RXi Pharmaceuticals Corporation — Q2 2014 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2014. The supplied filing is for RXi Pharmaceuticals Corporation, not Phio Pharmaceuticals Corp.; verify the issuer identity before relying on this summary. Unless noted otherwise, financial amounts below are in thousands of dollars.
Business context
RXi was a development-stage biotechnology company focused on RNAi therapeutics. Its lead candidate, RXI-109, targets CTGF and was being developed to reduce skin scarring. The company reported two Phase 2 RXI-109 trials underway and began a third in July 2014. Ophthalmology and other RNAi programs remained preclinical or in discovery. RXi had not generated product revenue.
Financial results and liquidity
| Metric | Q2 2014 | Q2 2013 | First half 2014 | First half 2013 |
|---|---|---|---|---|
| Revenue, primarily grants | $12 | $225 | $41 | $278 |
| Research and development expense | $1,183 | $1,213 | $2,659 | $14,985 |
| General and administrative expense | $850 | $977 | $1,693 | $1,652 |
| Total operating expenses | $2,033 | $2,190 | $4,352 | $16,637 |
| Operating loss | $(2,021) | $(1,965) | $(4,311) | $(16,359) |
| Net loss | $(2,006) | $(1,961) | $(4,290) | $(16,358) |
| Net loss attributable to common stockholders | $(3,219) | $(4,360) | $(7,258) | $(22,304) |
Gross margin is not meaningful for this company given its minimal grant revenue and lack of product sales. Q2 operating loss widened slightly year over year despite lower expenses, as grant revenue fell 95%. First-half operating loss improved substantially, largely because the prior-year period included a one-time $12.25 million charge for shares issued for OPKO patent and technology rights. First-half operating cash use increased to $4.397 million from $3.184 million; cash provided by investing activities was $2.941 million, mainly from investment maturities, and financing provided $1.977 million.
At June 30, cash and cash equivalents were $11.911 million, restricted cash $50,000, and short-term investments zero (versus $3.0 million at year-end 2013). Current assets were $12.328 million and current liabilities $1.053 million. Total assets were $12.550 million. The filing reports no material debt balance; no cash-flow guidance beyond the runway statement below was provided. The company said existing cash was expected to fund operations, including current and planned RXI-109 Phase 2 programs, into fiscal 2015.
Changes, financing, and capital structure
- Grant revenue fell 85% for the first half, attributed to fewer outstanding grants and reduced grant-related work.
- First-half R&D expense decreased 82% year over year, principally because 2013 included the one-time OPKO-related charge. Management expected R&D expense to rise as clinical and discovery work expanded.
- Under an April 2014 agreement, Lincoln Park Capital purchased 500,000 common shares at $4 per share and received 100,000 commitment-fee shares; RXi reported approximately $1.9 million net proceeds. The agreement gives RXi the right, subject to conditions and limitations, to sell up to $20 million of shares over 30 months.
- Series A and A-1 preferred stock carries cumulative mandatory dividends at 7% of face value annually, payable in additional preferred shares. Reported preferred dividends were $2.968 million in the first half and reduced loss attributable to common-stockholders’ earnings per share only through their presentation as a deduction from net loss. Preferred shares are convertible into common stock and represent potential dilution.
- After quarter-end, 494 Series A-1 preferred shares converted into 1,204,158 common shares. The company also reduced authorized common shares from 1.5 billion to 100 million on July 10, 2014. Common shares outstanding were 16,103,317 as of August 8.
Outlook, risks, and other items
Management expected minimal near-term revenue from the RXI-109 distribution arrangement and continuing reliance on grants and external financing. RXi warned that additional funding may not be available on acceptable terms, or at all, and that failure to obtain funding could require scaling back, terminating, or combining operations. Key risks include clinical-trial safety, efficacy and timing; regulatory uncertainty; access to funding and resources; and development costs. The company expected an early, blinded readout from the first two cohorts in Study 1301 before the end of 2014. It planned further ocular toxicity work before filing an IND for RXI-109 as an ocular therapy; this was a plan, not a stated approval or assured timetable.
The company reported no legal proceedings, defaults upon senior securities, or material changes to internal control over financial reporting. Disclosure controls were assessed as effective. Interim results were unaudited and management cautioned they are not necessarily indicative of full-year results.
Important facts for investors to verify
- Confirm the filing belongs to the intended issuer: the document names RXi Pharmaceuticals Corporation, not Phio Pharmaceuticals Corp.
- Review subsequent clinical-trial progress and results for RXI-109, including the planned Study 1301 readout and the newer Phase 2 studies.
- Assess cash use and financing needs against the stated runway into fiscal 2015, and review any subsequent use of the Lincoln Park equity facility.
- Evaluate preferred-stock dividend obligations, conversion terms, and resulting dilution, including post-quarter conversions and the authorized-share reduction.
- Confirm the status and amount of grant funding, since grant revenue declined sharply and the filing identifies it as a primary near-term revenue source.