sv1za
As
filed with the Securities and Exchange Commission on February 14, 2012
For the quarterly period ended June 30, 2011
Registration No. 333-177498
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT
NO. 6 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
RXi PHARMACEUTICALS CORPORATION
(Exact name of registrant as specified in its charter)
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Delaware
(State or other jurisdiction of
incorporation or organization)
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2834
(Primary Standard Industrial
Classification Code Number)
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45-3215903
(I.R.S. Employer
Identification No.) |
60 Prescott Street
Worcester, Massachusetts 01605
(508) 767-3861
(Address, including zip code, and telephone number, including area code, of registrants principal executive offices)
Mark J. Ahn, Ph.D.
President
RXi Pharmaceuticals Corporation
60 Prescott Street
Worcester, Massachusetts 01605
(508) 767-3861
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
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Dale E. Short, Esq.
Marc L. Brown, Esq.
TroyGould PC
1801 Century Park East, 16th Floor
Los Angeles, CA 90067
Phone: (310) 789-1259
Fax: (310) 789-1459
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Ryan A. Murr, Esq.
Ropes & Gray LLP
Three Embarcadero Center
San Francisco, California 94111-4006
Phone: (415) 315-6395
Fax: (415) 315-6026 |
Approximate date of commencement of proposed sale to public: As soon as practicable after
this registration statement becomes effective.
If any of the securities being registered on this form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.
o
If this form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act of 1933, please check the following box and list the Securities Act
of 1933 registration statement number of the earlier effective registration statement for the same
offering. o
If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities
Act of 1933, check the following box and list the Securities Act of 1933 registration statement
number of the earlier effective registration statement for the same offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities
Act of 1933, check the following box and list the Securities Act of 1933 registration statement
number of the earlier effective registration statement for the same offering. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Securities Exchange Act of 1934. (Check one):
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer o
(Do not check if a smaller reporting company)
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Smaller reporting company þ |
The registrant hereby amends this registration statement on such date or dates as may be
necessary to delay its effective date until the registrant shall file a further amendment which
specifically states that this registration statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement
shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may
determine.
The information in this preliminary prospectus is not complete and may be changed. These
securities may not be distributed until the registration statement filed with the Securities and
Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it
seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
SUBJECT
TO COMPLETION, DATED February 14, 2012
PROSPECTUS
Shares of Common Stock
This prospectus is being furnished to the holders of common stock of Galena Biopharma,
Inc. (Galena) in connection with the distribution
by Galena to its stockholders of 47,341,594
shares of common stock of RXi Pharmaceuticals Corporation (RXi). Assuming the full
conversion of RXis Series A Convertible Preferred Stock without regard to applicable conversion
limitations, the RXi shares being distributed pursuant to this prospectus will constitute
approximately 8% of the fully diluted shares of RXi common stock immediately following the
distribution and the other transactions referred to in this prospectus. Each holder of Galena
common stock as of the close of business on [_______], 2012, the record date for the distribution,
will receive a dividend of one share of our common stock for each share of Galena common stock
held by such holder. The distribution will be made on or about [_______], 2012. Galena
expects that the distribution will be treated as a taxable distribution. See the Material United
States Federal Income Tax Consequences section of this prospectus. Holders of Galena common stock
should consult with their own individual tax advisors regarding the tax consequences of the
distribution.
This prospectus describes the distribution and contains important information about RXi. No
vote or approval of Galenas stockholders is required in connection with the distribution.
Galenas stockholders will not be required to pay for the shares of RXi common stock to be received
by them in the distribution, or to surrender shares of Galena common stock in order to receive RXi
common stock, and Galenas stockholders will continue to own all shares of Galena common stock held by them.
Galena currently holds all outstanding shares of RXi common stock, and there is no current trading
market for RXi common stock. We will apply for trading of our common stock in the OTC Markets Group under the symbol
RXII in conjunction with the effectiveness of the registration statement of which this prospectus is a part.
We expect that our common stock will begin trading in the OTC Markets Group following the distribution.
In reviewing this prospectus, you should carefully consider the matters described under the
heading Risk Factors beginning on page 11.
Neither the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
The
date of this prospectus is __________, 2012.
TABLE OF CONTENTS
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F-1 |
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EX-23.1 |
All references to RXi, we, our, us and similar terms in this prospectus refer to RXi
Pharmaceuticals Corporation. All references to Galena in this prospectus refer to Galena
Biopharma, Inc. and its wholly owned subsidiary, Apthera, Inc.
You should rely only on the information contained in this prospectus. We have not authorized
anyone to provide you with different information. You should not assume that the information
contained in this prospectus is accurate as of any date other than the date on the front of this
prospectus.
Some of the industry data contained in this prospectus are derived from data from various third-party
sources. While we are not aware of any misstatements regarding any industry data presented herein, such data
are subject to change based on various factors, including those discussed under the heading Risk Factors in
this prospectus.
Neither RXi nor Galena will receive any consideration for the shares of RXi common stock that
are being distributed pursuant to this prospectus. The registration fee that is set forth in the
registration statement of which this prospectus is a part was calculated based on our book value
and does not reflect any assessment of the market value of our common stock.
i
PROSPECTUS SUMMARY
The following is a summary of some of the information contained in this prospectus. In
addition to this summary, we urge you to read the entire prospectus carefully, especially the risks
relating to our business and common stock discussed under the heading Risk Factors and our
financial statements.
Immediately
following the record date for the distribution, we will declare and
pay a 236,708-for-1
stock dividend with respect to our outstanding common stock. Unless otherwise indicated, all share data in this prospectus give retroactive effect to this stock
dividend. Unless otherwise indicated, all share data in this prospectus also assume the
acquisition by Tang Capital Partners, LP and RTW Investments, LLC of our Series A Convertible
Preferred Stock on the terms described in this prospectus.
RXi Pharmaceuticals Corporation
Our Business
We are a biotechnology company focused on discovering, developing and commercializing
innovative therapies addressing major unmet medical needs using RNAi-targeted technologies. We are
pursuing proprietary therapeutics based on RNA interference (RNAi), which is a naturally
occurring cellular mechanism that has the potential to effectively and selectively interfere with,
or silence, expression of targeted disease-associated genes.
Certain human diseases result from overexpression of one or more genes. We believe that these types
of human diseases can potentially be treated by silencing (reducing) the overexpressed genes. While no
therapeutic RNAi products have been approved by the Food and Drug Administration (FDA) to date, there
has been significant interest in the field of RNAi therapeutic development. This interest is driven by the
potential ability to exploit the RNAi mechanism to develop lead compounds that specifically and selectively
reduce single target genes, many of which are thought to be incapable of being inhibited by other modalities.
We are currently focusing our internal therapeutic development efforts in fibrosis. We have demonstrated that
treatment with RXI-109, our first RNAi product candidate, can significantly reduce CTGF (connective tissue
growth factor) in vivo in rodent skin models, and we believe that RXI-109 may inhibit CTGF in human fibrotic
disease. RXI-109 is initially being developed as a dermal anti-scarring therapy. The highlights of our RXI-109
development program are the following:
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We are currently working towards filing an investigational new drug application (IND)
for RXI-109 and initiating a Phase I/II clinical trial in 2012. |
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As reported in Cytokine & Growth Factor Reviews (2008) and other publications, CTGF
overexpression is implicated in scarring and fibrotic diseases. Data obtained from studies of
RXI-109 in preclinical models using direct local administration to the skin demonstrate robust
cellular delivery and statistically significant, dose-dependent silencing of CTGF that lasts for
at least one week with a single injection. |
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We believe that the potential commercial market for an effective dermal anti-scarring therapy
is significant. According to data available publicly on the Center for Disease Controls
(CDC) website at www.CDC.gov, approximately 42 million surgical procedures are
performed annually, with many patients experiencing hypertrophic
scarring and keloids. |
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Because abnormal overexpression of CTGF is implicated in dermal scarring and fibrotic
disease, we believe that RXI-109, or other CTGF-targeting compounds that reduce CTGF, or
block its action, may be able to treat other indications where fibrosis is a factor. These
include pulmonary, liver, and renal fibrotic diseases, as well as ocular scarring, acute spinal
injury (where scarring impedes regeneration) and restenosis (a
complication arising from vessel damage following stent placement). If clinical studies of RXI-109 produce successful
results in dermal anti-scarring, we may explore opportunities in these indications, as well as
other possible dermatology applications. |
We intend to maintain our core RNAi discovery and development capability and to develop
products both on our own and through collaborations. By utilizing our expertise in RNAi and the
comprehensive RNAi platform that we have established, we believe we will be able to discover and
develop lead compounds and progress them into and through clinical development for potential
commercialization. Our proprietary therapeutic platform is comprised of two main components:
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Novel RNAi Compounds, referred to as rxRNA® compounds, that are distinct from, and we
believe convey significant advantages over, classic siRNA (conventionally-designed small
interfering RNA compounds), and offer many of the properties that we believe are important
to the clinical development of RNAi-based drugs. We have developed a number of unique
forms of rxRNA® compounds, all of which have been shown to be highly potent both in vitro
and in preclinical in vivo models. These RNAi compounds include rxRNAori®,
rxRNAsolo® and sd-rxRNA®, or self-delivering RNA. Based on our research, we believe
that these different, novel siRNA configurations have various potential advantages for
therapeutic use. These potential advantages include high potency, increased resistance to
nucleases and off-target effects, and, in the case of the sd-rxRNA® compounds, access to
cells and tissues with no additional formulation required. |
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Advanced Delivery Technologies that enable the delivery of our rxRNA compounds to
potentially treat a variety of acute and chronic diseases using both local and systemic
approaches, potentially providing a competitive advantage in the development of many RNAi
therapeutic compounds. Our suite of delivery technologies is comprised of delivery vehicles,
which can be combined with various rxRNA® compounds, as well as sd-rxRNA®
compounds, which are chemically modified and have the unique property of entering cells
and tissues to effect silencing without the need for any additional delivery vehicle. This suite
of delivery technologies has broad applications for multiple therapeutic areas targeting both
local and systemic applications for the delivery of the RNAi drug. |
We have not generated revenue to date and may not generate product revenue in the foreseeable
future, if ever. We expect to incur significant operating losses as we advance our product candidates through
the drug development and regulatory process.
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Our Separation from Galena Biopharma, Inc.
Prior
to September 24, 2011, our business was owned and operated by Galena Biopharma, Inc., a Delaware corporation (Galena). On September 8, 2011, we were
incorporated in Delaware as a wholly owned subsidiary of Galena.
On September 24, 2011, we entered into a contribution agreement with Galena pursuant to which:
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Galena assigned and contributed to us substantially all of its RNAi-related
technologies and assets, which consist primarily of novel RNAi compounds and licenses
relating to its RNAi technologies, as well as the lease of its Worcester, Massachusetts
laboratory facility, fixed assets and other equipment located at the facility and its
employment arrangements with certain scientific, corporate and administrative personnel
who have become our employees, as well as research grants of
approximately $800,000 that are subject to the approval of the
granting institutions; and |
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We agreed to assume approximately $411,000 of accrued expenses of the RXi-109 development
program, including assumed capital lease obligations, and all future obligations under the contributed licenses, employment
arrangements and other agreements. Additionally, we agreed to make future milestone payments to
Galena of up to $45 million, consisting of two one-time payments of $15 million and $30
million, respectively, if we achieve annual net sales equal to or greater than $500
million and $1 billion, respectively, of any covered products that may be developed
with the contributed RNAi technologies. |
The Distribution of RXi Common Stock
Assuming the full conversion of RXis Series A Convertible Preferred Stock without regard to
applicable conversion limitations, the 47,341,594 RXi shares being distributed pursuant to this
prospectus will constitute approximately 8% of the fully diluted shares of our common stock
immediately upon the completion of the spin-off transaction. Each holder of Galena common stock as
of the close of business on [_______],
2012, the record date for the distribution, will receive a dividend
of one share of our common stock for each
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share of
Galena common stock held by such holder. The distribution will be
made
on or about [_______], 2012.
No vote or approval of Galenas stockholders is required in connection with the distribution.
Galenas stockholders will not be required to pay for the shares of RXi common stock to be received
by them in the distribution, or to surrender shares of Galena common stock in order to receive RXi
common stock, and Galenas stockholders will continue to own all shares of Galena common stock held by them.
Galena expects that the distribution will be treated as a taxable distribution in an amount
equal to the fair market value of our shares on the distribution date. This amount will be treated
as a taxable dividend to the extent of any current year earnings and profits of Galena, including
gain resulting from the distribution, with any excess treated as a non-taxable return of capital to
the extent of a holders tax basis in Galenas common stock and any remaining excess treated as
capital gain. For a discussion of the tax consequences to Galena and Galenas stockholders of the
distribution, see the Material United States Federal Income Tax Considerations section of this
prospectus. Galenas stockholders should consult with their own individual tax advisors regarding
the tax consequences of the distribution.
Agreements
with Tang Capital Partners, LP and RTW Investments, LLC
On
September 24, 2011, we entered into a securities purchase
agreement with Galena, Tang
Capital Partners, LP (TCP) and RTW Investments, LLC (RTW) pursuant to which:
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TCP and RTW agreed to purchase a total of $9,500,000 of our Series A Convertible
Preferred Stock (the Series A Preferred Stock) at the closing of the spin-off
transaction and to lend to us up to $1,500,000 to fund our operations prior to the
closing, with the outstanding principal and accrued interest on the loan to be
converted into Series A Preferred Stock at the closing, at a conversion price of $1,000
per share, and such conversion will be applied to the $9,500,000
total investment by TCP and
RTW; |
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We agreed that the Series A Preferred Stock will be
convertible by TCP or RTW at
any time into shares of our common stock, except to the extent that the holder would
own more than 9.999% of the shares of our common stock outstanding immediately after
giving effect to such conversion. Without regard to this conversion limitation, the
shares of the Series A Preferred Stock to be held by TCP and RTW would be convertible
into shares of our common stock representing approximately 83% of the fully diluted
shares of our common stock upon the completion of the spin-off transaction; |
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We agreed that the Series A Preferred Stock will have the rights, preferences,
privileges and restrictions summarized below under Description of Capital
StockPreferred Stock; |
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Galena agreed to contribute $1.5 million of cash to us; |
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Galena agreed to distribute to its stockholders the shares of RXi common stock that
are the subject of this prospectus; the distribution by Galena of the shares of RXi
common stock and RXis separation from Galena is referred to in this prospectus as the
spin-off transaction; |
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We and Galena agreed to take all necessary actions to constitute our initial board
of directors as described in the Management section of this prospectus; and |
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We agreed, upon completion of the spin-off
transaction, to reimburse Galena for up to a total of $300,000, and
to reimburse TCP and RTW for a total of up to $100,000, of transaction costs relating to the
contribution agreement with Galena, the |
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securities purchase agreement summarized above
and the transactions contemplated by those agreements. |
The
securities purchase agreement may be terminated by mutual consent of
the investors and us, or by either the investors or us if the partial
spin-off of RXi has not occurred by March 5, 2012 or in the event of
a breach by the other of the agreement.
Advirna Agreement
As part of the transactions contemplated by the contribution and securities purchase agreements, on
September 24, 2011, we entered into agreements with Advirna, LLC
(Advirna), pursuant to which:
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Advirna assigned to us its existing patent and technology rights related to sd-rxRNA technology in exchange for our agreement to pay Advirna an annual $100,000
maintenance fee and a one-time $350,000 milestone payment upon the future issuance of
the first patent with valid claims covering the assigned patent and technology rights; |
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We will be required to pay a 1% royalty to Advirna for any licensing revenue
received by us with respect to future licensing of the assigned Advirna patent and
technology rights; |
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We have granted back to Advirna a license under the assigned patent and technology
for fields of use outside the fields of human therapeutics and diagnostics; and |
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We have agreed to issue to Advirna, upon the completion of the spin-off transaction,
shares of our common stock equal to approximately 5% of the fully diluted shares of RXi common stock
assuming the conversion in full of all outstanding Series A Preferred Stock. |
See
Business Intellectual property Other Technology Agreements;
Advirna on page 55 of this prospectus for more information about our license
from Advirna.
Anastasia Khvorova, Ph.D., our Senior Vice President and Chief Scientific Officer, is a director and
50% owner of Advirna. Dr. Khvorovas husband is the other director and 50% owner of Advirna.
4
Risks Related to RXi
We face a number of risks and uncertainties relating to our separation from Galena and our
business. These risks and uncertainties include:
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We may be unable to achieve some or all of the benefits that we expect to achieve
from our separation from Galena. |
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We may be unsuccessful in recruiting a Chief Executive Officer or other
key employees. |
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We may not be able to obtain sufficient funding and may not be able to commercialize
our product candidates. |
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The approach we are taking to discover and develop novel therapeutics using RNAi is
unproven and may never lead to marketable products. |
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We may not be able to maintain the third-party relationships that are necessary to
develop or commercialize some or all of our product candidates. |
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If our preclinical testing does not produce successful results or our clinical
trials do not demonstrate safety and efficacy in humans, our products may not receive
FDA approval and we will not be able to commercialize our drug candidates. |
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Even if we receive regulatory approval to market our product candidates, our product
candidates may not be accepted commercially, which may prevent us from becoming
profitable. |
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We are dependent on technologies we license, and if we lose the right to license
such technologies or we fail to license new technologies in the future, our ability to
develop new products would be harmed. |
For further discussion of these and other risks and uncertainties that RXi faces, see the
Risk Factors section beginning on page 11 of this prospectus and Managements Discussion and
Analysis of Financial Condition and Results of Operations
section beginning on page 35 of this
prospectus.
Corporate Information
Our principal executive offices are located at 60 Prescott Street, Worcester, Massachusetts
01605, and our telephone number is (508) 767-3861. Our Internet address is
www.rxipharma.com. Our website and the information contained on that site, or connected
to that site, is not part of or incorporated by reference into this prospectus.
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The Distribution
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Distributing company
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Galena Biopharma, Inc., a Delaware corporation. |
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Distributed company
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RXi Pharmaceuticals Corporation, a Delaware
corporation. |
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Securities to be distributed
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A fixed number of 47,341,594 shares of RXi
common stock will be distributed to Galenas
stockholders. |
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Reasons for the distribution
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Galenas lead therapeutic programs involve peptide-based immunotherapy products for
the treatment of various cancers, while our
therapeutic programs are focused on RNAi. The
discovery and development of immunotherapy
products requires skills, patents and
management expertise that are different from
the skills, patents and management expertise
that are required for RNAi drug development
and discovery. Because of the difference in
focus with respect to therapeutic programs,
and the difficulties that may arise adequately
funding and managing programs in both of these
areas, the Galena board of directors
determined that the best strategy for
realizing the potential value of Galenas RNAi
assets was to contribute them to RXi, with a
focus on developing and commercializing RNAi
therapeutics, followed by the spin-off of RXi as described in this
prospectus. |
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Distribution ratio and record date
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Each holder of Galena common stock as of the
close of business on [_______],
2012, the
record date for the distribution, will receive
a dividend of one share of RXi common stock
for each share of Galena common stock held by
such holder. |
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Manner of effecting the distribution
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The distribution will consist of Galenas
payment of a dividend to Galenas stockholders
in the form of shares of RXi common stock. No
vote or approval of Galenas stockholders is
required in connection with the distribution.
You will not be required to make any payment,
or to surrender or exchange your shares of
Galenas common stock, or take any other action
to receive your shares of our common stock, and Galenas stockholders will continue to own all shares of Galena
common stock held by them.
If you own Galena common stock as of the close
of business on the record date, Galena, with
the assistance of Computershare, the
distribution agent and RXis transfer agent, will electronically issue
shares of our common stock to you or to your
brokerage firm on your behalf by way of direct
registration in book-entry form.
Computershare will mail to you a book-entry
account statement that reflects your shares of
RXi common stock, or your bank or brokerage
firm will credit your account for the shares.
If you sell shares of Galena common stock in
the regular-way market up to and including
through the distribution date, you will be
selling your right to receive shares of RXi
common stock in the distribution. Following
the distribution, stockholders may request that their shares be transferred
to a brokerage or other account at any time,
without charge. Please see The Distribution
Direct Registration System section of this
prospectus for a more detailed description of
the direct registration system and how shares
of Galena common stock may be sold and
transferred. |
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Expected distribution date
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[_______], 2012. |
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Distribution agent, transfer agent
and registrar for the shares
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Computershare will be the distribution agent
for the distribution and the transfer agent
and registrar for RXi common stock following
the distribution. |
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United States federal income tax
consequences of the distribution
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Galena expects that the distribution will be
treated as a taxable distribution in an amount
equal to the fair market value of the RXi
shares on the distribution date. This amount
will be treated as a dividend to the extent of
any current year earnings and profits of
Galena, including any gain resulting from the
distribution, with the excess treated as a
non-taxable return of capital, |
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to the extent of
a holders tax basis in Galena common stock
and any remaining excess treated as capital
gain. For a discussion of the tax
consequences to Galena and Galenas
stockholders of the distribution, see the
Material United States Federal Income Tax
Considerations section of this prospectus.
Galenas stockholders should consult with
their own individual tax advisors regarding
the tax consequences of the distribution. |
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Trading market
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There currently is no public market
for our common stock. We will apply for trading of our common stock in the OTC Markets Group under the symbol RXII in
conjunction with the effectiveness of the registration statement of which this prospectus is a
part. We expect that our common stock will begin trading in the OTC Markets Group following the
distribution. We cannot predict whether or when trading of our common stock will begin or the trading prices for
our common stock. |
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Relationship with Galena after the
distribution
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Immediately following the completion of the
spin-off transaction, Galena will own
approximately 4% of our common stock on a
fully diluted basis assuming the conversion in
full of all Series A Preferred Stock without
regard to applicable conversion limitations.
We are a party to several agreements with
Galena relating to its ownership of our common
stock and other matters as described in the
Certain Relationships and Related Party
Transactions section of this prospectus. |
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Post-distribution dividend policy
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Immediately following the record
date for the distribution, we will declare and pay a 236,708-for -1
stock dividend with respect to our outstanding common stock. Unless
otherwise indicated, all share data in this prospectus give
retroactive effect to
this stock dividend. RXi has never declared a cash dividend on its
common stock and does not plan to do so for
the foreseeable future. |
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Risk factors
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You should carefully consider the matters
discussed in the Risk Factors section of
this prospectus. |
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Where Galenas stockholders
can obtain more information |
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If you have any questions relating to the
separation of RXi from Galena, you should
contact: |
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Mark J. Ahn, Ph.D
President and Chief Executive Officer
Galena Biopharma, Inc.
310 N. State Street, Suite 208
Lake Oswego, Oregon 97034
(855) 855-4253
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Summary Historical Financial Information
The following summary historical financial information should be read in conjunction with the
Managements Discussion and Analysis of Financial Condition and Results of Operations section and
the financial statements and corresponding notes to financial statements included elsewhere in this
prospectus.
Prior to December 31, 2010, Galena was engaged primarily in conducting discovery research and
preclinical development activities based on RNAi, and Galenas financial statements for periods prior to
December 31, 2010 reflected solely the assets, liabilities and results of operations attributable to Galenas
RNAi-based assets, liabilities and results of operations. Subsequent to December 31, 2010, Galena broadened
its strategic direction by adding the development and commercialization of cancer therapies that utilize
peptide-based immunotherapy products, including a main product candidate, NeuVax, for the treatment of
various cancers. Accordingly, the historical financial information
for the nine-month periods ended September
30, 2011 and 2010, the fiscal years ended December 31, 2010 and 2009
as well as the cumulative period from inception (January 1, 2003) through September 30, 2011 has been
carved out of the financial statements of Galena, as our Predecessor, for such periods. Such carved-out
financial information reflects Galenas RNAi-related activities, assets and liabilities only, and excludes
activities, assets and liabilities attributable to Galenas cancer therapies. On September 24, 2011, Galena
contributed to RXi substantially all of Galenas RNAi-related
technologies and assets. The financial information for the periods ended September 30, 2011 also includes the results of RXi, "Registrant," for the period from September 24, 2011 to September 30, 2011. RXi was formed on September 8, 2011 and was not engaged in any activities other than its initial incorporation from September 8, 2011 to September 23, 2011. Also included is the balance sheet of RXi
(Registrant) as of September 8, 2011, the date of incorporation. There was no other activity on that date. Accordingly, no
statement of expenses or cash flows has been presented for the period ended September 8, 2011.
The carved-out financial information includes both direct and indirect expenses. The
historical direct expenses consist primarily of the various costs for technology license
agreements, sponsored research agreements, fees paid to scientific advisors and employee expenses
of employees directly involved in RNAi-related activities. Indirect expenses represent employee
expenses incurred by Galena that were allocable to the RNAi business. The indirect expenses are based upon (1)
estimates of the percentage of time spent by Galena employees working
on RNAi business matters and (2)
allocations of various expenses associated with the employees, including salary, benefits, rent
associated with the employees office space, accounting and other general and administrative
expenses. The percentage of time spent by Galena employees was multiplied by these allocable
expenses to arrive at the total employee expenses allocable to the
RNAi business and reflected in the carved out
financial statements. Management believes the assumptions underlying the carved-out financial
information are reasonable; however, the financial position and expenses may have been
materially different if the RNAi business had operated as a stand-alone entity during the periods presented.
