ITEM 1A. RISK FACTORS
Risks Relating to Our Business and Industry
We are dependent on the success of our INTASYL
technology platform, and our product candidates based on this platform, which is unproven and may never lead to approved and marketable
products.
Our efforts have been focused on the development
of product candidates based on our INTASYL technology platform. We have invested, and we expect to continue to invest, significant financial
resources and efforts developing our product candidates. Our ability to eventually generate revenue is highly dependent on the successful
development, regulatory approval and commercialization of our INTASYL product candidates by us or by collaborative partners, which may
not occur for the foreseeable future, if ever, and is highly uncertain and depends on a number of factors, many of which are beyond our
control. 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 will spend large amounts of money developing our INTASYL platform technology
and may never succeed in obtaining regulatory approval. In addition, our research methodology may be unsuccessful in identifying product
candidates and results from preclinical studies and clinical trials 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
or impossible to manufacture, receive regulatory approval or commercialize. 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.
Our product candidates
are in an early stage of development and we may fail, experience significant delays, never advance clinical development or not be successful
in our efforts to identify or discover additional product candidates, which may materially and adversely impact our business.
Our success depends heavily
on the successful development of our product candidates, which may never occur. Our product candidates, which are in early stages of development,
could be delayed, not advance into the clinic, or unexpectedly fail at any stage of development. Our ability to identify, develop and
commercialize product candidates is dependent on extensive preclinical and other non-clinical tests in order to support an IND application
in the United States, or the equivalent with regulatory authorities in other jurisdictions. These research programs to identify new product
candidates require substantial financial and human resources, are difficult to design and can take many years to complete.
We cannot be certain of the outcome of our research
studies and clinical trials and the results from these studies and clinical trials may not predict the results that will be obtained in
later stages of development and we may focus our efforts and resources on product candidates that may prove to be unsuccessful. There
is no assurance that we will be able to successfully develop our product candidates, and we may forego opportunities with certain product
candidates or for indications that later prove to have greater commercial potential. If we are not able to successfully develop our product
candidates, we may be forced to abandon or delay our development efforts, which may materially and adversely affect our business, financial
condition, and results of operations.
Further, the FDA, or equivalent foreign regulatory
authority, may not accept the results of our preclinical studies or clinical trials and may require us to complete additional studies
or impose stricter approval conditions than we expect, which could impact the value of a particular program, the approvability or commercialization
of the particular product candidate or product and our Company in general. 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 studies or clinical trials 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 such preclinical studies or clinical trials.
We are dependent on our collaboration partners
for the successful development of our adoptive cell therapy product candidates.
We are dependent on third parties that have direct
access to the patient or donor cells used in cell therapy 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 other research agreements with 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, their corporate objectives may not align with ours, and 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, and 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, and
results of operations could be materially and adversely affected.
If we experience delays or difficulties in
identifying and enrolling subjects in clinical trials, it may lead to delays in generating clinical data and the receipt of necessary
regulatory approvals.
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, which could materially and adversely impact our business and financial
condition. We may experience slower than expected subject enrollment, including as a result of the coronavirus pandemic, in our current
or future clinical trials. In addition, clinical trials for drug candidates that treat the same indications as our product candidates
may result in subjects who would otherwise be eligible for our clinical trials instead enrolling in clinical trials for other drug candidates.
Topline data may not accurately reflect or
may materially differ from the complete results of a clinical trial.
From time to time, we may publicly disclose topline
or interim data from our clinical trials based on a preliminary analysis of then-available data, of which the results, related findings
and conclusions are subject to change following a more comprehensive review of the data related to the particular trial. We also make
assumptions, estimations, calculations and conclusions as part of our analyses of data, and we may not have received or had the opportunity
to fully and carefully evaluate all data. Preliminary observations made in early stages of clinical trials are not necessarily indicative
of results that will be obtained when full data sets are analyzed or in subsequent clinical trials. As a result, topline data may differ
from future results from the same studies or different conclusions may qualify such results once additional data has been received and
evaluated. Topline or interim data also remain subject to audit and verification procedures that may result in the final data being materially
different from the preliminary data that we publicly disclose and should be viewed with caution until the complete data is available.
If the topline data we report differs from future analysis of results, or if others, including regulatory authorities, disagree with the
conclusions reached, our business, financial condition, and results of operations could be materially and adversely affected.
We rely upon third-parties to conduct our
clinical trials and other studies for our product candidates, and if they do not successfully fulfill their obligations, the development
of our product candidates may be materially impacted.
