RXi Pharmaceuticals Still Confident About Outstanding 2010 Goals

A week or so ago, I had the opportunity to talk by phone to the CEO and CSO of RXi Pharmaceuticals, Noah Beerman and Anastasia Khvorova respectively, about the company's scientific and business development strategy. Overall, they were quite upbeat about the prospect of turning around the perception of a company aimlessly wandering around in early technology development and increase shareholder value by finally moving their technology into the clinic and raise the promised non-dilutive capital. Specifically, they did not flinch when asked about their belief whether they were still on track to achieve their outstanding 2010 goals: the selection of their first development candidate (anti-scarring) for which an IND would be expected in 2011, and establishing their first major partnership.

Painfully aware that RXi has a history of promising lucrative partnerships, not one of which has yet to come to fruition, I specifically wanted to confirm that the stated partnership goal is yet to be reached and is not accounted for by the recent string of deals where RXi evaluates whether its self-delivering siRNAs ('sd-rxRNA') have utility in conjunction with technologies provided by partners small and large. While definitely the right approach to explore the wider potential of sd-rxRNAs (note that they have 6-12 month milestone goals), these deals lack the traditional upfront monies and royalties/milestones which would make a world of a difference in limiting shareholder dilution until the company’s own product candidates will allow it to raise capital on the risk-averse financial markets on favourable terms. And yes, Noah Beerman left no doubt that the company has no intention of letting the technology development deals serve as a substitute for that partnership goal.

Yet the exact nature of such a deal was left an open question. It seems that the company is still debating internally about issues such as whether such a deal ought to involve its strategic areas or its core focus areas in ocular and dermal disease. I can understand if a potential partner wanted to benefit from the company’s technology for ocular disease in particular, but that RXi might feel that it should get a better valuation for that at a later point. On the other hand, with self-delivering rxRNAs having potential for direct and localized RNAi applications beyond their core focus areas, such as in certain cancers (e.g. cervical, bladder, breast, maybe liver), respiratory disease, and disorders of the CNS, there could be demand for the technology in non-focus areas, too. This would be mutually beneficial, since these investments would help develop sd-rxRNAs in areas, many of which very attractive financially, for which RXi with its 32 employees and less than $10M in cash realistically wouldn’t have the resources to pursue on its own and the potential value of which would eventually have to be written down. Accordingly, it seemed that CNS and oncology could indeed be high-traffic areas for partnership discussions.

Do I believe that RXi’s sd-rxRNAs have the potential to form the basis for a decent Big Pharma deal (what follows in the next two paragraphs are my speculations only, not management’s guidance)? Based on conference presentations and the company’s patent application for the technology, I do believe that it has such value simply because unformulated siRNAs should eventually occupy a niche in RNAi Therapeutics and RXi can be considered a, if not the emerging leader in this area. Alnylam (of cholesterol-siRNA conjugate fame), naturally, and Dharmacon (Accell siRNAs) can probably be considered the two closest competitors. While Alnylam seemed to have the early lead in the area (2004 Nature and 2007 Nature biotech papers), it is not clear to me what their current stage of the technology is. It seems like the comparative data slightly favors sd-rxRNAs, but in order to command favourable economics, one has to assume that RXi has now amassed, through sheer focus and some siRNA chemistry genius of Dr Khvorova, such a toolbox of diverse chemistries and know-how in designing potent sd-rxRNAs such that candidates with IC50 potencies in the low nanomolar range can be found routinely in passive tissue culture uptake studies, instead of the 500nM-10uM potencies commonly observed with first-generation lipophilic-siRNA conjugates. In this regard, I am concerned that the patent applications that provide RNAi trigger screening examples for a number of genes, do not support that. However, RXi may have chosen, for trade secret purposes, not to provide the best mode in the patent application, but modes of applications sufficiently advanced to get patents issued.

If the technology has indeed advanced over what is publicly available and a deal were to involve the core area of ocular disease, I could imagine a drug discovery deal in which RXi gives away a handful of targets in return for ~$20M in upfront plus the usual milestones and royalties. If CNS or oncology, a deal involving a similar number of drug candidates with a $10M upfront plus an equity investment at a premium would appear reasonable.

