Phio Pharmaceuticals Corp

Previous wording

This management’s discussion and analysis of financial condition as of June 30, 2024 and results of operations for the three and six months ended June 30, 2024 and 2023 should be read in conjunction with the audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the Securities and Exchange Commission (the “SEC”) on April 1, 2024 (the “2023 Form 10-K”).

Current wording

This management’s discussion and analysis of financial condition as of September 30, 2024 and results of operations for the three and nine months ended September 30, 2024 and 2023 should be read in conjunction with the audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the Securities and Exchange Commission (the “SEC”) on April 1, 2024 (the “2023 Form 10-K”).

Previous wording

PH-762 is currently being evaluated in a U.S. multi-center Phase 1b dose-escalating clinical trial through the intratumoral injection of PH-762 for the treatment of patients with cutaneous squamous cell carcinoma, melanoma and Merkel cell carcinoma. The trial is designed to evaluate the safety and tolerability of neoadjuvant use of intratumorally injected PH-762, assess the tumor response, and determine the dose or dose range for continued study of PH-762 and is expected to enroll up to 30 patients. In November 2023, we announced the dosing of the first patient under a previously cleared Investigational New Drug (“IND”) application by the U.S. Food and Drug Administration. In May 2024, a safety monitoring committee reviewed data from the first dose cohort treated and recommended the escalation to the next dose concentration. The trial is open for the continued enrollment of patients and expects to complete enrollment of patients in the second quarter of 2025.

Current wording

PH-762 is currently being evaluated in a U.S. multi-center Phase 1b dose-escalating clinical trial through the intratumoral injection of PH-762 for the treatment of patients with cutaneous squamous cell carcinoma, melanoma and Merkel cell carcinoma. The trial is designed to evaluate the safety and tolerability of neoadjuvant use of intratumorally injected PH-762, assess the tumor response, and determine the dose or dose range for continued study of PH-762 and is expected to enroll up to 30 patients. In November 2023, we announced the dosing of the first patient under a previously cleared Investigational New Drug (“IND”) application by the U.S. Food and Drug Administration. In May 2024, a safety monitoring committee reviewed data from the first dose cohort treated and recommended the escalation to the next dose concentration. Five (5) patients with cutaneous carcinomas have enrolled in Cohorts 1 and 2. Intratumoral injection of PH-762 has been well tolerated in all patients enrolled in the trial to date. There were no related adverse events, no serious adverse events, and no dose limiting toxicities or dose adjustments. The trial is open for the continued enrollment of patients and expects to complete enrollment of patients in the third quarter of 2025.

Previous wording

In May 2024, we terminated the Clinical Co-Development Agreement with AgonOx, which such termination was effective immediately. Effective as of the date of termination, the Clinical Co-Development Agreement and our continuing obligations and those of AgonOx thereunder were terminated in their entirety. We are no longer required to provide financial support for the development of costs incurred under the Clinical Co-Development Agreement, and we are no longer entitled to future development milestones or royalty payments from AgonOx’s licensing of its DP TIL technology. We will pay to AgonOx all payment obligations that accrued prior to the termination of the Clinical Co-Development Agreement. Remaining payments to be made to AgonOx as of June 30, 2024 total $344,000, which primarily relate to accrued obligations for patient fees and other miscellaneous costs as of the date of termination. Pursuant to the terms of the Clinical Co-Development Agreement, we and AgonOx are coordinating the orderly wind-down of the Phase 1 clinical trial. Each of us and AgonOx shall be responsible for its own costs and expenses incurred in connection with the wind-down of the Phase 1 clinical trial.

Current wording

In May 2024, we terminated the Clinical Co-Development Agreement with AgonOx, which such termination was effective immediately. Effective as of the date of termination, the Clinical Co-Development Agreement and our continuing obligations and those of AgonOx thereunder were terminated in their entirety. We are no longer required to provide financial support for the development of costs incurred under the Clinical Co-Development Agreement, and we are no longer entitled to future development milestones or royalty payments from AgonOx’s licensing of its DP TIL technology. We will pay to AgonOx all payment obligations that accrued prior to the termination of the Clinical Co-Development Agreement. Remaining payments to be made to AgonOx as of September 30, 2024 total $35,000, which primarily relate to accrued obligations for patient fees and other miscellaneous costs as of the date of termination. Pursuant to the terms of the Clinical Co-Development Agreement, we and AgonOx are coordinating the orderly wind-down of the Phase 1 clinical trial. Each of us and AgonOx shall be responsible for its own costs and expenses incurred in connection with the wind-down of the Phase 1 clinical trial.