We depend upon third-party CROs, medical institutions,
clinical investigators, consultants and other third-parties to support and conduct our clinical trials and rely on these third-party CROs
for the execution of certain of our preclinical studies and expect to continue to do so. 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. We
and our CROs are responsible for ensuring that our clinical trials are conducted in accordance with applicable regulations and protocols.
If we or our CROs fail to comply with these applicable regulations, the FDA, or equivalent foreign regulatory authority, may not accept
these data and may require us to complete additional preclinical studies and clinical trials, which could result in significant additional
costs and delays to us.
As we only control certain aspects of their activities,
we cannot guarantee that these partners will fulfill their obligations to us under these arrangements. If these third-parties do not successfully
carry out their responsibilities, as well as within a timely fashion, our clinical trials and preclinical studies may be delayed, unsuccessful
or otherwise adversely affected. If we have to enter into alternative arrangements it may delay or adversely affect the development of
our product candidates and our business operations. This could be difficult, costly or impossible, and our preclinical studies or clinical
trials may need to be extended, delayed, terminated or repeated, and we may not be able to obtain regulatory approval in a timely fashion,
or at all, for the applicable drug candidate, or to commercialize such drug candidate being tested in such studies or trials.
France adopted the General Data Protection
Regulation, a data privacy regulation, and as we are conducting a clinical trial in France we are required to follow this law, which,
if violated, could subject us to significant fines.
The collection and use of personal health data and
other personal information in the European Union is governed by the provisions of the GDPR, which came into force in May 2018 and related
implementing laws in individual EU Member States.
The GDPR imposes a number of strict obligations and
restrictions on the ability to process (processing includes collection, analysis and transfer of) personal data of individuals within
the EU and in the EEA, including health data from clinical trials and adverse event reporting. The GDPR also includes requirements relating
to the consent of the individuals to whom the personal data relates, the information provided to the individuals prior to processing their
personal data or personal health data, notification of data processing obligations to the national data protection authorities and the
security and confidentiality of the personal data. EU Member States may also impose additional requirements in relation to health, genetic
and biometric data through their national implementing legislation.
Under the GDPR, personal data can only be transferred
within the EU Member States and the three additional EEA countries (Norway, Iceland and Liechtenstein) that have adopted a national law
implementing the GDPR. Appropriate safeguards are required to enable cross-border transfers of personal data from the EU and EEA Member
States to a “third country” (a country outside the EU or EEA). This status has a number of significant practical consequences,
in particular for international data transfers, competent supervisory authorities and enforcement of the GDPR.
The GDPR prohibits the transfer of personal data
to countries outside of the EU/EEA (including the United States) that are not considered by the EC to provide an adequate level of data
protection, except if the data controller meets very specific requirements such as the use of standard contractual clauses (“SCCs”),
issued by the EC. In this respect recent legal developments in Europe have created complexity and compliance uncertainty regarding
certain transfers of personal data from the EU/EEA. For example, following the Schrems II decision of the Court of Justice of the EU on
July 16, 2020, in which the Court invalidated the Privacy Shield under which personal data could be transferred from the EU/EEA to United
States entities who had self-certified under the Privacy Shield scheme, there is uncertainty as to the general permissibility of international
data transfers under the GDPR. The Court did not invalidate the then current SCCs, but ruled that data exporters relying on these SCCs
are required to verify, on a case-by-case basis, if the law of the third country ensures an adequate level of data protection that is
essentially equivalent to that guaranteed in the EU/EEA. In light of the implications of this decision we may face difficulties regarding
the transfer of personal data from the EU/EEA to third countries, such as the United States. However, on June 4, 2021 the EC issued a
new set of SCCs for data transfers from controllers or processors in the EU/EEA to controllers or processors established outside the EU/EEA.
These SCCs replace the old sets of SCCs that were adopted under the previous European Data Protection Directive 95/46. Since September
27, 2021, it is no longer possible to conclude contracts incorporating these previous versions of the SCCs. In addition, for contracts
concluded before September 27, 2021, it is still possible to rely on the previous SCCs until the end of an additional 15 months transitional
period (until December 27, 2022), provided that the processing operations which are the subject matter of the contract remain unchanged
and reliance on previous SCCs ensures that the transfer is subject to appropriate safeguards. On November 11, 2021, the European Data
Protection Board adopted recommendations on such appropriate safeguards that supplement transfer mechanisms. These recommendations aim
to assist data exporters with their duty to identify and implement appropriate supplementary measures where they are needed to ensure
an essentially equivalent level of protection to the personal data they transfer to third countries.
