ITEM 1.
|
FINANCIAL STATEMENTS
|
RXi PHARMACEUTICALS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
September 30,
2017
|
|
|
December 31,
2016
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
5,416
|
|
|
$
|
12,906
|
|
Restricted cash
|
|
|
50
|
|
|
|
50
|
|
Prepaid expenses
|
|
|
271
|
|
|
|
150
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
5,737
|
|
|
|
13,106
|
|
Property and equipment, net
|
|
|
269
|
|
|
|
114
|
|
Notes receivable
|
|
|
|
|
|
|
150
|
|
Other assets
|
|
|
27
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
6,033
|
|
|
$
|
13,397
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
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Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
702
|
|
|
$
|
917
|
|
Accrued expenses
|
|
|
1,901
|
|
|
|
1,625
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
2,603
|
|
|
|
2,542
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.0001 par value; 10,000,000 authorized
|
|
|
|
|
|
|
|
|
Series B convertible preferred stock, par value; 8,100 shares authorized; 5,737 shares issued and
outstanding at December 31, 2016
|
|
|
|
|
|
|
3,525
|
|
Series C convertible preferred stock, par value; 1,800,000 shares authorized; no shares issued or
outstanding
|
|
|
|
|
|
|
|
|
Common stock, $0.0001 par value, 100,000,000 shares authorized; 23,697,338 and 13,003,179 shares
issued and outstanding at September 30, 2017 and December 31, 2016, respectively
|
|
|
2
|
|
|
|
1
|
|
Additional
paid-in
capital
|
|
|
79,977
|
|
|
|
73,428
|
|
Accumulated deficit
|
|
|
(76,549
|
)
|
|
|
(66,099
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
3,430
|
|
|
|
10,855
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
6,033
|
|
|
$
|
13,397
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
3
RXi PHARMACEUTICALS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except share and per share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Net revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
19
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
1,490
|
|
|
|
1,464
|
|
|
|
4,166
|
|
|
|
4,108
|
|
Acquired
in-process
research and development
|
|
|
|
|
|
|
|
|
|
|
3,075
|
|
|
|
|
|
General and administrative
|
|
|
986
|
|
|
|
752
|
|
|
|
3,209
|
|
|
|
2,587
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
2,476
|
|
|
|
2,216
|
|
|
|
10,450
|
|
|
|
6,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(2,476
|
)
|
|
|
(2,216
|
)
|
|
|
(10,450
|
)
|
|
|
(6,676
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income, net
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
15
|
|
Other income (expense), net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,476
|
)
|
|
$
|
(2,212
|
)
|
|
$
|
(10,450
|
)
|
|
$
|
(6,655
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.11
|
)
|
|
$
|
(0.34
|
)
|
|
$
|
(0.47
|
)
|
|
$
|
(1.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares: basic and diluted
|
|
|
23,511,444
|
|
|
|
6,576,096
|
|
|
|
22,167,753
|
|
|
|
6,548,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
4
RXi PHARMACEUTICALS CORPORATION
C
ONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(10,450
|
)
|
|
$
|
(6,655
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
48
|
|
|
|
41
|
|
Non-cash
stock-based compensation
|
|
|
276
|
|
|
|
649
|
|
Acquired
in-process
research and development
|
|
|
3,075
|
|
|
|
|
|
Value of
non-marketable
equity securities recognized as
revenue
|
|
|
|
|
|
|
(9
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Prepaid expenses and other assets
|
|
|
(121
|
)
|
|
|
(10
|
)
|
Accounts payable
|
|
|
(417
|
)
|
|
|
(706
|
)
|
Accrued expenses
|
|
|
276
|
|
|
|
302
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(7,313
|
)
|
|
|
(6,388
|
)
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchase of short-term investments
|
|
|
|
|
|
|
(2,000
|
)
|
Maturities of short-term investments
|
|
|
|
|
|
|
5,500
|
|
Cash acquired in MirImmune Inc. acquisition
|
|
|
100
|
|
|
|
|
|
Cash paid for purchase of property and equipment
|
|
|
(203
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
(103
|
)
|
|
|
3,498
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from the issuance of common stock, net of offering costs
|
|
|
(74
|
)
|
|
|
152
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(74
|
)
|
|
|
152
|
|
Net decrease in cash, cash equivalents and restricted cash
|
|
|
(7,490
|
)
|
|
|
(2,738
|
)
|
Cash, cash equivalents and restricted cash at the beginning of period
|
|
|
12,956
|
|
|
|
5,167
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and restricted cash at the end of period
|
|
$
|
5,466
|
|
|
$
|
2,429
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of
non-cash
investing and
financing activities:
|
|
|
|
|
|
|
|
|
Conversions of Series B convertible preferred stock into common stock
|
|
$
|
3,525
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of Series C convertible preferred stock into common stock
|
|
$
|
816
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
MirImmune Inc. Acquisition:
|
|
|
|
|
|
|
|
|
Cancellation of notes receivable
|
|
$
|
150
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable assumed
|
|
$
|
5
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of securities issued
|
|
$
|
2,824
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
5
RXi PHARMACEUTICALS CORPORATION
N
OTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Nature of Operations
RXi Pharmaceuticals Corporation (
RXi
,
we
,
our
or the
Company
) is a clinical-stage company developing innovative therapeutics based on our proprietary self-delivering RNAi
(sd-rxRNA
®
)
platform and Samcyprone which address significant unmet medical needs. We have a pipeline of discovery, preclinical and clinical product candidates in the areas of dermatology, ophthalmology and cell-based cancer immunotherapy. The
Companys clinical development programs include
RXI-109,
an
sd-rxRNA
for the treatment of dermal and ocular scarring, and Samcyprone, a topical
immunomodulator, for the treatment of warts. The Companys pipeline, coupled with our extensive patent portfolio, provides for product development and business development opportunities across a broad spectrum of therapeutic areas.
2. Liquidity and Going Concern
The
Company has limited cash resources, certain limitations under the purchase agreement with Lincoln Park Capital Fund, LLC (
LPC
) and has expended substantial funds on the research and development of our product candidates and
funding general operations. As a result, we have reported recurring losses from operations since inception and expect that we will continue to have negative cash flows from our operations for the foreseeable future. Historically, the Companys
primary source of financing has been the sale of its securities. Our ability to continue to fund our operations is dependent on the amount of cash on hand and our ability to raise additional capital through, but not limited to, equity or debt
offerings or strategic opportunities. This is dependent on a number of factors, including the market demand or liquidity of our common stock. There can be no assurance that the Company will be successful in accomplishing these plans. As a result, we
have concluded that there is substantial doubt regarding our ability to continue as a going concern for at least one year. If we fail to obtain additional funding when needed, we would be forced to scale back or terminate our operations or to seek
to merge with or to be acquired by another company. These financial statements do not include any adjustments to, or classification of, recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to
continue as a going concern.
