigene is evaluating
additional targets to
improve the therapeutic effects of Medigene’s receptor modified T-cells.
Direct Tumor and Tumor Micro-Environment
We are exploring the use of our sd-rxRNA
directly towards tumor and/or tumor micro-environment (“
TME
”) targets. Impacting the tumor cells and/or TME
through a direct use of sd-rxRNA, locally administered, could potentially become an important form of adjuvant therapy. We believe
that this will also show that our contributions with our sd-rxRNA compounds in immuno-oncology are not limited to use with a cell
therapy platform. Additionally, the Company has shown in a clinical setting that its sd-rxRNA compounds are safe and well-tolerated
following local administration.
Our collaborative research
agreement with Gustave Roussy, a leading comprehensive cancer center in France, concentrates on determining the feasibility
of our sd-rxRNA platform to target the TME via intra-tumoral injection. Our recent
in-vivo
study with Gustave Roussy
demonstrated that sd-rxRNA compound delivered via intra-tumoral injection showed silencing of gene expression with
our sd-rxRNA compounds with a 80—85% reduction of the target gene expression in a mouse model of melanoma.
Critical Accounting Policies and Estimates
The
discussion and analysis of our financial condition and results of operations is based upon our financial statements, which have
been prepared in accordance with
GAAP
. The preparation of these financial statements
requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and
related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates and base our estimates
on historical experience and various other assumptions that are believed to be reasonable under the circumstances. Actual results
may differ from these estimates under different assumptions or conditions and could have a material impact on our reported results.
Other than our accounting policy for leases in connection with the adoption of Topic 842 on January 1, 2019, as described below,
there have been no significant changes to our critical accounting policies since the beginning of this fiscal year. Our critical
accounting policies are described in the “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” section of our Annual Report on Form 10-K for the year ended December 31, 2018, which we filed with the SEC on
March 27, 2019.
Leases
The Company follows the provisions of the
FASB ASC 842. At the inception of a contract, the Company determines whether the contract is or contains a lease based on all relevant
facts and circumstances. For contracts that contain a lease, the Company identifies the lease and non-lease components, determines
the consideration in the contract and recognizes the classification of the lease as operating or financing. At the commencement
date of the lease, the Company recognizes a liability to make lease payments and an asset representing the right to use the underlying
asset during the lease term. The Company has elected not to recognize on the balance sheet leases with a term less than one year.
Lease liabilities and the corresponding
right of use assets are recorded based on the present value of lease payments to be made over the lease term. The discount rate
used to calculate the present value is the rate implicit in the lease, or if not readily determinable, the Company’s incremental
borrowing rate. The Company’s incremental borrowing rate is the rate of interest that we would have to pay to borrow on a
collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. Certain adjustments
to the right of use asset may be required for items such as initial direct costs or incentives received. Lease payments on operating
leases are recognized on a straight-line basis over the expected term of the lease. Lease payments on financing leases are recognized
using the effective interest method.
Results of Operations
The following data summarizes the results
of our operations for the periods indicated, in thousands:
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
Description
|
|
2019
|
|
|
2018
|
|
|
Dollar
Change
|
|
|
Revenues
|
|
$
|
21
|
|
|
$
|
23
|
|
|
$
|
(2
|
)
|
|
Operating expenses
|
|
|
(2,167
|
)
|
|
|
(2,262
|
)
|
|
|
95
|
|
|
Operating loss
|
|
|
(2,146
|
)
|
|
|
(2,239
|
)
|
|
|
93
|
|
|
Net loss
|
|
|
(2,119
|
)
|
|
|
(2,239
|
)
|
|
|
120
|
|
Comparison of the Three Months Ended March 31, 2019 and 2018
Revenues
The following table summarizes our total
revenues, for the periods indicated, in thousands:
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
Description
|
|
2019
|
|
|
2018
|
|
|
Dollar
Change
|
|
|
Revenues
|
|
$
|
21
|
|
|
$
|
23
|
|
|
$
|
(2
|
)
|
Revenues for the three months ended March
31, 2019 and 2018 related to the work performed by the Company as a sub-awardee under the government grant issued to our collaborator
BioAxone Biosciences, Inc. from the National Institute of Neurological Disorders and Stroke. The grant provided funding for the
development of a novel sd-rxRNA compound, BA-434, that targets PTEN for the treatment of spinal cord injury.
Operating Expenses
The following table summarizes our total
operating expenses, for the periods indicated, in thousands:
|
|
|
Three Months Ended March 31,
|
|
|
|
|
|
Description
|
|
2019
|
|
|
2018
|
|
|
Dollar
Change
|
|
|
Research and development
|
|
$
|
1,089
|
|
|
$
|
1,361
|
|
|
$
|
(272
|
)
|
|
General and administrative
|
|
|
1,078
|
|
|
|
901
|
|
|
|
177
|
|
|
Total operating expenses
|
|
$
|
2,167
|
|
|
$
|
2,262
|
|
|
$
|
(95
|
)
|
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, expenses associated with preclinical and clinical development
activities and other operating costs.
Research
and development expenses for the three months ended March 31, 2019 decreased 20% as compared with the three months ended March
31, 2018, primarily due to a reduction in headcount and the payroll-related expenses, as well as the completion of the Company’s
drug manufacture of RXI-762 in the prior year period.