As we concluded the talk, I had to ask about how to interpret parent company CytRx' aggressive selling of RXi stock, very disconcerting indeed given the already depressed share price (RXII) at which some of these purchases happened, a financial position by CytRx that does not appear too distressed and the fact that the CEO of CytRx, Mr. Steven Kriegsman, sits on RXi’s Board of Directors. It was apparent that this must be a question that RXi is often asked, and while Noah Beerman did not want to speak on behalf of CytRx, he told me to listen to Mr. Kriegsman’s own words on the RXi stock issue. So I did. What Mr. Kriegsman said in conference presentations (paraphrasing now) is that isn’t it nice to be able to use RXi as a piggy bank, but isn’t it also nice at the same time to be still the largest owner of RXII shares (~17% of outstanding) in case that RXII goes up for a change. Since RXi has strictly served CytRx as a piggy bank thus far, RXi shareholders will hope that the rest of the comments were not but some empty words.

RXi Pharmaceuticals Appoints New CEO in Attempt to Become a Clinical-Stage Company

RXi Pharmaceuticals has been the perennial talent of the RNAi Therapeutics space with high potential based on interesting IP, a staff with solid backgrounds in oligonucleotides, and an impressive line-up of scientific advisors also with political influence, yet was never able to live up to its expectations of translating this into partnerships and therapeutic programs with imminent clinical relevance. It is then maybe not too surprising that following the resignation of RXi’s Chief Financial Officer and the appointment of a Chief Medical Officer not so long ago, the company has now also announced a new CEO in the form of Mr. Noah Beerman.

The general problem that I have seen with this company is its lack of focus. While in terms of RNAi trigger IP, the company has potentially valuable access to parts of Tuschl I (through a non-exclusive license from the University of Massachusetts) and shRNA/Dicer substrate-related Hannon patents and some Dicer-resistant, yet >24bp silencing dsRNAs, the portfolio lacks coherence. Maybe as a result, RXi has been all over the place with their RNAi triggers starting with dsRNAs less than 15bp, longer than 24bp, and the obligatory claim to single-strand RNAi, too. At the same time it seems to have conceded 15-24bp dsRNAs to the Kreutzer-Limmer and Tuschl patent estates largely owned by Alnylam, which leaves me puzzled as to what exactly their rights are to Tuschl I, something that Merck paid $1.1B for in their Sirna Therapeutics acquisition. In the absence of better disclosure and the trend of ever decreased emphasis on Tuschl I, I have to suspect that these rights are very limited in scope, including limited or non-existent sub-licensing rights. Investors apparently feel the same, since access to even just areas like the liver, oncology, or metabolic disease alone could be worth well North of RXi’s current ~$30M market cap, especially if Tuschl I ends up further encroaching onto Tuschl II.

Being satisfied with second-choice, the re-invention of existing technologies, or somewhat questionable claims appears to be also the case for RNAi delivery. Orally delivered GeRPs particles are one example. While the idea of turning the natural tendency of nanoparticles to be taken up by the phagocytic system from a nuisance into a therapeutic opportunity is a promising one and ought to be further pursued, looking at the actual publication leaves me with lots of questions and maybe explains why the company would not advertise these what appear to be at face value revolutionary findings with more vigor. What it does advertise though is their ‘self-delivering rxRNAs’ which promote gene silencing in vitro in the absence of additional transfection reagents, albeit at concentrations often as high as 1uM. This high concentration coupled again with an unwillingness to disclose more about the technology and RXi’s ties Dharmacon which distributes the Accell siRNA-conjugate technology, makes me suspect that these are variants of the lipophile-siRNA conjugation idea pioneered by Alnylam and published in Nature in 2004. From a scientific perspective, what is interesting though and was shown at RXi’s recent Analyst Day, is that for current siRNA-conjugates, the benefits of delivering in vivo shorter dsRNAs may indeed outweigh their potency disadvantages compared to the traditional ~21bp siRNAs.

Like a number of other RNAi Therapeutics companies, it has been the ambition of RXi to compete across the platform rather than focusing on key enabling technology development and a path towards the clinic. If GeRPs and the self-delivering rxRNAs were indeed so revolutionary, why not just work and capitalize on these similar to what Tekmira is doing in liposomal delivery? Formulating a coherent strategy may also mean that you have to source technology from all over the world, rather than depending on the medley of innovations coming out of UMass and Dharmacon. It may be the more outward-looking nature of mdRNA which enabled it to rapidly move past RXi with much less to start with. On the other hand, the close relationship of RXi with UMass and the State of Massachussetts carries with it significant benefits for its financial position which with ~$10M in cash otherwise would look quite dire. With this cushion, it should be possible for the new CEO to build a company with real clinical relevance partnering appeal.