ITEM 1.
|
FINANCIAL STATEMENTS
|
PHIO PHARMACEUTICALS CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and
per share data)
(Unaudited)
|
|
September 30,
2020
|
|
|
December 31,
2019
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
16,868
|
|
|
$
|
6,934
|
|
Restricted cash
|
|
|
50
|
|
|
|
50
|
|
Prepaid expenses and other current assets
|
|
|
702
|
|
|
|
316
|
|
Total current assets
|
|
|
17,620
|
|
|
|
7,300
|
|
Right of use asset
|
|
|
428
|
|
|
|
511
|
|
Property and equipment, net
|
|
|
173
|
|
|
|
210
|
|
Other assets
|
|
|
18
|
|
|
|
18
|
|
Total assets
|
|
$
|
18,239
|
|
|
$
|
8,039
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
742
|
|
|
$
|
809
|
|
Accrued expenses and other current liabilities
|
|
|
1,375
|
|
|
|
964
|
|
Lease liability
|
|
|
113
|
|
|
|
107
|
|
Total current liabilities
|
|
|
2,230
|
|
|
|
1,880
|
|
Lease liability, net of current portion
|
|
|
325
|
|
|
|
411
|
|
Long-term debt
|
|
|
231
|
|
|
|
–
|
|
Total liabilities
|
|
|
2,786
|
|
|
|
2,291
|
|
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; 5,780,533 and 669,433 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively
|
|
|
1
|
|
|
|
1
|
|
Additional paid-in capital
|
|
|
116,603
|
|
|
|
100,566
|
|
Accumulated deficit
|
|
|
(101,151
|
)
|
|
|
(94,819
|
)
|
Total stockholders’ equity
|
|
|
15,453
|
|
|
|
5,748
|
|
Total liabilities and stockholders’ equity
|
|
$
|
18,239
|
|
|
$
|
8,039
|
|
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
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Revenues
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
21
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
1,256
|
|
|
|
1,042
|
|
|
|
3,253
|
|
|
|
3,277
|
|
General and administrative
|
|
|
1,050
|
|
|
|
1,071
|
|
|
|
3,078
|
|
|
|
3,062
|
|
Total operating expenses
|
|
|
2,306
|
|
|
|
2,113
|
|
|
|
6,331
|
|
|
|
6,339
|
|
Operating loss
|
|
|
(2,306
|
)
|
|
|
(2,113
|
)
|
|
|
(6,331
|
)
|
|
|
(6,318
|
)
|
Total other (expense) income, net
|
|
|
(3
|
)
|
|
|
19
|
|
|
|
(1
|
)
|
|
|
70
|
|
Net loss
|
|
$
|
(2,309
|
)
|
|
$
|
(2,094
|
)
|
|
$
|
(6,332
|
)
|
|
$
|
(6,248
|
)
|
Net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.40
|
)
|
|
$
|
(4.53
|
)
|
|
$
|
(1.51
|
)
|
|
$
|
(14.70
|
)
|
Weighted average shares: basic and diluted
|
|
|
5,780,386
|
|
|
|
461,990
|
|
|
|
4,181,862
|
|
|
|
424,910
|
|
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 and Nine Months Ended September 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional Paid-in
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Total
|
|
Balance at December 31, 2019
|
|
|
669,433
|
|
|
$
|
1
|
|
|
$
|
100,566
|
|
|
$
|
(94,819
|
)
|
|
$
|
5,748
|
|
Issuance of common stock under employee stock purchase plan
|
|
|
153
|
|
|
|
–
|
|
|
|
1
|
|
|
|
–
|
|
|
|
1
|
|
Cash in lieu of fractional shares for 1:55 reverse stock split
|
|
|
(1,364
|
)
|
|
|
–
|
|
|
|
(15
|
)
|
|
|
–
|
|
|
|
(15
|
)
|
Issuance of common stock and warrants in connection with registered direct and private placement offerings, net of offering costs of $273
|
|
|
197,056
|
|
|
|
–
|
|
|
|
1,467
|
|
|
|
–
|
|
|
|
1,467
|
|
Issuance of common stock, pre-funded warrants and warrants in connection with underwritten public offering, net of offering costs of $906
|
|
|
993,633
|
|
|
|
–
|
|
|
|
7,093
|
|
|
|
–
|
|
|
|
7,093
|
|
Issuance of common stock upon the exercise of warrants
|
|
|
1,006,367
|
|
|
|
–
|
|
|
|
1
|
|
|
|
–
|
|
|
|
1
|
|
Issuance of common stock upon vesting of restricted stock units
|
|
|
2,573
|
|
|
|
–
|
|
|
|
(2
|
)
|
|
|
–
|
|
|
|
(2
|
)
|
Stock-based compensation expense
|
|
|
–
|
|
|
|
–
|
|
|
|
43
|
|
|
|
–
|
|
|
|
43
|
|
Net loss
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(2,351
|
)
|
|
|
(2,351
|
)
|
Balance at March 31, 2020
|
|
|
2,867,851
|
|
|
|
1
|
|
|
|
109,154
|
|
|
|
(97,170
|
)
|
|
|
11,985
|
|
Issuance of common stock and warrants in connection with registered direct and private placement offerings, net of offering costs of $473
|
|
|
1,713,064
|
|
|
|
–
|
|
|
|
3,527
|
|
|
|
–
|
|
|
|
3,527
|
|
Issuance of common stock upon the exercise of warrants
|
|
|
1,199,296
|
|
|
|
–
|
|
|
|
3,863
|
|
|
|
–
|
|
|
|
3,863
|
|
Issuance of common stock upon vesting of restricted stock units
|
|
|
15
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Stock-based compensation expense
|
|
|
–
|
|
|
|
–
|
|
|
|
30
|
|
|
|
–
|
|
|
|
30
|
|
Net loss
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(1,672
|
)
|
|
|
(1,672
|
)
|
Balance at June 30, 2020
|
|
|
5,780,226
|
|
|
|
1
|
|
|
|
116,574
|
|
|
|
(98,842
|
)
|
|
|
17,733
|
|
Offering costs related to the exercise of warrants
|
|
|
–
|
|
|
|
–
|
|
|
|
(8
|
)
|
|
|
–
|
|
|
|
(8
|
)
|
Issuance of common stock upon vesting of restricted stock units
|
|
|
307
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Stock-based compensation expense
|
|
|
–
|
|
|
|
–
|
|
|
|
37
|
|
|
|
–
|
|
|
|
37
|
|
Net loss
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(2,309
|
)
|
|
|
(2,309
|
)
|
Balance at September 30, 2020
|
|
|
5,780,533
|
|
|
$
|
1
|
|
|
$
|
116,603
|
|
|
$
|
(101,151
|
)
|
|
$
|
15,453
|
|
For the Three and Nine Months Ended September 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional Paid-in
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Total
|
|
Balance at December 31, 2018
|
|
|
342,578
|
|
|
$
|
–
|
|
|
$
|
99,489
|
|
|
$
|
(85,911
|
)
|
|
$
|
13,578
|
|
Issuance of common stock upon the exercise of warrants
|
|
|
78,260
|
|
|
|
–
|
|
|
|
43
|
|
|
|
–
|
|
|
|
43
|
|
Issuance of restricted stock
|
|
|
4,419
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Stock-based compensation expense
|
|
|
–
|
|
|
|
–
|
|
|
|
160
|
|
|
|
–
|
|
|
|
160
|
|
Net loss
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(2,119
|
)
|
|
|
(2,119
|
)
|
Balance at March 31, 2019
|
|
|
425,257
|
|
|
|
–
|
|
|
|
99,692
|
|
|
|
(88,030
|
)
|
|
|
11,662
|
|
Issuance of common stock upon the exercise of warrants
|
|
|
30,910
|
|
|
|
–
|
|
|
|
17
|
|
|
|
–
|
|
|
|
17
|
|
Issuance of common stock under the employee stock purchase plan
|
|
|
36
|
|
|
|
–
|
|
|
|
1
|
|
|
|
–
|
|
|
|
1
|
|
Stock-based compensation expense
|
|
|
–
|
|
|
|
–
|
|
|
|
62
|
|
|
|
–
|
|
|
|
62
|
|
Net loss
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(2,035
|
)
|
|
|
(2,035
|
)
|
Balance at June 30, 2019
|
|
|
456,203
|
|
|
|
–
|
|
|
|
99,772
|
|
|
|
(90,065
|
)
|
|
|
9,707
|
|
Issuance of common stock under Lincoln Park Capital, LLC purchase agreement, net of offering costs of $52
|
|
|
9,090
|
|
|
|
–
|
|
|
|
(52
|
)
|
|
|
–
|
|
|
|
(52
|
)
|
Issuance of common stock upon vesting of restricted stock units
|
|
|
1,154
|
|
|
|
–
|
|
|
|
(3
|
)
|
|
|
–
|
|
|
|
(3
|
)
|
Stock-based compensation expense
|
|
|
–
|
|
|
|
–
|
|
|
|
47
|
|
|
|
–
|
|
|
|
47
|
|
Net loss
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(2,094
|
)
|
|
|
(2,094
|
)
|
Balance at September 30, 2019
|
|
|
466,447
|
|
|
$
|
–
|
|
|
$
|
99,764
|
|
|
$
|
(92,159
|
)
|
|
$
|
7,605
|
|
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)
|
|
