Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

In this report, "we," "our," "ours," "us," "Phio" and the "Company" refers to Phio Pharmaceuticals Corp. and our subsidiary, MirImmune, LLC and the ongoing business operations of Phio Pharmaceuticals Corp. and MirImmune, LLC, whether conducted through Phio Pharmaceuticals Corp. or MirImmune, LLC.

This management's discussion and analysis of financial condition as of September 30, 2025 and results of operations for the three and nine months ended September 30, 2025 and 2024 should be read in conjunction with the audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2024, which was filed with the Securities and Exchange Commission (the "SEC") on March 31, 2025 (the "2024 Form 10-K").

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as "intends," "believes," "anticipates," "indicates," "plans," "expects," "suggests," "may," "would," "should," "potential," "designed to," "will," "ongoing," "estimate," "forecast," "target," "predict," "could" and similar references, although not all forward-looking statements contain these words. Forward-looking statements are neither historical facts nor assurances of future performance. These statements are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements as a result of a number of important factors, including, but not limited to:

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we are dependent on the success of our INTASYL™ technology, and our product candidates based on this technology, which is unproven and may never lead to approved and marketable products;

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our product candidates are in an early stage of development and we may fail, experience significant delays, never advance in clinical development or not be successful in our efforts to identify or discover additional product candidates, which may materially and adversely impact our business;

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disruptions at the FDA, including due to a reduction in the FDA's workforce and/or inadequate funding for the FDA, could prevent the FDA from performing normal functions on which our business relies, which could negatively impact our business;

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the impact of the government shutdown on our business operation;

	●	if we experience delays or difficulties in identifying and enrolling subjects in clinical trials, it may lead to delays in generating clinical data and the receipt of necessary regulatory approvals;
	●	topline data may not accurately reflect or may materially differ from the complete results of a clinical trial;

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we rely upon third parties for the manufacture of the clinical supply for our product candidates;

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our business and operations would suffer in the event of computer system failures, cyberattacks or a deficiency in our cybersecurity;

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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;

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we will require substantial additional funds to complete our research and development activities;

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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;

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changes in U.S. and international trade policies may adversely impact our business and operating results;

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we may not be able to remain compliant with the continued listing requirements of The Nasdaq Capital Market; and

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the price of our Common Stock has been and may continue to be volatile.

Therefore, you should not rely on any of these forward-looking statements. Forward-looking statements contained in this Quarterly Report on Form 10-Q speak as of the date hereof and the Company does not undertake to update any of these forward-looking statements to reflect a change in its views or events or circumstances that occur after the date of this report except as required by law.

Overview

Phio Pharmaceuticals Corp. ("Phio," "we," "our" or the "Company") is a clinical stage biopharmaceutical company whose proprietary INTASYL® self-delivering small interfering RNAi (siRNA) technology 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. We are committed to discovering and developing innovative cancer treatments for patients by creating new pathways toward a cancer-free future.

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 expired on March 31, 2024. Beginning in April 2024, we have continued operations as a remote business with a laboratory facility in Worcester, Massachusetts. Beginning in January 2024, we rationalized discovery research personnel resulting in an overall headcount reduction by greater than 50%. Expense reductions have been redirected to funding the Phase 1b clinical trial with PH-762.

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.

Phio's ongoing Phase 1b dose escalation clinical trial (NCT 06014086) is designed to evaluate the safety and tolerability of neoadjuvant use of intratumoral PH-762 in Stages 1, 2 and 4 cutaneous squamous cell carcinoma (cSCC), Stage 4 melanoma, and Stage 4 Merkel cell carcinoma. Per the trial's protocol, patients receive four injections of PH-762 at weekly intervals and pathologic response is assessed on day 36 after the initial injection of PH-762. To date, pathologic results for the fifth and final cohort are as follows: 100% tumor clearance in one of three patients, > 90% clearance in the second patient, and > 50% clearance in the third patient at Day 36.

