The accompanying notes are an integral part of these condensed consolidated financial statements.

RXi

PHIO PHARMACEUTICALS CORPORATIONCORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSSTOCKHOLDERS’ EQUITY

(Amounts in thousands)thousands, except share data)

(Unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

RXi

PHIO PHARMACEUTICALS CORPORATIONCORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)
(Unaudited)

The accompanying notes are an integral part of these condensed consolidated financial statements.

PHIO PHARMACEUTICALS CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Nature of Operations

RXi

Phio Pharmaceuticals CorporationCorp. (“RXiPhio,” “we,” “our” or the “Company”) is a clinical-stagebiotechnology company developing innovativethe next generation of immuno-oncology therapeutics based on ourits self-delivering RNAi (“INTASYL™”) therapeutic platform. The Company's efforts are focused on silencing tumor-induced suppression of the immune system through its proprietary self-delivering RNAi(sd-rxRNAINTASYL ^®) platform with utility in immune cells and Samcyprone™ which address significant unmet medical needs. We have a pipeline of discovery, preclinical and clinical product candidates in the areas of dermatology, ophthalmology and cell-based cancer immunotherapy. tumor micro-environment. The Company’s clinical development programs includeRXI-109, ansd-rxRNA for thegoal is to develop powerful INTASYL therapeutic compounds that can weaponize immune effector cells to overcome tumor immune escape, thereby potentially providing patients a powerful new treatment of dermal and ocular scarring, and Samcyprone™, a topical immunomodulator, for theoption that goes beyond current treatment of warts. The Company’s pipeline, coupled with our extensive patent portfolio, provides for product development and business development opportunities across a broad spectrum of therapeutic areas.modalities.

2. Liquidity and Going Concern

The Company has limited cash resources, certain limitations under the purchase agreement with Lincoln Park Capital Fund, LLC (“LPC”) and has expended substantial funds on the research and development of our product candidates and funding general operations. As a result, we have reported recurring losses from operations since inception and expect that we will continue to have negative cash flows from our operations for the foreseeable future. Historically, the Company’s primary source of financing has been the sale of its securities. Our ability to continue to fund our operations is dependent on the amount of cash on hand and our ability to raise additional capital through, but not limited to, equity or debt offerings or strategic opportunities. This is dependent on a number of factors, including the market demand or liquidity of our common stock. There can be no assurance that the Company will be successful in accomplishing these plans. As a result, we have concluded that there is substantial doubt regarding our ability to continue as a going concern for at least one year. If we fail to obtain additional funding when needed, we would be forced to scale back or terminate our operations or to seek to merge with or to be acquired by another company. These financial statements do not include any adjustments to, or classification of, recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

3. Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Certain information and footnote disclosures included in the Company’s annual financial statements have been condensed or omitted. Theyear-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. In the opinion of management, all adjustments (including normal recurring accruals) considered necessary for a fair presentation of the condensed consolidated financial statements have been included. Interim results are not necessarily indicative of results for a full year.

Reverse Stock Split

Effective January 15, 2020, the Company completed a 1-for-55 reverse stock split of the Company’s outstanding common stock. All share and per share amounts in the financial statements have been retroactively adjusted for all periods presented to give effect to the reverse stock split, including reclassifying an amount equal to the reduction in par value to additional paid-in capital. Unless otherwise noted, shares of common stock issued and outstanding, shares underlying warrants and stock awards, shares reserved, conversion price of convertible securities, exercise prices of warrants and stock awards and loss per share have been proportionately adjusted to reflect the reverse stock split. The reverse stock split did not reduce the number of authorized shares of the Company’s common stock or preferred stock.

Principles of Consolidation

The consolidated financial statements include the accounts of Phio and its wholly-owned subsidiary, MirImmune, LLC. All material intercompany accounts have been eliminated in consolidation.

Risks and Uncertainties

In December 2019, a novel strain of coronavirus, causing COVID-19, was reported to have surfaced in Wuhan, China and has since spread to other parts of the world, including the United States. In March 2020, the World Health Organization declared the outbreak a pandemic. We have not yet experienced any significant impacts or interruptions to our financial condition or operations as a result of the coronavirus pandemic at this time, but have begun to see our third party suppliers and service providers on which we rely becoming impacted, presumably as a result of the pandemic. Without a significant and sustained improvement of the current situation, we may experience significant and longer lasting impacts to certain of our development activities outsourced to third-party service providers. If the measures to contain the outbreak continue or are extended, it may have a more significant effect on our operations and those of third parties on which we rely, including reducing the availability of supplies that we purchase, closures of or delays in businesses that we rely on to provide services and to conduct preclinical and clinical activities for our product candidates and disrupting the supplies and services we rely on for the development of our product candidates. Additionally, a long lasting pandemic may adversely affect future clinical trial initiations and participant recruitment and enrollments, all of which may in turn slow, delay or pause our research and development activities. The ultimate impact of the coronavirus pandemic is highly uncertain and subject to change, and certain of our business operations may be delayed. The Company does not yet know the full extent of such potential delays or impacts on its business and preclinical and clinical trial activities. Moreover, the pandemic creates uncertainty around our ability to access capital markets and raise additional working capital that we will need to sustain our operations over the long term, particularly if the impacts of the pandemic are long lasting and affect us and our vendors and contractors.

Coronavirus Aid, Relief, and Economic Security Act

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted. The CARES Act is an emergency economic stimulus package passed in response to the coronavirus outbreak that includes, but is not limited to, provisions providing aid to small businesses in the form of loans and grants and numerous tax provisions such as certain payroll tax benefits, changes to the net operating loss rules, and the business interest expense deduction rules. On May 11, 2020, the Company received loan proceeds pursuant to the Paycheck Protection Program (the “PPP”) under the CARES Act. On June 5, 2020, President Trump signed into law the Paycheck Protection Program Flexibility Act of 2020 (the “Flexibility Act”), which amends the PPP created by the CARES Act. The Flexibility Act revises certain terms and provisions of the PPP to address issues raised by eligible borrowers adversely impacted by the ongoing COVID-19 pandemic. Refer to footnote 6 for further details. The Company does not expect the provisions outside of the PPP in the CARES Act to have a material impact on its condensed consolidated financial statements. As there continues to be updates to the provisions under the CARES Act, the Company will continue to assess the potential impacts on our business, results of operations and financial statements.

Uses of Estimates in Preparation of Financial Statements

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The areas subject to significant estimates and judgement include, among others, those related to the fair value of equity awards, research and development expenses, right of use lease assets, the fair value of financial instruments, useful lives of property and equipment, income taxes, and our valuation allowance on our deferred tax assets. On an ongoing basis we evaluate our estimates and base our estimates on historical experience and other relevant assumptions that we believe are reasonable under the circumstances, including as a result of new information that may emerge concerning the coronavirus pandemic. We have made estimates of the impact of the coronavirus pandemic within our financial statements and there may be changes to those estimates in future periods. Actual results could differ materially from these estimates.

Cash, Cash Equivalents and Restricted Cash

The Company considers all highly liquid instruments with an original maturity of three months or less to be cash equivalents. Cash equivalents consist primarily of amounts invested in certificates of deposit.

Restricted cash consists of certificates of deposit held by financial institutions as collateral for the Company’s corporate credit cards.

Leases

In connection with the adoption on January 1, 2019, the Company follows the provisions of the Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification (“ASC”) Topic 842, “Leases” (“ASC 842”). At the inception of a contract, the Company determines whether the contract is or contains a lease based on all relevant facts and circumstances. For contracts that contain a lease, the Company identifies the lease and non-lease components, determines the consideration in the contract and recognizes the classification of the lease as operating or financing. At the commencement date of the lease, the Company recognizes a liability to make lease payments and an asset representing the right to use the underlying asset during the lease term.

The following table provides a reconciliationCompany has elected the package of cash, cash equivalents,practical expedients to not reassess its prior conclusions about lease identification, lease classification and restricted cash reported withinindirect costs and to not separate lease and non-lease components. The Company has elected not to recognize on the balance sheet leases with a term less than one year.

