Business context and reporting period
Phio Pharmaceuticals Corp. filed this unaudited Form 10-Q for the quarter and nine months ended September 30, 2019. The biotechnology company is developing immuno-oncology therapeutics using its self-delivering RNAi INTASYL platform, including programs intended for adoptive cell therapy and direct tumor-microenvironment treatment. It reported no product revenue.
Key financial metrics
Amounts below are in millions of dollars except per-share data and share counts.
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $0 | $0.057 | $0.021 | $0.138 |
| Research and development expense | $1.042 | $0.838 | $3.277 | $3.382 |
| General and administrative expense | $1.071 | $0.711 | $3.062 | $2.386 |
| Operating loss | $(2.113) | $(1.492) | $(6.318) | $(5.630) |
| Net loss | $(2.094) | $(1.493) | $(6.248) | $(5.633) |
| Basic and diluted loss per share | $(0.08) | $(0.34) | $(0.27) | $(1.54) |
- At September 30, 2019, cash was $8.709 million and restricted cash was $0.050 million, down from cash of $14.879 million at December 31, 2018. Total assets were $10.079 million; stockholders’ equity was $7.605 million.
- For the first nine months, operating cash outflow was $6.099 million, investing outflow was $0.077 million, and financing cash flow was positive $0.006 million. Cash and restricted cash decreased $6.170 million to $8.759 million.
- No conventional debt balance is reported. Lease liabilities totaled $0.542 million ($0.104 million current and $0.438 million noncurrent); the company reported a $0.538 million right-of-use asset.
- Gross margin is not meaningful for this development-stage business with negligible revenue and no reported cost of revenue.
Material changes versus the prior comparable period
- Q3 operating expenses rose $0.564 million, with R&D up $0.204 million and G&A up $0.360 million. Management attributed the R&D increase mainly to consulting and outside services supporting preclinical immuno-oncology research, and the G&A increase mainly to payroll and legal costs.
- Nine-month operating expenses increased $0.571 million. R&D declined $0.105 million as legacy clinical-trial and payroll costs fell, partly offset by preclinical spending; G&A increased $0.676 million, mainly from legal and recruiting fees and stock compensation.
- Revenue fell as the grant-funded BA-434 spinal-cord-injury work was completed in Q1 2019. That work was performed under a government grant awarded to collaborator BioAxone.
- Nine-month operating cash use increased $0.325 million. Financing cash flow fell from $5.433 million in 2018, when the company received proceeds from an offering, to near zero in 2019.
- Common shares issued and outstanding increased from 18.84 million at December 31, 2018 to 25.65 million at September 30, 2019. The filing reported 26.40 million outstanding as of November 8, 2019. The 2019 weighted-average share count was substantially higher than in 2018, so per-share comparisons reflect a changed share base.
Outlook, risks and unusual items
- Management expected to begin clinical development of PH-762 in adoptive cell therapy for solid tumors in the first half of 2020, and expected PH-762 or PH-790 intratumoral development in the second half of 2020. These are forward-looking plans, not reported milestones achieved.
- Management cited preclinical and collaborator data for PH-762 and PH-804 and reported a mouse-model study showing greater than 90% reduction in a target gene after intratumoral administration. It also said local administration had been safe and well tolerated in a clinical setting.
- The company reported recurring operating losses and expected negative operating cash flows for the foreseeable future. It said existing cash was expected to fund operations for at least 12 months; the liquidity note also refers to funds available under LPC agreements. It warned that unavailable or unacceptable additional financing could force it to scale back, terminate, merge, or seek an acquisition.
- The company had LPC purchase agreements: approximately $13.3 million remained under the 2017 agreement, which expires at the end of Q1 2020; the 2019 agreement permits up to $10 million subject to conditions and share limits. No shares were sold under either agreement during the 2019 quarter or nine-month period. The 2019 agreement included a 500,000-share commitment fee.
- Nasdaq minimum-bid-price compliance remained a material risk. The company’s compliance extension ran through November 11, 2019; it reported that it failed to regain compliance by that date, expected delisting proceedings, and planned to appeal. Delisting could reduce share liquidity and access to capital.
- There were 26.82 million warrants outstanding at September 30, 2019, including 21.43 million October 2018 warrants. Their potential exercise could materially dilute existing holders. Subsequent to quarter-end, 750,000 pre-funded warrants were exercised for $7,500.
- The office and laboratory lease was extended in January 2019 through March 2024, with options to terminate after two or three years on notice. The company adopted lease accounting standard Topic 842 in 2019.
- Phio reported no material legal proceedings, no material changes to internal control over financial reporting, and effective disclosure controls as of quarter-end. Its chief development officer resigned in October 2019.
Important facts for investors to verify
- Current cash runway, actual operating burn, and whether LPC or other financing can be accessed on acceptable terms.
- Outcome of the Nasdaq delisting appeal and the effect on trading liquidity and future fundraising.
- Progress and timing of PH-762 and PH-790 clinical plans, including whether required studies and regulatory steps support the stated timelines.
- Potential dilution from outstanding warrants, LPC share sales, equity awards, and subsequent warrant exercises.
- How much of reported collaborator or grant-related research activity remains, given the completion of the BA-434 grant work and minimal revenue.