Nine Months Ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(6,332
|
)
|
|
$
|
(6,248
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
55
|
|
|
|
51
|
|
Non-cash lease expense
|
|
|
83
|
|
|
|
82
|
|
Non-cash stock-based compensation
|
|
|
110
|
|
|
|
269
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Prepaid expenses and other assets
|
|
|
(386
|
)
|
|
|
(330
|
)
|
Accounts payable
|
|
|
(67
|
)
|
|
|
306
|
|
Accrued expenses and other liabilities
|
|
|
438
|
|
|
|
(151
|
)
|
Lease liability
|
|
|
(80
|
)
|
|
|
(78
|
)
|
Net cash used in operating activities
|
|
|
(6,179
|
)
|
|
|
(6,099
|
)
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Cash paid for purchase of property and equipment
|
|
|
(18
|
)
|
|
|
(77
|
)
|
Net cash used in investing activities
|
|
|
(18
|
)
|
|
|
(77
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Net proceeds from the issuance of common stock and warrants
|
|
|
12,087
|
|
|
|
–
|
|
Net proceeds from the exercise of warrants
|
|
|
3,856
|
|
|
|
60
|
|
Financing costs from the issuance of common stock under Lincoln Park Capital, LLC purchase agreement
|
|
|
–
|
|
|
|
(52
|
)
|
Proceeds from the issuance of common stock in connection with the employee stock plan
|
|
|
1
|
|
|
|
1
|
|
Cash paid in lieu of fractional shares for 1:55 reverse stock split
|
|
|
(15
|
)
|
|
|
–
|
|
Proceeds from debt
|
|
|
231
|
|
|
|
–
|
|
Payments of taxes for net share settled restricted stock unit issuances
|
|
|
(2
|
)
|
|
|
(3
|
)
|
Payments of capital lease obligations less than one year
|
|
|
(27
|
)
|
|
|
–
|
|
Net cash provided by financing activities
|
|
|
16,131
|
|
|
|
6
|
|
Net increase (decrease) in cash and restricted cash
|
|
|
9,934
|
|
|
|
(6,170
|
)
|
Cash and restricted cash at the beginning of period
|
|
|
6,984
|
|
|
|
14,929
|
|
Cash and restricted cash at the end of period
|
|
$
|
16,918
|
|
|
$
|
8,759
|
|
Supplemental disclosure of non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Right of use asset obtained in exchange for operating lease liability
|
|
$
|
–
|
|
|
$
|
620
|
|
Acquisition of property and equipment included in accrued expenses and other current liabilities
|
|
$
|
–
|
|
|
$
|
33
|
|
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 (“INTASYL™”)
therapeutic platform. The Company's efforts are focused on silencing tumor-induced suppression of the immune system through
its proprietary INTASYL platform with utility in immune cells and the tumor micro-environment.
The Company’s goal is to develop powerful INTASYL therapeutic compounds that can weaponize
immune effector cells to overcome tumor immune escape, thereby potentially providing patients 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.
Reverse Stock Split
Effective January 15, 2020, the Company
completed a 1-for-55 reverse stock split of the Company’s outstanding common stock. All share and per share amounts in the
financial statements have been retroactively adjusted for all periods presented to give effect to the reverse stock split, including
reclassifying an amount equal to the reduction in par value to additional paid-in capital. Unless otherwise noted, shares of common
stock issued and outstanding, shares underlying warrants and stock awards, shares reserved, conversion price of convertible securities,
exercise prices of warrants and stock awards and loss per share have been proportionately adjusted to reflect the reverse stock
split. The reverse stock split did not reduce the number of authorized shares of the Company’s common stock or preferred
stock.
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.
Risks and Uncertainties
In December 2019,
a novel strain of coronavirus, causing COVID-19, was reported to have surfaced in Wuhan, China and has since spread to other parts
of the world, including the United States. In March 2020, the World Health Organization declared the outbreak a pandemic. We have
not yet experienced any significant impacts or interruptions to our financial condition or operations as a result of the coronavirus
pandemic at this time, but have begun to see our third party suppliers and service providers on which we rely becoming impacted,
presumably as a result of the pandemic. Without a significant and sustained improvement of the current situation, we may experience
significant and longer lasting impacts to certain of our development activities outsourced to third-party service providers. If
the measures to contain the outbreak continue or are extended, it may have a more significant effect on our operations and those
of third parties on which we rely, including reducing the availability of supplies that we purchase, closures of or delays in businesses
that we rely on to provide services and to conduct preclinical and clinical activities for our product candidates and disrupting
the supplies and services we rely on for the development of our product candidates. Additionally, a long lasting pandemic may adversely
affect future clinical trial initiations and participant recruitment and enrollments, all of which may in turn slow, delay or pause
our research and development activities. The ultimate impact of the coronavirus pandemic is highly uncertain and subject to change,
and certain of our business operations may be delayed. The Company does not yet know the full extent of such potential delays or
impacts on its business and preclinical and clinical trial activities. Moreover, the pandemic creates uncertainty around our ability
to access capital markets and raise additional working capital that we will need to sustain our operations over the long term,
particularly if the impacts of the pandemic are long lasting and affect us and our vendors and contractors.
Coronavirus Aid, Relief, and Economic Security Act
On March 27, 2020, the Coronavirus Aid,
Relief, and Economic Security Act (the “CARES Act”) was enacted. The CARES Act is an emergency economic stimulus
package passed in response to the coronavirus outbreak that includes, but is not limited to, provisions providing aid to small
businesses in the form of loans and grants and numerous tax provisions such as certain payroll tax benefits, changes to the net
operating loss rules, and the business interest expense deduction rules. On May 11, 2020, the Company received loan proceeds pursuant
to the Paycheck Protection Program (the “PPP”) under the CARES Act. On
June 5, 2020, President Trump signed into law the Paycheck Protection Program Flexibility Act of 2020 (the “Flexibility
Act”), which amends the PPP created by the CARES Act. The Flexibility Act revises certain terms and provisions of the
PPP to address issues raised by eligible borrowers adversely impacted by the ongoing COVID-19 pandemic. Refer to footnote
6 for further details. The Company does not expect the provisions outside of the PPP in the CARES Act to have a material impact
on its condensed consolidated financial statements. As there continues to be updates to the provisions under the CARES Act, the
Company will continue to assess the potential impacts on our business, results of operations and financial statements.