Lease liabilities and the corresponding right of use assets are recorded based on the present value of lease payments to be made over the lease term. The discount rate used to calculate the present value is the rate implicit in the lease, or if not readily determinable, the Company’s incremental borrowing rate. The Company’s incremental borrowing rate is the rate of interest that sumthe Company would have to pay to borrow on a collateralized basis over a similar term an amount equal to the totallease payments in a similar economic environment. Certain adjustments to the right of use asset may be required for items such as initial direct costs or incentives received. Lease payments on operating leases are recognized on a straight-line basis over the expected term of the same suchlease. Lease payments on financing leases are recognized using the effective interest method.

Derivative Financial Instruments

The Company follows the provisions of the FASB ASC Topic 815, “Derivatives and Hedging” (“ASC 815”). Financial instruments that meet the definition of a derivative are classified as an asset or liability and measured at fair value on the issuance date and are revalued on each subsequent balance sheet date. The changes in fair value are recognized as current period income or loss. Financial instruments that do not meet the definition of a derivative are classified as equity and measured at fair value and recorded as additional paid-in capital in stockholders’ equity at the date of issuance. No further adjustments to their valuation are made.

Fair Value of Financial Instruments

The carrying amounts shownreported in the statement ofbalance sheet for restricted cash, flows (in thousands):prepaid expenses, accounts payable and accrued expenses approximate their fair values due to their short-term nature.

Research and Development Expenses

Research and development expenses relate to compensation and benefits for research and development personnel, facility-related expenses, supplies, external services, costs to acquire technology licenses, expenses associated with preclinical and clinical development activities and other operating costs. Research and development expenses are charged to expense as incurred and relate to salaries, employee benefits, facility-related expenses, supplies, stock-based compensation related to employees andnon-employees involved in the Company’s research and development, external services, other operating costs and overhead related to our research and development departments, costs to acquire technology licenses and expenses associated with preclinical activities and our clinical trials.incurred. Payments made by the Company in advance for research and development services not yet provided and/or for materials not yet received are recorded as prepaid expenses.expenses and expensed when the service has been performed or when the goods have been received. Accrued liabilities are recorded related to those expenses for which vendors have not yet billed usthe Company with respect to services provided and/or materials that we haveit has received.

Preclinical

The Company contracts with third parties to perform various preclinical and clinical trialactivities on its behalf for the continued development of its product candidates. Accruals and expenses relate to third-party services, subject-related fees at the sites where our clinical trials are being conducted, laboratory costs, analysis costs, toxicology studies and investigator fees. Costs associated with these expenses are generally payable on the passage of time or when certain milestones are achieved. Expense is recorded during the period incurred or inbased on such estimates and assumptions as expected cost, passage of time, the period in which a milestone is achieved. In orderachievement of milestones and other information available to ensure that we have adequately provided for preclinicalus and clinical expenses during the proper period, we maintain an accrual to cover these expenses. These accruals are assessed on a quarterly basis and are based on such assumptions as expected total cost, the number of subjects and clinical trial sites and length of the study.basis. Actual results may differ from these estimates and could have a material impact on ourthe Company’s reported results. OurThe Company’s historical accrual estimates have not been materially different from ourits actual costs.

Stock-based Compensation

The Company follows the provisions of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718, “Compensation — Stock Compensation” (“ASC 718”), which requires the measurement and recognition of compensation expense for all stock-based payment awards made to employees, officers andnon-employee directors, including stock options. Stockawards. Stock-based compensation expense is based on the grant date fair value estimated in accordance with the provisions of ASC 718 and is recognized as an expense over the requisite service period.

For stock options granted as consideration for services rendered bynon-employees, the Company recognizes compensation expense in accordance with the requirements of FASB ASC Topic505-50, “Equity Based Payments toNon-Employees.”Non-employee option grants that do not vest immediately upon grant are recorded as an expense over the requisite service period of the underlying stock options. At the end of each financial reporting period prior to vesting, the value of these options, as calculated using the Black-Scholes option-pricing model, will bere-measured using the fair value of the Company’s common stock and thenon-cash compensation recognized during the period will be adjusted accordingly. Since the fair market value of options granted tonon-employees is subject to change in the future, the amount of the future compensation expense will include fair valuere-measurements until the stock options are fully vested.

Comprehensive Loss

The Company’s comprehensive loss is equal to its net loss for all periods presented.

Net Loss per Share

The Company accounts for and discloses net loss per share in accordance with the FASB ASC Topic 260, “Earnings per Share.Share.” Basic and diluted net loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding. Diluted earnings per share is computed by dividing the Company’s net earningsloss by the weighted average number of common shares outstanding and the impact of all dilutive potential common shares.

3. Liquidity and Going Concern

The Company has reported recurring losses from operations since inception and expects that the Company will continue to have negative cash flows from operations for the foreseeable future. Historically, the Company’s primary source of funding has been the sale of its securities. The Company’s ability to continue to fund its operations is dependent on obtaining funding from third parties, such as proceeds from the issuance of debt, sale of equity, or strategic opportunities, in order to maintain its operations. This is dependent on a number of factors, including the market demand or liquidity of the Company’s common stock. There is no guarantee that debt, additional equity or other funding will be available to us on acceptable terms, or at all. Moreover, the global coronavirus pandemic has led to significant uncertainty and increased volatility in the capital markets. While the potential economic impact brought by, and the duration of, the coronavirus pandemic is difficult to assess or predict, if these conditions in the capital markets continue for an extended period of time it may reduce our ability to access capital, which could negatively impact our short-term and long-term liquidity and our ability to complete our planned preclinical and clinical studies on a timely basis, or at all. The ultimate impact of the coronavirus pandemic on our liquidity is highly uncertain and subject to change. While we anticipate that we may experience a continued impact to our research and development activities, we do not yet know the full extent of potential delays or the impact on our business, financial condition, or our preclinical and clinical trial activities. There may be developments outside of our control that require us to adjust our operating plans and given the nature of the situation, we cannot reasonably estimate the impact of the coronavirus on our financial condition, results of operations or cash flows in the future. If we fail to obtain additional funding when needed, we would be forced to scale back or terminate our operations or seek to merge with or to be acquired by another company.

While we believe that the coronavirus pandemic has not had a significant impact on our financial condition and results of operations at this time, the extent to which the coronavirus pandemic impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus pandemic and the actions to contain the coronavirus or treat its impact, among others. The Company believes that its existing cash, should be sufficient to fund operations for at least the next 12 months from the date of the release of these financial statements.

4. Recent Accounting Pronouncements

In August 2016,November 2018, the FASB issued Accounting Standards Update (“ASU”) 2016-15,2018-18, “Statement of Cash FlowsCollaborative Arrangements (Topic 230) — Classification of Certain Cash Receipts and Cash Payments808)” (“Topic 808”),” which clarifies howthe interaction between Topic 808 and ASC Topic 606, “Revenue from Customers.” The update provides guidance on whether certain cash receiptstransactions between collaborative arrangement participants should be accounted for with revenue under ASC Topic 606 and payments are presented and classifiedprovides more comparability in the statementpresentation of cash flows.revenue for certain transactions between collaborative arrangement participants. This standard will beASU is effective for annual reporting periods beginning after December 15, 2017,2019, including interim periods within that reporting period. Early adoptionThis guidance is permitted. The amendments in ASU2016-15 shouldrequired to be applied using a retrospective transition methodretrospectively to each period presented.the date of adoption of ASC Topic 606. The Company adopted ASU2016-15ASC Topic 606 in the first quarter of 20172018 and the implementation of this standard had no impact on the Company’s financial statements.

In November 2016, the FASB issued ASU2016-18, “Statement of Cash Flows (Topic 230) — Restricted Cash,”which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash and restricted cash equivalents. With this standard, amounts generally described as restricted cash or restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning of period and end of period total amounts shown on the statement of cash flows. This standard will be effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is permitted. The Company adopted ASU2016-18 2018-18 in the first quarter of 2017, and2020. The Company also elected to apply ASU 2018-18 only to contracts that were not completed at the guidancedate of initial application of Topic 606. Since the Company has been retrospectively applied to all periods presented. The total of cash, cash equivalents and restricted cash is described in Note 3. The adoption of the guidance did not have anno significant revenue, this ASU has no immediate impact on the Company’s balance sheet or statement of operations.its condensed consolidated financial statements.

