Phio Pharmaceuticals Corp. (historical filing: RXi Pharmaceuticals Corporation) — 2013 Form 10-K
Reporting period: Fiscal year ended December 31, 2013; comparative figures are for 2012. The filing was signed March 28, 2014. The issuer named in the filing is RXi Pharmaceuticals Corporation, not Phio Pharmaceuticals Corp.
Business context and reporting period
RXi was a development-stage biotechnology company developing RNA-interference (RNAi) therapies. Its lead candidate, RXI-109, is designed to inhibit CTGF and reduce dermal scarring. The company had no product sales; reported revenue came from government research grants.
- RXI-109’s two Phase 1 studies reported tolerability and reductions in CTGF biomarkers. Study 1201 enrolled 15 subjects; Study 1202 enrolled 15. These were early-stage findings and did not establish clinical efficacy.
- The company began its first Phase 2 study, Study 1301, in November 2013. It expected to start two further Phase 2 studies in 2014, targeting keloid and hypertrophic-scar recurrence.
- In March 2013, RXi acquired OPKO RNAi assets for 1,666,666 common shares, with potential development and commercialization milestones and royalties. It also signed a European Union distribution agreement for RXI-109 with Ethicor in November 2013.
Financial performance and liquidity
| Metric (US$ millions, except per-share data) | 2013 | 2012 |
|---|---|---|
| Grant revenue | 0.399 | 0.097 |
| Research and development expense | 17.651 | 10.451 |
| General and administrative expense | 3.697 | 2.621 |
| Operating loss | (20.949) | (12.975) |
| Net loss | (20.925) | (12.880) |
| Net loss applicable to common stockholders | (29.535) | (25.695) |
| Basic and diluted loss per share | $(2.88) | $(5.62) |
| Cash used in operating activities | (6.311) | (5.062) |
- Revenue increased by $0.302 million, but remained immaterial relative to operating expenses. R&D rose 69% and G&A rose 41%; the company attributed much of the R&D increase to a $12.250 million noncash expense for the OPKO asset purchase, as well as clinical manufacturing and employee compensation costs.
- Loss applicable to common stockholders includes $8.610 million of preferred-stock accretion and dividends in 2013, versus $12.815 million in 2012. Net loss per share improved, while net loss increased, in part because the weighted-average share count rose.
- At December 31, 2013, cash and cash equivalents were $11.390 million and short-term investments were $3.000 million; total current assets were $14.743 million and current liabilities were $2.076 million. Total assets were $14.938 million. The filing reports no outstanding capital leases at year-end.
- Financing cash flow was $15.667 million, primarily from the March 2013 common-stock offering, which yielded approximately $15.7 million net. The company said available cash, cash equivalents and short-term investments were expected to fund planned operations, including Phase 2 programs, into the second quarter of fiscal 2015.
Material changes, outlook and risks
- The company’s cash and short-term investments increased from approximately $5.1 million at year-end 2012 to $14.4 million at year-end 2013, largely following the equity offering. Operating cash use increased by $1.249 million year over year.
- Preferred stock carries cumulative mandatory dividends at 7% of face value annually, payable in additional preferred shares. The preferred securities are convertible into common stock and may create substantial dilution. In January 2014, an additional $3 million of Series A preferred stock was exchanged for Series A-1 shares, with the filing stating that the amount would be reclassified into stockholders’ equity.
- Management expected continued significant operating losses and increasing R&D spending. RXi had accumulated substantial losses, no product revenue, and stated it would need future financing after its projected runway; additional financing might not be available on acceptable terms or at all.
- Key risks include clinical or regulatory failure, uncertainty inherent in RNAi technology, competition, dependence on a single RXI-109 supplier and other third parties, patent and licensing uncertainty, and the possibility that Ethicor distribution produces little or no revenue. The company also disclosed contingent OPKO milestones of up to $50 million per qualifying drug, plus royalties, and other license-related obligations.
- The Ethicor agreement offered potential EU distribution and possible early access under the “Specials” framework, but RXI-109 was still investigational; the filing did not report material product sales from the agreement.
- The audited financial statements received an unqualified opinion. Management reported disclosure controls and internal control over financial reporting as effective; the auditor did not provide an internal-control attestation.
Important facts for investors to verify
- Whether Study 1301 and the planned follow-on Phase 2 studies enrolled and produced clinically meaningful scar outcomes, beyond biomarker changes in small Phase 1 studies.
- Actual cash use, financing needs and runway after the company’s stated second-quarter 2015 funding horizon.
- The fully diluted share count and conversion, dividend and liquidation terms of Series A and Series A-1 preferred stock, including potential dilution to common holders.
- Any revenue, regulatory status or commercialization progress under the Ethicor agreement, and the extent of OPKO milestone and royalty exposure.
- Whether RXI-109 manufacturing supply, intellectual-property rights and required third-party collaborations remain secure.