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RXi Looks to Raise $10.9M in Public Offering; Needs More than $2M to Move Cancer Rx into Phase III

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By Doug Macron

RXi Pharmaceuticals this week announced that it is aiming to raise $10.9 million through the public sale of nearly 12 million units of stock and warrants.

The disclosure comes just days after it reported in a US Securities and Exchange Commission filing that it will cost more than $2 million to generate the data needed to lift a stay preventing a phase III trial of its recently acquired non-RNAi cancer immunotherapy NeuVax.

RXi also broke out its financial results for 2010 in the filing, reporting a drop in net loss amid lower research and development spending. The company said, however, that it anticipates its costs to increase going forward on NeuVax-related expenses.

In the offering, the company will sell 11.95 million units, comprised of one share of common stock and one warrant to purchase an additional share, a $1 apiece. The warrants may be exercised at $1, as well.

RXi said it will use the proceeds for “general corporate purposes, which may include working capital, capital expenditures, research and development expenditures, clinical and preclinical trial expenditures, commercial expenditures, acquisitions of new technologies or businesses that are complementary to its current technologies or business focus, and investments.”

According to the SEC filing, one of those R&D expenditures may be related to work RXi will need to conduct in order to lift a partial clinical hold placed on a planned phase III trial of NeuVax.

The drug is a cytotoxic T cell-activating, epitope-specific immunotherapy made up of a peptide called E75 and an immune adjuvant. Designed to boost a pre-existing immune response found in cancer patients, NeuVax is being developed to reduce the recurrence of breast cancer in low-to-intermediate HER2-positive breast cancer patients not eligible for treatment with Genentech's Herceptin.

RXi picked up NeuVax when it acquired Apthera earlier this month (GSN 4/14/2011). While it had been a pure-play RNAi therapeutics shop since it was founded, it had been interested in accelerating its transition to a clinical-stage company, while at the same time diversifying into an area where it had already gained experience through a collaboration (GSN 4/7/2011).

RXi expects NeuVax to begin phase III testing in the first half of 2012. But according to its SEC filing, it will first need to conduct some work to satisfy the US Food and Drug Administration, which is preventing the trial from starting pending the completion of “certain product manufacturing activities” and the approval of certain chemistry, manufacturing, and control information.

“Such actions will require us to expend additional funds to meet the FDA’s phase III requirements, currently estimated by us to be approximately $2.5 million,” RXi said.

This is expected to push up RXi's expenses “significantly from historic levels for the foreseeable future,” the company said in the filing.

As of March 31, RXi had roughly $11 million in cash and cash equivalents, which is estimated to fund the firm's operations through at least the first quarter of 2012, it said. It did not indicate how this guidance might change with the addition of the proceeds from the planned stock and warrant offering.

Also contributing to future expenses is the planned clinical development of RXI-109, which is designed to inhibit connective tissue growth factor in order to prevent dermal scarring associated with surgery. The drug is expected to enter phase I testing in the first half of next year, assuming that an investigational new drug application is submitted before the end of 2011.

“If clinical studies of RXI-109 produce successful results in anti-scarring, we may explore opportunities in other dermatology applications as well as in other anti-fibrotic indications, including pulmonary fibrosis, liver fibrosis, acute spinal cord injury, ocular scarring, and restenosis,” RXi noted in the SEC filing.

Further, “we expect to incur significant operating losses as we advance our product candidates through the drug-development and regulatory process,” RXi said. “In addition to increasing research and development expenses, we expect general and administrative costs to increase as we add personnel and integrate Apthera.”

Financials

For the year ended Dec. 31, RXi's R&D costs dropped to $7.9 million from $8.9 million in 2009, a decrease primarily due to lower non-employee, non-cash, stock-based compensation and lower spending on patent application and prosecution activities.

General and administrative expenses, meanwhile, were essentially flat year over year at $5.5 million. Total operating costs in 2010 fell to $16.6 million from $17.5 million the year before.

General and administrative expenses, meanwhile, were essentially flat year over year at $5.5 million. Total operating costs in 2010 were $16.6 million, down from $17.5 million the year before.

RXi's 2010 net loss fell to $12 million, or $0.67 per share, from $18.4 million, or $1.24 per share, in 2009.

RXi recorded no revenues last year.


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