Dear Shareholder,
When we wrote our letter to you last year, we were just at the beginning of the SARS-CoV-2 global pandemic,
and no one could have predicted its duration and impact. As we continue to see progress toward a full
recovery, we can all agree that the biopharmaceutical industry has been playing a crucial role in this path back
to normalcy. We applaud the companies, and their employees, that have been delivering highly effective
vaccines in record time.
At Phio, we are proud to be part of the biotech community and to be working on powerful RNA therapeutics.
RNA is a component in all living cells and essential in various biological roles in coding, decoding, regulation
and expression of genes. Thus it can be used as a platform for a new generation of drugs, including the most
successful COVID-19 vaccines to date. Indeed, messenger RNA (mRNA) is a key component of the
Pfizer/BioNTech and Moderna vaccines (and several others in development). With this version of RNA
technology, the expression of a certain protein - encoded by the mRNA - can be induced or increased. Phio’s
approach to the use of RNA based therapeutics is RNA interference (RNAi), a biological process in which RNAi
molecules inhibit gene expression or translation, by neutralizing targeted mRNA molecules. As a result, the
target protein is no longer expressed, or expressed at lower levels. Since many diseases can be prevented or
cured by either increasing or decreasing the levels of a certain protein, RNA technology has a long and bright
future.
Phio focuses its product development efforts on the development of therapies that stimulate the immune
system to fight cancer. We are using a proprietary RNAi technology platform, named INTASYL™, to develop
novel, powerful, immune stimulating cancer treatments (immuno-oncology therapeutics) by silencing proteins
that tumors use to evade the immune response. One of the key differentiating features of our INTASYL platform
as compared to other RNA technologies, is that our INTASYL compounds are “self-delivering”. This means
that they do not need any complex formulations or tools to deliver the RNA molecules into the cell. Cell delivery
is critical for RNA-based technologies for their function. Technologies that require lipid nanoparticles for the
cell delivery of their RNA molecules are costly and complex. In contrast, Phio’s INTASYL technology does not
require such lipid-based formulations for fast and efficient uptake in cells. This is one of our key advantages.
To put in context, issues with supply and manufacturing of lipid-based ingredients for the mRNA based
coronavirus vaccines have been some of the key factors limiting the vaccine availability to date.
We believe the following vision, mission and strategy statements summarize well who we are, what we do,
what we want to achieve, and how we go about it:
OUR VISION
To improve the lives of cancer patients around the world by expanding the immuno-oncology
therapeutics armamentarium with better treatment options to treat and cure cancer.
OUR MISSION
To develop innovative cancer treatments that overcome tumor immunosuppression and weaponize
the patient’s immune system to attack the cancer without the need for genetic modification.
OUR STRATEGY
To maximize the value of our self-delivering RNAi technology in the immuno-oncology space by
developing a product pipeline of self-delivering RNAi therapeutics in collaboration with leading
companies and academic centers.
Our 2 strategic initiatives are:
1. To partner with leading companies to reprogram immune cells with increased anti-tumor
effectiveness for use in next-generation adoptive cell therapy (ACT) products
To
2.
immunosuppressive tumor micro-environment (TME)
independently develop
immuno-oncology
therapeutics
targeting
the
Our Immuno-Oncology Approach
The value proposition of Phio’s technology in immuno-oncology lies in unlocking the full potential of immune
cells by increasing their functionality. Our technology can be used in two ways: (1) we can directly increase
the functionality of immune cells used in adoptive cell therapy (ACT), and (2) we can reduce the
immunosuppressive nature of the TME by directly reprogramming immune cells within the tumor micro-
environment (TME). In contrast to other available technologies, we believe we have many benefits, including
high specificity and efficiency, lower cost and complexity, less safety concerns and lower regulatory hurdles.
We believe that our INTASYL platform uniquely positions our company in the field of immuno-oncology. Phio’s
proprietary INTASYL technology enables easy, precise, rapid, and selective reprograming of immune cells,
thus providing a unique approach to immuno-oncology therapy. More specifically, INTASYL based
therapeutics can “silence” (down-regulate) the expression of a specific gene which is over-expressed or
otherwise implicated in cancer. As such, we develop therapeutics that can silence tumor-induced suppression
of the immune system, which have utility both in immune cells and the TME of solid tumors. With our approach
we can weaponize immune cells to overcome tumor immune escape, i.e. mechanisms by which tumor cells
can avoid becoming killed by the immune system. In other words, INTASYL based therapeutics can result in
improved tumor cell killing by immune cells. As such, we aim to provide patients with powerful new treatment
options that go beyond current treatment modalities.
Our Pipeline Progress
PH-762
Our lead product candidate is PH-762, an INTASYL compound that targets the immune checkpoint protein
PD-1. Checkpoint proteins, such as PD-1, normally act as a type of “off switch” that prevents immune cells,
such as T cells, from attacking normal cells. Cancer cells can essentially hijack immune checkpoint signaling
in order to suppress T cell activity and thereby prevent the immune system from attacking cancer cells. Such
tumor induced suppression of T cells can be reversed by blocking or silencing PD-1 on immune cells, and this
can be achieved with PH-762.
The development of direct therapeutic use of PH-762 (as a standalone drug) is one of our pipeline programs.
A key challenge for many other immunotherapy platforms is to achieve an adequate therapeutic effect in solid
tumors with an acceptable safety profile. Many of the available systemic immuno-therapeutics come with dose
limiting immune-related adverse events, which we believe can be mitigated with local INTASYL treatment. With
local administration of PH-762, we can reprogram the TME and achieve local activation of immune cells in the
TME. Last year we presented animal studies highlighting the potential of such use of PH-762. Indeed, local
administration of PH-762 through intra-tumoral injection resulted in potent anti-tumoral effects, whereby the
treated animals showed a complete and statistically significant inhibition of tumor growth. In contrast, placebo
treated animals displayed exponential tumor growth. Analysis of the tumor showed that PH-762 triggered an
increase in tumor infiltrating lymphocytes (TILs), including CD8+ T cells which are responsible for tumor cell
killing. In addition, these T cells showed an increased expression of markers indicative of immune cell
activation. 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. Based on our positive preclinical data, we are 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 underway, and we expect to start the clinical trial in the fourth quarter of 2021.
Another development program with PH-762 is focused on improving the tumor cell killing activity of T cells
used in adoptive cell therapy (ACT). 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. 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. Using INTASYL is not only effective, but also very simple. INTASYL
does not involve additional complicated manufacturing steps and/or genetic engineering. Since it does not
require gene editing it does not come with any of the safety risks related to this technology. The use of INTASYL
based compounds is as simple as adding them to the cell culture media used during the cell expansion phase.
The compounds are then spontaneously taken up by all cells, and as such we can reduce or eliminate the
expression of genes that make the immune cells less effective. For example, with PH-762, we can reduce the
expression of the immunosuppressive protein PD-1 in T cells used for ACT, enabling them to overcome tumor
resistance mechanisms and thus improving their ability to destroy the tumor cells. One form of ACT is to use
the patient’s own TILs. Data presented at SITC 2020 showed how PH-762 can activate TILs and increase their
tumor cell killing ability. This research was performed in collaboration with AgonOx, Inc, a private company
developing a proprietary TIL cell therapy referred to as “double positive” (DP) TILs. Together we have shown
that by pretreating DP TILs with PH-762, we can increase their tumor cell killing rate by about two-fold. As a
result, the use of PH-762 treated TILs is expected to enhance therapeutic responses in cancer. Based on these
data, we recently announced that we will further collaborate with AgonOx on a clinical study with PH-762
treated DP TILs. This clinical trial in ACT with PH-762 and AgonOx’s DP TIL technology is also expected to
start later this year.
Other pipeline programs
While a significant amount of our focus and effort is related to the preparation of the two clinical studies
mentioned above, we are continuing the development of other promising pipeline products. One of these
product candidates is PH-894. This compound is in an earlier stage of development than PH-762, but
exemplifies the potential of INTASYL. PH-894 is an INTASYL compound that targets BRD4 which is an
intracellular regulator of gene expression that impacts cell differentiation, which is directly related to the
function of a cell. Whereas this makes BRD4 an attractive target, it is a protein that has been shown to be hard
to target with current technologies. Since it is an intracellular protein, antibody therapies cannot be used, and
the small molecule inhibitors tested to date typically lack the required specificity. Considering INTASYL can
target extracellular as well as intracellular proteins with a high level of specificity, PH-894 has significant
potential. Data presented at the ASCO 2020 Virtual Scientific Meeting, showed that the use of PH-894 in a
validated mouse model of hepatocellular carcinoma resulted in potent and statistically significant anti-tumoral
effects. Based on this data we have started to work on the IND enabling studies for moving PH-894 into the
clinical stage of development in 2022.
Other important findings from recent animal studies were presented at SITC 2020. The results demonstrated
that INTASYL compounds can easily be combined in one therapeutic to achieve even higher antitumoral
efficacy as seen with our individual pipeline products. We have shown that, in contrast to other technology
platforms, we can efficiently target multiple proteins in a single drug treatment, and without negative
consequences related to the potency of the individual components. The in vivo study results showed that a
combination of our INTASYL compounds in a single formulation (at suboptimal doses of the individual agents)
inhibited tumor growth at a level higher than treatment with the individual components and without having a
negative impact on the tolerability of the treatment.
Impact of the global pandemic and how we compensate
We took several proactive steps in response to challenges created by the coronavirus pandemic. For example,
early on we engaged with third-party service providers in countries with limited or no impact. Unfortunately,
with the global spread of the virus and ensuing restrictions, certain of our third-party suppliers and service
providers have seen their operations becoming impacted. To date, the overall operational impact to us has
been limited, but as the pandemic continues, the impact on our third-party suppliers and service providers
continues to be a challenge. In response we have expanded our network of suppliers and service providers in
order to reduce the risk, and to keep our preclinical and clinical activities on track as much as possible.
Moving to clinical development stage
Historically our operational spending has been about $2 million per quarter. As we are ramping up our activities
in preparation for our clinical studies, we expect this to increase to about $3.5 million per quarter. In 2020, we
created a development momentum that has resulted in positive investor response and share price
appreciation. Based on this and the overall market conditions earlier this year, we were able to raise net
proceeds of about $19.6 million. The appreciation of our share price also resulted in exercises of our
outstanding warrants, providing us with an additional $2.1 million in cash inflows. The resulting improved cash
position will allow us to fund our current programs for the next two years, including the execution of clinical
studies on the safety and efficacy of PH-762 in adoptive cell therapy and of PH-762 as direct drug therapy. It
will therefore allow us to execute towards important value inflection points related to clinical study start and
clinical study data readouts.
Looking ahead
Even in a tumultuous year like 2020, we were able to stay focused and execute on our most important
programs. We presented new and high-quality data at each of the large scientific conferences that are relevant
to our business, including AACR, ASGCT, ASCO and SITC. In addition, behind the scenes we were working
with clinicians and regulatory authorities to prepare for the clinical phase of development of our lead product
candidate. We are committed to continue this level of execution in 2021, starting with a presentation of new
data on the direct drug application of INTASYL at AACR in April. Thanks to our collaboration with AgonOx,
more data will become available later this year on the use of INTASYL to improve adoptive cell therapy
products.
The Phio team has shown that it is able to adapt, and to execute under difficult and changing circumstances
imposed by the continuing pandemic. We owe it to our shareholders and to the patient community to overcome
these additional challenges, and to remain dedicated to unlocking the value of our INTASYL platform.
On behalf of Phio Pharmaceuticals’ employees, thank you for your investment to date, your continued support,
your feedback and comments. Because of you we are moving closer to delivering on our corporate vision and
to provide cancer patients with better treatment options to treat and cure their cancer.
Very truly yours,
Robert J. Bitterman
Chairman of the Board of Directors
Dr. Gerrit D. Dispersyn
President and Chief Executive Officer
2020 Form 10-K
2020
Phio Pharmaceuticals Corp.
Annual Report
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(cid:1409) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
Or
(cid:1407) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 001-36304
PHIO PHARMACEUTICALS CORP.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
45-3215903
(I.R.S. Employer
Identification No.)
257 Simarano Drive, Suite 101, Marlborough, Massachusetts 01752
(Address of principal executive offices and Zip Code)
(508) 767-3861
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value, $0.0001 per share
Trading Symbol(s)
PHIO
Name of each exchange on which registered
The Nasdaq Capital Market
Securities registered pursuant to Section 12(g) of the Act:
None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. (cid:1407) Yes (cid:1409) No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. (cid:1407) Yes (cid:1409) No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. (cid:1409) Yes (cid:1407) No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405
of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
such files). (cid:1409) Yes (cid:1407) No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company,
or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging
growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer (cid:1407)
Non-accelerated filer (cid:1409)
Accelerated filer
(cid:1407)
Smaller reporting company (cid:1409)
Emerging growth company (cid:1407)
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with
any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. (cid:1407)
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that
prepared or issued its audit report. (cid:1407)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). (cid:1407) Yes (cid:1409) No
The aggregate market value of the registrant’s common stock, $0.0001 par value per share (“Common Stock”), held by non-affiliates of the
registrant, based on the closing sale price of the registrant’s Common Stock on June 30, 2020, was $12,583,469. Shares of Common Stock held by
each officer and director and by each person who is known to own 10% or more of the outstanding Common Stock have been excluded in that such
persons may be deemed to be affiliates of the registrant. This determination of affiliate status is not necessarily a conclusive determination for other
purposes.
As of March 18, 2021, the registrant had 13,531,941 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Definitive Proxy Statement to be filed for Phio Pharmaceuticals Corp.’s 2021 Annual Meeting of Stockholders are
incorporated by reference into Part III of this Annual Report on Form 10-K.
TABLE OF CONTENTS
PHIO PHARMACEUTICALS CORP.
ANNUAL REPORT ON FORM 10-K
For the Fiscal Year Ended December 31, 2020
PART I.
Item 1. BUSINESS
Item 1A. RISK FACTORS
Item 1B. UNRESOLVED STAFF COMMENTS
Item 2.
Item 3.
Item 4. MINE SAFETY DISCLOSURES
PROPERTIES
LEGAL PROCEEDINGS
PART II.
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES
OF EQUITY SECURITIES
SELECTED FINANCIAL DATA
Item 6.
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 8.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Item 9A. CONTROLS AND PROCEDURES
Item 9B. OTHER INFORMATION
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 11. EXECUTIVE COMPENSATION
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
PART III.
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Item 16. FORM 10-K SUMMARY
PART IV.
Signatures
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FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K 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:
(cid:120)
(cid:120)
our business and operations may be materially and adversely affected by the coronavirus pandemic;
our product candidates are in an early stage of development and may fail or experience significant delays or may never advance to
the clinic, which may materially and adversely impact our business;
(cid:120) we are dependent on collaboration partners for the successful development of our adoptive cell therapy product candidates;
(cid:120) we rely upon third-party relationships to conduct preclinical studies, and any future clinical trials, for our product candidates and
may not be able to establish or maintain the third-party relationships that are necessary to support their development;
(cid:120) we rely upon third parties for the manufacture of our product candidates;
(cid:120)
(cid:120)
the approach we are taking to discover and develop novel therapeutics using RNAi may never lead to marketable products;
a number of different factors could prevent us from advancing into clinical development, obtaining regulatory approval, and
ultimately commercializing our product candidates on a timely basis, or at all;
(cid:120) we may be unable to protect our intellectual property rights licensed from other parties; our intellectual property rights may be
inadequate to prevent third parties from using our technologies or developing competing products; and we may need to license
additional intellectual property from others;
(cid:120) we are subject to significant competition and may not be able to compete successfully;
(cid:120)
if we fail to attract, hire and retain qualified personnel, we may not be able to design, develop, market or sell our products or
successfully manage our business;
future financing may be obtained through, and future development efforts may be paid for by, the issuance of debt or equity,
which may have an adverse effect on our stockholders or may otherwise adversely affect our business; and
the price of our common stock has been and may continue to be volatile.
(cid:120)
(cid:120)
Our actual results and financial condition may differ materially from those indicated in the forward-looking statements as a result of the
foregoing factors, including those identified in this Annual Report on Form 10-K under the heading “Risk Factors,” for the reasons described
elsewhere in this Annual Report on Form 10-K and in other filings Phio Pharmaceuticals Corp. periodically makes with the Securities and Exchange
Commission. Therefore, you should not rely unduly on any of these forward-looking statements. Forward-looking statements contained in this
Annual Report on Form 10-K speak as of the date hereof and Phio Pharmaceuticals Corp. 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.
1
Unless otherwise noted, (1) the term “Phio” refers to Phio Pharmaceuticals Corp. and our subsidiary, MirImmune, LLC and (2) the terms
“Company,” “we,” “us” and “our” refer to the ongoing business operations of Phio and MirImmune, LLC, whether conducted through Phio or
MirImmune, LLC.
PART I
ITEM 1.
BUSINESS
Overview
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.
Our Development Pipeline
We have developed a product platform based on our INTASYL technology that allows easy, precise, rapid, and selective non-genetically
modified programming of adoptive cell therapy (“ACT”) cells (ex vivo, during manufacturing) and of the tumor micro-environment (the “TME”)
(in vivo, by local application), resulting in reduced immune inhibition and in improved immunotherapy. The table below sets forth the Company’s
stage of development for its programs and product candidates:
2
We believe our INTASYL platform uniquely positions the Company in the field of immuno-oncology for the following reasons:
(cid:120) Efficient uptake of INTASYL by target cells obviating the need for facilitated delivery (mechanical or formulation);
(cid:120) Does not require permanent genetic modification;
(cid:120) Can target multiple genes (i.e. multiple immunosuppression pathways) in a single therapeutic entity;
(cid:120) Gene silencing by INTASYL has been shown to have a sustained, or long-term, effect in vivo;
(cid:120) Favorable clinical safety profile of INTASYL with local administration; and
(cid:120) Can be readily manufactured under current good manufacturing practices.