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. The areas subject to significant estimates and judgement include, among others, those
related to the fair value of equity awards, research and development expenses, right of use lease assets, the fair value of financial
instruments, useful lives of property and equipment, income taxes, and our valuation allowance on our deferred tax assets. On an
ongoing basis we evaluate our estimates and base our estimates on historical experience and other relevant assumptions that we
believe are reasonable under the circumstances, including as a result of new information that may emerge concerning the coronavirus
pandemic. We have made estimates of the impact of the coronavirus pandemic within our financial statements and there may be changes
to those estimates in future periods. 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
In connection with the adoption on January
1, 2019, the Company follows the provisions of the Financial Accounting Standards Board (the “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 the package of practical
expedients to not reassess its prior conclusions about lease identification, lease classification and indirect costs and to not
separate lease and non-lease components. 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 the Company 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, prepaid expenses, accounts payable and accrued expenses approximate their fair values due to their short-term
nature.
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 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 its behalf for the continued development
of its 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-based 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. Liquidity and Going
Concern
The Company has reported recurring losses
from operations since inception and expects that the Company will continue to have negative cash flows from operations for the
foreseeable future. Historically, the Company’s primary source of funding has been the sale of its securities. The Company’s
ability to continue to fund its operations is 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 its operations. This is dependent on a number of factors,
including the market demand or liquidity of the Company’s common stock. There is no guarantee that debt, additional equity
or other funding will be available to us on acceptable terms, or at all. Moreover, the global coronavirus pandemic has led to significant
uncertainty and increased volatility in the capital markets. While the potential economic impact brought by, and the duration of,
the coronavirus pandemic is difficult to assess or predict, if these conditions in the capital markets continue for an extended
period of time it may reduce our ability to access capital, which could negatively impact our short-term and long-term liquidity
and our ability to complete our planned preclinical and clinical studies on a timely basis, or at all. The ultimate impact of the
coronavirus pandemic on our liquidity is highly uncertain and subject to change. While we anticipate that we may experience
a continued impact to our research and development activities, we do not yet know the full extent of potential delays or the impact
on our business, financial condition, or our preclinical and clinical trial activities. There may be developments outside of our
control that require us to adjust our operating plans and given the nature of the situation, we cannot reasonably estimate the
impact of the coronavirus on our financial condition, results of operations or cash flows in the future. If we fail to obtain additional
funding when needed, we would be forced to scale back or terminate our operations or seek to merge with or to be acquired by another
company.
While we believe that the coronavirus pandemic
has not had a significant impact on our financial condition and results of operations at this time, the extent to which the coronavirus
pandemic impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including
new information which may emerge concerning the severity of the coronavirus pandemic and the actions to contain the coronavirus
or treat its impact, among others. The Company believes that its existing cash, should be sufficient to fund operations for at
least the next 12 months from the date of the release of these financial statements.
4. Recent Accounting Pronouncements
In November 2018, the FASB issued Accounting
Standards Update (“ASU”) 2018-18, “Collaborative Arrangements (Topic 808)” (“Topic
808”), which clarifies the interaction between Topic 808 and ASC Topic 606, “Revenue from Customers.”
The update provides guidance on whether certain transactions between collaborative arrangement participants should be accounted
for with revenue under ASC Topic 606 and provides more comparability in the presentation of revenue for certain transactions between
collaborative arrangement participants. This ASU is effective for annual reporting periods beginning after December 15, 2019, including
interim periods within that reporting period. This guidance is required to be applied retrospectively to the date of adoption of
ASC Topic 606. The Company adopted ASC Topic 606 in the first quarter of 2018 and adopted
ASU 2018-18 in the first quarter of 2020. The Company also elected to apply ASU 2018-18 only to contracts that were not completed
at the date of initial application of Topic 606. Since the Company has no significant revenue, this ASU has no immediate impact
on its condensed consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12,
“Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” The amendments in the update simplify
the accounting for income taxes by eliminating the exceptions related to the incremental approach for intraperiod tax allocation,
the recognition of a deferred tax liability for equity method investments, not recognizing a deferred tax liability for a foreign
subsidiary and the general methodology for calculating income taxes in an interim period. The
amendments also clarify and simplify other aspects of the accounting for income taxes. The amendments in ASU 2019-12 are effective
for public entities for fiscal years, and the interim periods within those fiscal years, beginning after December 20, 2020. Early
adoption is permitted. The Company is evaluating the expected impact this guidance may have on the consolidated financial
statements and related disclosures.
5. Leases
On January 22, 2019, the Company amended
the lease for its corporate headquarters and primary research facility in Marlborough, Massachusetts. The Company leases 7,581
square feet of office and laboratory space, which will expire on March 31, 2024. The lease contains an option to terminate the
lease after two years or three years by providing advance written notice of termination pursuant to the terms of the agreement.
The exercise of this option was not determined to be reasonably certain and thus is not included in the lease liability on the
Company’s balance sheet.
The lease for our corporate headquarters
represents substantially all of our significant lease obligations. The amounts reported in the condensed consolidated balance sheets
for operating leases in which the Company is the lessee and other supplemental balance sheet information is set forth as follows,
in thousands, except lease term and discount rate:
|
|
September 30, 2020
|
|
|
December 31, 2019
|
|
Assets
|
|
|
|
|
|
|
|
|
Right of use asset
|
|
$
|
428
|
|
|
$
|
511
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Lease liability, current
|
|
|
113
|
|
|
|
107
|
|
Lease liability, non-current
|
|
|
325
|
|
|
|
411
|
|
Total lease liability
|
|
$
|
438
|
|
|
$
|
518
|
|
Lease Term and Discount Rate
|
|
|
|
|
|
|
|
|
Weighted average remaining lease term
|
|
|
3.83
|
|
|
|
4.43
|
|
Weighted average discount rate
|
|
|
4.70
|
%
|
|
|
4.64
|
%
|
Operating lease cost included in operating
expense was $33,000 and $33,000 for the three months ended September 30, 2020 and 2019, respectively. For the nine months ended
September 30, 2020 and 2019, operating lease cost included in operating expense was $99,000 and $94,000, respectively. Short-term
lease costs were not material for the three and nine months ended September 30, 2020 and 2019.
Cash paid for the amounts included in the
measurement of the operating lease liability on the Company’s condensed consolidated balance sheets and included within
changes in the lease liability in the operating activities of our condensed consolidated statement of cash flows was $32,200 and
$31,000 for the three months ended September 30, 2020 and 2019, respectively, and $95,600 and $90,000 for the nine months ended
September 30, 2020 and 2019, respectively.
Future lease payments for our non-cancellable
operating leases and a reconciliation to the carrying amount of the operating lease liability presented in the condensed consolidated
balance sheet as of September 30, 2020 is as follows, in thousands:
|
2020 (remaining)
|
|
$
|
32
|
|
2021
|
|
|
132
|
|
2022
|
|
|
135
|
|
2023
|
|
|
140
|
|
2024
|
|
|
35
|
|
Total lease payments
|
|
|
474
|
|
Less: Imputed interest
|
|
|
(36
|
)
|
Total operating lease liabilities (includes current portion)
|
|
$
|
438
|
|
6. Debt
On May 11, 2020, the Company received loan
proceeds in the amount of $231,252 from Bank of America, N.A., as lender, pursuant to the PPP under the CARES Act. The PPP loan
matures on May 11, 2022 and bears interest at a rate of 1% per year. The loan may be forgiven if used for eligible purposes, including
payroll, benefits, rent and utilities. Under the Flexibility Act, the definition of a covered period for which a borrower must
spend the PPP loan proceeds in order to be eligible for PPP loan forgiveness is the earlier of the date that is 24-weeks (or eight-weeks
at the borrower’s option) from the date the loan was funded or December 31, 2020. Additionally, monthly
principal and interest payments are deferred until the date on which the determination of PPP loan forgiveness is remitted to the
lender, or 10 months after the end of the loan forgiveness covered period. Payment terms if the PPP loan is not forgiven
are not known at this time.