Failure to comply with the requirements of the
GDPR and the related national data protection laws of the EU Member States may result in significant monetary fines for noncompliance
of up to €20 million or 4% of the annual global revenues of the noncompliant company, whichever is greater, other administrative
penalties and a number of criminal offenses (punishable by uncapped fines) for organizations and in certain cases their directors and
officers as well as civil liability claims from individuals whose personal data was processed. Data protection authorities from the different
EU Member States may still implement certain variations, enforce the GDPR and national data protection laws differently, and introduce
additional national regulations and guidelines, which adds to the complexity of processing personal data in the EU. Guidance developed
at both EU level and at the national level in individual EU Member States concerning implementation and compliance practices are often
updated or otherwise revised. Ensuring compliance with GDPR is time-intensive and may increase the cost of doing business, and failure
to comply with these laws may have a material impact on our operations and financial condition.
There is, moreover, a growing trend towards required
public disclosure of clinical trial data in the EU which adds to the complexity of obligations relating to processing health
data from clinical trials. Such public disclosure obligations are provided in the new EU Clinical Trials Regulation, EMA disclosure initiatives
and voluntary commitments by industry. Failing to comply with these obligations could lead to government enforcement actions and significant
penalties against us, harm to our reputation, and adversely impact our business and operating results. The uncertainty regarding the interplay
between different regulatory frameworks, such as the Clinical Trials Regulation and the GDPR, further adds to the complexity that we face
with regard to data protection regulation.
On June 28, 2021 the European Commission adopted
two adequacy decisions for the UK – one under the GDPR and the other for the Law Enforcement Directive. Personal
data may now freely flow from the EU to the UK since the UK is deemed to have an adequate data protection level. Additionally, following
the UK's withdrawal from the EU and the EEA, companies also have to comply with the UK’s data protection laws (including the UK
GDPR, which is based on the EU GDPR), the latter regime having the ability to separately fine up to the greater of £17.5 million
or 4% of global turnover. The adequacy decisions include a ‘sunset clause’ which entails that the decisions will automatically
expire four years after their entry into force.
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, or foreign
equivalent. 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 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.
Preclinical studies and clinical trials are lengthy
and expensive, and their outcome is highly uncertain. Historical failure rates are high due to a 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 clinical trial and refusing to approve a particular drug candidate for any or all indications
of use.
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.
An additional number of factors could affect the
timing, cost or outcome of our drug development efforts, including the following:
· Difficulty in securing centers to conduct clinical trials;
· The cost of our clinical trials being greater than we anticipate;
· The impact from the ongoing coronavirus pandemic;
· Adverse results obtained by other companies developing similar drugs.
A failure of any preclinical study or clinical
trial can occur at any stage of testing. Any delay or failure in obtaining required approvals may prevent us from completing our preclinical
studies or clinical trials 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, which could have a material impact on our business,
financial condition, and results of operations.
We are subject to significant competition
and may not be able to compete successfully.
The biotechnology and pharmaceutical industries
have intense competition and contain a high degree of risk and there are many other companies actively engaged in the discovery, development
and commercialization of products that may compete with our product candidates. 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.
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.
We have a small core management team and are particularly
dependent on them. Accordingly, 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 an employment agreement with our Chief Executive Officer, 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.
We are subject to potential liabilities from
clinical testing and future product liability claims.
The use of our product candidates in clinical trials
and, if any of our product candidates receive regulatory approval, the sale of our product candidates for commercial use expose us to
the risk of product liability claims. Product liability claims may be brought against us by patients, healthcare providers, consumers
or others who come into contact with our product candidates or approved products. 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. However, 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 of our product candidates and the marketing of those product candidates, if approved. 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. If
we cannot successfully defend against product liability claims, we could incur substantial liabilities. 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. Any of these outcomes could materially impact our business and financial condition.
We rely upon third parties for the manufacture
of the clinical supply for our product candidates.
We rely on third-party suppliers and manufacturers
to provide us with the materials and services to manufacture our product candidates for certain preclinical studies and for our clinical
trials, and we expect that we will continue to rely on third-party manufacturers for the supply of our product candidates in the future.