9
The
information presented as of September 30, 2011 and for the nine-month periods ended
September 30, 2011 and 2010,
respectively, is unaudited and has been prepared on the same basis as the audited financial
statements and includes all adjustments, consisting of only normal recurring adjustments, necessary
for the fair presentation of this information in all material respects. The results of any interim
period are not necessarily indicative of the results of operations to be expected for a full fiscal
year.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
(RNAi) and RXi (Registrant)(1) |
|
|
Predecessor
(RNAi) |
|
|
Period from |
|
|
|
|
|
|
|
|
|
January 1, 2003 |
|
|
|
|
|
|
|
|
|
(Date of Inception) |
|
|
Nine Months Ended September 30, |
|
|
Years Ended December 31, |
|
|
|
to September 30, 2011 |
|
|
2011 |
|
|
2010 |
|
|
2010 |
|
|
2009 |
|
|
|
(Amounts in thousands)
|
|
Statement of Expenses Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expense |
|
$ |
44,181 |
|
|
$ |
5,074 |
|
|
$ |
6,126 |
|
|
$ |
7,873 |
|
|
$ |
8,892 |
|
General and administrative expense |
|
|
36,276 |
|
|
|
5,206 |
|
|
|
6,803 |
|
|
|
8,752 |
|
|
|
8,628 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
80,457 |
|
|
|
10,280 |
|
|
|
12,929 |
|
|
|
16,625 |
|
|
|
17,520 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income (expense) |
|
|
629 |
|
|
|
1 |
|
|
|
5 |
|
|
|
5 |
|
|
|
(5 |
) |
Other income (expense) |
|
|
6,278 |
|
|
|
2,513 |
|
|
|
2,762 |
|
|
|
4,627 |
|
|
|
(862 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(73,550 |
) |
|
$ |
(7,766 |
) |
|
$ |
(10,162 |
) |
|
$ |
(11,993 |
) |
|
$ |
(18,387 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RXi
(Registrant) |
|
|
Predecessor
(RNAi) |
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
September 8, 2011 |
|
September 30, 2011 |
|
|
2010 |
|
|
2009 |
|
|
|
|
(Amounts in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheets Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
|
$ |
422 |
|
|
$ |
6,891 |
|
|
$ |
5,684 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
$ |
|
$ |
720 |
|
|
$ |
7,041 |
|
|
$ |
5,804 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment and furnishings, net |
|
$ |
|
$ |
428 |
|
|
$ |
419 |
|
|
$ |
432 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
|
$ |
1,148 |
|
|
$ |
7,476 |
|
|
$ |
6,252 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
|
$ |
2,962 |
|
|
$ |
5,046 |
|
|
$ |
5,511 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity (deficit) |
|
$ |
|
$ |
(1,814 |
) |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Divisional equity |
|
$ |
|
$ |
|
|
|
$ |
2,430 |
|
|
$ |
741 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities, stockholders equity and divisional equity |
|
$ |
|
$ |
1,148 |
|
|
$ |
7,476 |
|
|
$ |
6,252 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The statements of expenses for the nine months ended
September 30, 2011 and for the period from January 1, 2003 (date of
inception) to September 30, 2011 include the results of operations of
the carved-out Predecessor (RNAi) entity from the beginning of the periods
presented to September 23, 2011 combined with the results of operations
of RXi (Registrant) for the period September 24, 2011 to September 30,
2011. |
10
RISK FACTORS
You should carefully consider the risks described below and all of the other information
contained in this prospectus in evaluating us and our common stock. If any of the following risks
and uncertainties develop into actual events, they could have a material adverse effect on our
business, financial condition or results of operations. In that case, the trading price of our
common stock could decline.
Risks Relating to Our Spin-off From Galena
We may be unable to achieve some or all of the benefits that we expect to achieve from our spin-off
from Galena.
As a separate company, we believe that our business will benefit from, among other things, an
enhanced ability to compete with other companies dedicated to developing proprietary RNAi therapeutics.
However, we may not be able to achieve some or all of the benefits that we expect to achieve as a separate,
independent public company. For example, we may not be able to raise funds as a separate company, which funds might
have been available to a combined company that may have offered a broader investment opportunity to a wider
range of potential investors. Nor will we have the benefit of Galenas relationships with sources of funding.
In addition, as we have prepared to operate as a separate company, we have had to bear the
cost of establishing our own accounting, human resources and other administrative functions. We
may not be able to continue to perform or engage third parties to provide these functions with the
same level of expertise and on the same or more favorable terms as they were provided by Galena in
the past. As a result, we could incur additional expenses for such services, and in such event,
our business and operations may be adversely affected.
We may
be unsuccessful in recruiting a Chief Executive Officer or other executives.
We will need to recruit and hire a Chief Executive Officer to replace Mark J. Ahn, Ph.D., who
currently serves, on a part-time basis, as our President. We also are seeking a new
Chief Financial Officer to work on a part-time basis, as well as other key employees. There is intense
competition for experienced executive officers and other key personnel, and we may not be able to recruit and
retain the personnel we need. If we fail to do so, our business
prospects may suffer.
Dr. Ahn is not compensated by us, spends only part of his time on our business and is subject to
potential conflicts of interest between Galena and us.
Dr. Ahn, who is not compensated by us, spends an average of only approximately 30 hours a month on
our business and operations, and he devotes the majority of his business time and attention to Galenas business
and operations. Because Dr. Ahn has dual obligations to Galena and us, he is subject to potential conflicts of
interest between Galena and us.
You may have difficulty evaluating our business because we have no history as a separate company
and our historical financial information may not be representative of our results as a separate
company.
The historical financial information included in this prospectus does not necessarily reflect
the financial condition, results of operations or cash flows that we would have achieved as a
separate company during the periods presented or those that we will achieve in the future. Prior
to the contribution of our RNAi assets from Galena, our RNAi research and development activities
were conducted by Galena as part of its broader operations, rather than as an independent division
or subsidiary. Galena also performed various corporate functions relating to our
business, as discussed above. Our historical financial information reflects allocations of
corporate expenses from Galena for these and similar functions. We believe that these allocations
are comparable to the expenses we would have incurred had we operated as a separate company,
although we may incur higher expenses as a separate company.
We may not be able to effectively operate as a separate company.
We are a discovery-stage company with limited operating history. We will focus on
developing and, if we obtain regulatory approval for our product candidates, commercializing
therapeutic products based upon RNAi technologies, and there is no assurance that we will be able
to successfully implement our business plan. While our management collectively possesses
substantial business experience, there is no assurance that, as a separate company, we will be able
to manage our business effectively, or that we will be able to identify, hire and retain any needed
additional management or scientific personnel to develop and implement our product
11
development plans, obtain third-party contracts or any needed financing, or achieve the other
components of our business plan.
The obligations associated with being an independent public company will require significant
resources and management attention.
In connection with the distribution of our common stock, we will become subject to the
reporting requirements of the Securities Exchange Act of 1934, as amended (the Exchange Act), and
the Sarbanes-Oxley Act of 2002. The Exchange Act requires that we file annual, quarterly and
current reports. Our failure to prepare and disclose this information in a timely manner could
subject us to penalties under federal securities laws, expose us to lawsuits and restrict our
ability to access financing. The Sarbanes-Oxley Act requires that we, among other things,
establish and maintain effective internal controls and procedures for financial reporting and we
are presently evaluating our existing internal controls in light of the standards adopted by the
Public Company Accounting Oversight Board. During the course of our evaluation, we may identify
areas requiring improvement and may be required to design enhanced processes and controls to
address issues identified through this review. This could result in significant cost to us and
require us to divert substantial resources, including management time, from other activities.
Section 404 of the Sarbanes-Oxley Act requires annual management assessments of the
effectiveness of our internal control over financial reporting. In preparation for this, we may
identify deficiencies that we may not be able to remediate in time to meet the deadline for
compliance with the requirements of Section 404. Our failure to satisfy the requirements of
Section 404 on a timely basis could result in the loss of investor confidence in the reliability of
our financial statements, which in turn could have a material adverse effect on our business and
our common stock.
Risks Relating to Our Business
We will be dependent on the success of our lead drug candidate, which may not receive regulatory
approval or be successfully commercialized.
RXI-109, our first RNAi-based product candidate, targets CTGF and may have a variety of
medical applications. We are planning to file an IND application with
the FDA and begin a Phase I/II
clinical trial in 2012 for RXI-109. The FDA, however, may deny our application or require
additional information before approving the application, and such information may be costly to
provide. There is no assurance that we will be able to successfully develop RXI-109 or any other
product candidate.
We currently generate no revenue from sales and may never be able to develop marketable
products. The FDA or similar foreign governmental agencies must approve our products in
development before they can
12
be marketed. The process for obtaining FDA approval is both time-consuming and costly, with
no certainty of a successful outcome. Before obtaining regulatory approval for the sale of any
drug candidate, we must conduct extensive preclinical tests and clinical trials to demonstrate the
safety and efficacy in humans of our product candidates. We have not yet shown safety or efficacy
in humans for any RNAi-based product candidates, including RXI-109. A failure of any preclinical
study or clinical trial can occur at any stage of testing. The results of preclinical and initial
clinical testing of these products may not necessarily indicate the results that will be obtained
from later or more extensive testing. It is also possible to suffer significant setbacks in
advanced clinical trials, even after obtaining promising results in earlier trials.
A number of different factors could prevent us from obtaining regulatory approval or
commercializing our product candidates on a timely basis, or at all.
We, the FDA or other applicable regulatory authorities or an institutional review board
(IRB) may suspend clinical trials of a drug candidate at any time for various reasons, including
if we or they believe the subjects or patients participating in such trials are being exposed to
unacceptable health risks. Among other reasons, adverse side effects of a drug candidate on
subjects or patients in a clinical trial could result in the FDA or other regulatory authorities
suspending or terminating the trial and refusing to approve a particular drug candidate for any or
all indications of use.
Clinical trials of a new drug candidate require the enrollment of a sufficient number of
patients, including patients who are suffering from the disease the drug candidate is intended to
treat and who meet other eligibility criteria. Rates of patient enrollment are affected by many
factors, and delays in patient enrollment can result in increased costs and longer development
times.
Clinical trials also require the review and oversight of IRBs, which approve and continually
review clinical investigations and protect the rights and welfare of human subjects. An inability
or delay in obtaining IRB approval could prevent or delay the initiation and completion of clinical
trials, and the FDA may decide not to consider any data or information derived from a clinical
investigation not subject to initial and continuing IRB review and approval.
Numerous factors could affect the timing, cost or outcome of our drug development efforts,
including the following:
|
|
|
Delays in filing the initial drug application for RXI-109 or other product
candidates; |
|
|
|
Difficulty in securing centers to conduct trials; |
|
|
|
Conditions imposed on us by the FDA or comparable foreign authorities regarding the
scope or design of RXis clinical trials; |
|
|
|
Problems in engaging IRBs to oversee trials or problems in obtaining or maintaining
IRB approval of studies; |
|
|
|
Difficulty in enrolling patients in conformity with required protocols or projected
timelines; |
|
|
|
Third-party contractors failing to comply with regulatory requirements or to meet
their contractual obligations to us in a timely manner; |
|
|
|
|
Our drug candidates having very different chemical and pharmacological properties in
humans than in laboratory testing and interacting with human biological systems in
unforeseen, ineffective or harmful ways; |
13
|
|
|
The need to suspend or terminate clinical trials if the participants are being
exposed to unacceptable health risks; |
|
|
|
Insufficient or inadequate supply or quality of our drug candidates or other
necessary materials necessary to conduct our clinical trials; |
|
|
|
Effects of our drug candidates not being the desired effects or including
undesirable side effects or the drug candidates having other unexpected
characteristics; |
|
|
|
The cost of our clinical trials being greater than we anticipate; |
|
|
|
Negative or inconclusive results from our clinical trials or the clinical trials of
others for similar drug candidates or inability to generate statistically significant
data confirming the efficacy of the product being tested; |
|
|
|
Changes in the FDAs requirements for testing during the course of that testing; |
|
|
|
Reallocation of our limited financial and other resources to other clinical
programs; and |
|
|
|
Adverse results obtained by other companies developing similar drugs. |
It is possible that none of the product candidates that we may develop will obtain the
appropriate regulatory approvals necessary to begin selling them or that any regulatory approval to
market a product may be subject to limitations on the indicated uses for which we may market the
product. The time required to obtain FDA and other approvals is unpredictable, but often can take
years following the commencement of clinical trials, depending upon the complexity of the drug
candidate. Any analysis we perform of data from clinical activities is subject to confirmation and
interpretation by regulatory authorities, which could delay, limit or prevent regulatory approval.
Any delay or failure in obtaining required approvals could have a material adverse effect on our
ability to generate revenue from the particular drug candidate.
We also are subject to numerous foreign regulatory requirements governing the conduct of
clinical trials, manufacturing and marketing authorization, pricing and third-party reimbursement.
The foreign regulatory approval process includes all of the risks associated with the FDA approval
described above as well as risks attributable to the satisfaction of local regulations in foreign
jurisdictions. Approval by the FDA does not assure approval by regulatory authorities outside of
the United States.
The approach we are taking to discover and develop novel therapeutics using RNAi is unproven and
may never lead to marketable products.
RNA interference is a relatively new scientific discovery. Our RNAi technologies have not yet
been clinically tested, nor are we aware of any clinical trials for efficacy having been completed
by third parties involving these technologies. To date, no company has received regulatory
approval to market therapeutics utilizing RNAi, and a number of clinical trials of RNAi
technologies by other companies have been unsuccessful. The scientific evidence to support the
feasibility of developing drugs based on these discoveries is both preliminary and limited. To
successfully develop RNAi-based products, we must resolve a number of
issues, including stabilizing the RNAi material and delivering it into target cells in the
human body. We may spend large amounts of money trying to resolve
these issues and may never succeed
in doing so. In addition, any compounds that we develop may not demonstrate in patients the
chemical and pharmacological properties ascribed to them in laboratory studies, and they may
interact with human biological systems in unforeseen, ineffective or even harmful ways.
14
The FDA could impose a unique regulatory regime for RNAi therapeutics.
The substances we intend to develop may represent a new class of drug, and the FDA has not yet
established any definitive policies, practices or guidelines in relation to these drugs. While we
expect any product candidates that we develop will be regulated as a new drug under the Federal
Food, Drug, and Cosmetic Act, the FDA could decide to regulate them or other products we may
develop as biologics under the Public Health Service Act. The lack of policies, practices or
guidelines may hinder or slow review by the FDA of any regulatory filings that we may submit.
Moreover, the FDA may respond to these submissions by defining requirements that we may not have
anticipated.
The FDA approval process may be delayed for any drugs we develop that require the use of
specialized drug delivery devices or vehicles.
Some drug candidates that we develop may need to be administered using specialized vehicles,
such as an implantable pump, that deliver RNAi therapeutics directly to diseased parts of the body.
The drug delivery vehicles that we expect to utilize to deliver our drug candidates have not been
approved by the FDA or other regulatory agencies. In addition, the FDA may regulate the product
as a combination product of a drug and a device or require additional approvals or clearances for
the modified delivery.
If a specialized delivery vehicle is owned by another company, we would need that companys
cooperation to implement the necessary changes to the vehicle, or its labeling and to obtain any
additional approvals or clearances. Any delays in finding suitable drug delivery vehicles to
administer RNAi therapeutics directly to diseased parts of the body could negatively affect our
ability to successfully develop our RNAi therapeutics.
Even if we receive regulatory approval to market our product candidates, our product candidates may
not be accepted commercially, which may prevent us from becoming profitable.
The RNAi product candidates that we are developing are based on new technologies and
therapeutic approaches. RNAi products may be more expensive to manufacture than traditional small
molecule drugs, which may make them more costly than competing small molecule drugs. Additionally,
for various applications, RNAi products are likely to require injection or implantation and to not
readily cross the so-called blood brain barrier, which will make them less convenient to administer
than drugs administered orally. Key participants in the pharmaceutical marketplace, such as
physicians, medical professionals working in large reference laboratories, public health
laboratories and hospitals, third-party payors and consumers may not accept products intended to
improve therapeutic results based on RNAi technology. As a result, it may be more difficult for us
to convince the medical community and third-party payors to accept and use our products or to
provide favorable reimbursement. If medical professionals working with large reference
laboratories, public health laboratories and hospitals choose not to adopt and use our RNAi
technology, our products may not achieve broader market acceptance.
We will be subject to competition and may not be able to compete successfully.
We believe numerous companies are investigating or plan to investigate a variety of proposed anti-scarring
therapies in clinical trials. The companies include large and small pharmaceutical, chemical and biotechnology companies, as well as universities,
government agencies and other private and public research organizations. Such companies include Renovo Group plc, CoDa Therapeutics, Inc.,
Sirnaomics, Inc., FirstString Research, Inc., Merz Pharmaceuticals, LLC, Capstone Therapeutics, Halscion, Inc., Garnet Bio Therapeutics, Inc.,
AkPharma Inc., Promedior, Inc., Kissei Pharmaceutical Co., Ltd., Eyegene, Derma Sciences, Inc., Healthpoint Biotherapeutics and Pharmaxon. In
particular, Excaliard Pharmaceuticals, Inc., which has been acquired by
Pfizer, Inc., has successfully advanced an anti-CTGF antisense oligonucleotide through several Phase I and
Phase II trials, demonstrating improved scar outcome over placebo.
We believe other companies working in the RNAi area, generally, include Alnylam Pharmaceuticals, Inc., Marina
Biotech, Inc., Tacere Therapeutics, Inc., Benitec Limited, OPKO Health, Inc., Silence Therapeutics plc, Quark
Pharmaceuticals, Inc., Rosetta Genomics Ltd., Lorus Therapeutics, Inc., Tekmira Pharmaceuticals Corporation,
Arrowhead Research Corporation, Regulus Therapeutics Inc. and Santaris, as well as a
number of large pharmaceutical companies. Many other companies are pursuing non-RNAi-based therapies for
one or more fibrotic disease indications, including ocular scarring or other indications that we may seek to pursue.
15
Most of these competitors have substantially greater research and development capabilities and financial, scientific, technical, manufacturing, marketing, distribution and other resources than we have, and we may not be able to successfully compete with them. In addition, even if we are successful in
developing our product candidates, in order to compete successfully we may need to be first to
market or to demonstrate that our RNAi based products are superior to therapies based on
different technologies. A number of our competitors have already commenced clinical testing
of RNAi product candidates and may be more advanced than we are in the process of developing
products. If we are not first to market or are unable to demonstrate superiority, any
products for which we are able to obtain approval may not be successful.
We will be dependent on technologies we license, and if we lose the right to license such
technologies or fail to license new technologies in the future, our ability to develop new products
would be harmed.
Many patents in the RNAi field have already been exclusively licensed to third parties,
including our competitors. If any of our existing licenses are terminated, the development of the
products contemplated by the licenses could be delayed or terminated and we may not be able to
negotiate additional licenses on acceptable terms, if at all, which would have a material adverse
effect on our business.
We may be unable to protect our intellectual property rights licensed from other parties; our
intellectual property rights may be inadequate to prevent third parties from using our technologies
or developing competing products; and we may need to license additional intellectual property from
others.
Therapeutic applications of gene silencing technologies, delivery methods
and other technologies that we license from third parties are claimed in a number of pending patent
applications, but there is no assurance that these applications will result in any issued patents
or that those patents would withstand possible legal challenges or protect our technologies from
competition. The United States Patent and Trademark Office and patent granting authorities in
other countries have upheld stringent standards for the RNAi patents that have been prosecuted so
far. Consequently, pending patents that we have licensed and those that we own may continue to
experience long and difficult prosecution challenges and may ultimately issue with much narrower
claims than those in the pending applications. Third parties may hold or seek to obtain additional
patents that could make it more difficult or impossible for us to develop products based on RNAi
technology without obtaining a license to such patents, which licenses may not be available on
attractive terms, or at all.
In addition, others may challenge the patents or patent applications that we currently license
or may license in the future or that we own and, as a result, these patents could be narrowed,
invalidated or rendered unenforceable, which would negatively affect our ability to exclude others
from using RNAi technologies described in these patents. There is no assurance that these patent
or other pending applications or issued patents we license or that we own will withstand possible
legal challenges. Moreover, the laws of some foreign countries may not protect our proprietary
rights to the same extent as do the laws of the United States. Any patents issued to us or our
licensors may not provide us with any competitive advantages, and there is no assurance that the
patents of others will not have an adverse effect on our ability to do business or to continue to
use its technologies freely. Our efforts to enforce and maintain our intellectual property rights
may not be successful and may result in substantial costs and diversion of management time. Even if our
rights are valid, enforceable and broad in scope, competitors may develop products based on
technology that is not covered by our licenses or patents or patent application that we own.
16
We have received a letter from Alnylam Pharmaceuticals, Inc., or Alnylam, claiming that we require
access to Alnylams patent and patent applications and demanding that we stop engaging in unspecified
alleged infringing activities unless we obtain a license from Alnylam. We understand that other companies
working in the RNAi area have received similar letters from Alnylam. Although we believe, based on the
advice of our patent counsel, that our current and planned activities do not infringe any valid patent rights of
Alnylam, there is no assurance that we will not need to alter our development candidates or products or obtain
a license to Alnylams rights to avoid any such infringement.
There is no guarantee that future licenses will be available from third parties for our
product candidates on timely or satisfactory terms, or at all. To the extent that we are required and are
able to obtain multiple licenses from third parties to develop or commercialize a product
candidate, the aggregate licensing fees and milestones and royalty payments made to these parties
may materially reduce our economic returns or even cause us to abandon development or
commercialization of a product candidate.
Our success depends upon our ability to obtain and maintain intellectual property protection for
our products and technologies.
The applications based on RNAi technologies claim many different methods, compositions and
processes relating to the discovery, development, delivery and commercialization of RNAi therapeutics.
Because this field is so new, very few of these patent applications have been fully processed by government
patent offices around the world, and there is a great deal of uncertainty about which patents will issue, when, to
whom and with what claims. Although we are not aware of any blocking patents or other proprietary rights, it
is likely that there will be significant litigation and other proceedings, such as interference and opposition
proceedings in various patent offices, relating to patent rights in the RNAi field. It is possible that we may
become a party to such proceedings.
We will rely upon third parties for the manufacture of our clinical product candidates.
We do not have the facilities or expertise to manufacture supplies of any of our potential product
candidates for clinical trials. Accordingly, we will be dependent upon contract manufacturers for these
supplies. We currently obtain supplies for RXI-109 from a single supplier, Agilent Technologies, Nucleic Acid
Solutions Division. If for any reason we are unable to obtain RXI-109 from this supplier, we would have to
seek to obtain it from another major digonucleotide manufacturers. There is no assurance that we will be able
to timely secure needed supply arrangements on satisfactory terms, or at all. Our failure to secure these
arrangements as needed could have a material adverse effect on our ability to complete the development of our
product candidates or, if we obtain regulatory approval for our product candidates, to commercialize them.
We may not be able to establish or maintain the third-party relationships that are necessary to
develop or potentially commercialize some or all of our product candidates.
We expect to depend on collaborators, partners, licensees, clinical research organizations and
other third parties to support our discovery efforts, to formulate product candidates, to
manufacture our product candidates and to conduct clinical trials for some or all of our product
candidates. We cannot guarantee that we will be able to successfully negotiate agreements for or
maintain relationships with collaborators, partners, licensees, clinical investigators, vendors and
other third parties on favorable terms, if at all. Our ability to successfully negotiate such
agreements will depend on, among other things, potential partners evaluation of the superiority of
our technology over competing technologies, the quality of the preclinical and clinical data
that we have generated and the perceived risks specific to developing our product candidates. If
we are unable to obtain or maintain these agreements, we may not be able to clinically develop,
formulate, manufacture, obtain regulatory approvals for or commercialize our product candidates.
We cannot necessarily control the amount or timing of resources that our contract partners will devote to our
research and development programs, product candidates or potential product candidates, and we
cannot guarantee that these parties will fulfill their obligations to us under these arrangements
in a timely fashion. We may not be able to
17
readily terminate any such agreements with contract
partners even if such contract partners do not fulfill their obligations to us.
Even if we obtain regulatory approvals, our marketed drugs will be subject to ongoing regulatory
review. If we fail to comply with continuing U.S. and foreign regulations, we could lose our
approvals to market drugs and our business would be materially and adversely affected.
Following regulatory approval of any drugs we may develop, we will remain subject to
continuing regulatory review, including the review of adverse drug experiences and clinical results
that are reported after our drug products are made available to patients. This would include
results from any post-marketing tests or vigilance required as a condition of approval. The
manufacturer and manufacturing facilities we use to make any of our drug products will also be
subject to periodic review and inspection by the FDA. The discovery of any new or previously
unknown problems with the product, manufacturer or facility may result in restrictions on the drug
or manufacturer or facility, including withdrawal of the drug from the market. We would continue
to be subject to the FDA requirements governing the labeling, packaging, storage, advertising,
promotion, recordkeeping and submission of safety and other post-market information for all of our
product candidates, even those that the FDA had approved. If we fail to comply with applicable
continuing regulatory requirements, we may be subject to fines, suspension or withdrawal of
regulatory approval, product recalls and seizures, operating restrictions and other adverse
consequences.
We are subject to potential liabilities from clinical testing and future product liability claims.
If any of our future products are alleged to be defective, they may expose us to claims for
personal injury by patients in clinical trials of our products. If our products are approved by
the FDA, users may claim that such products caused unintended adverse effects. We will seek to
obtain clinical trial insurance for clinical trials that we conduct, as well as liability insurance
for any products that we market. There is no assurance that we will be able to obtain insurance in
the amounts we seek, or at all. We anticipate that licensees who develop our products will carry
liability insurance covering the clinical testing and marketing of those products. There is no
assurance, however, that any insurance maintained by us or our licensees will prove adequate in the
event of a claim against us. Even if claims asserted against us are unsuccessful, they may divert
managements attention from our operations and we may have to incur substantial costs to defend
such claims.
Any drugs we develop may become subject to unfavorable pricing regulations, third-party
reimbursement practices or healthcare reform initiatives, which could have a material adverse
effect on our business.
We intend to sell our products primarily to hospitals, oncologists and clinics which receive
reimbursement for the health care services they provide to their patients from third-party payors,
such as Medicare, Medicaid and other domestic and international government programs, private
insurance plans and managed care programs. Most third-party payors may deny reimbursement if they
determine that a medical product was not used in accordance with cost-effective treatment methods,
as determined by the third-party payor, was used for an unapproved indication or if they believe
the cost of the product outweighs its benefits. Third-party payors also may refuse to reimburse
for experimental procedures and devices. Furthermore, because our programs are still in
development, we are unable at this time to determine their cost-effectiveness and the level or
method of reimbursement for them. Increasingly, the third-party payors who reimburse patients are
requiring that drug companies provide them with predetermined discounts from list prices, and are
challenging the prices charged for medical products. If the price we are able to charge for
any products we develop is inadequate in light of our development and other costs, our
profitability could be adversely affected.
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We currently expect that any drugs we develop may need to be administered under the
supervision of a physician. Under currently applicable law, drugs that are not usually
self-administered may be eligible for coverage by the Medicare program if:
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They are incidental to a physicians services; |
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They are reasonable and necessary for the diagnosis or treatment of the illness or
injury for which they are administered according to accepted standard of medical
practice; |
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They are not excluded as immunizations; and |
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They have been approved by the FDA. |
Insurers may refuse to provide insurance coverage for newly approved drugs, or insurance
coverage may be delayed or be more limited than the purpose for which the drugs are approved by the
FDA. Moreover, eligibility for insurance coverage does not imply that any drug will be reimbursed
in all cases or at a rate that covers our costs, including research, development, manufacture, sale
and distribution. Interim payments for new drugs, if applicable, may also not be sufficient to
cover our costs and may not be made permanent. Reimbursement may be based on payments for other
services and may reflect budgetary constraints or imperfections in Medicare data. Net prices for
drugs may be reduced by mandatory discounts or rebates required by government health care programs
or private payors and by any future relaxation of laws that presently restrict imports of drugs
from countries where they may be sold at lower prices than in the United States. Third-party
payors often rely upon Medicare coverage policy and payment limitations in setting their own
reimbursement rates. Our inability to promptly obtain coverage and profitable reimbursement rates
from both government-funded and private payors for new drugs that we develop could have a material
adverse effect on our operating results, our ability to raise capital needed to develop products
and our overall financial condition.