The Company carefully assessed the requirements
for application under the PPP and believes that the loan is necessary to support its operations. The Company intends to apply
for loan forgiveness, but as loan forgiveness has not yet been determined the Company followed the guidance under the FASB ASC
Topic 470, “Debt” (“ASC 470”) in assessing the accounting for the PPP loan proceeds. Per
ASC 470, the Company recorded a liability on the balance sheet for the full amount of PPP loan proceeds received and will accrue
interest over the term of the loan. As of September 30, 2020, the PPP loan proceeds have been classified as long-term debt on
the balance sheet.
7. Stockholders’ Equity
February 2020 Registered Direct Offering
and Private Placement — On February 6, 2020, the Company completed a registered direct offering (the “February
2020 Registered Offering”) of 197,056 shares of the Company’s common stock at a purchase price of $8.705 per share
and in a concurrent private placement, sold warrants to purchase an aggregate of 197,056 shares of the Company’s common stock
at a purchase price of $0.125 per underlying warrant share and with an exercise price of $8.71 per share. Net proceeds to the Company
from the February 2020 Registered Offering were $1,467,000 after deducting placement agent fees and offering expenses paid by the
Company. In connection with the February 2020 Registered Offering, the Company also issued warrants to purchase a total of 14,779
shares of the Company’s common stock with an exercise price of $11.0375 per share to the placement agent, H.C. Wainwright
& Co., LLC (“HCW”).
February 2020 Underwritten Public Offering
— On February 13, 2020, the Company completed an underwritten public offering of 993,633 shares of the Company’s common
stock and pre-funded warrants (the “2020 Pre-Funded Warrants”) to purchase an aggregate of 1,006,367 shares
of the Company’s common stock (the “February 2020 Underwritten Offering”). The 2020 Pre-Funded Warrants
were immediately exercisable at an exercise price per share of $0.001. Each share of Company common stock or 2020 Pre-Funded Warrant,
as applicable, was sold as a unit with a warrant to purchase one share of Company common stock at an exercise price of $4.00 per
share (the “February 2020 Warrants”). The combined public offering price was $4.00 per Company common stock
unit or $3.999 per 2020 Pre-Funded Warrant unit. Net proceeds from the February 2020 Underwritten Offering were $7,093,000 after
deducting underwriting discounts and commissions and offering expenses paid by the Company.
The Company also
granted HCW, as underwriter, a 30-day option (the “Option”) to purchase up to an additional 300,000 shares of
Company common stock and/or February 2020 Warrants to purchase up to an aggregate of 300,000 shares of Company common stock. On
February 12, 2020, HCW partially exercised the Option to purchase an aggregate of 300,000 additional February 2020 Warrants at
a public offering price per option warrant of $0.001.
Additionally, pursuant to the February 2020
Underwritten Offering, the Company issued warrants to purchase up to 150,000 shares of Company common stock, immediately exercisable
at an exercise price of $5.00 per share to HCW, as underwriter.
April 2020 Registered Direct Offering
and Private Placement — On April 2, 2020, the Company completed a registered direct offering (the “April 2020
Offering”) of 1,713,064 shares of the Company’s common stock at a purchase price of $2.21 per share and in a concurrent
private placement, sold warrants to purchase an aggregate of 1,713,064 shares of the Company’s common stock at a purchase
price of $0.125 per underlying warrant share and with an exercise price of $2.21 per share. Net proceeds to the Company from the
April 2020 Offering were $3,527,000 after deducting placement agent fees and offering expenses paid by the Company. In connection
with the April 2020 Offering, the Company also issued warrants to purchase a total of 128,480 shares of the Company’s common
stock with an exercise price of $2.9188 per share to the placement agent, HCW.
Warrants
The
Company first assesses the warrants it issues under the FASB ASC Topic 480, “Distinguishing Liabilities from Equity”
(“ASC 480”) to determine whether they are within the scope of ASC 480. As there are no instances outside of
the Company’s control that could require cash settlement of the warrants, including the warrants issued by the Company during
the nine months ended September 30, 2020, the Company’s outstanding warrants are outside the scope of ASC 480.
The
Company then applies and follows the applicable accounting guidance in ASC 815. Financial instruments are accounted for as either
derivative liabilities or as equity instruments depending on the specific terms of the agreement. The Company’s outstanding
warrants do not meet the definition of a derivative instrument as they are indexed to the Company’s common stock and classified
within stockholders’ equity. Based on this determination, the Company’s warrants issued in the February 2020 Registered
Offering, February 2020 Underwritten Offering, April 2020 Offering, as well as all of the Company’s remaining outstanding
warrants, are classified within stockholders’ equity.
The following table summarizes the Company’s
outstanding equity-classified warrants at September 30, 2020:
|
|
Exercise
|
|
|
Expiration
|
|
Balance December 31,
|
|
|
Warrants
|
|
|
Warrants
|
|
|
Warrants
|
|
|
Balance September 30,
|
|
Description
|
|
Price
|
|
|
Date
|
|
2019
|
|
|
Issued
|
|
|
Exercised
|
|
|
Expired
|
|
|
2020
|
|
June 2015 Warrants
|
|
$
|
2,860.00
|
|
|
6/2/2020
|
|
|
2,364
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(2,364
|
)
|
|
|
–
|
|
December 2016 Warrants
|
|
$
|
495.00
|
|
|
12/21/2021
|
|
|
23,233
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
23,233
|
|
April 2018 Warrants
|
|
$
|
173.25
|
|
|
5/31/2023
|
|
|
20,599
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
20,599
|
|
April 2018 Placement Agent Warrants
|
|
$
|
223.00
|
|
|
4/9/2023
|
|
|
1,373
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
1,373
|
|
October 2018 Warrants
|
|
$
|
10.45
|
|
|
10/3/2025
|
|
|
389,610
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
389,610
|
|
October 2018 Underwriter Warrants
|
|
$
|
13.06
|
|
|
10/1/2023
|
|
|
29,220
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
29,220
|
|
November 2019 Placement Agent Warrants
|
|
$
|
6.875
|
|
|
11/18/2024
|
|
|
13,636
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
13,636
|
|
February 2020 Registered Direct Warrants
|
|
$
|
8.71
|
|
|
8/6/2025
|
|
|
–
|
|
|
|
197,056
|
|
|
|
–
|
|
|
|
–
|
|
|
|
197,056
|
|
February 2020 Placement Agent Warrants
|
|
$
|
11.0375
|
|
|
2/4/2025
|
|
|
–
|
|
|
|
14,779
|
|
|
|
–
|
|
|
|
–
|
|
|
|
14,779
|
|
February 2020 Underwritten Offering Warrants
|
|
$
|
4.00
|
|
|
2/13/2025
|
|
|
–
|
|
|
|
2,300,000
|
|
|
|
(973,500
|
)
|
|
|
–
|
|
|
|
1,326,500
|
|
February 2020 Pre-funded Warrants
|
|
$
|
0.001
|
|
|
No expiration
|
|
|
–
|
|
|
|
1,006,367
|
|
|
|
(1,006,367
|
)
|
|
|
–
|
|
|
|
–
|
|
February 2020 Underwriter Warrants
|
|
$
|
5.00
|
|
|
2/11/2025
|
|
|
–
|
|
|
|
150,000
|
|
|
|
–
|
|
|
|
–
|
|
|
|
150,000
|
|
April 2020 Warrants
|
|
$
|
2.21
|
|
|
10/2/2025
|
|
|
–
|
|
|
|
1,713,064
|
|
|
|
(428,266
|
)
|
|
|
–
|
|
|
|
1,284,798
|
|
April 2020 Placement Agent Warrants
|
|
$
|
2.9188
|
|
|
3/31/2025
|
|
|
–
|
|
|
|
128,480
|
|
|
|
–
|
|
|
|
–
|
|
|
|
128,480
|
|
|
|
|
|
|
|
|
|
|
480,035
|
|
|
|
5,509,746
|
|
|
|
(2,408,133
|
)
|
|
|
(2,364
|
)
|
|
|
3,579,284
|
|
There were no warrants exercised during
the three months ended September 30, 2020 and 2019.