In January 2017,December 2019, the FASB issued ASU2017-01, 2019-12, “Business CombinationsIncome Taxes (Topic 805) — Clarifying740): Simplifying the DefinitionAccounting for Income Taxes.” The amendments in the update simplify the accounting for income taxes by eliminating the exceptions related to the incremental approach for intraperiod tax allocation, the recognition of a Business,” which providesdeferred tax liability for equity method investments, not recognizing a screen to determine whendeferred tax liability for a foreign subsidiary and the general methodology for calculating income taxes in an integrated set of assetsinterim period. The amendments also clarify and activities are not a business. The screen requires that when substantially allsimplify other aspects of the fair value of the gross assets acquired (or disposed of) is concentratedaccounting for income taxes. The amendments in a single identifiable asset or a group of similar identifiable assets, the set is not a business. This screen reduces the number of transactions that need to be further evaluated. This standard will beASU 2019-12 are effective for annual reportingpublic entities for fiscal years, and the interim periods within those fiscal years, beginning after December 15, 2017, including interim periods within that reporting period. The Company adopted ASU2017-01 effective January 1, 2017. The implementation of this standard did not have an impact on the Company’s financial statements as the acquisition of MirImmune Inc., (“MirImmune”), the Company’s transaction that this ASU would have affected, did not meet the definition of a business under either the prior guidance or the new guidance.

In May 2017, the FASB issued ASU2017-09, “Compensation — Stock Compensation (Topic 718) — Scope of Modification Accounting,” which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. This standard will be effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period.20, 2020. Early adoption is permitted. The Company adopted ASU2017-09 inis evaluating the second quarter of 2017, and the implementation ofexpected impact this standard had no impactguidance may have on the Company’sconsolidated financial statements.statements and related disclosures.

5. MirImmune Inc. AcquisitionLeases

On January 6, 2017,22, 2019, the Company entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”)amended the lease for its corporate headquarters and completed its acquisitionprimary research facility in Marlborough, Massachusetts. The Company leases 7,581 square feet of MirImmune. Subjectoffice and laboratory space, which will expire on March 31, 2024. The lease contains an option to terminate the lease after two years or three years by providing advance written notice of termination pursuant to the terms of the Stock Purchase Agreement, RXi Merger Sub, LLC, a Delaware limitedagreement. The exercise of this option was not determined to be reasonably certain and thus is not included in the lease liability company and wholly-owned subsidiary of the Company (“RXi Merger Sub”), was merged with and into MirImmune, with RXi Merger Sub continuing as the surviving entity and changing its name to “MirImmune, LLC”. As a result of the merger, MirImmune, LLC remains and operates as a wholly-owned subsidiary of the Company. Pursuant to the Stock Purchase Agreement, the Company acquired all of the issued and outstanding shares of capital stock of MirImmune for an aggregate of 2,750,371 shares of common stock of the Company and an aggregate of 1,118,224 shares of Series C Convertible Preferred Stock of the Company (the “Series C Convertible Preferred Stock”). The shares of common stock and Series C Convertible Preferred Stock were subject to a holdback of 3% of the aggregate closing consideration for any purchase price adjustments. The shares subject to the holdback, adjusted for post-closing items, were released and issued on April 12, 2017.

Upon the closing of the acquisition, the notes receivable outstanding on the Company’s balance sheet as of December 31, 2016 were cancelled.sheet.

The Company assessedlease for our corporate headquarters represents substantially all of our significant lease obligations. The amounts reported in the acquisition of MirImmune under FASB ASC Topic 805, “Business Combinations” (“ASC 805”). Under ASC 805,condensed consolidated balance sheets for operating leases in which the Company determined thatis the acquired assets did not constitute a businesslessee and thatother supplemental balance sheet information is set forth as follows, in thousands, except lease term and discount rate:

Operating lease cost included in operating expense was $33,000 and $33,000 for the transaction would be accounted for as an asset acquisition. The assetsthree months ended September 30, 2020 and development programs acquired from MirImmune are at an early stage of development and will require a significant investment of time and capital if we are to be successful in developing them. There is no assurance that we will be successful in developing such assets, and a failure to successfully develop such assets could diminish our prospects. Under ASC 805, the assets acquired are considered to have no alternative future uses, as determining the future economic benefit of the acquired assets at the date of acquisition is highly uncertain. The fair value of the assets was determined using the quoted market price of the Company’s common stock on January 6, 2017, the date of the acquisition, and fully expensed asin-process research and development.

During2019, respectively. For the nine months ended September 30, 2017,2020 and 2019, operating lease cost included in operating expense was $99,000 and $94,000, respectively. Short-term lease costs were not material for the aggregate fair valuethree and nine months ended September 30, 2020 and 2019.

Cash paid for the amounts included in the measurement of the consideration givenoperating lease liability on the Company’s condensed consolidated balance sheets and included within changes in the lease liability in the operating activities of $3,075,000our condensed consolidated statement of cash flows was fully expensed asin-process research$32,200 and development expense. The aggregate fair value$31,000 for the three months ended September 30, 2020 and 2019, respectively, and $95,600 and $90,000 for the nine months ended September 30, 2020 and 2019, respectively.

Future lease payments for our non-cancellable operating leases and a reconciliation to the carrying amount of the consideration also included transaction costs, liabilities assumedoperating lease liability presented in the condensed consolidated balance sheet as of September 30, 2020 is as follows, in thousands:

6. Debt

On May 11, 2020, the Company received loan proceeds in the amount of $231,252 from Bank of America, N.A., as lender, pursuant to the PPP under the CARES Act. The PPP loan matures on May 11, 2022 and cancellationbears interest at a rate of notes receivable.

The Company was restricted from converting anycarefully assessed the requirements for application under the PPP and believes that the loan is necessary to support its operations. The Company intends to apply for loan forgiveness, but as loan forgiveness has not yet been determined the Company followed the guidance under the FASB ASC Topic 470, “Debt” (“ASC 470”) in assessing the accounting for the PPP loan proceeds. Per ASC 470, the Company recorded a liability on the balance sheet for the full amount of PPP loan proceeds received and will accrue interest over the term of the Series C Convertible Preferred Stock into common stock toloan. As of September 30, 2020, the extent that such conversion was not approved byPPP loan proceeds have been classified as long-term debt on the Company’s stockholders in accordance withbalance sheet.

7. Stockholders’ Equity

February 2020 Registered Direct Offering and Private Placement — On February 6, 2020, the stockholder approval requirementsCompany completed a registered direct offering (the “February 2020 Registered Offering”) of NASDAQ Marketplace Rule 5635. On June 9, 2017, with the approval197,056 shares of the Company’s stockholderscommon stock at a purchase price of $8.705 per share and in accordancea concurrent private placement, sold warrants to purchase an aggregate of 197,056 shares of the Company’s common stock at a purchase price of $0.125 per underlying warrant share and with an exercise price of $8.71 per share. Net proceeds to the Company from the February 2020 Registered Offering were $1,467,000 after deducting placement agent fees and offering expenses paid by the Company. In connection with the NASDAQ stockholder approval requirements, each shareFebruary 2020 Registered Offering, the Company also issued warrants to purchase a total of 14,779 shares of the Series C Convertible Preferred Stock outstanding was automatically converted into one share ofCompany’s common stock such that there were nowith an exercise price of $11.0375 per share to the placement agent, H.C. Wainwright & Co., LLC (“HCW”).

February 2020 Underwritten Public Offering — On February 13, 2020, the Company completed an underwritten public offering of 993,633 shares of Series C Convertible Preferred Stock issued or outstanding at September 30, 2017. On November 7, 2017, the Company filed a Certificate Eliminating the Series C Convertible Preferred Stock from the CertificateCompany’s common stock and pre-funded warrants (the “2020 Pre-Funded Warrants”) to purchase an aggregate of Incorporation1,006,367 shares of the Company with the Secretary of State of the State of Delaware. Please refer to Note 10 for further discussion of the filing.