The self-delivering nature of our compounds makes INTASYL ideally suited for use with 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 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.
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).
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.
3
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.
Considering the significant growth of cell-based immunotherapy, a technology that can reprogram the immune cells used in ACT, such as
INTASYL technology, is of key interest. 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 it can be easily integrated with cell manufacturing approaches.
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.
4
In March 2021, the Company announced that it entered into a clinical development collaboration with AgonOx, Inc. (“AgonOx”), a private
company developing a pipeline of novel immunotherapy drugs targeting key regulators of the immune response to cancer. Under the agreement, the
companies will collaborate on the development of novel T cell-based therapies using PH-762 and AgonOx’s “double positive” (DP) TIL
technology. AgonOx has demonstrated that their DP CD8+ T cells isolated from human solid tumors (DP TILs) have increased tumor killing
activity when compared to TILs that were not enriched prior to expansion. Preclinical data from AgonOx in collaboration with Phio has shown that
treating DP TIL with PH-762 increases the tumor killing activity of the DP TILs even further (a two-fold increase). As a result, the use of PH-762
treated DP TILs is expected to enhance therapeutic responses in cancer data. Based on these data showing that the combination of our technologies
can result in TIL therapeutics, our collaboration will focus on conducting a clinical study for PH-762 treated DP TILs. Under the terms of the
collaboration agreement, AgonOx will receive financial support for the clinical trial from Phio and Phio will be entitled to certain future
development milestones and sales-related royalty payments from AgonOx’s DP TIL technology. The clinical trial in ACT with PH-762 and
AgonOx’s DP TIL technology is expected to start in the third quarter of 2021.
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 Karolinska Institutet in Sweden, 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. 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.
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.
5
We are developing our PH-762, PH-894 and PH-804 INTASYL compounds also for use as direct therapeutics to reprogram the TME
through 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-804 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.
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 Gustave Roussy Institute, which is France’s largest cancer center and Dr.
Caroline Robert will be our lead principal investigator. The Company expects to start the clinical trial evaluating the use of PH-762 as a direct
therapeutic in the fourth quarter of 2021.
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.
Our INTASYL Platform
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.
Diseases are often related to the wrong protein being made, excessive amounts of a specific protein being made, or the correct protein
being made but at the wrong location or time. Overall, RNA is involved in the synthesis, regulation and expression of proteins. RNA interference
(“RNAi’) is a biological process in which specific RNA molecules inhibit gene expression or translation into proteins. RNAi offers a novel
approach to drug development because RNAi compounds can be designed to silence any one of the thousands of human genes, many of which are
“undruggable” by other modalities. The potential of RNAi as a powerful drug development platform has been shown by several RNAi based drugs
becoming approved over the last few years.
6
The first design of RNAi compounds to be pursued for the development of human therapeutics were short, double-stranded RNAs that
included limited modifications, known as small-interfering RNA (“siRNA”). Since the initial discovery of RNAi, drug delivery has been the
primary challenge in developing RNAi-based therapeutics. One solution to the delivery problem involves encapsulation of siRNA into a lipid-based
formulations, such as liposomes, to improve cellular uptake. Another approach is to use chemical conjugations of a ligand, such as GalNAC, for cell
specific delivery limited to hepatocytes. We have developed an alternative approach where delivery and drug-like properties are built directly into
the RNAi compound itself, whereby the RNAi uptake is neither dependent on complex formulation nor limited to addressing a specific cell type.
These novel compounds are termed self-delivering RNAi compounds, or INTASYL.
Our INTASYL compounds are hybrid oligonucleotide compounds that the Company believes combines the beneficial properties of both
conventional RNAi and antisense technologies. In an attempt to combine the best properties of both technologies, INTASYL compounds have a
single-stranded phosphorothioate region, a short duplex region, and contain a variety of nuclease-stabilizing and lipophilic chemical modifications.
The combination of these features allows INTASYL compounds to achieve efficient spontaneous cellular uptake and potent, long-lasting
intracellular activity.
The key to therapeutic success with RNAi lies in delivering intact RNAi compounds to the target tissue and the interior of the target cells.
To accomplish this, our chemically synthesized INTASYL compounds are optimized for stability and efficacy and have unique properties that
improve tissue and cell uptake.
7
Intellectual Property
We protect our proprietary information by means of United States and foreign patents, trademarks and copyrights. In addition, we rely
upon trade secret protection and contractual arrangements to protect certain of our proprietary information and products. We have pending patent
applications that relate to potential drug targets, compounds we are developing to modulate those targets, methods of making or using those
compounds and proprietary elements of our drug discovery platform.
Much of our technology and many of our processes depend upon the knowledge, experience and skills of key scientific and technical
personnel. To protect our rights to our proprietary know-how and technology, we require all employees, as well as our consultants and advisors
when feasible, to enter into confidentiality agreements that require disclosure and assignment to us of ideas, developments, discoveries and
inventions made by these employees, consultants and advisors in the course of their service to us.
We have also obtained rights to various patents and patent applications under licenses with third parties, which require us to pay royalties,
milestone payments, or both. The degree of patent protection for biotechnology products and processes, including ours, remains uncertain, both in
the United States and in other important markets, because the scope of protection depends on decisions of patent offices, courts and lawmakers in
these countries. There is no certainty that our existing patents or others, if obtained, will afford us substantial protection or commercial benefit.
Similarly, there is no assurance that our pending patent applications or patent applications licensed from third parties will ultimately be granted as
patents or that those patents that have been issued or are issued in the future will stand if they are challenged in court. We assess our license
agreements on an ongoing basis and may from time to time terminate licenses to technology that we do not intend to employ in our technology
platforms, or in our product discovery or development activities.
Patents and Patent Applications
We are actively seeking protection for our intellectual property and are prosecuting a number of patents and pending patent applications
covering our compounds and technologies. A combined summary of these patents and patent applications is set forth below in the following table:
United States
Canada
Europe
Japan
Other Markets
Pending
Applications
19
7
9
13
19
Issued
Patents
46
5
47
12
9
Our portfolio includes 119 issued patents, 66 of which cover our INTASYL platform. There are 16 patent families broadly covering both
the composition and methods of use of our self-delivering platform technology and uses of our INTASYL compounds targeting immune checkpoint,
cellular differentiation and metabolism targets for ex vivo cell-based cancer immunotherapies. These patents are scheduled to expire between 2029
and 2038. Furthermore, there are 67 patent applications, encompassing what we believe to be important new RNAi compounds and their use as
therapeutics, chemical modifications of RNAi compounds that improve the compounds’ suitability for therapeutic uses (including delivery) and
compounds directed to specific targets (i.e., that address specific disease states). The patents and any patents that may issue from these pending
patent applications will, if issued, be set to expire between 2022 and 2038, not including any patent term extensions that may be afforded under the
Federal Food, Drug, and Cosmetic Act (“FFDCA”) (and the equivalent provisions in foreign jurisdictions) for any delays incurred during the
regulatory approval process relating to human drug products (or processes for making or using human drug products).
8
Intellectual Property License Agreements
As we develop our own proprietary compounds, we continue to evaluate our in-licensed portfolio as well as the field for new technologies
that could be in-licensed to further enhance our intellectual property portfolio and unique intellectual property position.
Advirna LLC. On September 24, 2011, we entered into an agreement with Advirna, LLC (“Advirna”) pursuant to which Advirna assigned
to us its existing patent and technology rights related to the INTASYL technology and we granted back to Advirna a license for use of the assigned
patent and technology rights outside of human therapeutics and diagnostics. Under the terms of the agreement, in April 2012, the Company issued to
Advirna shares of common stock equal to 5% of the Company’s fully-diluted shares outstanding at the time of issuance and paid a one-time
milestone payment of $350,000 in 2014 upon the issuance of the first patent under the agreement. The Company also pays to Advirna an annual
maintenance fee of $100,000 and is required to pay a low single-digit royalties on any license revenue received by the Company with respect to
future licensing of the assigned Advirna patent and technology rights. To date, royalties owed to Advirna have been minimal.
Our rights under the Advirna agreement will expire upon the later of: (i) the expiration of the last-to-expire of the “patent rights” (as
defined therein) or (ii) the abandonment of the last-to-be abandoned of such patents, unless earlier terminated in accordance with the provisions of
the agreement. We may terminate the Advirna agreement at any time upon 90 days’ written notice to Advirna, and Advirna may terminate the
agreement upon 90 days’ prior written notice in the event that we cease using commercially reasonable efforts to research, develop, license or
otherwise commercialize the patent rights or “royalty-bearing products” (as defined therein), provided that we may refute such claim within such
90-day period by showing budgeted expenditures for the research, development, licensing or other commercialization consistent with other
technologies of similar stage of development and commercial potential as the patent rights or royalty-bearing products. Further, either party at any
time may provide to the other party written notice of a material breach of the agreement. If the other party fails to cure the identified breach within
90 days after the date of the notice, the aggrieved party may terminate the agreement by written notice to the party in breach.
Research and Development
Our research and development expense primarily consists of 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.
Total research and development expense for the years ended December 31, 2020 and 2019 was $4,431,000 and $4,300,000, respectively.
Competition
The biotechnology and pharmaceutical industries, including the immuno-oncology field, are a constantly evolving landscape with rapidly
advancing technologies and significant competition. There are a number of competitors in the immuno-oncology field including large and small
pharmaceutical and biotechnology companies, academic institutions, government agencies and other private and public research organizations.
9
A variety of cell-based autologous and allogeneic approaches are being researched and developed, including but not limited to: CAR-T
cells, TCR-T cells, Gamma Delta T cells, CAR-NK cells, NK cells, NKT cells and cytotoxic T cells. We believe that competitors in this field
include, but are not limited to: Achilles Therapeutics UK Ltd., Adicet Bio, Inc., AgonOx, Inc., Allogene Therapeutics, Inc., Atara Biotherapeutics,
Inc., Autolus Therapeutics plc, Baylor College of Medicine, Bellicum Pharmaceuticals, Inc., bluebird bio, Inc., Celyad S.A., Celgene Corporation,
Cell Medica Ltd., Cellectis S.A., Celularity, Inc., CiMaas B.V., CRISPR Therapeutics AG, Fate Therapeutics, Inc., Fortress Biotech, Inc., GAIA
Biomedicine Inc., Glycostem Therapeutics BV, Green Cross LabCell Corp., Immatics Biotechnologies GmbH, Iovance Biotherapeutics, Inc.,
Janssen Biotech, Inc., Kite Pharma, Inc.(a Gilead company), Medigene AG, Mustang Bio, Inc., NantKwest, Inc., BioNTech NE, Novartis
International AG, Precigen, Inc., Refuge Biotechnologies, Inc., Sorrento Therapeutics, Inc., Tactiva Therapeutics, Inc., TC BioPharm Limited,
Turnstone Biologics Corp. and Ziopharm Oncology, Inc.
A number of technological approaches to modulating gene expression in the field of immuno-oncology have been identified and are being
researched and developed, including but not limited to: antisense oligodeoxynucleotides, RNAi, zinc-finger nucleases, transcription activator-like
effector nucleases, mRNA, and genetic engineering techniques such as clustered regularly interspaced short palindromic repeats, or CRISPR, and
various others. We believe that competitors in this field include, but are not limited to: Avidity Biosciences, BioNTech NE, Cellectis S.A., CRISPR
Therapeutics AG, Dicerna Pharmaceuticals, Inc., Editas Medicine, Inc., eTheRna immunotherapies NV, Exicure Inc., Horizon Discovery Group plc,
Intellia Therapeutics, Inc., Kymera Therapeutics Inc., miRagen Therapeutics, Inc., Moderna, Inc., Noxxon Pharma N.V., Obsidian Therapeutics,
Inc., OliPass Corporation, OncoSec Medical Incorporated, Mateon Therapeutics, Inc., PTC Therapeutics, Inc., Sangamo Therapeutics, Inc.,
Sirnaomics, Inc., Stemirna Therapeutics Co., Ltd. and Takara Bio Inc.
Government Regulation
The United States and many other countries extensively regulate the preclinical and clinical testing, manufacturing, labeling, storage,
record-keeping, advertising, promotion, export, marketing and distribution of drugs and biologic products. The U.S. Food and Drug Administration
(“FDA”) regulates pharmaceutical and biologic products under the FFDCA, the Public Health Service Act and other federal statutes and regulations.
To obtain approval of our future product candidates from the FDA, we must, among other requirements, submit data supporting safety and
efficacy for the intended indication as well as detailed information on the manufacture and composition of the product candidate. In most cases, this
will require extensive laboratory tests and preclinical and clinical trials. The collection of these data, as well as the preparation of applications for
review by the FDA involve significant time and expense. The FDA also may require post-marketing testing to monitor the safety and efficacy of
approved products or place conditions on any approvals that could restrict the therapeutic claims and commercial applications of these products.
Regulatory authorities may withdraw product approvals if we fail to comply with regulatory standards or if we encounter problems at any time
following initial marketing of our products.
The first stage of the FDA approval process for a new biologic or drug involves completion of preclinical studies and the submission of the
results of these studies to the FDA. These data, together with proposed clinical protocols, manufacturing information, analytical data and other
information submitted to the FDA in an investigational new drug (“IND”) application, must become effective before human clinical trials may
commence. Preclinical studies generally involve FDA regulated laboratory evaluation of product characteristics and animal studies to assess the
efficacy and safety of the product candidate.
After the IND becomes effective, a company may commence human clinical trials. These are typically conducted in three sequential
phases, but the phases may overlap. Phase 1 trials consist of testing the product candidate in a small number of patients or healthy volunteers,
primarily for safety at one or more doses. Phase 2 trials, in addition to safety, evaluate the efficacy of the product candidate in a patient population
somewhat larger than Phase 1 trials. Phase 3 trials typically involve additional testing for safety and clinical efficacy in an expanded population at
multiple test sites. A company must submit to the FDA a clinical protocol, accompanied by the approval of the Institutional Review Board (“IRB”)
at the institutions participating in the trials, prior to commencement of each clinical trial.
10
To obtain FDA marketing authorization, a company must submit to the FDA the results of the preclinical and clinical testing, together with,
among other things, detailed information on the manufacture and composition of the product candidate, in the form of a new drug application
(“NDA”), or, in the case of a biologic, a biologics license application (“BLA”).
The amount of time taken by the FDA for approval of an NDA or BLA will depend upon a number of factors, including whether the
product candidate has received priority review, the quality of the submission and studies presented, the potential contribution that the compound will
make in improving the treatment of the disease in question and the workload at the FDA.
The FDA may, in some cases, confer upon an investigational product the status of a fast track product. A fast track product is defined as a
new drug or biologic intended for the treatment of a serious or life-threatening condition that demonstrates the potential to address unmet medical
needs for this condition. The FDA can base approval of an NDA or BLA for a fast track product on an effect on a surrogate endpoint, or on another
endpoint that is reasonably likely to predict clinical benefit. If a preliminary review of clinical data suggests that a fast track product may be
effective, the FDA may initiate review of entire sections of a marketing application for a fast track product before the sponsor completes the
application.
We anticipate that our products will be manufactured by our strategic partners, licensees or other third parties. Before approving an NDA
or BLA, the FDA will inspect the facilities at which the product is manufactured and will not approve the product unless the manufacturing facilities
are in compliance with the FDA’s current good manufacturing practice regulations (“cGMP”), which are regulations that govern the manufacture,
holding and distribution of a product. Manufacturers of biologics also must comply with the FDA’s general biological product standards. Our
manufacturers also will be subject to regulation under the Occupational Safety and Health Act, the Nuclear Energy and Radiation Control Act, the
Toxic Substance Control Act and the Resource Conservation and Recovery Act and other applicable environmental statutes. Following approval, the
FDA periodically inspects drug and biologic manufacturing facilities to ensure continued compliance with the cGMP. Our manufacturers will have
to continue to comply with those requirements. Failure to comply with these requirements subjects the manufacturer to possible legal or regulatory
action, such as suspension of manufacturing or recall or seizure of product. Adverse patient experiences with the product must be reported to the
FDA and could result in the imposition of marketing restrictions through labeling changes or market removal. Product approvals may be withdrawn
if compliance with regulatory requirements is not maintained or if problems concerning safety or efficacy of the product occur following approval.
The labeling, advertising, promotion, marketing and distribution of a drug or biologic product also must be in compliance with FDA and
Federal Trade Commission requirements which include, among others, standards and regulations for off-label promotion, industry sponsored
scientific and educational activities, promotional activities involving the internet, and direct-to-consumer advertising. We also will be subject to a
variety of federal, state and local regulations relating to the use, handling, storage and disposal of hazardous materials, including chemicals and
radioactive and biological materials. In addition, we will be subject to various laws and regulations governing laboratory practices and the
experimental use of animals. In each of these areas, as above, the FDA has broad regulatory and enforcement powers, including the ability to levy
fines and civil penalties, suspend or delay issuance of product approvals, seize or recall products and deny or withdraw approvals.
We will also be subject to a variety of regulations governing clinical trials and sales of our products outside the United States. Whether or
not FDA approval has been obtained, approval of a product candidate by the comparable regulatory authorities of foreign countries and regions must
be obtained prior to the commencement of marketing the product in those countries. The approval process varies from one regulatory authority to
another and the time may be longer or shorter than that required for FDA approval. In the European Union, Canada and Australia, regulatory
requirements and approval processes are similar, in principle, to those in the United States.
Environmental Compliance
Our research and development activities involve the controlled use of potentially harmful biological materials as well as hazardous
materials, chemicals and various radioactive compounds. We are subject to federal, state and local laws and regulations governing the use, storage,
handling and disposal of these materials and specific waste products. We are also subject to numerous environmental, health and workplace safety
laws and regulations, including those governing laboratory procedures, exposure to blood-borne pathogens and the handling of bio-hazardous
materials. The cost of compliance with these laws and regulations could be significant and may adversely affect capital expenditures to the extent
we are required to procure expensive capital equipment to meet regulatory requirements.