During the nine months ended September 30,
2020, the Company received net proceeds of $3,856,000 from the exercise of warrants. During the nine months ended September 30,
2019, the Company received net proceeds of $60,000 from the exercise of warrants.
Of the warrants exercised during the nine
months ended September 30, 2020, 428,266 of the Company’s April 2020 Warrants were exercised via a cashless exercise transaction
and as a result a total of 225,796 shares of common stock were issued. There were no cashless exercises of warrants in the three
months ended September 30, 2020 or the three and nine months ended September 30, 2019.
8. 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:
|
|
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
Options to purchase common stock
|
|
|
2,637
|
|
|
|
2,650
|
|
Restricted stock units
|
|
|
10,731
|
|
|
|
9,404
|
|
Warrants to purchase common stock
|
|
|
3,579,284
|
|
|
|
487,569
|
|
Total
|
|
|
3,592,652
|
|
|
|
499,623
|
|
9. Stock-based Compensation
Restricted Stock Units
Restricted stock units (“RSUs”)
are issued under the Company’s 2012 Long-Term Incentive Plan or as inducement grants issued outside of the plan to new employees.
RSUs are generally subject to graded vesting and the satisfaction of service requirements. Upon vesting, each outstanding RSU will
be exchanged for one share of the Company’s common stock. Employee RSU recipients may elect to net share settle upon vesting,
in which case the Company pays the employee’s income taxes due upon vesting and withholds a number of shares of equal value.
The fair value of the RSUs awarded are based upon 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 nine months ended September 30, 2020:
|
|
Number
of Shares
|
|
|
Weighted-
Average
Grant Date Fair Value
|
|
Unvested units at December 31, 2019
|
|
|
14,945
|
|
|
$
|
20.50
|
|
Granted
|
|
|
–
|
|
|
|
–
|
|
Vested
|
|
|
(3,782
|
)
|
|
|
24.07
|
|
Forfeited
|
|
|
(432
|
)
|
|
|
14.69
|
|
Unvested units at September 30, 2020
|
|
|
10,731
|
|
|
$
|
19.47
|
|
Stock-based compensation expense related
to RSUs for the three months ended September 30, 2020 and 2019 was $21,000 and $31,000, respectively. Stock-based compensation
expense related to RSUs for the nine months ended September 30, 2020 and 2019 was $69,000 and $110,000, respectively.
Stock Options
The Company uses the Black-Scholes option-pricing
model to determine the fair value of all its option grants. 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 nine months ended September 30, 2020:
|
|
Number
of Shares
|
|
|
Weighted-
Average
Exercise
Price
Per Share
|
|
|
Aggregate
Intrinsic
Value
|
|
Balance at December 31, 2019
|
|
|
2,659
|
|
|
$
|
3,298.90
|
|
|
|
|
|
Granted
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
Exercised
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
Cancelled
|
|
|
(22
|
)
|
|
|
10,484.90
|
|
|
|
|
|
Balance at September 30, 2020
|
|
|
2,637
|
|
|
$
|
3,252.04
|
|
|
$
|
–
|
|
Exercisable at September 30, 2020
|
|
|
1,842
|
|
|
$
|
4,607.81
|
|
|
$
|
–
|
|
Stock-based compensation expense related
to stock options for the three months ended September 30, 2020 and 2019 was $16,000 and $16,000, respectively. Stock-based compensation
expense related to stock options for the nine months ended September 30, 2020 and 2019 was $41,000 and $53,000, respectively.
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 vested in full
on June 1, 2019.
The fair value of the restricted stock was
based on the Company’s closing stock price on the date of grant and was expensed over the vesting period. During the nine
months ended September 30, 2019, the Company granted 4,419 shares of restricted stock in lieu of Compensation to Dr. Cauwenbergh
and recorded $106,000 in stock-based compensation related to the restricted stock.
Compensation Expense Related to Equity Awards
The following table sets forth total stock-based
compensation expense for the three and nine months ended September 30, 2020 and 2019, in thousands:
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Research and development
|
|
$
|
6
|
|
|
$
|
6
|
|
|
$
|
17
|
|
|
$
|
25
|
|
General and administrative
|
|
|
31
|
|
|
|
41
|
|
|
|
93
|
|
|
|
244
|
|
Total stock-based compensation
|
|
$
|
37
|
|
|
$
|
47
|
|
|
$
|
110
|
|
|
$
|
269
|
|
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 September 30, 2020 and results of operations for the three and nine months ended September 30, 2020 and 2019 should
be read in conjunction with the financial statements included in our Annual Report on Form 10-K for the year ended December 31,
2019, which was filed with the Securities and Exchange Commission (the “SEC”) on March 26, 2020.
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,” “would,” “should,” “potential,” “designed
to,” “will,” “ongoing,” “estimate,” “forecast,” “predict,” “could”
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. Risks that could
cause actual results to vary from expected results expressed in our forward-looking statements include, but are not limited to,
the impact to our business and operations by the recent coronavirus outbreak, the development of our product candidates, our ability
to execute on business strategies, our ability to develop our product candidates with collaboration partners, the timeline and
duration for advancing our product candidates into clinical development, results from our preclinical and clinical activities and
our ability to obtain future financing. Our actual results and financial condition may differ materially from those indicated in
the forward-looking statements as a result of a number of important factors, including those identified in our Annual Report on
Form 10-K for the year ended December 31, 2019 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
(“INTASYL™”) therapeutic platform. Our efforts are focused on silencing tumor-induced suppression of the
immune system through our proprietary INTASYL platform with utility in immune cells and the tumor micro-environment. Our goal is
to develop powerful INTASYL therapeutic compounds that can weaponize immune effector cells to overcome tumor immune escape, thereby
potentially providing patients a powerful new treatment option that goes beyond current treatment modalities.
Our development efforts are based on our
broadly patented INTASYL technology platform. Our INTASYL 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 INTASYL platform uniquely positions the Company in the field of immuno-oncology because of this
and the following reasons:
|
·
|
Efficient uptake of INTASYL by target cells
obviating the need for facilitated delivery (mechanical or formulation);
|
|
|
|
|
·
|
Does not require permanent genetic modification;
|
|
·
|
Can target multiple genes (i.e. multiple immunosuppression pathways) in a single therapeutic entity;
|
|
·
|
Gene silencing by INTASYL has been shown to have a sustained, or long-term, effect in vivo;
|
|
·
|
Favorable clinical safety profile of INTASYL with local administration; and
|
|
·
|
Can be readily manufactured under current good manufacturing practices.
|
The self-delivering
nature of our compounds makes INTASYL ideally suited for use with adoptive cell transfer (“ACT”) treatments
and direct therapeutic use. ACT consists of the infusion of immune cells with antitumor properties, after growing them in a lab
to large numbers. These cells can be derived from unmodified (i.e. naturally occurring) immune cells, immune cells isolated from
resected tumors, or genetically engineered immune cells that recognize tumor cells.