3. Significant Accounting Policies
Basis of Presentation
The accompanying
condensed consolidated financial statements are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America (
GAAP
). Certain information and footnote disclosures
included in the Companys annual financial statements have been condensed or omitted. The
year-end
condensed balance sheet data was derived from audited financial statements, but does not include all
disclosures required by GAAP. In the opinion of management, all adjustments (including normal recurring accruals) considered necessary for a fair presentation of the condensed consolidated financial statements have been included. Interim results are
not necessarily indicative of results for a full year.
Uses of Estimates in Preparation of Financial Statements
The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these
estimates.
Cash, Cash Equivalents and Restricted Cash
The Company considers all highly liquid instruments with an original maturity of three months or less to be cash equivalents. Cash equivalents
consist primarily of amounts invested in certificates of deposit.
Restricted cash consists of certificates of deposit held by financial
institutions as collateral for the Companys corporate credit cards.
6
The following table provides a reconciliation of cash, cash equivalents, and restricted cash
reported within the balance sheet that sum to the total of the same such amounts shown in the statement of cash flows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Cash and cash equivalents
|
|
|
5,416
|
|
|
|
12,906
|
|
Restricted cash
|
|
|
50
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and restricted cash shown in the statement of cash flows
|
|
|
5,466
|
|
|
|
12,956
|
|
|
|
|
|
|
|
|
|
|
Research and Development Expenses
Research and development costs are charged to expense as incurred and relate to salaries, employee benefits, facility-related expenses,
supplies, stock-based compensation related to employees and
non-employees
involved in the Companys research and development, external services, other operating costs and overhead related to our research
and development departments, costs to acquire technology licenses and expenses associated with preclinical activities and our clinical trials. Payments made by the Company in advance for research and development services not yet provided and/or for
materials not yet received are recorded as prepaid expenses. Accrued liabilities are recorded related to those expenses for which vendors have not yet billed us with respect to services provided and/or materials that we have received.
Preclinical and clinical trial expenses relate to third-party services, subject-related fees at the sites where our clinical trials are being
conducted, laboratory costs, analysis costs, toxicology studies and investigator fees. Costs associated with these expenses are generally payable on the passage of time or when certain milestones are achieved. Expense is recorded during the period
incurred or in the period in which a milestone is achieved. In order to ensure that we have adequately provided for preclinical and clinical expenses during the proper period, we maintain an accrual to cover these expenses. These accruals are
assessed on a quarterly basis and are based on such assumptions as expected total cost, the number of subjects and clinical trial sites and length of the study. Actual results may differ from these estimates and could have a material impact on our
reported results. Our historical accrual estimates have not been materially different from our actual costs.
Stock-based Compensation
The Company follows the provisions of the Financial Accounting Standards Board (
FASB
) Accounting Standards Codification
(
ASC
) Topic 718,
Compensation
Stock Compensation
(
ASC 718
), which requires the measurement and recognition of compensation expense for all stock-based payment awards made
to employees, officers and
non-employee
directors, including stock options. Stock compensation expense based on the grant date fair value estimated in accordance with the provisions of ASC 718 is recognized as
an expense over the requisite service period.
For stock options granted as consideration for services rendered by
non-employees,
the Company recognizes compensation expense in accordance with the requirements of FASB ASC Topic
505-50,
Equity Based Payments to
Non-Employees
.
Non-employee
option grants that do not vest immediately upon grant are recorded as an expense over the requisite service period of the underlying
stock options. At the end of each financial reporting period prior to vesting, the value of these options, as calculated using the Black-Scholes option-pricing model, will be
re-measured
using the fair value
of the Companys common stock and the
non-cash
compensation recognized during the period will be adjusted accordingly. Since the fair market value of options granted to
non-employees
is subject to change in the future, the amount of the future compensation expense will include fair value
re-measurements
until the stock options are fully
vested.
Comprehensive Loss
The
Companys comprehensive loss is equal to its net loss for all periods presented.
Net Loss per Share
The Company accounts for and discloses net loss per share in accordance with FASB ASC Topic 260,
Earnings per Share.
Basic
and diluted net loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding. Diluted earnings per share is computed by dividing the Companys net earnings by the weighted average number of
common shares outstanding and the impact of all dilutive potential common shares.
7
4. Recent Accounting Pronouncements
In August 2016, the FASB issued Accounting Standards Update (
ASU
) 2016-15,
Statement of Cash Flows (Topic 230)
Classification of Certain Cash Receipts and Cash Payments
, which clarifies how certain cash receipts and payments are presented and classified in the statement of cash flows. This standard will be effective for annual reporting
periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is permitted. The amendments in ASU
2016-15
should be applied using a retrospective
transition method to each period presented. The Company adopted ASU
2016-15
in the first quarter of 2017 and the implementation of this standard had no impact on the Companys financial statements.
In November 2016, the FASB issued ASU
2016-18,
Statement of Cash Flows (Topic 230)
Restricted Cash,
which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash and restricted cash equivalents. With this
standard, amounts generally described as restricted cash or restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning of period and end of period total amounts shown on the statement of cash flows.
This standard will be effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is permitted. The Company adopted ASU
2016-18
in the first quarter of 2017, and the guidance has been retrospectively applied to all periods presented. The total of cash, cash equivalents and restricted cash is described in Note 3. The
adoption of the guidance did not have an impact on the Companys balance sheet or statement of operations.
In January 2017, the FASB
issued ASU
2017-01,
Business Combinations (Topic 805) Clarifying the Definition of a Business
, which provides a screen to determine when an integrated set of assets and activities are
not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. This
screen reduces the number of transactions that need to be further evaluated. This standard will be effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The Company
adopted ASU
2017-01
effective January 1, 2017. The implementation of this standard did not have an impact on the Companys financial statements as the acquisition of MirImmune Inc.,
(
MirImmune
), the Companys transaction that this ASU would have affected, did not meet the definition of a business under either the prior guidance or the new guidance.
