ITEM 2.
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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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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 March 31, 2017 and results of operations for the three months ended March 31, 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 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; 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.
11
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, these data extend 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 in the second half 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. The first two cohorts in Study 1501 have been completely enrolled and dosing in the third cohort at the highest planned dose level is ongoing. To date there have been no safety issues that preclude continuation of dosing. Complete
enrollment is anticipated in the first half of 2017, ahead of our original plan, with complete subject participation anticipated in the second half of 2017.
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. The Company has added a
second cohort and is currently enrolling subjects to explore the opportunity to reduce the sensitization dose level, which will be more convenient to physicians and subjects. With this second cohort, enrollment is expected to be completed in the
second half of 2017.
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
12
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 complete readout of the final study is anticipated in the second half of 2017.
In
addition to our clinical programs, we continue to advance our preclinical and discovery programs with our
sd-rxRNA
technology. In October 2015, we announced the selection of lead compounds targeting tyrosinase
(
TYR
) and collagenase (
MMP1
) as targets for our self-delivering platform because they are relevant for both consumer health and therapeutic development. 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.
RXI-231,
an
sd-rxRNA
compound targeting TYR, is in development as a cosmetic ingredient that may improve the appearance of uneven skin tone and pigmentation.
RXI-185,
an
sd-rxRNA
compound targeting MMP1, is in development as a cosmetic ingredient that may improve the appearance of wrinkles or skin laxity. Efficacy and toxicity testing in cell culture and skin equivalents for
RXI-231
was successfully completed in December 2016. The Company is currently coordinating with a U.S. clinical testing site to initiate human testing of
RXI-231
in the second
quarter of 2017.
RXI-231
has been manufactured in sufficient quantities to support this activity. In addition to evaluating safety, the effect of
RXI-231
on the
appearance of skin pigmentation will be assessed in a
follow-on
study.
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 (the
Series C Preferred Stock
). The common stock and Series C Preferred Stock were subject to a holdback of 3%, which was released
on April 12, 2017 and included in the shares listed above, of the aggregate closing consideration for any purchase price adjustments.
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 will operate as a wholly-owned subsidiary of the Company.
The Company plans to build on the work completed by MirImmune prior to its acquisition by the Company to advance the potential of our
sd-rxRNA
platform for use in cell-based cancer immunotherapy. In 2017, the Company plans to release data on multiple checkpoint inhibiting
sd-rxRNA
compounds
co-transfected in CAR
T-cells
in mouse models for solid tumors and share preclinical results on our use of
sd-rxRNA
with tumor infiltrating lymphocytes (TILs) in
melanoma. Since the acquisition, the Company has initiated an internal program to evaluate the reduction of cytokines involved in cytokine release syndrome, and work on this and our other planned immunotherapy programs is currently underway.
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 March 31, 2017, we had an accumulated deficit of $71.6 million. We expect to continue to incur significant losses for the
foreseeable future, particularly as we advance our development programs for
RXI-109
and Samcyprone and expand our program in cell-based cancer immunotherapy.
Critical Accounting Policies and Estimates
There have been no significant changes to our critical accounting policies since the beginning of this fiscal year. Our critical accounting
policies are described in the Managements Discussion and Analysis of Financial Condition and Results of Operations section of our Annual Report on Form
10-K
for the year ended
December 31, 2016, which we filed with the SEC on March 30, 2017.
Results of Operations
The following data summarizes the results of our operations for the periods indicated, in thousands:
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Three Months Ended
March 31,
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2017
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|
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2016
|
|
Net revenues
|
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$
|
|
|
|
$
|
10
|
|
Operating expenses
|
|
|
(5,460
|
)
|
|
|
(2,255
|
)
|
Operating loss
|
|
|
(5,460
|
)
|
|
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(2,245
|
)
|
Net loss
|
|
|
(5,460
|
)
|
|
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(2,231
|
)
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13
Comparison of the Three Months Ended March 31, 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:
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Three Months Ended
March 31,
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|
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2017
|
|
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2016
|
|
Net revenues
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$
|
|
|
|
$
|
10
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|
|
|
|
|
|
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There were no net revenues for the three months ended March 31, 2017. Net revenues were approximately
$10,000 for the three months ended March 31, 2016 and were due to the Companys exclusive license agreement with MirImmune prior to its acquisition by the Company in January 2017.