11
Human Capital Management
As of December 31, 2020, we had ten full-time employees at our facility in Marlborough, Massachusetts. None of our employees are
represented by a labor union or covered by a collective bargaining agreement nor have we experienced any work stoppages.
We expect to add additional employees in fiscal year 2021 to increase our expertise and resources available in our preclinical and clinical
research and development. We continually evaluate our business needs and weigh the use of in-house expertise and capacity with outsourced
expertise and capacity. The Company currently outsources substantial preclinical and clinical trial work to third party contract research
organizations and drug manufacturing contractors.
Our ability to identify, attract, retain and integrate additional qualified key personnel is also critical to our success and the competition for
skilled research, product development, regulatory and technical personnel is intense. To attract qualified applicants to the Company, we offer a total
rewards package consisting of base salary and cash target bonus based on geography and size of company, a comprehensive benefit package and
equity compensation for every employee. Bonus opportunity and equity compensation increase as a percentage of total compensation based on level
of responsibility. Actual bonus payout is based on performance.
A large majority of Phio’s employees have obtained advanced degrees in their professions and we support our employees’ further
development with individualized development plans, mentoring, coaching, group training, conference attendance and financial support including
tuition reimbursement.
Corporate Information
On January 10, 2020, the Board of Directors of the Company approved a 1-for-55 reverse stock split of the Company’s outstanding
common stock, which was effected on January 15, 2020. All share and per share amounts have been adjusted to give effect to the reverse stock split.
We were incorporated in the state of Delaware in 2011 as RXi Pharmaceuticals Corporation. On November 19, 2018, the Company
changed its name to Phio Pharmaceuticals Corp., to reflect its transition from a platform company to one that is fully committed to developing
groundbreaking immuno-oncology therapeutics. Our executive offices are located at 257 Simarano Drive, Suite 101, Marlborough, MA 01752, and
our telephone number is (508) 767-3861.
The Company’s website address is http://www.phiopharma.com. We make available on our website, free of charge, copies of our annual
reports on Form 10-K, our quarterly reports on Form 10-Q and our current reports on Form 8-K, and amendments to those reports filed or furnished
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) as soon as reasonably practicable
after these reports are filed electronically with, or otherwise furnished to, the Securities and Exchange Commission (the “SEC”). We also make
available on our website the charters of our audit committee, compensation committee and nominating and corporate governance committee, as well
as our corporate code of ethics and conduct.
You may read and copy any materials the Company files with the SEC at the SEC’s Public Reference Room at 100 F Street, NE,
Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The
SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding Phio and other issuers that
file electronically with the SEC. The SEC’s website address is http://www.sec.gov. The contents of these websites are not incorporated by reference
into this report and should not be considered to be part of this report.
12
ITEM 1A. RISK FACTORS
Risks Relating to Our Business and Industry
Our business and operations may be materially and adversely affected by the coronavirus pandemic.
In December 2019, a novel strain of coronavirus that causes 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.
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 to slow the
spread of coronavirus. The Company’s facilities remain operational and are operating in accordance with federal and state governmental authority
guidelines and with the implementation of safety measures such as social distancing protocols, suspending travel, the wearing of masks and
frequently disinfecting our workspaces. 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. While the majority of these mandates have specific end dates, they may be modified or
extended and as a result there is uncertainty regarding the length of time that such measures will be place. We believe the impact to our internal
operations has not been material thus far, however, current and future restrictions may further impact our operations and may slow or diminish our
research and development activities.
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. 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. 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. 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 and the actions to contain the coronavirus or treat its impact, among others.
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 pandemic on the global financial markets may reduce the Company’s ability to access capital and negatively
affect our future liquidity.
The coronavirus pandemic continues to evolve and change rapidly. The ultimate impact of the coronavirus pandemic, or a similar public
health emergency, is highly uncertain and subject to change. The Company does not yet know the full extent of potential delays or impacts on its
business, financing activities, preclinical studies, clinical trial activities or the global economy as a whole. However, these effects could have a
material impact on the Company’s liquidity, results of operations and financial condition.
Our product candidates are in an early stage of development and may fail or experience significant delays or may never advance to the
clinic, which may materially and adversely impact our business.
All of our pipeline programs are currently in the preclinical development stage and our future success heavily depends on the successful
development of our INTASYL product candidates, which may never occur. These product candidates could be delayed, not advance into the clinic
or unexpectedly fail at any stage of development. Before we can commence clinical trials for a product candidate, we must conduct extensive
preclinical and other non-clinical tests in order to support an IND application, including IND-enabling good laboratory practice toxicology studies,
in the United States or their equivalents with regulatory authorities in other jurisdictions. Preclinical studies and clinical trials are expensive,
difficult to design and can take many years. There is no assurance that we will be able to successfully develop our product candidates, and we may
focus our efforts and resources on product candidates that may prove to be unsuccessful.
We cannot be certain of the outcome of preclinical testing and clinical studies and results from these studies may not predict the results that
will be obtained in later phase trials of our product candidates. Even if we are able to complete our preclinical studies and planned clinical trials in
line with our projected timelines, results from such studies and trials may be not replicated in subsequent preclinical studies or clinical trial results.
Additionally, such studies may be delayed due to events beyond our control including as a result of natural disasters, epidemics or pandemic
outbreaks such as the novel coronavirus pandemic. While the steps for us to initiate our clinical trials with PH-762 in the second half of 2021 are
continuing and ongoing, the FDA, or equivalent regulatory authority, may not accept the results of our preclinical studies or proposed clinical study
designs and may require the Company to complete additional preclinical studies or impose stricter approval conditions than we expect. As a result,
we cannot guarantee that we will be able to submit INDs, or similar applications, within our projected timelines, if at all, or that the FDA, or similar
regulatory authorities, will allow us to commence clinical trials.
13
We are dependent on collaboration partners for the successful development of our adoptive cell therapy product candidates.
We are not a cell therapy company and expect to depend on third-party collaborators to support the clinical development of our ACT
product candidates. We have entered into a clinical collaboration development agreement with AgonOx, Inc. for the clinical development of our PH-
762 product candidate in ACT and have entered into research agreements with our academic and industry collaborators, each of which is terminable
by the relevant party at any time, subject to applicable notice periods. The success of our collaborations depends upon the efforts of our
collaboration partners, and their performance in achieving the development activities to the extent they are responsible under our collaboration
agreements. Each of our partners may not be successful in performing these activities, including completing the required preclinical studies and
other information to be included in an IND application (or foreign equivalent), obtaining approval to initiate clinical trials, conducting the necessary
clinical trials and arranging for the manufacturing or contract research organization (“CRO”) relationships and obtaining marketing authorization.
Our partners work with other companies, potentially including some of our competitors, and their corporate objectives may not align with ours, they
may change their strategic focus or pursue alternative technologies. If our collaborations are not successful or a partner terminates our collaboration
agreement, our business, financial condition, results of operations could be materially and adversely affected.
Further, we may not be successful in negotiating agreements with these collaborators or with future collaborators for the development and
commercialization of our ACT product candidates through collaborations such as joint development or licensing agreements. Our ability to
successfully negotiate such agreements will depend on, among other things, potential partners’ evaluation of the superiority of our technology over
competing technologies, the quality of preclinical data that we have generated, the perceived risks specific to developing our product candidates and
our partners’ own strategic and corporate objectives. If we fail to negotiate these agreements, we may not be able commence clinical trials with our
ACT product candidates or we may be required to obtain licenses from cell therapy companies and our business, financial condition, results of
operations and prospects could be materially and adversely affected.
We rely upon third-party relationships to conduct preclinical studies, and any future clinical trials, for our product candidates and may
not be able to establish or maintain the third-party relationships that are necessary to support their development.
We depend upon third-party CROs, medical institutions, clinical investigators, consultants and other third parties to support our preclinical
research efforts such as through managing and conducting research studies, formulating our product candidates and manufacturing our product
candidates and expect to rely on the same for our future clinical trials. Because we rely on these third parties, we cannot necessarily control the
timing, quality of work or amount of resources that our contract partners will devote to these activities and we cannot guarantee that these parties
will fulfill their obligations to us under these arrangements. Furthermore, we compete with many other companies for the resources of these third
parties, some of which may be our competitors, and may detract from our programs. Additionally, as a result of the coronavirus pandemic, certain of
our contracted CROs and other third parties are now facing impacts to their operations, resulting in delays or interruptions. 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 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 coronavirus 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. If these third parties do not successfully carry out their responsibilities, as well as
within a timely fashion, our preclinical and clinical development may be delayed, unsuccessful or otherwise adversely affected.
We cannot guarantee that we will be able to successfully negotiate agreements with or maintain relationships with these third parties on
favorable terms, if at all. If we are unable to obtain or maintain these agreements, we may not be able to develop, formulate, manufacture, obtain
regulatory approval(s) or commercialize our product candidates. The third parties whom we rely on generally may terminate their agreements with
us at any time, subject to applicable notice periods, and we may not be able to readily terminate any such agreements with contract partners even if
such partners do not fulfill their obligations to us. If we have to enter into alternative arrangements it may delay or adversely affect the development
of our product candidates and our business operations.
We rely upon third parties for the manufacture of our product candidates.
We rely on third party suppliers and manufacturers to provide us with the materials and services to manufacture our INTASYL compounds
and product candidates for certain of our preclinical research activities and expect that we will rely on them for the supply of our product candidates
for our future clinical trials. While we do have in-house expertise and capacity to manufacture our INTASYL compounds, we do not own or lease
manufacturing facilities or have our own supply source for the required materials. Accordingly, we will be dependent upon third party suppliers and
our contract manufacturers to obtain supplies, and we will need to either develop, contract for, or otherwise arrange for the necessary manufacturers
for these supplies. If for any reason we are unable to obtain the supplies for our INTASYL compounds from our current manufacturer, we would
have to seek to obtain it from another major manufacturer. There is no assurance that we will be able to timely secure needed supply arrangements
on satisfactory terms, or at all.
We currently contract with multiple manufacturers for the supply of our clinical product candidates to reduce the risk of supply interruption
or availability. However, there is no assurance that our supply of our clinical drug product will not be limited, interrupted, of satisfactory quality or
be available at acceptable prices. If for any reason we are unable to obtain the clinical supply of our product candidates from our current
manufacturers, we would have to seek to contract with another major manufacturer. While we believe that we currently have sufficient supply of our
INTASYL compounds to conduct our ongoing preclinical studies and initial clinical activities, we have begun to see some of our third-party
supplies on which we rely becoming impacted from the coronavirus pandemic, which may result in delays or shortages due to ongoing efforts to
address the pandemic. The Company has also undertaken efforts to mitigate potential future impact by identifying and engaging alternative third-
party suppliers and manufacturers. However, the ultimate impact to these 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. Our failure to secure
these arrangements as needed could have a material adverse effect on our ability to complete the development of our clinical product candidates or,
if we obtain regulatory approval, to commercialize them.
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The FDA, or equivalent regulatory authority, governs the manufacturing process for product candidates and will inspect the facilities at
which the product manufactured. Approval of the product will not occur unless the manufacturing facilities are in compliance with the FDA’s
cGMP regulations, or equivalent foreign authority. If our suppliers or manufacturers do not comply with the FDA or foreign regulations for our
product candidates, we may experience delays in timing or supply, be forced to manufacture our product candidates ourselves or seek to enter
contract with another supplier or manufacturer. If we are required to switch suppliers or manufacturers, we will be required to verify that the new
supplier or manufacturer maintains facilities and processes in line with cGMP regulations, which may result in delays, additional expenses, and may
have a material adverse effect on our ability to complete the development of our product candidates.
Natural disasters, epidemic or pandemic disease outbreaks, trade wars, political unrest or other events could disrupt our business or
operations or those of our development partners, manufacturers, regulators or other third parties with whom we conduct business now or in the
future.
A wide variety of events beyond our control, including natural disasters, epidemic or pandemic disease outbreaks (such as the coronavirus
pandemic), trade wars, political unrest or other events could disrupt our business or operations or those of our manufacturers, regulatory authorities,
or other third parties with whom we conduct business. These events may cause businesses and government agencies to be shut down, supply chains
to be interrupted, slowed, or rendered inoperable, and individuals to become ill, quarantined, or otherwise unable to work and/or travel due to health
reasons or governmental restrictions. These limitations could negatively affect our business operations and continuity, and could negatively impact
our development timelines and ability to timely perform basic business functions, including making SEC filings and preparing financial reports. If
our operations or those of third parties with whom we have business are impaired or curtailed as a result of these events, the development and
commercialization of our products and product candidates could be impaired or halted, which could have a material adverse impact on our business.
The approach we are taking to discover and develop novel therapeutics using RNAi may never lead to marketable products.
Our research and development efforts and our future success is based on our INTASYL technology platform. We plan to develop our
INTASYL products for the treatment of cancer to be delivered via direct injection for use intratumorally and with ACT by isolating immune cells
from patients, treating the cells ex vivo and then returning them to the patient for treatment. We believe that our INTASYL compounds may offer a
new treatment option to current standards of care, such as antibodies, and potentially with a more cost-effective approach. Successful development
of our INTASYL compounds by us, or by our collaborative partners, is highly uncertain and depends on a number of factors, many of which are
beyond our control. The scientific research used to support our efforts and approach to developing RNAi therapeutics is limited. Decisions made by
the Company to advance the development of our pipeline, including those related to our technology or manufacturing processes, may show to be
incorrect based on further work by us or our collaborators.
The use of RNAi is a relatively new scientific discovery and the scientific evidence to support the feasibility of developing drugs based on
these discoveries, or INTASYL, is limited. Therefore, it is difficult to accurately predict challenges we may face with our product candidates as they
move through the discovery, preclinical and clinical development stages. We may spend large amounts of money trying to develop our INTASYL
technology and may never succeed in doing so. In addition, our research methodology may be unsuccessful in identifying product candidates and
results from preclinical and clinical studies may not predict the results that will be obtained in later phase trials of our product candidates or our
product candidates may interact with patients in unforeseen or harmful ways that may make it impractical to manufacture, market or receive
regulatory approval. If we are not successful in bringing an INTASYL product candidate to market, it could negatively impact our business and
financial condition and we may not be able to identify and successfully implement an alternative product development strategy.
A number of different factors could prevent us from advancing into clinical development, obtaining regulatory approval, and ultimately
commercializing our product candidates on a timely basis, or at all.
Before obtaining regulatory approval for the sale of any drug candidate, we must conduct extensive preclinical tests and successful clinical
trials to demonstrate the safety and efficacy of our product candidates in humans. Before human clinical trials may commence, we must submit to
the FDA an IND application. An IND application involves the completion of preclinical studies and the submission of the results, together with
proposed clinical protocols, manufacturing information, analytical data and other data in the IND submission. The FDA may require us to complete
additional preclinical studies or disagree with our clinical trial study design. Also, animal models may not exist for some of the disease areas we
choose to develop our INTASYL product candidates for. As a result, our clinical trials may be delayed or we may be required to incur more expense
than we anticipated.
Clinical trials require the review and oversight of IRBs, which approve and continually review clinical investigations and protect the rights
and welfare of human subjects. Before our clinical trials can begin, we must also submit to the FDA a clinical protocol accompanied by the approval
of the IRB at the institution(s) participating in the clinical trial. An inability or delay in obtaining IRB approval could prevent or delay the initiation
and completion of our clinical trials, and the FDA may decide not to consider any data or information derived from a clinical investigation not
subject to initial and continuing IRB review and approval.
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Clinical trials of a new drug candidate require the enrollment of a sufficient number of subjects, including subjects who are suffering from
the disease or condition the drug candidate is intended to treat and who meet other eligibility criteria. Rates of subject enrollment are affected by
many factors, and delays in subject enrollment can result in increased costs and longer development times. 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 from the coronavirus pandemic.
Preclinical studies and clinical trials are lengthy and expensive, and their outcome is highly uncertain. Historical failure rates are high due
to number of factors, such as safety and efficacy of drug candidates. We, our collaborators, the FDA, or an IRB may suspend clinical trials of a drug
candidate at any time for various reasons, including if we or they believe the subjects participating in such trials are being exposed to unacceptable
health risks. Among other reasons, adverse side effects of a drug candidate on subjects in a clinical trial could result in the FDA or other regulatory
authorities suspending or terminating the trial and refusing to approve a particular drug candidate for any or all indications of use.
An additional number of factors could affect the timing, cost or outcome of our drug development efforts, including the following:
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Delays in filing or acceptance of initial drug applications for our product candidates;
Difficulty in securing centers to conduct clinical trials;
Conditions imposed on us by the FDA or comparable foreign authorities regarding the scope or design of our clinical trials;
Problems in engaging IRBs to oversee trials or problems in obtaining or maintaining IRB approval of studies;
Difficulty in enrolling subjects in conformity with required protocols or projected timelines;
Third-party contractors failing to comply with regulatory requirements or to meet their contractual obligations to us in a timely
manner;
Our drug candidates having unexpected and different chemical and pharmacological properties in humans than in laboratory
testing and interacting with human biological systems in unforeseen, ineffective or harmful ways;
The need to suspend or terminate clinical trials if the participants are being exposed to unacceptable health risks;
Insufficient or inadequate supply or quality of our product candidates or other necessary materials necessary to conduct our
clinical trials;
Effects of our product candidates not having the desired effects or including undesirable side effects or the product candidates
having other unexpected characteristics;
The cost of our clinical trials being greater than we anticipate;
Negative or inconclusive results from our clinical trials or the clinical trials of others for similar product candidates or inability to
generate statistically significant data confirming the efficacy of the product being tested;
Changes in the FDA’s requirements for testing during the course of that testing;
The impact from the recent coronavirus pandemic;
Reallocation of our limited financial and other resources to other clinical programs; and
Adverse results obtained by other companies developing similar drugs.