In May 2017, the FASB issued ASU
2017-09,
Compensation Stock Compensation (Topic 718)
Scope of Modification Accounting
, which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. This standard will be effective for annual
reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is permitted. The Company adopted ASU
2017-09
in the second quarter of 2017, and
the implementation of this standard had no impact on the Companys financial statements.
5. MirImmune Inc. Acquisition
On January 6, 2017, the Company entered into a Stock Purchase Agreement (the
Stock Purchase Agreement
) and completed
its acquisition of MirImmune. Subject to the terms of the Stock Purchase Agreement, RXi Merger Sub, LLC, a Delaware limited liability company and wholly-owned subsidiary of the Company (
RXi Merger Sub
), was merged with and into
MirImmune, with RXi Merger Sub continuing as the surviving entity and changing its name to MirImmune, LLC. As a result of the merger, MirImmune, LLC remains and operates as a wholly-owned subsidiary of the Company. Pursuant to the Stock
Purchase Agreement, the Company acquired all of the issued and outstanding shares of capital stock of MirImmune for an aggregate of 2,750,371 shares of common stock of the Company and an aggregate of 1,118,224 shares of Series C Convertible
Preferred Stock of the Company (the
Series C Convertible Preferred Stock
). The shares of common stock and Series C Convertible Preferred Stock were subject to a holdback of 3% of the aggregate closing consideration for any
purchase price adjustments. The shares subject to the holdback, adjusted for post-closing items, were released and issued on April 12, 2017.
Upon the closing of the acquisition, the notes receivable outstanding on the Companys balance sheet as of December 31, 2016 were
cancelled.
The Company assessed the acquisition of MirImmune under FASB ASC Topic 805,
Business Combinations
(
ASC 805
). Under ASC 805, the Company determined that the acquired assets did not constitute a business and that the transaction would be accounted for as an asset acquisition. The assets and development programs acquired from
MirImmune are at an early stage of development and will require a significant investment of time and capital if we are to be successful in developing them. There is no assurance that we will be successful in developing such assets, and a failure to
successfully develop such assets could diminish our prospects. Under ASC 805, the assets acquired are considered to have no alternative future uses, as determining the future economic benefit of the acquired assets at the date of acquisition is
highly uncertain. The fair value of the assets was determined using the quoted market price of the Companys common stock on January 6, 2017, the date of the acquisition, and fully expensed as
in-process
research and development.
During the nine months ended September 30, 2017, the
aggregate fair value of the consideration given of $3,075,000 was fully expensed as
in-process
research and development expense. The aggregate fair value of the consideration also included transaction costs,
liabilities assumed and cancellation of notes receivable.
8
The Company was restricted from converting any of the Series C Convertible Preferred Stock into
common stock to the extent that such conversion was not approved by the Companys stockholders in accordance with the stockholder approval requirements of NASDAQ Marketplace Rule 5635. On June 9, 2017, with the approval of the
Companys stockholders in accordance with the NASDAQ stockholder approval requirements, each share of the Series C Convertible Preferred Stock outstanding was automatically converted into one share of common stock, such that there were no
shares of Series C Convertible Preferred Stock issued or outstanding at September 30, 2017. On November 7, 2017, the Company filed a Certificate Eliminating the Series C Convertible Preferred Stock from the Certificate of Incorporation of the
Company with the Secretary of State of the State of Delaware. Please refer to Note 10 for further discussion of the filing.
Under the
terms of the Stock Purchase Agreement, if certain development or commercial milestones are achieved within two years, the Company will be required to either (i) issue a number of shares of common stock (the
Milestone Shares
)
equal to the sum of 2,519,091 shares of common stock, plus an additional number of shares of common stock equal to 13% of the common stock issued upon exercise of any warrants issued under the Companys underwritten public offering in December
2016, but only to the extent that such warrants have been exercised prior to the milestone being achieved or (ii) pay the equivalent value of the Milestone Shares in cash. The Company received shareholder approval in accordance with Rule 5635
of the NASDAQ Marketplace Rules at its 2017 Annual Meeting of Stockholders to issue any shares in satisfaction of the achievement of the milestones.
The Company assessed the Milestone Shares under FASB ASC Topic 480,
Distinguishing Liabilities from Equity
(
ASC
480
). The Company determined that liability accounting would be required for the Milestone Shares under ASC 480. The Company will record a liability related to the Milestone Shares if and when the milestones are achieved and the
consideration becomes payable. At that time, the Company will record the cost of the Milestone Shares as
in-process
research and development expense. No milestones have been met as of September 30, 2017.
6. Fair Value Measurements
The
Company follows the provisions of FASB ASC Topic 820,
Fair Value Measurements and Disclosures,
for the Companys financial assets and liabilities that are
re-measured
and reported at
fair value at each reporting period and are
re-measured
and reported at fair value at least annually using a fair value hierarchy that is broken down into three levels. Level inputs are defined as follows:
Level 1 quoted prices in active markets for identical assets or liabilities.
Level 2 other significant observable inputs for the assets or liabilities through corroboration with market data at the measurement
date.
Level 3 significant unobservable inputs that reflect managements best estimate of what market participants would
use to price the assets or liabilities at the measurement date.
The warrant issued to the Company by Thera Neuropharma, Inc.
(
Thera
) is categorized as Level 3 hierarchy. The estimated fair value inputs utilizing the asset-based approach for the warrant issued to the Company by Thera include the stage of enterprise development, terms of existing
contractual arrangements of the entitys equity securities, the achievement of milestones and other unobservable inputs.
Financial
assets measured at fair value on a recurring basis are summarized as follows, in thousands:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
At
September 30,
2017
|
|
|
Quoted Prices in
Active Markets
(Level 1)
|
|
|
Other Significant
Observable Inputs
(Level 2)
|
|
|
Significant
Unobservable Inputs
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant in Thera
|
|
$
|
5
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
At
December 31,
2016
|
|
|
Quoted Prices in
Active Markets
(Level 1)
|
|
|
Other Significant
Observable Inputs
(Level 2)
|
|
|
Significant
Unobservable Inputs
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant in Thera
|
|
$
|
5
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
A reconciliation of the beginning and ending Level 3 assets for the nine months ended
September 30, 2017 is as follows (in thousands):
|
|
|
|
|
|
|
Fair Value
Measurements
Using Significant
Unobservable Inputs
(Level 3)
|
|
Balance, beginning of period
|
|
$
|
5
|
|
Change in value of the warrant in Thera
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
5
|
|
|
|
|
|
|
Fair Value of Financial Instruments
The carrying amounts reported in the balance sheet for cash equivalents, restricted cash and accounts payable approximate their fair values due
to their short-term nature.