Under the terms of the Stock Purchase Agreement, if certain development or commercial milestones are achieved within two years, the Company will be required to either (i) issue a number of shares ofCompany’s common stock (the “Milestone SharesFebruary 2020 Underwritten Offering”) equal to the sum. The 2020 Pre-Funded Warrants were immediately exercisable at an exercise price per share of 2,519,091 shares$0.001. Each share of Company common stock plus an additional numberor 2020 Pre-Funded Warrant, as applicable, was sold as a unit with a warrant to purchase one share of shares ofCompany common stock equal to 13%at an exercise price of the$4.00 per share (the “February 2020 Warrants”). The combined public offering price was $4.00 per Company common stock issued upon exercise of any warrants issued underunit or $3.999 per 2020 Pre-Funded Warrant unit. Net proceeds from the Company’s underwritten publicFebruary 2020 Underwritten Offering were $7,093,000 after deducting underwriting discounts and commissions and offering in December 2016, but only toexpenses paid by the extent that such warrants have been exercised prior to the milestone being achieved or (ii) pay the equivalent value of the Milestone Shares in cash. The Company received shareholder approval in accordance with Rule 5635 of the NASDAQ Marketplace Rules at its 2017 Annual Meeting of Stockholders to issue any shares in satisfaction of the achievement of the milestones.Company.

The Company assessed also granted HCW, as underwriter, a 30-day option (the “Option”) to purchase up to an additional 300,000 shares of Company common stock and/or February 2020 Warrants to purchase up to an aggregate of 300,000 shares of Company common stock. On February 12, 2020, HCW partially exercised the Milestone SharesOption to purchase an aggregate of 300,000 additional February 2020 Warrants at a public offering price per option warrant of $0.001.

Additionally, pursuant to the February 2020 Underwritten Offering, the Company issued warrants to purchase up to 150,000 shares of Company common stock, immediately exercisable at an exercise price of $5.00 per share to HCW, as underwriter.

April 2020 Registered Direct Offering and Private Placement — On April 2, 2020, the Company completed a registered direct offering (the “April 2020 Offering”) of 1,713,064 shares of the Company’s common stock at a purchase price of $2.21 per share and in a concurrent private placement, sold warrants to purchase an aggregate of 1,713,064 shares of the Company’s common stock at a purchase price of $0.125 per underlying warrant share and with an exercise price of $2.21 per share. Net proceeds to the Company from the April 2020 Offering were $3,527,000 after deducting placement agent fees and offering expenses paid by the Company. In connection with the April 2020 Offering, the Company also issued warrants to purchase a total of 128,480 shares of the Company’s common stock with an exercise price of $2.9188 per share to the placement agent, HCW.

Warrants

The Company first assesses the warrants it issues under the FASB ASC Topic 480, “Distinguishing Liabilities from Equity” (“ASC 480”). The Company determined that liability accounting would be required for to determine whether they are within the Milestone Shares underscope of ASC 480. The Company will record a liability related toAs there are no instances outside of the Milestone Shares if and whenCompany’s control that could require cash settlement of the milestones are achieved andwarrants, including the consideration becomes payable. At that time,warrants issued by the Company will record the cost of the Milestone Shares asin-process research and development expense. No milestones have been met as of September 30, 2017.

6. Fair Value Measurements

The Company follows the provisions of FASB ASC Topic 820, “Fair Value Measurements and Disclosures,”for the Company’s financial assets and liabilities that arere-measured and reported at fair value at each reporting period and arere-measured and reported at fair value at least annually using a fair value hierarchy that is broken down into three levels. Level inputs are defined as follows:

Level 1 — quoted prices in active markets for identical assets or liabilities.

Level 2 — other significant observable inputs for the assets or liabilities through corroboration with market data at the measurement date.

Level 3 — significant unobservable inputs that reflect management’s best estimate of what market participants would use to price the assets or liabilities at the measurement date.

The warrant issued to the Company by Thera Neuropharma, Inc. (“Thera”) is categorized as Level 3 hierarchy. The estimated fair value inputs utilizing the asset-based approach for the warrant issued to the Company by Thera include the stage of enterprise development, terms of existing contractual arrangements of the entity’s equity securities, the achievement of milestones and other unobservable inputs.

Financial assets measured at fair value on a recurring basis are summarized as follows, in thousands:

Upon its issuance, the Series C Convertible Preferred Stock was assessed under ASC 480. The Company determined that the Series C Convertible Preferred Stock was not withinoutstanding warrants are outside the scope of ASC 480480.

The Company then applies and therefore,follows the Series C Convertible Preferred Stock was not considered a liability. The Series C Convertible Preferred Stock was recordedapplicable accounting guidance in permanentASC 815. Financial instruments are accounted for as either derivative liabilities or as equity instruments depending on the Company’s balance sheet.

The Series C Convertible Preferred Stock was then assessed under FASB ASC 815, “Derivatives and Hedging” (“ASC 815”). The Company believes that the Series C Convertible Preferred Stock is an equity host for the purposes of assessing the embedded conversion option for potential bifurcation. The Company concluded that the conversion option feature is clearly and closely related to the preferred stock host. As such, the conversion feature did not require bifurcation under ASC 815.

Pursuant to the Stock Purchase Agreement, the Company acquired allspecific terms of the issued andagreement. The Company’s outstanding shareswarrants do not meet the definition of capital stock of MirImmune for an aggregate of 2,750,371 shares of common stock of the Company and an aggregate of 1,118,224 shares of Series C Convertible Preferred Stock. The Company was restricted from converting any of the Series C Convertible Preferred Stock into common stocka derivative instrument as they are indexed to the extent that such conversion was not approved by the Company’s stockholders in accordance with the stockholder approval requirements of NASDAQ Marketplace Rule 5635. On June 9, 2017, with the approval of the Company’s stockholders in accordance with the NASDAQ stockholder approval requirements, each share of the Series C Convertible Preferred Stock outstanding was automatically converted into one share of common stock, such that there were no shares of Series C Convertible Preferred Stock issued or outstanding at September 30, 2017. Please refer to Notes 5 and 10 for further details on the shares issued in connection with the acquisition of MirImmune.

Lincoln Park Capital Fund, LLC— On August 8, 2017, the Company entered into a purchase agreement (the “2017 Purchase Agreement”) and a registration rights agreement with LPC, pursuant to which the Company

has the right to sell to LPC up to $15,000,000 in shares of the Company’s common stock subject to certain limitations and conditions set forthclassified within stockholders’ equity. Based on this determination, the Company’s warrants issued in the 2017 Purchase Agreement. As a commitment fee for entering intoFebruary 2020 Registered Offering, February 2020 Underwritten Offering, April 2020 Offering, as well as all of the 2017 Purchase Agreement, the Company issued to LPC 450,000 shares of Company common stock (the “Commitment Shares”). The Commitment Shares had a value per share of $0.58 and were recorded as a cost of capital. The Company intends to use the net proceeds from the 2017 Purchase Agreement for working capital and general corporate purposes. There have been no purchases under the 2017 Purchase Agreement as of September 30, 2017.Company’s remaining outstanding warrants, are classified within stockholders’ equity.

Warrants —

The following table summarizes the Company’s outstanding equity-classified warrants at September 30, 2017:2020:

There were no warrants exercised during the three months ended September 30, 2020 and 2019.

During the second quarternine months ended September 30, 2020, the Company received net proceeds of 2017, outstanding$3,856,000 from the exercise of warrants. During the nine months ended September 30, 2019, the Company received net proceeds of $60,000 from the exercise of warrants.

Of the warrants for the purchase of 462 shares of the Company’s common stock with an exercise price of $39.00 expired.

No warrants were exercised during the nine months ended September 30, 20172020, 428,266 of the Company’s April 2020 Warrants were exercised via a cashless exercise transaction and as a result a total of 225,796 shares of common stock were issued. There were no cashless exercises of warrants in the three months ended September 30, 2020 or 2016.the three and nine months ended September 30, 2019.

8. Net Loss per Share

The following table sets forth the potential common shares excluded from the calculation of net loss per share because their inclusion would be anti-dilutive:

9. Stock-based Compensation

Restricted Stock Units

Restricted stock units (“RSUs”) are issued under the Company’s 2012 Long-Term Incentive Plan or as inducement grants issued outside of the plan to new employees. RSUs are generally subject to graded vesting and the satisfaction of service requirements. Upon vesting, each outstanding RSU will be exchanged for one share of the Company’s common stock. Employee RSU recipients may elect to net share settle upon vesting, in which case the Company pays the employee’s income taxes due upon vesting and withholds a number of shares of equal value. The fair value of the RSUs awarded are based upon the Company’s closing stock price at the grant date and are expensed over the requisite service period.