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A failure of any preclinical study or clinical trial can occur at any stage of testing. The results of preclinical and initial clinical testing of
these products may not necessarily indicate the results that will be obtained from later or more extensive testing. Preliminary observations made in
early stages of clinical trials with small numbers of subjects are inherently uncertain and initial clinical trial results are not necessarily indicative of
results that will be obtained when full data sets are analyzed or in subsequent clinical trials. Because of these factors, it is difficult to predict the time
and cost of the development of our product candidates. Any delay or failure in obtaining required approvals may prevent us from completing our
preclinical or clinical studies and could have a material adverse effect on our ability to initiate or commercialize any drug candidate on a timely
basis, or at all. Additionally, preclinical studies and clinical trials are lengthy and expensive and if our cash resources become limited we may not be
able to commence, continue or complete our clinical trials.
We also are subject to numerous foreign regulatory requirements governing the conduct of clinical trials, manufacturing and marketing
authorization, pricing and third-party reimbursement. The foreign regulatory approval process includes all of the risks associated with the FDA
approval described above, as well as risks attributable to the satisfaction of local regulations in foreign jurisdictions. Approval by the FDA does not
assure approval by regulatory authorities outside of the United States.
We are dependent on the success of our product candidates and even if we complete the necessary preclinical and clinical studies, we
may not receive or be delayed in receiving regulatory approval and as a result, we will not be able to commercialize or will be delayed in
commercializing our product candidates.
We have no commercial products and currently generate no revenue from product sales and may never be able to develop marketable
products. The FDA or similar foreign governmental agencies must approve our products in development before they can be marketed. We, and any
of our collaborators, must demonstrate and establish our product candidate’s safety, purity and effectiveness to patients through extensive clinical
trials before we can submit an NDA or BLA to the FDA for approval. Even if we complete the necessary preclinical and clinical studies, it is
possible that none of the product candidates that we may attempt to develop will obtain the appropriate regulatory approvals needed to begin selling
them or they may be subject to limitations on the indicated uses for which we may market the product.
The process for obtaining FDA and other approval is both time consuming and costly, with no certainty of a successful outcome, and can
often take years following the commencement of clinical trials, depending on the complexity of the drug candidate. Any analysis we perform of data
from clinical activities is subject to confirmation and interpretation by regulatory authorities, which could delay, limit or prevent regulatory
approval. The FDA has substantial discretion in the approval process and may deny our application, may decide our data is insufficient or require
additional information from us regarding our current or planned clinical trials at any time, and such information may be costly to provide or cause
potentially significant delays in development. Any changes in marketing approval policies or regulatory statutes and regulations during product
development, trials and the review process, may cause delays in the approval of an application. There is no assurance that we will be able to
successfully develop any of our product candidates, and we may spend large amounts of money trying to resolve these issues and may never
succeed in doing so.
We have no experience in filing the applications necessary to obtain marketing approval and expect that we will need to rely on CROs and
regulatory consultants to assist us with this process. Regulatory approval also requires the submission about the product manufacturing process and
inspection of the manufacturing facilities, to the relevant regulatory authority. Any product candidates we develop may not be effective, may prove
to have undesirable or unintended side effects, toxicities or other characteristics that may preclude our obtaining marketing approval or prevent or
limit commercial use.
If we experience delays or fail to obtain marketing approval for any of our product candidates that we may develop, we would be prevented
from being able to commercialize our product candidates and our commercial prospects and ability to generate revenues may be materially
impaired.
The FDA could impose a unique regulatory regime for our therapeutics.
The compounds we intend to develop may represent a new class of drug, and even though the first RNAi therapeutic was approved in
August 2018, the FDA has not yet established any definitive policies, practices or guidelines in relation to these drugs. While we expect any product
candidates that we develop will be regulated as a new drug under the Federal Food, Drug, and Cosmetic Act, the FDA could decide to regulate them
or other products we may develop as biologics under the Public Health Service Act. The lack of policies, practices or guidelines may hinder or slow
review by the FDA of any regulatory filings that we may submit. Moreover, the FDA may respond to these submissions by defining requirements
that we may not have anticipated.
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Even if we receive regulatory approval to market our product candidates, our product candidates may not be accepted commercially,
which may prevent us from becoming profitable.
Even if we receive regulatory approval for a product candidate, we may not generate or sustain revenues from sales of the product. The
product candidates that we are developing are based on new technologies and therapeutic approaches, which are largely unproven. Additionally,
RNAi products do not readily cross the so-called blood brain barrier, are rapidly eliminated from circulating blood and, for various applications, are
likely to require injection or implantation, which will make them less convenient to administer than drugs administered orally. Key participants in
the pharmaceutical marketplace, such as physicians, medical professionals working in large reference laboratories, public health laboratories and
hospitals, third-party payors and consumers may not accept products intended to improve therapeutic results based on our technologies. For
example, RNAi products may be more expensive to manufacture than traditional small molecule drugs, which may make them costlier than
competing small molecule drugs. As a result, it may be more difficult for us to convince the medical community and third-party payors to accept
and use our products or to provide favorable reimbursement. If medical professionals working with large reference laboratories, public health
laboratories and hospitals choose not to adopt and use our technologies, our products may not achieve broader market acceptance.
Additionally, although we expect that we will have intellectual property protection for our technology, certain governments may elect to
deny patent protection for drugs targeting diseases with high unmet medical need (e.g., as in the case of HIV) and allow in their country
internationally unauthorized generic competition. If this were to happen, our commercial prospects for developing any such drugs would be
substantially diminished in these countries.
We are dependent on technologies we license, and if we lose the right to license such technologies or fail to license new technologies in
the future, our ability to develop new products would be harmed.
Many patents in the fields we are pursuing have already been exclusively licensed to third parties, including our competitors. If any of our
existing licenses are terminated, the development of the products contemplated by the licenses could be delayed or terminated and we may not be
able to negotiate additional licenses on acceptable terms, if at all, which would have a material adverse effect on our business.
We may be unable to protect our intellectual property rights licensed from other parties; our intellectual property rights may be
inadequate to prevent third parties from using our technologies or developing competing products; and we may need to license additional
intellectual property from others.
Therapeutic applications of gene silencing technologies, formulations, delivery methods and other technologies that we license from third
parties are claimed in a number of pending patent applications, but there is no assurance that these applications will result in any issued patents or
that those patents would withstand possible legal challenges or protect our technologies from competition. The United States Patent and Trademark
Office and patent granting authorities in other countries have upheld stringent standards for the RNAi patents that have been prosecuted so far.
Consequently, pending patents that we have licensed and those that we own may continue to experience long and difficult prosecution challenges
and may ultimately issue with much narrower claims than those in the pending applications. Third parties may hold or seek to obtain additional
patents that could make it more difficult or impossible for us to develop products based on our technologies without obtaining a license to such
patents, which licenses may not be available on attractive terms, or at all.
In addition, others may challenge the patents or patent applications that we currently license or may license in the future or that we own
and, as a result, these patents could be narrowed, invalidated or rendered unenforceable, which would negatively affect our ability to exclude others
from using the technologies described in these patents. There is no assurance that these patent or other pending applications or issued patents we
license or that we own will withstand possible legal challenges. Moreover, the laws of some foreign countries may not protect our proprietary rights
to the same extent as do the laws of the United States. Any patents issued to us or our licensors may not provide us with any competitive
advantages, and there is no assurance that the patents of others will not have an adverse effect on our ability to do business or to continue to use our
technologies freely. Our efforts to enforce and maintain our intellectual property rights may not be successful and may result in substantial costs and
diversion of management time. Even if our rights are valid, enforceable and broad in scope, competitors may develop products based on technology
that is not covered by our licenses or patents or patent applications that we own.
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There is no guarantee that future licenses will be available from third parties for our product candidates on timely or satisfactory terms, or
at all. To the extent that we are required and are able to obtain multiple licenses from third parties to develop or commercialize a product candidate,
the aggregate licensing fees and milestones and royalty payments made to these parties may materially reduce our economic returns or even cause
us to abandon development or commercialization of a product candidate.
Our success depends upon our ability to obtain and maintain intellectual property protection for our products and technologies.
The applications based on RNAi technologies claim many different methods, compositions and processes relating to the discovery,
development, delivery and commercialization of RNAi therapeutics. Because this field is so new, very few of these patent applications have been
fully processed by government patent offices around the world, and there is a great deal of uncertainty about which patents will issue, when, to
whom and with what claims. Although we are not aware of any blocking patents or other proprietary rights, it is likely that there will be significant
litigation and other proceedings, such as interference and opposition proceedings in various patent offices, relating to patent rights in the RNAi field.
It is possible that we may become a party to such proceedings.
We are subject to significant competition and may not be able to compete successfully.
The biotechnology and pharmaceutical industries, including immuno-oncology, have intense competition and contain a high degree of risk.
We face a number of competitors that have substantially greater experience and greater research and development capabilities, staffing, financial,
manufacturing, marketing, technical and other resources than us, and we may not be able to successfully compete with them. These companies
include large and small pharmaceutical and biotechnology companies, academic institutions, government agencies and other private and public
research organizations.
In addition, even if we are successful in developing our product candidates, in order to compete successfully we may need to be first to
market or to demonstrate that our products are superior to therapies based on different technologies. Some of our competitors may develop and
commercialize products that are introduced to market earlier than our product candidates or on a more cost-effective basis. A number of our
competitors have already commenced clinical testing of product candidates and may be more advanced than we are in the process of developing
products. If we are not first to market or are unable to demonstrate superiority, on a cost-effective basis or otherwise, any products for which we are
able to obtain approval may not be successful.
Our competitors also compete with us in acquiring technologies complementary to our INTASYL technology. We may face competition
with respect to product efficacy and safety, ease of use and adaptability to modes of administration, acceptance by physicians, timing and scope of
regulatory approvals, reimbursement coverage, price and patent position, including dominant patent positions of others. If we are not able to
successfully obtain regulatory approval or commercialize our product candidates, we may not be able to establish market share and generate
revenues from our technology.
We are subject to potential liabilities from clinical testing and future product liability claims.
If any of our future products are alleged to be defective, they may expose us to claims for personal injury by subjects in clinical trials of our
products. If our products are approved by the FDA, users may claim that such products caused unintended adverse effects. We will seek to obtain
clinical trial insurance for clinical trials that we conduct, as well as liability insurance for any products that we market. There is no assurance that we
will be able to obtain insurance in the amounts we seek, or at all. We anticipate that licensees who develop our products will carry liability insurance
covering the clinical testing and marketing of those products. There is no assurance, however, that any insurance maintained by us or our licensees
will prove adequate in the event of a claim against us. Even if claims asserted against us are unsuccessful, they may divert management’s attention
from our operations and we may have to incur substantial costs to defend such claims.
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Any drugs we develop may become subject to unfavorable pricing regulations, third-party reimbursement practices or healthcare
reform initiatives, which could have a material adverse effect on our business.
If approved, we intend to sell our products primarily to hospitals, oncologists and clinics, which receive reimbursement for the healthcare
services they provide to their patients from third-party payors, such as Medicare, Medicaid and other domestic and international government
programs, private insurance plans and managed care programs. Most third-party payors may deny reimbursement if they determine that a medical
product was not used in accordance with cost-effective treatment methods, as determined by the third-party payor, was used for an unapproved
indication or if they believe the cost of the product outweighs its benefits. Third-party payors also may refuse to reimburse for experimental
procedures and devices. Furthermore, because our programs are still in development, we are unable at this time to determine their cost-effectiveness
and the level or method of reimbursement for them. Increasingly, the third-party payors who reimburse patients are requiring that drug companies
provide them with predetermined discounts from list prices and are challenging the prices charged for medical products. If the price we are able to
charge for any products we develop is inadequate in light of our development and other costs, our profitability could be adversely affected.
We currently expect that any drugs we develop may need to be administered under the supervision of a physician. Under currently
applicable law, drugs that are not usually self-administered may be eligible for coverage by the Medicare program if:
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They are “reasonable and necessary” for the diagnosis or treatment of the illness or injury for which they are administered according
to accepted standards of medical practice;
They are not excluded as immunizations; and
They have been approved by the FDA.
Insurers may refuse to provide insurance coverage for newly approved drugs, including drugs in our clinical pipeline, or insurance
coverage may be delayed or be more limited than the purpose for which the drugs are approved by the FDA. Moreover, eligibility for insurance
coverage does not imply that any drug will be reimbursed in all cases or at a rate that covers our costs, including research, development,
manufacture, sale and distribution costs. Interim payments for new drugs, if applicable, may also not be sufficient to cover our costs and may not be
made permanent. Reimbursement may be based on payments for other services and may reflect budgetary constraints or imperfections in Medicare
data. Net prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by
any future relaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States.
Third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement rates. Our inability to
promptly obtain coverage and profitable reimbursement rates from both government-funded and private payors for new drugs that we develop could
have a material adverse effect on our operating results, our ability to raise capital needed to develop products and our overall financial condition.
Additionally, third-party payors are increasingly attempting to contain healthcare costs by limiting both coverage and the level of
reimbursement for medical products and services. Levels of reimbursement may decrease in the future, and future legislation, regulation or
reimbursement policies of third-party payors may adversely affect the demand for and price levels of our products. If our customers are not
reimbursed for our products, they may reduce or discontinue purchases of our products, which could have a material adverse effect on our business,
financial condition and results of operations.
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Comprehensive healthcare reform legislation, which became law in 2010, and any revisions to this legislation, could adversely affect our
business and financial condition. Among other provisions, the legislation provides that a “biosimilar” product may be approved by the FDA on the
basis of analytical tests and certain clinical studies demonstrating that such product is highly similar to an existing, approved product and that
switching between an existing product and the biosimilar product will not result in diminished safety or efficacy. This abbreviated regulatory
approval process may result in increased competition if we are able to bring a product to market. The legislation also includes more stringent
compliance programs for companies in various sectors of the life sciences industry with which we may need to comply and enhanced penalties for
non-compliance with the new healthcare regulations. Complying with new regulations may divert management resources, and inadvertent failure to
comply with new regulations may result in penalties being imposed on us.
Some states and localities have established drug importation programs for their citizens, and federal drug import legislation has been
introduced in Congress. The Medicare Prescription Drug Plan legislation, which became law in 2003, required the Secretary of Health and Human
Services to promulgate regulations for drug reimportation from Canada into the United States under some circumstances, including when the drugs
are sold at a lower price than in the United States. The Secretary, however, retained the discretion not to implement a drug reimportation plan, if the
Secretary finds that the benefits do not outweigh the costs, and has so far declined to approve a reimportation plan. Proponents of drug reimportation
may attempt to pass legislation that would directly allow reimportation under certain circumstances. Legislation or regulations allowing the
reimportation of drugs, if enacted, could decrease the price we receive for any products that we may develop and adversely affect our future
revenues and prospects for profitability.
With the current U.S. administration and Congress, there may be additional legislative changes, including repeal and replacement of certain
provisions of the Affordable Care Act. It remains to be seen, however, precisely what new legislation will provide, when it will be enacted and what
impact it will have on the availability of healthcare and containing or lowering the cost of healthcare. Such reforms could have an adverse effect on
anticipated revenue from product candidates that we may successfully develop and for which we may obtain marketing approval and may affect our
overall financial condition and ability to develop product candidates.
Even if we obtain regulatory approvals, our marketed drugs will be subject to ongoing regulatory review. If we fail to comply with
continuing U.S. and foreign regulations, we could lose our approvals to market drugs and our business would be materially and adversely
affected.
Following regulatory approval of any drugs we may develop, we will remain subject to continuing regulatory review, including the review
of adverse drug experiences and clinical results that are reported after our drug products are made available to patients. This would include results
from any post-marketing tests or vigilance required as a condition of approval. The manufacturer and manufacturing facilities we use to make any of
our drug products will also be subject to periodic review and inspection by the FDA. The discovery of any new or previously unknown problems
with the product, manufacturer or facility may result in restrictions on the drug or manufacturer or facility, including withdrawal of the drug from
the market. We would continue to be subject to the FDA requirements governing the labeling, packaging, storage, advertising, promotion,
recordkeeping and submission of safety and other post-market information for all of our product candidates, even those that the FDA had approved.
If we fail to comply with applicable continuing regulatory requirements, we may be subject to fines, suspension or withdrawal of regulatory
approval, product recalls and seizures, operating restrictions and other adverse consequences.
If we fail to attract, hire and retain qualified personnel, we may not be able to design, develop, market or sell our products or
successfully manage our business.
Our business prospects are dependent on the principal members of our executive team, the loss of whose services could make it difficult for
us to manage our business successfully and achieve our business objectives. While we have entered into employment agreements with each of our
executive officers, they could leave at any time, in addition to our other employees, who are all “at will” employees. Our ability to identify, attract,
retain and integrate additional qualified key personnel is also critical to our success. Competition for skilled research, product development,
regulatory and technical personnel is intense, and we may not be able to recruit and retain the personnel we need. The loss of the services of any key
research, product development, regulatory and technical personnel, or our inability to hire new personnel with the requisite skills, could restrict our
ability to develop our product candidates.
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Risks Relating to Our Financial Condition
We have a history of net losses, and we expect to continue to incur net losses for the foreseeable future and may not achieve or
maintain profitability.
We have generated significant losses to date, have not generated any product revenue and may not generate product revenue in the
foreseeable future, or ever. We expect to incur significant operating losses as we advance our product candidates through drug development and the
regulatory process. Our ability to achieve profitability, if ever, will depend on, among other things, us or our collaborators, obtaining regulatory
approvals and successfully commercializing our drug candidates. Even if we are able to successfully commercialize our drug candidates, we may
not be able to achieve or sustain profitability, which could have a material adverse effect on our business, financial condition and results of
operations.
