PHIO: Soldiering On as We Wait for Bids

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By John Vandermosten, CFA

NASDAQ:PHIO

READ THE FULL PHIO RESEARCH REPORT

PHIO Pharmaceuticals Corp. (NASDAQ:PHIO) reported third quarter results and filed its Form 10-Q on November 14, 2018. The company disclosed its quarterly performance and highighted the financial and scientific events that occurred during the period. In August, topline results from the retinal scarring trial were presented, which launched the effort to seek a partner or buyer for the company’s two Phase II assets. Patent awards, collaborations, pre-clinical advances in the immuno-oncology programs and a financing that opens a runway until 2020 rounded out other key events from June 30 to date.

In conjunction with the third quarter release, the company changed its name to PHIO Pharmaceuticals and its ticker symbol to PHIO. The PHIO name brings attention to the company’s immuno-oncology (IO) focus.

Financial results for 3Q:18 show a continued deceleration in spending as the Phase II trials wind down and PHIO focuses on pre-clinical work. Total expenses dropped 37% over the prior year and 21% sequentially. R&D of $0.8 million fell 44% as the dermatology and ophthalmology trials were concluded. G&A expenditures were $0.7 million and contracted 28% on lower payroll-related expenses and a reduction in headcount.

As of September 30, 2018, cash stood at $3.2 million and debt remained at zero. Cash burn was ($2.0) million in the quarter and ($5.8) million for the first nine months of the year. On October 3rd, the company closed an underwritten public offering of 3.7 million shares and warrants and an additional 17.7 milllion pre-funded units raising approximately $13.3 million. We anticipate additional cash to be added to the balance if further outstanding warrants are exercised.

Poster Presentation

On September 26, 2018, PHIO presented a poster highlighting the use of sd-rxRNA in natural killer (NK) cells for use in hematological cancers. The poster illustrated the ability of the immune effector cells to take up sd-rxRNA without the need for transfection reagents and downregulated the Casitas B-lineage Lymphoma-b (Cbl-b) gene, which is a negative regulator of T-cell activation. This is important because NK cells can recognize and kill cancer cells without the need for prior sensitization. They are the first line of defense against cancer cells but, similar to T-cells, have inhibitory receptors that sometimes prevent their cytotoxic activity. The use of sd-rxRNA to reduce these receptors will allow a potent anti-cancer response.


View Exhibit I – Relative Quantification (RQ) of Cbl-b Downregulation

The poster also reviewed the viability of sd-rxRNA silencing when exposed to the freeze-thaw cycle and found that it was similar to that of cells that had been transfected for 72 hours without the cycle. This ability allows the sd-rxRNA to be used with existing in-development chimeric antigen receptor (CAR) therapy without changing the administration protocol.

Pipeline Candidates

The following exhibit is the latest pipeline graphic for PHIO, which also includes several of the undisclosed compounds in adoptive cell therapy (ACT) and tumor microenvironment. The lead aset is RXI-762, which seeks to increase the expression of PD-1 in cell based therapies. Earlier stage programs are targeting the immune receptor TIGIT in solid tumors among other checkpoints. Cell differentiation is another program that is seeking to extend the life of modified immune cells so they will work longer.


View Exhibit II – PHIO Pipeline

2018 Milestones:

‣ Equity capital raise – 2Q:18 / 4Q:18
‣ Patent grant for use of sd-rxRNA targeting CTGF for treatment of fibrotic disorders – May 2018
‣ Partner Iovance added for TIL competency – May 2018
‣ Report of Retinal Scarring trial results – 2Q:18
‣ Cutaneous Warts study results – May 2018, 2018 at IID
‣ Retinal Scarring study results – August 2018
Patents granted in Europe & Japan for sd-rxRNA – August 2018
‣ Partnership/Sale of Dermatology and Ophthalmology Programs – 2H:181
‣ Manufacture of clinical grade batch of RXI-762 – 3Q:18
‣ Entry of Immuno-Oncology Programs into the Clinic – Late 2019

Focus Areas

PHIO’s efforts are now centered on three areas in immuno-oncology. The first area serves to reduce the expression of immune checkpoints on T-cells in conjunction with adoptive cell therapy (ACT) where sd-rxRNA is used ex-vivo to modify the expression of checkpoint proteins on the the T-cell’s surface. The second area also is conducted in conjunction with ACT and is used to improve other immune cells such as natural killer (NK) cells. This program also seeks to improve the function, fitness and persistence of immune cells, allowing them to fulfill their purpose with more endurance than they would without sd-rxRNA. The third area uses the company’s proprietary technology to directly influence the tumor macro environment.


View Exhibit III – Focus Areas

Work related to downregulating PD-1 receptors is being conducted with CCIT, Iovance and Medigene in the company’s lead candidate RXI-762. sd-rxRNA has been effective with reducing PD-1 on tumor infiltrating lymphycytes (TILs) and with a variety of T-cells, including engineered and non-engineered.

PHIO has made marked progress ACT and is working with the Karolinska Institutet to expand the utility of the platform to modify cell differentiation. The goal of the program is to produce anti-tumor adoptive cell therapy grafts that can exceed the capability of checkpoint blockade alone. Internal work has also progressed for ACT, especially with NK cells, that are attractive targets in immuno-oncology due to their role as first line defense against tumors. sd-rxRNA has demonstrated the ability to downrregulate checkpoints on TIGIT and Cbl-b.

Collaboration with Gustave Roussy is focused on the tumor macroenvironment where data is being generated on the direct use of sd-rxRNA in intratumoral injection. Gene expression was reduced by 80 to 85% following the intratumoral injection. The platform is very specific and can differentiate among isoforms, providing a material benefit as compared to small molecules and antibodies.


View Exhibit IV – sd-rxRNA Therapeutic Platform

Summary

PHIO remains in negotiations with potential buyers regarding the dermatology and ophthalmology assets. We are hopeful that this will be able to add to cash levels in the near term and that this will be reflected in the valuation2. A transaction announcement may help improve the share price to a level where PHIO Pharmaceuticals, will be back in compliance with NASDAQ minimum share price requirements. Despite hurdles on the financing side, PHIO has a multi-pronged approach to its immuno-oncology efforts, with three broad areas of research which is being conducted in collaboration with partners. Immuno-oncology is an attractive area for development as the FDA frequently provides preferential consideration for candidates pursuing a cancer indication and there is broad demand for therapies in this pathology. With the recent capital raise, PHIO has indicated that they have sufficient cash to support activity until 2H:20, a runway that may be extended with funds generated from asset sales. We maintain our target price at $2.00 per share.

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1 We discuss the Samcyprone and PHIO-109 in a previous report found here.
2 We discuss the Samcyprone and PHIO-109 in a previous report found here.

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