Additionally, third-party payors are increasingly attempting to contain health care costs by
limiting both coverage and the level of reimbursement for medical products and services. Levels of
reimbursement may decrease in the future, and future legislation, regulation or reimbursement
policies of third-party payors may adversely affect the demand for and price levels of our
products. If our customers are not reimbursed for our products, they may reduce or discontinue
purchases of our products, which could have a material adverse effect on our business, financial
condition and results of operations.
Comprehensive health care reform legislation, which was recently adopted by Congress and was
subsequently signed into law, could adversely affect our business and financial condition. Among
other provisions, the legislation provides that a biosimilar product may be approved by the FDA
on the basis of analytical tests and certain clinical studies demonstrating that such product is
highly similar to an existing, approved product and that switching between an existing product and
the biosimilar product will not result in diminished safety or efficacy. This abbreviated
regulatory approval process may result in increased competition if we are able to bring a product
to market. The legislation also includes more stringent compliance programs for companies in
various sectors of the life sciences industry with which we may need to comply and enhanced
penalties for non-compliance with the new health care regulations. Complying with new regulations
may divert management resources, and inadvertent failure to comply with new regulations may result
in penalties being imposed on us.
Some states and localities have established drug importation programs for their citizens, and
federal drug import legislation has been introduced in Congress. The Medicare Prescription Drug
Plan legislation, which became law in December 2003, required the Secretary of Health and Human
Services to promulgate regulations for drug reimportation from Canada into the United States under
some circumstances, including
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when the drugs are sold at a lower price than in the United States.
The Secretary, however, retained the discretion not to implement a drug reimportation plan if he
finds that the benefits do not outweigh the costs, and has so far declined to approve a
reimportation plan. Proponents of drug reimportation may attempt to pass legislation that would
directly allow reimportation under certain circumstances. Legislation or regulations allowing the
reimportation of drugs, if enacted, could decrease the price we receive for any products that we
may develop and adversely affect our future revenues and prospects for profitability.
If we fail to attract, hire and retain qualified personnel, we may not be able to design, develop,
market or sell our products or successfully manage our business.
Our business prospects are dependent on our management team. The loss of Dr. Anastasia
Khvorova (our Senior Vice President and Chief Scientific Officer) or Dr. Pamela Pavco (our Senior
Vice President of Pharmaceutical Development), or any of our other key employees, or our inability
to identify, attract, retain and integrate additional qualified key personnel, could make it
difficult for us to manage our business successfully and achieve our business objectives.
Competition for skilled research, product development, regulatory and technical
personnel is intense, and we may not be able to recruit and retain the personnel we need. The loss of the
services of any key research, product development, regulatory and technical personnel, or our
inability to hire new personnel with the requisite skills, could restrict our ability to develop
our product candidates.
We may not be able to obtain sufficient financing and may not be able to develop our product
candidates.
With
the proceeds received in connection with the spin-off transaction, we believe that we have
sufficient working capital to fund our currently planned expenditures through December 31, 2012.
However, in the future we may need to incur debt or issue equity in order to fund our planned
expenditures as well as to make acquisitions and other investments. We cannot assure you that debt
or equity financing will be available to us on acceptable terms or at all. If we cannot, or are
limited in the ability to, incur debt, issue equity or enter in strategic collaborations, we may be
unable to fund discovery and development of our product candidates, address gaps in our product
offerings or improve our technology.
We anticipate that we will need to raise substantial amounts of money to fund a variety
of future activities integral to the development of our business, which may include but are not
limited to the following:
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To conduct research and development to successfully develop our RNAi technologies; |
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To obtain regulatory approval for our products; |
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To file and prosecute patent applications and to defend and assess patents to
protect our technologies; |
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To retain qualified employees, particularly in light of intense competition for
qualified scientists; |
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To manufacture products ourselves or through third parties; |
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To market our products, either through building our own sales and distribution
capabilities or relying on third parties; and |
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To acquire new technologies, licenses or products. |
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We cannot assure you that any needed financing will be available to us on acceptable terms or
at all. If we cannot obtain additional financing in the future, our operations may be restricted
and we may ultimately be unable to continue to develop and potentially commercialize our product
candidates.
Future financing may be obtained through, and future development efforts may be paid for by,
the issuance of debt or equity, which may have an adverse effect on our stockholders or may
otherwise adversely affect our business.
If we raise funds through the issuance of debt or equity, any debt securities or
preferred stock issued will have rights, preferences and privileges senior to those of holders of
our common stock in the event of a liquidation. In such event, there is a possibility that once
all senior claims are settled, there may be no assets remaining to pay out to the holders of common
stock. In addition, if we raise funds through the issuance of additional equity, whether through
private placements or public offerings, such an issuance would dilute your ownership in us.
The terms of debt securities may also impose restrictions on our operations, which may
include limiting our ability to incur additional indebtedness, to pay dividends on or repurchase
our capital stock, or to make certain acquisitions or investments. In addition, we may be subject
to covenants requiring us to satisfy certain financial tests and ratios, and our ability to satisfy
such covenants may be affected by events outside of our control.
We expect to continue to incur significant research and development expenses, which may make
it difficult for us to attain profitability, and may lead to uncertainty about or as to our ability
to continue as a going concern.
Substantial funds were expended to develop our RNAi technologies, and additional
substantial funds will be required for further research and development, including preclinical
testing and clinical trials of any product candidates, and to manufacture and market any products
that are approved for commercial sale. Because the successful development of our products is
uncertain, we are unable to precisely estimate the actual funds we will require to develop and
potentially commercialize them. In addition, we may not be able to generate enough revenue, even
if we are able to commercialize any of our product candidates, to become profitable.
If we are unable to achieve or sustain profitability or to secure additional financing,
we may not be able to meet our obligations as they come due, raising substantial doubts as to our
ability to continue as a going concern. Any such inability to continue as a going concern may
result in our common stock holders losing their entire investment. There is no guarantee that we
will become profitable or secure additional financing. Our financial statements contemplate that
we will continue as a going concern and do not contain any adjustments that might result if we were
unable to continue as a going concern. Changes in our operating plans, our existing and
anticipated working capital needs, the acceleration or modification of our expansion plans,
increased expenses, potential acquisitions or other events will all affect our ability to continue
as a going concern.
Risks Relating to Our Common Stock
The distribution of our common stock to Galenas stockholders is expected to be taxable, and our
stockholders will be required to pay U.S. federal income taxes.
Galena expects that the distribution of our common stock will be taxable to holders of Galena
common stock. An amount equal to the fair market value of our common stock on the distribution
date will be treated as a dividend to the extent of any current years earnings and profits of
Galena, including any gain
21
resulting from the distribution, with the excess treated as non-taxable
return of capital to the extent of a holders tax basis in Galena common stock and any remaining
excess treated as capital gain. Although Galena will be ascribing a value to our shares in this
distribution for tax purposes, this valuation is not binding on the Internal Revenue Service or any
state taxation agency. These taxing authorities could ascribe a higher valuation to our shares,
particularly if our stock trades at prices significantly above the value ascribed to our shares by
Galena in the period immediately following the distribution. Galenas stockholders should consult
with their own tax advisors regarding the tax consequences of the distribution.
There is
no current trading market for our common stock, and any trading
market that may develop for our common stock may be volatile, and you may not be able to sell your shares at
or above the initial market price of our stock following the distribution.
Although there is no current trading market for our common stock, we will apply for trading of our common stock in the OTC Markets Group under the symbol RXII in
conjunction with the effectiveness of the registration statement of which this prospectus is a
part. We expect that our common stock will begin trading in the OTC Markets Group following the
distribution. We
cannot predict, however, the extent to which investors
interest will lead to a liquid trading market or whether the market
price of our common stock will
be volatile. Any trading market that develops for our common stock could
be volatile for many reasons, including the
following factors:
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Announcements of regulatory developments or technological innovations by us or our
competitors; |
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Changes in our relationship with our licensors and other strategic partners; |
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Our quarterly and annual operating results; |
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Developments in patent or other technology ownership rights; |
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Public concern regarding the safety of our technology; |
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Government regulation of drug pricing; and |
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General changes in the economy, the financial markets or the pharmaceutical or
biotechnology industries. |
In addition, factors beyond our control may also have an impact on the price of our common
stock. For example, to the extent that other large companies within our industry experience
declines in their stock price, our stock price may decline as well. In addition, when the market
price of a companys common stock drops significantly, stockholders often institute securities
class action lawsuits against the company. A lawsuit against us could cause us to incur substantial
costs and could divert the time and attention of our management and other resources.
As a result, there is no assurance that you will be able to sell your shares of our common
stock at or above the initial market price of our stock following the distribution.
You may have difficulty selling your shares if our common stock is deemed a penny stock.
Since our common stock will not be listed on a national securities exchange during the foreseeable
future, trading in our common stock will be subject to the requirements of rules promulgated under the
Exchange Act that require additional disclosure by broker-dealers in connection with any trades involving a
stock defined as a penny stock. We believe it is likely that, upon the completion of the distribution of our common
stock, our common stock will be deemed to be a penny stock, which generally means any non-national
securities exchange equity security that has a market price of less than $5.00 per share, subject to certain
exceptions. Such rules require the delivery, prior to any penny stock transaction, of a disclosure schedule
22
explaining the penny stock market and the risks associated therewith and impose various sales practice requirements on broker-dealers
who sell penny stocks to persons other than established customers and accredited investors
(generally defined as an investor with a net worth in excess of $1,000,000 or annual income
exceeding $200,000 individually or $300,000 together with a spouse). For these types of
transactions, the broker-dealer must make a special suitability determination for the purchaser and
have received the purchasers written consent to the transaction prior to the sale. The
broker-dealer also must disclose the commissions payable to the broker-dealer, current bid and
offer quotations for the penny stock and, if the broker-dealer is the sole market-maker, the
broker-dealer must disclose this fact and the broker-dealers presumed control over the market.
Such information must be provided to the customer orally or in writing before or with the written
confirmation of trade sent to the customer. Monthly statements must be sent disclosing recent
price information for the penny stock held in the account and information on the limited market in
penny stocks. The additional burdens imposed upon broker-dealers by such requirements could
discourage broker-dealers from effecting transactions in our common stock, which could severely
limit the market liquidity of the common stock and the ability of holders of the common stock to
sell their shares.
Our shares of common stock distributed to Galenas stockholders will be eligible for immediate
sale, which may adversely affect our stock price.
The shares of our common stock that Galena distributes to its stockholders generally may be
sold immediately in the public market. Any sales of substantial amounts of our common stock in the
public market, or the perception that such sales might occur, whether as a result of the
distribution or otherwise, may cause the market price of our common stock to decline. We are
unable to predict the extent to which common stock will be sold in the open market following the
distribution or whether a sufficient number of buyers for our common stock will be in the market at
that time.
We will issue preferred stock upon the closing of the spin-off transaction and possibly may issue
more preferred stock in the future, and the terms of the preferred stock may reduce the value of
our common stock.
We are authorized to issue up to
10,000,000 shares of preferred stock in one or more series,
and we will issue 9,500 shares of our Series A Preferred Stock to TCP and RTW upon the
completion of the spin-off transaction. Our board of directors may determine the terms of future
preferred stock offerings without further action by our stockholders. The issuance of our
preferred stock could affect your rights or reduce the value of our outstanding common stock. In
particular, rights granted to holders of preferred stock may include voting rights,
preferences as to dividends and liquidation, conversion and redemption rights and restrictions on
our ability to merge with or sell our assets to a third party. For a summary of the rights granted
to the holders of our Series A Preferred Stock, see the Description of Capital Stock Preferred
Stock section of this prospectus.
We may acquire other businesses or form joint ventures that may be unsuccessful and could adversely
dilute your ownership of our company.
As part of our business strategy, we may pursue future acquisitions of other complementary
businesses and technology licensing arrangements. We also may pursue strategic alliances. We have
no experience with respect to acquiring other companies and limited experience with respect to the
formation of collaborations, strategic alliances and joint ventures. We may not be able to
integrate such acquisitions successfully into our existing business, and we could assume unknown or
contingent liabilities. We also could experience adverse effects on our reported results of
operations from acquisition related charges, amortization of acquired technology and other
intangibles and impairment charges relating to write-offs of goodwill and other intangible assets
from time to time following the acquisition. Integration of an acquired company requires
management resources that otherwise would be available for ongoing development of our existing
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business. We may not realize the anticipated benefits of any acquisition, technology license or
strategic alliance.
To finance future acquisitions, we may choose to issue shares of our common stock or preferred
stock as consideration, which would dilute your ownership interest in us. Alternatively, it may be
necessary for us to raise additional funds through public or private financings. Additional funds
may not be available on terms that are favorable to us and, in the case of equity financings, may
result in dilution to our stockholders. Any future acquisitions by us also could result in large
and immediate write-offs, the incurrence of contingent liabilities or amortization of expenses
related to acquired intangible assets, any of which could harm our operating results.
The holders of our Series A Preferred Stock may be able to delay or prevent a change in corporate
control that would be beneficial to our stockholders.
The holders of our Series A Preferred Stock have the right to convert at any time their shares
of our Series A Preferred Stock into shares of our common stock, except to the extent that the
holder would own more than 9.999% of our common stock outstanding immediately after giving effect
to the conversion. Without regard to this conversion limitation, our Series A Preferred Stock
would be convertible, at the completion of the spin-off transaction, into approximately 83% of the fully
diluted shares of our common stock then outstanding. Although our Series A Preferred Stock generally
is non-voting stock, the holders of
our Series A Preferred Stock will be entitled to vote on an as-converted basis together with our common stock with respect to
any transaction that would constitute a deemed liquidation event
under our charter, including any proposal merger or sale of Company.
By virtue of their voting
rights, the holders of our Series A Preferred Stock will be able to significantly influence the
outcome of the vote on any deemed liquidation event required to be submitted to a vote of our stockholders.
This right may adversely affect the
market price of our common stock by:
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Delaying, deferring or preventing a change in control of our company; |
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Impeding a merger, consolidation, takeover or other business combination involving
our company; or |
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Discouraging a potential acquirer from making a tender offer or otherwise attempting
to obtain control of our company. |
Future sales of our common stock by TCP and RTW, or the possibility of such sales, could adversely
affect our stock price.
We have agreed in the securities purchase agreement with TCP and RTW to file a registration
statement with the SEC covering the resale of 20% of the shares of our
common stock underlying their Series A Preferred Stock. The availability of a significant number of our
shares of common stock for resale publicly by TCP and RTW, as well as any actual sales of these
shares, could adversely affect the market price of our shares following the distribution.
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We do
not anticipate paying cash dividends in the foreseeable future.
Immediately following the record
date for the distribution, will declare and pay a 236,708-for -1
stock dividend with respect to our outstanding common stock. Unless
otherwise indicated, all share data in this prospectus give retroactive effect to
this stock dividend.
Our business requires significant funding. We currently plan to invest all available funds
and future earnings in the development and growth of our business and do not anticipate paying any
cash dividends on our common stock in the foreseeable future. As a result, capital appreciation,
if any, of our common stock will be your sole source of potential gain for the foreseeable future.
Provisions of our certificate of incorporation and bylaws and Delaware law might discourage, delay
or prevent a change of control of our company or changes in our management and, as a result,
depress the trading price of our common stock.
Our certificate of incorporation and bylaws contain provisions that could discourage, delay or
prevent a change of control of our company or changes in our management that the stockholders of
our company may deem advantageous. These provisions:
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Authorize the issuance of blank check preferred stock that our board could issue
to increase the number of outstanding shares and to discourage a takeover attempt; |
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Prohibit stockholder action by written consent, which requires all stockholder
actions to be taken at a meeting of our stockholders; |
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Provide that the board of directors is expressly authorized to adopt, alter or
repeal our bylaws; and |
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Establish advance notice requirements for nominations for election to our board or
for proposing matters that can be acted upon by stockholders at stockholder meetings. |
Although we believe these provisions collectively provide for an opportunity to receive higher
bids by requiring potential acquirers to negotiate with our board, they would apply even if the
offer may be considered beneficial by some stockholders. In addition, these provisions may
frustrate or prevent any attempts by our stockholders to replace or remove our current management team by making it more difficult for
stockholders to replace members of our board, which is responsible for appointing the members of
our management.
Moreover, because we are incorporated in Delaware, we are governed by the provisions of
Section 203 of the Delaware General Corporation Law, which prohibits a person who owns in excess of
15% of our outstanding voting stock from merging or combining with us for a period of three years
after the date of the transaction in which the person acquired in excess of 15% of our outstanding
voting stock, unless the merger or combination is approved in a prescribed manner. The restrictions
contained in Section 203 are not applicable to any of our existing stockholders that will own 15%
or more of our outstanding common stock upon the completion of the spin-off of RXi.
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FORWARD-LOOKING STATEMENTS
Any statements in this prospectus about our expectations, beliefs, plans, objectives,
assumptions or future events or performance are not historical facts and are forward-looking
statements. These statements are often, but not always, made through the use of words or phrases
such as believe, will, expect, anticipate, estimate, intend, plan and would. For
example, statements concerning financial condition, possible or assumed future results of
operations, growth opportunities, industry ranking, plans and objectives of management, markets for
our common stock and future management and organizational structure are all forward-looking
statements. Forward-looking statements are not guarantees of performance. They involve known and
unknown risks, uncertainties and assumptions that may cause actual results, levels of activity,
performance or achievements to differ materially from any results, levels of activity, performance
or achievements expressed or implied by any forward-looking statement.
Any forward-looking statements are qualified in their entirety by reference to the risk factors
discussed throughout this prospectus. Some of the risks, uncertainties and assumptions that could
cause actual results to differ materially from estimates or projections contained in the
forward-looking statements include but are not limited to:
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We may be unable to achieve some or all of the benefits that we expect to achieve
from our spin-off from Galena; |
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We may be unsuccessful in recruiting a Chief Executive
Officer, Chief Financial Officer or other
key employees; |
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Higher costs associated with being a separate, publicly traded company; |
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The difficulty in evaluating our financial information due to the distribution; |
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The inability to raise additional future financing and lack of financial and other
resources to us as a separate company; |
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Our ability to control product development costs; |
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We may not be able to attract and retain key employees; |
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We may not be able to compete effectively; |
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We may not be able enter into new strategic collaborations; |
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Changes in government regulation affecting our RNAi-based therapeutics could
increase our development costs; |
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Our involvement in patent and other intellectual property litigation could be
expensive and could divert managements attention; |
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The possibility that there will be no market acceptance for our products; and |
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Changes in third-party reimbursement policies could adversely affect potential
future sales of any of our products that are approved for marketing. |
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The foregoing list sets forth some, but not all, of the factors that could affect our ability
to achieve results described in any forward-looking statements. Stockholders are cautioned not to
place undue reliance on such statements, which speak only as of the date of this prospectus. We
assume no obligation and expressly disclaim any duty to update any forward-looking statement to
reflect events or circumstances after the date of this prospectus or to reflect the occurrence of
unanticipated events. In addition, we cannot assess the impact of each factor on our business or
the extent to which any factor, or combination of factors, may cause actual results to differ
materially from those contained in any forward-looking statements contained in this prospectus.
All subsequent written and oral forward-looking statements attributable to us or any person
acting on our behalf are expressly qualified in their entirety by the cautionary statements
contained or referred to in this section.
27
PLAN OF DISTRIBUTION
Reasons for the Distribution
The Galena board of directors periodically reviews and assesses strategic alternatives to
ensure that all of its technologies and other assets are being utilized in the best manner to
create value for Galena and its stockholders. The Galena board determined that the best strategy
for realizing the potential value of Galenas RNAi assets was to contribute them to us, with our
focus on developing and commercializing RNAi therapeutics.
The Galena board of directors believes that the spin-off transaction will:
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Allow us direct access to capital markets to finance our RNAi drug development activities; |
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Allow our management and the management of Galena to each pursue its own separate
business strategies and strategic relationships based on its specific technologies and assets; |
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Potentially enhance the ability of Galena and us to attract advisors and collaborators who are
leaders in the particular fields of research and development being pursued by the separate
companies, including collaborators who may be competitors or potential competitors of the
other company; |
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Facilitate acquisitions, joint ventures and partnerships by Galena and us with other companies
focusing on the same or complementary technologies; |
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Provide Galenas stockholders with a direct ownership interest in us, in addition to the
indirect interest in us that they will have as Galenas stockholders, recognizing the possibility
that there may be greater collective investment demand for the separate, publicly traded
shares of Galena and us; |
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Enhance public disclosures regarding Galena and us and improve investor understanding of
the two companies; and |
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Allow for stock options and other equity securities in our company with a value related
directly to our own drug development efforts and the performance of our business, with such
equity securities enabling us to provide incentives for our management and other key
employees that are directly related to the market performance of our publicly traded shares
and improve our ability to attract, retain and motivate additional qualified personnel. |
The Galena board considered a number of potentially negative factors in evaluating the
separation of RXi from Galena, including the following:
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We may not achieve the expected benefits of our separation from Galena; |
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We may be unable to obtain financing for our business and activities as a stand-alone company and will
be subject to the other risks described in the Risk Factors section of this prospectus; |
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Galena and we will each incur substantial transaction costs in connection with the contribution and spin-off transactions; |
|
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As two companies, the general and administrative costs
incurred by Galena and us, collectively, will be greater than the
general and administrative expenses
that Galena has historically incurred; |
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Galena expects that the distribution will be treated as a taxable distribution to its stockholders; |
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Pending the distribution, Mark J. Ahn, Ph.D. will devote only a limited amount of time in his capacity as our President and
Chief Financial Officer and will devote the majority of his business time and attention to Galenas business and operations, and he
will be subject to potential conflicts of interest between Galena and us; and |
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|
The distribution and the investment by TCP and RTW in our Series A Preferred Stock are subject to closing
conditions, including the absence of any material adverse effect on us, and there is no assurance it will be completed. |
The Galena board concluded, however, that the
potential benefits of the separation outweighed these negative factors.
In view of the numerous factors considered in connection with the evaluation of the separation
of RXi from Galena and the complexity of these matters, the Galena board did not find it useful to,
and did not attempt
28
to, quantify, rank or otherwise assign relative weights to the factors
considered. The individual members of the Galena board likely may have given different weights to
different factors.
The distribution of RXi common stock is not being underwritten by an investment bank or otherwise.
We anticipate that the fees and expenses attributable to the distribution of RXi common stock and the other
transactions described in this prospectus that relate to the spin-off transaction will be approximately
$595,000. We expect to bear approximately $450,000 of these total fees and expenses directly or
indirectly, by reason of our agreement to reimburse costs incurred by Galena and by TCP and RTW.
Manner of the Distribution
Galena expects to effect the distribution on or about [_______], 2012 by distributing shares
of RXi common stock to Galenas stockholders as of the close of business on [_______], 2012, which
is the record date for the distribution. To be entitled to receive shares of our common stock in
the distribution, Galenas stockholders must be such at the close of business (Eastern Time) on the
record date of [_______], 2012. Each holder of Galena common stock as of the record date will
receive a dividend of one share of our common stock for each share of Galena common stock held by
such holder.
For Galenas stockholders as of the record date whose shares are held in their own names, our
transfer agent will credit their shares of RXi common stock to book entry direct registration
accounts established to hold their RXi common stock. Our distribution agent will send these
stockholders a statement reflecting their RXi common stock ownership. Book entry refers to a
method of recording stock ownership in our records in which no physical certificates are used. For
Galenas stockholders who own Galena common stock through a broker or other nominee that is a
member of (or has a correspondent relationship with) the Depository Trust Company, their shares of
RXi common stock will be credited to the stockholders accounts by the broker or other nominee.
Galenas stockholders will not be required to pay for shares of our common stock received in
the distribution or to surrender or exchange shares of Galena common stock to receive RXi common
stock.
Direct Registration System
We will have a direct registration (book-entry) program with respect to record ownership of
our common stock. Direct registration is a service that allows shares to be owned, reported and
transferred electronically without having a physical stock certificate issued. Persons who acquire
shares of our common stock will not be entitled to receive a physical stock certificate; rather,
ownership of the shares will be recorded in the names of such persons electronically on our books
and records. Direct registration is intended to alleviate problems relating to stolen, misplaced
or lost stock certificates and to reduce the paperwork relating to the transfer of ownership of our
common stock.
Upon completion of the distribution, Galenas stockholders as of the record date whose shares
are registered in their own names will receive statements confirming the issuance to them of the
appropriate number of shares of our common stock through direct registration, rather than issuing a
physical stock certificate. For stockholders who hold Galena common stock through a broker or
other nominee that is a member of (or has a correspondent relationship with) the Depository Trust
Company, their shares of RXi common stock will be credited to these stockholders accounts by the
broker or other nominee.
To utilize the services of a stockbroker to sell their shares, a stockholder holding his
shares through direct registration must first add the appropriate stockbroker information to the
direct registration account
maintained by the transfer agent. Thereafter, such stockholder may transfer our common stock
by telephone to a brokerage account and then may sell or transfer such shares by giving
instructions to the broker.
29
Results of the Distribution
After
the distribution of RXi common stock made under this prospectus, we
will be an SEC reporting company. We will apply for trading of our common stock in the OTC Markets Group under the symbol RXII in
conjunction with the effectiveness of the registration statement of which this prospectus is a
part. We expect that our common stock will begin trading in the OTC Markets Group following the
distribution. Immediately after the distribution, we expect to have
approximately 742 record
holders of shares of our common stock and 100,600,887 shares of our common stock outstanding.
Immediately following the distribution of RXi common stock under this prospectus: (1) the
Galena stockholders who receive RXi shares under this prospectus will
own 47,341,594 shares of our
outstanding common stock; (2) Galena will own 23,670,797 shares of our outstanding common stock; and
(3) Advirna will own 29,588,496 shares of our outstanding common stock.
Immediately following the distribution of our common stock, TCP and RTW will own shares of
our Series A Preferred Stock that are convertible by either or both stockholders at any time into
shares of RXi common stock, except to the extent that the holder would own more than 9.999% of the
shares of our common stock outstanding immediately after giving effect to such conversion. Without
regard to this conversion limitation, upon the completion of the spin-off transaction, the shares
of the Series A Preferred Stock to be held by TCP and RTW would be convertible into shares of our
common stock representing approximately 83% of the fully diluted shares of our common stock after
the conversion of the Series A Preferred Stock. Assuming such conversion in full of our Series A
Preferred Stock: (1) the Galena stockholders who receive RXi shares under this prospectus would own
approximately 8% of the fully diluted shares of RXi common stock upon the completion of the
spin-off transaction; (2) Galena would own approximately 4% of
the fully diluted shares of RXi common stock; and
(3) Advirna would own approximately 5% of the fully diluted shares of RXi common stock.