We will require substantial additional funds to complete our research and development activities.
We have used substantial funds to develop our product candidates and will need to raise additional substantial funds to continue our drug
development efforts and support our operations. Based on our current operating plans and liquidity, we believe that our existing cash at December
31, 2020 and the proceeds received from our capital raise activities subsequent to the balance sheet date, will be sufficient to fund our currently
planned operations for at least the next 12 months from the date of release of the associated financial statements. However, our future capital
requirements and the period for which our existing resources are able to support our operations may vary significantly from what we expect. We
anticipate that we will need to raise substantial amounts of money to fund a variety of future activities integral to the development of our business,
which may include but is not limited to the following:
(cid:120) To conduct research and development to successfully develop our technologies;
(cid:120) To obtain regulatory approval for our products;
(cid:120) To file and prosecute patent applications and to defend and assess patents to protect our technologies;
(cid:120) To retain qualified employees, particularly in light of intense competition for qualified personnel;
(cid:120) To manufacture products ourselves or through third parties;
(cid:120) To market our products, either through building our own sales and distribution capabilities or relying on third parties; and
(cid:120) To acquire new technologies, licenses or products.
In the future, we will need to obtain funding from third parties, such as proceeds from the issuance of debt, sale of equity or strategic
opportunities in order to fund our planned expenditures, as well as to make acquisitions and other investments. Historically, the Company’s primary
source of funding has been through the sale of its securities. We cannot assure you that equity or debt financing will be available to us on acceptable
terms, or at all. If we cannot, or are limited in the ability to, issue equity, incur debt or enter into strategic collaborations, we may be unable to fund
the discovery and development of our product candidates, address gaps in our product offerings or improve our technology. 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 may
ultimately be unable to continue to develop and potentially commercialize our product candidates, and we may be forced to scale back or terminate
our operations or seek to merge with or be acquired by another company.
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Future financing may be obtained through, and future development efforts may be paid for by, the issuance of debt or equity, which
may have an adverse effect on our stockholders or may otherwise adversely affect our business.
If we raise funds through the issuance of debt or equity, any debt securities or preferred stock issued will have rights, preferences and
privileges senior to those of holders of our common stock in the event of a liquidation. In such event, there is a possibility that once all senior claims
are settled, there may be no assets remaining to pay out to the holders of common stock. In addition, if we raise funds through the issuance of
additional equity, whether through private placements or public offerings, such an issuance would dilute current stockholders’ ownership in us.
The terms of debt securities may also impose restrictions on our operations, which may include limiting our ability to incur additional
indebtedness, to pay dividends on or repurchase our capital stock, or to make certain acquisitions or investments. In addition, we may be subject to
covenants requiring us to satisfy certain financial tests and ratios, and our ability to satisfy such covenants may be affected by events outside of our
control.
We expect to continue to incur significant research and development expenses, which may make it difficult for us to attain profitability,
and may lead to uncertainty as to our ability to continue as a going concern.
We expend substantial funds to develop our technologies, and additional substantial funds will be required for further research and
development, including preclinical testing and clinical trials of any product candidates, and to manufacture and market any products that are
approved for commercial sale. Because the successful development of our products is uncertain, we are unable to precisely estimate the actual funds
we will require to develop and potentially commercialize them. In addition, we may not be able to generate enough revenue, even if we are able to
commercialize any of our product candidates, to become profitable.
If we are unable to achieve or sustain profitability or to secure additional financing, we may not be able to meet our obligations as they
come due, raising substantial doubts as to our ability to continue as a going concern. Any such inability to continue as a going concern may result in
our common stockholders losing their entire investment. There is no guarantee that we will become profitable or secure additional financing. Our
financial statements do not include any adjustments to, or classification of, recorded asset amounts and classification of liabilities that might be
necessary if we were unable to continue as a going concern. Changes in our operating plans, our existing and anticipated working capital needs, the
acceleration or modification of our expansion plans, increased expenses, potential acquisitions or other events will all affect our ability to continue
as a going concern.
Our ability to utilize net operating loss carryforwards and other tax benefits may be limited.
We have historically incurred net losses. Under the Internal Revenue Code of 1986, as amended (the “Code”), a corporation is generally
allowed a deduction for net operating losses carried forward from a prior taxable year. Under that provision, we can carryforward our net operating
losses to offset our future taxable income, if any, until such net operating losses are used or expire. These net operating loss carryforwards could
expire unused before offsetting potential future income tax liabilities.
Additionally, an ownership change, as defined by Section 382 of the Code, results from transactions increasing the ownership of certain
stockholders or public groups in the stock of a corporation by more than 50% over a three-year period. If the Company has experienced a change of
control, as defined by Section 382 of the Code, at any time since inception, utilization of the Company’s net operating loss carryforwards would be
subject to an annual limitation. Any limitation may result in expiration of a portion of the net operating loss carryforwards before utilization. The
Company has not conducted a study to assess whether a change of control, as defined by Section 382 of the Code, has occurred and it is possible
that we have experienced an ownership change limitation. We may experience ownership changes in the future as a result of subsequent shifts in our
stock ownership, some of which may be outside of our control. If an ownership change occurs and our ability to use our net operating loss
carryforwards is materially limited, it would harm our future operating results by effectively increasing our future tax obligations.
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Risks Relating to Our Securities
The price of our common stock has been and may continue to be volatile.
Our stock price has historically fluctuated widely and is likely to continue to be volatile. Because we are at an early stage of development
and in the absence of product revenue as a measure of operating performance, we anticipate that the market price for our common stock may be
influenced by, but not limited to, such factors as:
(cid:120) Announcements regarding the initiation or completion, and the results of preclinical studies and clinical trials of our product candidates;
(cid:120) Announcements regarding clinical trial results or development announcements concerning our competitors product candidates;
(cid:120) Regulatory or legal developments in the United States and other countries;
(cid:120) The recruitment or departure of key personnel;
(cid:120) The issuance of competitive patents or disallowance or loss of our patent rights;
(cid:120) Our ability to raise additional capital and the terms on which additional capital is raised;
(cid:120) To acquire new technologies, licenses or products;
(cid:120) Natural disasters and calamities, including the coronavirus pandemic; and
(cid:120) General economic, industry and market conditions.
The stock markets, in general, and the markets for drug delivery and pharmaceutical company stocks, in particular, have experienced
extreme volatility, that has often been unrelated to the operating performance of particular companies. These broad market fluctuations may
adversely affect the trading price of our common stock. In addition, the limited trading volume of our stock may contribute to its volatility.
We may incur significant costs from class action litigation due to our historical or expected stock volatility.
Our stock price has historically fluctuated significantly and may continue to do so in the future. This risk is relevant to us as in the past,
following periods of volatility in the market price of a particular company’s securities, litigation has often been brought against that company that
issued the stock. If litigation of this type is brought against us by any of our stockholders, even if the lawsuit is without merit, it could be extremely
expensive and divert management’s attention and the Company’s resources.
Our Board of Directors has the authority to issue shares of “blank check” preferred stock and the terms of the preferred stock may
reduce the value of our common stock.
We are authorized to issue up to 10,000,000 shares of preferred stock in one or more series. Our Board of Directors may determine the
terms of future preferred stock offerings without further action by our stockholders. The issuance of our preferred stock could affect the rights of
existing stockholders or reduce the value of our outstanding preferred stock or common stock. In particular, rights granted to holders of certain
series of preferred stock may include voting rights, preferences as to dividends and liquidation, conversion and redemption rights and restrictions on
our ability to merge with or sell our assets to a third party.
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We may acquire other businesses or form joint ventures that may be unsuccessful and could dilute your ownership interest in the
Company.
As part of our business strategy, we may pursue future acquisitions of other complementary businesses and technology licensing
arrangements. We also may pursue strategic alliances. We have limited experience with respect to acquiring other companies and with respect to the
formation of collaborations, strategic alliances and joint ventures. We may not be able to integrate such acquisitions successfully into our existing
business, and we could assume unknown or contingent liabilities. We also could experience adverse effects on our reported results of operations
from acquisition related charges, amortization of acquired technology and other intangibles and impairment charges relating to write-offs of
goodwill and other intangible assets from time to time following the acquisition. Integration of an acquired company requires management resources
that otherwise would be available for ongoing development of our existing business. We may not realize the anticipated benefits of any acquisition,
technology license or strategic alliance. There is no assurance that we will be successful in developing such assets, and a failure to successfully
develop such assets could diminish our prospects.
To finance future acquisitions, we may choose to issue shares of our common stock or preferred stock as consideration, which would dilute
current stockholders’ ownership interest in us. Alternatively, it may be necessary for us to raise additional funds through public or private
financings. Additional funds may not be available on terms that are favorable to us and, in the case of equity financings, may result in dilution to our
stockholders. Any future acquisitions by us also could result in large and immediate write-offs, the incurrence of contingent liabilities or
amortization of expenses related to acquired intangible assets, any of which could harm our operating results.
We do not anticipate paying cash dividends in the foreseeable future.
Our business requires significant funding. We currently plan to invest all available funds and future earnings in the development and
growth of our business and do not anticipate paying any cash dividends on our common stock in the foreseeable future. As a result, capital
appreciation, if any, of our common stock will be the sole source of potential gain for our stockholders for the foreseeable future.
Provisions of our certificate of incorporation and bylaws and Delaware law might discourage, delay or prevent a change of control of
the Company or changes in our management and, as a result, depress the trading price of our common stock.
Our certificate of incorporation and bylaws contain provisions that could discourage, delay or prevent a change of control of the Company
or changes in our management that the stockholders of the Company may deem advantageous. These provisions:
(cid:120) Authorize the issuance of “blank check” preferred stock that our Board of Directors could issue to increase the number of outstanding
shares and to discourage a takeover attempt;
(cid:120) Prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders;
(cid:120) Provide that the Board of Directors is expressly authorized to adopt, alter or repeal our bylaws; and
(cid:120) Establish advance notice requirements for nominations for election to our Board of Directors or for proposing matters that can be acted
upon by stockholders at stockholder meetings.
Although we believe these provisions collectively provide for an opportunity to receive higher bids by requiring potential acquirers to
negotiate with our Board of Directors, they would apply even if the offer may be considered beneficial by some stockholders. In addition, these
provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management team by making it more difficult
for stockholders to replace members of our Board of Directors, which is responsible for appointing the members of our management.
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Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General
Corporation Law, which prohibits a person who owns in excess of 15% of our outstanding voting stock from merging or combining with us for a
period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the
merger or combination is approved in a prescribed manner.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
PROPERTIES
On December 17, 2013, and subsequent amendment on January 22, 2019, we entered into a lease (the “Lease”) with 257 Simarano Drive,
LLC, Brighton Properties, LLC, Robert Stubblebine 1, LLC and Robert Stubblebine 2, LLC to lease office and laboratory space in the building
known as the “Main Building” located at 257 Simarano Drive, Marlborough, Massachusetts, covering approximately 7,581 square feet. The
premises are used by the Company for office and laboratory space. The term of the Lease commenced on April 1, 2014 and expires on March 31,
2024, for a total of a ten year lease term. The base rent for the premises is $124,865 per annum, payable on a monthly basis. Each year thereafter,
the base rent shall increase by approximately 3% over the base rent from the prior year. With six months’ advance notice, either party may terminate
the lease on March 31, 2021, paying the non-terminating party six months’ rent as a penalty or on March 31, 2022, paying the non-terminating party
three months’ rent as a penalty.
We believe that our facilities are suitable for our current needs.
ITEM 3.
LEGAL PROCEEDINGS
From time to time, we may become a party to various legal proceedings and complaints arising in the ordinary course of business. There
are none deemed to be material at this time.
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.
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ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES
OF EQUITY SECURITIES
PART II.
Market Information
Our common stock is listed on The Nasdaq Capital Market under the symbol “PHIO.”
Holders
At March 18, 2021, there were approximately 19 holders of record of our common stock. Because many of our shares are held by brokers
and other institutions on behalf of stockholders, we are unable to estimate the total number of individual stockholders represented by these holders
of record.
Dividends
We have never paid any cash dividends and do not anticipate paying any cash dividends on our common stock in the foreseeable future.
We expect to retain future earnings, if any, for use in our development activities and the operation of our business. The payment of any future
dividends will be subject to the discretion of our board of directors and will depend upon, among other things, our results of operations, financial
condition, cash requirements, prospects and other factors that our board of directors may deem relevant.
Securities Authorized for Issuance Under Equity Compensation Plans
See Item 12 to this Annual Report on Form 10-K for additional information about the securities authorized for issuance under our equity
compensation plans.
Recent Sales of Unregistered Sales of Securities
No sales or issues of unregistered securities occurred that have not previously been disclosed in a Quarterly Report on Form 10-Q or in a
Current Report on Form 8-K.
Purchases of Equity Securities by the Issuer and Affiliated Purchases
We did not repurchase any shares of our common stock during the years ended December 31, 2020 or 2019.
ITEM 6.
SELECTED FINANCIAL DATA
As a smaller reporting company, we are not required to provide this information.
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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.
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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 for the following
reasons:
(cid:120) Efficient uptake of INTASYL to immune cells obviating the need for facilitated delivery (mechanical or formulation);
(cid:120) Does not require permanent genetic modification;
(cid:120) Can target multiple genes (i.e. multiple immunosuppression pathways) in a single therapeutic entity;
(cid:120) Gene silencing by INTASYL has been shown to have a sustained, or long-term, effect in vivo;
(cid:120) Favorable clinical safety profile of INTASYL with local administration; and
(cid:120) 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 March 2021, the Company announced that it entered into a clinical development collaboration with AgonOx, Inc. (“AgonOx”), a private
company developing a pipeline of novel immunotherapy drugs targeting key regulators of the immune response to cancer. Under the agreement, the
companies will collaborate on the development of novel T cell-based therapies using PH-762 and AgonOx’s “double positive” (DP) TIL
technology. AgonOx has demonstrated that their DP CD8+ T cells isolated from human solid tumors (DP TILs) have increased tumor killing
activity when compared to TILs that were not enriched prior to expansion. Preclinical data from AgonOx in collaboration with Phio has shown that
treating DP TIL with PH-762 increases the tumor killing activity of the DP TILs even further (a two-fold increase). As a result, the use of PH-762
treated DP TILs is expected to enhance therapeutic responses in cancer data. Based on these data showing that the combination of our technologies
can result in TIL therapeutics, our collaboration will focus on conducting a clinical study for PH-762 treated DP TILs. Under the terms of the
collaboration agreement, AgonOx will receive financial support for the clinical trial from Phio and Phio will be entitled to certain future
development milestones and sales-related royalty payments from AgonOx’s DP TIL technology. The clinical trial in ACT with PH-762 and
AgonOx’s DP TIL technology is expected to start in the third quarter of 2021.
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 Karolinska Institutet in Sweden, 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. 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 Gustave Roussy Institute, which is France’s largest cancer center and Dr.
Caroline Robert will be our lead principal investigator. The Company expects to start the clinical trial evaluating the use of PH-762 as a direct
therapeutic in the fourth quarter of 2021.
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 December 2019, a novel strain of coronavirus that causes 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 (the “WHO”) declared the outbreak a
pandemic.
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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 Centers for Disease Control (the “CDC”) and governmental
authorities, which include formal policies related to working remotely for employee personnel who do not need to be physically present in our
offices, the wearing of face masks while in the office, physically distancing workspaces, cleaning protocols, staggered scheduling and social
distancing protocols, and suspending travel. The Company has also implemented protocols to address actual and suspected cases of COVID-19 and
encourages sick employees to remain home. 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.
Operations
Our operations have continued to operate with limited impact and are operating in accordance with federal and state government, WHO
and CDC guidelines. We have implemented enhanced safety measures, as discussed above, and have experienced limited absenteeism from our
employees due to the coronavirus pandemic and we do not currently expect that our operations will be significantly impacted by employee
absenteeism. While the measures to contain and prevent the spread of coronavirus may be modified or extended, we expect that our activities,
including our internal research and development functions, will continue to remain largely operational. We believe the impact to our operations has
been minimal thus far, however current and future restrictions may further impact our operations and may slow or diminish our research and
development activities.
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 $231,252 in May 2020 under the Paycheck
Protection Program (the “PPP”) as part of the Coronavirus Aid, Relief and Economic Security (the “CARES Act”). The Company carefully
assessed the requirements at the time of applying for the PPP loan and believed it was necessary to support our operations. The PPP loan matures in
May 2022, bears an interest rate of 1% per year and monthly principal and interest payments are deferred to that date that the amount of loan
forgiveness is remitted to the lender. The Company believes it has used the loan proceeds for the eligible purposes allowed and applied for full loan
forgiveness. On February 18, 2021, the Small Business Administration determined that the Company’s application for full loan forgiveness was
fully approved and the full amount of the PPP loan was remitted to the lender for forgiveness. In connection with and addition to the PPP, the
Company took other proactive steps to control costs in response to the coronavirus pandemic, which included the reduction of senior management
salaries by 10% from May to December 2020. We believe these savings helped to mitigate the financial impact of the coronavirus pandemic on our
financial condition.
31
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 January 10, 2020, the Board of Directors of the Company approved a 1-for-55 reverse stock split of the Company’s outstanding
common stock, which was effected on January 15, 2020. All share and per share amounts have been retroactively adjusted for all periods presented
to give effect to the reverse stock split.
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 the United States (“GAAP”). The preparation of these
consolidated 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. While our significant accounting
policies are more fully described in the notes to our consolidated financial statements included elsewhere in this Annual Report, we believe the
following accounting policies to be the most critical in understanding the judgments and estimates we use in preparing our financial statements.
