Phio Pharmaceuticals Corp. — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. The company is a pre-revenue biotechnology business developing self-delivering RNAi therapeutics for immuno-oncology. Unless noted, financial amounts below are in U.S. dollars.
Business context and pipeline
Phio’s INTASYL platform is designed to silence target genes without a delivery vehicle. The company is developing candidates for adoptive cell transfer and direct tumor-microenvironment treatment. All pipeline programs remained in preclinical development at year-end.
- PH-762, the lead candidate targeting PD-1: management expected it could be ready to enter clinical development with an adoptive-cell-therapy partner in the second half of 2020; intratumoral development was targeted for 2021.
- PH-804, targeting TIGIT: management aimed to enter clinical development with a partner in 2021.
- PH-790 targets PD-L1. The filing reports preclinical findings for the platform and candidates, not clinical efficacy results for these programs.
Financial performance and liquidity
| Metric | 2019 | 2018 |
|---|---|---|
| Revenue | $21,000 | $138,000 |
| Research and development expense | $4.300 million | $4.326 million |
| General and administrative expense | $4.708 million | $3.176 million |
| Total operating expenses | $9.008 million | $7.502 million |
| Operating loss | $8.987 million | $7.364 million |
| Net loss | $8.908 million | $7.360 million |
| Net cash used in operating activities | $8.645 million | $7.520 million |
| Cash and restricted cash at year-end | $6.984 million | $14.929 million |
Revenue was grant-related, with no commercial product sales. The grant work associated with the 2019 revenue ended in the first quarter of 2019. R&D expense was essentially flat; G&A rose 48%, mainly due to legal and recruiting fees and increased proxy-related costs. The larger operating loss reflected the higher overall expenses and minimal revenue. Gross margin is not meaningful for this pre-commercial company; the filing does not report a product-sales margin.
At December 31, 2019, current assets were $7.300 million and current liabilities were $1.880 million. Total liabilities were $2.291 million, including $518,000 of operating lease liabilities; the filing reports no borrowings under a financial debt facility. The company reported recurring losses and expected ongoing negative operating cash flows. It said cash on hand plus proceeds from February 2020 offerings should fund planned operations for at least 12 months from the filing date.
Changes, financing, and unusual items
- Net loss increased $1.548 million year over year; operating cash use increased $1.125 million. Financing cash inflow fell to $772,000 from $18.823 million in 2018.
- After year-end, February 2020 equity and warrant offerings generated estimated net proceeds of $1.4 million and $7.0 million, respectively. These offerings also created potential dilution through issued shares and warrants.
- In November 2019, the company reduced exercise prices on outstanding October 2018 warrants to facilitate its offering. The modification increased warrant fair value by approximately $800,000, recorded as a cost of capital in additional paid-in capital.
- A 1-for-55 reverse stock split took effect January 15, 2020; share and per-share figures in the filing were adjusted retrospectively.
- The company adopted lease accounting standard ASC 842 in 2019, recording operating lease right-of-use assets and liabilities.
Outlook, risks, and contingencies
Management’s development timelines depended on successful preclinical work and collaboration partners; the company stated it was not a cell-therapy company and expected partners to support clinical development. The filing also describes dependence on third-party research organizations and a single current supplier for clinical product candidates.
Key risks include early-stage programs failing or being delayed, regulatory uncertainty for RNAi therapies, competition, intellectual-property and licensing exposure, and the need for additional capital. The company warned that the COVID-19 pandemic could disrupt operations, suppliers, studies, and access to financing. It had no commercial products and no product revenue, and additional financing was not assured. License agreements include future contractual payments of $1.130 million as of year-end, plus contingent milestone and royalty obligations. The filing reports no material legal proceedings and no material costs to date from indemnification obligations.
The financial statements received an unqualified audit opinion from BDO USA, LLP. Management concluded disclosure controls and internal control over financial reporting were effective as of year-end; the auditor did not provide an internal-control attestation.
Important facts for investors to verify
- Whether PH-762 and PH-804 progressed to clinical testing on the stated timelines, and whether development requires or secures partners.
- Current cash, operating cash burn, financing runway, and the actual dilution and warrant overhang from the February 2020 offerings.
- Whether COVID-19 or supplier and CRO disruptions delayed research, manufacturing, or planned studies.
- The status and strength of INTASYL patents, license terms, and potential milestone or royalty liabilities.
- Whether preclinical findings translate into human safety and efficacy; the filing does not establish clinical efficacy for the pipeline candidates.