We have limited in-house manufacturing capabilities and resources, and we do not own or lease manufacturing facilities or have our own
supply source for the required materials to manufacture our compounds. Further, we have limited current good manufacturing practice (“cGMP”)
manufacturing capabilities and limited experience in scale-up of clinical supply as our internal capabilities are limited to small-scale
production of research material. Accordingly, we are dependent upon third-party suppliers and contract manufacturers to obtain supplies
and manufacture our product candidates and we will need to either develop, contract for, or otherwise arrange for the necessary manufacturers
for these supplies.
There are a limited number of manufacturers that make
oligonucleotides and we currently contract with multiple manufacturers for the supply of our product candidates to reduce the risk of
supply interruption or availability. However, there is no assurance that our supply of our product candidates will not be limited, interrupted,
of satisfactory quality or be available at acceptable prices. For example, constraints on the supply chain and availability of resources
due to the ongoing coronavirus pandemic have resulted in delays and shortages at manufacturing facilities. While we have engaged with
multiple manufacturers for the supply of our product candidates in order to mitigate the impact of the loss or delay of any one manufacturer,
there can be no assurance that our efforts will be successful. 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. If we or any of these manufacturers
are unable or unwilling to increase its manufacturing capacity or if we are unable to establish alternative arrangements on a timely basis
or on acceptable terms, the development and commercialization of such an approved product may be delayed or there may be a shortage in
supply. Any inability to manufacture our product candidates or future approved drugs in sufficient quantities when needed would seriously
harm our business.
Approval of any of our product candidates will not
occur unless the manufacturing facilities are in compliance with the FDA’s cGMP regulations, or a foreign equivalent’s regulations,
in order to ensure that drug products are safe and that they consistently meet applicable requirements and specifications. These requirements
are enforced by the FDA and other regulatory authorities through periodic inspections of the manufacturing facilities and can result in
enforcement action, such as warning letters, fines and suspension of production if they are found to not be in compliance with the regulations.
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 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.
Unstable market and economic conditions,
including elevated and sustained inflation, may have serious adverse consequences on our business, financial condition and stock price.
As has been widely reported, we are currently operating
in a period of economic uncertainty and capital markets disruption, which has been significantly impacted by domestic and global monetary
and fiscal policy, geopolitical instability, an ongoing military conflict between Russia and Ukraine, and historically high domestic and
global inflation. In particular, the conflict in Ukraine has exacerbated market disruptions, including significant volatility in commodity
prices, as well as supply chain interruptions, and has contributed to record inflation globally. The U.S. Federal Reserve and other central
banks may be unable to contain inflation through more restrictive monetary policy and inflation may increase or continue for a prolonged
period of time. Inflationary factors, such as increases in the cost of clinical supplies, interest rates, overhead costs and transportation
costs may adversely affect our operating results. We continue to monitor these events and the potential impact on our business. Although
we do not believe that inflation has had a material impact on our financial position or results of operations to date, we may be adversely
affected in the future due to domestic and global monetary and fiscal policy, supply chain constraints, consequences associated with the
coronavirus pandemic and the ongoing conflict between Russia and Ukraine, and such factors may lead to increases in the cost of manufacturing
our product candidates and delays in initiating studies. In addition, global credit and financial markets have experienced extreme volatility
and disruptions in the past several years and the foregoing factors have led to and may continue to cause diminished liquidity and credit
availability, declines in consumer confidence, declines in economic growth, uncertainty about economic stability and increased inflation.
There can be no assurance that further deterioration
in credit and financial markets and confidence in economic conditions will not occur. Our general business strategy may be adversely affected
by any such economic downturn, volatile business environment or continued unpredictable and unstable market conditions. If the current
equity and credit markets deteriorate, or do not improve, it may make any necessary debt or equity financing more difficult, more costly,
and more dilutive. Failure to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect
on our growth strategy, financial performance and stock price and could require us to delay or abandon clinical development plans. In
addition, there is a risk that one or more of our current service providers, manufacturers and other partners may not survive these difficult
economic times, which could directly affect our ability to attain our operating goals.
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 preparing and filing 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.
Risks Relating to Our Intellectual Property
We may be involved in litigation to protect
our patents and intellectual property rights and our ability to protect our patents and intellectual property rights is uncertain and
may subject us to potential liabilities.
We have filed patent applications, have pending
patents that we have licensed and those that we own and expect to continue to file patent applications. We may also need to license patents
and patent applications from research sponsored by us with third-parties. 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 patent
granting authorities have upheld stringent standards for the RNAi patents that have been prosecuted so far and, 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.
