RXi Pharmaceuticals Reality Check

Last week on December 17, RXi Pharmaceuticals announced (3-month) results from a phase II study of the company’s lead candidate RXI-109, an RNAi Therapeutic for the treatment/prevention of dermal scars.  

In this lower abdominal scar revision study 1301, one side in a given patient was treated with drug on days 1, 8, and 15 following surgery (immediate group) or on days 14, 21, and 28 (delayed group), while the other side was given placebo.  An assessor blinded to which side was injected with RXI-109 or placebo was then asked to tell drug from placebo. 

According to the release, the drug-treated side was (correctly) identified 54% of the time in the delayed treatment cohort versus 24% of the time in the immediate treatment cohort.

In the absence of further information on the identification procedure and scoring used (e.g. it is likely 'there is no difference' was a possible answer which would somewhat undersell the results), the following interpretation seems logical: in the delayed treatment cohort skin wounds treated with RXI-109 looked no different than those treated with placebo.  Moreover, when treatment was started soon after scar revision surgery, RXI-109 possibly did harm.

It certainly would have helped if RXi provided the VAS score as it did in the one-month update in September.

To me, this result looks like one of the worse types of biotech trial failures.  If you like to talk about 'misleading', then RXi should not look further than the title of their own press release on this failed study:

'RXi Pharmaceuticals Announces Sustained Effect of RXI-109 at Three Months Post Scar Revision Surgery and the Completion of Enrollment for its Phase 2a Trial RXI-109-1301'

Two days after the clinical trial news, the company then announced that it had licensed a non-RNAi dermal compound which is currently in phase II studies for cancer and other proliferative diseases of the skin.  A proprietary formulation of small molecule ‘immuno-modulator’ diphenylcyclopropenone (DPCP), aka Samcyprone, from an obscure company called Hapten Pharmaceuticals.

Now on to RXi’s financials...

At the end of Q3 2014, RXi had about $10M in net cash ($10.69M cash/cash equivalents minus $1M in liabilities), spending about $2.25M a quarter.  This means they presently have ~$8M in cash minus the undisclosed cash it spent on the Hapten deal.  If RXi continued with RXI-109 and RNAi and if it initiated the phase II clinical studies with Samcyprone, the cash burn would obviously increase.  Let’s say to $4M per quarter à $8M/($4M per quarter)= 2 quarters of cash left.

...and RXII the stock

Obviously realizing that the new asset is not not solving their  financial predicament, by contrast it is only worsening it, concurrent with the Hapten deal RXi entered into a new stock purchase agreement with Lincoln Park Capital ('ATM') according to which RXi Pharmaceuticals can sell LPC newly issued shares to raise capital.  The way these deals work is that LPC would get a discount on the shares and turn around and sell to the public market to lock in the profit.  This means that if RXi really counted on such revenues to keep their PCR machines running, any substantial rally in RXII is likely to be met with the selling of new shares.

Adding to the pressure is the fact that major shareholder Tang Capital, holding just shy of 50% of the fully diluted share count, has been steadily selling down its ownership in RXi.  Moreover, some of the Hapten deal (incl. milestones) was/will be paid in shares and it would be reasonable to suspect that the owners of Hapten are not in it for the potential of making money with speculating in RXII shares.  

If you consider a fully diluted market cap of $70-80M, the present situation with RXI-109 and the failure for years (also under Galena) to advance the self-delivering RNAi platform, the case can be made that there are better biotech stock investments out there.

Pick your poison

For the above reasons (including financial limitations), I tweeted last week that the move to license Samcyprone more or less amounted to RXi Pharmaceuticals getting out of the RNAi game.  In fact, the bitter irony is that RXi was born out of parent company Galena Pharmaceuticals making exactly the same move (marginalizing RNAi by acquiring a non-RNAi clinical asset).

So yesterday, the CEO of RXi Pharmaceuticals issued an Open Letter that, to sum it up, I was misleading the public with my conclusions about the strategic shifts happening at the company and was thereby scaring investors into selling their shares:

'We can only hope that investors and shareholders who read blogs, tweets and postings from third parties purporting to have an informed view on our business will also do an in depth evaluation of the background of those who write such "reports", their past contributions to the actual progress in the RNAi space, and their possible associations to competitors and other firms working in a similar space. Notwithstanding these ill-informed criticisms, we remain optimistic about the prospects of the Company and our core technology.'

By contrast, RXI-109 was on track, the company’s RNAi platform alive and kicking, and immune modulator (aka skin irritant) Samcyprone fully being aligned with RNAi gene silencing as it changes gene expression (I’m impressed).

At this point, a friendly piece of advice: RXi ought to label Samcyprone an 'immuno-oncology' drug which would almost sound as sexy as the VEGF compound RXi is now 'synthesizing'.

So I’m not sure what to hope for: a) that the CEO does not understand that continuing with two phase II compounds under present circumstances is akin to financial suicide, especially from a shareholder’s point-of-view; or b) that he understands it and scapegoats social media, including myself, for calling the bluff in an effort to win time.

   

I suspect it’s the latter and either way shareholders are unlikely to come out ahead.  After all, when he took the helm of RXi Pharmaceuticals at a time when it was fashionable to bash and ridicule RNAi, he made it clear that he was a ‘small molecule guy’ at heart. If I may ask you Geert, what exactly were your contributions to the actual progress of RNAi Therapeutics?