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 our behalf for the continued development of our product 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. 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 Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification
(“ASC”) Topic 718, “Compensation – Stock Compensation” (“ASC 718”), which requires the measurement and recognition of compensation
expense for all stock-based payment awards. We determine the fair value of 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 options 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. Stock-based compensation expense
based on the grant date fair value estimated in accordance with the provisions of ASC 718 is recognized as an expense over the requisite service
period.
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.
33
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:
Revenues
Operating expenses
Operating loss
Net loss
Comparison of the Years Ended December 31, 2020 and 2019
Operating Expenses
Years Ended
December 31,
2020
2019
$
$
–
8,793
(8,793)
(8,794)
$
$
21
9,008
(8,987)
(8,908)
The following table summarizes our total operating expenses, for the periods indicated, in thousands:
Research and development
General and administrative
Total operating expenses
Years Ended
December 31,
2020
2019
$
$
4,431
4,362
8,793
$
$
4,300
4,708
9,008
34
Dollar
Change
(21)
(215)
194
114
Dollar
Change
131
(346)
(215)
$
$
$
$
Research and Development Expenses
Research and development expenses for the year ended December 31, 2020 increased 3% compared with the year ended December 31,
2019 primarily due to an increase in the use of sponsored research organizations to support the development of the Company’s pipeline programs as
compared to the prior year period.
General and Administrative Expenses
General and administrative expenses for the year ended December 31, 2020 decreased 7% compared with the year ended December 31,
2019, primarily due to decreases in legal-related expenses and recruiting fees to support employee hiring activities as compared to the prior year
period.
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 December 31, 2020, we had cash of $14,244,000 as compared with $6,934,000 at December 31, 2019.
In August 2017, the Company entered into a purchase agreement (the “2017 Purchase Agreement”) with Lincoln Park Capital, 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. The 2017
Purchase Agreement expired on April 1, 2020 and a total of $1,602,000 in shares of common stock were sold to LPC under the agreement. In
August 2019, the Company entered into a purchase agreement (the “2019 Purchase 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, subject to certain limitations and conditions set forth in the
agreement. The Company is initially limited to the issuance of 19.99% of the Company’s shares outstanding on the date of the 2019 Purchase
Agreement to LPC 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 agreement. To date, no shares of common stock have been sold to LPC under the 2019
Purchase Agreement.
On January 25, 2021, the Company sold 4,420,863 shares of Company common stock at a purchase price per share of $3.07, pre-funded
warrants to purchase an aggregate of 140,065 shares of Company common stock at a purchase price per pre-funded warrant share of $3.069, and
warrants to purchase an aggregate of 3,420,696 shares of the Company’s common stock with an exercise price of $3.00 per warrant share in a
private placement transaction. Net proceeds to the Company are estimated to be $12,700,000 after deducting placement agent fees and offering
expenses.
On February 12, 2021, the Company sold 2,246,784 shares of Company common stock at a purchase price of $3.42 per share in a
registered direct offering under the Company’s Form S-3 “shelf” registration statement. Net proceeds to the Company are estimated to be
$6,900,000 after deducting placement agent fees and offering expenses.
We believe that our existing cash at December 31, 2020 and the net proceeds received from the Company’s financing activities subsequent
to December 31, 2020, as discussed above, should be sufficient to fund operations for at least the next 12 months from the date of the release of the
associated financial statements.
35
Cash Flow
The following table summarizes our cash flows for the periods indicated, in thousands:
Net cash used in operating activities
Net cash used in investing activities
Net cash provided by financing activities
Net increase (decrease) in cash and restricted cash
Net Cash Flow from Operating Activities
Years Ended
December 31,
2020
2019
$
$
(8,802)
(19)
16,131
7,310
$
$
(8,645)
(72)
772
(7,945)
Net cash used in operating activities was $8,802,000 for the year ended December 31, 2020, as compared with $8,645,000 for the year
ended December 31, 2019. The increase in cash used in operating activities was primarily due to an increase in the changes in operating assets and
liabilities as compared to the same period in the prior year.
Net Cash Flow from Investing Activities
Net cash used in investing activities was $19,000 for the year ended December 31, 2020, as compared with $72,000 for the year ended
December 31, 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 year ended December 31, 2020, as compared with $772,000 for the year
ended December 31, 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 year ended December 31, 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 8 to our
consolidated financial statements for further discussion of these indemnification agreements.
36
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, we are not required to provide this information.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2020 and 2019
Consolidated Statements of Operations for the Years Ended December 31, 2020 and 2019
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2020 and 2019
Consolidated Statements of Cash Flows for the Years Ended December 31, 2020 and 2019
Notes to Consolidated Financial Statements
Page
F-1
F-3
F-4
F-5
F-6
F-7
37
Report of Independent Registered Public Accounting Firm
Stockholders and Board of Directors
Phio Pharmaceuticals Corp.
Marlborough, Massachusetts
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Phio Pharmaceuticals Corp. (the “Company”) and subsidiary as of December 31,
2020 and 2019, the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the two years in the period ended
December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated
financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of
its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with accounting principles
generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the
Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting
Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The
Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we
are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error
or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the
amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits
provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was
communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the
consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical
audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the
critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.
Accounting for warrants issued as part of equity offerings
As described in Note 9 to the consolidated financial statements, the Company entered into two registered direct offerings and an underwritten public
offering during 2020 that included the issuance of common stock and warrants to purchase common stock. The warrants were evaluated for proper
classification on the balance sheet and it was determined that the warrants issued in these equity offerings should be classified within stockholders’
equity.
We identified the accounting for warrants issued as part of equity offerings as a critical audit matter. Our principal considerations included the
existence of accounting complexities related to certain provisions of the warrant agreements, including provisions of cash settlement and derivative
elements. Auditing these elements required especially challenging auditor judgement and significant audit effort as well as the need for specialized
knowledge and skill assessing these elements of the agreement.
F-1
The primary procedures we performed to address this critical audit matter included:
(cid:120)
Reading the agreements related to the warrants issued along with management’s technical accounting memos to understand the facts and
circumstances within the warrant agreements and other assumptions impacting the determination of warrant classification.
(cid:120) Utilizing personnel with specialized knowledge and skill in debt and equity accounting to evaluate the appropriateness of management’s
interpretation on how to apply the relevant accounting guidance for the classification of the warrants issued, including the evaluation of
derivative characteristics and the terms associated with the Company’s control that could require cash settlement of the warrants.
/s/ BDO USA, LLP
We have served as the Company’s auditor since 2011.
Boston, Massachusetts
March 25, 2021
F-2
PHIO PHARMACEUTICALS CORP.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share data)
ASSETS
Current assets:
Cash
Restricted cash
Prepaid expenses and other current assets
Total current assets
Right of use asset, net
Property and equipment, net of accumulated depreciation of $1,122 and $1,048 in 2020 and 2019,
respectively
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
Accrued expenses and other current liabilities
Lease liability
Total current liabilities
Lease liability, net of current portion
Long-term debt
Total liabilities
Commitments and contingencies (Note 8)
Stockholders’ equity:
Preferred stock, $0.0001 par value, 10,000,000 shares authorized
Common stock, $0.0001 par value, 100,000,000 shares authorized; 5,780,973 and 669,433
shares issued and outstanding at December 31, 2020 and December 31, 2019, respectively
Additional paid-in capital
Accumulated deficit
Total stockholders’ equity
Total liabilities and stockholders’ equity
Years Ended December 31,
2019
2020
$
$
$
$
14,244
50
870
15,164
400
157
18
15,739
728
1,352
116
2,196
295
231
2,722
–
1
116,629
(103,613)
13,017
15,739
$
$
$
$
6,934
50
316
7,300
511
210
18
8,039
809
964
107
1,880
411
–
2,291
–
1
100,566
(94,819)
5,748
8,039
See accompanying notes to consolidated financial statements.
F-3
PHIO PHARMACEUTICALS CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except share and per share data)
Revenues
Operating expenses:
Research and development
General and administrative
Total operating expenses
Operating loss
Total other (expense) income, net
Loss before income taxes
Provision for income taxes
Net loss
Net loss per common share:
Basic and diluted
Years Ended December 31,
2019
2020
–
$
4,431
4,362
8,793
(8,793)
(1)
(8,794)
–
(8,794)
(1.92)
$
$
21
4,300
4,708
9,008
(8,987)
79
(8,908)
–
(8,908)
(19.33)
$
$
$
Weighted average number of common shares outstanding:
Basic and diluted
4,587,346
460,809
See accompanying notes to consolidated financial statements.
F-4
PHIO PHARMACEUTICALS CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Amounts in thousands, except share data)
Balance at December 31, 2018
Issuance of common stock upon the exercise of warrants
Issuance of common stock under Lincoln Park Capital, LLC
purchase agreement
Issuance of restricted stock
Issuance of common stock under employee stock purchase plan
Issuance of common stock in connection with registered direct
public offering, net of offering costs of $234
Issuance of common stock upon vesting of restricted stock units
Stock-based compensation expense
Net loss
Balance at December 31, 2019
Cash in lieu of fractional shares for 1:55 reverse stock split
Issuance of common stock under employee stock purchase plan
Issuance of common stock and warrants in connection with
registered direct and private placement offerings, net of
offering costs of $746
Issuance of common stock, pre-funded warrants and warrants in
connection with underwritten public offering, net of offering
costs of $906
Issuance of common stock upon the exercise of warrants
Issuance of common stock upon vesting of restricted stock units
Stock-based compensation expense
Net loss
Balance at December 31, 2020
Common Stock
Shares
Amount
342,578
130,338
$
9,090
4,419
36
181,818
1,154
–
–
669,433
(1,364)
153
1,910,120
993,633
2,205,663
3,335
–
–
5,780,973
$
$
–
–
–
–
–
1
–
–
–
1
–
–
–
–
–
–
–
–
1
$
$
$
Additional
Paid-in
Capital
Accumulated
Deficit
Total
99,489
72
$
(85,911)
–
$
13,578
72
(58)
–
1
766
(3)
300
(8,908)
5,748
(15)
1
–
–
–
–
–
–
(8,908)
(94,819)
–
–
$
–
4,994
–
–
–
–
(8,794)
(103,613)
$
7,093
3,856
(2)
136
(8,794)
13,017
(58)
–
1
765
(3)
300
–
100,566
(15)
1
4,994
7,093
3,856
(2)
136
–
116,629
$
$
See accompanying notes to consolidated financial statements.
F-5
PHIO PHARMACEUTICALS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense
Non-cash lease expense
Non-cash stock-based compensation expense
Changes in operating assets and liabilities:
Prepaid expenses and other assets
Accounts payable
Accrued expenses and other liabilities
Lease liability
Net cash used in operating activities
Cash flows from investing activities:
Cash paid for purchase of property and equipment
Net cash used in investing activities
Cash flows from financing activities:
Net proceeds from the issuance of common stock and warrants
Net proceeds from the exercise of warrants
Cash paid in lieu of fractional shares for 1:55 reverse stock split
Payment of taxes for net share settled restricted stock unit issuances
Proceeds from debt
Proceeds from the issuance of common stock in connection with the employee stock purchase plan
Payments for capital lease obligations less than one year
Net cash provided by financing activities
Net increase (decrease) in cash and restricted cash
Cash and restricted cash at the beginning of period
Cash and restricted cash at the end of period
Supplemental disclosure of cash flow information:
Interest paid
Supplemental disclosure of non-cash investing and financing activities:
Right of use asset obtained in exchange for operating lease liability
Acquisition of property and equipment included in accrued expenses and other current liabilities
$
$
$
$
See accompanying notes to consolidated financial statements.
F-6
Years Ended December 31,
2019
2020
$
(8,794)
$
(8,908)
72
111
136
(554)
(81)
415
(107)
(8,802)
(19)
(19)
12,087
3,856
(15)
(2)
231
1
(27)
16,131
7,310
6,984
14,294
6
–
–
$
$
$
$
67
109
300
(113)
259
(257)
(102)
(8,645)
(72)
(72)
708
72
–
(3)
–
1
(6)
772
(7,945)
14,929
6,984
5
620
33
PHIO PHARMACEUTICALS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 with a powerful new treatment option that goes beyond current treatment
modalities.
In December 2019, a novel strain of coronavirus that causes 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 (the “WHO”) declared the outbreak a
pandemic. Our operations have continued with limited impact and are operating in accordance with federal, state, WHO and the Center for Disease
Control’s guidelines, including the implementation of safety measures such as working remotely, staggered scheduling and cleaning protocols.
While the measures to contain and prevent the spread of coronavirus may be modified or extended, we expect that our activities, including our
internal research and development functions, will continue to remain largely operational.
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 it has a sufficient supply of our INTASYL
compounds to conduct its 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 these 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.
We believe that the coronavirus pandemic has not had a significant impact on our operations and financial condition thus far, however a
variety of factors, including current and future restrictions and the length of the pandemic, may further impact our operations and may slow or
diminish our research and development activities. The extent to which the coronavirus pandemic impacts our results will depend on future
developments, which are highly uncertain and cannot be predicted.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United
States of America (“GAAP”). Additionally, certain reclassifications have been made to prior period financial statements to conform to the current
period presentation.
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.
F-7
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, 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.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash. The Company
maintains cash balances in several accounts with a financial institution that management believes is creditworthy, which at times are in excess of
federally insured limits. These accounts are insured by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000 per institution.
Property and Equipment
Property and equipment are stated at cost and depreciated using the straight-line method based on the estimated useful lives of the related
assets. The Company provides for depreciation over the assets’ estimated useful lives as follows:
Computer equipment
Machinery & equipment
Furniture & fixtures
Leasehold improvements
3 years
5 years
5 years
5 years
Depreciation and amortization expense for the years ended December 31, 2020 and 2019 was $72,000 and $67,000, respectively.
Impairment of Long-Lived Assets
The Company reviews long-lived assets for impairment whenever an event occurs or change in circumstances that the related carrying
amounts may not be recoverable. An impairment loss would be recognized based on the difference between the carrying value of the asset and its
estimated fair value, which would be determined based on either discounted future cash flows or other appropriate fair value methods. The
Company believes no impairment existed as of December 31, 2020 or 2019.
Fair Value of Financial Instruments
The carrying amounts reported in the balance sheet for restricted cash, accounts payable and accrued expenses approximate their fair values
due to their short-term nature.
F-8
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.
Debt
On March 27, 2020, the United States enacted the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) in response to
the coronavirus pandemic. 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. Outside of the Paycheck
Protection Program (the “PPP”) offered under the CARES Act, the Company has not utilized the other loan programs and tax provisions, such as
certain payroll tax benefits. On May 11, 2020, the Company received loan proceeds pursuant to the PPP. 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 is accruing interest over the term of the loan. For additional
information regarding the Company’s accounting for the PPP loan proceeds, refer to Note 7. As there continues to be updates to the provisions
under the CARES Act, the Company will continue to assess the potential impacts on its business, results of operations and financial statements.
Derivative Financial Instruments
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.
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.
F-9
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. 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, 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 Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification
(“ASC”) Topic 718, “Compensation — Stock Compensation” (“ASC 718”), which requires the measurement and recognition of compensation
expense for all stock-based payment awards. The Company uses the Black-Scholes option-pricing model to estimate the fair value of stock options
at the grant date. The Black-Scholes valuation model requires the input of valuation assumptions to calculate the value of stock options, including
expected volatility, expected term, risk-free interest rate and expected dividends. The fair value of restricted stock units is based upon the
Company’s closing stock price at the grant date. Stock-based compensation expense is recognized over the requisite service period, which generally
represents the vesting period, and commences at the date of grant based on the fair value of the award.
Stock-based compensation expense recognized in the financial statements is based on awards that are ultimately expected to vest.
Accordingly, we are also required to estimate forfeitures at the time of grant, and to revise those estimates in subsequent periods if actual forfeitures
differ from estimates. We use historical data to estimate pre-vesting option forfeitures and record stock-based compensation expense only for those
awards that are expected to vest. Our forfeiture rate estimates are based on an analysis of our actual forfeiture experience, employee turnover
behavior, and other factors. The impact of any adjustments to our forfeiture rates would be recorded as a cumulative adjustment in the period of
adjustment. To the extent that actual forfeitures differ from our estimates, the difference is recorded as a cumulative adjustment in the period the
estimates were revised.
Income Taxes
The Company recognizes assets or liabilities for the deferred tax consequences of temporary differences between the tax basis of assets or
liabilities and their reported amounts in the financial statements in accordance with the FASB ASC Topic 740, “Accounting for Income
Taxes” (“ASC 740”). These temporary differences will result in taxable or deductible amounts in future years when the reported amounts of the
assets or liabilities are recovered or settled. Those temporary differences referred to as deferred tax assets and liabilities are determined at the end of
each period using the tax rate expected to be in effect when taxes are actually paid or recovered.
ASC 740 requires that a valuation allowance be established when management determines that it is more likely than not that all or a portion
of a deferred asset will not be realized. The Company evaluates the realizability of its net deferred income tax assets and valuation allowances as
necessary, at least on an annual basis. During this evaluation, the Company reviews its forecasts of income in conjunction with other positive and
negative evidence surrounding the realizability of its deferred income tax assets to determine if a valuation allowance is required. Adjustments to the
valuation allowance will increase or decrease the Company’s income tax provision or benefit.
The recognition and measurement of benefits related to the Company’s tax positions requires significant judgment, as uncertainties often
exist with respect to new laws, new interpretations of existing laws, and rulings by taxing authorities. The Company follows a more-likely-than not
threshold for financial statement recognition and measurement of a tax position taken, or expected to be taken in a tax return. The guidance relates
to, amongst other things, classification, accounting for interest and penalties associated with tax positions, and disclosure requirements. Any interest
and penalties accrued related to uncertain tax positions are recorded as tax expense. Differences between actual results and the Company’s
assumptions or changes in the Company’s assumptions in future periods are recorded in the period they become known.