Other Transactions Related to the Distribution of RXi Common Stock
On September 24, 2011, we entered into a securities purchase agreement with Galena, TCP and
RTW pursuant to which:
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TCP and RTW agreed to purchase a total of $9,500,000 of our Series A Preferred
Stock at the closing of the spin-off transaction and to lend to us up to $1,500,000 to
fund our operations prior to the closing, with the outstanding principal and accrued
interest from the loan to be converted into Series A Preferred Stock at the closing, at
a conversion price of $1,000 per share, and such conversion will be applied to the $9,500,000
total investment by TCP and RTW; |
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We agreed that the Series A Preferred Stock will be convertible by TCP or RTW at
any time into shares of our common stock, except to the extent that the holder would
own more than 9.999% of the shares of our common stock outstanding immediately after
giving effect to such conversion; |
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We agreed that the Series A Preferred Stock will have the rights, preferences,
privileges and restrictions summarized in the Description of Capital StockPreferred
Stock section of this prospectus; |
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Galena agreed to contribute $1.5 million of cash to us; |
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Galena agreed to distribute to its stockholders, on a share-for-share basis, the RXi
common stock that is the subject of this prospectus; the distribution of the RXi common
stock and our separation from Galena is referred to in this prospectus as the spin-off
transaction; and |
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We agreed, upon completion of the spin-off
transaction, to reimburse Galena for up to a total of $300,000, and
to reimburse TCP and RTW for up to a
total of $100,000, of transaction costs relating to the
contribution agreement with Galena, the securities purchase agreement and the
transactions contemplated by the agreements. |
|
The
securities purchase agreement may be terminated by mutual consent of
the investors and us, or by either the investors or us if the partial
spin-off of RXi has not occurred by March 5, 2012 or in the event of
a breach by the other of the agreement.
30
Advirna Agreement
As part of the transactions contemplated by the contribution and securities purchase
agreements, on September 24, 2011, we entered into agreements with Advirna, which is affiliated
with Anastasia Khvorova, Ph.D., our Senior Vice President and Chief Scientific Officer, pursuant to
which:
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Advirna has assigned its existing patent and technology rights related to sd-rxRNA
technology in exchange for an annual $100,000 maintenance fee and a one-time $350,000
milestone payment to Advirna upon the future issuance of the first patent with valid claims
covering the assigned technology; |
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We will be required to pay a 1% royalty to Advirna for any licensing revenue
received by RXi on the license of the assigned Advirna technology; |
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We have granted back to Advirna a license under the assigned technology for fields
of use outside the fields of human therapeutics and diagnostics; and |
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We have agreed to issue to Advirna, upon the completion of the spin-off transaction, a
number of shares of our common stock equal to approximately 5% of the fully diluted shares of RXi
common stock upon completion of the spin-off transaction. |
See
Business Intellectual property Other Technology Agreements;
Advirna on page 55 of this prospectus for more information about our license
from Advirna.
Compensatory Arrangements with Certain Officers
On September 24, 2011, we entered into employment agreements with Anastasia Khvorova, Ph.D.,
and Pamela Pavco, Ph.D., pursuant to which:
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Dr. Khvorova serves as our Senior Vice President and Chief Scientific Officer at an
annual salary of $310,000 and is entitled to a grant of stock options to purchase 2% of
the fully diluted common stock after the spin-off transaction at an exercise price per
share to be determined based on the fair value of our common stock at the date of
grant; the options will be subject to vesting in equal monthly installments over the
four-year period following the effective date of her employment, subject to accelerated
vesting in some events; and |
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Dr. Pavco serves as our Senior Vice President of Pharmaceutical Development at an
annual salary of $300,000 and also is entitled to a grant of stock options to purchase
2% of the fully diluted common stock after the spin-off transaction at an exercise
price per share to be determined based on the fair value of RXi common stock at the
date of grant; the options will be subject to vesting in equal monthly installments
over the four-year period following the effective date of her employment, subject to
accelerated vesting in some events. |
Trading Market
Galena currently owns all
outstanding shares of our common stock, and there is no current
public market for our common stock. We will apply for trading of our
common stock in the OTC Markets Group under the symbol
RXII in conjunction with the effectiveness of the
registration statement of which this prospectus is a part. We expect
that our common stock will begin trading in the OTC Markets Group
following the distribution. We cannot predict, however, the extent to
which investors interest will lead to a liquid trading market
or whether the market price of our common stock will be volatile. Prices will be determined by the marketplace and may bear no
relationship to the book
31
value per share or other common indicators of the value of our common
stock. The future prices at which trading in shares of our common stock occurs may fluctuate
significantly. These prices may be influenced by the factors
disclosed in the Risk Factors section of this prospectus. In addition, the stock market in general has
experienced extreme price and volume fluctuations that have affected the market price of many
stocks and that have often been unrelated or disproportionate to the operating performance of these
companies.
Shares of our common stock that you will receive in the distribution will be freely tradable,
except if you are considered an affiliate of ours under Rule 144 under the Securities Act.
Persons who can be considered our affiliates after the distribution generally include individuals
or entities that directly, or indirectly through one or more intermediaries, control, are
controlled by, or are under common control with us, and may include our directors, executive
officers and principal stockholders. Our affiliates may only sell common stock received in the
distribution under:
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A registration statement that the SEC has declared effective under the Securities
Act; or |
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An exemption from registration under the Securities Act, such as the exemption
afforded by Rule 144, as summarized below in Shares Eligible for Future Sale. |
Trading of Galena Shares Between the Record Date and Distribution Date
Beginning on or shortly before the record date and continuing up to and including the
distribution date, there will be two markets in Galena common stock: a regular-way market and an
ex-distribution market. Shares of Galena common stock that trade on the regular-way market
will trade with an entitlement to our shares of common stock distributed pursuant to the
distribution. Shares that trade on the ex-distribution market will trade without an entitlement
to our shares of common stock distributed pursuant to the distribution. Therefore, if you sell
shares of Galena common stock in the regular-way market up to and including the distribution
date, you will be selling your right to receive shares of our common stock in the distribution. If
you own shares of Galena common stock at the close of business on the record date and sell those
shares on the ex-distribution market, up to and including through the distribution date, you will
still receive the shares of our common stock that you would be entitled to receive pursuant to your
ownership of the shares of Galena common stock.
32
Reason for Furnishing this Prospectus
This prospectus is being furnished to provide information to Galenas stockholders who are
entitled to receive shares of RXi common stock in the distribution of such shares by Galena. This
prospectus is not, and is not to be construed as, an inducement or encouragement to buy, hold or
sell RXi common stock or Galena common stock.
We believe that the information in this prospectus is accurate as of the date set forth on the
cover page. Changes may occur after that date, and neither RXi nor Galena undertakes any
obligation to update such information except in the normal course of its respective public
disclosure obligations.
USE OF PROCEEDS
We will not receive any proceeds as a result of the distribution of our shares of common stock
by Galena.
DIVIDEND POLICY
Immediately following the record
date for the distribution, will declare and pay a 236,708-for -1
stock dividend with respect to our outstanding common stock. Unless
otherwise indicated, all share data in this prospectus give
retroactive effect to
this stock dividend.
We do not anticipate paying any cash dividends on our common stock in the foreseeable future. We
expect to retain future earnings, if any, for use in our development activities and the operation
of our business. The payment of any future dividends will be subject to the discretion of our
board of directors and will depend, among other things, upon our results of operations, financial
condition, cash requirements, prospects and other factors that our board of directors may deem
relevant. Additionally, our ability to pay future dividends is subject to the terms of our Series A Preferred Stock and
may be restricted by the terms of any future credit facility or other debt financing to which we are a party.
33
CAPITALIZATION
The following table presents our
capitalization as of September 30, 2011 on (1) an actual unaudited
historical basis and (2) an unaudited as adjusted basis to give effect to
a 236,708 - for - 1 stock split effected by us immediately following the record date for the distribution, the
distribution of our common stock described in this prospectus and the purchase by TCP and RTW of a
total of $9,500,000 of our Series A Preferred Stock, which purchase is described above under
Prospectus Summary. The following table excludes shares of our common stock that will be
issuable upon the exercise of stock options that may be granted to our directors and officers,
including stock options to be granted to Anastasia Khvorova, Ph.D. and Pamela Pavco, Ph.D. as
described in the Executive CompensationEmployment Agreements section of this prospectus.
You should read the information below in connection with our financial statements and related
notes and the Managements Discussion and Analysis of Financial Condition and Results of
Operations section of this prospectus.
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2011 |
|
|
|
Actual |
|
|
As Adjusted |
|
|
|
(unaudited) |
|
|
|
(Amounts in thousands) |
|
Cash and cash equivalents |
|
$ |
422 |
|
|
$ |
9,422 |
|
|
|
|
|
|
|
|
Convertible
notes payable |
|
$ |
500 |
|
|
$ |
|
|
Stockholders equity: |
|
|
|
|
|
|
|
|
Series A
Convertible Preferred Stock, $0.0001 par value;
no shares authorized or issued and outstanding
(actual); 9,500 shares authorized and issued
and outstanding (as adjusted) |
|
$ |
|
|
|
$ |
9,500 |
|
Common stock, $0.0001 par value; 1,000 shares
authorized and 100 shares issued and
outstanding (actual); 1,500,000,000 shares authorized
and 100,600,887 shares issued and outstanding (as
adjusted) |
|
$ |
|
|
|
$ |
10 |
|
Deficit
accumulated since incorporation(1) |
|
$ |
(1,814 |
) |
|
$ |
(1,824 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
stockholders equity (deficit) |
|
$ |
(1,814 |
) |
|
$ |
7,686 |
|
|
|
|
|
|
|
|
Total
capitalization (deficit) |
|
$ |
(1,314 |
) |
|
$ |
7,686 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
This amount includes the deficit of the Predecessor (RNAi)
and RXi (Registrant) from inception. |
34
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion in conjunction with our financial statements and the
notes to financial statements included elsewhere in this prospectus. This discussion contains
forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could
differ materially from those discussed in the forward-looking statements as a result of various
factors discussed below and elsewhere in this prospectus, particularly in the Risk Factors and
Forward-Looking Statements sections.
Overview
We are a biotechnology company focused on discovering, developing and
commercializing innovative therapies addressing major unmet medical needs using RNAi-targeted
technologies. We are pursuing proprietary therapeutics based on RNA interference (RNAi), a
naturally occurring cellular mechanism that has the potential to effectively and selectively
interfere with, or silence, expression of targeted disease-associated genes.
Certain human diseases result from
overexpression of
one or more genes. We believe that these types of human
diseases can potentially be treated by silencing (reducing) the overexpressed genes. While no therapeutic RNAi products have been approved by the Food
and Drug Administration (FDA) to date, there has been
significant interest in the
field of RNAi therapeutic development.
This
interest is driven by the potential ability to use RNAi to develop lead compounds that
specifically and selectively inhibit single target genes, many of which are
thought to be incapable of being inhibited by
other modalities. RXI-109, our first RNAi product candidate, is a dermal anti-scarring therapy
that targets connective tissue growth factor
(CTGF). We are currently working towards filing an
investigational new drug application (IND) for
RXI-109 and commencing a Phase I/II clinical trial
in 2012. Because abnormal overexpression of CTGF is implicated in
dermal scarring and fibrotic disease, we believe that RXI-109 or other CTGF-targeting RNAi compounds may be able to treat other indications, including pulmonary fibrosis,
liver fibrosis, acute spinal injury, ocular scarring and restenosis. We intend to maintain our core RNAi discovery and
development capability and to develop products both on our own and through collaborations.
Research and Development
To date, our research programs have focused on identifying product candidates and optimizing
the delivery method and technology necessary to make RNAi compounds available by local, systemic or
oral administration, as appropriate for disease for which we intend to develop an RNAi therapeutic.
Since we commenced operations, research and development has comprised a significant proportion of
our total operating expenses and is expected to comprise the majority of our spending for the
foreseeable future.
There are risks in any new field of drug discovery that preclude certainty regarding the
successful development of a product. We cannot reasonably estimate or know the nature, timing and
costs of the efforts necessary to complete the development of, or the period in which material net
cash inflows are expected to commence from, any product candidate. Our inability to make these
estimates results from the uncertainty of numerous factors, including but not limited to:
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Our ability to advance product candidates into preclinical research and clinical
trials; |
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The scope and rate of progress of our preclinical program and other research and
development activities; |
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The scope, rate of progress and cost of any clinical trials we commence;
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35
|
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The cost of filing, prosecuting, defending and enforcing patent claims and other
intellectual property rights; |
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Clinical trial results; |
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The terms and timing of any collaborative, licensing and other arrangements that we
may establish; |
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The cost and timing of regulatory approvals; |
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The cost of establishing clinical and commercial supplies of our product candidates
and any products that we may develop; |
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The cost and timing of establishing sales, marketing and distribution capabilities; |
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The effect of competing technological and market developments; and |
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The effect of government regulation and insurance industry efforts to control
healthcare costs through reimbursement policy and other cost management strategies. |
Failure to complete any stage of the development of our product candidates in a timely manner
could have a material adverse effect on our operations, financial position and liquidity.
License Agreements
We have entered into licensing relationships with academic institutions, research
foundations and commercial entities, and may seek to enter into additional licenses with
pharmaceutical and biotechnology companies. We also may enter into strategic alliances to expand
our intellectual property portfolio and to potentially accelerate our development programs by
gaining access to technology and funding, including equity sales, license fees and other revenues.
For each product that we develop that is covered by the patents licensed to us including our
material licenses discussed elsewhere in this prospectus, we are obligated to make additional
payments upon the attainment of certain specified product development milestones. See the
Business Intellectual Property section of this prospectus for information on our material
license agreements.
Critical Accounting Policies and Estimates
Predecessors Financial Statements and Carve-Out Financial Statements
Prior to December 31, 2010, Galena was engaged primarily in conducting discovery research and
preclinical development activities based on RNAi, and Galenas financial statements for periods
prior to December 31, 2010 reflected solely the assets, liabilities and results of operations
attributable to Galenas RNAi-based assets, liabilities and results of operations. Subsequent to
December 31, 2010, but prior to September 30, 2011, Galena broadened its strategic direction by adding
the development and commercialization of cancer therapies that utilize peptide-based immunotherapy
products, including a main product candidate, NeuVax, for the treatment of various cancers.
On September
24, 2011, Galena contributed to RXi, a newly formed subsidiary of
Galena, substantially all of Galenas RNAi-related technologies and
assets. The newly formed RXi was incorporated on September 8, 2011 with the
issuance of 100 initial shares at a price of $0.01 per share for
total consideration of $1.00. RXi was not engaged in any activities
other than its initial incorporation from September 8, 2011 to
September 23, 2011.
Accordingly, the historical
financial information for the nine-month periods ended September 30,
2011 and 2010, the fiscal years ended December 31, 2010 and 2009, as
well as the cumulative period from inception (January 1, 2003)
through September 30, 2011, has been carved-out of the financial statements of
Galena, as our Predecessor (RNAi), for such periods, and includes activities through September 23, 2011.
Such financial
information is limited to Galenas RNAi-related activities, assets
and liabilities only, and excludes activities, assets and liabilities
that are attributable to Galenas cancer therapy activities. The
financial information for the periods ended September 30, 2011 also
includes the results of RXi, Registrant, for the period from September 24, 2011 to September 30, 2011. RXi was formed on September 8, 2011
and was not engaged in any activities other than its initial incorporation from September 8, 2011 to September 23, 2011. The Company has also included the balance sheet of RXi (Registrant) as of September 8, 2011, the date of incorporation. There was no other activity on that date. Accordingly, no statement of expenses or cash flows has been presented for the period ended September 8, 2011.
36
The carved-out financial information includes both direct and indirect expenses. The
historical direct expenses consist primarily of the various costs for technology license
agreements, sponsored research agreements, fees paid to scientific advisors and employee expenses
of employees directly involved in RNAi-related activities. Indirect expenses represent employee
expenses incurred by Galena that were allocable to the RNAi business. The indirect expenses are based upon (1)
estimates of the percentage of time spent by Galena employees working
on RNAi business matters and (2)
allocations of various expenses associated with the employees, including salary, benefits, rent
associated with the employees office space, accounting and other general and administrative
expenses. The percentage of time spent by Galena employees was multiplied by these allocable
expenses to arrive at the total employee expenses allocable to the RNAi business and reflected in the carved out
financial statements. Management believes the assumptions underlying the carve-out financial
information are reasonable; however, the financial position, expenses and cash flows may
have been materially different if the RNAi business had operated as a stand-alone entity during the periods
presented.
The information presented
as of and for the nine-month periods ended September 30, 2011 and 2010,
respectively, is unaudited and has been prepared on the same basis as the audited financial
statements and includes all adjustments, consisting of only normal recurring adjustments necessary
for the fair presentation of this information in all material respects. The results of any interim
period are not necessarily indicative of the results of operations to be expected for a full fiscal
year.
We have generated no revenues since our inception, and anticipate that no revenues will be
generated for the year ending December 31, 2012. Accordingly, for accounting purposes we are
considered a development stage company.
Use of Estimates
Managements discussion and analysis of our financial condition and results of operations
include the financial statements as of and for the years ended December 31, 2010 and 2009 and as of
and for the nine months ended September 30, 2011 and 2010. The preparation of these financial statements
required management to make estimates, allocations and judgments that affected the reported amounts
of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and
liabilities. On an ongoing basis, management evaluates its estimates, including those related to
impairment of long-lived assets, accrued liabilities and certain expenses. We base our estimates
about the carrying values of assets and liabilities that are not readily apparent from other
sources on historical experience and on other assumptions believed to be reasonable under the
circumstances. Actual results may differ materially from these estimates under different
assumptions or conditions. Additionally, the financial information included here may not
necessarily reflect the financial position, operating results, changes in our invested equity and
cash flows in the future or what they would have been had we been a separate, stand-alone entity
during the periods presented.
Our significant accounting policies are summarized in the footnotes to our financial
statements. We believe the following critical accounting policies involve significant judgments
and estimates used in the preparation of our financial statements.
Research and Development Expenses
Research and development costs are expensed as incurred. Included in research and development
costs are wages, benefits and other operating costs, facilities, supplies, external services and
overhead directly related to our research and development departments as well as costs to acquire
technology licenses.
37
Stock-Based Compensation
The
following stock-based compensation information relates to stock options issued by Galena.
Stock-based compensation expense is allocated to the carved-out financial statements based on an
estimate of time spent by galena employees, board members, scientific advisory board members and
outside consultants on RXi related matters. Galena 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 share-based payment awards made to employees, non-employee directors
and consultants, including employee 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, Galena
recognizes compensation expense in accordance with the requirements of FASB ASC Topic 505-50 (ASC
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 vesting 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 our 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.
With respect to options to acquire its common stock granted by our predecessor, Galena, during
the nine months ended September 30, 2011 and 2010 and
the years ended December 31, 2010 and 2009 and reflected in the financial statements that are
included in this prospectus, the fair value of each option grant is estimated using the
Black-Scholes option-pricing model, with the following weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months ended
September 30, |
|
|
2011 |
|
2010 |
Weighted average risk-free interest rate |
|
|
1.59 |
% |
|
|
3.02 |
% |
Weighted average expected volatility |
|
|
103.27 |
% |
|
|
121.19 |
% |
Weighted average expected lives (years) |
|
|
5.49 |
|
|
|
7.37 |
|
Weighted average expected dividend yield |
|
|
0.00 |
% |
|
|
0.00 |
% |
Galenas expected common stock price volatility assumption was based upon the volatility
of a basket of comparable companies. The expected life assumptions for employee grants were based
upon the simplified method provided for under ASC 718, which averages the contractual term of our
options of ten years with the average vesting term of four years for an average of six years. The
expected life assumptions for non-employees were based upon the contractual term of the option.
The dividend yield assumption of zero was based upon the fact that we have never paid cash
dividends and presently have no intention of paying cash dividends in the future. The risk-free
interest rate used for each grant was also based upon prevailing short-term interest rates.
The financial statements reflect an estimated annualized forfeiture rate of 15.0% for options
granted to employees, and 8.0% for options granted to senior management and no forfeiture rate for
the directors. An additional expense was recorded if the actual forfeitures were lower than
estimated and a recovery of prior expense was recorded if the actual forfeiture rates were higher
than estimated.
Derivative Financial Instruments
During the normal course of business, from time to time, Galena issues warrants and options to
vendors as consideration to perform services. Galena may also issue warrants as part of a debt or
equity financing. The Company does not enter into any derivative contracts for
speculative purposes.
38
We recognize all derivatives as assets or liabilities measured at fair value with changes in
fair value of derivatives reflected as current period income or loss unless the derivatives qualify
for hedge accounting and are accounted for as such. During the period ended September 30, 2011 and the years ended December 31, 2010 and
2009, Galena issued derivatives to purchase 17,950,000, 540,000 and 978,142 shares of its common stock,
respectively, in connection with an equity transaction. In accordance with ASC Topic 815-40, Derivatives and Hedging Contracts in Entitys Own Stock (ASC 815-40), the value of these
derivatives is required to be recorded as a liability, as the holders have an option to put the
derivatives back to Galena in certain events, as defined.
Results of Operations for the Nine Months Ended September 30, 2011 and 2010
For the nine months
ended September 30, 2011, our net loss was approximately $7,766,000 compared
with a net loss of $10,162,000 for the nine months ended September 30, 2010. Reasons for the variations in
the losses between the two periods are discussed below.
Results of Operations for the Years Ended December 31, 2010 and 2009
For the year ended December 31, 2010, our net loss was approximately $11,993,000, compared
with a net loss of $18,387,000 for the year ended December 31, 2009. Reasons for the variations in
the losses between the years are discussed below.
Revenues
Since we are a development-stage biopharmaceutical company, we have not generated any revenues
since inception.
Research and Development Expense (in thousands)
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months |
|
|
|
Ended September 30, |
|
|
|
2011 |
|
|
2010 |
|
Research and development expense |
|
$ |
4,652 |
|
|
$ |
4,589 |
|
Research and development employee stock-based compensation expense |
|
|
471 |
|
|
|
814 |
|
Research and development non-employee stock-based compensation expense |
|
|
(49 |
) |
|
|
723 |
|
|
|
|
|
|
|
|
Total research and development expense |
|
$ |
5,074 |
|
|
$ |
6,126 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended |
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Research and development expense |
|
$ |
6,046 |
|
|
$ |
6,728 |
|
Research and development employee stock-based compensation expense |
|
|
1,084 |
|
|
|
867 |
|
Research and development non-employee stock-based compensation expense |
|
|
743 |
|
|
|
1,297 |
|
|
|
|
|
|
|
|
Total research and development expense |
|
$ |
7,873 |
|
|
$ |
8,892 |
|
|
|
|
|
|
|
|
Research and development expense consists primarily of compensation-related costs for our
employees dedicated to research and development activities and for our Scientific Advisory Board
(SAB)
members as well as licensing fees, patent prosecution costs and the cost of lab supplies used
in our research and development programs. We expect to continue to devote a substantial portion of
our resources to research and development programs. We expect research and development expenses to
increase as we expand our research and development activities.
39
Research and development
expenses were approximately $5,074,000 for the nine months ended September 30, 2011,
compared with $6,126,000 for the nine months ended September 30, 2010. The decrease of
$1,052,000, or 17%, was due primarily to decreases of $772,000 in non-employee non-cash stock based
compensation and $343,000 in employee non-cash stock based compensation, which decreases were
partially offset by an increase of $63,000 in research and development cash expenses associated
with ocular and dermal anti-scarring related studies and reduction-in-force expenses.
Research and development expenses for the year ended December 31, 2010 were approximately
$7,873,000 as compared to $8,892,000 for the year ended December 31, 2009. The decrease of
$1,019,000, or 11%, was primarily due to decreases of $554,000 in non-employee non-cash stock based
compensation and $682,000 in research and development cash expenses related to the timing of
patent applications and prosecution on internal discoveries, which decreases were partially offset
by an increase of $217,000 in costs associated with employee non-cash stock based compensation
primarily related to timing and changes in Galena Black-Scholes assumptions.
Research and Development Non-Employee Stock-Based Compensation Expense
Galena issued options to purchase shares of its common stock as compensation to SAB members
and consultants. For financial statement purposes, these shares were valued at their fair value.
Fluctuations in non-employee stock-based compensation expense results from variations in the number
of common stock options issued, vesting schedules and the Black-Scholes fair values of common stock
options granted to SAB members.
General and Administrative Expense (in thousands)
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended |
|
|
|
September 30, |
|
|
|
2011 |
|
|
2010 |
|
General and administrative expenses |
|
$ |
3,527 |
|
|
$ |
4,228 |
|
Fair value of Parent Company common stock warrants issued for general and
administrative expense |
|
|
91 |
|
|
|
654 |
|
Fair value of Parent Company common stock issued in exchange for general
and administrative expense |
|
|
23 |
|
|
|
|
|
General and
administrative employee stock-based compensation expense |
|
|
1,565 |
|
|
|
1,921 |
|
|
|
|
|
|
|
|
Total general and administrative expense |
|
$ |
5,206 |
|
|
$ |
6,803 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended |
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
General and administrative expenses |
|
$ |
5,493 |
|
|
$ |
5,483 |
|
Fair value of Parent Company common stock warrants issued for general and
administrative expense |
|
|
718 |
|
|
|
826 |
|
Fair value of Parent Company common stock issued in exchange for general
and administrative expense |
|
|
|
|
|
|
281 |
|
General and
administrative employee stock-based compensation expense |
|
|
2,541 |
|
|
|
2,038 |
|
|
|
|
|
|
|
|
Total general and administrative expense |
|
$ |
8,752 |
|
|
$ |
8,628 |
|
|
|
|
|
|
|
|
40
General and administrative expenses include compensation-related costs for our employees
dedicated to general and administrative activities, legal fees, audit and tax fees, consultants and
professional services and general corporate expenses.
General and administrative
expenses were approximately $5,206,000 for the nine months ended
September 30, 2011, compared with $6,803,000 for the nine months ended September 30, 2010. The decrease of
$1,597,000, or 23%, was primarily due to decreases of $563,000 in non-cash stock based compensation
related to business advisory services, $356,000 in employee non-cash stock based compensation and
$701,000 in general and administrative expenses due to severance payments in connection with a
reduction-in-force offset, which decreases were partially offset by a $23,000 increase in non-cash stock
based compensation expense.
General and administrative expenses were $8,752,000 for the year ended December 31, 2010
compared with $8,628,000 for the year ended December 31, 2009. The increase of $124,000, or 1%,
was primarily due to an increase in headcount, including $2,541,000 in non-cash stock based
compensation expense in 2010 compared to $2,038,000 in 2009, which increase was partially offset by
a decrease of $108,000 in stock based compensation related to business advisory services, as well
as the expensing in 2009 of shares related to a standby equity distribution agreement.
Interest Income (Expense)
Interest income
(expense) was negligible for both the nine months ended September 30, 2011 and September
30, 2010 and the years ended December 31, 2010 and December 31, 2009. The key objectives of our
investment policy are to preserve principal and ensure sufficient liquidity, so our invested cash
may not earn as high a level of income as longer-term or higher risk securities, which generally
have less liquidity and more volatility. The interest rates available on lower risk, shorter-term
investments in todays market are lower than rates available in the prior period.