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 patents 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. Our efforts to enforce and maintain our intellectual property rights may not be successful and may
result in substantial costs and diversion of management and key employee’s time. If we are unable to defend our licensed or owned
intellectual property, it may have a materially and adverse impact on our business, results of operations and financial condition.
Third-parties may claim that we infringe
their patents, which may result in substantial liabilities and prevent us from pursuing the development of our product candidates.
Because the field we operate in is constantly changing
and patent applications are still being processed by government patent offices around the world, 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 field we operate. Further, many patents in the fields we are pursuing have
already been exclusively licensed to third-parties, including our competitors. It is possible that we may become a party to such proceedings.
If a claim should be brought against us and we
are found to infringe the rights of others, we may be required to pay substantial damages, be forced to stop the development of product
candidates affected by the claim, and/or establish licenses or similar arrangements. Furthermore, any such licenses may not be available
when needed, on commercially reasonable terms or at all. Whether an infringement claim is successful or not, the cost of these proceedings
may be significant and divert the attention of management and other key employees. As a result, we cannot be certain that our patents
or those we license will not be challenged by others, which could have a material adverse effect on our business, results of operations
and financial condition.
We are dependent on the patents we own and
the technologies we license, and if we fail to maintain our patents or lose the right to license such technologies, our ability to develop
new products would be harmed.
Our success depends upon our ability to obtain
and maintain intellectual property protection for our product candidates. 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 develop our product candidates freely. 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.
Because of the extensive time required for development, testing, and regulatory review of a potential product, it is possible that, before
any of our product candidates can be commercialized, any related patent may expire or remain in force for only a short period following
commercialization, thus reducing any advantage provided by the patent. Further, 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. If we are unable to derive value from our licensed or owned intellectual property, it may have a materially and adverse impact
on our business, results of operations and financial condition.
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. If there is any dispute or issue of non-performance
between us and the respective licensing partner regarding the rights or obligations under the license agreements, the ability to develop
and commercialize the affected product candidate may be adversely affected. Moreover, if any of our existing licenses are terminated,
the development of the product candidates 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. 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.
Risks Relating to Our Financial Condition
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. 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:
· To obtain regulatory approval for our product candidates;
· To manufacture products ourselves or through third parties;
· To acquire new technologies, licenses or products.
We are 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 cannot
assure you that additional 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 or improve our technology. 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.
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.
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. 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. 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, perhaps substantially. The issuance of a significant amount of shares of common stock could cause the market price of our common
stock to decline or become highly volatile.
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.
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. The Company has limited cash resources, has reported recurring
losses from operations since inception and has not yet received product revenues. These factors raise substantial doubt regarding the
Company’s ability to continue as a going concern, and the Company’s current cash resources may not provide sufficient capital
to fund operations for at least the next 12 months from the date of the release of these financial statements. The continuation of the
Company as a going concern depends upon the Company’s ability to raise additional capital through an equity offering, debt offering
or strategic opportunity to fund its operations. There can be no assurance that the Company will be successful in accomplishing these
plans in order 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 ability to utilize
net operating loss carryforwards and other tax benefits may be limited.
We have historically
incurred net losses and may never achieve or sustain profitability. 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. Net operating losses incurred in tax years beginning after December 31, 2017 may be
carried forward indefinitely, but are limited to offset up to 80% of future taxable income. Certain of our net operating loss
carryforwards predating December 31, 2017 could expire unused before offsetting potential future income tax liabilities.
Additionally, an ownership
change, as defined by Section 382 and 383 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. Pursuant to Section 382 and 383 of the code, if the Company
has experienced a change of control at any time since inception, utilization of the Company’s net operating loss or tax credit carryforwards
then in existence would be subject to an annual limitation. Any limitation may result in expiration of a portion of the net operating
loss or tax credit carryforwards before utilization.
During 2021, the Company completed
an assessment of the available net operating loss and tax credit carryforwards under Section 382 and 383 and determined that the Company
underwent multiple ownership changes during the period from 2012 to 2021. As a result, our net operating losses and tax credit carryforwards
are subject to substantial annual limitations under Section 382 and 383 due to these ownership changes. The Company has adjusted its net
operating loss and tax credit carryforwards to address the impact of the ownership changes. The Company assesses the need to conduct an
ownership change analysis to determine whether any changes occurred in ownership that would limit net operating loss or tax credit carryforwards
on an annual basis. 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 and tax credit carryforwards
is materially limited, it could harm our future operating results by effectively increasing our future tax obligations.
