PHIO PHARMACEUTICALS CORP. The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the notes to those consolidated financial statements included in Item 8 of this Annual Report on Form 10-K. This discussion contains forward-looking statements that involve significant risks and uncertainties. As a result of many factors, such as those set forth under "Risk Factors" and elsewhere in this Annual Report on Form 10-K, our actual results may differ materially from those anticipated in these forward-looking statements. Please refer to the discussion under the heading "Forward-Looking Statements" above.
Overview
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™ 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 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. These cells can be derived from unmodified (i.e. naturally occurring) immune cells, immune cells isolated from resected tumors, or genetically engineered immune cells recognizing tumor neoantigen/neoepitope cells.
Currently, ACT therapies for the treatment of solid tumors face several hurdles. Multiple inhibitory mechanisms restrain immune cells used in ACT 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.
Phio has 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 improved immunotherapy.
Adoptive Cell Transfer
ACT includes a number of different types of immunotherapy treatments. These treatments use immune cells, that 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 "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.) 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).
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In ACT, immune cells are isolated from patients, donors or retrieved from allogeneic immune cell banks. The immune cells are then expanded and modified before being returned and used to treat the patient. We believe our INTASYL™ compounds are ideally suited to be used in combination with ACT, in order to make these immune cells more effective.
Our approach to immunotherapy builds on well-established methodologies of ACT and involves the treatment of immune cells with our INTASYL™ compounds 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 (for example, by inhibiting the expression of immune checkpoint genes) by merely adding our INTASYL™ compounds during the expansion process and without the need for genetic engineering. After enhancing these cells ex vivo, they are returned to the patient for treatment.
Our method introduces an important step in the ex vivo processing of immune cells. This step uses our INTASYL™ technology to 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 receptors or 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 while maintaining close to 100% transfection efficiency and nearly full cell viability.
One of the main issues with ACT is that the cells are very susceptible to the cancer signals that turn down the immune response and continuous activation of these cells causes them to become exhausted. These factors, among others, may reduce their efficacy and lifespan. A technology that can reprogram the immune cells used in ACT, such as with INTASYL™ technology, is of key interest now in the current immuno-oncology world. In comparison to other technologies available, reprogramming cells with INTASYL™ does not require genetic engineering, its use is not limited to specific cell types and can be easily integrated with cell manufacturing approaches.
We currently have two product candidates that are being developed for use in ACT, PH-762 and PH-804. PH-762, our most advanced program and lead pipeline compound, targets the checkpoint protein PD-1, a checkpoint protein on immune cells. PD-1 normally acts as a type of "off switch" that helps keep the T cells from attacking other cells in the body. T cells are immune cells that protect the body from cancer cells and are important for the activation of immune cells to fight infection. Our second pipeline compound, PH-804, targets the suppressive immune receptor TIGIT, which is a checkpoint protein present on T cells and NK cells.
Data developed in-house and with our collaborators, which include both leading academic centers and corporate institutions, to date has shown that PH-762 can elicit PD-1 checkpoint blockade by silencing PD-1 receptor expression resulting in enhanced T cell activation and tumor cytotoxicity. We have also shown with studies completed with our collaborators that PH-804 can silence the expression of TIGIT in NK cells and T cells, overcoming their exhaustion and thereby becoming "weaponized."
Recent data shown by the Company as well as with our collaborators, Iovance
Biotherapeutics, Inc. and the Karolinska Institutet, at the 2019
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. A tumor can change the microenvironment and the microenvironment can affect how a tumor grows and spreads and can create an immunosuppressive microenvironment that inhibits the immune system's natural ability to recognize and destroy tumor cells. This attracts immunosuppressive cells, induces and activates immune checkpoint expression and excludes and exhausts T cells. Reprogramming different components of the TME may overcome its resistance to immunotherapy.
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Such reprogramming of the TME by INTASYL™ compounds through direct local administration into the tumor, could potentially become an important form of (neo)adjuvant therapy. We believe that this will also show that our contributions with our INTASYL™ 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 INTASYL™ compounds are safe and well-tolerated following local administration.
Our INTASYL™ compounds being developed for use in ACT, are also being developed for use directly towards the TME, including PH-762 and PH-804. We are also working on other relevant compounds for TME targets, such as PH-790, an INTASYL™ compound targeting PD-L1. PD-L1 is a protein that keeps immune cells from attacking nonharmful cells in the body. If cancer cells have large amounts of PD-L1, this "tricks" the immune system into not recognizing and attacking the tumor. Our approach with PH-790 is to block the PD-L1 protein, which may prevent cancer cells from inactivating T cells and attack the cancer.
Our collaborative research agreement with
Recent in vivo studies performed by the Company showed that intra-tumoral injections of a mouse version of PH-804 reduced the tumor growth in colorectal carcinoma tumor bearing mice, which was shown to be correlated with the silencing of TIGIT mRNA expression and an increase in cytotoxic effector T cells in the TME.
Corporate Information
On
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations
is based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in
Research and Development Expenses
We are required to estimate our accrued research and development expenses, of which a significant portion related to third party providers the Company has contracted with to perform various preclinical and clinical activities on our behalf for the continued development of ourproduct candidates. This process includes reviewing open contracts and purchase orders, estimating the service performed and the associated cost incurred for research and development services not yet billed or otherwise notified of actual cost. Examples of estimated accrued expenses related to research and development expenses include fees connected with clinical trial sites, third-party clinical research organizations and other preclinical and clinical-related activities and include such items as subject-related fees, laboratory work, investigator fees and analysis 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 financial terms of these contracts are subject to negotiation, vary from provider to provider and may result in uneven payment flows. There may be instances in which payments made to our vendors exceed the level of services provided and result in a prepayment of the expense. In other instances, payment depends on factors such as the successful completion of the enrollment of subjects or milestones.