The following table summarizes the activity of the Company’s RSUs for the nine months ended September 30, 2020:

Stock-based compensation expense related to RSUs for the three months ended September 30, 2020 and 2019 was $21,000 and $31,000, respectively. Stock-based compensation expense related to RSUs for the nine months ended September 30, 2020 and 2019 was $69,000 and $110,000, respectively.

Stock Options

The Company uses the Black-Scholes option-pricing model to determine the fair value of all its option grants. For valuing options granted during the three and nine months ended September 30, 2017 and 2016, the following assumptions were used:

The weighted average fair value of options granted during the three months ended September 30, 2017 and 2016 was $0.49 and $2.27, respectively. The weighted average fair value of options granted during the nine months ended September 30, 2017 and 2016 was $0.49 and $2.15, respectively.

The risk-free interest rate used for each grant wasis based upon the yield onzero-coupon U.S. Treasury securities with a term similar to the expected life of the related option. The Company’s expected stock price volatility assumption is based upon the volatility of a composition of comparable companies.Company’s own implied volatility. The expected life assumption for employeeoption grants wasis based upon the simplified method provided for under ASC 718, and the expected life assumption fornon-employees was based upon the contractual term of the option.718. The dividend yield assumption of zero is based upon the fact that the Company has never paid cash dividends and presently has no intention of paying cash dividends.

The following table summarizes the activity of the Company’s stock option planoptions for the nine months ended September 30, 2017:2020:

Stock-based compensation expense related to stock options for the three months ended September 30, 2020 and 2019 was $16,000 and $16,000, respectively. Stock-based compensation expense related to stock options for the nine months ended September 30, 2020 and 2019 was $41,000 and $53,000, respectively.

Restricted Stock

On August 31, 2018, and through subsequent amendments on December 19, 2018 and February 14, 2019, Geert Cauwenbergh, Dr. Med. Sc., the Company’s former Chief Executive Officer, elected the right to receive, in lieu of cash, for the period from September 15, 2018 to February 28, 2019, up to 50% of his base salary and cash bonuses, if any, (collectively, the “Compensation”) payable in the form of unvested, restricted shares of the Company’s common stock. Such restricted shares were received in the form of a series of grants made on each Company payroll date in lieu of cash payment of the Compensation. All shares issued in lieu of Compensation vested in full on June 1, 2019.

The fair value of the restricted stock was based on the Company’s closing stock price on the date of grant and was expensed over the vesting period. During the nine months ended September 30, 2019, the Company granted 4,419 shares of restricted stock in lieu of Compensation to Dr. Cauwenbergh and recorded $106,000 in stock-based compensation related to the restricted stock.

Compensation Expense Related to Equity Awards

The following table sets forth total stock-based compensation expense for the three and nine months ended September 30, 20172020 and 2016 as follows,2019, in thousands:

Stock-based compensation expense for the nine months ended September 30, 2017 includes $22,000, recorded in research and development expense, related to stock option modifications in connection with the retirement of the Company’s former Chief Development Officer.

9. Net Loss per Share

The following table sets forth the potential common shares excluded from the calculation of net loss per common share because their inclusion would be anti-dilutive:

10. Subsequent Events

On November 7, 2017, the Company filed a Certificate Eliminating the Series B Convertible Preferred Stock from the Certificate of Incorporation of the Company and a Certificate Eliminating the Series C Convertible Preferred Stock from the Certificate of Incorporation of the Company (together, the “Certificates of Elimination”) with the Secretary of State of the State of Delaware, in order to eliminate from the Certificate of Incorporation all matters set forth in the Certificate of Incorporation, including the related certificates of designation, relating to the previously issued Series B Convertible Preferred Stock and Series C Convertible Preferred Stock. As a result, the 8,100 shares of unissued Series B Convertible Preferred Stock and 1,800,000 shares of unissued Series C Convertible Preferred Stock were returned to the status of authorized but unissued shares of preferred stock of the Company, without designation as to series or preferences or rights. The foregoing summary of the Certificates of Elimination is qualified in its entirety by reference to the full text of the Certificates of Elimination, which are attached hereto as Exhibits 3.1 and 3.2 to this Quarterly Report on Form10-Q and incorporated herein by reference.

In this document, “we,” “our,” “ours,” “us,” “RXi”“Phio” and the “Company” refers to RXiPhio Pharmaceuticals CorporationCorp. and our subsidiary, MirImmune, LLC and the ongoing business operations of RXiPhio Pharmaceuticals CorporationCorp. and MirImmune, LLC, whether conducted through RXiPhio Pharmaceuticals CorporationCorp. or MirImmune, LLC.

This management’s discussion and analysis of financial condition as of September 30, 20172020 and results of operations for the three and nine months ended September 30, 20172020 and 20162019 should be read in conjunction with the financial statements included in our Annual Report onForm 10-K for the year ended December 31, 20162019, which was filed with the Securities and Exchange Commission (the “SEC”) on March 30, 2017.26, 2020.

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”“will,” “ongoing,” “estimate,” “forecast,” “predict,” “could” and similar references. Suchreferences, although not all forward-looking statements include, but are not limited to, statements about: our ability to successfully developRXI-109, Samcyprone™ and our other product candidates (collectively, “our

product candidates”); the future success of our clinical trials with our product candidates; the timing for the commencement and completion of clinical trials; the future success of our strategic partnerships; and our ability to implement cost-saving measures.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. Risks that could cause actual results to vary from expected results expressed in our forward-looking statements include, but are not limited to, the impact to our business and operations by the recent coronavirus outbreak, the development of our product candidates, our ability to execute on business strategies, our ability to develop our product candidates with collaboration partners, the timeline and duration for advancing our product candidates into clinical development, results from our preclinical and clinical activities and our ability to obtain future financing. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on anystatements as a result of these forward-looking statements. Importanta number of important factors, that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others: the risk that our clinical trials with our product candidates may not be successful in evaluating the safety and tolerability of these candidates or providing evidence of increased surgical scar reduction compared to placebo or clearance of common warts; the successful and timely completion of clinical trials; uncertainties regarding the regulatory process; the availability of funds and resources to pursue our research and development projects, including our clinical trials with our product candidates; general economic conditions; and those identified in our Annual Report on Form10-K for the year ended December 31, 20162019 under the heading “Risk Factors” and in other filings the Company periodically makes with the Securities and Exchange Commission.SEC. Therefore, you should not rely on any of these forward-looking statements. Forward-looking statements contained in this Quarterly Report on Form10-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.

Overview

RXi

Phio Pharmaceuticals Corporation (“RXi,” “we,” “our” or the “Company”)Corp. is a clinical-stagebiotechnology company developing innovativethe next generation of immuno-oncology therapeutics based on our proprietary self-delivering RNAi(sd-rxRNA^® (“INTASYL™”) therapeutic platform. Our efforts are focused on silencing tumor-induced suppression of the immune system through our proprietary INTASYL platform with utility in immune cells and Samcyprone™ which address significant unmet medical needs. We havethe tumor micro-environment. Our goal is to develop powerful INTASYL therapeutic compounds that can weaponize immune effector cells to overcome tumor immune escape, thereby potentially providing patients a pipeline of discovery, preclinicalpowerful new treatment option that goes beyond current treatment modalities.

Our development efforts are based on our broadly patented INTASYL technology platform. Our INTASYL compounds do not require a delivery vehicle to penetrate into tissues and clinical product candidates in the areas of dermatology, ophthalmologycells and cell-based cancer immunotherapy. The Company’s clinical development programs includeRXI-109, ansd-rxRNA for the treatment of dermal and ocular scarring, and Samcyprone™, a topical immunomodulator, for the treatment of warts. The Company’s pipeline, coupled with our extensive patent portfolio, provides for product development and business development opportunities across a broad spectrum of therapeutic areas.

RNAi therapies are designed to “silence,”“silence” or down-regulate, the expression of a specific gene that may bewhich is over-expressed in cancer. We believe that our INTASYL platform uniquely positions the Company in the field of immuno-oncology because of this and the following reasons:

The self-delivering nature of our compounds makes INTASYL ideally suited for use with adoptive cell transfer (“ACT”) treatments and direct therapeutic use. ACT consists of the infusion of immune cells with antitumor properties, after growing them in a disease condition. The Company’s first RNAi clinicallab to large numbers. These cells can be derived from unmodified (i.e. naturally occurring) immune cells, immune cells isolated from resected tumors, or genetically engineered immune cells that recognize tumor cells.

