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.
27 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 for the following reasons:
· Efficient uptake of INTASYL to immune 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 therapy ("ACT") treatments as well as for 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 have several shortcomings that inhibit their full therapeutic potential. By using INTASYL technology during the manufacturing of such ACT cell products we can improve the phenotype and function of these cells, potentially leading to better therapeutic outcomes. 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. By using INTASYL based drugs administered directly, we can reprogram cells in the TME to help overcome these immunosuppressive mechanisms.
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.
INTASYL Use To Improve Adoptive Cell Therapy Products
ACT is a form of immune therapy based on the use of 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 patient to fight cancer. 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).
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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 ACT products. With INTASYL compounds, we can unlock the full potential of ACT, by improving the immune cell function, differentiation and metabolism, 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, without the need for complex delivery vehicles or formulations, 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 prevent 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 the function of patient derived TILs for use in ACT, showing that PH-762 is applicable for use in both ACT and as a standalone direct therapeutic.
In
Our second product candidate in ACT is PH-894, an INTASYL compound that targets
BRD4 which 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
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. 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.
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Direct Therapeutic Use of INTASYL Towards the 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 are developing our PH-762, PH-894 and PH-804 INTASYL compounds also for use as direct therapeutics to reprogram the TME in situ transfection and activation of immune cells in the TME.
Animal studies conducted by the Company showed that local administration of PH-894 or the mouse version of PH-762 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. In vivo studies performed by the Company with PH-804showed 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.
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. A key challenge for many other immunotherapy platforms is to be able to achieve an adequate therapeutic effect in solid tumors with an acceptable safety profile. Many of the available systemic immuno-therapeutics indeed come with dose limiting immune-related adverse events, which we believe can be mitigated with local INTASYL treatment.
Based on our positive preclinical data, the Company is preparing for a clinical
study with PH-762 using intra-tumoral administration for patients with advanced
melanoma. The required preclinical studies and steps needed to initiate the
clinical trial with PH-762 as a direct therapeutic are continuing and ongoing.
The clinical trial will be conducted at the
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. Recent data presented 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. We have shown that, in contrast to other technology platforms, we can efficiently target multiple proteins, in a single drug treatment without negative consequences related to the potency of the individual components. Animal data showed that the combination of our INTASYL compounds in a single formulation (at suboptimal doses of the individual agents) inhibited tumor growth without having a negative impact on the tolerability of the treatment.
Impact of COVID-19 on our Business
In
30 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, the
Operations
Our operations have continued to operate with limited impact and are operating
in accordance with federal and state government, WHO and
Supply and Services
As a result of the coronavirus pandemic, certain of our third-party suppliers and service providers on which we rely have seen impacts to their operations. If the impact to their operations continue or extend, it may in turn 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. The Company does not expect a material impact to its program's anticipated timelines as a result of potential delays from our third-party service providers and believes that we have a sufficient supply of our INTASYL compounds to conduct our ongoing preclinical studies and initial clinical activities. The Company has also undertaken efforts to mitigate potential future impact by identifying and engaging alternative third-party service providers and suppliers. However, the ultimate impact to the third parties on which we rely 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, which may in turn slow or delay our preclinical and clinical activities, and/or result in higher costs.
With the global spread of the coronavirus and the associated safety measures to contain the spread by governmental authorities, a delay in the commencement of new clinical trials and in the enrollment and participation of patients in clinical trials may occur. The steps required for us to initiate our clinical trials with PH-762 in the second half of 2021 are continuing and ongoing, however, the Company does not yet know the full extent of potential delays or impacts related to its planned clinical activities.
Liquidity and Capital Resources
While we believe that the coronavirus pandemic has not had a significant impact on our financial condition 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.
Due to our uncertainty around our ability to access the capital markets to
provide the necessary working capital to fund our long-term operations as a
result of the coronavirus pandemic, the Company applied for and received a loan
of
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Overall, 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 and there may be developments outside of our control that require us to adjust our operating plans and, therefore, 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.
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
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 with respect to services provided and/or materials received for which vendors have not yet billed the Company. 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 milestones.
We are required to estimate our accrued research and development expenses, of which a significant portion relate to third party providers the Company has contracted with to perform various research activities on ourbehalf for the continued development of our product candidates. This process includes reviewing open contracts and purchase orders, estimating the service performed and the associated costincurred for research and development services not yet billed or otherwise notified of actual cost. Accrued liabilities for the services provided by contract research organizations 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 other information available to us. Estimates of our research and development accruals are assessed on a quarterly basis based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and facts and circumstances known to us at that time, and adjusted accordingly.
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. 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 research activities.
32 Stock-based Compensation
The Company follows the provisions of the
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
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. For leases with a term greater than one year, the Company recognizes a liability to make lease payments and an asset representing the right to use the underlying asset during the lease term at the commencement date of the lease.
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.
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.
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Research and Development Expenses
Research and development expenses relate to compensation and benefits for research and development personnel, facility-related expenses, supplies, external services, costs to acquire technology licenses, research activities under our research collaborations, expenses associated with preclinical and clinical development activities and other operating costs. Our research and development programs are focused on the development of immuno-oncology therapeutics based on our INTASYL therapeutic platform. Since we commenced operations, research and development has composed a significant portion of our total operating expenses and is expected to compose the majority of our spending for the foreseeable future.
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
2020 2019 Change
Revenues $ - $ 21 $ (21 )
Operating expenses 8,793 9,008 (215 )
Operating loss (8,793 ) (8,987 ) 194
Net loss $ (8,794 ) $ (8,908 ) $ 114 Comparison of the Years Ended
Operating Expenses
The following table summarizes our total operating expenses, for the periods
indicated, in thousands:
Years Ended
December 31, Dollar
2020 2019 Change
Research and development $ 4,431 $ 4,300 $ 131
General and administrative 4,362 4,708 (346 )
Total operating expenses $ 8,793 $ 9,008 $ (215 )
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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
Historically, the Company's primary source of funding has been through 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. 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. At
In
On
On
We believe that our existing cash at
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Cash Flow
The following table summarizes our cash flows for the periods indicated, in
thousands:
Years Ended
December 31,
2020 2019
Net cash used in operating activities $ (8,802 ) $ (8,645 )
Net cash used in investing activities (19 ) (72 )
Net cash provided by financing activities 16,131 772
Net increase (decrease) 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 8 to our consolidated financial statements for further discussion of these indemnification agreements.
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