Other Income (expense)
Other income (expense) is summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended |
|
|
|
September 30, |
|
|
|
2011 |
|
|
2010 |
|
Change in fair value of derivatives issued |
|
$ |
2,513 |
|
|
$ |
2,762 |
|
|
|
|
|
|
|
|
Other income (expense), net |
|
$ |
2,513 |
|
|
$ |
2,762 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended |
|
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Change in fair value of derivatives issued |
|
$ |
3,049 |
|
|
$ |
(858 |
) |
Reduction of potential redemption liability |
|
|
785 |
|
|
|
|
|
Other income |
|
|
793 |
|
|
|
(4 |
) |
|
|
|
|
|
|
|
Other income (expense), net |
|
$ |
4,627 |
|
|
$ |
(862 |
) |
|
|
|
|
|
|
|
Other income
(expense) for the nine months ended September 30, 2011 was approximately
$2,513,000, which was attributable to a non-cash gain from a change in the fair value of the
derivatives issued in connection with several transactions in 2009, 2010 and 2011. Other income and
expense for the nine months ended September 30, 2010 includes $2,762,000 in non-cash income related to a gain
on the change in the fair value of derivatives issued in connection with several transactions in 2009 and 2010.
41
Other income
(expense) was $4,627,000 and $(862,000) for the years ended December 31, 2010 and
2009, respectively. The overall increase of $5,489,000, or 637%, was due to an increase of
$3,907,000 attributable to the change in fair value of derivatives issued, the reduction of
potential redemption liability of $785,000 and an increase of $797,000 of other income,
representing primarily an increase in grant income.
Income Taxes
There was no income tax
expense for the nine months ended September 30, 2011 and September 30, 2010 and
the years ended December 31, 2010 and 2009 due to the fact that we have incurred significant tax
losses since we began operations. A tax benefit would have been recorded for losses however, due to
the uncertainty of realizing these assets, a valuation allowance was recognized which fully offset
the deferred income tax assets.
Liquidity
and Capital Resources
Overview
We had cash and cash
equivalents of approximately $6.9 million as of December 31, 2010, $0.4 million as of September 30, 2011 and
$1.4 million as of November 30, 2011. Our cash and cash equivalents
as of November 30, 2011 included the remaining
proceeds of the $1,500,000 capital contribution to us by Galena and of the initial $500,000 of bridge loans
provided by TCP and RTW.
We have not generated revenue to date and may not generate product revenue in the foreseeable
future, if ever. We expect to incur significant operating losses as we advance our product
candidates through the drug development and regulatory process. We will need to generate
significant revenues to achieve profitability and might never do so. In the absence of product
revenues, our potential sources of operational funding are expected to be the proceeds from the
sale of equity, funded research and development payments and payments received under partnership
and collaborative agreements.
The
newly formed RXi was incorporated on September 8, 2011 with the
issuance of 100 initial shares at a price $0.01 per share for a total
consideration of $1.00. On September 24, 2011, RXi entered into a contribution agreement with Galena pursuant to which, among other
things, Galena assigned and contributed to RXi all of its RNAi-related technologies and assets.
Also on this date, derivative
liabilities amounting to $9,249,000 related to warrants exercisable for Galena common
stock were reclassified to divisional deficit, as RXi was released of
any obligation to settle these liabilities upon the signing of this
agreement. Contemporaneously, the divisional deficit was eliminated in a
recapitalization to reflect the capital structure of the newly formed
RXi entity.
On September 24, 2011, we entered into a securities purchase agreement pursuant to which TCP
and RTW agreed to purchase a total of $9,500,000 of our Series A Preferred Stock at the closing of
our spin-off from Galena and to lend to us up to $1,500,000 to fund our operations between
September 24, 2011 and the closing of the spin-off transaction, with the outstanding principal and
accrued interest from the loans to be converted into shares of our preferred stock at the closing.
As of November 30, 2011, TCP and RTW have advanced $500,000 to RXi under this bridge loan
arrangement. We believe that the cash to be received under the securities purchase agreement should be
sufficient to fund our operations through December 31, 2012. In the future, we will be dependent
on obtaining funding from third parties, such as proceeds from the sale of equity, funded research
and development programs and payments under partnership and collaborative 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.
Net Cash Flow from Operating Activities
Net cash used in operating
activities was approximately $7,179,000 for the nine months ended
September 30, 2011, compared with $8,388,000 for the nine months ended September 30, 2010. The decrease of
approximately $1,209,000 resulted primarily from a net loss of $7,766,000, of which $1,987,000
related to stock-based compensation, $124,000 related to depreciation, $900,000 related to the loss
on exchange of equity instruments,
$3,413,000 that reflects derivatives issued in financings completed by Galena in 2009, 2010
and 2011 and $875,000 related to changes in current assets and liabilities.
Net cash used in operating activities was approximately $10,257,000 for the year ended
December 31, 2010 compared with $11,769,000 net cash used in operating activities for the year
ended December 31, 2009.
42
The decrease of approximately $1,512,000 resulted primarily from a net loss of $11,993,000,
less the add back of non-cash items of $1,424,000, of which $4,368,000 related to stock-based
compensation, $718,000 related to stock based compensation expense in exchange for services,
$785,000 related to a reduction of potential redemption liability, $172,000 related to depreciation
and $312,000 related to changes in current assets and liabilities and $3,049,000 that reflects the
fair value of derivatives issued with the registered direct financings completed by Galena in 2009
and 2010.
Net Cash Flow from Investing Activities
Net cash used in investing
activities was approximately $53,000 for the nine months ended September 30, 2011,
compared with $6,055,000 for the nine months ended September 30, 2010. The decrease was due to
$53,000 in purchases of equipment and furnishings in 2011 compared
with $5,990,000 in short-term investments and $65,000 in purchases of equipment and furnishing for the same period in 2010.
Net cash used in investing activities was approximately $106,000 for the year ended December
31, 2010, compared with net cash used in investing activities of $83,000 for the year ended
December 31, 2009. The increase of approximately $23,000 in cash used in investing activities was
primarily due to purchases of equipment and furnishings in 2010.
Net Cash Flow from Financing Activities
Net cash provided by
financing activities was $763,000 for the nine months ended September 30, 2011,
compared with net cash provided by financing activities of $11,595,000 for the nine months ended
September 30, 2010. The decrease was primarily due to net cash distributions to Galena in the amount of
$369,000 and proceeds of $500,000 from a convertible note in 2011 compared with net cash contributions from Galena of $11,640,000 in 2010.
Net cash provided by financing activities was $11,570,000 for the year ended December 31,
2010, compared with $7,680,000 for the year ended December 31, 2009. This increase was primarily
due to net cash contributions from Galena of $11,640,000 in 2010 compared to $7,714,000 in 2009.
Recently Issued Accounting Standards
Effective January 1, 2010, the Company adopted Accounting Standards Update (ASU) No.
2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair
Value Measurements, or ASU 2010-06. A reporting entity should provide additional disclosures about
the different classes of assets and liabilities measured at fair value, the valuation techniques
and inputs used, the activity in Level 3 fair value measurements, and the transfers between Levels
1, 2, and 3 fair value measurements. The adoption of the additional disclosures for Level 1 and
Level 2 fair value measurements did not have an impact on the Companys financial position, results
of operations or cash flows. The disclosures regarding Level 3 fair value measurements were adopted
by the Company January 1, 2011 and did not have an impact on the Companys financial position,
results of operations or cash flows or require additional disclosures.
Effective January 1, 2010, the Company adopted ASU No. 2009-17, Consolidations (Topic 810):
Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities, or ASU
2009-17. The amendments in this update replace the quantitative-based risks and rewards calculation
for determining which reporting entity, if any, has a controlling financial interest in a variable
interest entity with an approach focused on identifying which reporting entity has the power to
direct the activities of a variable interest entity that most significantly impact the entitys
economic performance and (1) the obligation to absorb losses of the entity or (2) the right to
receive benefits from the entity. An approach that is expected to be primarily qualitative will be
more effective for identifying which reporting entity has a controlling financial interest in a
variable interest entity. The amendments in this update also require additional disclosures about a reporting entitys involvement in
43
variable interest
entities, which will enhance the information provided to users of financial statements. The Company
evaluated its business relationships to identify potential variable interest entities and has
concluded that consolidation of such entities is not required for the periods presented. On a
quarterly basis, the Company will continue to reassess its involvement with variable interest
entities.
In December 2010, the FASB issued ASC Update 2010-29, Business Combinations (Topic 805) -
Disclosure of Supplementary Pro Forma Information for Business Combinations (Update No. 2010-29).
This update requires a public entity to disclose pro forma information for business combinations
that occurred in the current reporting period. The disclosures include pro forma revenue and
earnings of the combined entity for the current reporting period as though the acquisition date for
all business combinations that occurred during the year had been as of the beginning of the annual
reporting period. If comparative financial statements are presented, the pro forma revenue and
earnings of the combined entity for the comparable prior reporting period should be reported as
though the acquisition date for all business combinations that occurred during the current year had
been as of the beginning of the comparable prior annual reporting period. This update affects any
public entity that enters into business combinations that are material on an individual or
aggregate basis and is effective prospectively for business combinations for which the acquisition
date is on or after the beginning of the first annual reporting period beginning on or after
December 15, 2010. The Company adopted update No. 2010-29 beginning January 1, 2011. The Company
does not expect this standard will have a material impact on its financial statements.
In May 2011, the
FASB issued a new accounting
standard that clarifies the application of certain existing fair value measurement guidance and
expands the disclosures for fair value measurements that are estimated using significant
unobservable (Level 3) inputs. This new standard is effective on a prospective basis for annual and
interim reporting periods beginning on or after December 15, 2011. The Company does not expect that
adoption of this new standard will have a material impact on its financial statements.
44
In February 2010, the FASB issued ASC Update No. 2010-09, Subsequent Events (Topic
855) Amendments to Certain Recognition and Disclosure Requirements (Update No. 2010-09).
This update requires SEC registrants to evaluate subsequent events through the date that
the financial statements are issued and removes the requirement to disclose the date
through which management evaluated subsequent events. This guidance was effective
immediately upon issuance.
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 and have not accrued any liabilities
related to such obligations in our financial statements. See Note 7 to our audited financial
statements included in this prospectus for further discussion of these indemnification agreements.
45
BUSINESS
Overview
We are a biotechnology company focused on discovering, developing and commercializing
innovative therapies addressing major unmet medical needs using RNAi-targeted technologies. We are
pursuing proprietary therapeutics based on RNA interference (RNAi), which is a naturally
occurring cellular mechanism that has the potential to effectively and selectively interfere with,
or silence, expression of targeted disease-associated genes. Our principal executive offices are
located at 60 Prescott Street, Worcester, Massachusetts 01605, and our telephone number is (508)
767-3861. Prior to September 24, 2011, our business was operated as an unincorporated division within Galena. We were incorporated in Delaware as a wholly owned subsidiary of Galena on September 8, 2011.
Certain human diseases
result from overexpression of one or more genes. We believe that these types of human
diseases can potentially be treated by silencing (reducing) the overexpressed genes. While no therapeutic RNAi
products have been approved by the Food and Drug Administration
(FDA) to date, there has been significant interest in the field of RNAi therapeutic
development. This interest is driven by the potential ability to
exploit the RNAi mechanism to develop lead compounds that specifically
and selectively reduce single target genes, many of which are thought to be incapable of being inhibited by other
modalities. We are currently focusing our internal therapeutic
development efforts in fibrosis. We have demonstrated that treatment with RXI-109, our first
RNAi product candidate, can significantly reduce CTGF (connective tissue
growth factor) in vivo in rodent skin models, and we believe that RXI-109 may inhibit CTGF
in human fibrotic disease. RXI-109 is initially being developed as a dermal anti-scarring therapy. The
highlights of our RXI-109 development program are the following:
|
|
|
We are currently working towards filing an investigational
new drug application (IND) for RXI-109 and initiating a Phase I/II clinical trial in 2012. |
|
|
|
As reported in Cytokine & Growth Factor Reviews (2008) and
other publications, CTGF overexpression is implicated in scarring and fibrotic diseases.
Data obtained from studies of RXI-109 in preclinical models
using direct local administration to the skin demonstrate robust cellular delivery and statistically significant,
dose-dependent silencing of CTGF that lasts for at least one week with a single injection. |
|
|
|
We believe that the potential commercial market for an effective dermal anti-scarring therapy is significant.
According to data available publicly on the Center for Disease Controls (CDC) website at www.CDC.gov,
approximately 42 million surgical procedures are performed annually, with many patients experiencing
hypertrophic scarring and keloids. |
|
|
|
Because abnormal overexpression of CTGF is implicated in dermal scarring and fibrotic disease,
we believe that RXI-109, or other CTGF-targeting compounds that reduce CTGF or block its action, may be
able to treat many other indications where fibrosis is a factor. These include pulmonary, liver, and renal
fibrotic diseases, as well as ocular scarring, acute spinal injury (where scarring impedes regeneration) and
restenosis (a complication arising from vessel damage following stent placement). If clinical studies of RXI-109
produce successful results in dermal anti-scarring, we may explore opportunities in these indications as well as
other dermatology applications. |
We intend to maintain our core RNAi discovery and development capability and to develop products both on our own and
through collaborations. By utilizing our expertise in RNAi and the comprehensive RNAi platform that we have established,
we believe we will be able to discover and develop lead compounds and progress them into and through clinical development
for potential commercialization. Our proprietary therapeutic platform is comprised of two main components:
|
|
|
Novel RNAi Compounds, referred to as rxRNA® compounds, that are distinct from,
and we believe convey significant
advantages over, classic siRNA (conventionally-designed small interfering RNA compounds), and offer many of the
properties that we believe are important to the clinical development of RNAi-based drugs. We have developed a number
of unique forms of rxRNA compounds, all of which have been shown to
be highly potent both in vitro and in preclinical
in vivo models. These RNAi compounds include
rxRNAori®,
rxRNAsolo® and sd-rxRNA®, or self-delivering RNA. Based
on our research, we believe that these different, novel siRNA configurations have various potential advantages for
therapeutic use. These potential advantages include high potency, increased resistance to nucleases and off-target
effects, and, in the case of the sd-rxRNA compounds, access to cells and tissues with no additional formulation
required. |
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Advanced Delivery Technologies that enable the delivery of our rxRNA® compounds to potentially treat a
variety of acute and chronic diseases using both local and systemic approaches, potentially providing a competitive
advantage in the development of many RNAi therapeutic compounds. Our suite of delivery technologies is comprised of
delivery vehicles, which can be combined with various rxRNA® compounds, as well as
sd-rxRNA® compounds, which are
chemically modified and have the unique property of entering cells and tissues to effect silencing without the need
for any additional delivery vehicle. This suite of delivery technologies has broad applications for multiple therapeutic
areas targeting both local and systemic applications for the delivery of the RNAi drug. |
According
to a recent review of Current prospects for RNA interference-based therapeutics published in Nature Reviews Genetics in
2011 and other sources (clinicaltrials.gov), many human diseases, including TTR Amyloidosis, Hepatocelular Carcinoma, Hypercholesterolaemia, Fibrosis and
Age Related macular degeneration, in which the over-expression of a
particular gene is known to be a contributing factor, might be targeted using RNAi-based therapeutics.
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Recent Business Developments
During 2011, we announced several important developments that are outlined below.
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In November 2010, we announced that the United States Internal Revenue Service awarded us four Therapeutic Discovery
Project, or TDP, grants totaling $977,917 as part of the Patient Protection and Affordable Care Act of 2010. The TDP grants
were awarded in four equal amounts for developing: (1) sd-rxRNAi®
therapeutics for fibrotic disease; (2) sd-rxRNAi®
therapeutics for age-related macular degeneration; (3) sd-rxRNAi® therapeutics for ALS (Lou Gehrigs disease); and (4)
glucan-encapsulated siRNAs that can be delivered orally for rheumatoid arthritis. |
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In January 2011, we announced positive research results in collaboration with Generex Biotechnology
Corporation, and its wholly owned subsidiary Antigen Express, Inc., in developing proprietary vaccine formulations
for active immunotherapy. Initial results demonstrated success in
using sd-rxRNA® compounds to silence genes up to
80% in hematopoietic cells. The ability to reduce expression of certain genes in isolated hematopoietic-derived cancer
cells (ex vivo) has the potential to convert them into specific immune-stimulants. |
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In January 2011, we announced positive initial results as part of our collaboration with miRagen Therapeutics,
Inc. in creating microRNA mimics, or artificial copies of microRNAs, using our sd-rxRNA®
technology. In particular, the collaboration demonstrated efficient down-regulation of a reporter
gene (in vitro) whose expression is controlled
by the microRNA in cell culture model systems develop by miRagen. Increasing the level of particular microRNAs by using
therapeutic mimics may treat certain diseases, including cardiovascular, cancer, and inflammatory, fibrotic and metabolic
disorders. |
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In February 2011, we announced the initiation of our development program for RXI-109. IND-enabling toxicology
studies of RXI-109 are currently underway and the manufacturing of the clinical drug supply is ongoing. We are on track
for an IND submission and a Phase I/II trial in 2012. |
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In March 2011, we announced new preclinical data using our proprietary sd-rxRNA®
compounds, including RXI-109.
We announced preclinical in vivo data showing robust, dose dependent, long-lasting,
target-specific silencing data with
an sd-rxRNA® compound targeting CTGF.
Included in these new data were our preclinical results using intradermal injection
of CTGF targeting sd-rxRNAs® that showed strong silencing for more than a week, as well as downstream effects related to
abrogation of scar formation. |
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In April 2011, we announced that the National Institutes of Health (NIH) awarded us two Small Business
Innovation Research grants totaling approximately $580,000. The first grant was in the amount of $304,559 to provide
funding for an ongoing collaboration between us and Robert Brown, M.D., D.Phil., Chair of the Department of Neurology
at UMASS, which is focused on the preclinical development of novel RNAi therapeutics for ALS and other neurodegenerative
disorders. The second grant was in the amount of $273,824 to provide funding for a project seeking to improve the delivery
of RNAi therapeutics through medicinal chemistry. |
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In April 2011, we announced that our collaborative project on development of an sd-rxRNA® based ALS therapeutic
with Dr. Brown was selected to receive $500,000 of additional funding from Massachusetts Life Sciences Center Cooperative
Research Grant. |
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In September 2011, we announced new preclinical data using our proprietary sd-rxRNA®
compounds, including RXI-109,
at the 7th Annual Meeting of the Oligonucleotide Therapeutics Society. The data included preclinical efficacy data of
RXI-109 demonstrating robust, dose dependent, long-lasting, target-specific silencing of CTGF in skin, which in turn,
impacted myofibroblast differentiation and collagen deposition, key markers of the fibrosis process. In addition,
intraocular efficacy and safety data were presented along with preliminary data clarifying the mechanism of cellular
uptake of sd-rxRNA® compounds in cultured cells. |
Financial Condition
We have not generated revenue to date and may not generate product revenue in the
foreseeable future, if ever. We expect to incur significant operating losses as we advance our
product candidates through
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the drug development and regulatory process. We will need to generate significant revenues to
achieve profitability and might never do so. In the absence of product revenues, our potential
sources of operational funding are expected to be the proceeds from the sale of equity, funded
research and development payments and payments received under partnership and collaborative
agreements.
In the future, we will be dependent on obtaining funding from third parties, such as proceeds
from the sale of equity, funded research and development programs and payments under partnership
and collaborative 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.
As described in the Certain Relationships and Related Party Transactions section of this
prospectus, on September 24, 2011, we entered into a securities purchase agreement pursuant to
which TCP and RTW agreed to purchase a total of $9,500,000 of our Series A Preferred Stock at the
closing of our spin-off from Galena and to lend up to $1,500,000 to us to fund our operations
between September 24, 2011 and the closing of the spin-off transaction, with the outstanding
principal and accrued interest from the loans to be converted into shares of our preferred stock at
the closing. Such conversion will be applied to the $9,500,000 total investment by TCP and RTW.
Introduction to the Field of RNAi Therapeutics
RNAi is a naturally occurring phenomenon where short double-stranded RNA molecules
interfere with the expression of targeted genes. RNAi technology takes advantage of this
phenomenon and potentially allows us to effectively interfere with particular genes within living
cells by designing RNA-derived molecules targeting those genes. RNAi is regarded as a significant
advancement in the scientific community, as evidenced by the journal Sciences selection of RNAi
as the Breakthrough of the Year in 2002 and by the awarding of the 2006 Nobel Prize in Medicine
to the co-discoverers of RNAi, including Dr. Craig Mello, a founder of Galena.
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RNAi offers a novel approach to the drug development process because, as described below under
The RNAi Mechanism, RNAi compounds can potentially be designed to target any one of the thousands
of human genes, many of which are undruggable by other modalities. In contrast, an article
published in the December 2005 edition of Drug Discovery Today, by Andreas P. Russ and Stefan Lampel,
has demonstrated that only a subset of the proteins encoded in the human genetic code (human
genome) are able to be targeted efficiently by traditional medicinal chemistry or antibody-based
approaches. The specificity of RNAi is achieved by an intrinsic well-understood
biological mechanism based on designing the sequence of an RNAi compound to match the sequence of
the targeted gene. According to studies cited in Nature Review
of Drug Discovery, the
specificity of RNAi may be sufficient to permit therapeutic targeting of
only a single gene, and may even selectively reduce or eliminate expression from a
single abnormal copy of a gene while preserving expression from a normal copy (allele-specific
targeting). This is critical in diseases such as cancer and neurodegenerative disorders that are
often caused by abnormal copies of genes. In one study cited, for example, an siRNA was introduced into the cell
and the specificity of silencing was evaluated using microarray analysis. According to the article, each siRNA
silenced the intended target to the highest extent guided by sequence homology.
The RNAi Mechanism
The genome is made of a double-strand of DNA (the double helix) that acts as an
instruction manual for the production of the roughly 30,000 to 50,000 human proteins. Proteins are
important molecules that allow cells and organisms to live and function. With rare exceptions,
each cell in the human body has the entire complement of genes. However, only a subset of these
genes directs the production of proteins in any particular cell type. For example, a muscle cell
produces muscle-specific protein, whereas a skin cell does not.
In order for a gene to guide the production of a protein, it must first be copied into a
single-stranded chemical messenger (messenger RNA or mRNA), which is then translated into protein.
RNAi
is a naturally occurring process by which a particular messenger RNA can be
destroyed before it is translated into protein. The process of RNAi can be artificially induced by
introducing a small double-stranded fragment of RNA corresponding to a particular messenger RNA
into a cell. A protein complex within the cell called RISC (RNA-Induced Silencing Complex)
recognizes this double-stranded RNA fragment and splits the double-strands apart, retaining one
strand in the RISC complex. The RISC then helps this guide strand of RNA bind to and destroy its
corresponding cellular messenger RNA target. Thus, RNAi provides a method to potentially block the
creation of the proteins that cause disease.
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Since gene expression controls most cellular processes, the ability to inhibit gene expression
provides a potentially powerful tool to treat human diseases. Furthermore, since the human genome
has already been decoded, and based on numerous gene-silencing reports, we believe that RNAi
compounds can readily be designed to interfere with the expression of any specific gene. Based on
our internal research and our review of certain scientific literature, we also believe that our RNAi
platform may allow us to develop create therapeutics with significant potential advantages over
traditional drug development methods, including:
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High specificity for targeted genes; |
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High potency (low doses); |
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Ability to interfere with the expression of potentially any gene; |
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Accelerated generation of lead compounds; and |
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Low toxicity, natural mechanism of action. |
RXis RNAi Therapeutic Platform
RNAi Compound Design
RNAi compounds are made from a strand or strands of RNA that are manufactured by a nucleic
acid synthesizer. The synthesizer is programmed to assemble a strand of RNA of a particular
sequence using the four kinds of nucleotide units (Adenine (A), Uracil (U), Cytidine (C) and
Guanosine (G)) that match a small segment of the targeted gene. The hallmark of an RNAi compound
is that it has a double stranded region. The compounds can be of various lengths of nucleotide
units (nt). The two strands can have overhangs, or they can have blunt ends. A single strand can form an RNAi compound by forming a structure referred
to as a hairpin.
The length and shape of the compound can affect the activity and hence the potency of the RNAi
in cells. The first design of RNAi compounds to be pursued for development as a human therapeutic
was a short double-stranded RNA that included at least one overhanging single-stranded region,
known as small interfering RNA, or siRNA, which we also refer to as classic siRNA.
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In the case of classic siRNA, double-stranded RNA with single-stranded overhangs is used. We believe that classic siRNAs have drawbacks that may limit the usefulness of those agents as
human therapeutics, and that we may be able to utilize the technologies we have licensed and
developed internally to optimize RNAi compounds for use as human therapeutic agents. It is the
combination of the length, the nucleotide sequence and the configuration of chemical modifications
that are important for effective RNAi therapeutics.
Our internal research leads us to believe that next generation rxRNA compounds offer
significant advantages over classic siRNA used by other companies developing RNAi therapeutics,
highlighted by the following characteristics:
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Up to 100 times more active than classic siRNA; |
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More resistant to nuclease degradation; |
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Potentially more specific for the target gene; |
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More reliable at blocking immune side effects than classic siRNA; and |
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In the case of sd-rxRNA, the unique ability to be self-delivering, without the
need for any additional delivery vehicle. |
Based on our own research, we have developed a variety of novel siRNA configurations with
potential advantages for therapeutic use. The first of these has been termed rxRNA ori . This
configuration has some similarities to classic siRNA in that it is composed of two, short RNA
strands. We have found that by using a somewhat longer length (25-29 bp), removing the overhangs
and using proprietary chemical modification patterns we achieve a higher hit rate of very potent
(picomolar potency) compounds in a given target sequence. These rxRNA ori compounds are modified
to increase resistance to nucleases and to prevent off-target effects including induction of an
immune response. These novel RNAi compounds are distinct from the siRNA compounds used by many
other companies developing RNAi therapeutics in that they are designed specifically for therapeutic
use and offer many of the properties that we believe are important to the clinical development of
RNAi-based drugs.
The second novel configuration has been called sd-rxRNA to indicate its
novel self-delivering properties which do not require additional delivery vehicles for efficient
cellular uptake and RISC-mediated silencing. A combination of at least three characteristics is
required for activity: (1) specific, proprietary chemical modifications; (2) a precise number of
chemical modifications; and (3) reduction in oligonucleotide content. Kineteic analyses of
fluorescently-labeled compounds demonstrate that efficient cellular internalization is observed
within minutes of exposure. These molecules are taken up efficiently and cause target gene
silencing in diverse cell types (cell lines and primary cells). This novel class of RNAi compounds
may afford a broad opportunity for therapeutic development.