Regardless of the source of immune cells (ACT or naturally occurring immune cells), in patients with solid tumors, these cells face several hurdles. Multiple inhibitory mechanisms restrain immune cells from effectively eradicating tumors, including immune checkpoints, reduced cell fitness and cell persistence. Furthermore, the immunosuppressive tumor micro-environment (the “TME”) can pose a formidable barrier to immune cell infiltration and function.

We have developed a product candidate,RXI-109, isplatform based on our INTASYL technology that allows easy, precise, rapid, and selective non-genetically modified programming of ACT cells (ex vivo, during manufacturing) and of the TME (in vivo, by local application), resulting in reduced immune inhibition and in improved immunotherapy.

Adoptive Cell Transfer

ACT includes a self-delivering RNAi compound(sd-rxRNA)number of different types of immunotherapy treatments. These treatments use immune cells, isolated from patients, donors or retrieved from allogeneic immune cell banks. They are grown in a lab to large numbers, followed by administering them to the body to fight the cancer cells. Sometimes, immune cells that commenced human clinical trialsnaturally recognize a tumor are used, while other times immune cells are modified or “genetically engineered” to make them recognize and kill the cancer cells. There are several types of ACT, including: a.) non-engineered cell therapy in 2012.RXI-109 is designedwhich immune cells are grown from the patient’s tumor or blood, such as tumor infiltrating lymphocytes (“TILs”), or from donor blood or tissue such as natural killer (“NK”) cells, dendritic cells (“DC”) and macrophages, and b.) genetically engineered immune cells that are genetically modified to recognize specific tumor proteins and to remain in an activated state (such as T cell receptor technology (“TCRs”), chimeric antigen receptor (“CAR”) T cells, or CAR-NK cells).

In ACT, such immune cells are then expanded and modified before being returned and used to treat the patient. Multiple inhibitory mechanisms restrain immune cells used in ACT from effectively eradicating tumors, including immune checkpoints, reduced cell fitness and cell persistence, and other barriers to immune cell infiltration and function mainly in solid tumors. We believe our INTASYL compounds are ideally suited to be used in combination with ACT, in order to make these immune cells more effective without the need for additional complicated manufacturing steps and/or genetic engineering.

Our approach builds on well-established methodologies of ACT and involves the treatment of immune cells with our INTASYL compounds ex vivo while they are grown in the lab and before administering them to the patient. Because our INTASYL compounds do not require a delivery vehicle to penetrate into the cells, we are able to enhance the function of these cells by merely adding our INTASYL compounds during the expansion process and without the need for genetic engineering and without additional needed complex manufacturing steps. By adding INTASYL to the cell culture media used during the cell expansion, we can reduce or eliminate the expression of genes that make the immune cells less effective. For example, with our INTASYL compounds, we can reduce the expression of connective tissue growth factor (“CTGF”)immunosuppressive proteins by the therapeutic immune cells, potentially enabling them to overcome tumor resistance mechanisms and thus improving their ability to destroy the tumor cells. In various types of immune cells tested to date, INTASYL treatment results in potent silencing with close to 100% transfection efficiency and while maintaining nearly full cell viability. After expanding these cells and enhancing them with INTASYL ex vivo, they are returned to the patient for treatment.

Our lead product candidate and most advanced program being developed in ACT is PH-762, an INTASYL compound that targets the checkpoint protein PD-1. Checkpoint proteins, such as PD-1, normally act as a criticaltype of “off switch” that prevents T cells from attacking certain cells, such as cancer cells, in the body. Our T cells are immune cells that protect the body from cancer cells and infections.

Data developed by Phio and with collaborators has shown that PH-762 silences PD-1 checkpoint expression, thereby removing the “off switch” and resulting in enhanced T cell activation and tumor cytotoxicity. Experimental data shows that PH-762 can silence the expression of PD-1 in target human T cells in a potent and durable manner, and can increase function of patient derived TILs for use in ACT, showing that PH-762 is suitable for use both in ACT and as a standalone therapeutic through intra-tumoral injection. This supports the application of INTASYL technology in immunotherapy of cancer.

Our second ACT product candidate PH-894, an INTASYL compound that targets BRD4, is a regulator of several biological pathways involvedgene expression impacting cell differentiation. In previous studies, PH-894 has been shown to improve T cell function and persistence by differentiating T cells into a more active state (stem-cell like memory phenotype). Data, completed in fibrosis, including scar formationpartnership with the Karolinska Institutet, demonstrated that the application of PH-894, was shown to silence BRD4 in human T cells during expansion for ACT, which has the skinpotential to confer superior anti-tumor activity, for example by improving T cell persistence. With this data, we expanded our collaboration with the Karolinska Institutet to build upon these findings and eye.RXI-109develop INTASYL compounds for additional targets and cell types toward clinical application in areas of the Karolinska Institutet’s ongoing clinical research.

We are also developing our INTASYL compound PH-804 for use in ACT. PH-804 targets the suppressive immune receptor TIGIT, which is currently being evaluateda checkpoint protein present on T cells and NK cells. To date, we have shown that PH-804 can silence the expression of TIGIT in NK cells and T cells, overcoming their “off switch” and the cells becoming “weaponized” to kill cancer cells.

In March 2020, we entered into a Phase 2 clinical trial, Study 1402, to prevent or reduce dermal scarring following scar revision surgery of an existing hypertrophic scarcollaboration and a Phase 1/2 clinical trial, Study 1501, to evaluateoption agreement with Medigene AG and the safety and clinical activity ofHelmholtz Zentrum MRXI-109 to prevent the progression of retinal scarring in subjects with wetage-related macular degenerationünchen (“AMDHMGU”).

Study 1402, This three-way collaboration expands upon our outstanding research agreement with HMGU to design and develop novel candidates for the Company’s Phase 2use of INTASYL compounds in ACT to enhance immune cell function. Under the agreement, Medigene AG will contribute expertise regarding clinical trial in hypertrophic scars, commenced in July 2014. In October 2015, we reported that preliminary data from Study 1402 demonstrated that scars at revision sites were judged to be better at three months after a treatment regimen with five mg/cm intradermal administration ofRXI-109 than scars at untreated revision sites in those same subjects. Based in part on this new information, two more cohorts (Cohorts 3 and 4) were added to Study 1402 in November 2015. For these two cohorts, the number of doses was increased to either eight or nine doses ofRXI-109 over asix-month period to better cover the extended wound healing/scarring profile of hypertrophic scars. Enrollment of subjects into these two new cohorts completed ahead of schedule during the third quarter of 2016.

In December 2016, the Company announced that preliminary data from the first two cohorts from Study 1402 at nine months confirmed the positive differentiation by a blinded panel of observers from untreated surgery incisions in hypertrophic scars from the previously presented data for a subset of subjects treated with five mg/cm ofRXI-109 at three months. In addition, this data extends this observation to all time points, including the post-treatmentfollow-up period through nine months post-surgery.RXI-109 was safe and well tolerated. Additionally, as expected, the limited three-month data available from Cohort 3 appeared to align with that of the first two cohorts as these subjects all had the same dosing schedule through the third month. A completeread-out of the whole study, including all four cohorts withfollow-up until nine months post-surgery, is expected by the end of 2017.

Study 1501, the Company’s Phase 1/2 clinical trial in retinal scars, commenced in November 2015, and is a multi-dose, dose escalation study conducted in subjects with AMD with evidence of subretinal fibrosis. Each subject receives four doses ofRXI-109 by intraocular injection at one month intervals for a total dosing period of three months. The safety and tolerability ofRXI-109,development, as well as proprietary research material and has the potentialoption to an exclusive license for the clinical activity,and/or commercial development of certain INTASYL immune cell enhancers.

Tumor Micro-Environment

The TME is evaluated over the courseenvironment that surrounds and feeds a tumor, including normal cells, blood vessels, immune cells, and the extracellular matrix. The TME is an immunosuppressive environment that inhibits the immune system’s natural ability to recognize and destroy tumor cells by negatively impacting how immunosuppressive cells are being attracted and activated. Reprogramming different components of the study using numerous assessmentsTME may overcome resistance to monitor the healthimmunotherapy. Such reprogramming of the retinaTME by INTASYL compounds through direct local administration into the tumor, could potentially become an important form of therapy. The Company has previously shown in a clinical setting that our INTASYL compounds are safe and to assess visual acuity. To date, therewell-tolerated following local administration, therefore we believe that our INTASYL technology can not only be used with ACT, but can also be used as an independent therapeutic platform.

