Phio Pharmaceuticals Corp. — filing summary
Filing identity: The supplied filing is RXi Pharmaceuticals Corporation’s Form 10-Q for the quarter ended June 30, 2012, not a filing under the name Phio Pharmaceuticals Corp. It describes RXi as a development-stage RNAi biotechnology company. Amounts below are in U.S. dollars; financial statement figures are generally in thousands unless noted.
Business context and reporting period
The filing reports the three and six months ended June 30, 2012. RXi was spun off from Galena Biopharma on April 27, 2012, after receiving Galena’s RNAi-related assets. RXi’s lead candidate, RXI-109, is an investigational anti-scarring therapy targeting CTGF; the company said it had initiated a Phase 1 trial in 2012. Prior-year results are carved out from Galena’s RNAi activities and are not fully comparable with RXi as a standalone company.
Financial performance and position
| Metric | Q2 2012 | Q2 2011 | First half 2012 | First half 2011 |
|---|---|---|---|---|
| Revenue | None | None | None | None |
| Research and development expense | $6.947 million | $1.792 million | $8.100 million | $3.948 million |
| General and administrative expense | $0.716 million | $1.046 million | $1.468 million | $4.165 million |
| Operating loss | $7.663 million | $2.838 million | $9.568 million | $8.113 million |
| Net loss | $7.599 million | $1.882 million | $9.524 million | $5.723 million |
| Net loss applicable to common stockholders | $17.217 million | $1.882 million | $19.142 million | $5.723 million |
- The common-stockholder loss includes $9.618 million of Series A preferred stock accretion and dividends, including a $9.5 million beneficial conversion feature. Basic and diluted loss per share was $0.13 for Q2 and $0.16 for the first half of 2012.
- R&D included a $6.173 million noncash charge for common stock issued in exchange for patent and technology rights. Excluding this unusual item, underlying period-to-period expense trends differ substantially from the reported totals.
- At June 30, cash and cash equivalents were $7.575 million, versus $0.556 million at December 31, 2011. Current assets were $7.737 million and current liabilities $1.366 million, for working capital of approximately $6.371 million.
- Total liabilities were $1.371 million, including $16,000 of capital lease obligations; no convertible notes payable remained on the balance sheet. The company had $9.424 million of Series A preferred stock outstanding, with a stated liquidation preference of $9.424 million.
- First-half operating cash use was $2.655 million, investing cash use was $6,000, and financing provided $9.680 million. Cash increased by $7.019 million during the period.
Material changes, outlook, and risks
- Net loss increased 303% in Q2 and 66% in the first half versus the reported prior-year periods; losses applicable to common stockholders were also elevated by preferred-stock accretion and dividends. The prior-year periods reflect Galena carve-out results, so comparisons have limitations.
- Financing included $8.5 million of preferred-stock proceeds; bridge-note principal and accrued interest were converted into preferred stock at the spin-off. Management estimated available cash would fund operations into the second quarter of 2013.
- RXi expected significant operating losses and no revenue for the foreseeable future. It said additional third-party financing, collaboration payments, or funded research programs would be needed; funding might not be available on acceptable terms or at all. A shortfall could require scaling back, terminating operations, or seeking a merger or acquisition.
- The Series A preferred stock carries a 7% cumulative annual dividend and is convertible at the holder’s option, subject to ownership limits. The filing lists 689.1 million common shares underlying preferred stock and 63.1 million options outstanding; potential dilution is substantial. Preferred holders may have redemption rights if the company cannot issue sufficient common shares for conversion.
- RXi may owe Galena milestone payments of up to $45 million if specified annual net-sales thresholds are achieved. Its Advirna agreement includes a $100,000 annual maintenance fee, a potential $350,000 patent-issuance milestone, and a 1% royalty on certain licensing revenue.
- Management cited clinical, regulatory, development-cost, intellectual-property, competition, reimbursement, and financing uncertainties. No legal proceedings were reported. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Confirm the issuer and filing: this document is RXi Pharmaceuticals Corporation’s 2012 10-Q, not a Phio Pharmaceuticals Corp. filing.
- Review the preferred-stock terms, conversion and redemption provisions, and the resulting potential dilution; the filing reports 9,424 preferred shares outstanding and a large pool of potential common shares.
- Assess the cash runway against the company’s stated second-quarter 2013 estimate, expected clinical spending, and need for future financing.
- Separate the $6.173 million noncash technology-rights charge and preferred-stock accretion from recurring operating performance when evaluating reported losses.
- Verify RXI-109 trial progress and the timing, cost, and financing assumptions underlying management’s development outlook.