We
believe that both chemical modification and formulation of RNAi compounds may be utilized to
develop RNA drugs suitable for therapeutic use. The route by which an RNAi therapeutic is brought into contact with the body depends on the
intended organ or tissue to be treated. Delivery routes can be simplified into two major
categories: (1) local (when a drug is delivered directly to the tissue of interest); and (2)
systemic (when a drug accesses the tissue of interest through the circulatory system). Local
delivery may avoid some hurdles associated with systemic approaches such as circulation clearance
and tissue extravasation (crossing the endothelial barrier from the
blood stream). However, the local
delivery
approach can only be applied to a limited number of organs or tissues (e.g., skin, eye, lung and
potentially the central nervous system).
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The key to therapeutic success with RNAi lies in delivering intact RNAi compounds to the
target tissue and the interior of the target cells. To accomplish this, we have developed a
comprehensive platform that includes local, systemic and oral delivery approaches. We work with
chemically synthesized RNAi compounds that are optimized for stability and efficacy and combine
delivery at the site of action and formulation with delivery agents to achieve optimal delivery to
specific target tissues.
Local Delivery
sd-rxRNA®
molecules have unique properties which improve tissue and cell uptake. Delivery of
sd-rxRNA® by a local route of
administration may avoid hurdles associated with systemic approaches
such as rapid clearance from the bloodstream and inefficient extravasation (e.g., crossing the
endothelial barrier from the blood stream). We have studied sd-rxRNA® molecules in a rat model of
dermal delivery. Direct application of sd-rxRNA® with no additional delivery vehicle to the skin
(incision introduced) demonstrates that target gene silencing can be measured after topical
delivery. The dose levels required for these direct injection methods are small and suitable
for clinical development suggesting that local delivery indications will be very accessible with
the sd-rxRNA® technology platform. Target tissues that are potentially accessible for local
delivery using sd-rxRNA® compounds include lung, eye, skin, CNS, mucosal tissues, sites of
inflammation and tumors (direct administration).
Systemic Delivery
Systemic delivery occurs when a drug accesses the tissue of interest through the circulatory
system. In some cases, such as in targeting a treatment to the liver, the optimal route of
delivery may be by a systemic route. We have developed a portfolio of systemic delivery solutions
utilizing our RNAi therapeutic platforms. One novel approach involves the use of sd-rxRNA®
compounds. The self-delivering technology introduces properties required for in vivo efficacy such
as cell and tissue penetration and improved blood clearance and distribution properties. Systemic
delivery of these compounds to mice has resulted in gene specific inhibition with no additional
delivery vehicle required. In addition, we have developed novel
nanotransporter formulations to aid in transport of RNAi compounds to both liver and various other
target tissues in the body. These nanotransporters are chemically synthesized molecules that form
nanometer-sized particles when mixed with RNAi compounds and alter the clearance, distribution and
tissue penetration properties of the RNAi compounds. Delivery of RNAi compounds to the liver might
be critical for the treatment of many diseases and using rxRNA® in conjunction with such delivery
vehicles has enabled us to demonstrate gene specific inhibition at low doses in a mouse model after
intravenous, systemic delivery. Target tissues that are potentially accessible using rxRNA®
compounds by systemic delivery include liver, lung, adipocytes, cardiomyocytes, bone marrow, sites
of inflammation, tumors, vascular endothelium and kidney.
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Oral Delivery
Most RNAi therapeutic products being developed today require recurring intravenous injections
or other forms of administration which are not patient friendly. To address the desire for RNAi
therapeutics with improved modes of administration, we are testing a novel formulation technology,
Glucan-Encapsulated RNAi Particles (GeRPs) that may allow our rxRNA® compounds to be incorporated
into orally administered pills. Early data to date suggest that the GeRP delivery system appears
to be more potent than previous methods used for systemic delivery of RNAi therapeutics by
intravenous injection. Additional studies will need to be conducted to clearly establish the
flexibility of the GeRP system and to determine whether they can either be used to administer a
single RNAi compound, multiple RNAi compounds, or could potentially allow co-delivery of RNAi, DNA,
protein and small molecule combinations.
Alliance Partners in Therapeutic Areas
We are actively seeking to leverage our technology platforms by seeking to work with
pharmaceutical and biotechnology partners in the partners fields of interest. Our team has
experience targeting genes in virtually every major therapeutic area, and based on this experience,
we believe we can discover many more drug candidates by working with partners than we can develop
with our own resources. We are seeking to work with partners in the discovery and development of
drugs in a number of therapeutic areas.
Intellectual Property
We actively seek protection for our proprietary information by means of United States and
foreign patents, trademarks and copyrights. In addition, we rely upon trade secret protection and
contractual arrangements to protect certain of our proprietary information and products. We have
pending patent applications that relate to potential drug targets, compounds we are developing to
modulate those targets
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(described throughout herein as rxRNA), methods of making or using those compounds and proprietary
elements of our drug discovery platform.
Much of our technology and many of our processes depend upon the knowledge, experience and
skills of key scientific and technical personnel. To protect our rights to our proprietary
know-how and technology, we require all employees, as well as our consultants and advisors when
feasible, to enter into confidentiality agreements that require disclosure and assignment to us of
ideas, developments, discoveries and inventions made by these employees, consultants and advisors
in the course of their service to us.
We have also obtained rights to various patents and patent applications under licenses with
third parties, which require us to pay royalties or milestone
payments, or both. The degree of patent
protection for biotechnology products and processes, including ours, remains uncertain, both in the
United States and in other important markets, because the scope of protection depends on decisions
of patent offices, courts and lawmakers in these countries. There is no certainty that our existing
patents or others, if obtained, will afford us substantial protection or commercial benefit.
Similarly, there is no assurance that our pending patent applications or patent applications
licensed from third parties will ultimately be granted as patents or that those patents that have
been issued or are issued in the future will stand if they are challenged in court. We assess our
license agreements on an ongoing basis, and may from time to time terminate licenses to technology
that we do not intend to employ in our immunotherapy or RNAi technology platforms, or in our
product discovery or development activities.
Patents and Patent Applications
We are actively prosecuting 13 patent families, including four pending PCT patent applications and
nine patent families that have entered national stage. The nine patent families that have entered national stage
include ten (including one continuation-in-part application) United States, four Canadian, two Chinese, four
European, and five Japanese pending patent applications. Our portfolio does not include any issued patents.
The patent applications encompass what we
believe to be important new compounds and their use as therapeutics in RNAi, chemical modifications
of RNAi compounds that improve the compounds suitability for therapeutic uses (including
delivery) and compounds directed to specific targets (i.e., that address specific disease states).
Any patents that may issue from these pending patent applications will be set to expire between
2028 and 2031, not including any patent term extensions that may be afforded under the Federal
Food, Drug and Cosmetic Act (and the equivalent provisions in foreign jurisdictions) for any delays
incurred during the regulatory approval process relating to human drug products (or processes for
making or using human drug products).
License Agreements
We have secured exclusive and non-exclusive rights to develop RNAi therapeutics by licensing
key RNAi technologies and patent rights from third parties. These rights relate to chemistry and
configuration of RNAi compounds, delivery technologies of RNAi compounds to cells and therapeutic
targets. As we continue to develop our own proprietary compounds, we continue to evaluate both our
in-licensed portfolio as well as the field for new technologies that could be in-licensed to
further enhance our intellectual property portfolio and unique position in the RNAi space.
University of Massachusetts Medical School. We
hold a non-exclusive license from the University of Massachusetts Medical School (UMMS). This license grants to us rights under certain
UMMS patent applications to make, use and sell products related to applications of RNAi technologies in particular fields, including HCMV
and retinitis, amyotrophic lateral sclerosis, known as ALS or Lou Gehrigs Disease, diabetes and obesity. Throughout the term of the
license, we must pay UMMS an annual maintenance fee of $15,000. We also will be required to pay to UMMS customary royalties of up to 10%
of (i) any future net sales of licensed products, (ii) income received from any sublicensees under this license, and (iii) net sales of commercial
clinical laboratory services, subject to a minimum royalty of $50,000 beginning in 2016. We also agreed to pay expenses incurred by UMMS
in prosecuting and maintaining the licensed patents.
The UMMS license was effective on
April 15, 2003 and will remain in effect until: (i) the expiration of all issued patents within the
patent rights (as defined); or (ii) for a period of ten years after the effective date if no such patents have issued
within the ten-year period, unless earlier terminated in accordance with the provisions of the license. In the
event that either party commits a material breach of its obligations under the UMMS license and fails to cure that breach
within 60 days after receiving written notice thereof, the other party may terminate the UMMS license immediately upon
written notice to the party in breach.
The UMMS license may be amended, supplemented, or otherwise
modified only by signed written agreement of the parties.
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Other Technology Agreements
Dharmacon. We have entered into a license
agreement with Dharmacon, Inc. (now part of Thermo Fisher Scientific Inc.), pursuant to which we obtained an exclusive license to certain
RNAi sequences to a number of target genes for the development of our rxRNA® compounds. Furthermore, we hold the right to license additional
RNAi sequences, under the same terms, disclosed by Thermo Fisher Scientific Inc. in its pending patent applications against target genes
and have received an option for exclusivity for other siRNA configurations. As partial consideration for this license, we have agreed to
pay future clinical milestone payments in an aggregate amount of up to $2,000,000 and royalty payments of either 0.25% or 0.5% based on
the level of any future sales of siRNA compositions developed in connection with the licensed technology.
The Dharmacon license will
remain in effect for the duration of any patents issued with respect to the technologies covered by such agreement,
unless otherwise terminated earlier by us.
The Dharmacon license may be
amended, supplemented or otherwise modified only by signed written agreement of the parties.
Advirna. We have entered into agreements with Advirna pursuant to which Advirna assigned to
us its existing patent and technology rights related to sd-rxRNA® technology in exchange for our
agreement to pay Advirna an annual $100,000 maintenance fee and a one-time milestone payment of
$350,000 upon the issuance of the first patent with valid claims covering the assigned technology.
Additionally, we will be required to pay a 1% royalty to Advirna for any licensing revenue received
by us with respect to future licensing of the assigned Advirna patent and technology rights. We
also agreed to grant back to Advirna a license under the assigned patent and technology rights for
fields of use outside human therapeutics and diagnostics and to issue to Advirna, upon the
completion of the spin-off transaction,
shares of
common stock equal to approximately 5% of our
outstanding common stock on a fully diluted basis assuming the conversion of all outstanding Series
A Preferred Stock.
Our rights under the Advirna
agreement will expire upon the later of: (i) the expiration of the last-to-expire of the patent rights
(as defined) included in the Advirna agreement; or (ii) the abandonment of the last-to-be abandoned of such patents,
unless earlier terminated in accordance with the provisions of the agreement.
We may terminate the Advirna
agreement at any time upon 90 days written notice in advance to Advirna, and Advirna may terminate the agreement upon
90 days prior written notice in the event that we cease using commercially reasonable efforts to research, develop,
license or otherwise commercialize the patent rights or royalty-bearing products (as defined),
provided that we may refute such claim within such 90-day period by showing budgeted expenditures for the research,
development, licensing or other commercialization consistent with other technologies of similar stage of development
and commercial potential as the patent rights or royalty-bearing products. Further, either party at any time may
provide written notice to the other party a material breach of agreement. If the other party fails to cure the
identified breach within 90 days after the date of the notice, the aggrieved party may terminate agreement by
written notice to the party in breach.
The Advirna agreement may
only be altered or supplemented by written mutual agreement by the parties.
Competition
We believe numerous companies are investigating or plan to investigate a variety of proposed anti-scarring
therapies in clinical trials. The companies include large and small pharmaceutical, chemical and biotechnology companies, as well as universities,
government agencies and other private and public research organizations. Such companies include Renovo Group plc, CoDa Therapeutics, Inc.,
Sirnaomics, Inc., FirstString Research, Inc., Merz Pharmaceuticals, LLC, Capstone Therapeutics, Halscion, Inc., Garnet Bio Therapeutics, Inc.,
AkPharma Inc., Promedior, Inc., Kissei Pharmaceutical Co., Ltd., Eyegene, Derma Sciences, Inc., Healthpoint Biotherapeutics and Pharmaxon. In
particular, Excaliard Pharmaceuticals, Inc., which has been acquired by
Pfizer, Inc., has successfully advanced an anti-CTGF antisense oligonucleotide through several Phase I and
Phase II trials, demonstrating improved scar outcome over placebo.
We believe other companies working in the RNAi area, generally, include Alnylam Pharmaceuticals, Inc., Marina
Biotech, Inc., Tacere Therapeutics, Inc., Benitec Limited, OPKO Health, Inc., Silence Therapeutics plc, Quark
Pharmaceuticals, Inc., Rosetta Genomics Ltd., Lorus Therapeutics, Inc., Tekmira Pharmaceuticals Corporation,
Arrowhead Research Corporation, Regulus Therapeutics Inc. and Santaris, as well as a
number of large pharmaceutical companies. Many other companies are pursuing non-RNAi-based therapies for
one or more fibrotic disease indications, including ocular scarring or other indications that we may seek to pursue.
Most of these competitors have substantially greater research and development capabilities and financial, scientific, technical, manufacturing, marketing, distribution and other resources than we have, and we may not be able to successfully compete with them. In addition, even if we are successful in
developing our product candidates, in order to compete successfully we may need to be first to
market or to demonstrate that our RNAi based products are superior to therapies based on
different technologies. A number of our competitors have already commenced clinical testing
of RNAi product candidates and may be more advanced than we are in the process of developing
products. If we are not first to market or are unable to demonstrate superiority, any
products for which we are able to obtain approval may not be successful.
Government Regulation
The United States and other developed countries extensively regulate the preclinical and
clinical testing, manufacturing, labeling, storage, record-keeping, advertising, promotion, export,
marketing and distribution of drugs and biologic products. The FDA regulates pharmaceutical and
biologic products under
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the Federal Food, Drug, and Cosmetic Act, the Public Health Service Act and other federal statutes
and regulations.
To obtain approval of our future product candidates from the FDA, we must, among other
requirements, submit data supporting safety and efficacy for the intended indication as well as
detailed information on the manufacture and composition of the product candidate. In most cases,
this will require extensive laboratory tests and preclinical and clinical trials. The collection
of these data, as well as the preparation of applications for review by the FDA involve significant
time and expense. The FDA also may require post-marketing testing to monitor the safety and
efficacy of approved products or place conditions on any approvals that could restrict the
therapeutic claims and commercial applications of these products. Regulatory authorities may
withdraw product approvals if we fail to comply with regulatory standards or if we encounter
problems at any time following initial marketing of our products.
The first stage of the FDA approval process for a new biologic or drug involves completion of
preclinical studies and the submission of the results of these studies to the FDA. These data,
together with proposed clinical protocols, manufacturing information, analytical data and other
information submitted to the FDA, in an IND, must become effective before human clinical trials may
commence. Preclinical studies generally involve FDA regulated laboratory evaluation of product
characteristics and animal studies to assess the efficacy and safety of the product candidate.
After the IND becomes effective, a company may commence human clinical trials. These are
typically conducted in three sequential phases, but the phases may overlap. Phase I trials consist
of testing the product candidate in a small number of patients or healthy volunteers, primarily for
safety at one or more doses. Phase II trials, in addition to safety, evaluate the efficacy of the
product candidate in a patient population somewhat larger than Phase I trials. Phase III trials
typically involve additional testing for safety and clinical efficacy in an expanded population at
multiple test sites. A company must submit to the FDA a clinical protocol, accompanied by the
approval of the Institutional Review Boards at the institutions participating in the trials, prior
to commencement of each clinical trial.
To obtain FDA marketing authorization, a company must submit to the FDA the results of the
preclinical and clinical testing, together with, among other things, detailed information on the
manufacture and composition of the product candidate, in the form of a new drug application (an
NDA), or, in the case of a biologic, a biologics license application (a BLA).
The amount of time taken by the FDA for approval of an NDA or BLA will depend upon a number of
factors, including whether the product candidate has received priority review, the quality of the
submission and studies presented, the potential contribution that the compound will make in
improving the treatment of the disease in question and the workload at the FDA.
The FDA may, in some cases, confer upon an investigational product the status of a fast track
product. A fast track product is defined as a new drug or biologic intended for the treatment of a
serious or life threatening condition that demonstrates the potential to address unmet medical
needs for this condition. The FDA can base approval of an NDA or BLA for a fast track product on
an effect on a surrogate endpoint, or on another endpoint that is reasonably likely to predict
clinical benefit. If a preliminary review of clinical data suggests that a fast track product may
be effective, the FDA may initiate review of entire sections of a marketing application for a fast
track product before the sponsor completes the application.
We anticipate that our products will be manufactured by our strategic partners, licensees or
other third parties. Before approving an NDA or BLA, the FDA will inspect the facilities at which
the product is manufactured and will not approve the product unless the manufacturing facilities
are in compliance with the FDAs current good manufacturing
practices (cGMP), which are
regulations that govern the manufacture,
56
holding and distribution of a product. Manufacturers of biologics also must comply with the FDAs
general biological product standards. Our manufacturers also will be subject to regulation under
the Occupational Safety and Health Act, the Nuclear Energy and Radiation Control Act, the Toxic
Substance Control Act and the Resource Conservation and Recovery Act and other applicable
environmental statutes. Following approval, the FDA periodically inspects drug and biologic
manufacturing facilities to ensure continued compliance with the good manufacturing practices
regulations. Our manufacturers will have to continue to comply with those requirements. Failure
to comply with these requirements subjects the manufacturer to possible legal or regulatory action,
such as suspension of manufacturing or recall or seizure of product. Adverse patient experiences
with the product must be reported to the FDA and could result in the imposition of marketing
restrictions through labeling changes or market removal. Product approvals may be withdrawn if
compliance with regulatory requirements is not maintained or if problems concerning safety or
efficacy of the product occur following approval.
The labeling, advertising, promotion, marketing and distribution of a drug or biologic product
also must be in compliance with FDA and Federal Trade Commission requirements which include, among
others, standards and regulations for off-label promotion, industry sponsored scientific and
educational activities, promotional activities involving the internet, and direct-to-consumer
advertising. We also will be subject to a variety of federal, state and local regulations relating
to the use, handling, storage and disposal of hazardous materials, including chemicals and
radioactive and biological materials. In addition, we will be subject to various laws and
regulations governing laboratory practices and the experimental use of animals. In each of these
areas, as above, the FDA has broad regulatory and enforcement powers, including the ability to levy
fines and civil penalties, suspend or delay issuance of product approvals, seize or recall
products and deny or withdraw approvals.
We will also be subject to a variety of regulations governing clinical trials and sales of our
products outside the United States. Whether or not FDA approval has been obtained, approval of a
product candidate by the comparable regulatory authorities of foreign countries and regions must be
obtained prior to the commencement of marketing the product in those countries. The approval
process varies from one regulatory authority to another and the time may be longer or shorter than
that required for FDA approval. In the European Union, Canada and Australia, regulatory
requirements and approval processes are similar, in principle, to those in the United States.
Environmental Compliance
Our research and development activities involve the controlled use of potentially harmful
biological materials as well as hazardous materials, chemicals and various radioactive compounds.
We are subject to federal, state and local laws and regulations governing the use, storage,
handling and disposal of these materials and specific waste products. We are also subject to
numerous environmental, health and workplace safety laws and regulations, including those governing
laboratory procedures, exposure to blood-borne pathogens and the handling of bio-hazardous
materials. The cost of compliance with these laws and regulations could be significant and may
adversely affect capital expenditures to the extent we are required to procure expensive capital
equipment to meet regulatory requirements.
Human Resources
As of September 30, 2011, we had ten full-time employees, eight of whom were engaged in
research and development and two of whom were engaged in management, administration and finance.
None of our employees is represented by a labor union or covered by a collective bargaining
agreement, nor have we experienced any work stoppages.
57
Insurance
We currently purchase insurance policies for property and liability risks arising out of
current operations.
Properties
We occupy our facility located at 60 Prescott Street, Worcester, Massachusetts, pursuant to a
lease agreement, dated September 25, 2007, with Newgate Properties, LLC (an affiliate of Worcester
Polytechnic Institute). The facility is approximately 6,800 square feet, of which 5,600 square
feet is laboratory space used for research and development and the additional 1,200 square feet is
used for general and administrative offices. On June 9, 2011, the lease was extended through July
31, 2012. The monthly rental fee is approximately $16,000. In May
2011, we reduced space
occupied by us to approximately 5,355 square feet. We believe that the space is suitable for our current needs.
Legal Proceedings
Although we are not currently involved in any legal proceedings, from time to time, we may
become a party to various legal actions and complaints arising in the ordinary course of business.
58
MANAGEMENT
Board of Directors
Mark J. Ahn, Ph.D., currently serves as our only director. Upon completion of the spin-off
transaction, our authorized number of directors will be no fewer than
two nor more than five. Our initial board of directors at the time
of the spin-off will consist of Dr.
Ahn and two other directors, Kevin C. Tang and Roderick T. Wong. Information regarding our initial
directors is set forth below. In connection with the distribution,
Dr. Ahn will tender his resignation as a director, effective upon our
reimbursement of expenses to Galena as provided in the securities
purchase agreement, and Messers. Tang
and Wong will tender their conditional resignations as directors, which resignations will become
effective upon the appointment of a new board of directors
consisting solely of independent
directors within the meaning of NASDAQ Marketplace Rule 5605(a)(2), except that our Chief Executive Officer or
other senior officer also may serve as a member of our board of directors.
Mark
J. Ahn, Ph.D. (49). Dr. Ahn has served on a part-time basis as our President and Chief Financial Officer since
our inception on September 9, 2011, and has served as the President and Chief Executive Officer of
Galena since March 31, 2011 and as a director since 2007. He is not compensated by us and spends an average of only approximately 30 hours a month on our business and operations. Dr. Ahn has served as the interim Chief
Financial Officer of Galena since September 26, 2011. Dr. Ahn provides to us a limited amount of his business time and
attention as is required by our business and operations, and he devotes the majority of his business time and
attention to Galenas business and operations. He brings more than 20 years of experience
in the biopharmaceutical industry. Prior to RXi, Dr. Ahn was
Principal at Pukana Partners, Ltd.,
which provides strategic consulting to life science companies, and Associate Professor, Global
Management at Atkinson Graduate School of Management, Willamette University. He previously served
as Chair, Science & Technology Management, Victoria University at Wellington, New Zealand. Dr. Ahn
was also founder, President, and Chief Executive Officer of Hana Biosciences, Inc. Prior to Hana, he
served as Vice President, Hematology and corporate officer at Genentech, Inc., as well as held
positions of increasing responsibility at Amgen Inc. and Bristol-Myers Squibb Company. Dr. Ahn also
serves as a director of several public and venture capital-backed
companies, including RXi, Access
Pharmaceuticals Inc., Mesynthes Ltd. and ScribesSTAT, Inc. Dr. Ahn is the
author of over 50 peer-reviewed journal
articles and books. Dr. Ahn received a B.A. and M.B.A. from
Chaminade University and an M.A. from
Victoria University. He was a graduate fellow in Economics at Essex University and obtained a
Ph.D. from the University of South Australia. Dr. Ahn is a Henry Crown Fellow at the
Aspen Institute. Dr. Ahns qualifications as a director include his extensive prior experience as
both an executive and a director of a number of pharmaceutical and biotech companies, and his
scientific and academic qualifications, as well as his expertise in financial and other related
matters pertaining to the operation of publicly traded pharmaceutical companies. Accordingly, we believe Dr. Ahn has the appropriate skills to serve on
our board of directors.
Kevin
C. Tang (44). We have agreed in the securities purchase agreement with TCP and RTW that Mr. Tang will serve as one of our directors upon completion of the
spin-off transaction as described in the Certain Relationships and Related Party Transactions
section of this prospectus. Mr. Tang is the Managing Director of Tang Capital
Management, LLC, a life sciences-focused investment company he founded in August 2002. From
September 1993 to July 2001, Mr. Tang held various positions at Deutsche Banc Alex Brown, Inc., an
investment banking firm, most recently serving as Managing Director and head of the firms life
sciences research group. Mr. Tang currently serves as a director of A.P. Pharma, Inc. and Ardea
Biosciences, Inc. He was previously a director of Trimeris, Inc. until 2009 and Penwest
Pharmaceuticals Co. until 2010. Mr. Tang received a B.S. degree from Duke University. Mr. Tangs
investment and leadership experience in the healthcare industry
provides relevant expertise in strategic areas, as well as in-depth knowledge of the healthcare
industry and valuable insight and guidance on matters such as corporate strategy and financial and
risk management. Accordingly, we believe Mr. Tang has the appropriate skills
to serve on our board of directors.
Roderick
T. Wong, M.D. (34). We have agreed in the securities purchase agreement with TCP and RTW that Dr. Wong will serve as one of our directors upon completion of
the spin-off transaction as described in the Certain Relationships and Related Party Transactions section of this prospectus. Dr. Wong founded RTW Investments, LLC in 2010 and serves as its
Chief Investment Officer and Managing Partner. From March 2005 to January 2009, Dr. Wong worked for
Davidson Kempner Capital Management LLC, where he served as Managing Director and Portfolio Manager
for the Davidson Kempner Healthcare Funds from inception. Dr. Wong graduated from the University of
Pennsylvania Medical School, received his M.B.A. from Harvard Business School, and graduated Phi
Beta Kappa with a B.S. in Economics from Duke University. Dr. Wong also serves as an Adjunct
Assistant Professor at the New York University Stern Business School. Dr. Wong previously served as
a director of Penwest Pharmaceuticals Co.
59
until 2010. Dr. Wongs medical training and experience in the healthcare industry provide relevant
expertise and in-depth knowledge that will be beneficial to our board of directors with respect to
corporate strategy and other operational matters. Accordingly, we believe Dr. Wong has the
appropriate skills to serve on our board of directors.
Director Independence
Our securities are not listed on a national securities exchange or in an inter-dealer
quotation system that requires that a majority of our board of directors be independent. Our board
of directors has determined that Dr. Ahn is not an independent director as defined by The NASDAQ
Capital Market.
Committees of the Board of Directors
Following the completion of the spin-off transaction, our board of directors
may establish an Audit Committee, a Compensation Committee and a Nominating and
Governance Committee. In the meantime, our board of directors as a whole performs the functions
normally associated with such Committees.
Executive Officers
Set forth below is information regarding our current executive officers (other than
information relating to Dr. Ahn, our President and Chief Financial Officer, which information is
set forth above under Board of Directors). Each officers age is indicated in parentheses after
her name.
Anastasia
Khvorova, Ph.D. (42). Dr. Khvorova has been our Senior Vice President and Chief Scientific
Officer since September 24, 2011. From October 2008 until that time, she served as the Chief
Scientific Officer of Galena. From September 2002 until November 2007, she served as the Director
of Research and Development and then as Vice President of Research and Development and Chief Scientific Officer of
Dharmacon (a subsidiary of ThermoFisher Scientific). From November 2007 until joining Galena, Dr. Khvorova
served as an independent consultant. During her career, Dr. Khvorova has made major technology
advances in the fields of RNAi and microRNA. Dr. Khvorova was also responsible for establishing and managing
several drug discovery/development collaborations with major pharmaceutical companies, including
Abbott Laboratories and Alcon Laboratories, Inc. Her groundbreaking work has enabled her to author more than 200 patents and
patent applications, several book chapters and over 40 peer-reviewed publications. Dr. Khvorova
received her Ph.D. in Biochemistry from the Russian Academia of Sciences in Moscow in 1994.