Regardless of the
source of immune cells (ACT or naturally occurring immune cells), in patients with solid tumors, these cells face several hurdles.
Multiple inhibitory mechanisms restrain immune cells from effectively eradicating tumors, including immune checkpoints, reduced
cell fitness and cell persistence. Furthermore, the immunosuppressive tumor micro-environment (the “TME”) can
pose a formidable barrier to immune cell infiltration and function.
We have developed
a product platform based on our INTASYL technology that allows easy, precise, rapid, and selective non-genetically modified programming
of ACT cells (ex vivo, during manufacturing) and of the TME (in vivo, by local application), resulting in reduced
immune inhibition and in improved immunotherapy.
Adoptive Cell Transfer
ACT includes a
number of different types of immunotherapy treatments. These treatments use immune cells, isolated from patients, donors or retrieved
from allogeneic immune cell banks. They are grown in a lab to large numbers, followed by administering them to the body to fight
the cancer cells. Sometimes, immune cells that naturally recognize a tumor are used, while other times immune cells are modified
or “genetically engineered” to make them recognize and kill the cancer cells. There are several types of ACT, including:
a.) non-engineered cell therapy in which immune cells are grown from the patient’s tumor or blood, such as tumor infiltrating
lymphocytes (“TILs”), or from donor blood or tissue such as natural killer (“NK”) cells,
dendritic cells (“DC”) and macrophages, and b.) genetically engineered immune cells that are genetically modified
to recognize specific tumor proteins and to remain in an activated state (such as T cell receptor technology (“TCRs”),
chimeric antigen receptor (“CAR”) T cells, or CAR-NK cells).
In ACT, such immune
cells are then expanded and modified before being returned and used to treat the patient. Multiple inhibitory mechanisms restrain
immune cells used in ACT from effectively eradicating tumors, including immune checkpoints, reduced cell fitness and cell persistence,
and other barriers to immune cell infiltration and function mainly in solid tumors. We believe our INTASYL compounds are ideally
suited to be used in combination with ACT, in order to make these immune cells more effective without the need for additional complicated
manufacturing steps and/or genetic engineering.
Our approach builds
on well-established methodologies of ACT and involves the treatment of immune cells with our INTASYL compounds ex vivo while
they are grown in the lab and before administering them to the patient. Because our INTASYL compounds do not require a delivery
vehicle to penetrate into the cells, we are able to enhance the function of these cells by merely adding our INTASYL compounds
during the expansion process and without the need for genetic engineering and without additional needed complex manufacturing steps.
By adding INTASYL to the cell culture media used during the cell expansion, we can reduce or eliminate the expression of genes
that make the immune cells less effective. For example, with our INTASYL compounds, we can reduce the expression of immunosuppressive
proteins by the therapeutic immune cells, potentially enabling them to overcome tumor resistance mechanisms and thus improving
their ability to destroy the tumor cells. In various types of immune cells tested to date, INTASYL treatment results in potent
silencing with close to 100% transfection efficiency and while maintaining nearly full cell viability. After expanding these cells
and enhancing them with INTASYL ex vivo, they are returned to the patient for treatment.
Our lead product
candidate and most advanced program being developed in ACT is PH-762, an INTASYL compound that targets the checkpoint protein PD-1.
Checkpoint proteins, such as PD-1, normally act as a type of “off switch” that prevents T cells from attacking certain
cells, such as cancer cells, in the body. Our T cells are immune cells that protect the body from cancer cells and infections.
Data developed
by Phio and with collaborators has shown that PH-762 silences PD-1 checkpoint expression, thereby removing the “off switch”
and resulting in enhanced T cell activation and tumor cytotoxicity. Experimental data shows that PH-762 can silence the expression
of PD-1 in target human T cells in a potent and durable manner, and can increase function of patient derived TILs for use in ACT,
showing that PH-762 is suitable for use both in ACT and as a standalone therapeutic through intra-tumoral injection. This supports
the application of INTASYL technology in immunotherapy of cancer.
Our
second ACT product candidate PH-894, an INTASYL compound that targets BRD4, is a regulator of gene expression impacting cell differentiation.
In previous studies, PH-894 has been shown to improve T cell function and persistence by differentiating T cells into a more active
state (stem-cell like memory phenotype). Data, completed in partnership with the Karolinska Institutet, demonstrated that the
application of PH-894, was shown to silence BRD4 in human T cells during expansion for ACT, which has the potential to confer
superior anti-tumor activity, for example by improving T cell persistence. With this data, we expanded our collaboration with
the Karolinska Institutet to build upon these findings and develop INTASYL compounds for additional targets and cell types toward
clinical application in areas of the Karolinska Institutet’s ongoing clinical research.
We are also developing
our INTASYL compound PH-804 for use in ACT. PH-804 targets the suppressive immune receptor TIGIT, which is a checkpoint protein
present on T cells and NK cells. To date, we have shown that PH-804 can silence the expression of TIGIT in NK cells and T cells,
overcoming their “off switch” and the cells becoming “weaponized” to kill cancer cells.
In March
2020, we entered into a collaboration and option agreement with Medigene AG and the Helmholtz Zentrum München
(“HMGU”). This three-way collaboration expands upon our outstanding research agreement with HMGU to design and
develop novel candidates for the use of INTASYL compounds in ACT to enhance immune cell function. Under the agreement, Medigene
AG will contribute expertise regarding clinical development, as well as proprietary research material and has the option to an
exclusive license for the clinical and/or commercial development of certain INTASYL immune cell enhancers.
Tumor Micro-Environment
The TME is the
environment that surrounds and feeds a tumor, including normal cells, blood vessels, immune cells, and the extracellular matrix.
The TME is an immunosuppressive environment that inhibits the immune system’s natural ability to recognize and destroy tumor
cells by negatively impacting how immunosuppressive cells are being attracted and activated. Reprogramming different components
of the TME may overcome resistance to immunotherapy. Such reprogramming of the TME by INTASYL compounds through direct local administration
into the tumor, could potentially become an important form of therapy. The Company has previously shown in a clinical setting that
our INTASYL compounds are safe and well-tolerated following local administration, therefore we believe that our INTASYL technology
can not only be used with ACT, but can also be used as an independent therapeutic platform.
We have pipeline
programs in place for the development of INTASYL compounds for direct administration into the tumor, including the use of PH-762,
PH-804 and PH-894 for in situ transfection and activation of immune cells in the TME.
Data presented
in January 2020 from in vivo studies performed by the Company showed that intra-tumoral injection of a mouse version of
PH-804 reduced the tumor growth in colorectal carcinoma tumor bearing mice, which was shown to inhibit tumor growth and was correlated
with the silencing of TIGIT mRNA expression and in increase in cytotoxic effector T cells in the TME.
Building on the animal data with PH-804,
the Company conducted several animal studies with a mouse version of PH-762 and with PH-894 in a validated mouse model of hepatocellular
carcinoma. These studies showed that local administration of the mouse version of PH-762 or PH-894 through intra-tumoral injection
resulted in potent anti-tumoral effects. The treated animals showed a complete and statistically significant inhibition of tumor
growth, whereas placebo treated animals displayed exponential tumor growth. The combined PH-804, PH-762, and PH-894 data further
shows that INTASYL compounds can trigger associated changes in the TME such as an increase of TILs, including CD8+ T cells responsible
for tumor cell killing, and an increase of activation markers on these cells. These preclinical findings demonstrate that direct
injection of INTASYL compounds can successfully infiltrate solid tumors and impact the TME by activating the immune response in
animal models of solid tumors resulting in reduced tumor growth. This is one of the key challenges for many other immunotherapy
platforms to be able to achieve an adequate therapeutic effect in solid tumors.