Operating Expenses
The following
table summarizes our total operating expenses, for the periods indicated, in thousands:
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Three Months Ended
March 31,
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2017
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2016
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Research and development
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$
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1,347
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|
|
$
|
1,305
|
|
Acquired
in-process
research and development
|
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2,990
|
|
|
|
|
|
General and administrative
|
|
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1,123
|
|
|
|
950
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|
|
|
|
|
|
|
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Total operating expenses
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$
|
5,460
|
|
|
$
|
2,255
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|
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Research and Development Expenses
Research and development expense consists 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 $1,347,000 for the three months ended
March 31, 2017, compared with $1,305,000 for the three months ended March 31, 2016. The increase of $42,000, or 3%, was due to an increase of $81,000 in research and development expenses primarily related to the commencement of work under
the Companys new cell-based cancer immunotherapy programs with the acquisition of MirImmune, offset by a decrease of $39,000 in stock-based compensation expense.
Acquired
In-process
Research and Development Expense
Acquired
in-process
research and development expense was $2,990,000 for the three months ended
March 31, 2017. The Company did not have acquired
in-process
research and development expense for the three months ended March 31, 2016. This expense relates to the Companys acquisition of
MirImmune, a privately-held biotechnology company that was engaged in the development of cancer immunotherapies, in January 2017. The Company acquired all of the issued and outstanding capital stock of MirImmune in exchange for shares of the
Companys common stock and Series C Convertible Preferred Stock. The fair value of the consideration given during the quarter due to the acquisition totaled $2,990,000 and was fully expensed as
in-process
research and development expense.
General and Administrative Expenses
General and administrative expense consists primarily of compensation-related costs for our employees dedicated to general and administrative
activities, legal fees, audit and tax fees, consultants, professional services and general corporate expenses.
General and administrative
expenses were $1,123,000 for the three months ended March 31, 2017, compared with $950,000 for the three months ended March 31, 2016. The increase of $173,000, or 18%, was due to an increase of $314,000 in general and administrative
expenses due to an increase in employee headcount in connection with the acquisition of MirImmune and an increase in legal fees during the quarter, offset by a decrease of $141,000 in stock-based compensation expense.
14
Liquidity and Capital Resources
On December 18, 2014, the Company entered into a purchase agreement (the
LPC
Purchase Agreement
) with Lincoln
Park Capital Fund, LLC (
LPC
), pursuant to which the Company has 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 LPC
Purchase Agreement. Under the LPC Purchase Agreement, the Company sold a total of 70,000 shares of common stock to LPC for net proceeds of approximately $216,000. The LPC Purchase Agreement expired on April 17, 2017.
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 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.
We had cash of $10.2 million as of March 31, 2017, compared with cash of $12.9 million as of December 31, 2016. We believe
that our existing cash should be sufficient to fund our 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 the drug development and 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:
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Three Months Ended
March 31,
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2017
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|
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2016
|
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Net cash used in operating activities
|
|
$
|
(2,799
|
)
|
|
$
|
(2,925
|
)
|
Net cash provided by investing activities
|
|
|
98
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|
|
|
2,000
|
|
Net cash used in financing activities
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Net decrease in cash, cash equivalents and restricted cash
|
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$
|
(2,701
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)
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$
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(925
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)
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Net Cash Flow from Operating Activities
Net cash used in operating activities was $2,799,000 for the three months ended March 31, 2017 compared with $2,925,000 for the three
months ended March 31, 2016. The decrease in cash used in operating activities was primarily due to an increase in net loss of $3,229,000 offset by changes in
non-cash
expenses of $2,807,000 primarily
driven by acquired
in-process
research and development expense related to the fair value of consideration given during the quarter for the acquisition of MirImmune in January 2017.
Net Cash Flow from Investing Activities
Net cash provided by investing activities was $98,000 for the three months ended March 31, 2017 compared with $2,000,000 for the three
months ended March 31, 2016. The decrease in the net cash flow from investing activities was primarily related to maturities of short-term investments.
Net Cash Flow from Financing Activities
There were no cash flows related to financing activities for the three months ended March 31, 2017 or 2016.
15
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,
Guarantor
s
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.