Phio Pharmaceuticals Corp. (then RXi Pharmaceuticals Corporation) — Q1 2017 Form 10-Q
Business context and period: The filing covers the three months ended March 31, 2017. RXi was a clinical-stage biotechnology company developing self-delivering RNAi therapeutics and Samcyprone, with programs in dermatology, ophthalmology, and cell-based cancer immunotherapy. The financial statements are unaudited; amounts below are in U.S. dollars, generally thousands unless stated otherwise.
Key financial metrics
| Metric | Q1 2017 | Q1 2016 / comparison |
|---|---|---|
| Revenue | $0 | $10 |
| Research and development expense | $1,347 | $1,305 |
| Acquired in-process R&D expense | $2,990 | $0 |
| General and administrative expense | $1,123 | $950 |
| Total operating expenses | $5,460 | $2,255 |
| Operating loss / net loss | $(5,460) | $(2,245) / $(2,231) |
| Basic and diluted loss per share | $(0.27) | $(0.34) |
| Cash used in operating activities | $(2,799) | $(2,925) |
| Cash and cash equivalents, March 31 | $10,205 | $12,906 at December 31, 2016 |
At March 31, 2017, total current assets were $10.380 million, total assets $10.512 million, current liabilities $2.265 million, and stockholders’ equity $8.247 million. Restricted cash was $50,000. The filing reports no debt. Gross margin is not meaningful given the absence of revenue and is not separately provided.
Material changes and notable transactions
- Net loss increased by $3.229 million year over year, principally because of the $2.990 million noncash charge for acquired in-process R&D related to the January acquisition of MirImmune. The acquired assets were accounted for as an asset acquisition and expensed because they had no alternative future use.
- R&D expense rose 3% to $1.347 million, reflecting new cell-based cancer immunotherapy work, partly offset by lower stock-based compensation. G&A expense rose 18% to $1.123 million, primarily due to added headcount and legal fees, partly offset by lower stock-based compensation.
- RXi acquired MirImmune for common and Series C preferred shares. The filing reports 1,082,114 Series C shares outstanding at quarter-end; the acquisition’s 3% share holdback was released on April 12, 2017. Potential milestone consideration is 2,519,091 common shares plus additional shares tied to certain exercised offering warrants, or equivalent cash, subject to milestone achievement and applicable shareholder approval.
- Cash and cash equivalents declined by $2.701 million during the quarter, to $10.205 million; cash, cash equivalents, and restricted cash totaled $10.255 million. Investing activities provided $98,000, including $100,000 of cash acquired with MirImmune; there were no financing cash flows in the quarter.
- Common shares outstanding increased from 13,003,179 at December 31, 2016 to 22,045,481 at March 31, 2017, including conversion of Series B preferred stock into 6,374,444 common shares. The filing reports 14,078,241 warrants outstanding and 1,082,114 Series C preferred shares convertible one-for-one upon required shareholder approval.
Outlook, risks, and contingencies
- Management stated that existing cash was expected to fund operations for at least the next 12 months. RXi expected significant future losses and said it would need external funding over time; it cautioned that financing may not be available on acceptable terms or at all, which could require it to scale back or terminate operations or seek a merger or acquisition.
- Management expected a complete readout of the RXI-109 Phase 2 dermal-scarring Study 1402 in the second half of 2017. RXI-109 retinal-scarring Study 1501 enrollment was expected to finish in the first half of 2017, with subject participation expected to conclude in the second half. Samcyprone wart Study 1502 enrollment and a complete readout were expected in the second half of 2017.
- The company planned to initiate human testing of cosmetic candidate RXI-231 in the second quarter of 2017 and described planned 2017 preclinical data releases for its acquired immunotherapy programs. These are forward-looking expectations, not assurances.
- Key risks include clinical safety, tolerability, efficacy and timing; regulatory uncertainty; availability of funds and resources; and the uncertain development prospects of MirImmune’s early-stage assets. Milestone payments, indemnification obligations under ordinary-course agreements and license arrangements, and share issuance or cash settlement obligations are also relevant contingencies. The filing reported no legal proceedings and no accrued liabilities for indemnification obligations.
Most important facts for investors to verify
- Whether cash runway and subsequent financing needs remain consistent with management’s stated estimate, given quarterly cash use and the lack of product revenue.
- Progress and results of the RXI-109 and Samcyprone trials, and whether the stated 2017 enrollment and readout expectations were achieved.
- MirImmune asset development progress, the accounting and expense for the post-quarter holdback release, and the conditions and potential value of milestone consideration.
- The dilution implications of outstanding warrants, Series C preferred shares, options, and any later equity issuance; the filing’s disclosed potential common shares excluded from diluted EPS totaled 15,741,140 at quarter-end.
- Developments affecting the company’s ability to obtain additional funding and the risk factors incorporated from its 2016 Form 10-K.