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As Promised, CytRx Spins Out RNAi Drug Business Into New Pure-Play Subsidiary

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CytRx announced this week that it has spun out its RNAi assets into a new company called RXi Pharmaceuticals, which will focus exclusively on developing therapeutics based on the gene-silencing technology.
 
The move was widely expected since CytRx first disclosed to RNAi News in late 2005 that it was planning on spinning out its RNAi drugs operations into an independent company in order to gain better traction in the marketplace among such rivals as Alnylam Pharmaceuticals (see RNAi News, 11/11/2005).
 
Up until now, CytRx had been unable to afford the move. However, last year a nonprofit paid it around $24 million in exchange for royalties for its investigational amyotrophic lateral sclerosis drug arimoclomol.
 
“CytRx has been acquiring, developing and consolidating its RNAi therapeutic assets since 2003,” Steven Kriegsman, president and CEO of CytRx, said in a statement this week. “We believe [the spin out] represents the best strategy for CytRx and its shareholders to benefit from the potential value of these RNAi assets, as RXi will have a single, focused purpose positioned to compete directly with other leaders in the industry.”
 
According to CytRx, RXi will initially focus on neurodegenerative disease, oncology, type II diabetes, and obesity, and has inherited CytRx’s sole RNAi drug candidate: an siRNA targeting RIP140, a ligand-dependent transcriptional repressor linked to fat burning, which is covered by IP licensed from Imperial College London (see RNAi News, 5/28/2004).
 
Additionally, RXi has received CytRx’s licenses from the University of Massachusetts Medical School to RNAi-related intellectual property in the areas of obesity, type II diabetes, and ALS, as well as the Tuschl-1 patent application, which covers the use of siRNAs to induce RNAi in mammalian cells.
 
RXi is also now responsible for CytRx’s sponsored research deals with UMMS in ALS and human cytomegalovirus (see RNAi News, 1/16/2004) and with Massachusetts General Hospital in ALS (see RNAi News, 10/17/2003). It will also oversee CytRx’s agreement with UMMS, which requires the school to disclose through mid-2007 any new technologies it develops pertaining to RNAi, diabetes, obesity, neurodegenerative diseases including ALS, and cytomegalovirus (see RNAi News, 7/23/2004).
 
In line with that arrangement, CytRx also announced this week that RXi has exclusively licensed from UMMS an RNAi delivery technology termed nanotransporters, which the company said has been used successfully in mouse models. RXi has also licensed from UMMS RNAi compounds for treating ALS that can be delivered locally to the central nervous system.
 
CytRx noted that these newest licenses are “contingent upon RXi's receipt of working capital funding in the coming months.”
 
In a filing with the US Securities and Exchange Commission this week, CytRx noted that RXi has also assumed CytRx’s financial obligations under its licenses and collaborations.
 
Further, the new company is required to reimburse CytRx for “organizational and operational expenses incurred by CytRx in connection with the formation and initial operations of RXi,” as well as for fees incurred by CytRx “in connection with any RXi fundraising activities,” the filing states.
 
CytRx will initially own about 85 percent of RXi stock, with the remainder to be held by members of the company’s anticipated scientific advisory board. These include Craig Mello, who recently won the Nobel Prize for his co-discovery of RNAi (see RNAi News, 10/5/2006) and who currently sits on CytRx’s SAB; Greg Hannon, an RNAi researcher at Cold Spring Harbor Laboratory; Tariq Rana, a researcher at the University of Massachusetts Medical School and CytRx SAB member; and Michael Czech, also a UMMS researcher and CytRx SAB member.
 
CytRx noted that the formation of RXi’s SAB is contingent on the proposed members obtaining consent from their respective research institutions.
 
Taking the helm of RXi as CEO is Tod Woolf, a familiar name in the RNAi field. Woolf previously worked for Ribozyme Pharmaceuticals, which later became Sirna Therapeutics (see RNAi News, 8/22/2003), and more recently was founder and CEO of Sequitur, an RNAi reagent firm that was bought by Invitrogen in late 2003 (see RNAi News, 11/7/2003).
 
Woolf told RNAi News this week that his interactions with CytRx stemmed from a long-standing relationship with Mello, who he has known since graduate school and who was an advisor to Sequitur.
 
“When [CytRx] wanted to create a pure RNAi therapeutics company, [Mello] called me up to work with them on it,” he said.
 

“We believe [the spin out] represents the best strategy for CytRx and its shareholders to benefit from the potential value of these RNAi assets, as RXi will have a single, focused purpose positioned to compete directly with other leaders in the industry.”

CytRx also noted that James Warren has been named as RXi’s CFO. Warren has held various financial and general-management positions at biopharmaceutical firms including Genzyme, Aquila Biopharmaceuticals, Harvard BioScience, and ActivBiotics.
 
Woolf noted that RXi also has a number of other non-executive employees, and is in discussions with potential staffers. He declined to elaborate. He also declined to comment on the steps RXi will to take to ramp up its operations, whether it has plans to raise capital, or when it may be required to reimburse CytRx.
 
As far as RXi’s pipeline goes, Woolf said he could not provide timelines for when formal drug-development programs would be announced as the company is still in its earliest stages.
 
Spinning for Value
 
Though it was one of the first movers in the RNAi drugs field, CyhtRx over the past year or so has been shifting its focus away from RNAi to its small-molecule drug candidates including the phase II ALS drug arimoclomol and phase I DNA-based HIV vaccine.
 
As it did so, the company maintained that its RNAi programs were undervalued by the investment community when compared with larger players in the field such as Alnylam and Sirna.
 
"In order to really value our RNAi business the way we think it should be valued, we're setting up a separate subsidiary focused totally on RNAi therapeutics so that we [can] develop drugs," CytRx’s Kriegsman told RNAi News early last year.
 
Since it first disclosed its plans to spin out its RNAi drugs operations, CytRx had said it could only do so when it had obtained the necessary financing. That cash infusion appears to have come in the form of an August 2006 deal with the ALS Charitable Remainder Trust.
 
Under the arrangement, CytRx sold a 1-percent royalty payment on worldwide sales of arimoclomol to the non-profit organization in exchange for $24.5 million in marketable securities, which the company sold for about $24.3 million in cash. CytRx also made a commitment to continue developing arimoclomol and pursue other ALS treatments.
 
The deal provided a much-needed cash infusion to CytRx’s coffers. According to the company’s third-quarter financials, it had cash and cash equivalents of $33.7 million as of Sept. 30, 2006, compared with $8.3 million at the end of 2005. This cash will enable CytRx to support its planned level of operations through the end of 2008.

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