Comprehensive Loss
The Company’s comprehensive loss is equal to its net loss for all periods presented.
Net Loss per Share
Basic net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding. Diluted net loss
per share is computed by dividing the Company’s net less by the weighted average number of common shares outstanding and the impact of all
dilutive potential common shares outstanding, except where such dilutive potential common shares would be anti-dilutive. Dilutive potential
common shares primarily consist of warrants, restricted stock units and stock options.
F-10
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. 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 potential economic impact brought by, and the duration of, the coronavirus pandemic is difficult to assess or predict. 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 pandemic on our financial conditions, results of operations or cash flows in the future.
The Company believes that its existing cash and the net proceeds received from the Company’s financing activities subsequent to the
balance sheet date, discussed further in Note 14, 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” (“Topic 606”). The update provides
guidance on whether certain transactions between collaborative arrangement participants should be accounted for with revenue under 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 Topic 606. The Company adopted 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 the Company’s 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 does not expect the adoption of ASU 2019-12 to
have a material impact on its consolidated financial statements.
In August 2020, the FASB issued ASU 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and
Hedging – Contracts in Entity’s Own Equity (Subtopic 815 – 40)” (“ASU 2020-06”), which simplifies the accounting for certain financial
instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity. The ASU is part
of the FASB’s simplification initiative, which aims to reduce unnecessary complexity in U.S. GAAP. For convertible instruments, the accounting
models for instruments issued with beneficial conversion features or cash conversion features are removed. For contracts in an entity’s own equity,
ASU 2020-06 simplifies the settlement assessment by removing the requirements to (1) to consider whether the contract would be settled in
registered shares, (2) to consider whether collateral is required to be posted, and (3) to assess shareholder rights. ASU 2020-06 is effective for fiscal
years beginning after December 15, 2023, and interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years
beginning after December 15, 2020, and interim periods within those fiscal years. The Company does not expect the adoption of ASU 2020-06 to
have a material impact on its consolidated financial statements.
F-11
5. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following, in thousands:
Compensation and benefits
Professional fees
Research and development costs
Other
Total accrued expenses and other current liabilities
6. Leases
December 31,
2020
2019
$
$
618
81
549
104
1,352
$
$
524
171
242
27
964
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. Additionally, the lease agreement did not contain information to determine the rate implicit in the lease. As such, the Company
calculated its incremental borrowing rate based on what the Company would have to pay to borrow on a collateralized basis over the lease term for
an amount equal to the remaining lease payments taking into consideration such assumptions as, but not limited to, the U.S. treasury yield rate and
borrowing rates from a creditworthy financial institution using the above lease factors.
The lease for our corporate headquarters represents substantially all of our significant lease obligations. The amounts reported in the
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:
Assets
Right of use asset
Liabilities
Lease liability, current
Lease liability, non-current
Total lease liability
Lease Term and Discount Rate
Weighted average remaining lease term
Weighted average discount rate
December 31, 2020
December 31, 2019
$
$
400
$
116
295
411
$
3.71
4.70%
511
107
411
518
4.43
4.64%
Operating lease cost included in operating expense was $132,000 and $127,000 for the years ended December 31, 2020 and 2019,
respectively. Short-term lease costs were not material for the years ended December 31, 2020 and 2019.
Cash paid for the amounts included in the measurement of the operating lease liability on the Company’s consolidated balance sheets and
included within changes in the lease liability in the operating activities of our consolidated statement of cash flows was $127,800 and $121,000 for
the years ended December 31, 2020 and 2019, respectively.
F-12
Future lease payments for our non-cancellable operating leases and a reconciliation to the carrying amount of the operating lease liability
presented in the consolidated balance sheet as of December 31, 2020 is as follows, in thousands:
2021
2022
2023
2024
Total lease payments
Less: Imputed interest
Total operating lease liabilities (includes current portion)
$
$
132
135
140
35
442
(31)
411
7. 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, bears interest at a rate of 1% per year and monthly principal and interest
payments are deferred to the date that the Small Business Administration remits the borrower’s loan forgiveness amount to the lender. The loan may
be forgiven if used for eligible purposes, including payroll, benefits, rent and utilities. The Company believes it has used the loan proceeds for the
eligible purposes allowed and applied for full loan forgiveness. On February 18, 2021, the Small Business Administration determined that the
Company’s application for full loan forgiveness was fully approved and the full amount of the PPP loan was remitted to the lender for forgiveness.
When applying for the PPP loan, the Company carefully assessed the requirements for application under the program and believed that the
loan was necessary to support its operations. As loan forgiveness had not yet been determined at December 31, 2020, the Company followed the
guidance under 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 is accruing interest over the term of the loan. As of December 31, 2020, the PPP loan
proceeds have been classified as long-term debt on the balance sheet.
8. Commitments and Contingencies
License Commitments
The Company acquires assets under development and enters into research and development arrangements with third parties that often
require milestone and royalty payments based on the progress of the asset through development stages. Milestone payments may be required, for
example, upon approval of the product for marketing by a regulatory agency. In certain agreements, the Company is required to make royalty
payments based upon a percentage of the sales of the products licensed pursuant to such agreements. Because of the contingent nature of these
payments, they are not included in the table of contractual obligations shown below. During the years ended December 31, 2020 and 2019, the
Company did not trigger any milestone payments.
F-13
The Company’s contractual license obligations that will require future cash payments as of December 31, 2020 are as follows, in
thousands:
Year Ending December 31,
2021
2022
2023
2024
2025
Thereafter
Total
165
100
100
100
100
400
965
$
The Company applies the disclosure provisions of the FASB ASC Topic 460, “Guarantor’s Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“ASC 460”), to its agreements that contain guarantee or indemnification
clauses. The Company provides: (i) indemnifications of varying scope and size to certain investors and other parties for certain losses suffered or
incurred by the indemnified party in connection with various types of third-party claims; and (ii) indemnifications of varying scope and size to
officers and directors against third-party claims arising from the services they provide to us. These indemnifications give rise only to the disclosure
provisions of ASC 460. To date, the Company has not incurred costs as a result of these obligations and does not expect to incur material costs in
the future. Accordingly, the Company has not accrued any liabilities in its consolidated financial statements related to these indemnifications.
Litigation
From time to time, the Company is party to legal proceedings. There are none deemed to be material at this time. Accordingly, the
Company has not accrued any liabilities in its consolidated financial statements related to proceedings.
9. Stockholders’ Equity
November 2019 Registered Public Offering— On November 19, 2019, the Company closed a registered public offering of 181,818 shares
of the Company’s common stock at an offering price of $5.50 per share (the “November 2019 Offering”). Net proceeds from the November 2019
Offering were $766,000, after deducting fees and expenses. In connection with the November 2019 Offering, the Company issued warrants to
purchase a total of 13,636 shares of common stock with an exercise price of $6.875 per share (the “November 2019 Placement Agent Warrants”)
to the placement agent, H.C. Wainwright & Co., LLC (“HCW”).
Concurrent with the close of the November 2019 Offering, the Company unilaterally reduced the per share exercise price of all of the
outstanding common stock warrants issued in October 2018 to an exercise price of $10.45 per share, which was equal to the closing price of the
Company’s common stock on November 15, 2019, and to $13.06 per share for the warrants issued to HCW, which was equal to 125% of the closing
price of the Company’s common stock on November 15, 2019. The modification resulted in an increase in fair value of approximately $800,000.
This amount was recorded as a cost of capital of the November 2019 Offering and recorded in additional paid-in capital as the modification was
required to complete the capital raise.
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 (the “February 2020 Registered Direct Warrants”).
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 (the “February 2020 Placement Agent Warrants”) to
the placement agent, HCW.
F-14
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 at a purchase price per share of $4.00, pre-funded warrants (the “2020 Pre-Funded Warrants”) to
purchase an aggregate of 1,006,367 shares of the Company’s common stock at a purchase price per pre-funded warrant share of $3.999, and
warrants (the “February 2020 Warrants”) to purchase an aggregate of 2,000,000 shares of the Company’s common stock with an exercise price of
$4.00 per warrant shares (the “February 2020 Underwritten Offering”). The 2020 Pre-Funded Warrants were immediately exercisable at an
exercise price per share of $0.001 and each share of Company common stock or 2020 Pre-Funded Warrant, as applicable, was sold with a February
2020 Warrant.
In connection with the February 2020 Underwritten Offering, the Company also granted to the underwriter, HCW, a 30-day option to
purchase up to an additional 300,000 shares of the Company’s common stock at a purchase price of $3.999 per such share and/or warrants to
purchase up to 300,000 shares of the Company’s common stock at a purchase price of $0.001 per such warrant. Such warrants have the same terms
as the February 2020 Warrants. On February 12, 2020, HCW exercised its option to purchase warrants to purchase an aggregate of 300,000 shares
of the Company’s common stock. 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 (the “February 2020 Underwriter
Warrants”) to HCW, as underwriter.
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.
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 (the “April 2020 Warrants”). 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 (the “April 2020 Placement Agent Warrants”) 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, 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, all of the Company’s outstanding warrants issued are classified within stockholders’ equity.
F-15
The following table summarizes warrant activity and the shares of common stock underlying the Company’s outstanding equity-classified
warrants for the year ended December 31, 2020:
Description
June 2015 Warrants
December 2016 Warrants
April 2018 Warrants
April 2018 Placement Agent Warrants
October 2018 Warrants
October 2018 Underwriter Warrants
November 2019 Placement Agent Warrants
February 2020 Registered Direct Warrants
February 2020 Placement Agent Warrants
February 2020 Underwritten Offering Warrants
February 2020 Pre-funded Warrants
February 2020 Underwriter Warrants
April 2020 Warrants
April 2020 Placement Agent Warrants
Exercise
Price
2,860.00
495.00
173.25
223.00
10.45
13.06
6.875
8.71
11.0375
4.00
0.001
5.00
2.21
2.9188
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Expiration
Date
6/2/2020
12/21/2021
5/31/2023
4/9/2023
10/3/2025
10/1/2023
11/18/2024
8/6/2025
2/4/2025
2/13/2025
No expiration
2/11/2025
10/2/2025
3/31/2025
Balance
December 31,
2019
Warrants
Issued
Warrants
Exercised
Warrants
Expired
Balance
December 31,
2020
2,364
23,233
20,599
1,373
389,610
29,220
13,636
–
–
–
–
–
–
–
480,035
–
–
–
–
–
–
–
197,056
14,779
2,300,000
1,006,367
150,000
1,713,064
128,480
5,509,746
–
–
–
–
–
–
–
–
–
(973,500)
(1,006,367)
–
(428,266)
–
(2,408,133)
(2,364)
–
–
–
–
–
–
–
–
–
–
–
–
–
(2,364)
–
23,233
20,599
1,373
389,610
29,220
13,636
197,056
14,779
1,326,500
–
150,000
1,284,798
128,480
3,579,284
During the year ended December 31, 2020, the Company received net proceeds of $3,856,000 from the exercise of warrants. During the
year ended December 31, 2019, the Company received net proceeds of $72,000 from the exercise warrants.
Of the warrants exercised during the year ended December 31, 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
during the year ended December 31, 2019.
10. 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:
Options to purchase common stock
Nonvested restricted stock units
Warrants to purchase common stock
Total
December 31,
2020
2019
2,570
9,699
3,579,284
3,591,553
2,659
14,945
480,035
497,639
F-16
11. Stock-based Compensation
Stock Plans
The Company’s approved equity plans include the Phio Pharmaceuticals Corp. 2020 Long Term Incentive Plan (the “2020 Plan”) and the
Phio Pharmaceuticals Corp. 2012 Long Term Incentive Plan (the “2012 Plan”). These plans are administered by our board of directors and provide
for the grant of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards,
performance stock awards, and performance cash awards. Upon adoption of the 2020 Plan, shares that remained available for grant under the 2012
Plan and shares that were subject to outstanding awards under the 2012 Plan were included in the authorized shares available for grant under the
2020 Plan. Further, upon adoption of the 2020 Plan, the Company no longer grants new equity awards under the 2012 Plan.
As of December 31, 2020, there were an aggregate of 1,267,675 shares of common stock reserved under the 2020 Plan, including 2,570
shares subject to outstanding stock options and 9,699 shares subject to unvested restricted stock units (“RSUs”) and 1,254,906 shares available for
future grants. Stock options and RSUs granted by the Company to employees generally vest annually over 4 years after the grant date and, in the
instance of stock options, expire within ten years of issuance.
Restricted Stock Units
RSUs are issued under the 2020 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 year ended December 31, 2020:
Unvested units at December 31, 2019
Granted
Vested
Forfeited
Unvested units at December 31, 2020
Weighted-
Average
Grant Date Fair
Value
Per Share
20.50
–
22.18
18.33
19.97
Number
of Shares
14,945
–
(4,282)
(964)
9,699
$
$
Stock-based compensation expense related to RSUs was $85,000 and $125,000 for the years ended December 31, 2020 and 2019,
respectively.
F-17
As of December 31, 2020, the compensation expense for all unvested RSUs in the amount of approximately $151,000 will be recognized in
the Company’s results of operations over a weighted average period of 2.35 years.
Stock Options
Stock options are issued under the 2020 Plan or as inducement grants issued outside of the plan to new employees. Stock options are
generally subject to graded vesting and the satisfaction of service requirements. Upon the exercise of a stock option, the Company issues new shares
and delivers them to the recipient. The Company does not expect to repurchase shares to satisfy stock option exercises. The Company uses the
Black-Scholes option-pricing model to determine the fair value of all its option grants. The Company did not grant stock options during the year
ended December 31, 2020. For valuing options granted during the year ended December 31, 2019, the following assumptions were used:
Risk-free interest rate
Expected volatility
Expected lives (in years)
Expected dividend yield
December 31, 2019
1.85 – 2.58%
97.67 – 98.87%
5.31
0.00%
The weighted-average fair value of options granted during the year ended December 31, 2019 was $16.50 per share.
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 was 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. As the Company has limited stock
option exercise information, the expected life assumption used 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.
F-18
The following table summarizes the activity of the Company’s stock option plan for the year ended December 31, 2020:
Balance at December 31, 2019
Granted
Exercised
Cancelled
Balance at December 31, 2020
Exercisable at December 31, 2020
Weighted-
Average
Exercise
Price
Per Share
Weighted-
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
Total Number
of Shares
2,659
–
–
(89)
2,570
1,855
$
$
$
3,298.90
–
–
2,671.45
3,334.06
4,578.01
6.22 years
5.70 years
$
$
–
–
Stock-based compensation expense related to stock options for the years ended December 31, 2020 and 2019 was $51,000 and $69,000,
respectively.
As of December 31, 2020, the compensation expense for all unvested stock options in the amount of approximately $58,000 will be
recognized in the Company’s results of operations over a weighted average period of 1.47 years.
There is no income tax benefit as the Company is currently operating at a loss and an actual income tax benefit may not be realized.
Restricted Stock
During the period of from September 15, 2018 to February 28, 2019, the Company’s former Chief Executive Officer elected the right to
receive, in lieu cash, 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 year
ended December 31, 2019, the Company granted 4,419 shares of restricted stock in lieu of Compensation and recorded $106,000 in stock-based
compensation expense.
F-19
Compensation Expense Related to Equity Awards
The following table sets forth total stock-based compensation expense for the years ended December 31, 2020 and 2019, in thousands:
Research and development
General and administrative
Total stock-based compensation
12. Income Taxes
December 31,
2020
2019
$
$
22
114
136
$
$
21
279
300
For the years ended December 31, 2020 and 2019, all of the Company’s loss before income taxes was generated in the United States.
The components of federal and state income tax expense (benefit) are as follows, in thousands:
Current
Federal
State
Total current
Deferred
Federal
State
Total deferred
Valuation allowance
Total income tax expense (benefit)
Years Ended December 31,
2019
2020
$
$
–
–
–
(1,873)
(768)
(2,641)
2,641
–
$
$
Reconciliation of the effective income tax rate to the U.S. statutory rate is as follows:
Federal statutory rate
State income taxes, net of federal benefit
Non-deductible expenses
Income tax credits
Valuation allowance
Effective tax rate
Years Ended December 31,
2019
2020
21.0%
6.7
(0.5)
2.1
(29.3)
–
–
–
–
(1,773)
(759)
(2,532)
2,532
–
21.0%
6.7
(0.2)
1.5
(29.0)
–
F-20
The components of the Company’s deferred tax assets are as follows, in thousands:
Deferred tax assets:
Net operating loss carryforwards
Tax credit carryforwards
Stock-based compensation
Licensing deduction deferral
Other timing differences
Lease liability
Deferred tax assets
Deferred tax liabilities:
Right of use asset
Deferred tax liability
Valuation allowance
Net deferred tax asset
Years Ending December 31,
2019
2020
$
$
22,307
2,017
1,374
2,376
196
111
28,381
(108)
(108)
(28,273)
–
$
$
19,647
1,710
1,391
2,717
165
140
25,770
(138)
(138)
(25,632)
–
The Company’s deferred tax assets at December 31, 2020 and 2019 consisted primarily of its net operating loss carryforwards, tax credit
carryforwards, deferred compensation and intangible assets capitalized for federal income tax purposes. The valuation allowance increased
$2,641,000 and $2,532,000 for the years ended December 31, 2020 and 2019, respectively, and is primarily attributable to an increase in net
operating losses and tax credits.