7. Stockholders Equity
Series B Convertible Preferred Stock
The Companys remaining shares of Series B Convertible Preferred Stock
(
Series B Convertible Preferred Stock
) outstanding at December 31, 2016 were fully converted into 6,374,444 shares of common stock of the Company during the first quarter of 2017, such that there are no shares of Series B
Convertible Preferred Stock issued or outstanding at September 30, 2017. On November 7, 2017, the Company filed a Certificate Eliminating the Series B Convertible Preferred Stock from the Certificate of Incorporation of the Company with the
Secretary of State of the State of Delaware. Please refer to Note 10 for further discussion of the filing.
Series C Convertible
Preferred Stock
In connection with the Stock Purchase Agreement, on January 5, 2017, the Company filed a Certificate of Designation of Preferences, Rights and Limitations of Series C Convertible Preferred Stock (the
Series C Convertible Preferred Stock Certificate of Designation
) with the Secretary of State of the State of Delaware. The Series C Convertible Preferred Stock Certificate of Designation provides for the issuance of up to
1,800,000 shares of Series C Convertible Preferred Stock. The Series C Convertible Preferred Stock have no voting rights, with certain exceptions as described in the Series C Convertible Preferred Stock Certificate of Designations, and shall receive
dividends on an
as-converted
basis at the same time and in the same form as any dividends paid out on shares of the Companys common stock. Other than as set forth in the previous sentence, no other
dividends shall be paid on the Series C Convertible Preferred Stock. The Company has never paid dividends on its common stock and presently has no intention of paying dividends.
Upon its issuance, the Series C Convertible Preferred Stock was assessed under ASC 480. The Company determined that the Series C Convertible
Preferred Stock was not within the scope of ASC 480 and therefore, the Series C Convertible Preferred Stock was not considered a liability. The Series C Convertible Preferred Stock was recorded in permanent equity on the Companys balance
sheet.
The Series C Convertible Preferred Stock was then assessed under FASB ASC 815,
Derivatives and Hedging
(
ASC 815
). The Company believes that the Series C Convertible Preferred Stock is an equity host for the purposes of assessing the embedded conversion option for potential bifurcation. The Company concluded that the conversion
option feature is clearly and closely related to the preferred stock host. As such, the conversion feature did not require bifurcation under ASC 815.
Pursuant to the Stock Purchase Agreement, the Company acquired all of the issued and outstanding shares of capital stock of MirImmune for an
aggregate of 2,750,371 shares of common stock of the Company and an aggregate of 1,118,224 shares of Series C Convertible Preferred Stock. The Company was restricted from converting any of the Series C Convertible Preferred Stock into common stock
to the extent that such conversion was not approved by the Companys stockholders in accordance with the stockholder approval requirements of NASDAQ Marketplace Rule 5635. On June 9, 2017, with the approval of the Companys
stockholders in accordance with the NASDAQ stockholder approval requirements, each share of the Series C Convertible Preferred Stock outstanding was automatically converted into one share of common stock, such that there were no shares of Series C
Convertible Preferred Stock issued or outstanding at September 30, 2017. Please refer to Notes 5 and 10 for further details on the shares issued in connection with the acquisition of MirImmune.
Lincoln Park Capital Fund, LLC
On August 8, 2017, the Company entered into a purchase agreement (the
2017
Purchase Agreement
) and a registration rights agreement
with LPC, pursuant to which the Company
10
has the right to sell to LPC up to $15,000,000 in shares of the Companys common stock, subject to certain limitations and conditions set forth in the 2017 Purchase Agreement. As a
commitment fee for entering into the 2017 Purchase Agreement, the Company issued to LPC 450,000 shares of Company common stock (the
Commitment Shares
). The Commitment Shares had a value per share of $0.58 and were recorded as a
cost of capital. The Company intends to use the net proceeds from the 2017 Purchase Agreement for working capital and general corporate purposes. There have been no purchases under the 2017 Purchase Agreement as of September 30, 2017.
Warrants
The following table summarizes the Companys outstanding warrants at September 30, 2017:
|
|
|
|
|
|
|
|
|
Exercise prices
|
|
Number of Shares
Underlying Warrants
|
|
|
Expiration
|
|
$5.20
|
|
|
1,300,002
|
|
|
|
June 2, 2020
|
|
$0.90
|
|
|
12,777,777
|
|
|
|
December 21, 2021
|
|
|
|
|
|
|
|
|
|
|
Total warrants outstanding
|
|
|
14,077,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the second quarter of 2017, outstanding warrants for the purchase of 462 shares of the Companys
common stock with an exercise price of $39.00 expired.
No warrants were exercised during the nine months ended September 30, 2017 or
2016.
8. Stock-based Compensation
The Company uses the Black-Scholes option-pricing model to determine the fair value of all its option grants. For valuing options granted
during the three and nine months ended September 30, 2017 and 2016, the following assumptions were used:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
September 30,
|
|
|
For the Nine Months Ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Risk-free interest rate
|
|
|
1.94 2.35
|
%
|
|
|
1.46
|
%
|
|
|
1.73 2.49
|
%
|
|
|
1.18 2.02
|
%
|
Expected volatility
|
|
|
83.87 91.99
|
%
|
|
|
116.88
|
%
|
|
|
82.99 123.01
|
%
|
|
|
79.42 116.88
|
%
|
Weighted average expected volatility
|
|
|
87.93
|
%
|
|
|
116.88
|
%
|
|
|
84.65
|
%
|
|
|
89.12
|
%
|
Expected lives (in years)
|
|
|
6.25 10.00
|
|
|
|
10.00
|
|
|
|
5.20 10.00
|
|
|
|
5.20 10.00
|
|
Expected dividend yield
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
The weighted average fair value of options granted during the three months ended September 30, 2017 and
2016 was $0.49 and $2.27, respectively. The weighted average fair value of options granted during the nine months ended September 30, 2017 and 2016 was $0.49 and $2.15, respectively.
The risk-free interest rate used for each grant was based upon the yield on
zero-coupon
U.S. Treasury
securities with a term similar to the expected life of the related option. The Companys expected stock price volatility assumption is based upon the volatility of a composition of comparable companies. The expected life assumption for employee
grants was based upon the simplified method provided for under ASC 718, and the expected life assumption for
non-employees
was based upon the contractual term of the option. The dividend yield assumption of
zero is based upon the fact that the Company has never paid cash dividends and presently has no intention of paying cash dividends.