To date, a total of 18 patients with cutaneous carcinomas have completed treatment across five dose escalating cohorts in the Phase 1b trial. The cumulative pathologic response in 16 patients with cSCC include six with a complete response (100% clearance), two with a near complete response (> 90% clearance) and two with a partial response (> 50% clearance). A single patient with metastatic Merkel cell carcinoma had a partial response (> 50% clearance). Six patients with cSCC and one patient with metastatic melanoma had a pathologic non-response (< 50% clearance). No patients in the study, however, exhibited clinical progression of disease.

To date, there were no dose-limiting toxicities or clinically relevant treatment-emergent adverse effects in the patients receiving intratumoral PH-762 in this trial. Moreover, PH-762 has been well tolerated in all enrolled patients in each escalating dose cohort. Phio may continue to screen and treat additional patients as part of the fifth cohort.

Due to INTASYL's ease of administration, we have shown that our compounds can easily be incorporated into current Adoptive Cell Therapy (ACT) manufacturing processes. In ACT, T cells are usually taken from a patient's own blood or tumor tissue, grown in large numbers in a laboratory, and then given back to the patient to help the immune system fight cancer. By treating T cells with our INTASYL compounds while they are being grown in the laboratory, we believe our INTASYL compounds can improve these immune cells to make them more effective in killing cancer. Preclinical data generated in collaboration with AgonOx, Inc. ("AgonOx"), a private company developing a pipeline of novel immunotherapy drugs targeting key regulators of the immune response to cancer, demonstrated that treating AgonOx's "double positive" tumor infiltrating lymphocytes ("DP TIL") with PH-762 increased their tumor killing activity by two-fold.

In February 2021, we entered into a clinical co-development collaboration agreement (the "Clinical Co-Development Agreement") with AgonOx to develop a T cell-based therapy using PH-762 and AgonOx's DP TIL. Under the Clinical Co-Development Agreement, we had agreed to reimburse AgonOx up to $4 million in expenses incurred to conduct a Phase 1 clinical trial of PH-762 treated DP TIL in patients with advanced melanoma and other advanced solid tumors. We were also eligible to receive certain future development milestones and low single-digit sales-based royalty payments from AgonOx's licensing of its DP TIL technology.

In May 2024, we terminated the Clinical Co-Development Agreement with AgonOx, effective immediately. Effective as of the date of termination, the Clinical Co-Development Agreement and our and AgonOx's continuing obligations thereunder were terminated in their entirety. We are no longer required to provide financial support for the development costs incurred in the Clinical Co-Development Agreement and we are no longer entitled to future development milestones or royalty payments from AgonOx's licensing of its DP TIL technology. We paid to AgonOx all payment obligations that accrued prior to the termination of the Clinical Co-Development Agreement. Pursuant to the terms of the Clinical Co-Development Agreement, each of the Company and AgonOx were responsible for its own costs and expenses incurred in connection with the wind-down of the Phase 1 clinical trial. We made the remaining payment of $34,320, which primarily related to accrued obligations for patient fees and other miscellaneous costs as of the date of termination to AgonOx on March 21, 2025. This settled all future obligations to AgonOx.

Prior to the termination of the Clinical Co-Development Agreement with AgonOx, PH-762 treated DP TIL were being evaluated in a Phase 1 clinical trial in the U.S. with up to 18 patients with advanced melanoma and other advanced solid tumors by AgonOx. The primary trial objectives were to evaluate the safety and to study the potential for enhanced therapeutic benefit from the administration of PH-762 treated DP TIL. AgonOx had enrolled three patients. The first two patients were treated with DP TIL only and a third patient was treated with a combination of DP TIL and PH-762. Clinical results for the single patient who received a combination of DP TIL and PH-762 showed tumor size reductions of 65%, 100% and 81%, respectively, in three melanoma lesions.

In July 2025, we entered into a comprehensive drug substance development services agreement with a U.S. manufacturing company pursuant to which the manufacturer will provide analytical and process development and cGMP manufacture of clinical supplies for Phio's lead development compound, PH-762.