We have been no safety issues that have precluded continuationpipeline programs in place for the development of dosing. Study 1501 has been completely enrolled, dosingINTASYL compounds for direct administration into the tumor, including the use of PH-762, PH-804 and PH-894 for in situ transfection and activation of immune cells in the third cohort atTME.

Data presented in January 2020 from in vivo studies performed by the highest planned dose level is completedCompany showed that intra-tumoral injection of a mouse version of PH-804 reduced the tumor growth in colorectal carcinoma tumor bearing mice, which was shown to inhibit tumor growth and patient follow-up is ongoing. The Company expects to complete subject participationwas correlated with the silencing of TIGIT mRNA expression and in increase in cytotoxic effector T cells in the study byTME.

Building on the endanimal data with PH-804, the Company conducted several animal studies with a mouse version of 2017PH-762 and to sharetop-line datawith PH-894 in early 2018.

Samcyprone™, the Company’s second clinical candidate, is a proprietary topical formulationvalidated mouse model of hepatocellular carcinoma. These studies showed that local administration of the small molecule diphenylcyclopropenone (“DPCP”), an immunomodulatormouse version of PH-762 or PH-894 through intra-tumoral injection resulted in potent anti-tumoral effects. The treated animals showed a complete and statistically significant inhibition of tumor growth, whereas placebo treated animals displayed exponential tumor growth. The combined PH-804, PH-762, and PH-894 data further shows that works by initiating aT-cell response. The use of Samcyprone™ allows sensitization using much lower concentrations of DPCP than are used with existing compounded DPCP solutions, avoiding hyper-sensitization to subsequent challenge doses. Samcyprone™ is currently being evaluated in a Phase 2a clinical trial, Study 1502, for the clearance of common warts.

Study 1502 was initiated in December 2015. Study 1502 includes a sensitization phase in which a spot on the subject’s upper arm and one or more warts are treated with Samcyprone™. After being sensitized in this way, the subjects enter into the treatment phase where up to four warts are treated on a once weekly basis for ten weeks with aten-fold lower concentration of Samcyprone™ thanINTASYL compounds can trigger associated changes in the sensitization phase. DuringTME such as an increase of TILs, including CD8+ T cells responsible for tumor cell killing, and an increase of activation markers on these cells. These preclinical findings demonstrate that direct injection of INTASYL compounds can successfully infiltrate solid tumors and impact the trial,TME by activating the warts are scored, photographed and measured to monitor the levelimmune response in animal models of clearance.

In December 2016, the Company announced the results from a preliminary review of sensitization and wart clearance data from a subset of subjects that have completed theten-week treatment phase of Study 1502. Results showed that greater than 90%solid tumors resulting in reduced tumor growth. This is one of the subjects demonstrated a sensitization response, a prerequisitekey challenges for many other immunotherapy platforms to be able to developachieve an adequate therapeutic effect in solid tumors.

We are also investigating other relevant compounds for TME targets, such as PH-790, an INTASYL compound targeting PD-L1. PD-L1 is a therapeutic response. Additionally, more than 60%protein formed by cancer cells that activate the PD-1 “off switch” on immune cells. Our approach with PH-790 is to block the formation of the subjects respondedPD-L1 protein, which may prevent cancer cells from inactivating T cells and attack the cancer, and will be evaluated alongside PH-762. Previously, a series of preclinical in vivo studies in tumor models showed dose-dependent attenuated tumor growth for the INTASYL compounds compared to control groups. Recent data presented at the 35^th Annual Meeting of Society for Immunotherapy of Cancer in November 2020 demonstrated that the antitumoral efficacy of our individual pipeline products, PH-762, PH-790 and PH-804, can be further improved by combining them in a single drug treatment. This data showed that the combination of our INTASYL compounds inhibited tumor growth without having a negative impact on the tolerability of the treatment.

Based on our positive preclinical data, the Company is preparing for its first in-human clinical study with PH-762 using intra-tumoral administration for patients with advanced melanoma. The rationale for the study and its design were recently presented at a key opinion leader event held by the Company in June 2020 with Dr. Caroline Robert of the Gustave Roussy Cancer Center in Paris, France who will be our lead principal investigator for the trial.

Impact of COVID-19 on our Business

In December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China and has since spread to other parts of the world, including the United States. In March 2020, the World Health Organization (the “WHO”) declared the outbreak a pandemic.

Health and Safety

From the first signs of the outbreak, we have taken proactive measures intended to protect the health and safety of our employees. We have implemented safety measures following the guidance provided by the WHO and the Centers for Disease Control (the “CDC”) such as working remotely for employee personnel who do not need to be physically present in our premises, social distancing protocols, suspending travel, and extensively and frequently disinfecting our workspaces. We expect to continue following these safety measures and may take further actions as we require, as government authorities require or recommend, or as we determine to be in the best interests of our employees, partners and suppliers.

Operations

The coronavirus pandemic is affecting the United States and global economies and as a result, government authorities have implemented restrictions and limited certain operations, such as limits on the number of people at a gathering, travel restrictions and stay-at-home orders, to try and slow the spread of coronavirus. Our office and lab space are located in one facility in Marlborough, Massachusetts and on March 23, 2020, Massachusetts ordered most physical business workplaces closed, mandating work-from-home arrangements, where feasible, in response to the treatmentcoronavirus pandemic. The order excluded businesses that provide certain essential services, which included companies operating in the biotechnology and life sciences industry. As a result, our facility remained operational with employee personnel who did not need to be physically present in our premises working remotely during that time.

On May 18, 2020, Massachusetts commenced its four phased approach and re-opening plan of the economy, which allows for the gradual re-opening of each sector, industry and business in line with state mandated workplace safety standards and sector-specific protocols and best practices. The Company’s facilities remain operational and are operating in accordance with Massachusetts’ mandated requirements, as well as in accordance with the federal government, WHO, CDC and other governmental authority guidelines. Employee personnel who do not need to be physically present on our premises are continuing to work remotely, but have the ability to be on site as required. Safety measures are in place for the health and safety of our employees, including formal policies related to health checks, wearing a face mask, staggered scheduling and socially distancing, in line with the guidelines provided by exhibiting either completegovernment authorities. While these measures may be modified or greater than 50% clearance of all treated warts with upextended, we expect that our activities, including our internal research and development functions, will continue to ten weekly treatments. Samcyprone^™ treatmentremain largely operational.

We have experienced limited absenteeism from our employees and we do not currently expect that our operations will be significantly impacted by employee absenteeism.

While we believe the impact to our internal operations has been generally safeminimal thus far, current and well toleratedfuture restrictions may further impact our operations and may slow or diminish our research and development activities.

Supply and Services

If the measures to contain the outbreak continue or are extended, it may affect our operations and those of third parties on which we rely, including causing disruptions in the supplies we order, outsourced development services for our product candidates and the conduct of current and planned preclinical and clinical studies. Presumably as a result of the coronavirus pandemic, we have begun to see some of our third-party suppliers and service providers on which we rely becoming impacted. If the impact on their operations continue or extend, it may affect our operations. We previously had been able to engage with third-party service providers in areas with limited or no impact (e.g. countries with limited or no restrictions), but with the global spread of the virus and associated restrictions, this has had drug-related adverse events relatingbeen no longer possible. Our service providers, for example those performing required preclinical research studies, are now facing impacts to local reactions, whichtheir operations, including restrictions on the availability of critical materials that are typically expectedneeded for this type of treatmentresearch. Without a significant and sustained improvement of the current situation, we may experience significant impacts to certain of our development activities outsourced to third-party service providers, however, the ultimate impact on our third-party service providers is highly uncertain and subject to change. If the measures to contain the outbreak are extended or further expanded, it could reduce or delay the availability of supplies and services that we purchase and outsource. This may in turn slow or delay our preclinical and clinical research and development activities, and/or result in higher costs.