The
following table summarizes the activity of Companys stock option plan for the nine months ended September 30, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number
of Shares
|
|
|
Weighted-Average
Exercise Price
Per Share
|
|
|
Aggregate
Intrinsic
Value
|
|
Balance at December 31, 2016
|
|
|
374,446
|
|
|
$
|
27.29
|
|
|
|
|
|
Granted
|
|
|
330,384
|
|
|
|
0.69
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(173,824
|
)
|
|
|
4.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2017
|
|
|
531,006
|
|
|
$
|
18.20
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 30, 2017
|
|
|
354,959
|
|
|
$
|
26.21
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
The Company recorded stock-based compensation expense for the three and nine months ended
September 30, 2017 and 2016 as follows, in thousands:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Research and development
|
|
$
|
7
|
|
|
$
|
52
|
|
|
$
|
80
|
|
|
$
|
212
|
|
General and administrative
|
|
|
36
|
|
|
|
76
|
|
|
|
196
|
|
|
|
437
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation
|
|
$
|
43
|
|
|
$
|
128
|
|
|
$
|
276
|
|
|
$
|
649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense for the nine months ended September 30, 2017 includes $22,000, recorded
in research and development expense, related to stock option modifications in connection with the retirement of the Companys former Chief Development Officer.
9. Net Loss per Share
The following
table sets forth the potential common shares excluded from the calculation of net loss per common share because their inclusion would be anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
Options to purchase common stock
|
|
|
531,006
|
|
|
|
390,969
|
|
Warrants to purchase common stock
|
|
|
14,077,779
|
|
|
|
1,300,464
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
14,608,785
|
|
|
|
1,691,433
|
|
|
|
|
|
|
|
|
|
|
10. Subsequent Events
On November 7, 2017, the Company filed a Certificate Eliminating the Series B Convertible Preferred Stock from the Certificate of
Incorporation of the Company and a Certificate Eliminating the Series C Convertible Preferred Stock from the Certificate of Incorporation of the Company (together, the
Certificates of Elimination
) with the Secretary of State of
the State of Delaware, in order to eliminate from the Certificate of Incorporation all matters set forth in the Certificate of Incorporation, including the related certificates of designation, relating to the previously issued Series B Convertible
Preferred Stock and Series C Convertible Preferred Stock. As a result, the 8,100 shares of unissued Series B Convertible Preferred Stock and 1,800,000 shares of unissued Series C Convertible Preferred Stock were returned to the status of authorized
but unissued shares of preferred stock of the Company, without designation as to series or preferences or rights. The foregoing summary of the Certificates of Elimination is qualified in its entirety by reference to the full text of the Certificates
of Elimination, which are attached hereto as Exhibits 3.1 and 3.2 to this Quarterly Report on Form
10-Q
and incorporated herein by reference.
I
TEM 2.
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
In this
document, we, our, ours, us, RXi and the Company refers to RXi Pharmaceuticals Corporation and our subsidiary, MirImmune, LLC and the ongoing business operations of RXi
Pharmaceuticals Corporation and MirImmune, LLC, whether conducted through RXi Pharmaceuticals Corporation or MirImmune, LLC.
This
managements discussion and analysis of financial condition as of September 30, 2017 and results of operations for the three and nine months ended September 30, 2017 and 2016 should be read in conjunction with the financial statements
included in our Annual Report on
Form 10-K
for the year ended December 31, 2016 which was filed with the SEC on March 30, 2017.
This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can
be identified by words such as intends, believes, anticipates, indicates, plans, expects, suggests, may, should, potential,
designed to, will and similar references. Such statements include, but are not limited to, statements about: our ability to successfully develop
RXI-109,
Samcyprone and our other
product candidates (collectively, our
12
product candidates); the future success of our clinical trials with our product candidates; the timing for the commencement and completion of clinical trials; the future success of our
strategic partnerships; and our ability to implement cost-saving measures. Forward-looking statements are neither historical facts nor assurances of future performance. These statements are based only on our current beliefs, expectations and
assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent
uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements.
Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among
others: the risk that our clinical trials with our product candidates may not be successful in evaluating the safety and tolerability of these candidates or providing evidence of increased surgical scar reduction compared to placebo or clearance of
common warts; the successful and timely completion of clinical trials; uncertainties regarding the regulatory process; the availability of funds and resources to pursue our research and development projects, including our clinical trials with our
product candidates; general economic conditions; and those identified in our Annual Report on Form
10-K
for the year ended December 31, 2016 under the heading Risk Factors and in other filings
the Company periodically makes with the Securities and Exchange Commission. Forward-looking statements contained in this Quarterly Report on Form
10-Q
speak as of the date hereof and the Company does not
undertake to update any of these forward-looking statements to reflect a change in its views or events or circumstances that occur after the date of this report.
Overview
RXi Pharmaceuticals Corporation
(
RXi
,
we
,
our
or the
Company
) is a clinical-stage company developing innovative therapeutics based on our proprietary self-delivering RNAi
(sd-rxRNA
®
) platform and Samcyprone which address significant unmet medical needs. We have a pipeline of discovery, preclinical and clinical
product candidates in the areas of dermatology, ophthalmology and cell-based cancer immunotherapy. The Companys clinical development programs include
RXI-109,
an
sd-rxRNA
for the treatment of dermal and ocular scarring, and Samcyprone, a topical immunomodulator, for the treatment of warts. The Companys pipeline, coupled with our extensive patent portfolio,
provides for product development and business development opportunities across a broad spectrum of therapeutic areas.
RNAi therapies are
designed to silence, or down-regulate, the expression of a specific gene that may be over-expressed in a disease condition. The Companys first RNAi clinical product candidate,
RXI-109,
is a
self-delivering RNAi compound
(sd-rxRNA)
that commenced human clinical trials in 2012.
RXI-109
is designed to reduce the expression of connective tissue growth factor
(
CTGF
), a critical regulator of several biological pathways involved in fibrosis, including scar formation in the skin and eye.
RXI-109
is currently being evaluated in a Phase 2 clinical
trial, Study 1402, to prevent or reduce dermal scarring following scar revision surgery of an existing hypertrophic scar and a Phase 1/2 clinical trial, Study 1501, to evaluate the safety and clinical activity of
RXI-109
to prevent the progression of retinal scarring in subjects with wet
age-related
macular degeneration (
AMD
).
