Phio Pharmaceuticals Corp. (then RXi Pharmaceuticals Corporation) — Q1 2012 Form 10-Q
Reporting period: Three months ended March 31, 2012. The filing is for RXi Pharmaceuticals Corporation, a development-stage RNAi therapeutics company; the supplied filing does not use the Phio Pharmaceuticals name. Unless noted, financial figures below are in thousands of dollars.
Business context
RXi was developing RNA interference-based therapeutics. Its lead candidate, RXI-109, targets connective tissue growth factor for dermal scarring; management expected to begin a Phase I trial in 2012. The company had generated no revenue since inception and expected none for the foreseeable future. Its Q1 2011 comparison reflects the predecessor RNAi business carved out of Galena, so historical comparisons may not represent a standalone company.
Financial results and liquidity
| Metric | Q1 2012 | Q1 2011 / prior date |
|---|---|---|
| Revenue | None | None |
| Research and development expense | $1,154 | $2,156 |
| General and administrative expense | $751 | $3,119 |
| Operating loss | $(1,905) | $(5,275) |
| Net loss | $(1,926) | $(3,841) |
| Net loss per share | $(0.04) | $(0.19) |
| Cash used in operating activities | $(1,209) | $(3,027) |
| Cash and cash equivalents | $357 at Mar. 31, 2012 | $556 at Dec. 31, 2011 |
| Total assets / total liabilities | $1,327 / $3,104 | $1,694 / $2,281 at Dec. 31, 2011 |
Q1 net loss narrowed by $1,915, or about 50%, year over year. R&D expense declined 46%, mainly from lower personnel costs and employee stock compensation; G&A declined 76%, principally from lower personnel, professional-service, and stock-compensation costs. Other income was negligible versus $1,435 in Q1 2011, which had benefited from a change in the fair value of parent-company derivatives. Interest expense was $22, versus $1, reflecting bridge-note interest. No operating margin is meaningful because the company had no revenue.
At March 31, current assets were $1,012 and current liabilities $2,099, implying negative working capital of approximately $1,087. This included $597 due from the parent. Convertible notes payable were $1,000, with $18 of current capital-lease maturities and $5 of long-term lease obligations. Stockholders’ deficit was $1,777. Financing provided $1,010 in Q1, including $500 of convertible-note proceeds; cash fell by $199 during the quarter. No material investing cash flow occurred.
Financing, outlook, and risks
- After quarter-end, the spin-off closed on April 27, 2012. TCP and RTW invested under an agreement for $9.5 million of Series A preferred stock; the filing reports conversion of $1,026,736 in bridge-note principal and interest and receipt of a further $8,473,624. RXi also reimbursed $400,000 of transaction expenses.
- Management believed the financing would fund operations into the second quarter of 2013. This was an estimate, not a guarantee; the company expected significant losses and said it would need additional third-party funding, partnerships, or other financing. Failure to secure funds could require scaling back or ending operations, or pursuing a merger or sale.
- The preferred stock was convertible into common stock, subject to a 9.999% ownership limit for each holder. Without that limit, the preferred shares would represent approximately 83% of fully diluted common shares, creating substantial potential dilution.
- RXi had agreed to potential milestone payments to Galena totaling up to $45 million if covered products achieved specified annual sales thresholds, as well as obligations under contributed licenses. A separate technology agreement included a $100,000 annual maintenance fee, a possible $350,000 patent-issuance milestone, and a 1% royalty on certain licensing revenue.
- Management cited clinical, preclinical, regulatory, intellectual-property, financing, and partnership uncertainties. It could not reliably estimate development costs or timing. The filing reported no legal proceedings and no material change to internal control over financial reporting; disclosure controls were assessed as effective.
Important facts for investors to verify
- Whether the April 2012 financing proceeds and the stated runway were sufficient in practice, and the company’s subsequent cash burn and financing needs.
- RXI-109 clinical-trial commencement, progress, safety, efficacy, and development spending against the stated 2012 plan.
- The fully diluted share count and actual conversion and dilution effects of the Series A preferred stock, options, and other awards.
- The assumptions and allocation methods underlying predecessor carve-out financials, which may not be comparable to standalone RXi operations.
- Future obligations to licensors and Galena, including milestone, maintenance-fee, and royalty terms.