Filing summary: RXi Pharmaceuticals Corporation, quarter ended September 30, 2012
Issuer identification: The supplied filing is for RXi Pharmaceuticals Corporation, not Phio Pharmaceuticals Corp. It is a 2012 Form 10-Q and describes RXi as a development-stage RNAi biotechnology company. RXI-109, its lead candidate for dermal scarring, had entered a Phase 1 clinical trial.
Financial performance and liquidity
Amounts below are in U.S. dollars; financial statement amounts are in thousands unless noted otherwise. Revenue was limited to government grant revenue, and commercial revenue and meaningful margins were not reported.
| Metric | Three months ended September 30, 2012 | Nine months ended September 30, 2012 | Prior comparable period |
|---|---|---|---|
| Revenue | $57 | $57 | $0 in 2011 |
| Operating loss | $(1,696) | $(11,263) | $(2,167) and $(10,280), respectively, in 2011 |
| Net loss | $(1,644) | $(11,168) | $(2,043) and $(7,766), respectively, in 2011 |
| Net loss applicable to common stockholders | $(2,921) | $(23,065) | $(2,043) and $(7,766), respectively, in 2011 |
| Net cash used in operating activities | Not provided for the quarter | $(3,912) | $(7,179) for nine months in 2011 |
- Research and development expense was $1.214 million for the quarter and $9.314 million for the nine months; the nine-month 2012 amount included a $6.173 million noncash charge for common stock issued for patent and technology rights.
- General and administrative expense was $539,000 for the quarter and $2.006 million for the nine months, down 48% and 61%, respectively, from the comparable 2011 periods.
- Cash and cash equivalents were $6.278 million at September 30, 2012, versus $503,000 at December 31, 2011. Current assets were $6.475 million and current liabilities $1.411 million. Restricted cash of $53,000 was separately reported.
- Nine-month investing activities provided $14,000; financing activities provided $9.673 million, including $8.5 million from preferred-stock issuance. The company reported no convertible notes payable at quarter-end and $9,000 of current capital lease obligations.
- Series A preferred stock was reported outside liabilities at $9.575 million, with a $9.575 million liquidation preference. Its cumulative dividend rate is 7% annually. Preferred-stock accretion and dividends reduced income applicable to common stockholders by $1.277 million for the quarter and $11.897 million for the nine months, including a $9.5 million beneficial conversion feature.
Material changes and comparability
- Quarterly net loss improved by $399,000 year over year, while nine-month net loss increased by $3.402 million. The nine-month increase was affected by the patent-rights stock charge; lower G&A and personnel and lab costs partly offset higher R&D costs.
- The 2011 comparative periods include carved-out RNAi operations of former parent Galena through September 23, 2011, plus RXi activity thereafter. The filing cautions that allocated predecessor expenses and cash flows may have differed materially if the business had operated independently; comparisons are therefore not fully like-for-like.
- RXi completed its spin-off from Galena on April 27, 2012 and issued Series A preferred stock to investors. The preferred stock is convertible into common shares, subject to a 9.999% beneficial-ownership limit per holder. The filing lists approximately 700.2 million common shares underlying preferred stock, in addition to 63.8 million options and warrants.
Outlook, risks, and other disclosures
- Management said available cash was expected to fund operations into the third quarter of 2013. This was a runway estimate, not earnings or revenue guidance.
- The company expected significant operating losses to continue, anticipated no significant revenue for the foreseeable future, and said it would need additional financing, grants, or partnership funding. It warned that funding might not be available on acceptable terms or at all; without it, RXi might scale back or terminate operations or seek a merger or acquisition.
- Development costs and timelines remained uncertain, depending on clinical and preclinical progress, trial results, regulatory approvals, intellectual property, manufacturing, competition, and collaboration terms. The filing noted that no RNAi therapeutic had been FDA-approved at that time.
- RXi had agreed to potential future milestone payments to Galena of up to $45 million if covered products met specified annual sales thresholds. Its Advirna arrangement included a $100,000 annual maintenance fee, a potential $350,000 patent milestone, and a 1% royalty on specified licensing revenue.
- The filing reported no legal proceedings, defaults upon senior securities, or material changes to internal control over financial reporting; management concluded disclosure controls were effective.
Important facts for investors to verify
- Confirm the issuer: this filing is RXi Pharmaceuticals Corporation, not Phio Pharmaceuticals Corp.
- Check subsequent cash use, financing, and whether the stated runway into Q3 2013 was achieved.
- Review the preferred-stock conversion, dividend, liquidation, and redemption terms and their potential dilution; the filing’s share equivalents are substantial relative to 157.5 million common shares outstanding at September 30, 2012.
- Assess the clinical and regulatory progress of RXI-109 and the continuing costs, milestones, and risks of development.
- Account for the noncash patent-rights charge, preferred-stock accretion, and carved-out 2011 comparison when interpreting reported losses and trends.