Study 1402, the Companys Phase 2 clinical trial in hypertrophic scars, commenced in July 2014. In October 2015, we reported that
preliminary data from Study 1402 demonstrated that scars at revision sites were judged to be better at three months after a treatment regimen with five mg/cm intradermal administration of
RXI-109
than scars at
untreated revision sites in those same subjects. Based in part on this new information, two more cohorts (Cohorts 3 and 4) were added to Study 1402 in November 2015. For these two cohorts, the number of doses was increased to either eight or nine
doses of
RXI-109
over a
six-month
period to better cover the extended wound healing/scarring profile of hypertrophic scars. Enrollment of subjects into these two new
cohorts completed ahead of schedule during the third quarter of 2016.
In December 2016, the Company announced that preliminary data from
the first two cohorts from Study 1402 at nine months confirmed the positive differentiation by a blinded panel of observers from untreated surgery incisions in hypertrophic scars from the previously presented data for a subset of subjects treated
with five mg/cm of
RXI-109
at three months. In addition, this data extends this observation to all time points, including the post-treatment
follow-up
period through
nine months post-surgery.
RXI-109
was safe and well tolerated. Additionally, as expected, the limited three-month data available from Cohort 3 appeared to align with that of the first two cohorts as these
subjects all had the same dosing schedule through the third month. A complete
read-out
of the whole study, including all four cohorts with
follow-up
until nine months
post-surgery, is expected by the end of 2017.
Study 1501, the Companys Phase 1/2 clinical trial in retinal scars, commenced in
November 2015, and is a multi-dose, dose escalation study conducted in subjects with AMD with evidence of subretinal fibrosis. Each subject receives four doses of
RXI-109
by intraocular injection at one month
intervals for a total dosing period of three months. The safety and tolerability of
RXI-109,
as well as the potential for clinical activity, is evaluated over the course of the study using numerous assessments
to monitor the health of the retina and to assess visual acuity. To date, there have been no safety issues that have precluded continuation of dosing. Study 1501 has been completely enrolled, dosing in the third cohort at the highest planned dose
level is completed and patient follow-up is ongoing. The Company expects to complete subject participation in the study by the end of 2017 and to share
top-line
data in early 2018.
13
Samcyprone, the Companys second clinical candidate, is a proprietary topical
formulation of the small molecule diphenylcyclopropenone (
DPCP
), an immunomodulator that works by initiating a
T-cell
response. The use of Samcyprone allows sensitization using much
lower concentrations of DPCP than are used with existing compounded DPCP solutions, avoiding hyper-sensitization to subsequent challenge doses. Samcyprone is currently being evaluated in a Phase 2a clinical trial, Study 1502, for the clearance
of common warts.
Study 1502 was initiated in December 2015. Study 1502 includes a sensitization phase in which a spot on the
subjects upper arm and one or more warts are treated with Samcyprone. After being sensitized in this way, the subjects enter into the treatment phase where up to four warts are treated on a once weekly basis for ten weeks with a
ten-fold
lower concentration of Samcyprone than in the sensitization phase. During the trial, the warts are scored, photographed and measured to monitor the level of clearance.
In December 2016, the Company announced the results from a preliminary review of sensitization and wart clearance data from a subset of
subjects that have completed the
ten-week
treatment phase of Study 1502. Results showed that greater than 90% of the subjects demonstrated a sensitization response, a prerequisite to be able to develop a
therapeutic response. Additionally, more than 60% of the subjects responded to the treatment by exhibiting either complete or greater than 50% clearance of all treated warts with up to ten weekly treatments. Samcyprone
treatment has been generally safe and well tolerated and has had drug-related adverse events relating to local reactions, which are typically expected for this type of treatment due to the
sensitization and challenge responses in the skin. The Company added a second cohort, which was fully enrolled in September 2017, to Study 1502 to explore the opportunity to reduce the sensitization dose level, which will be more convenient to
physicians and subjects. Early read-outs of the study are anticipated by the end of 2017.
In addition to our clinical programs, we
continue to advance our preclinical and discovery programs with our
sd-rxRNA
technology.
RXI-231,
our lead
sd-rxRNA
compound
targeting tyrosinase (
TYR
), is in cosmetic development as a cosmetic ingredient that may improve the appearance of uneven skin tone and pigmentation. Cosmetics are compounds that affect the appearance of the skin and make no
preventative or therapeutic claims. These compounds may be developed more rapidly than therapeutics, therefore the path to market may be much shorter and less expensive. Efficacy and toxicity testing in cell culture and skin equivalents for
RXI-231
has been successfully completed and human testing of
RXI-231
commenced in June 2017 with a U.S. clinical testing site. The Company has completed irritation and
sensitization studies with
RXI-231,
the first two of three studies planned. Early results from the irritation and sensitization studies demonstrated that
RXI-231
is not
a skin irritant, and it does not cause allergic contact dermatitis. The third study investigates the potential of
RXI-231
to improve the appearance of skin pigmentation induced by UV exposure and is ongoing.
Full reports from these studies are expected before the end of 2017.
On January 6, 2017, the Company entered into a Stock Purchase
Agreement (the
Stock Purchase Agreement
) by and among the Company, RXi Merger Sub, LLC, a Delaware limited liability company and wholly owned subsidiary of the Company (
RXi Merger Sub
), MirImmune Inc.
(
MirImmune
), the stockholders of MirImmune set forth on the signature pages thereto (each a
Seller
and collectively, the
Sellers
), and Alexey Wolfson, Ph.D., in his capacity as the
Sellers Representative. Pursuant to the Stock Purchase Agreement, the Company acquired from the Sellers all of the issued and outstanding shares of capital stock of MirImmune for an aggregate of 2,750,371 shares of common stock of the Company
and an aggregate of 1,118,224 shares of Series C Convertible Preferred Stock of the Company (the
Series C Convertible Preferred Stock
). On June 9, 2017, with the approval of the Companys stockholders in accordance with
the stockholder approval requirements of Nasdaq Marketplace Rule 5635, each share of Series C Convertible Preferred Stock outstanding was automatically converted into one share of common stock, such that no shares of Series C Convertible Preferred
Stock remained issued or outstanding. On November 7, 2017, the Company filed a Certificate Eliminating the Series C Convertible Preferred Stock from the Certificate of Incorporation of the Company with the Secretary of State of the State of
Delaware. Please refer to Part II, Item 5 of this quarterly report on Form 10-Q for further discussion of the filing.