We anticipate a continued decline in the commencement of new clinical trials, at least in the short-term, as many Institutional Review Boards (the “IRB”) are currently focused on reviewing and approving clinical trial protocols related to COVID-19. Additionally, due to the sensitization and challenge responsesimplementation of restrictive measures such as stay-at-home orders by government authorities in the skin.United States and global economies to try and contain the spread of coronavirus, we anticipate a continued negative impacts, at least in the short-term, in the enrollment and participation of patients in clinical trials outside of those related to COVID-19.

The required studies and steps needed to initiate clinical trials with PH-762 in the 2021 timeframe are continuing and ongoing, however, the ultimate impact of the coronavirus pandemic is highly uncertain and subject to change. The Company addeddoes not yet know the full extent of potential delays or impacts on its business and preclinical and clinical trial activities.

Liquidity and Capital Resources

While we believe that the coronavirus pandemic has not had a second cohort,significant impact on our financial condition and results of operations at this time, the extent to which was fully enrolled in September 2017, to Study 1502 to explore the opportunity to reducecoronavirus pandemic impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the sensitization dose level, which will be more convenient to physicians and subjects. Early read-outsseverity of the studycoronavirus pandemic and the actions to contain the coronavirus or treat its impact, among others. We believe that our current cash on hand should be sufficient to fund our operations for at least the next twelve months from the date of the release of these financial statements, although the pandemic has created uncertainty around our ability to access capital markets to provide necessary working capital to fund our long term operations.

In light of this uncertainty around our ability to access additional working capital, on May 11, 2020, the Company received loan proceeds in the amount of $231,252 from Bank of America, N.A., as lender, pursuant to the PPP under the CARES Act. The PPP loan matures on May 11, 2022 and bears interest at a rate of 1% per year. The loan may be forgiven if used for eligible purposes, including payroll, benefits, rent and utilities. Monthly principal, interest and other fee payments are anticipated bydeferred until the date on which the determination of PPP loan forgiveness is remitted to the lender, or ten (10) months after the end of 2017.

In addition to our clinical programs, we continue to advance our preclinical and discovery programs with oursd-rxRNA technology.RXI-231, our leadsd-rxRNA compound targeting tyrosinase (“TYR”), is in cosmetic development as a cosmetic ingredient that may improve the appearance of uneven skin tone and pigmentation. Cosmetics are compounds that affect the appearance of the skin and make no preventative or therapeutic claims. These compounds may be developed more rapidly than therapeutics, therefore the path to market may be much shorter and less expensive. Efficacy and toxicity testing in cell culture and skin equivalents forRXI-231borrower’s loan forgiveness covered period has been successfully completed and human testing ofRXI-231 commenced in June 2017 with a U.S. clinical testing site.. The Company has completed irritationcarefully assessed the requirements for application under the PPP and sensitization studies withRXI-231,believes that the first two of three studies planned. Early results from the irritationloan is necessary to support its operations. The Company intends to apply for loan forgiveness and sensitization studies demonstrated thatRXI-231 is not a skin irritant, and it does not cause allergic contact dermatitis. The third study investigates the potential ofRXI-231 to improve the appearance of skin pigmentation induced by UV exposure and is ongoing. Full reports from these studies are expected before the end of 2017.

On January 6, 2017,while the Company entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) by and amonghas used the PPP loan proceeds for the eligible purposes allowed, the Company RXi Merger Sub, LLC, a Delaware limited liability company and wholly owned subsidiary ofcannot guarantee that the Company (“RXi Merger Sub”), MirImmune Inc. (“MirImmune”), the stockholders of MirImmune set forth on the signature pages thereto (each a “Seller” and collectively, the “Sellers”), and Alexey Wolfson, Ph.D., in his capacity as the Sellers’ Representative. Pursuant to the Stock Purchase Agreement, the Company acquired from the Sellers all of the issued and outstanding shares of capital stock of MirImmune for an aggregate of 2,750,371 shares of common stock of the Company and an aggregate of 1,118,224 shares of Series C Convertible Preferred Stock of the Company (the “Series C Convertible Preferred Stock”). On June 9, 2017, with the approval of the Company’s stockholders in accordance with the stockholder approval requirements of Nasdaq Marketplace Rule 5635, each share of Series C Convertible Preferred Stock outstanding was automatically converted into one share of common stock, such that no shares of Series C Convertible Preferred Stock remained issued or outstanding. On November 7, 2017, the Company filed a Certificate Eliminating the Series C Convertible Preferred Stock from the Certificate of Incorporation of the Company with the Secretary of State of the State of Delaware. Please refer to Part II, Item 5 of this quarterly report on Form 10-Q for further discussion of the filing.loan will be forgiven.

In connection with and promptly followingin addition to the closingPPP loan, we have taken other proactive steps to control costs in response to the coronavirus pandemic and these actions include the reduction of the Stock Purchase Agreement, MirImmune was merged with and into RXi Merger Sub (the “Merger”), with RXi Merger Sub continuing assalaries of our senior management team by 10% through the surviving entity and changing its name to “MirImmune, LLC”. As a resultremainder of 2020. We believe these savings will help mitigate the financial impact of the Merger, MirImmune, LLC remainscoronavirus pandemic.

Additionally, while the potential economic impact brought by, and operates as a wholly-owned subsidiarythe duration of, the Company.

Buildingcoronavirus pandemic is difficult to assess or predict, the impact of the coronavirus on the work completed by MirImmune priorglobal financial markets may reduce our ability to its acquisition byaccess capital, which could negatively impact our short-term and long-term liquidity and our ability to complete our preclinical and planned clinical studies on a timely basis, or at all. There may be developments outside of our control that require us to adjust our operating plans and given the Company, our cell-based cancer immunotherapy program withsd-rxRNA includes lead compounds for a number of immune checkpoint targets that provide long lasting immune checkpoint silencing, individually and in combination, in adoptively transferred cells. An improved efficacy upon the silencing of checkpoints has been demonstrated in various types of adoptively transferred cells relevant in cancer immunotherapy, such as CART-cells and tumor infiltrating lymphocytes (TILs). The Company’s ongoing discovery programs include, but are not limited to, the evaluation ofsd-rxRNA compounds to impact the differentiation of various immune effector cells. The Company has also initiated in vivo evaluations of multiple checkpoint inhibitingsd-rxRNA compoundsco-transfected in CART-cells in mouse models for solid tumors, with data from these studies expected by the end of 2017.

Additionally, the Company recently selected twosd-rxRNA compounds from its immunotherapy pipeline for preclinical development. For oncology treatments based on adoptive cell transfer (ACT), compoundsRXI-762 andRXI-804 suppress the expression of immune checkpoint proteinsPD-1 and TIGIT, respectively, which can result in an improved efficacy to the targeted tumors. This decision triggered the selection of a manufacturing facility to initiate production of cGMP grade material, initially for RXI-762. This also supports movingRXI-762 into clinical development as early as 2018 as part of an ACT therapy.

On August 8, 2017, the Company entered into a purchase agreement (the “2017 Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“LPC”), pursuant to which the Company has the right to sell to LPC up to $15,000,000 in sharesnature of the Company’s common stock, subject to certain limitations and conditions set forth therein, oversituation, cannot reasonably estimate the30-month term impact of the 2017 Purchase Agreement.coronavirus on our financial condition, results of operations or cash flows in the future.

Since inception, we have incurred significant losses. Substantially all of

In addition, risk factors identified in our losses to date have resulted from research and development expenses in connection with our clinical and research programs and from general and administrative costs. At September 30, 2017, we had an accumulated deficit of $76.5 million. We expect to continue to incur significant lossesAnnual Report on Form 10-K for the foreseeable future, particularly as we advanceyear ended December 31, 2019 under the heading “Risk Factors,” which was filed with the SEC on March 26, 2020, should be read in conjunction with Part II—Item 1A, “Risk Factors,” included herein for updates to our development programs forRXI-109 and Samcyprone™ and expand our program in cell-based cancer immunotherapy.risk factors regarding risks associated with the COVID-19 pandemic.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these 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 our estimates 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 significant changes to our critical accounting policies since the beginning of this fiscal year. Our critical accounting policies are described in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our Annual Report on Form10-K for the year ended December 31, 2016,2019, which we filed with the SEC on March 30, 2017.26, 2020.

Results of Operations

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