Dr. Khvorova is a board member of the Oligonucleotide Therapeutic Society and a member of other distinguished
professional organizations.
Pamela Pavco, Ph.D. (55).
Dr. Pavco has been our Senior Vice President of Pharmaceutical Development
since September 24, 2011. From March 2007 until that time, she served as the Vice President of
Pharmaceutical Development of Galena. Dr. Pavco has over 20 years of research and development
experience in oligonucleotides. Dr. Pavco was Senior
Director, Research and Development Project Management at Sirna Therapeutics, Inc., from 2002 until 2006, when it was acquired by
Merck & Co., Inc. for $1.1 billion. While at Sirna, she was responsible for the discovery research and development of
Sirna-027, the first chemically modified siRNA to enter clinical trials. Dr. Pavco also
managed Sirnas alliance with Allergan, Inc. that was initiated to continue discovery research in the area of
ophthalmology and take Sirna-027 forward into Phase 2 clinical studies. While at Sirna, Dr. Pavco
served in various additional capacities, including Director of Biology Research and Director of Pharmacology
and she also managed numerous corporate collaborations and internal programs focusing on the development of therapeutic
oligonucleotides in the fields of oncology, anti-angiogenesis, hepatitis, respiratory disease and
Huntingtons disease. Dr. Pavco has authored numerous scientific articles and
60
contributed to approximately 58 patents and patent applications in the oligonucleotide therapeutics
field. Dr. Pavco received a Ph.D. in Biochemistry from Virginia Commonwealth University in 1983 and
did her post-doctoral work at Duke University. She is a member
of the American Association of Cancer Research and the Association for Research and Vision in
Ophthalmology.
We may establish a Scientific Advisory Board prior to or following the completion of the
spin-off transaction.
EXECUTIVE COMPENSATION
Summary Compensation Table
Dr. Ahn is not compensated by us for his service as our President and Chief Financial Officer.
Our other executive officers, Drs. Khvorova and Pavco, have been employed by us only since
September 24, 2011. The principal terms of our employment agreements with Drs. Khvorova and Pavco
are described below in the Executive Compensation Employment Agreements section of this
prospectus.
The following table sets forth the compensation paid or accrued by us during the fiscal year ended December 31, 2011 and by Galena, our predecessor,
during the fiscal year ended December 31, 2010 to Noah D. Beerman, the former President
and Chief Executive Officer of Galena, and to Drs. Khvorova and Pavco:
Executive Compensation
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All Other |
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|
Salary |
|
|
Bonus |
|
|
Stock Awards |
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|
Option Awards |
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Compensation |
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|
Total |
|
Name and Principle Position |
|
Year |
|
|
($)(1) |
|
|
($)(1) |
|
|
($)(2) |
|
|
($)(3) |
|
|
($)(4) |
|
|
($) |
|
Noah D. Beerman(5) |
|
|
2010 |
|
|
|
376,731 |
|
|
|
90,000 |
|
|
|
|
|
|
|
29,455 |
|
|
|
300 |
|
|
|
496,486 |
|
Former President and Chief
Executive Officer of Galena |
|
|
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Anastasia Khvorova, Ph.D. |
|
|
2011 |
|
|
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331,667 |
|
|
|
7,326 |
|
|
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50,000 |
|
|
|
|
|
|
|
300 |
|
|
|
389,293 |
|
Chief Scientific Officer |
|
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2010 |
|
|
|
283,752 |
|
|
|
49,941 |
|
|
|
|
|
|
|
198,572 |
|
|
|
300 |
|
|
|
532,565 |
|
|
|
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|
|
|
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|
|
|
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|
|
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|
|
|
|
|
|
|
Pamela Pavco, Ph.D. |
|
|
2011 |
|
|
|
292,500 |
|
|
|
7,255 |
|
|
|
|
|
|
|
90,304 |
|
|
|
300 |
|
|
|
390,359 |
|
Vice President of Pharmaceutical
Development |
|
|
2010 |
|
|
|
281,197 |
|
|
|
38,933 |
|
|
|
|
|
|
|
203,006 |
|
|
|
300 |
|
|
|
523,436 |
|
|
|
|
|
(1) |
|
The salary and bonus attributable to the period prior to September 24,2011 were paid by Galena. Drs. Khvorova and Pavco served in the capacities indicated with Galena during that period. |
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(2) |
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Represents shares of common stock of Galena, our predecessor. The amounts shown reflect the
grant date fair value computed in accordance with FASB ASC 718 for the indicated year. |
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(3) |
|
Represents options to purchase common stock of Galena, our predecessor. The amounts shown
reflect the grant date fair value computed in accordance with FASB ASC 718 for the indicated
year, adjusted to disregard the effects of any estimate of forfeitures related to
service-based vesting. The assumptions we used in valuing options are described more fully in
the Managements Discussion and Analysis section and the footnotes to our financial
statements for the year ended December 31, 2011. |
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(4) |
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Consists of life insurance premiums. |
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|
|
(5) |
|
Mr. Beerman became President and Chief Executive Officer of Galena on November 5, 2009. He
resigned effective March 31, 2011. The salary, bonus, option awards and other compensation
paid to Mr. Beerman by Galena may not be indicative of what we may pay to the person or
persons who may serve in the same capacities following the spin-off of RXi. |
|
RXi
Pharmaceuticals Corporation 2012 Long Term Incentive Plan
On January 23, 2012, our board of directors and our sole stockholder
adopted the RXi Pharmaceuticals Corporation 2012 Long Term Incentive
Plan (the 2012 Incentive
Plan). Under the 2012 Incentive Plan, we may grant
incentive stock options, nonqualified stock options, cash awards,
stock appreciation rights, restricted and unrestricted stock
and stock unit awards and other stock-based awards. A
61
maximum of
90,000,000 shares of common stock are authorized for issuance and available for
future grants under our 2012 Incentive Plan, including the grants of stock options to be made to
Drs. Khvorova and Pavco as provided in our employment agreements with them. Our board of directors
or a committee of our board acts as the administrator of our 2012 Incentive Plan.
The
administrator has the power to select
participants from among the key employees, directors and consultants of and advisors to the Company,
establish the terms, conditions and vesting schedule, if applicable, of each award and to accelerate
vesting or exercisability of any award. The administrator may at any
time modify or amend the 2012
Incentive Plan or any award made thereunder in any respect, except
where a participants approval is
required by law or where such termination or modification or amendment
affects materially and adversely the rights of a participant under a previously
granted award and such participants consent has not been obtained.
In the event of a change of control in which there is an acquiring or surviving entity, the
administrator may provide for the assumption or substitution of some or all of the outstanding
awards by the acquiror or survivor. In the absence of an assumption or substitution, the administrator may provide that each stock
option will become fully exercisable prior to the transaction on a basis that gives the holder of
the stock option a reasonable opportunity as determined by the administrator, to participate as a
stockholder in the transaction following exercise, and the stock option will terminate upon
consummation of the transaction. In the case of restricted stock, the administrator may require
that any amounts delivered, exchanged or otherwise paid in respect of such stock in connection with
the transaction be placed in escrow or otherwise made subject to such restrictions as the administrator
deems appropriate.
Upon termination of employment of an employee, the unvested portion of any stock option
generally, and with exceptions, will terminate and the balance, to the extent exercisable, will remain exercisable for
the lesser of (i) a period of three months or (ii) the period ending on the latest date
on which such stock option could have been exercised.
Outstanding Equity Awards
We have no outstanding stock options
or other stock awards.
In our employment agreements with Drs. Khvorova and Pavco
described below, we have agreed to grant them future options under
the 2012 Incentive Plan.
Nonqualified Deferred Compensation
We do not have any nonqualified deferred compensation plans.
Termination-Based
Compensation; Employment Agreements
We have employment agreements in place with two of our named executive officers as described
below that provide for acceleration of option vesting and severance payments upon termination of
such officers employment or a change of control.
On September 24, 2011, we entered into an employment agreement with each of Dr. Khvorova and
Dr. Pavco. The employment agreements each provide that, upon termination of Dr. Khvorovas or Dr.
Pavcos employment without cause (as defined) by RXi, or by Dr. Khvorova or Dr. Pavco for good
reason (as defined), Dr. Khvorova or Dr. Pavco, as the case may be, will be entitled to payment
of: (a) any accrued but unpaid salary and unused vacation as of
the date of her termination; (b)
twelve months (in the event of such termination within twelve months of the effective date of her
employment) or six months (in the event of such termination after twelve months from the effective
date of her employment), as the case may be, of salary from the date
of termination; and (c)
continued participation, at RXis expense, during the applicable severance period in RXis
sponsored group medical and dental plans. In the event her employment is terminated within twelve
months following a change of control of RXi, Dr. Khvorova or Dr. Pavco, as the case may be, will
be
62
entitled
to: (x) twelve months of salary from the date of termination; (y) accelerated vesting of
any unvested RXi stock options held by her as to 50% of the unvested option shares or the portion
of the unvested option shares that would have vested over the following twenty-four months,
whichever is greater; and (z) continued participation, at RXis expense, during the severance
period in RXis sponsored group medical and dental plans.
Director Compensation
Dr. Ahn receives no compensation from us for his service as our sole director. Following the
completion of the spin-off of RXi, we anticipate that, in the discretion of our board of directors,
each non-employee director may be paid such fees for his services as a director and be reimbursed
for his reasonable expenses incurred in the performance of his duties as director as our board of
directors determines from time to time.
Employment Agreements
Anastasia Khvorova, Ph.D.
Dr. Khvorova serves as our Senior Vice President and Chief Scientific Officer. Under her
employment agreement dated September 24, 2011, Dr. Khvorova receives an annual salary of $310,000.
She also is entitled to a grant by us, after the completion of the
spin-off transaction, of stock
options to purchase 2% of the fully diluted common stock of RXi at an exercise price per share to
be determined based on the fair value of our common stock at the date of grant. The options will
be subject to vesting in equal monthly installments over the four-year period following the
effective date of her employment, subject to accelerated vesting in some events.
Dr. Khvorovas employment agreement provides that, upon termination of Dr. Khvorovas
employment without cause (as defined) by us or by Dr. Khvorova for good reason (as defined),
she will be entitled to payment of: (1) any accrued but unpaid salary and unused vacation as of the
date of her termination; (2) twelve months (in the event of such termination within twelve months
of the effective date of her employment) or six months (in the event of such termination after
twelve months from the effective date of her employment), as the case may be, of salary from the
date of termination; and (3) continued participation, at our expense, during the applicable
severance period in our sponsored group medical and dental plans. In the event her employment is
terminated within twelve months following a change of
control of RXi, she will be entitled to: (x)
twelve months of salary from the date of termination; (y) accelerated vesting of any unvested RXi
stock options held by her as to 50% of the unvested option shares or the portion of the unvested
option shares that would have vested over the following twenty-four
months, whichever is greater; and (z) continued participation, at our expense, during the severance period in our sponsored group
medical and dental plans.
Pamela Pavco, Ph.D.
Dr. Pavco services as our Senior Vice President of Pharmaceutical Development. Under her
employment agreement dated September 24, 2011, Dr. Pavco receives an annual salary of $300,000.
She also is entitled to a grant by us, after the completion of the
spin-off transaction, of stock
options to purchase 2% of the fully diluted common stock of RXi at an exercise price per share to
be determined based on the fair value of our common stock at the date of grant. The options will
be subject to vesting in equal monthly installments over the four-year period following the
effective date of her employment, subject to accelerated vesting in some events.
63
Dr. Pavcos employment agreement provides that, upon termination of Dr. Pavcos employment
without cause (as defined) by us or by Dr. Pavco for good reason (as defined), she will be
entitled to payment of: (1) any accrued but unpaid salary and unused vacation as of the date of her
termination; (2) twelve months (in the event of such termination within twelve months of the
effective date of her employment) or six months (in the event of such termination after twelve
months from the effective date of her employment), as the case may be, of salary from the date of
termination; and (3) continued participation, at our expense, during the applicable severance period
in our sponsored group medical and dental plans. In the event her employment is terminated within
twelve months following a change of control of RXi, she
will be entitled to: (x) twelve months of
salary from the date of termination; (y) accelerated vesting of any unvested RXi stock options held
by her as to 50% of the unvested option shares or the portion of the unvested option shares that
would have vested over the following twenty-four months, whichever is
greater; and (z) continued
participation, at our expense, during the severance period in our sponsored group medical and
dental plans.
64
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Agreements with Galena Biopharma, Inc.
Prior to the completion of the transactions described in this prospectus, Galena will continue
to be the owner of all of our outstanding capital stock. On September 24, 2011, we entered into a
contribution agreement with Galena pursuant to which:
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Galena assigned and contributed to us substantially all of its RNAi-related
technologies and assets, which consist primarily of novel RNAi compounds and licenses
from Dharmacon, Inc., Northwestern University, the Carnegie Institute of Washington,
and the University of Massachusetts Medical School relating to its RNAi technologies,
as well as the lease of its Worcester, Massachusetts laboratory facility, fixed assets
and other equipment located at the facility and its employment arrangements with
certain scientific, corporate and administrative personnel who have become our
employees, as well as research grants from the National Institute of Neurological
Disorders and Stroke, National Institute of Allergy and Infectious Diseases, and the
National Institute of General Medical Sciences of approximately $800,000 that are
subject to the approval of the granting institutions; and |
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We agreed to assume certain recent accrued expenses of the RXi-109 development
program and all future obligations under the contributed licenses, employment
arrangements and other agreements, and we agreed to make future milestone payments to
Galena of up to $45 million, consisting of two one-time payments of $15 million and $30
million, respectively, if we achieve annual net sales equal to or greater than $500
million and $1 billion, respectively, of any covered products that may be developed
with the contributed RNAi technologies. |
Agreements with TCP and RTW
On September 24, 2011, we entered into a securities purchase agreement with Galena, TCP and
RTW pursuant to which:
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TCP and RTW agreed to purchase a total of $9,500,000 of our Series A Preferred
Stock at the closing of the spin-off transaction and to lend to us up to $1,500,000 to
fund our operations prior to the closing, with the outstanding principal and accrued
interest from the loan to be converted into Series A Preferred Stock at the closing, at
a conversion price of $1,000 per share, and such conversion will be
applied to the $9,500,000
total investment by TCP and RTW; |
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We agreed that the Series A Preferred Stock will be convertible by TCP or RTW at
any time into shares of our common stock, except to the extent that the holder would
own more than 9.999% of the shares of our common stock outstanding immediately after
giving effect to such conversion; without regard to this conversion limitation, the
shares of the Series A Preferred Stock to be held by TCP and RTW would be convertible
into shares of our common stock representing |
65
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approximately 83% of the shares of our common stock that would be outstanding upon
the completion of the spin-off transaction and after such Series A Preferred Stock
conversion; |
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We agreed that the Series A Preferred Stock will have the rights, preferences,
privileges and restrictions summarized below in the Description of Capital
StockPreferred Stock section of this prospectus; |
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Galena agreed to contribute $1.5 million of cash to us; |
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Galena agreed to distribute to its stockholders the shares of RXi common stock that
are the subject of this prospectus; |
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We and Galena agreed to take all necessary actions to constitute our initial board
of directors as described in the Management section of
this prospectus; and |
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We agreed, upon completion of the spin-off
transaction, to reimburse Galena for up to a total of $300,000, and TCP and RTW
for a total of up to $100,000, of transaction costs relating to the
contribution agreement with Galena, the securities purchase agreement summarized below
and the transactions contemplated by those agreements. |
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The
securities purchase agreement may be terminated by mutual consent of
the investors and us, or by either the investors or us if the partial
spin-off of RXi has not occurred by March 5, 2012 or in the event of
a breach by the other of the agreement.
Advirna Agreement
As part of the transactions contemplated by the contribution and securities purchase
agreements, on September 24, 2011, we entered into agreements
with Advirna, pursuant to which:
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Advirna assigned to us its existing patent and technology rights related to sd-rxRNA
technology in exchange for our agreement to pay Advirna an annual $100,000 maintenance
fee and a one-time $350,000 milestone payment upon the future
issuance of the first patent
with valid claims covering the assigned patent and technology rights; |
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We will be required to pay a 1% royalty to Advirna for any licensing revenue
received by us with respect to future licensing of the assigned Advirna patent and
technology rights; |
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We have granted back to Advirna a license under the assigned patent and technology
for fields of use outside the fields of human therapeutics and diagnostics; and |
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We have agreed to issue to Advirna, upon the completion of the spin-off transaction,
shares of our common stock equal to approximately 5% of the fully diluted shares of RXi common stock
assuming the conversion in full of all outstanding Series A Preferred Stock. |
See
Business Intellectual property Other Technology Agreements;
Advirna on page 55 of this prospectus for more information about our license
from Advirna.
Anastasia Khvorova, Ph.D., our Senior Vice President and
Chief Scientific Officer, is a director and 50% owner of Advirna. Dr. Khvorovas husband is the other director and
50% owner of Advirna.
Relationships with Employees
Our President, Chief Financial Officer and sole director, Mark J. Ahn, Ph.D., also serves as
the President and Chief Executive Officer and as a director of Galena.
For a summary of the employment agreements that we have entered into with Dr. Khvorova and Dr.
Pamela Pavco, our Senior Vice President of Pharmaceutical Development, see the Executive
CompensationEmployment Agreements section in this prospectus.
Review and Approval of Related Party Transactions
Upon the completion of the partial spin-off of RXi, we anticipate that our board of directors
will adopt appropriate policies regarding the review and approval of all transactions with
directors, officers and holders of more than 5% of our voting securities and their affiliates. The
policies are expected to provide that, prior to board consideration of a transaction with such a
related party, the material facts as to the related partys relationship or interest in the
transaction must be disclosed to the board, and the transaction will not be considered approved by
the board unless a majority of the directors who are not interested in the transaction approve the
transaction. Furthermore, when stockholders are entitled to vote on a transaction with a related
66
party, the material facts of the related partys relationship or interest in the transaction must
be disclosed to the stockholders, who must approve the transaction in good faith.
67
BENEFICIAL OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table
sets forth information with respect to the beneficial ownership of our
common stock as of January 20, 2012 and after giving effect to the distribution of our common
stock to Galenas stockholders and the other transactions referred to in this prospectus, by:
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Each person known by us to be the beneficial owner of 5% or more of our common
stock, including any group as that term is defined in the Exchange Act; |
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Each director, director nominee and current named executive officer identified in the
Management and Executive
Compensation sections of this prospectus; and |
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All of our directors, director nominees and executive officers as a group. |
Beneficial ownership
is determined in accordance with SEC rules, and generally includes voting
or investment power with respect to our common stock. Shares of common stock subject to options,
warrants, our Series A Preferred Stock and other convertible securities that are currently
exercisable or convertible within 60 days are deemed to be outstanding and to be beneficially owned
by the person holding the options, warrants or convertible securities for the purpose of computing
the percentage ownership of the person, but are not treated as outstanding for the purpose of
computing the percentage ownership of any other person.
The information below
is based on the number of shares of our common stock beneficially owned
by each person or entity on January 20, 2012 and the number of shares subject to any options and
warrants granted to these individuals that are exercisable within
60 days after January 20, 2012.
Any such options are indicated by footnote. The information is based upon a distribution ratio of
one share of our common stock for each share of Galena common stock. Except as otherwise noted
in the footnotes below, the individual directors or executive officers or their family members had
sole voting and investment power with respect to such securities. Upon completion of the
distribution of our common stock to Galenas stockholders and the other transactions referred to in
this prospectus, we will have outstanding an aggregate of
approximately 100,600,887 shares of our
common stock, assuming no conversion of our Series A Preferred Stock or exercise of stock options.
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Amount and Nature of
Beneficial Ownership |
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Before the Spin-Off
Transaction |
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After
the Spin-Off Transaction |
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Number of Shares |
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Number of Shares |
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Name and Address of Beneficial Owner |
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of Common Stock |
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Percentage |
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of Common Stock |
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Percentage |
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Directors,
Director Nominees and Named Executive Officers |
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Mark J. Ahn, Ph.D. |
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-0- |
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-0- |
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-0- |
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-0- |
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Kevin C. Tang(1) |
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-0- |
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-0- |
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11,176,634 |
(2) |
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9.999 |
% (2) |
Roderick T. Wong(3) |
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-0- |
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-0- |
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11,176,634 |
(4) |
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9.999 |
% (4) |
Anastasia Khvorova, Ph.D(5) |
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29,588,496 |
(5) |
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29.4 |
% |
Pamela J. Pavco, Ph.D. |
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-0- |
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-0- |
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Greater than 5% Holders |
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Galena Biopharma, Inc. |
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100 |
% |
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100 |
% |
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23,670,797 |
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23.5 |
% |
Tang Capital
Partners, LP(1) |
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-0- |
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-0- |
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11,176,634 |
(2) |
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9.999 |
% (2) |
RTW
Investments, LLC(3) |
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-0- |
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-0- |
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11,176,634 |
(4) |
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9.999 |
% (4) |
Advirna,
LLC(6) |
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-0- |
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-0- |
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29,588,496 |
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29.4 |
% |
All directors and executive
officers as a group (five persons
before, and seven persons after,
the spin-off transaction) |
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-0- |
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-0- |
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51,941,764 |
(7) |
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42.2 |
% |
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(1) |
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The address for Kevin C. Tang and Tang Capital Partners, LP
(TCP) is 4747 Executive Drive, Suite 510, San Diego, California 92121. Tang Capital Management, LLC is the general partner of TCP. Kevin C. Tang is the
Managing Director of Tang Capital Management, LLC and, following the spin-off transaction, will be a member of our
board of directors. Mr. Tang shares voting and investment power over the shares shown with TCP and Tang
Capital Management, LLC and, as such, may be deemed to be a beneficial owner of such shares. Mr. Tang
disclaims beneficial ownership of such shares, except to the extent
of his pecuniary interest therein. |
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(2) |
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Represents shares of common stock issuable upon the
conversion of Series A Preferred Stock that will be owned of record
by TCP after the spin-off transaction. In accordance with the conversion limitation contained within the Certificate of Designations, in no event may TCP convert shares of Series A Preferred Stock into
shares of our common stock if such conversion would result in beneficial ownership of more than
9.999% of the then issued and outstanding shares of our common stock. This conversion limitation
may not be waived and any purported conversion that is inconsistent with this conversion limitation is
null and void. But for the conversion limitation, TCP would have the right to acquire up to
approximately 465,318,036 shares, or 78.6%, of our
common stock following the spin-off transaction and TCP and RTW, collectively, would have the right
to acquire up to approximately
491,169,038 shares, or 83%, of our common stock.
See Certain Relationships and Related Party
TransactionsAgreements with TCP and RTW.
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(3) |
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The address for RTW Investments, LLC (RTW) is 1350 Avenue of the Americas,
28th Floor, New York, New York 10019. Roderick T. Wong is the Managing Member
of RTW and, following the spin-off transaction, will be a member of
our board of directors. Mr. Wong has sole voting and investment power over the
shares shown and, as such, may be deemed to be a beneficial owner of such shares. |
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(4) |
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Represents shares of common stock issuable upon the
conversion of Series A Preferred Stock that will be owned of record
by RTW after the spin-off transaction. In accordance with the conversion limitation contained within
the Certificate of Designations, in no event may RTW convert shares of Series A Preferred Stock into
shares of our common stock if such conversion would result in beneficial ownership of more than
9.999% of the then issued and outstanding shares of our common stock. This conversion limitation
may not be waived and any purported conversion that is inconsistent with this conversion limitation is
null and void. But for the conversion limitation, RTW would have the right to acquire up to
approximately 25,851,002 shares, or 4.4%, of our common stock following the spin-off
transaction and TCP and RTW, collectively, would have the right to acquire up to approximately
491,169,038 shares, or 83%, of our common stock. See Certain Relationships and Related Party
TransactionsAgreements with TCP and RTW.
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(5) |
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The address for Dr. Khvorova is c/o RXi Pharmaceuticals Corporation, at 60 Prescott Street,
Worcester, Massachusetts 01605. The shares shown will be owned by
Advirna, LLC. Dr. Khvorova is a
director and 50% member of Advirna, LLC and, as such, may be deemed to be
a beneficial owner of the shares shown. Dr. Khvorova disclaims
beneficial ownership of such shares, except to the extent of her pecuniary interest
therein. |
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(6) |
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The address of Advirna, LLC is 10 Rocklawn Road, Westborough, Massachusetts
01581. |
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(7) |
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Includes 22,129,780 shares
issuable upon the conversion of Series A Preferred Stock. Also includes the shares to be
owned by Advirna, LLC that may be deemed to be beneficially owned by Dr. Khorova as described in note 5, above.
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DESCRIPTION OF CAPITAL STOCK
The following information reflects our certificate of incorporation and bylaws as these
documents will be in effect at the time of the distribution.
Authorized Capital Stock
Immediately following the distribution, our authorized capital stock will consist of
1,500,000,000 shares of common stock, par value $0.0001 per share,
and 10,000,000 shares of preferred
stock, par value $0.0001 per share, of which 15,000 shares will be designated as Series A Convertible Preferred Stock, or Series A
Preferred Stock. Immediately following the distribution and the other
transactions referred to in this prospectus, 100,600,887 shares of our common stock will be
outstanding, assuming no exercise of stock options, and 9,500 shares of our Series A Preferred
Stock will be outstanding. The number of outstanding shares of our common
stock gives effect to a 236,708-for-1 stock split effected immediately following the record date for the distribution.
Common Stock
The holders of our common stock will be entitled to one vote for each share on all matters
voted on by stockholders, including elections of directors, and, except as otherwise required by
law or provided in any resolution adopted by our board with respect to any series of preferred
stock, the holders of such shares will possess all voting power. Our certificate of incorporation
does not provide for cumulative voting in the election of directors. The shares of common stock
have no conversion rights or sinking fund provisions and are not liable for further call or
assessment. Subject to any preferential rights of any outstanding series of our preferred stock
created by our board from time to time, the holders of common stock will be entitled to such
dividends as may be declared from time to time by our board from funds available therefor and upon
liquidation will be entitled to receive pro rata all assets available for distribution to such
holders. Our common stock is not redeemable. For a more complete discussion of our dividend
policy, please see Dividend Policy.
The holders of our common stock, other than Galena, will have no preemptive rights. For any
offering and sale of RXi securities that are sold in a capital raising transaction within one year
following the completion of the spin-off transaction, Galena is entitled to preemptive rights to
participate (to the extent permitted under the Securities Act) in each such subsequent offering.