PH-894

PH-894 is an INTASYL compound that is designed to silence BRD4, a protein that controls gene expression in both T cells and tumor cells, thereby affecting the immune system as well as the tumor. Intracellular and/or commonly considered "undruggable" targets, such as BRD4, represent a challenge for small molecule and antibody therapies. Therefore, what sets this compound apart is its dual mechanism: PH-894 suppression of BRD4 in T cells results in T cell activation, and suppression of BRD4 in tumor cells results in tumors becoming more sensitive to being killed by T cells.

Preclinical studies conducted have demonstrated that PH-894 resulted in a strong, concentration dependent and durable silencing of BRD4 in T cells and in various cancer cells. Similar to PH-762, preclinical studies have also shown that direct-to-tumor application of PH-894 resulted in potent and statistically significant anti-tumoral effects against distant untreated tumors, indicative of a systemic anti-tumor response. These preclinical data indicate that PH-894 can reprogram T cells and other cells in the tumor microenvironment to provide enhanced immunotherapeutic activity. We have completed the IND-enabling studies and are in the process of finalizing the study reports required for an IND submission with PH-894. As a result of the reprioritization to advance our clinical trial with PH-762 in the U.S., we have elected to defer the IND submission for PH-894.

Patents and Patent Applications

We actively protect our intellectual property and are prosecuting a number of patents and pending patent applications covering our compounds and technologies. We continue to rationalize our intellectual property position to protect our lead clinical candidates in key geographic regions while abandoning patents or applications that do not pertain to INTASYL or are country-specific in regions that are not of strategic geographic focus. A combined summary of these patents and patent applications is set forth below in the following table:

			Pending				Issued
			Applications				Patents
United States
Canada
Europe
Japan
Other Markets

Our portfolio includes 59 issued patents, 53 of which cover our INTASYL platform, and of those 29 cover immuno-oncology compounds and therapeutic uses. There are 19 patent families broadly covering both the composition and methods of use of our self-delivering INTASYL platform technology and uses of our INTASYL compounds targeting immune checkpoint, cellular differentiation and metabolism targets for ex vivo cell-based cancer immunotherapies. The INTASYL platform patents are scheduled to expire between 2029 and 2038.

Furthermore, there are 23 patent applications, encompassing what we believe to be important new RNAi compounds and their use as therapeutics, chemical modifications of RNAi compounds that improve the compounds' suitability for therapeutic uses (including delivery) and compounds directed to specific targets (i.e., that address specific disease states). The patents that may issue from these pending patent applications will, if issued, be set to expire between 2029 and 2044, not including any patent term extensions that may be afforded under the Federal Food, Drug, and Cosmetic Act ("FFDCA") (and the equivalent provisions in foreign jurisdictions) for any delays incurred during the regulatory approval process relating to human drug products (or processes for making or using human drug products).

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate and base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions and could have a material impact on our reported results.

There have been no material changes to our critical accounting policies and estimates as compared to those disclosed in our 2024 Form 10-K. For a discussion of our critical accounting policies and estimates, refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates" in Part II, Item 7 of our Form 10-K for the fiscal year ended December 31, 2024.

Results of Operations

The following data summarizes the results of our operations for the periods indicated, in thousands:

		Three Months Ended September 30,												Nine Months Ended September 30,
										Dollar												Dollar
Description		2025				2024				Change				2025				2024				Change
Operating expenses		$	2,505			$	1,590			$	915			$	6,686			$	5,713			$	973
Operating loss		$	(2,505	)		$	(1,590	)		$	(915	)		$	(6,686	)		$	(5,713	)		$	(973	)
Net loss		$	(2,392	)		$	(1,524	)		$	(869	)		$	(6,327	)		$	(5,524	)		$	(803	)

Comparison of the Three and Nine Months Ended September 30, 2025 and 2024

Operating Expenses

The following table summarizes our total operating expenses, for the periods indicated, in thousands:

		Three Months Ended September 30,												Nine Months Ended September 30,
										Dollar												Dollar
Description		2025				2024				Change				2025				2024				Change
Research and development		$	1,181			$	644			$	537			$	3,141			$	2,658			$	483
General and administrative			1,324				946				378				3,545				3,055				490
Total operating expenses		$	2,505			$	1,590			$	915			$	6,686			$	5,713			$	973