The Company has incurred net operating losses since inception. At December 31, 2020, the Company had federal and state net operating
loss carryforwards of approximately $83,600,000 and $75,300,000, respectively, which will begin to expire in 2031. Approximately, $55,300,000 of
the federal net operating loss carryforwards will begin to expire in 2031, unless previously utilized, and approximately $28,300,000 of the federal
net operating loss carryforwards will carryforward indefinitely. The Company’s state tax loss carryforwards will begin to expire in 2031, unless
previously utilized. In addition, the Company has federal and state research credits of $1,430,000 and $742,000, respectively, which begin to expire
in 2031. Based on an assessment of all available evidence including, but not limited to the Company’s limited operating history in its core business
and lack of profitability, uncertainties of the commercial viability of its technology, the impact of government regulation and healthcare reform
initiatives, and other risks normally associated with biotechnology companies, the Company has concluded that it is more likely than not that these
net operating loss carryforwards and credits will not be realized and, as a result, a full deferred income tax valuation allowance has been recorded
against these assets.
In general, an ownership change, as defined by Section 382 of the Internal Revenue Code, results from transactions increasing the
ownership of certain shareholders or public groups in the stock of a corporation by more than 50% over a three-year period. The Company has not
conducted a study to assess whether a change of control has occurred or whether there have been multiple changes of control since inception due to
their history of losses. If the Company has experienced a change of control, as defined by Section 382, at any time since inception, utilization of the
net operating loss carryforwards or research and development tax credit carryforwards would be subject to an annual limitation under Section 382
and 383. Any limitation may result in expiration of a portion of the net operating loss carryforwards or research and development tax credit
carryforwards before utilization. Further, until a study is completed and any limitation is known, no adjustments have been reflected in the deferred
tax asset for net operating loss carryforwards.
The Company files income tax returns in the United States, Massachusetts and New Jersey. The Company is subject to tax examinations
for federal and state purposes for tax years 2012 through 2020. The Company has not recorded any uncertain tax positions as of December 31, 2020
or 2019. The Company does not believe there will be any material changes in its unrecognized tax positions over the next 12 months. The Company
has not incurred any interest or penalties. In the event that the Company is assessed interest or penalties at some point in the future, they will be
classified in the financial statements as general and administrative expenses.
F-21
13. License Agreements
As part of its business, the Company enters into licensing agreements with third parties that often require milestone and royalty payments
based on the progress of the asset through development stages. Milestone payments may be required, for example, upon approval of the product for
marketing by a regulatory agency. In certain agreements, the Company is required to make royalty payments based upon a percentage of the sales of
the products licensed pursuant to such agreements.
The expenditures required under these arrangements may be material individually in the event that the Company develops product
candidates covered by the intellectual property licensed under any such arrangement, and in the unlikely event that milestones for multiple products
covered by these arrangements were reached in the same period, the aggregate charge to expense could be material to the results of operations. In
addition, these arrangements often give the Company discretion to unilaterally terminate development of the product, which would allow the
Company to avoid making the contingent payments; however, the Company is unlikely to cease development if the compound successfully achieves
clinical testing objectives.
Advirna LLC. We have entered into an agreement with Advirna LLC (“Advirna”), pursuant to which Advirna assigned to us its existing
patent and technology rights related to the INTASYL™ technology. Under the terms of the agreement, in April 2012, the Company issued to
Advirna shares of common stock equal to 5% of the Company’s fully-diluted shares outstanding at the time of issuance. In exchange, the Company
is also obligated to pay Advirna an annual maintenance fee and a milestone payment upon the issuance of the first patent with valid claims covering
the assigned technology, which was paid in 2014. Additionally, we will be required to pay low single-digit royalties to Advirna on any licensing
revenue received by us with respect to future licensing of the assigned Advirna patent and technology rights. To date, royalties owed to Advirna
under the agreement have been minimal. We also granted back to Advirna a license under the assigned patent and technology rights for fields of use
outside human therapeutics.
Our rights under the Advirna agreement will expire upon the later of: (i) the expiration of the last-to-expire of the “patent rights” (as
defined therein) included in the Advirna agreement; or (ii) the abandonment of the last-to-be abandoned of such patents, unless earlier terminated in
accordance with the provisions of the agreement.
14. Subsequent Events
January 2021 Private Placement — On January 25, 2021, the Company closed on its private placement of 4,420,863 shares of the
Company’s common stock at a purchase price per share of $3.07, pre-funded warrants to purchase an aggregate of 140,065 shares of the Company’s
common stock at a purchase price per pre-funded warrant share of $3.069, and warrants to purchase an aggregate of 3,420,696 shares of the
Company’s common stock with an exercise price of $3.00 per warrant share. In connection with the private placement, the Company issued
warrants to the placement agent, HCW, to purchase a total of 342,070 shares of the Company’s common stock at an exercise price of $3.8375. Net
proceeds to the Company are estimated to be $12.7 million after deducting placement agent fees and offering expenses.
The Company is currently reviewing the accounting for the pre-funded warrants and warrants issued in the January 2021 private placement.
February 2021 Registered Direct Offering — On February 12, 2021, the Company closed on a registered direct offering of 2,246,784
shares of the Company’s common stock at a purchase price of $3.42 per share. In connection with the registered direct offering, the Company issued
warrants to the placement agent, HCW, to purchase a total of 168,509 shares of the Company’s common stock at an exercise price of $4.275. Net
proceeds to the Company are estimated to be $6.9 million after deducting placement agent fees and offering expenses.
Warrant Exercises — Subsequent to the balance sheet date, the Company received net proceeds of $2,146,000 from the exercise of
warrants for a total of 1,083,321 shares of common stock.
F-22
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
N/A.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer (who is also acting as our principal financial officer) and our
Principal Accounting Officer, evaluated the effectiveness of disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under
the Exchange Act) as of the end of the period covered by this report to ensure that information that we are required to disclose in reports that we file
or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms.
Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives. We believe that a
control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and
no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.
Based on the evaluation of our disclosure controls and procedures as of the end of the period covered by this report, management, with the
participation of our Chief Executive Officer (who is also acting as our principal financial officer) and our Principal Accounting Officer, concluded
that our disclosure controls and procedures were effective as of such date.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. A company’s internal
control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
There are inherent limitations in the effectiveness of any system of internal control, including the possibility of human error and the
circumvention or overriding of controls. Accordingly, even effective internal controls can provide only reasonable assurances with respect to
financial statement preparation. Further, because of changes in conditions, the effectiveness of internal control may vary over time.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2020. In making this
assessment, management used the criteria set forth in Internal Control – Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 framework). Based on this assessment, management, with the participation of our Chief
Executive Officer (who is also acting as our principal financial officer) and our Principal Accounting Officer, concluded that, as of December 31,
2020, our internal control over financial reporting was effective.
Attestation Report of the Registered Public Accounting Firm
This Annual Report on Form 10-K provides only management’s report. As a smaller reporting company, we are not required to provide an
attestation report by our independent registered public accounting firm regarding internal control over financial reporting.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during the year ended December 31, 2020 that has
materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
Our certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for the following types
of actions or proceedings: any derivative action or proceeding brought on behalf of the Company, any action asserting a claim of breach of a
fiduciary duty owed by any director, officer or other employee of the Company to the Company or the Company’s stockholders, any action asserting
a claim against the Company arising pursuant to any provision of the Delaware General Corporation Law or the Company’s certificate of
incorporation or bylaws, or any action asserting a claim against the Company governed by the internal affairs doctrine. Despite the fact that our
certificate of incorporation provides for this exclusive forum provision to be applicable to the fullest extent permitted by applicable law, Section 27
of the Securities Act and Exchange Act, creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the
Exchange Act or the rules and regulations thereunder and Section 22 of the Securities Act, creates concurrent jurisdiction for federal and state courts
over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. As a result, this provision
of our certificate of incorporation would not apply to claims brought to enforce a duty or liability created by the Securities Act, Exchange Act, or
any other claim for which the federal courts have exclusive jurisdiction.
38
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III
The information required by this Item will be incorporated by reference to the information contained in our Definitive Proxy Statement to
be filed no later than 120 days after the fiscal year end of December 31, 2020.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item will be incorporated by reference to the information contained in our Definitive Proxy Statement to
be filed no later than 120 days after the fiscal year end of December 31, 2020.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
The information required by this Item will be incorporated by reference to the information contained in our Definitive Proxy Statement to
be filed no later than 120 days after the fiscal year end of December 31, 2020.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this Item will be incorporated by reference to the information contained in our Definitive Proxy Statement to
be filed no later than 120 days after the fiscal year end of December 31, 2020.
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this Item will be incorporated by reference to the information contained in our Definitive Proxy Statement to
be filed no later than 120 days after the fiscal year end of December 31, 2020.
39
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Financial Statements
PART IV
Our consolidated financial statements are set forth in Item 8 to this Annual Report on Form 10-K.
Financial Statement Schedules
Certain schedules are omitted because they are not applicable, or are not required by smaller reporting companies.
Exhibits
Exhibit
Number
Description
Incorporated by Reference Herein
Form
Date
3.1
3.2
3.3
4.1
4.2
4.3
4.4
Amended and Restated Certificate of Incorporation of Phio
Pharmaceuticals Corp.
Current Report on Form 8-K (File
No. 001-36304)
November 19, 2018
Certificate of Amendment to the Amendment and Restated
Certificate of Incorporation of Phio Pharmaceuticals Corp.
Current Report on Form 8-K (File
No. 001-36304)
January 14, 2020
Amended and Restated Bylaws of Phio Pharmaceutical Corp.
Current Report on Form 8-K (File
No. 001-36304)
October 13, 2020
Form of Warrant.
Form of Warrant.
Form of Placement Agent Warrant.
Form of Warrant.
Amendment No. 3 to the
Registration Statement on Form S-1
(File No. 333-214199)
Current Report on Form 8-K (File
No. 001-36304)
Current Report on Form 8-K (File
No. 001-36304)
Amendment No. 1 to the
Registration Statement on Form S-1
(File No. 333-221173)
December 14, 2016
April 11, 2018
April 11, 2018
September 28, 2018
40
4.5
4.6
4.7
Form of Underwriter Warrant.
Form of Placement Agent Warrant.
Form of Warrant
4.8
Form of Warrant.
4.9
Form of Underwriter Warrant.
4.10
Form of Warrant.
4.11
Form of Warrant.
4.12
Form of Placement Agent Warrant.
Current Report on Form 8-K (File
No. 001-36304)
October 5, 2018
Current Report on Form 8-K (File
No. 001-36304)
November 19, 2019
Current Report on Form 8-K (File
No. 001-36304)
February 6, 2020
Current Report on Form 8-K (File
No. 001-36304)
February 13, 2020
Current Report on Form 8-K (File
No. 001-36304)
February 13, 2020
Current Report on Form 8-K (File
No. 001-36304)
April 2, 2020
Current Report on Form 8-K (File
No. 001-36304)
January 25, 2021
Current Report on Form 8-K (File
No. 001-36304)
February 17, 2021
4.13
10.1
Description of Securities Registered Pursuant to Section 12(b) of
the Securities Exchange Act of 1934.**
Annual Report on Form 10-K (File.
001-36304)
March 26, 2020
Patent and Technology Assignment Agreement between RXi
Pharmaceuticals Corporation (formerly RNCS, Inc.) and
Advirna, LLC, effective as of September 24, 2011.
Registration Statement on Form S-1
(File No. 333-177498)
October 25, 2011
10.2
Phio Pharmaceuticals Corp. 2020 Long Term Incentive Plan.*
Registration Statement on Form S-8
(File No. 333-251670)
December 23, 2020
10.3
Form of Restricted Stock Unit Award under the Company’s 2020
Long Term Incentive Plan.*
10.4
Phio Pharmaceuticals Corp. 2012 Long Term Incentive Plan.*
Quarterly Report on Form 10-Q
(File No. 001-36304)
November 12, 2019
10.5
10.6
10.7
10.8
Form of Restricted Stock Unit Award under the Company’s 2012
Long Term Incentive Plan.*
Amendment No. 2 to the
Registration Statement on Form S-1
(File No. 333-177498)
December 29, 2011
Form of Incentive Stock Option Award under the Company’s
2012 Long Term Incentive Plan, as amended.*
Registration Statement on Form S-1
(File No. 333-191236)
September 18, 2013
Form of Non-Qualified Stock Option Award under the
Company’s 2012 Long Term Incentive Plan, as amended.*
Registration Statement on Form S-1
(File No. 333-191236)
September 18, 2013
RXi Pharmaceuticals Corporation Employee Stock Purchase
Plan.*
Registration Statement on Form S-8
(File No. 333-277013)
August 24, 2018
10.9
Form of Indemnification Agreement.*
Amendment No. 3 to the
Registration Statement on Form S-1
(File No. 333-177498)
January 23, 2012
10.10
Employment Agreement, dated April 24, 2017, between RXi
Pharmaceuticals Corporation and Gerrit Dispersyn, Dr. Med.
Sc.*
Post-effective Amendment No. 1 to
the Registration Statement on Form
S-1 (File No. 333-214199)
May 4, 2017
41
10.11
Lease Agreement dated December 17, 2013 between RXi
Pharmaceuticals Corporation and 257 Simarano Drive, LLC,
Brighton Properties, LLC, Robert Stubblebine 1, LLC and
Robert Stubblebine 2, LLC.
10.12
First Amendment to Lease dated January 22, 2019.
Current Report on Form 8-K (File
No. 000-54910)
December 20, 2013
Current Report on Form 8-K (File
No. 001-36304)
January 28, 2019
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
23.1
31.1
32.1
101
Purchase Agreement, dated as of August 7, 2019 by and between
Phio Pharmaceuticals Corp. and Lincoln Park Capital Fund,
LLC.
Current Report on Form 8-K (File
No. 001-36304)
August 9, 2019
First Amendment to Purchase Agreement by and between Phio
Pharmaceuticals Corp. and Lincoln Park Capital Fund, LLC.
Registration Statement on Form S-1
(File No. 333-233584)
August 30, 2019
Registration Rights Agreement, dated as of August 7, 2019, by
and between Phio Pharmaceuticals Corp. and Lincoln Park
Capital Fund, LLC.
Current Report on Form 8-K (File
No. 001-36304)
August 9, 2019
Securities Purchase Agreement, dated February 4, 2020, by and
between the Company and the Purchasers signatory therein.
Current Report on Form 8-K (File
No. 001-36304)
February 6, 2020
Securities Purchase Agreement, dated March 31, 2020, by and
between the Company and the Purchasers signatory therein.
Current Report on Form 8-K (File
No. 001-36304)
April 2, 2020
Securities Purchase Agreement, dated January 21, 2021, by and
between the Company and the Purchasers signatory therein.
Current Report on Form 8-K (File
No. 001-36304)
January 25, 2021
Registration Rights Agreement, dated January 21, 2021, by and
between the Company and the Purchasers signatory therein.
Current Report on Form 8-K (File
No. 001-36304)
January 25, 2021
Securities Purchase Agreement, dated February 12, 2021, by and
between the Company and the Purchasers signatory therein.
Current Report on Form 8-K (File
No. 001-36304)
February 17, 2021
Consent of BDO USA, LLP, an Independent Registered Public
Accounting Firm.**
Sarbanes-Oxley Act Section 302 Certification of Principal
Executive Officer and Principal Financial Officer.**
Sarbanes-Oxley Action Section 906 Certification of Principal
Executive Officer and Principal Financial Officer.**
The following financial information from the Annual Report on
Form 10-K of Phio Pharmaceuticals Corp. for the year ended
December 31, 2020, formatted in XBRL (eXtensible Business
Reporting Language): (1) Consolidated Balance Sheets as of
December 31, 2020 and 2019; (2) Consolidated Statements of
Operations for the Years Ended December 31, 2020 and 2019;
(3) Consolidated Statements of Stockholders’ Equity for the
Years Ended December 31, 2020 and 2019; (4) Consolidated
Statements of Cash Flows for the Years Ended December 31,
2020 and 2019; and (4) Notes to Consolidated Financial
Statements.**
_________________
*
**
+
Indicates a management contract or compensatory plan or arrangement.
Filed herewith.
Confidential treatment has been requested or granted for certain portions which have been blanked out in the copy of the exhibit filed with
the Securities and Exchange Commission. The omitted information has been filed separately with the Securities and Exchange Commission.
ITEM 16. FORM 10-K SUMMARY
None.
42
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
PHIO PHARMACEUTICALS CORP.
By:
/s/ Gerrit Dispersyn
Gerrit Dispersyn, Dr. Med. Sc.
President and Chief Executive Officer
Date: March 25, 2021
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Signatures
Title
/s/ Gerrit Dispersyn
Gerrit Dispersyn, Dr. Med. Sc.
President, Chief Executive Officer and Director
(Principal Executive Officer and Principal Financial Officer)
/s/ Caitlin Kontulis
Caitlin Kontulis
/s/ Robert J. Bitterman
Robert J. Bitterman
/s/ Geert Cauwenbergh
Geert Cauwenbergh, Dr. Med. Sc.
/s/ H. Paul Dorman
H. Paul Dorman
/s/ Robert L. Ferrara
Robert L. Ferrara
/s/ Jonathan E. Freeman
Jonathan E. Freeman, Ph.D.
/s/ Curtis A. Lockshin
Curtis A. Lockshin, Ph.D.
Vice President of Finance and Administration and Secretary
(Principal Accounting Officer)
Director
Director
Director
Director
Director
Director
43
Date
March 25, 2021
March 25, 2021
March 25, 2021
March 25, 2021
March 25, 2021
March 25, 2021
March 25, 2021
March 25, 2021
Board of Directors
Management Team
Robert J. Bitterman, Chairman
Gerrit Dispersyn, Dr.Med.Sc.
James Cardia, Ph.D.
Simon Fricker, Ph.D.
Caitlin Kontulis
Geert Cauwenbergh, Dr.Med.Sc.
Gerrit Dispersyn, Dr.Med.Sc.
H. Paul Dorman
Robert L. Ferrara
Jonathan E. Freeman, Ph.D.
Curtis A. Lockshin, Ph.D.
Transfer Agent
Corporate Counsel
Auditors
Securities Listing
Corporate Headquarters