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 in the United States, or the
equivalent with regulatory authorities in other jurisdictions, if applicable. 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 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 drug or biologic 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 partner
for the successful development of our adoptive cell therapy product candidate.
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 our third-party collaborator to support the clinical
development of our ACT product candidate. We have entered into a clinical co-development collaboration agreement with AgonOx, Inc. to
conduct a Phase 1 clinical trial of the evaluation of PH-762 treated “double positive” tumor infiltrating lymphocytes in patients
with advanced melanoma and other advanced solid tumors. The success of our collaboration depends upon the efforts of our collaboration
partner, and their performance in achieving the development activities to the extent they are responsible under our collaboration agreement.
Our partner 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 partner works 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 collaboration is not successful
or our 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 this collaborator 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 patients 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 or biologic candidate
require the enrollment of a sufficient number of patients, including patients who are suffering from the disease or condition the drug
or biologic candidate is intended to treat and who meet other eligibility criteria. Rates of patient enrollment are affected by many factors,
and delays in patient 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 patient enrollment in our current or future clinical trials.
In addition, clinical trials for drug or biologic candidates that treat the same indications as our product candidates may result in patients
who would otherwise be eligible for our clinical trials instead enrolling in clinical trials for other drug or biologic 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 rely upon third-party CROs, medical institutions,
collaborators, clinical investigators, consultants and other third-parties to support and conduct our clinical trials and we 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, our collaborators, and our CROs are responsible for ensuring that our clinical trials are conducted in accordance with applicable
regulations and protocols. If we, our collaborators, or our CROs fail to comply with these applicable regulations, the FDA 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 or biologic candidate, or to commercialize such drug or biologic candidate being tested in such studies
or trials.
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 or biologic 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. An IND
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 patients. 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 or biologic candidates. We, our collaborators, the FDA, or an IRB may suspend clinical trials of a drug or biologic candidate
at any time for various reasons, including if we or they believe the patients participating in such trials are being exposed to unacceptable
health risks. Among other reasons, adverse side effects of a drug or biologic candidate on patients in a clinical trial could result in
the FDA suspending or terminating the clinical trial and refusing to approve a particular drug or biologic 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:
· Difficulty in securing centers to conduct clinical trials;
· The cost of our clinical trials being greater than we anticipate;
· 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 or biologic 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
are intensely competitive, 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. Many of our competitors 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 such product candidates. 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.
We also face competition acquiring technologies
complementary to our INTASYL technology. Further, 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, he 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 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 have, and will seek to obtain, clinical trial insurance
for current and any future 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 cGMP manufacturing capabilities and limited
experience scaling 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 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 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 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 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, ongoing military conflicts, and high domestic and global inflation. 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 military conflicts, 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 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 financings 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.
Our business and operations would suffer
in the event of computer system failures, cyberattacks or a deficiency in our cybersecurity.
Despite the implementation of security measures,
our internal computer systems and those of our third-party contractors and collaborators are vulnerable to damage from computer viruses,
unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures, cyberattacks or cyber-intrusions
over the Internet, attachments to emails, persons inside our organization, or persons with access to systems inside our organization.
The risk of a security breach or disruption, particularly through cyber-attacks or cyber intrusion, including by computer hackers, foreign
governments, and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions
from around the world have increased. Such an event could cause interruption of our operations. As part of our business, we and our third-party
contractors and collaborators maintain large amounts of confidential information, including non-public personal information on patients
and our employees. Breaches in security could result in the loss or misuse of this information, which could, in turn, result in potential
regulatory actions or litigation, including material claims for damages, interruption to our operations, damage to our reputation or otherwise
have a material adverse effect on our business, financial condition and operating results. We expect to have appropriate information security
policies and systems in place in order to prevent unauthorized use or disclosure of confidential information, including non-public personal
information, but there can be no assurance that such use or disclosure will not occur.
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 or biologic candidates. Even if we are able to successfully commercialize our drug or biologic 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. We have limited cash resources, have reported recurring losses from operations
since inception, negative operating cashflows and have not yet received product revenues. These factors raise substantial doubt regarding
our 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 the consolidated financial statements included elsewhere in
this Annual Report. The continuation of the Company as a going concern depends upon our ability to raise additional capital through equity
offerings, debt offerings and/or strategic opportunities to fund our operations. There can be no assurance that we 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.
We have completed multiple assessments of the
available net operating loss and tax credit carryforwards under Sections 382 and 383 of the Code through the year ended December 31,
2023 and determined that we underwent multiple ownership changes during the period from inception to 2023. As a result, our net operating
losses and tax credit carryforwards are subject to substantial annual limitations under Sections 382 and 383 of the Code 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. We assess 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;
· The recruitment or departure of key personnel;
· To acquire new technologies, licenses or products; 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 these 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 (“Nasdaq”) 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.
We may not be able to regain compliance with
the continued listing requirements of The Nasdaq Capital Market.
On January 24, 2024, we received notice (the “Notification
Letter”) from Nasdaq notifying us that we are not in compliance with the minimum bid price requirements set forth in Nasdaq
Listing Rule 5550(a)(2) for continued listing on The Nasdaq Capital Market. Nasdaq Listing Rule 5550(a)(2) requires listed securities
to maintain a minimum bid price of $1.00 per share, and Listing Rule 5810(c)(3)(A) provides that a failure to meet the minimum bid price
requirement exists if the deficiency continues for a period of 30 consecutive business days. Based on the closing bid price of our common
stock for the 30 consecutive business days prior to the date of the Notification Letter, we no longer meet the minimum bid price requirement.