Research and Development Expenses

Research and development expenses consist primarily of personnel expenses, including salaries, benefits and RSU stock compensation expense for research and development personnel, contract research organization (CRO) clinical trial costs, technology licenses and other expenses associated with preclinical and clinical development activities. Our research and development programs are focused on the development of immuno-oncology therapeutics based on our INTASYL technology. Since we commenced operations, research and development expenses have been a significant portion of our total operating expenses and are expected to constitute the majority of our spending for the foreseeable future.

Research and development expenses for the three months ended September 30, 2025 increased 83% or $500 thousand as compared with the three months ended September 30, 2024. This increase in research and development expenses was primarily driven by a $400 thousand increase in clinical trial costs, chemistry, manufacturing and controls (CMC) costs in connection with advancing our PH-762 program and a $100 thousand increase in R&D employee personnel related costs.

Research and development expenses for the nine months ended September 30, 2025 also increased by 18% or $500 thousand as compared with the nine months ended September 30, 2024. This increase was due to higher $300 thousand increase in R&D clinical and CMC costs in connection with advancing our PH-762 program and $200 thousand increase in R&D employee personnel expenses.

General and Administrative Expenses

General and administrative expenses consist primarily of personnel expenses, including salaries, benefits and RSU stock compensation expense for general and administrative personnel, professional fees for legal, audit, tax consulting services, as well as other general corporate expenses.

General and administrative expenses for the three months ended September 30, 2025 increased 40% or $400 thousand as compared with the three months ended September 30, 2024. The increase in general and administrative expenses was primarily driven by a $200 thousand increase in outsourced professional services related to accounting and legal and $77 thousand increase related to an increase in RSU compensation expense..

General and administrative expenses for the nine months ended September 30, 2025 increased by 16% or $500 thousand as compared with the nine months ended September 30, 2024. This year-to-date increase in general and administrative expenses relates to $300 thousand increase in outsourced professional fees and $200 thousand additional employee personnel costs including accrued bonus and RSU compensation expense.

Liquidity and Capital Resources

Historically, we have primarily funded our operations through the sale of our securities. In the future, we expect to depend on external funding from third parties, such as proceeds from the sale of equity, debt financings or potential strategic opportunities, to support our operations. Since our inception we have incurred operating losses and expect that we will continue to have negative cash flows from our operations and for the foreseeable future. As of September 30, 2025, we had cash and cash equivalents of $10,705,000 as compared with $5,382,000 at December 31, 2024.

The gross proceeds to the Company from the November 2025 Financing are approximately $13.4 million, prior to deducting placement agent fees and offering expenses of an anticipated $1.3 million. The Company expects to raise approximately $12.1 million of which $11.5 million has been received by the Company, with the remainder expected by November 18, 2025.

Based on current cash flow projections, the Company believes it has sufficient cash and cash equivalents, including net proceeds from the November 2025 Financing, to meet our current planned obligations for at least 12 months from the date these financial statements are issued. We have limited cash resources, have incurred recurring operating losses and negative cash flows from our operations since our inception and have not yet recognized any product revenues. These factors have previously raised doubt about the Company's ability to continue as a going concern. With the November 2025 Financing, combined with the net proceeds from the January 2025 and July 2025 Offerings, we were able to alleviate such doubt as of the date of the filing of this Quarterly Report on Form 10-Q.

The following table summarizes our cash flows for the periods indicated, in thousands:

		Nine Months Ended
		September 30,
		2025				2024
Net cash used in operating activities		$	(5,900	)		$	(5,741	)
Net cash used in investing activities			(12	)			-
Net cash provided by financing activities			11,235				2,641
Net increase (decrease) in cash and cash equivalents		$	5,323			$	(3,100	)

Net Cash Used in Operating Activities

Net cash used in operating activities for the nine months ended September 30, 2025 increased by $159 thousand as compared to the nine months ended September 30, 2024.