We are also investigating other relevant compounds for TME targets, such as PH-790, an INTASYL compound targeting PD-L1.
PD-L1 is a protein formed by cancer cells that activate the PD-1 “off switch” on immune cells. Our approach with PH-790
is to block the formation of the PD-L1 protein, which may prevent cancer cells from inactivating T cells and attack the cancer,
and will be evaluated alongside PH-762. Previously, a series of preclinical in vivo studies in tumor models showed dose-dependent
attenuated tumor growth for the INTASYL compounds compared to control groups. Recent data presented
at the 35th Annual Meeting of Society for Immunotherapy of Cancer in November 2020 demonstrated that the antitumoral
efficacy of our individual pipeline products, PH-762, PH-790 and PH-804, can be further improved by combining them in a single
drug treatment. This data showed that the combination of our INTASYL compounds inhibited tumor growth without having a negative
impact on the tolerability of the treatment.
Based on our positive
preclinical data, the Company is preparing for its first in-human clinical study with PH-762 using intra-tumoral administration
for patients with advanced melanoma. The rationale for the study and its design were recently presented at a key opinion leader
event held by the Company in June 2020 with Dr. Caroline Robert of the Gustave Roussy Cancer Center in Paris, France who will be
our lead principal investigator for the trial.
Impact of COVID-19 on our Business
In December 2019,
a novel strain of coronavirus was reported to have surfaced in Wuhan, China and has since spread to other parts of the world, including
the United States. In March 2020, the World Health Organization (the “WHO”) declared the outbreak a pandemic.
Health and Safety
From the first
signs of the outbreak, we have taken proactive measures intended to protect the health and safety of our employees. We have implemented
safety measures following the guidance provided by the WHO and the Centers for Disease Control (the “CDC”) such
as working remotely for employee personnel who do not need to be physically present in our premises, social distancing protocols,
suspending travel, and extensively and frequently disinfecting our workspaces. We expect to continue following these safety measures
and may take further actions as we require, as government authorities require or recommend, or as we determine to be in the best
interests of our employees, partners and suppliers.
Operations
The coronavirus
pandemic is affecting the United States and global economies and as a result, government authorities have implemented restrictions
and limited certain operations, such as limits on the number of people at a gathering, travel restrictions and stay-at-home orders,
to try and slow the spread of coronavirus. Our office and lab space are located in one facility in Marlborough, Massachusetts and
on March 23, 2020, Massachusetts ordered most physical business workplaces closed, mandating work-from-home arrangements, where
feasible, in response to the coronavirus pandemic. The order excluded businesses that provide certain essential services, which
included companies operating in the biotechnology and life sciences industry. As a result, our facility remained operational with
employee personnel who did not need to be physically present in our premises working remotely during that time.
On May 18, 2020,
Massachusetts commenced its four phased approach and re-opening plan of the economy, which allows for the gradual re-opening of
each sector, industry and business in line with state mandated workplace safety standards and sector-specific protocols and best
practices. The Company’s facilities remain operational and are operating in accordance with Massachusetts’ mandated
requirements, as well as in accordance with the federal government, WHO, CDC and other governmental authority guidelines. Employee
personnel who do not need to be physically present on our premises are continuing to work remotely, but have the ability to be
on site as required. Safety measures are in place for the health and safety of our employees, including formal policies related
to health checks, wearing a face mask, staggered scheduling and socially distancing, in line with the guidelines provided by government
authorities. While these measures may be modified or extended, we expect that our activities, including our internal research and
development functions, will continue to remain largely operational.
We have experienced
limited absenteeism from our employees and we do not currently expect that our operations will be significantly impacted by employee
absenteeism.
While we believe
the impact to our internal operations has been minimal thus far, current and future restrictions may further impact our operations
and may slow or diminish our research and development activities.
Supply and Services
If the measures to contain the outbreak
continue or are extended, it may affect our operations and those of third parties on which we rely, including causing disruptions
in the supplies we order, outsourced development services for our product candidates and the conduct of current and planned preclinical
and clinical studies. Presumably as a result of the coronavirus pandemic, we have begun to see some of our third-party suppliers
and service providers on which we rely becoming impacted. If the impact on their operations continue or extend, it may affect our
operations. We previously had been able to engage with third-party service providers in areas with limited or no impact (e.g. countries
with limited or no restrictions), but with the global spread of the virus and associated restrictions, this has been no longer
possible. Our service providers, for example those performing required preclinical research studies, are now facing impacts to
their operations, including restrictions on the availability of critical materials that are needed for this type of research. Without
a significant and sustained improvement of the current situation, we may experience significant impacts to certain of our development
activities outsourced to third-party service providers, however, the ultimate impact on our third-party service providers is highly
uncertain and subject to change. If the measures to contain the outbreak are extended or further expanded, it could reduce or delay
the availability of supplies and services that we purchase and outsource. This may in turn slow or delay our preclinical and clinical
research and development activities, and/or result in higher costs.
We anticipate a continued decline in the
commencement of new clinical trials, at least in the short-term, as many Institutional Review Boards (the “IRB”)
are currently focused on reviewing and approving clinical trial protocols related to COVID-19. Additionally, due to the implementation
of restrictive measures such as stay-at-home orders by government authorities in the United States and global economies to try
and contain the spread of coronavirus, we anticipate a continued negative impacts, at least in the short-term, in the enrollment
and participation of patients in clinical trials outside of those related to COVID-19.
The required studies and steps needed to
initiate clinical trials with PH-762 in the 2021 timeframe are continuing and ongoing, however, the ultimate impact of the coronavirus
pandemic is highly uncertain and subject to change. The Company does not yet know the full extent of potential delays or impacts
on its business and preclinical and clinical trial activities.
Liquidity and
Capital Resources
While we believe that the coronavirus pandemic
has not had a significant impact on our financial condition and results of operations at this time, the extent to which the coronavirus
pandemic impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including
new information which may emerge concerning the severity of the coronavirus pandemic and the actions to contain the coronavirus
or treat its impact, among others. We believe that our current cash on hand should be sufficient to fund our operations for at
least the next twelve months from the date of the release of these financial statements, although the pandemic has created uncertainty
around our ability to access capital markets to provide necessary working capital to fund our long term operations.
In light of this uncertainty around our
ability to access additional working capital, on May 11, 2020, the Company received loan proceeds in the amount of $231,252 from
Bank of America, N.A., as lender, pursuant to the PPP under the CARES Act. The PPP loan matures on May 11, 2022 and bears interest
at a rate of 1% per year. The loan may be forgiven if used for eligible purposes, including payroll, benefits, rent and utilities.
Monthly principal, interest and other fee payments are deferred until the date on which the
determination of PPP loan forgiveness is remitted to the lender, or ten (10) months after the end of the borrower’s loan
forgiveness covered period. The Company carefully assessed the requirements for application under the PPP and believes that
the loan is necessary to support its operations. The Company intends to apply for loan forgiveness and while the Company has used
the PPP loan proceeds for the eligible purposes allowed, the Company cannot guarantee that the loan will be forgiven.
In connection with and in addition to the
PPP loan, we have taken other proactive steps to control costs in response to the coronavirus pandemic and these actions include
the reduction of the salaries of our senior management team by 10% through the remainder of 2020. We believe these savings will
help mitigate the financial impact of the coronavirus pandemic.
Additionally, while the potential economic
impact brought by, and the duration of, the coronavirus pandemic is difficult to assess or predict, the impact of the coronavirus
on the global financial markets may reduce our ability to access capital, which could negatively impact our short-term and long-term
liquidity and our ability to complete our preclinical and planned clinical studies on a timely basis, or at all. There may be developments
outside of our control that require us to adjust our operating plans and given the nature of the situation, cannot reasonably estimate
the impact of the coronavirus on our financial condition, results of operations or cash flows in the future.
