By Doug Macron
Just six months after transforming itself into a drug developer focused on both RNAi and cancer immunotherapies, RXi Pharmaceuticals said this week that it will spin out its activities with the gene-silencing technology into a new publicly traded company.
The new RNAi firm will retain the RXi name, while the other half of the company's operations, which will focus solely on the immunotherapy activities, will be conducted as Galena Biopharma.
"We believe that the spin-off transaction will enhance shareholder value by providing a sharper strategic focus for both of the company's key programs," Mark Ahn, who headed RXi and is now the president and CEO of Galena, said in a statement. A search for a new CEO for RXi is underway.
In April, RXi announced that it was acquiring Apthera, a developer of peptide-based immunotherapeutics (GSN 4/7/2011). At the time, Ahn, who was CEO of Apthera and an RXi board member, told Gene Silencing News that the transaction was geared toward diversifying RXi and accelerating its growth into a clinical-stage company.
RXi has yet to advance a drug into human testing, while Apthera has a phase II cancer drug called NeuVax in its pipeline.
This week, however, Ahn told Gene Silencing News that RXi's immunotherapy and RNAi platforms were being undervalued, in part due to investors' desires to put their money behind one or the other technology.
“As I came on board, I [wondered why] this company isn't being appreciated,” Ahn said. “Is it because people don't understand or is it because we haven't given them something that is understandable?”
But “blaming people for not figuring it out is not a viable strategy in the market; we have to give them something that is focused and thoughtful with good science,” he said. “It became clear, in reaching out to investors, that we weren't unlocking the value of both [technologies] by having this gemisched together and that we needed to split” them.
“We continue to believe [RNAi] is a promising technology,” Ahn added. “By splitting the companies up, we're hoping to unlock the value in” it.
Going forward, Galena will be able to tell investors that “every dollar you invest goes only to these actionable, clear milestones against cancer immunotherapy,” Ahn said. At the same time, it will reduce that company's burn rate by about $1.5 million a month, which is what is currently being spent on RNAi research.
Importantly, as part of the transaction, institutional investors have agreed to earmark money specifically for RXi following the split of the two companies that will enable the firm to pursue its RNAi work for two years, “so hopefully they'll be able to hit a proof of principle and pick up some momentum as they move along,” he said.
RXi's operations “are 100 percent financed” into 2013, according to Ahn. “There is no question [about if it can] be continued or will it siphon off money” from Galena.
The company has already changed its name to Galena and made RXi a wholly owned subsidiary, but “as of today, Galena won't spend a dollar on RNAi, and vice versa,” he noted.
Galena will now trade under RXi's ticker symbol “RXII” until the spin-off process is completed later in the year. After that, each firm will trade under its own stock symbol.
In conjunction with the transaction, institutional investors have agreed to buy $9.5 million in RXi preferred stock and $2.5 million in Galena common stock.
The RXi preferred stock will be convertible into 83 percent of the equity of RXi as of the completion of the spin-off, Galena said.
Roughly eight percent of the equity in RXi will be distributed on a share-for-share basis so that every share of Galena held before the distribution will translate into one share of Galena and one share of RXi following the spin off.
Galena will hold on to four percent of RXi, while Advirna, a privately held company that licensed key RNAi technology to RXi, will have five percent of RXi.
Ahn will stay on as CEO of Galena and hold a seat on RXi's board.
Notably, Ahn said that the organizational changes will have no effect on the timeline for RXi's lead drug candidate RXI-109, an RNAi-based dermal anti-scarring candidate slated to enter phase I testing in the first half of 2012.
“On the contrary. [The spinout] sharpens our focus,” he said. “The toxicology studies are going full blast for RXI-109, and we're in very good shape for filing our IND and commencing clinical trials.”
Deja Vu
With the pending spinout from Galena, RXi finds itself in a familiar position.
The company was founded in 2007 as a subsidiary of CytRx, which had been focused on developing RNAi drugs since 2003 but later expanded into small molecules and DNA vaccines.
Deciding that its dual identity was limiting its ability to compete against pure-play RNAi firms, CytRx established RXi, and spun it out into an independent public company later that year (GSN 1/11/2007). RXi went public in 2008 (GSN 3/13/2008).
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