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Galena Settles Investor Lawsuits Following Successful RXi Spinout

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Galena Biopharma, the former parent firm of RXi Pharmaceuticals, has settled four lawsuits filed by investor groups that had raised questions about its now-completed spinout of the RNAi drug developer.

As part of settlement agreements, the plaintiffs “have agreed to dismiss with prejudice all of their claims in these actions,” Galena said in a filing with the US Securities and Exchange Commission. “In exchange, we have agreed to reimburse the plaintiffs for a specified amount of fees and costs they incurred.”

The litigation stems from RXi's merger with peptide therapy from Apthera in early 2011, which saw the management of Apthera take control of the new firm, still called RXi, and cut away much of its RNAi therapeutics operations in order to focus on a non-RNAi cancer therapy (GSN 4/7/2011).

Though the firm's new CEO said at the time that the post-merger company remained committed to RNAi, a few months later RXi announced it was changing its name to Galena and handing off its RNAi operations to a new subsidiary that would be called RXi.

Galena also said that it would eventually spin out RXi as a standalone, publicly traded company, although its shares would be sold on the over-the-counter market as a penny stock since Galena was holding on to its Nasdaq listing.

At the time, Galena disclosed agreements with two institutional investors — Tang Capital Partners and RTW Investments — to sell 83 percent of the new RXi for $9.5 million. The firms also agreed to buy $2.5 million in Galena stock, of which $1.5 million would be passed along to RXi.

Shortly thereafter, however, Galena, Tang, and RTW amended their deal, cutting the price for Galena's stock from $1 to $0.65 a share, lowering the equity's value to $455,000. Galena was still obligated to give RXi $1.5 million.

The change raised the ire of a handful of investment groups — Hudson Bay Master Fund, Tenor Opportunity Master Fund, Aria Opportunity Fund, Parsoon Opportunity Fund, Cranshire Capital Master Fund, and Iroquois Master Fund — that had participated in an April 2011 equity sale and held warrants for Galena stock with a $1-per-share exercise price.

According to lawsuits filed by the investment firms, Galena was contractually obligated to buy back the de-valued warrants pursuant to the terms of the equity offering, but it refused. The suits sought a combined $5.2 million in damages.

Despite the litigation, Galena proceeded with the spinout process and RXi once again became a standalone RNAi drug shop last month (GSN 5/10/2012). It has also settled all of the outstanding lawsuits, agreeing to repurchase a portion of the warrants, plus an undisclosed amount in fees and costs.

Additional terms of the settlement deals were not disclosed.

RXi, meantime, continues to re-establish itself following the Apthera/Galena saga, and recently received clearance from the US Food and Drug Administration to begin human testing of its lead anti-scarring candidate RXI-109 (GSN 5/31/2012).

In a recent SEC filing, RXi noted that it has enough funds to support its operations until at least May 2013, but conceded that its listing on the over-the-counter markets could limit its ability to raise additional capital down the road.

Early in the week, shares of RXi were trading around $0.08 a share.

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