The Notification Letter does not impact our listing
on The Nasdaq Capital Market at this time. The Notification Letter states that we have 180 calendar days, or until July 22, 2024, to regain
compliance. To regain compliance, the bid price of our common stock must have a closing bid price of at least $1.00 per share for a minimum
of 10 consecutive business days at any time prior to July 22, 2024. In the event that we do not regain compliance by July 22, 2024, we
may be eligible for additional time to reach compliance with the minimum bid price requirement. However, if we fail to regain compliance
with the minimum bid price listing requirement or fail to maintain compliance with all other applicable continued listing requirements
and Nasdaq determines to delist our common stock, the delisting could adversely impact us by, among other things, reducing the liquidity
and market price of our common stock; reducing the number of investors willing to hold or acquire our common stock; limiting our ability
to issue additional securities in the future; and limiting our ability to fund our operations.
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 (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 1C. CYBERSECURITY
We are increasingly dependent on sophisticated
software applications and computing infrastructure to conduct key operations. We depend on both our own systems, networks, and technology
as well as the systems, networks and technology of our contractors, consultants, vendors and other business partners.
Cybersecurity Program
Given the importance of cybersecurity to our business,
we maintain a robust cybersecurity program to support both the effectiveness of our systems and our preparedness for information security
risks. This program includes a number of safeguards, such as: continuous monitoring for internal and external threats; regular evaluations
of our cybersecurity program, including periodic external reviews; and industry benchmarking. We also require cybersecurity trainings
when onboarding new employees, as well as cybersecurity awareness training for our employees. Our program leverages standard industry
frameworks to strengthen our program effectiveness and reduce cybersecurity risks.
We use a risk-based approach with respect to our
use and oversight of third-party service providers, tailoring processes according to the nature and sensitivity of the data accessed,
processed, or stored by such third-party service provider. We use a number of means to assess and manage cyber risks related to our third-party
service providers, including conducting due diligence in connection with onboarding new vendors and seeking to include appropriate security
terms in our contracts where applicable.
Process for Assessing, Identifying and Managing Material Risks from
Cybersecurity Threats
In the event of a cybersecurity incident, designated
personnel are responsible for assessing the severity of an incident and associated threat, containing the threat, remediating the threat,
including recovery of data and access to systems, analyzing any reporting obligations associated with the incident, and performing post-incident
analysis and program enhancements. We maintain a disaster recovery plan in the event of a significant cybersecurity incident.
We have relationships with a number of third-party
service providers to assist with cybersecurity containment and remediation efforts, including insurance providers and various law firms.
Governance
Management Oversight
The controls and processes employed to assess,
identify and manage material risks from cybersecurity threats are implemented and overseen by the use of consultants as the Company does
not have a full-time dedicated cybersecurity position in the Company. Our consultant has over 20 years of experience in information technology
matters and is responsible for the day-to-day management of the cybersecurity program, including the prevention, detection, investigation,
response to, and recovery from cybersecurity threats and incidents, and are regularly engaged to help ensure the cybersecurity program
functions effectively in the face of evolving cybersecurity threats.
Board Oversight
The Board of Directors (the “Board”)
has overall responsibility for risk oversight and cybersecurity risk matters. The Board is responsible for discussing with management
the Company’s data privacy, information technology and security and cybersecurity risk exposures, including: (i) the potential impact
of those exposures on the Company’s business, financial results, operations and reputation; (ii) the programs implemented by management
to monitor and mitigate any exposures; and (iii) major legislative and regulatory developments that could materially impact the Company’s
data privacy and cybersecurity risk exposure.
Cybersecurity Risks
Our cybersecurity risk management processes are
integrated into our overall information technology (“IT”) processes. As part of our IT process, we identify, assess
and evaluate risks impacting our operations across the Company, including those risks related to cybersecurity. We also maintain cybersecurity
insurance providing coverage for certain costs related to cybersecurity-related incidents that impact our own systems, networks, and technology
or the systems, networks and technology of our contractors, consultants, vendors and other business partners.
As of December 31, 2023, we are not aware of any material risks from
cybersecurity threats, including as a result of any previous cybersecurity incidents, that have materially affected the business strategy,
results of operations or financial condition of the Company or are reasonably likely to have such a material effect. While we maintain
a robust cybersecurity program, the techniques used to infiltrate information technology systems continue to evolve. Accordingly, we may
not be able to timely detect threats or anticipate and implement adequate security measures. For additional information, see “Item
1A—Risk Factors.”
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.
The Company does not intend to renew the Lease, which
will expire on March 31, 2024. Beginning in April of 2024, we expect to continue operations as a remote business with a laboratory facility
located at 17 Briden Street, Worcester, Massachusetts, covering 321 square feet. The term of the laboratory facility commenced on March
1, 2024 and expires on September 1, 2024. The total base rent for the premises over the term is expected to be $15,000.
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company 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 of which we are aware.
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 15, 2024, 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.
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, 2023 or 2022.
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. 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.
In 2023, the Company implemented a cost rationalization
program driven by its transition from discovery research to product development. This resulted in a decision not to renew the lease for
office and laboratory space in Marlborough, Massachusetts, which will expire on March 31, 2024. Beginning in April of 2024, we expect
to continue operations as a remote business with a small laboratory facility in Worcester, Massachusetts for 321 square feet of space
that commenced on March 1, 2024. Additionally, we rationalized discovery research personnel resulting in headcount reduction by approximately
36%. Expense reductions have been redirected to funding the Phase 1b clinical trial with PH-762 directed toward skin cancer.
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.
Our preclinical studies 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 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
application (“IND”) application by the Food and Drug Administration and the trial is currently open for the continued
enrollment of patients.
Given our intention to
focus our efforts and resources on our U.S. clinical trial with PH-762, we have completed the winding down process for our first-in-human