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:
· Regulatory or legal developments in the United States and other countries;
· The recruitment or departure of key personnel;
· To acquire new technologies, licenses or products;
· Natural disasters and calamities, including the coronavirus pandemic; and
· 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 and could result in the loss of all or part of your investment. In addition, the limited trading volume of our stock may contribute
to its volatility. Moreover, if we are unable to trade above $1.00 for a certain period of time, or fulfill the other continued listing
standards, The Nasdaq Stock Market may delist our common stock. Delisting our common stock from Nasdaq would adversely affect our trading
volume and would likely negatively impact our trading price.
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 and as of the year ended December 31, 2022 had one share of Series D Preferred Stock outstanding,
which was subsequently redeemed in full in January 2023 and is no longer outstanding. Our Board of Directors (the “Board”)
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.
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.
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:
Although we believe these provisions collectively provide
for an opportunity to receive higher bids by requiring potential acquirers to negotiate with our Board, 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, which is
responsible for appointing the members of our management.
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, we entered into a lease
(the “Lease”), as subsequently amended on January 22, 2019, 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 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
had the option to 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. The option to terminate the Lease early was not exercised
by either party and has expired.
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. To our knowledge, we are not currently a party to any actual
or threatened material legal proceedings.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II.
Market Information
Our common stock is listed on The Nasdaq Capital
Market under the symbol “PHIO.”
Holders
At March 9, 2023, 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 (the “Board”) and will depend upon, among other things, our results of operations, financial
condition, cash requirements, prospects and other factors that our Board may deem relevant.
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, 2022 or 2021.
ITEM 6. RESERVED
The following discussion of our financial condition
and results of operations should be read in conjunction with our consolidated financial statements and the notes to those consolidated
financial statements included in Item 8 of this Annual Report on Form 10-K. This discussion contains forward-looking statements that
involve significant risks and uncertainties. As a result of many factors, such as those set forth under “Risk Factors” and
elsewhere in this Annual Report on Form 10-K, our actual results may differ materially from those anticipated in these forward-looking
statements. Please refer to the discussion under the heading “Forward-Looking Statements” above.
Overview
Phio Pharmaceuticals Corp.
(“Phio,” “we,” “our” or the “Company”) is a clinical stage
biotechnology company whose proprietary INTASYLTM self-delivering RNAi technology platform is designed to make immune cells more
effective in killing tumor cells. We are developing therapeutics that are designed to leverage INTASYL to precisely target specific proteins
that reduce the body’s ability to fight cancer, without the need for specialized formulations or drug delivery systems. We are committed
to discovering and developing innovative cancer treatments for patients by creating new pathways toward a cancer-free future.
Our development efforts are based on our proprietary
INTASYL self-delivering RNAi technology platform. INTASYL compounds are designed to precisely target specific proteins that reduce the
body’s ability to fight cancer, without the need for specialized formulations or drug delivery systems, and are designed to make
immune cells more effective in killing tumor cells. Our efforts are focused on developing immuno-oncology therapeutics using our INTASYL
platform. We have demonstrated preclinical efficacy in both direct-to-tumor injection and adoptive cell therapy (“ACT”)
applications with our INTASYL compounds.
PH-762
PH-762 is an INTASYL compound designed to reduce
the expression of cell death protein 1 (“PD-1”). PD-1 is a protein that inhibits T cells’ ability to kill cancer
cells and is a clinically validated target in immunotherapy. Decreasing the expression of PD-1 can thereby increase the capacity of T
cells, which protect the body from cancer cells and infections, to kill cancer cells.
Preclinical studies conducted by the Company have
demonstrated that direct-to-tumor application of PH-762 resulted in potent anti-tumoral effects and have shown that direct-to-tumor treatment
with PH-762 inhibits tumor growth in a dose dependent fashion in PD-1 responsive and refractory models. Importantly, direct-to-tumor administration
of PH-762 resulted in activity against distant untreated tumors, indicative of a systemic anti-tumor response. We believe these data further
support the potential for PH-762 to provide a strong local immune response without the dose immune-related adverse effects seen with systemic
antibody therapy.
PH-762 is currently being
evaluated in a Phase 1b dose escalation clinical trial in France that is expected to enroll up to 21 subjects with advanced melanoma.
PH-762 will be administered as a neoadjuvant monotherapy intratumorally once a week, for a total of four injections, across five escalating
dose levels. Dosing will be followed by tumoral excision after an additional two weeks. The primary study objectives are to evaluate the