In connection with
and promptly following the closing of the Stock Purchase Agreement, MirImmune was merged with and into RXi Merger Sub (the
Merger
), with RXi Merger Sub continuing as the surviving entity and changing its name to MirImmune,
LLC. As a result of the Merger, MirImmune, LLC remains and operates as a wholly-owned subsidiary of the Company.
Building on the
work completed by MirImmune prior to its acquisition by the Company, our cell-based cancer immunotherapy program with
sd-rxRNA
includes lead compounds for a number of immune checkpoint targets that provide
long lasting immune checkpoint silencing, individually and in combination, in adoptively transferred cells. An improved efficacy upon the silencing of checkpoints has been demonstrated in various types of adoptively transferred cells relevant in
cancer immunotherapy, such as CAR
T-cells
and tumor infiltrating lymphocytes (TILs). The Companys ongoing discovery programs include, but are not limited to, the evaluation of
sd-rxRNA
compounds to impact the differentiation of various immune effector cells. The Company has also initiated in vivo evaluations of multiple checkpoint inhibiting
sd-rxRNA
compounds
co-transfected
in CAR
T-cells
in mouse models for solid tumors, with data from these studies expected by the
end of 2017.
14
Additionally, the Company recently selected two
sd-rxRNA
compounds from its immunotherapy pipeline for preclinical development. For oncology treatments based on adoptive cell transfer (ACT), compounds
RXI-762
and
RXI-804
suppress the expression of immune checkpoint proteins
PD-1
and TIGIT, respectively, which can result in an improved efficacy to the targeted tumors. This decision triggered the selection of a manufacturing
facility to initiate production of cGMP grade material, initially for RXI-762. This also supports moving
RXI-762
into clinical development as early as 2018 as part of an ACT therapy.
On August 8, 2017, the Company entered into a purchase agreement (the
2017 Purchase Agreement
) with Lincoln Park
Capital Fund, LLC (
LPC
), pursuant to which the Company has the right to sell to LPC up to $15,000,000 in shares of the Companys common stock, subject to certain limitations and conditions set forth therein, over the
30-month
term of the 2017 Purchase Agreement.
Since inception, we have incurred significant losses.
Substantially all of our losses to date have resulted from research and development expenses in connection with our clinical and research programs and from general and administrative costs. At September 30, 2017, we had an accumulated deficit
of $76.5 million. We expect to continue to incur significant losses for the foreseeable future, particularly as we advance our development programs for
RXI-109
and Samcyprone and expand our program
in cell-based cancer immunotherapy.
Critical Accounting Policies and Estimates
There have been no significant changes to our critical accounting policies since the beginning of this fiscal year. Our critical accounting
policies are described in the Managements Discussion and Analysis of Financial Condition and Results of Operations section of our Annual Report on Form
10-K
for the year ended
December 31, 2016, which we filed with the SEC on March 30, 2017.
Results of Operations
The following data summarizes the results of our operations for the periods indicated, in thousands:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Net revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
19
|
|
Operating expenses
|
|
|
(2,476
|
)
|
|
|
(2,216
|
)
|
|
|
(10,450
|
)
|
|
|
(6,695
|
)
|
Operating loss
|
|
|
(2,476
|
)
|
|
|
(2,216
|
)
|
|
|
(10,450
|
)
|
|
|
(6,676
|
)
|
Net loss
|
|
|
(2,476
|
)
|
|
|
(2,212
|
)
|
|
|
(10,450
|
)
|
|
|
(6,655
|
)
|
Comparison of the Three and Nine Months Ended September 30, 2017 and 2016
Net Revenues
To date, we have
primarily generated revenues through government grants. The following table summarizes our total net revenues, for the periods indicated, in thousands:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Net revenues
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company did not have net revenues for the three and nine months ended September 30, 2017 and the
three months ended September 30, 2016.
Net revenues were approximately $19,000 for the nine months ended September 30, 2016,
which related to the Companys exclusive license agreements with Thera Neuropharma, Inc. and MirImmune, prior to its acquisition by the Company.
15
Operating Expenses
The following table summarizes our total operating expenses, for the periods indicated, in thousands:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Research and development
|
|
$
|
1,490
|
|
|
$
|
1,464
|
|
|
$
|
4,166
|
|
|
$
|
4,108
|
|
Acquired
in-process
research and development
|
|
|
|
|
|
|
|
|
|
|
3,075
|
|
|
|
|
|
General and administrative
|
|
|
986
|
|
|
|
752
|
|
|
|
3,209
|
|
|
|
2,587
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
2,476
|
|
|
$
|
2,216
|
|
|
$
|
10,450
|
|
|
$
|
6,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and Development Expenses
Research and development expenses consist of compensation-related costs for our employees dedicated to research and development activities,
fees related to our Scientific Advisory Board members, expenses related to our ongoing research and development efforts primarily related to our clinical trials, drug manufacturing, outside contract services, licensing and patent fees and laboratory
supplies and services for our research programs.
Research and development expenses were $1,490,000 for the three months ended
September 30, 2017, compared with $1,464,000 for the three months ended September 30, 2016. The increase of $26,000, or 2%, was due to an increase of $71,000 in research and development expenses primarily driven by subject fees for the
second cohort in the Samcyprone Phase 2 clinical trial and preclinical work in the Companys new immunotherapy program that was integrated into the Company with the acquisition of MirImmune in the first quarter of 2017, offset by a
decrease of $45,000 in stock-based compensation expense.
Research and development expenses were $4,166,000 for the nine months ended
September 30, 2017, compared with $4,108,000 for the nine months ended September 30, 2016. The increase of $58,000, or 1%, was due to an increase of $190,000 in research and development expenses primarily driven by work in the
Companys new immunotherapy program that commenced in the first quarter of 2017, offset by a decrease of $132,000 in stock-based compensation expense.
Acquired
In-process
Research and Development Expense
In January 2017, the Company acquired all of the issued and outstanding capital stock of MirImmune, a privately-held biotechnology company that
was engaged in the development of cancer immunotherapies, in exchange for securities of the Company. The value of the consideration given, including transaction costs, liabilities assumed and cancellation of notes receivable, was recorded as
in-process
research and development expense.
Acquired
in-process
research and development expense related to the acquisition of MirImmune was $3,075,000 for the nine months ended September 30, 2017. The Company did not have acquired in-process research and
development expense for the three and nine months ended September 30, 2016 and the three months ended September 30, 2017.