General and Administrative Expenses
General
and administrative expenses relate to compensation and benefits for general and administrative personnel, facility-related expenses,
professional fees for legal, audit, tax and consulting services, as well as other general corporate expenses.
General
and administrative expenses for the three months ended March 31, 2019 increased 20% as compared with the three months ended March
31, 2018, primarily due to an increase in stock-based compensation expense related to the restricted stock issued to the Company’s
former Chief Executive Officer in lieu of cash compensation.
Liquidity and Capital Resources
On August 8, 2017, the Company entered
into a purchase agreement (the “
Purchase Agreement
”) and a registration rights agreement with Lincoln Park Capital
Fund, LLC (“
LPC
”), pursuant to which the Company has the right to sell to LPC up to $15,000,000 in shares of
the Company’s common stock, subject to certain limitations and conditions set forth therein, over the 30-month term of the
Purchase Agreement. To date, the Company has sold a total of 495,000 shares of common stock to LPC under the Purchase Agreement
for net proceeds of $1,602,000. The Company has approximately $13,300,000 remaining under the Purchase Agreement with LPC.
On
April 11, 2018, the Company closed a registered direct offering of 1,510,604 shares of the Company’s common stock at a
purchase price of $3.15 per share and in a concurrent private placement, sold warrants to purchase a total of 1,132,953 shares
of common stock at a purchase price of $0.125 per underlying warrant share and with an exercise price of $3.15 per share (the “
April
2018 Offering
”). Net proceeds to the Company from the April 2018 Offering were $4,210,000 after deducting placement agent
fees and offering expenses paid by the Company.
On
October 3, 2018, the Company closed an underwritten public offering of 3,725,714 shares of the Company’s common stock and
pre-funded warrants (the “
Pre-Funded Warrants
”) to purchase an aggregate of 17,702,858 shares of common stock
(the “
October 2018 Offering
”). The Pre-Funded Warrants are immediately exercisable at a price per share of
$0.01 and do not expire. Each share of common stock or Pre-Funded Warrant, as applicable, was sold as a unit with a warrant to
purchase one share of common stock at an exercise price of $0.70 per share. The combined public offering price was $0.70 per common
stock unit or $0.69 per Pre-Funded Warrant unit. Net proceeds from the October 2018 Offering were $13,193,000 after deducting
underwriting discounts and commissions and offering expenses paid by the Company.
We had cash of $12,746,000 as of March
31, 2019, compared with $14,879,000 as of December 31, 2018. 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. Historically, the
Company’s primary source of funding has been the sale of its securities. In the future, we will be dependent on obtaining
funding from third parties, such as proceeds from the issuance of debt, sale of equity, or strategic opportunities, in order to
maintain our operations. There is no guarantee that debt, additional equity or other funding will be available to us on acceptable
terms, or at all. If we fail to obtain additional funding when needed, we would be forced to scale back or terminate our operations
or to seek to merge with or to be acquired by another company. We believe that our existing cash should be sufficient to fund our
operations for at least the next twelve months.
The following table summarizes our cash
flows for the periods indicated, in thousands:
|
|
|
Three Months Ended
March 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Net cash used in operating activities
|
|
$
|
(2,175
|
)
|
|
$
|
(1,907
|
)
|
|
Net cash used in investing activities
|
|
|
(1
|
)
|
|
|
–
|
|
|
Net cash provided by financing activities
|
|
|
43
|
|
|
|
932
|
|
|
Net decrease in cash and restricted cash
|
|
$
|
(2,133
|
)
|
|
$
|
(975
|
)
|
Net Cash Flow from Operating Activities
Net cash used in operating activities was
$2,175,000 for the three months ended March 31, 2019, as compared with $1,907,000 for the three months ended March 31, 2018. The
increase in cash used in operating activities of $268,000 was primarily attributable to an increase in total changes in operating
assets and liabilities due to the Company’s payment of its RXI-782 drug manufacture during the first quarter of 2019.
Net Cash Flow from Investing Activities
Net cash used in investing
activities for the three months ended March 31, 2019 was $1,000. There were no net cash flows related to investing activities
for the three months ended March 31, 2018. The increase in net cash flow from investing activities was primarily related to
the purchase of office fixtures.
Net Cash Flow from Financing Activities
Net cash provided by financing activities
was $43,000 for the three months ended March 31, 2019, as compared with $932,000 for the three months ended March 31, 2018. The
decrease in cash provided by financing activities was due to proceeds received by the Company from the exercise of pre-funded warrants
as compared to the proceeds received by the Company from the issuance of common stock to LPC under the Purchase Agreement during
the same prior year period.
Off-Balance Sheet Arrangements
In
connection with certain license agreements, we are required to indemnify the licensor for certain damages arising in connection
with the intellectual property rights licensed under the agreement. In addition, we are a party to a number of agreements entered
into in the ordinary course of business that contain typical provisions that obligate us to indemnify the other parties to such
agreements upon the occurrence of certain events. These indemnification obligations are considered off-balance sheet arrangements
in accordance with Accounting Standards Codification Topic 460, “
Guarantor’s Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of Others
.” To date, we have not encountered material costs
as a result of such obligations and have not accrued any liabilities related to such obligations in our financial statements. See
Note 5 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2018,
which was filed with the SEC on March 27, 2019, for further discussion of these indemnification
agreements.