Previous wording

Comparison of the Three and Six Months Ended June 30, 2024 and 2023

Current wording

Comparison of the Three and Nine Months Ended September 30, 2024 and 2023

Previous wording

Research and development expenses for the three months ended June 30, 2024 decreased 37% as compared with the three months ended June 30, 2023. The decrease in research and development expenses was primarily driven by our cost rationalization measures in transitioning from a research company to a product development company resulting in a decrease of $246,000 in salary-related costs, including stock-based compensation expense, and $74,000 in lab supplies associated with the reduction in headcount, in addition to a decrease in clinical consulting fees of $110,000 incurred in connection with our IND filing for PH-762 in the prior period.

Current wording

Research and development expenses for the three months ended September 30, 2024 decreased 64% as compared with the three months ended September 30, 2023. The decrease in research and development expenses was primarily driven by our cost rationalization measures in transitioning from a research company to a product development company resulting in a decrease of $286,000 in salary-related costs, including stock-based compensation expense, and $85,000 due to the wind-down of preclinical studies, and $835,000 primarily related to our former Clinical Co-Development Agreement from the prior year period.

Previous wording

Research and development expenses for the six months ended June 30, 2024 decreased 43% as compared with the six months ended June 30, 2023. The decrease in research and development expenses was primarily driven by our cost rationalization measures in transitioning from a research company to a product development company resulting in a decrease of $321,000 of expense due to the wind-down of preclinical studies, $470,000 in salary-related costs, including stock-based compensation expense, and $182,000 in lab supplies associated with the reduction in headcount, in addition to a decrease in clinical consulting fees of $335,000 incurred in connection with our IND filing for PH-762 in the prior period and a decrease of $176,000 in manufacturing fees for PH-762.

Current wording

Research and development expenses for the nine months ended September 30, 2024 decreased 50% as compared with the nine months ended September 30, 2023. The decrease in research and development expenses was primarily driven by our cost rationalization measures in transitioning from a research company to a product development company resulting in a decrease of $880,000 of expense due to the wind-down of preclinical studies, $1,108,000 in salary-related costs, including stock-based compensation expense, and $204,000 in lab supplies associated with the reduction in headcount, in addition to decreases in clinical consulting fees of $350,000 incurred in connection with our IND filing for PH-762 in the prior period, decreases in clinical trial-related fees for our former PH-762 trials in ACT and European clinical trial, and a decrease of $208,000 in manufacturing fees for PH-762.

Previous wording

General and administrative expenses for the three months ended June 30, 2024 decreased 10% as compared with the three months ended June 30, 2023. The decrease in general and administrative expenses was primarily due to decreases in salary-related expenses for our President & CEO of $78,000 and in professional fees of $60,000 related to consulting expenses as compared to the prior year period.

Current wording

General and administrative expenses for the three months ended September 30, 2024 decreased 2% as compared with the three months ended September 30, 2023. The decrease in general and administrative expenses was primarily due to a decrease in salary-related expenses.

Previous wording

General and administrative expenses for the six months ended June 30, 2024 decreased 20% as compared with the six months ended June 30, 2023. The decrease in general and administrative expenses was primarily due to decreases in salary-related expenses for our President & CEO of $120,000 and in professional fees for a total of $364,000 related to consulting, legal and patent expenses as compared to the prior year period.

Current wording

General and administrative expenses for the nine months ended September 30, 2024 decreased 15% as compared with the nine months ended September 30, 2023. The decrease in general and administrative expenses was primarily due to decreases in salary-related expenses due to reductions in headcount of $196,000, in professional fees for a total of $229,000 primarily related to legal and patent expenses, and in our D&O insurance premium of $74,000 as compared to the prior year period.

Previous wording

Historically, our primary source of funding has been through the sale of our 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 June 30, 2024, we had cash of $4,698,000 as compared with $8,490,000 at December 31, 2023.

Current wording

Historically, our primary source of funding has been through the sale of our 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 September 30, 2024, we had cash of $5,390,000 as compared with $8,490,000 at December 31, 2023.

Previous wording

In July 2024, we entered into inducement letter agreements (the “July 2024 Inducement Letter Agreements”) with certain holders of certain of our existing warrants to purchase up to an aggregate of 545,286 shares of the Company’s common stock. The existing warrants were originally issued in February 2020 through December 2023, having exercise prices between $324.00 and $9.72 per share. Pursuant to the July 2024 Inducement Letter Agreements, these warrants were exercised for cash at a reduced exercise of $5.45 per share in consideration of our agreement to issue new unregistered five and one-half year term Series C warrants to purchase up to 583,098 shares of common stock at an exercise price of $5.45 and new unregistered eighteen month term Series D warrants to purchase up to 507,474 shares of common stock at an exercise price of $5.45, both issued and sold at a price of $0.125 per warrant share (the “July 2024 Financing”). The net proceeds to us from the July 2024 Financing are approximately $2,600,000, after deducting placement agent fees and offering expenses.