General and
Administrative Expenses
General and administrative expenses consist primarily of compensation-related costs for our employees
dedicated to general and administrative activities, legal fees, audit and tax fees, consulting fees, professional service fees and general corporate expenses.
General and administrative expenses were $986,000 for the three months ended September 30, 2017, compared with $752,000 for the three
months ended September 30, 2016. The increase of $234,000, or 31%, was due to an increase of $274,000 in general and administrative expenses primarily due to payroll-related expenses, including severance benefits, with the hire of the
Companys former chief business officer in connection with the acquisition of MirImmune, resulting in a higher employee headcount as compared to the same period of the prior year, offset by a decrease of $40,000 in stock-based compensation
expense.
General and administrative expenses were $3,209,000 for the nine months ended September 30, 2017, compared with $2,587,000
for the nine months ended September 30, 2016. The increase of $622,000, or 24%, was due to an increase of $863,000 in general and administrative expenses primarily due to payroll-related expenses, including severance benefits, with the hire of
the Companys former chief business officer in connection with the acquisition of MirImmune, resulting in a higher employee headcount as compared to the same period of the prior year, and legal fees and accounting-related expenses. These
increases were offset by a decrease of $241,000 in stock-based compensation expense.
16
Liquidity and Capital Resources
On December 18, 2014, the Company entered into a purchase agreement (the
2014
Purchase Agreement
) with Lincoln
Park Capital Fund, LLC (
LPC
), pursuant to which the Company had the right to sell to LPC up to $10.8 million in shares of the Companys common stock, subject to certain limitations and conditions set forth in the 2014
Purchase Agreement. The 2014 Purchase Agreement expired on April 17, 2017. Under the 2014 Purchase Agreement, the Company sold a total of 70,000 shares of common stock to LPC for net proceeds of approximately $216,000.
On December 21, 2016, the Company closed an underwritten public offering (the
Offering
) of (i) 3,797,777 Class A
Units, at a public offering price of $0.90 per unit, consisting of one share of the Companys common stock and a five-year warrant to purchase one share of common stock at an exercise price of $0.90 per share (the
Warrants
)
and (ii) 8,082 Class B Units, at a public offering price of $1,000 per unit, consisting of one share of Series B Convertible Preferred Stock (the
Series B Convertible Preferred Stock
), which was convertible into 1,111.11
shares of common stock, and 1,111.11 Warrants. The Class A Units include an additional 1,666,666 Class A Units pursuant to the exercise by the underwriters of their over-allotment option. The total net proceeds of the Offering, including
the exercise of the over-allotment option, were $10,051,000 after deducting underwriting discounts and commissions and offering expenses paid by the Company.
On August 8, 2017, the Company entered into the
2017
Purchase Agreement
with LPC, pursuant to which the Company has
the right to sell to LPC up to $15,000,000 in shares of the Companys common stock, subject to certain limitations and conditions set forth therein, over the
30-month
term of the 2017 Purchase Agreement.
As a commitment fee for entering into the 2017 Purchase Agreement, the Company issued to LPC 450,000 shares of Company common stock at a value per share of $0.58. As of September 30, 2017, there have been no purchases under the 2017 Purchase
Agreement.
We had cash of $5.4 million as of September 30, 2017, compared with cash of $12.9 million as of
December 31, 2016. Based on the Companys cash, operational spending rate, and limitations under the 2017 Purchase Agreement, the Company has concluded that there is substantial doubt regarding our ability to fund the Companys
operations for at least the next twelve months. We have generated significant losses to date, have not generated any product revenue to date and may not generate product revenue in the foreseeable future, or ever. We expect to incur significant
operating losses as we advance our product candidates through drug development and the regulatory process. In the future, we will be dependent on obtaining funding from third parties, such as proceeds from the issuance of debt, sale of equity,
funded research and development programs and payments under partnership and collaborative research and business development agreements, in order to maintain our operations and meet our obligations to licensors. There is no guarantee that debt,
additional equity or other funding will be available to us on acceptable terms, or at all. If we fail to obtain additional funding when needed, we would be forced to scale back or terminate our operations or to seek to merge with or to be acquired
by another company.
The following table summarizes our cash flows for the periods indicated, in thousands:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
Net cash used in operating activities
|
|
$
|
(7,313
|
)
|
|
$
|
(6,388
|
)
|
Net cash (used in) provided by investing activities
|
|
|
(103
|
)
|
|
|
3,498
|
|
Net cash (used in) provided by financing activities
|
|
|
(74
|
)
|
|
|
152
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash, cash equivalents and restricted cash
|
|
$
|
(7,490
|
)
|
|
$
|
(2,738
|
)
|
Net Cash Flow from Operating Activities
Net cash used in operating activities was $7,313,000 for the nine months ended September 30, 2017, compared with $6,388,000 for the nine
months ended September 30, 2016. The increase in cash used in operating activities was primarily due to an increase in net loss of $3,795,000, offset by changes in
non-cash
expenses of $2,718,000 mainly
related to the fair value of consideration recorded as acquired
in-process
research and development expense for the acquisition of MirImmune in January 2017.
Net Cash Flow from Investing Activities
Net cash used in investing activities was $103,000 for the nine months ended September 30, 2017, compared with net cash provided by
investing activities of $3,498,000 for the nine months ended September 30, 2016. The decrease in net cash flow from investing activities was primarily related to the purchase of laboratory equipment in the current year as compared with
maturities of short-term investments in the prior year.
17
Net Cash Flow from Financing Activities
Net cash used in financing activities was $74,000 for the nine months ended September 30, 2017, compared with net cash provided by
financing activities of $152,000 for the nine months ended September 30, 2016. The decrease in net cash flow from financing activities was due to net proceeds received from the issuance of common stock as compared with the same period in the
prior year.
Off-Balance
Sheet Arrangements
In connection with certain license agreements, we are required to indemnify the licensor for certain damages arising in connection with the
intellectual property rights licensed under the agreement. In addition, we are a party to a number of agreements entered into in the ordinary course of business that contain typical provisions that obligate us to indemnify the other parties to such
agreements upon the occurrence of certain events. These indemnification obligations are considered
off-balance
sheet arrangements in accordance with ASC Topic 460,
Guarantors Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others
. To date, we have not encountered material costs as a result of such obligations and have not accrued any liabilities related to such
obligations in our financial statements. See Note 8 to our financial statements included in our Annual Report on Form
10-K
for the year ended December 31, 2016, which was filed with the SEC on
March 30, 2017, for further discussion of these indemnification agreements.