In addition, risk
factors identified in our Annual Report on Form 10-K for the year ended December 31, 2019 under the heading “Risk Factors,”
which was filed with the SEC on March 26, 2020, should be read in conjunction with Part II—Item 1A, “Risk Factors,”
included herein for updates to our risk factors regarding risks associated with the COVID-19 pandemic.
Critical Accounting Policies and Estimates
The
discussion and analysis of our financial condition and results of operations is based upon our condensed consolidated 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. 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, 2019, which we filed
with the SEC on March 26, 2020.
Results of Operations
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,
|
|
|
|
|
Description
|
|
2020
|
|
|
2019
|
|
|
Dollar
Change
|
|
|
2020
|
|
|
2019
|
|
|
Dollar
Change
|
|
Revenues
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
21
|
|
|
$
|
(21
|
)
|
Operating expenses
|
|
|
2,306
|
|
|
|
2,113
|
|
|
|
193
|
|
|
|
6,331
|
|
|
|
6,339
|
|
|
|
(8
|
)
|
Operating loss
|
|
|
(2,306
|
)
|
|
|
(2,113
|
)
|
|
|
(193
|
)
|
|
|
(6,331
|
)
|
|
|
(6,318
|
)
|
|
|
(13
|
)
|
Net loss
|
|
|
(2,309
|
)
|
|
|
(2,094
|
)
|
|
|
(215
|
)
|
|
|
(6,332
|
)
|
|
|
(6,248
|
)
|
|
|
(84
|
)
|
Comparison of the Three and Nine Months Ended September 30,
2020 and 2019
Operating Expenses
The following table summarizes our total
operating expenses, for the periods indicated, in thousands:
|
|
Three Months Ended September 30,
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
Description
|
|
2020
|
|
|
2019
|
|
|
Dollar
Change
|
|
|
2020
|
|
|
2019
|
|
|
Dollar
Change
|
|
Research and development
|
|
$
|
1,256
|
|
|
$
|
1,042
|
|
|
$
|
214
|
|
|
$
|
3,253
|
|
|
$
|
3,277
|
|
|
$
|
(24
|
)
|
General and administrative
|
|
|
1,050
|
|
|
|
1,071
|
|
|
|
(21
|
)
|
|
|
3,078
|
|
|
|
3,062
|
|
|
|
16
|
|
Total operating expenses
|
|
$
|
2,306
|
|
|
$
|
2,113
|
|
|
$
|
193
|
|
|
$
|
6,331
|
|
|
$
|
6,339
|
|
|
$
|
(8
|
)
|
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 September 30, 2020 increased 21% as compared with the three months ended September
30, 2019, primarily due to an increase in the use of third-party service providers to conduct preclinical research studies to
support the development of the Company's pipeline programs as compared to the prior year period offset by a decrease in the use
of an outside interim temporary labor consultant in the prior year period.
Research
and development expenses for the nine months ended September 30, 2020 decreased 1% as compared with the nine months ended September
30, 2019, primarily due to decreases in lab supply purchases, in the use of an outside interim temporary labor consultant and
decreased patent-related expenses as compared to the prior year period offset by increases in the use of third-party service providers
to conduct preclinical research studies to support the development of the Company's pipeline programs.
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 September 30, 2020 decreased 2% as compared with the three months ended
September 30, 2019, primarily due to a decrease in recruiting fees to support employee
hiring activities as compared to the same period in the prior year.
General
and administrative expenses for the nine months ended September 30, 2020 increased 1% as compared with the nine months ended September
30, 2019, primarily due to increases in the Company’s D&O insurance premiums and the use of business development
consultants offset by a decrease in recruiting fees to support employee hiring activities as compared to the same period in the
prior year.
Liquidity and Capital Resources
On August 8, 2017, the Company entered into
a purchase agreement (the “2017 Purchase Agreement”) and a registration rights agreement with Lincoln Park Capital
Fund, LLC (“LPC”), pursuant to which the Company had 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
2017 Purchase Agreement. The 2017 Purchase Agreement expired on April 1, 2020 and a total of 9,000 shares of common stock were
sold to LPC for net proceeds of $1,602,000 under the 2017 Purchase Agreement.
On
August 7, 2019, the Company entered into a purchase agreement (the “2019 Purchase Agreement”) and a registration
rights agreement with LPC, pursuant to which the Company has the right to sell to LPC up to $10,000,000 in shares of the Company’s
common stock over the 30-month term of the 2019 Purchase Agreement, subject to certain limitations and conditions. The 2019 Purchase
Agreement initially limits the Company’s issuance of shares of common stock to LPC to 19.99% of the Company’s shares
outstanding on the date of the 2019 Purchase Agreement unless stockholder approval is obtained to issue more than such amount or
the average price of all sales under the 2019 Purchase Agreement exceed certain amounts as set forth in the 2019 Purchase Agreement.
To date, no shares of common stock have been sold to LPC under the 2019 Purchase Agreement.
On February 6, 2020, the Company closed
its February 2020 Registered Offering. Net proceeds to the Company from the February 2020 Registered Offering were $1,467,000 after
deducting placement agent fees and offering expenses paid by the Company.
On February 13, 2020, the Company closed
its February 2020 Underwritten Offering. Net proceeds from the February 2020 Underwritten Offering were $7,093,000 after deducting
underwriting discounts and commissions and offering expenses paid by the Company.
On April 2, 2020, the Company closed its
April 2020 Offering. Net proceeds to the Company from the April 2020 Offering were $3,527,000 after deducting placement agent fees
and offering expenses paid by the Company.
We had cash of $16,868,000 as of September
30, 2020, compared with $6,934,000 as of December 31, 2019. 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. Moreover,
the global coronavirus pandemic has led to significant uncertainty and increased volatility in the capital markets. If these conditions
in the capital markets continue for an extended period of time it may impact our ability to raise capital. 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 operations for at least the next twelve
months from the date of the release of these financial statements.
The following table summarizes our cash
flows for the periods indicated, in thousands:
|
|
Nine Months Ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
Net cash used in operating activities
|
|
$
|
(6,179
|
)
|
|
$
|
(6,099
|
)
|
Net cash used in investing activities
|
|
|
(18
|
)
|
|
|
(77
|
)
|
Net cash provided by financing activities
|
|
|
16,131
|
|
|
|
6
|
|
Net increase (decrease) in cash and restricted cash
|
|
$
|
9,934
|
|
|
$
|
(6,170
|
)
|
Net Cash Flow from Operating Activities
Net cash used in operating activities was
$6,179,000 for the nine months ended September 30, 2020, as compared with $6,099,000 for the nine months ended September 30, 2019.
The increase in cash used in operating activities was primarily due to an increase in net loss as compared to the same period in
the prior year.
Net Cash Flow from Investing Activities
Net cash used in investing activities was
$18,000 for the nine months ended September 30, 2020, as compared with $77,000 for the nine months ended September 30, 2019. The
decrease in net cash flows from investing activities was primarily related to the amount of laboratory and computer equipment purchases
year over year.
Net Cash Flow from Financing Activities
Net cash provided by financing
activities was $16,131,000 for the nine months ended September 30, 2020, as compared with $6,000 for the nine months ended
September 30, 2019. The increase in net cash flows from financing activities was primarily due to net proceeds received by
the Company from the issuance of securities and warrant exercises during the nine months ended September 30, 2020 as compared
to the same period in the prior year.
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 ASC 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 7 to our consolidated financial
statements included in our Annual Report on Form 10-K for the year ended December 31, 2019, which was filed with the SEC on March
26, 2020, for further discussion of these indemnification agreements.