Net Cash Used in Investing Activities

Net cash used in investing activities for the nine months ended September 30, 2025 was approximately $12 thousand as compared to the nine months ended September 30, 2024 where net cash used in investing activities was $0. The increase in net cash used in investing activities was primarily due to computer equipment purchases during the nine months ended September 30, 2025.

Net Cash Provided by Financing Activities

Net cash provided by financing activities for the nine months ended September 30, 2025 was $ 11.2 million as compared to the nine months ended September 30, 2024 where net cash provided by financing activities was $2.6 million. The increase in net cash provided by financing activities was primarily due to the issuance of common stock and warrants, and the exercise of warrants, both as described in Note 3 of the condensed consolidated financial statements.

Contractual Obligations

There have been no material changes to the contractual obligations as disclosed in our 2024 Form 10-K. For a discussion of our critical accounting policies and estimates, refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations - Contractual Obligations" in Part II, Item 7 of our 2024 Form 10-K.

Future Funding Requirements

At September 30, 2025, we had cash and cash equivalents of $10.7 million, which includes aggregate net proceeds of approximately $6.7 million and $2.1 million after deducting fees and estimated offering expenses, from our January 2025 and July 2025 Financings, respectively. As described in our subsequent event disclosure, we expect to receive $12.1 million from our November 2025 Financing, after deducting placement agent fees and offering expenses. We expect that our cash and cash equivalents will enable us to fund our current operating plan for at least 12 months from the date these financial statements are issued. Due to the difficulty and uncertainty associated with the design and implementation of preclinical studies and clinical trials, we will continue to assess our cash and cash equivalents and future funding requirements. However, there is no assurance that additional funding will be achieved and that we will succeed in our future operations. We expect to continue to incur substantial additional operating losses for at least the next several years as we continue to develop our product candidates and seek marketing approval and, subject to obtaining such approval, the eventual commercialization of our product candidates. If we obtain marketing approval for any of our product candidates, we will incur significant sales, marketing and manufacturing expenses. We also expect to continue to incur significant costs to comply with corporate governance, internal controls and similar requirements associated with operating as a public reporting company.

Actual cash requirements could differ from management's projections due to many factors including additional investments in research and development programs such as PH-894, clinical trial expenses for PH-762, competing technological and market developments, general and administrative expenses, and the costs of any strategic acquisitions and/or development of complementary business opportunities. The amount of additional capital we will require will be influenced by many factors, including, but not limited to:

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the scope, progress, results, and costs of clinical trials of PH-762;

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our expectations regarding the timing and clinical development of PH-762;

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whether and to what extent we internally fund, whether and when we initiate, and how we conduct additional pipeline product development programs, including PH-894;

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whether and when we are able to enter into strategic arrangements for our product candidates and the nature of those arrangements;

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the costs involved in preparing, filing, prosecuting, maintaining, defending, and enforcing any patent claims;

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changes in our operating plan, resulting in increases or decreases in our need for capital;

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disruptions at the FDA, including due to a reduction in the FDA's workforce and/or inadequate funding for the FDA;

	●	the impact of the government shutdown on our business operations;
	●	U.S. and international trade policies; and

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our views on the availability, timing, and desirability of raising capital.

We expect to seek additional funding to sustain our future operations and while we have successfully raised capital in the past, the ability to raise capital in future periods is not assured. We do not know if additional capital will be available when needed or on terms favorable to us or our stockholders. Collaboration, licensing or other agreements may not be available on favorable terms, or at all. If we seek to sell our equity securities, we do not know whether and to what extent we will be able to do so, or on what terms. If available, additional equity financing may be dilutive to stockholders, debt financing may involve restrictive covenants or other unfavorable terms and dilute our existing stockholders' equity, and funding through collaboration, licensing or other commercial agreements may be on unfavorable terms, including requiring us to relinquish rights to certain of our technologies or products. If adequate financing is not available if and when needed, we may delay, reduce the scope of, or eliminate research or development programs, if any, postpone or cancel the pursuit of product candidates, or otherwise significantly curtail our operations to reduce our cash requirements and extend our capital.