Current wording

In July 2024, we entered into inducement letter agreements (the “July 2024 Inducement Letter Agreements”) with certain holders of certain of our existing warrants to purchase up to an aggregate of 545,286 shares of the Company’s common stock. The existing warrants were originally issued in February 2020 through December 2023, having exercise prices between $324.00 and $9.72 per share. Pursuant to the July 2024 Inducement Letter Agreements, these warrants were exercised for cash at a reduced exercise of $5.45 per share in consideration of our agreement to issue new unregistered five and one-half year term Series C warrants to purchase up to 583,098 shares of common stock at an exercise price of $5.45 and new unregistered eighteen month term Series D warrants to purchase up to 507,474 shares of common stock at an exercise price of $5.45, both issued and sold at a price of $0.125 per warrant share (the “July 2024 Financing”). The net proceeds to us from the July 2024 Financing were approximately $2,646,000, after deducting placement agent fees and offering expenses.

Previous wording

Net cash used in operating activities was $3,788,000 for the six months ended June 30, 2024 as compared with $5,479,000 for the six months ended June 30, 2023. The decrease was primarily due to a decrease in net loss of $2,151,000, a decrease in non-cash related items of $214,000 primarily related to reduced stock-based compensation expense, and a decrease in the changes in operating assets and liabilities of $246,000 primarily as a result of liabilities owed for the completion of preclinical studies in the prior year period.

Current wording

Net cash used in operating activities was $5,741,000 for the nine months ended September 30, 2024 as compared with $8,379,000 for the nine months ended September 30, 2023. The decrease was primarily due to a decrease in net loss of $3,407,000, a decrease in non-cash related items of $298,000 primarily related to reduced stock-based compensation expense, and a decrease in the changes in operating assets and liabilities of $472,000 primarily as a result of liabilities owed for the completion of preclinical studies in the prior year period.

Previous wording

There were no investing activities for the six months ended June 30, 2024 as compared with $5,000 for the six months ended June 30, 2023. The decrease in net cash used in investing activities was primarily due to laboratory and computer equipment purchases for our facility during the prior year period.

Current wording

There were no investing activities for the nine months ended September 30, 2024 as compared with $5,000 for the nine months ended September 30, 2023. The decrease in net cash used in investing activities was primarily due to laboratory and computer equipment purchases for our facility during the prior year period.

Previous wording

Net cash used in financing activities was $4,000 for the six months ended June 30, 2024 as compared with net cash provided by financing activities of $5,010,000 for the six months ended June 30, 2023. The decrease was primarily due to the completion of our financing activities during the prior year period.

Current wording

Net cash provided by financing activities was $2,641,000 for the nine months ended September 30, 2024 as compared with $5,010,000 for the nine months ended September 30, 2023. The decrease was primarily due to the net proceeds from the completion of our financing activities during the prior year period as compared with the current year period.

Previous wording

At June 30, 2024, we had cash and cash equivalents of$4,698,000 and received estimated net proceeds of $2,600,000 from our July 2024 Financing. We expect that our cash and cash equivalents will enable us to fund our current operating plan into Q2 2025. Due to the difficulty and uncertainty associated with the design and implementation of preclinical studies and clinical trials, we will continue to assess our cash and cash equivalents and future funding requirements. However, there is no assurance that additional funding will be achieved and that we will succeed in our future operations. We expect to continue to incur substantial additional operating losses for at least the next several years as we continue to develop our product candidates and seek marketing approval and, subject to obtaining such approval, the eventual commercialization of our product candidates. If we obtain marketing approval for any of our product candidates, we will incur significant sales, marketing and manufacturing expenses. We also expect to continue to incur significant costs to comply with corporate governance, internal controls and similar requirements associated with operating as a public reporting company.

Current wording

At September 30, 2024, we had cash and cash equivalents of$5,390,000 and received estimated net proceeds of $2,646,000 from our July 2024 Financing. We expect that our cash and cash equivalents will enable us to fund our current operating plan into Q2 2025. Due to the difficulty and uncertainty associated with the design and implementation of preclinical studies and clinical trials, we will continue to assess our cash and cash equivalents and future funding requirements. However, there is no assurance that additional funding will be achieved and that we will succeed in our future operations. We expect to continue to incur substantial additional operating losses for at least the next several years as we continue to develop our product candidates and seek marketing approval and, subject to obtaining such approval, the eventual commercialization of our product candidates. If we obtain marketing approval for any of our product candidates, we will incur significant sales, marketing and manufacturing expenses. We also expect to continue to incur significant costs to comply with corporate governance, internal controls and similar requirements associated with operating as a public reporting company.