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Accruals and expenses are recorded during the period incurred based on such estimates and assumptions as expected cost, passage of time over which services will be performed, the level of effort to be expended in each period, the achievement of milestones and adjustment accordingly. Estimates of our research and development accruals are assessed on a quarterly basis based on the facts and circumstances known to us at that time and other information available to us. We recognize costs for certain development activities based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors. We periodically confirm the accuracy of the estimates with our third party contractors and make adjustments, if necessary. Actual results may differ from these estimates and could have a material impact on our reported results. Our historical accrual estimates have not been materially different from our actual costs. Due to the nature of estimates, we cannot provide assurance that we will not make changes to our estimates in the future as we become aware of additional information about the conduct of our preclinical or clinical activities.
Stock-based Compensation
The Company follows the provisions of the
We determine the fair value of restricted stock and restricted stock units based on the fair value of our common stock on the date of grant. We estimate the fair value of our stock option using the Black-Scholes option pricing model, which requires us to develop subjective estimates to be used in calculating the grant date fair value of stock options. The use of the model requires us to make estimates of highly subjective assumptions, such as expected stock price volatility and the estimated expected term of each award.
Derivative Financial Instruments
During the normal course of business we may issue warrants to vendors as consideration to perform services. We may also issue warrants as part of a debt or equity financing. Warrants and other derivative financial instruments are accounted for either as equity or as an asset or liability, depending on the characteristics of each derivative financial instrument. Warrants classified as equity are 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. Derivative financial instruments classified as an asset or liability are measured at fair value on the issuance date and are revalued on each subsequent balance sheet date. The changes in the fair value are recognized as current period income or loss.
Leases
In connection with our adoption on
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.
29 Financial Operations Overview Revenues
To date, we have primarily generated revenues through government grants. We have not generated any commercial product revenue.
In the future, we may generate revenue from a combination of government grants, research and development agreements, license fees and other upfront payments, milestone payments, product sales and royalties in connection with future strategic collaborators and partners. We expect that any revenue we generate will fluctuate from period to period as a result of the timing of the achievement of any preclinical, clinical or commercial milestones and the timing and amount of payments received relating to those milestones and the extent to which any of our product candidates are approved and successfully commercialized by us or strategic collaborators and partners. If the Company or any future partner fails to develop product candidates in a timely manner or obtain regulatory approval for them, then our ability to generate future revenue and our results of operations and financial position would be adversely affected.
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.
Our research and development programs are focused on the development of the next generation of immuno-oncology therapeutics based on INTASYL™ therapeutic platform. Since we commenced operations, research and development has composed a significant portion of our total operating expenses and is expected to compose the majority of our spending for the foreseeable future.
There are risks in any new field of drug discovery that preclude certainty regarding the successful development of a product. We cannot reasonably estimate or know the nature, timing and costs of the efforts necessary to complete the development of, or the period in which material net cash inflows are expected to commence from, any product candidate. Our inability to make these estimates results from the uncertainty of numerous factors, including but not limited to:
· Our ability to advance product candidates into preclinical research and
clinical trials;
· The scope and rate of progress of our preclinical programs and other
research and development activities;
· The scope, rate of progress and cost of any clinical trials we commence;
· The cost of filing, prosecuting, defending and enforcing patent claims
and other intellectual property rights;
· Clinical trial results;
· The terms and timing of any collaborative, licensing and other
arrangements that we may establish;
· The cost and timing of regulatory approvals;
· The cost of establishing clinical and commercial supplies of our
product candidates and any products that we may develop;
· The cost and timing of establishing sales, marketing and distribution
capabilities;
· The effect of competing technological and market developments; and
· The effect of government regulation and insurance industry efforts to
control healthcare costs through reimbursement policy and other cost
management strategies.
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Failure to complete any stage of the development of our product candidates in a timely manner could have a material adverse effect on our results of operations, financial position and liquidity.
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.
Other Income, net
Other income consists primarily of interest income and expense and various income or expense items of a non-recurring nature.
Results of Operations
The following data summarizes our results of operations for the periods indicated, in thousands:
Years Ended
December 31, Dollar
2019 2018 Change
Revenues $ 21 $ 138 $ (117 )
Operating expenses 9,008 7,502 1,506
Operating loss (8,987 ) (7,364 ) (1,623 )
Net loss $ (8,908 ) $ (7,360 ) $ (1,548 ) Comparison of the Years Ended
Revenues
The following table summarizes our total revenues, for the periods indicated, in thousands:
Years Ended
December 31, Dollar
2019 2018 ChangeRevenues$ 21 $ 138 $ (117 )
Revenues for the years ended
Operating Expenses
The following table summarizes our total operating expenses, for the periods
indicated, in thousands:
Years Ended
December 31, Dollar
2019 2018 Change
Research and development $ 4,300 $ 4,326 $ (26 )
General and administrative 4,708 3,176 1,532
Total operating expenses $ 9,008 $ 7,502 $ 1,506
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Research and Development Expenses
Research and development expenses for the year ended
General and Administrative Expenses
General and administrative expenses for the year ended
Liquidity and Capital Resources
On
On
On
On
We had cash of
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Cash Flow
The following table summarizes our cash flows for the periods indicated, in
thousands:
Years Ended
December 31,
2019 2018
Net cash used in operating activities $ (8,645 ) $ (7,520 )
Net cash used in investing activities (72 ) (5 )
Net cash provided by financing activities 772 18,823
Net (decrease) increase in cash and restricted cash
Net cash used in operating activities was
Net cash used in investing activities was
Net cash provided by financing activities was
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 for further discussion of these indemnification agreements.
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