Phio Pharmaceuticals Corp. — Q2 2019 Form 10-Q
Business context and period: Unaudited results for the quarter and six months ended June 30, 2019. Phio is a biotechnology company developing immuno-oncology therapeutics using its self-delivering RNAi platform. Its wholly owned subsidiary is MirImmune, LLC. Amounts below are in thousands of dollars, except per-share data.
Financial performance and liquidity
- Revenue: $0 in Q2 2019 versus $58 in Q2 2018; $21 for the first half of 2019 versus $81 in the first half of 2018. Revenue related to a completed government-grant sub-award.
- Expenses and losses: Q2 operating expenses were $2,059 (R&D $1,146; G&A $913), compared with $1,957 in Q2 2018. Q2 net loss was $2,035, or $0.08 per share, versus $1,901, or $0.46 per share. First-half operating expenses were $4,226 versus $4,219; net loss was $4,154, or $0.19 per share, versus $4,140, or $1.25 per share.
- Expense trends: First-half R&D fell $309 to $2,235, primarily reflecting lower headcount and payroll, completed clinical trials, and prior-year PH-762 manufacturing. First-half G&A rose $316 to $1,991, mainly due to legal fees and stock compensation, including restricted shares issued in lieu of the former CEO’s cash compensation.
- Cash flow: First-half operating cash use was $4,108 versus $3,767 in 2018; investing cash use was $16; financing provided $61 versus $5,501 in 2018. Cash and restricted cash declined $4,063 to $10,866.
- Balance sheet: Cash was $10,816 and current assets $11,373 at June 30, versus cash of $14,879 and current assets of $15,150 at December 31, 2018. Current liabilities were $1,936. Total liabilities were $2,401, including $567 of operating lease liabilities; the filing reports no borrowings. Stockholders’ equity was $9,707, down from $13,578.
- Margins: Not meaningful given minimal revenue and continuing operating losses.
Material changes and notable items
- Weighted-average shares increased substantially year over year, partly reflecting the 2018 financing; Q2 and first-half 2019 weighted-average shares were 24.2 million and 22.3 million, respectively, versus 4.1 million and 3.3 million in 2018.
- At June 30, 2019, 26.8 million warrants were outstanding, including 21.4 million October 2018 warrants exercisable at $0.70. The company also reported 615,491 unvested restricted stock units. These securities represent potential dilution; diluted loss per share excludes anti-dilutive instruments.
- Adoption of lease accounting in 2019 and a five-year office/laboratory lease extension resulted in a $565 right-of-use asset and $567 lease liability at June 30. The lease expires March 31, 2024, subject to specified termination options.
- On August 7, 2019, after quarter-end, Phio entered a new 30-month LPC purchase agreement allowing sales of up to $10 million of common stock, subject to conditions, and issued LPC 500,000 shares as a commitment fee.
Outlook, risks, and contingencies
- Management expected existing cash to fund operations for at least the next 12 months, while warning that continued losses and negative operating cash flow make future funding necessary. Debt, equity, or strategic financing may not be available on acceptable terms or at all; a shortfall could require reduced operations, termination, a merger, or an acquisition.
- Management expected to begin clinical development of PH-762 in adoptive cell transfer for solid tumors in the first half of 2020, PH-804 in adoptive cell transfer in the second half of 2020, and PH-762 by intratumoral injection in the second half of 2020. These are forward-looking expectations, not assurances.
- The company reported preclinical research showing 80–85% reduction of target-gene expression in a mouse melanoma model and described prior local-administration safety findings. Clinical efficacy and development timing remain uncertain.
- Nasdaq had notified Phio of a minimum-bid-price deficiency. The company had until November 11, 2019 to regain compliance; failure could lead to delisting and impair share liquidity and future financing access.
- The company disclosed ordinary-course and license-related indemnification obligations but had recorded no related liability and reported no material costs to date. No material legal proceedings were reported. Management concluded disclosure controls were effective, with no material changes in internal control reported.
Important facts for investors to verify
- Whether cash burn and available cash support the stated 12-month runway, and what financing may be needed afterward.
- Progress and timing of PH-762 and PH-804 clinical programs, including regulatory, manufacturing, and collaboration milestones.
- Nasdaq bid-price compliance status and the consequences if the deficiency is not cured.
- Potential dilution from outstanding warrants, restricted stock units, and the new LPC equity purchase agreement, including its 500,000-share commitment fee.
- Drivers of rising G&A costs and the extent to which legal expenses and stock compensation persist.