Pursuant to this preemptive right, Galena is entitled to purchase a portion of the securities
offered in each subsequent offering equal to Galenas percentage ownership in our common stock,
determined on an as-converted, fully diluted basis, immediately prior to the consummation of such
subsequent offering.
The rights, preferences and privileges of holders of common stock are subject to, and may
be adversely affected by, the rights of the holders of shares of any series of preferred stock
which we may designate and issue in the future.
Our amended and restated certificate
of incorporation to be in effect upon consummation of the spin-off will include a provision permitting our board of directors
to effect one or more reverse stock splits. If we implement a reverse stock split, the number of shares of our common stock
held by each stockholder would be reduced by multiplying the number of shares held immediately before the reverse stock split
by the appropriate ratio and then rounding down to the nearest whole share. We would then pay cash to each stockholder in lieu
of any fractional interest in a share to which each stockholder would otherwise be entitled as a result of the reverse stock split.
The reverse stock split would not affect any stockholders percentage ownership interest or proportionate voting power, except to
the extent that interests in fractional shares are paid in cash, and the rights pertaining to the outstanding shares of our common
stock would be unchanged after the reverse stock split. Moreover, because the number of shares of authorized common stock would not
be affected, a reverse stock split would result in an increase in the authorized, but unissued, shares of common stock as a percentage
of total authorized shares. Each share of our common stock issued following a reverse stock split would be fully paid and non-assessable.
In addition to adjusting the number of shares of
our common stock, in the event of a reverse stock split, we would adjust any options, warrants and preferred stock in accordance with the
terms of these securities.
69
Preferred Stock
We
are authorized to issue up to 10,000,000 shares of preferred stock,
par value $0.0001 per
share. Our board of directors, without further action by the holders of our common stock, may issue
shares of our preferred stock in one or more series. Our board is vested with the authority to fix by resolution the
designations, preferences and relative, participating, optional or other special rights, and such
qualifications, limitations or restrictions thereof, including, without limitation, redemption
rights, dividend rights, liquidation preferences and conversion or exchange rights of any class or
series of preferred stock, and to fix the number of classes or series of preferred stock, the
number of shares constituting any such class or series and the voting powers for each class or
series.
The authority possessed by our board to issue preferred stock could potentially be used to
discourage attempts by third parties to obtain control of RXi through a merger, tender offer, proxy
contest or otherwise by making such attempts more difficult or more costly. Our board may issue
preferred stock with voting rights or conversion rights that, if exercised, could adversely affect
the voting power of the holders of common stock. There are no current agreements or understandings
with respect to the issuance of preferred stock and our board has no present intention to issue any
shares of preferred stock; provided, however, that we have agreed to issue our Series A Preferred
Stock to TCP and RTW as described below.
Series
A Preferred Stock
We are presently authorized to issue Series A Convertible Preferred Stock (Series A Preferred
Stock), and it is anticipated that, upon the completion of the spin-off transaction, TCP and RTW
will receive 9,000 shares and 500 shares, respectively, of Series A Preferred Stock.
The Series A Preferred Stock has a face value of $1,000 per share and will accrue dividends at
a rate of 7% per annum from the date of issuance through the date of conversion or redemption,
payable quarterly in shares of Series A Preferred Stock.
The holders of Series A Preferred Stock do not have any right to elect directors and have only
limited voting rights, which consist primarily of the right to vote under certain protective
provisions set forth in the Series A Preferred Stock Certificate of
Designations (the Certificate of Designations), regarding: (i) any
proposed amendment to the Series A Preferred Stock or its
right and preferences; and (ii) any proposed Deemed
Liquidation Event as defined
in the Certificate of Designations.
The Series A Preferred Stock will be convertible by a holder at any time into shares of RXi
common stock. The rate at which the Series A Preferred Stock will convert into RXi common stock
will be established prior to the closing of the spin-off transactions, as set forth in the
securities purchase agreement among RXi, Galena, TCP and RTW. The conversion rate will be
adjusted for certain events, such as stock splits, stock dividends, reclassifications and
recapitalizations, and is subject to full-ratchet anti-dilution protection such that any subsequent
issuance of common stock at a price, or in the case of common stock
equivalents, at an effective
conversion price, below the effective conversion price of the Series A Preferred Stock at
the time of such issuance automatically adjusts the conversion price of the Series A Preferred
Stock to such lower price. A holder of Series A Preferred Stock may not convert its preferred
stock to common stock if such conversion would result in the holder beneficially owning more than
9.999% of our then-issued and outstanding shares of common stock.
This limitation on conversion may not be waived.
Upon a Liquidation Event (as defined in the Certificate of Designations), no other class or
series of capital stock can receive any payment unless the Series A Preferred Stock has first
received a payment in an amount equal to $1,000 per share, plus all accrued and unpaid dividends,
if applicable.
70
Anti-Takeover Effects of Provisions of the Certificate of Incorporation and Bylaws
Certificate of Incorporation and Bylaw Provisions
Our amended and restated certificate of incorporation and bylaws to be in effect upon the
consummation of the spin-off will include a number of provisions that may have the effect of
encouraging persons considering unsolicited tender offers or other unilateral takeover proposals to
negotiate with our board of directors rather than pursue non-negotiated takeover attempts. They are
intended to enhance our long-term value to our stockholders by increasing the likelihood of
continued stability in the composition of our board of directors and its policies and discouraging
certain types of transactions that may involve an actual or threatened acquisition of us. These
provisions are also designed to reduce our vulnerability to an unsolicited acquisition proposal and
to discourage certain tactics that may be used in proxy fights. However, such provisions could have
the effect of discouraging others from making tender offers for our shares and, as a consequence,
they also may inhibit fluctuations in the market price of our stock that could result from actual
or rumored takeover attempts. These provisions include the items described below.
Filling Vacancies. Any vacancy on our board of directors, however occurring, including a
vacancy resulting from an increase in the size of our board of directors, may only be filled by the
affirmative vote of a majority of our directors then in office even if less than a quorum.
No Written Consent of Stockholders. Our amended and restated certificate of incorporation
will provide that all stockholder actions are required to be taken by a vote of the stockholders at
an annual or special meeting, and that stockholders may not take any action by written consent in
lieu of a meeting.
Meetings of Stockholders. Our amended and restated certificate of incorporation will provide that only our board of
directors or holders of 5% or more of our outstanding shares of
common stock may call special
meetings of stockholders and only those matters set forth in the notice of the special meeting may
be considered or acted upon at a special meeting of stockholders. Our amended and restated bylaws
will limit the business that may be conducted at an annual meeting of stockholders to those matters
properly brought before the meeting.
Advance Notice Requirements. Our amended and restated bylaws will establish advance notice
procedures with regard to stockholder proposals relating to the nomination of candidates for
election as directors or new business to be brought before meetings of our stockholders. These
procedures provide that notice of stockholder proposals must be timely given in writing to our
corporate secretary prior to the meeting at which the action is to be taken. Generally, to be
timely, notice must be received at our principal executive offices not less than 90 days nor more
than 120 days prior to the first anniversary date of the annual meeting for the preceding year. The
notice must contain certain information specified in the amended and restated bylaws.
Amendment to Bylaws and Certificate of Incorporation. As required by the Delaware General
Corporation Law, or the DGCL, any amendment of our certificate of incorporation must first be
approved by a majority of our board of directors and, if required by law or our certificate of
incorporation, thereafter be approved by a majority of the outstanding shares entitled to vote on
the amendment, and a majority of the outstanding shares of each class entitled to vote thereon as a
class. Our bylaws may be amended by the affirmative vote of a majority vote of the directors then
in office, subject to any limitations set forth in the bylaws.
Blank Check Preferred Stock. Our amended and restated certificate of incorporation will
provide for 10,000,000 authorized shares of preferred stock, of which
15,000 shares will be designated as Series A Preferred Stock. The existence of authorized but
unissued shares of preferred stock may enable our board of directors to render more difficult or to
discourage an attempt to obtain control of us by means of a merger, tender offer, proxy contest, or
otherwise. For example, if in the due
71
exercise of its fiduciary obligations, our board of directors were to determine that a takeover
proposal is not in the best interests of our company or our stockholders, our board of directors
could cause shares of preferred stock to be issued without stockholder approval in one or more
private offerings or other transactions that might dilute the voting or other rights of the
proposed acquirer or insurgent stockholder or stockholder group. In this regard, our amended and
restated certificate of incorporation grants our board of directors broad power to establish the
rights and preferences of authorized and unissued shares of preferred stock. The issuance of shares
of preferred stock could decrease the amount of earnings and assets available for distribution to
holders of shares of common stock. The issuance may also adversely affect the rights and powers,
including voting rights, of these holders and may have the effect of delaying, deterring, or
preventing a change of control of us.
Delaware Business Combination Statute
Section 203 of the DGCL provides that, subject to exceptions set forth therein, an interested
stockholder of a Delaware corporation shall not engage in any business combination, including
mergers or consolidations or acquisitions of additional shares of the corporation, with the
corporation for a three-year period following the date that such stockholder becomes an interested
stockholder unless:
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Prior to such date, the board of directors of the corporation approved either the
business combination or the transaction which resulted in the stockholder becoming an
interested stockholder; |
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Upon consummation of the transaction which resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the voting
stock of the corporation outstanding at the time the transaction commenced, other than
statutorily excluded shares; or |
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On or subsequent to such date, the business combination is approved by the board of
directors of the corporation and authorized at an annual or special meeting of the
stockholders by the affirmative vote of at least 66-2/3% of the outstanding voting
stock which is not owned by the interested stockholder. |
Except as otherwise set forth in Section 203, an interested stockholder is defined to include:
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Any person that is the owner of 15% or more of the outstanding voting stock of the
corporation, or is an affiliate or associate of the corporation and was the owner of
15% or more of the outstanding voting stock of the corporation at any time within three
years immediately prior to the date of determination; and |
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The affiliates and associates of any such person. |
The restrictions contained in Section 203 are not applicable to any of our existing
stockholders that will own 15% or more of our outstanding common stock upon the completion of the
spin-off of RXi.
Section 203 may make it more difficult for a person who would be an interested stockholder to
effect various business combinations with a corporation for a three-year period. We have not
elected to be exempt from the restrictions imposed under Section 203. The provisions of Section
203 may encourage persons interested in acquiring us to negotiate in advance with our board, since
the stockholder approval requirement would be avoided if a majority of the directors then in office
approves either the business combination or the transaction which results in any such person
becoming an interested stockholder. Such provisions also may have the effect of preventing changes
in our management. It is possible that such provisions could make it
72
more difficult to accomplish transactions, which our stockholders may otherwise deem to be in their
best interests.
Transfer Agent and Registrar
Computershare Trust Company, N.A. will be the transfer agent and registrar for our common
stock.
Trading Market
There is no current trading market for our common stock.
We will apply for trading of our common stock in the OTC Markets Group under the symbol "RXII" in conjunction with the effectiveness of the registration statement of which
this prospectus is a part. We expect that our common stock will begin trading in the OTC Markets Group following the distribution.
73
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the distribution of RXi common stock under this prospectus and the other
transactions that constitute the spin-off transaction, we will have outstanding an aggregate of
100,600,887 shares of our common stock. Of these shares, 47,341,594 shares, which constitute the
shares to be distributed pursuant to this prospectus, will be freely tradable without restriction
or further registration under the Securities Act unless the shares are owned by our affiliates as
that term is defined in Rule 144 under the Securities Act. Under the Securities Act, an
affiliate of a company is a person who directly or indirectly controls, is controlled by or is
under common control with that company. Such affiliates may include our directors, executive
officers and principal stockholders.
Immediately
following the distribution of RXi common stock under this prospectus: (1) Galena
will own 23,670,797 shares of
our common stock; and (2) Advirna will own 29,588,496 shares of our
common stock. In addition, TCP and RTW will own shares of our Series A Preferred Stock that are
convertible by either or both stockholders at any time into shares of RXi common stock, except to
the extent that the holder would own more than 9.999% of the shares of our common stock outstanding
immediately after giving effect to such conversion.
The shares of common stock described in the preceding paragraph will be restricted shares
within the meaning of Rule 144 under the Securities Act. Any shares of RXi common stock held by
affiliates and any restricted shares may be sold in the public market only if registered or if
they qualify for an exemption from registration under Rule 144, which is summarized below. Galena
has agreed not to sell or otherwise transfer its shares for a one-year period following the
completion of the spin-off transaction.
Rule 144
In general, under Rule 144 of the Securities Act as currently in effect, once we have been
subject to public company reporting requirements for at least 90 days, a person who is not deemed
to have been one of our affiliates for purposes of the Securities Act at any time during 90 days
preceding a sale and who has beneficially owned the restricted shares proposed to be sold for at
least six months, including the holding period of any prior owner other than our affiliates, is
entitled to sell such shares without complying with the manner of sale, volume limitation or notice
provisions of Rule 144, subject to our compliance with the public information requirements of Rule
144. If such a person has beneficially owned the shares proposed to be sold for at least one year,
including the holding period of any prior owner other than our affiliates, then such person is
entitled to sell such shares without complying with any of the requirements of Rule 144.
In general, under Rule 144, as currently in effect, our affiliates or persons selling shares
on behalf of our affiliates are entitled to sell within any three-month period (after satisfying
the six-month holding period described above with respect to restricted shares) a number of shares
of common stock that does not exceed the greater of:
|
|
|
1% of the number of shares of common stock then outstanding; or |
|
|
|
the average weekly trading volume of our common stock during the four calendar weeks
preceding the filing of a notice on Form 144 with respect to such sale. |
Registration Rights
We
have agreed with TCP and RTW to file a registration statement with the SEC covering the
resale of 20% of the shares of our common stock underlying their
Series A Preferred Stock and
74
to keep the registration statement
effective at all times until the earlier of: (1) the date as of
which TCP and RTW may sell all of their common stock covered by such registration statement
without restriction pursuant to Rule 144; or (2) the date on which TCP and RTW have sold all of the
common stock covered by such registration statement.
We also have granted to TCP and RTW what are commonly known as piggyback registration
rights to include our shares currently owned by TCP and RTW in other registration statements that
we may file with the SEC on behalf of our company or our security holders, provided such offering
is underwritten or placed by a placement agent.
Employee Stock Plans
We currently expect to file a registration statement on Form S-8 under the Securities Act to
register up to 90,000,000 shares of common stock that are issuable
under our 2012 Incentive Plan.
Shares issued upon the exercise of options after the effective date of such registration statement,
other than shares issued to affiliates, generally will be freely tradable without further
registration under the Securities Act.
75
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following discussion describes certain United States federal income tax consequences of
the distribution of RXi common stock to Galenas stockholders. The discussion is for general
information only and does not purport to consider all aspects of federal income taxation that may
be relevant to Galena, RXi or Galenas stockholders. The discussion applies only to United States
persons, not to foreign stockholders (as defined below), except as specifically set forth. The
consequences to any particular stockholder may differ depending upon that stockholders own
circumstances and tax position.
The discussion deals only with shares held as capital assets within the meaning of Section
1221 of the Internal Revenue Code of 1986, as amended (the Code), and does not address matters
that may be relevant to stockholders in light of their particular circumstances. It also does not
address matters that may be relevant to certain stockholders subject to special treatment under the
Code, such as financial institutions, insurance companies, S corporations, partnerships and other
pass-through entities, trusts, stockholders liable for the alternative minimum tax, dealers in
securities or currencies, traders who elect to apply a mark-to-market method of accounting,
tax-exempt organizations, U.S. expatriates, directors, employees, former employees or other persons
who acquired their shares as compensation, including upon the exercise of employee stock options,
and persons who are holding shares as part of a straddle, conversion, constructive sale, hedge or
hedging or other integrated transaction. The discussion does not consider the effect of any
applicable estate tax, gift tax, state, local or foreign tax laws. In addition, this discussion is
based upon the Code, applicable U.S. Treasury regulations, administrative pronouncements and
judicial decisions in effect on the date of this document, all of which are subject to change,
possibly with retroactive effect. Each stockholder is urged to consult his or her tax advisor as to
the particular tax consequences to such stockholder of the distribution, including the application
of state, local and foreign tax laws and possible tax law changes.
IT IS THE OPINION OF TROYGOULD PC, COUNSEL TO
GALENA AND RXi, THAT THE TAX CONSEQUENCES TO GALENA AND ITS STOCKHOLDERS OF THE DISTRIBUTION WILL BE AS SET FORTH BELOW.
Consequences to Galena
Pursuant to Section 311 of the Code, Galena will
recognize a gain on the distribution of shares of RXi common stock in an amount
equal to the excess of the fair market value of the stock distributed
over the basis to Galena of such stock. This gain will be included in determining whether Galena has current year earnings and profits. If
the gain results in Galena having current year earnings and profits, it will affect the tax
treatment of the distribution to Galenas stockholders, as described below.
Consequences to Galenas Stockholders
Each Galena stockholder will be treated as having received a distribution in an amount equal
to the fair market value on the distribution date of RXi shares distributed to such stockholder.
Because Galena has no accumulated earnings and profits, the
distribution will be taxable under Sections 301 and 316 of the Code as a dividend to the extent of Galenas current year earnings and
profits, if any, allocable to such stockholders Galena shares. For certain U.S. non-corporate
taxpayers, dividend income is currently taxed for federal income tax purposes at the same rate as
net long-term capital gain. In accordance with Section 301(c) of the Code, the excess of the fair market value of RXi shares over the allocable
portion of Galenas current year earnings and profits, if any, will be treated first as a
non-taxable return of capital causing a reduction (but not below zero) in the adjusted tax basis in
the
76
stockholders Galena shares, with any remaining excess taxable as capital gain. Galena is presently
unable to make a determination as to whether the gain to Galena from the distribution will result
in Galena having current year earnings and profits such that all or a portion of the amounts
treated as a distribution will be taxed as a dividend.
The stockholders basis in RXi shares received in the distribution will generally equal the
fair market value of such shares as of the distribution date. The stockholders holding period with
respect to RXi shares received will begin on the distribution date.
The actual tax impact of the distribution will be affected by a number of factors that are
unknown at this time, including Galenas final taxable loss for
the year in which the distribution occurs, the gain Galena recognizes
upon the distribution and the fair market value on the distribution date of the RXi shares
distributed to you. Thus, a definitive calculation of the U.S.
federal income tax impact on you
from the distribution will not be possible until after the close of
the year in which the distribution occurs.
Galena will notify you after the end the year in which the
distribution occurs of the tax attributes and amount of the distribution to
you on IRS Form 1099-DIV.
Special Rules Applicable to Corporate Stockholders
To the extent that the distribution to a corporate stockholder is treated as a dividend under
the rules described above, such stockholder may be eligible for the dividends received deduction.
The dividends received deduction is subject to certain limitations. Corporate stockholders should
consult their own tax advisors as to the tax consequences of dividend treatment in their particular
circumstances.
Federal Income Tax Withholding
To prevent backup federal income tax withholding equal to 28% of the distribution, each
non-corporate stockholder who is not a foreign stockholder (as defined below) and who does not
otherwise establish an exemption from backup withholding must notify the distribution agent of the
stockholders correct taxpayer identification number (employer identification number or social
security number), or certify that the taxpayer is awaiting a taxpayer identification number, and
provide certain other information by completing, under penalties of perjury, Internal Revenue
Service (IRS) Form W-9. Failure to timely provide the correct taxpayer identification number on
Form W-9 may subject such stockholder to a $50 penalty imposed by the IRS. A stockholder that is a
foreign stockholder should generally complete and sign an appropriate IRS Form W-8 in order to
avoid backup withholding. For this purpose, a foreign stockholder is any stockholder that is
not:
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|
|
an individual citizen or resident of the United States; |
|
|
|
a corporation (including any entity treated as a corporation for U.S. federal income
tax purposes), partnership or other entity created or organized in or under the laws of
the United States, any state or any political subdivision thereof; |
|
|
|
an estate, the income of which is subject to U.S. federal income taxation regardless
of the source of the income; or |
|
|
|
a trust whose administration is subject to the primary supervision of a U.S. court
and which has one or more United States persons who have the authority to control all
of its substantial decisions or which has elected to be treated as a United States
person. |
77
Consequences for Foreign Stockholders
The treatment, for U.S. federal income tax purposes, of the distribution as a dividend, a
tax-free return of capital or as capital gain for foreign stockholders will be determined in the
manner described above under the caption Consequences to Galenas Stockholders. To the extent
that amounts received by a foreign stockholder are treated as dividends, such dividends will
generally be subject to withholding of United States federal income tax at the rate of 30%, or such
lower rate as may be specified by an applicable income tax treaty or other exemption, provided
Galena has received proper certification of the application of such income tax treaty. A foreign
stockholder that is eligible for a reduced rate of U.S. federal withholding tax under an income tax
treaty may obtain a refund or credit of any excess amounts withheld by filing an appropriate claim
for a refund with the IRS. Amounts treated as dividends that are effectively connected with a
foreign stockholders conduct of a trade or business in the United States and, if provided in an
applicable income tax treaty, are attributable to a permanent establishment in the United States,
are not subject to U.S. federal withholding tax, but generally are instead taxed in the manner
applicable to U.S. persons, as described above. In that case, we will not have to withhold U.S.
federal withholding tax if the foreign stockholder complies with the applicable certification and
disclosure requirements. In addition, dividends received by a foreign corporation that are
effectively connected with the conduct of a trade or business in the United States may be subject
to a branch profits tax at a 30% rate, or a lower rate specified in an applicable income tax
treaty.
In order to obtain a reduced rate of withholding pursuant to a tax treaty, a foreign
stockholder must deliver to the distribution agent before any payment is made to the stockholder a
properly completed and executed IRS Form W-8BEN with respect to the foreign stockholder and, in the
case of a foreign stockholder that is neither an individual nor a corporation, the foreign
stockholder may be required to deliver both a Form W-8IMY and an appropriate Form W-8BEN or Form
W-9 with respect to the partners, members, beneficiaries or owners (and their beneficial owners) of
the foreign stockholder. In order to obtain an exemption from withholding on the grounds that the
gross proceeds paid pursuant to the offer are effectively connected with the conduct of a trade or
business within the United States or otherwise exempt, a foreign stockholder must deliver to the
distribution agent before any payment is made to the stockholder a properly completed and executed
IRS Form W-8ECI or IRS Form W-8EXP, as applicable. Galena and the distribution agent will determine
a stockholders status as a foreign stockholder and eligibility for a reduced rate of, or exemption
from, withholding by reference to any outstanding certificates or statements concerning eligibility
for a reduced rate of, or exemption from, withholding (e.g., IRS Form W-8BEN, IRS Form W-8ECI or
IRS Form W-8EXP) unless the facts and circumstances indicate that reliance is not warranted.
Because the distribution agent cannot determine whether payments to any particular stockholder
will qualify for sale or exchange treatment, the distribution agent will withhold 30% of any gross
payments made to a foreign stockholder pursuant to the offer (as if such payments were a dividend)
unless a reduced rate of withholding or an exemption from withholding is applicable. Foreign
stockholders should consult their own tax advisors regarding their entitlement to benefits under an
applicable income tax treaty or other exemption and the manner of claiming the benefits of such
treaty or other exemption.
Information Reporting
A copy of this prospectus will be provided to Galenas stockholders and to the IRS, reporting
the payment of the total purchase price (except with respect to stockholders that are exempt from
the information reporting rules, such as corporations).
LEGAL MATTERS
TroyGould PC, Los Angeles, California, has rendered opinions with respect to the validity of
the shares of common stock to be distributed in the spin-off transaction and with respect to
certain tax matters
78
regarding the spin-off transaction. Immediately after the distribution, TroyGould PC will own approximately
23,491 shares of our common stock, and certain members, employees and counsel of TroyGould PC will
own in the aggregate approximately 532,000 shares of our common stock.
EXPERTS
The
financial statements of the Predecessor (RNAi) (the carve-out entity) as of December 31, 2010 and 2009 and for the years then ended included in this
prospectus and in the Registration Statement have been so included in reliance on the report of BDO
USA, LLP, an independent registered public accounting firm.
The
balance sheet of RXi Pharmaceuticals
Corporation (Registrant) as of September 8, 2011 included in
this Prospectus and in the Registration Statement have been so
included in reliance on the report of BDO USA, LLP, an independent
registered public accounting firm.
79
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-1 under the Securities Act with the SEC to
register the shares of RXi common stock covered by this prospectus. This prospectus does not
contain all of the information set forth in the registration statement and the exhibits and
schedules thereto, as some items are omitted in accordance with the rules and regulations of the
SEC. For further information about us and the RXi common stock, we refer you to the registration
statement on Form S-1. Statements contained in this prospectus as to the contents of any contract,
agreement or other document referred to are not necessarily complete, and in each instance
reference is made to the copy of each contract, agreement or other document filed as an exhibit to
the registration statement, each statement being qualified by this reference.
Following the distribution of the RXi common stock, we will be required to comply with the
reporting requirements of the Exchange Act and will file annual, quarterly and other reports with
the SEC. We will also be subject to the proxy solicitation requirements of the Exchange Act. We
will make available free of charge on our website our annual reports on Form 10-K, quarterly
reports on Form 10-Q and current reports on Form 8-K and amendments to those reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable
after we electronically file such material with, or furnish it to, the SEC. We also intend to
deliver to our holders of common stock annual reports containing consolidated financial statements
prepared in accordance with United States generally accepted accounting principles and audited and
reported on, with an opinion expressed thereto, by an independent registered public accounting
firm.
You may read and copy all or any portion of the registration statement or any reports,
statements or other information we file with the SEC at the SECs public reference room at 100 F
Street, NE, Washington, DE 20549. You can request copies of these documents upon payment of a
duplicating fee, by writing to the SEC. Please call the SEC at 1-800-SEC-0330 for further
information on the operation of the public reference rooms. Our SEC filings, including the
registration statement, will also be available to you on the SECs website at www.sec.gov. In
addition, you may request a copy of these filings (excluding exhibits) at no cost by writing or
telephoning us at the following address or telephone number:
RXi Pharmaceuticals Corporation
Investor Relations
60 Prescott Street
Worcester, Massachusetts 01605
Telephone: (508) 767-3861
We maintain a website at www.rxipharma.com. Our website and the information
contained on that site, or connected to that site, is not part of or incorporated by reference into
this prospectus.
No person is authorized to give any information or to make any representations other than
those contained in this prospectus, and, if given or made, such information or representations must
not be relied upon as having been authorized. Neither the delivery of this prospectus nor any
distribution of securities made hereunder shall imply that there has been no change in the
information set forth herein or in our affairs since the date of this prospectus.
80
INDEX TO
RXi PHARMACEUTICALS CORPORATION (REGISTRANT) AND PREDECESSOR (RNAi) CARVE-OUT
FINANCIAL STATEMENTS
(A Development-Stage Company)
|
|
|
|
|
Page No. |
Index to Financial Statements |
|
|
|
|
F-2 |
|
|
F-4 |
|
|
F-5 |
|
|
F-6 |
|
|
F-7 |
|
|
F-9 |
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
RXi Pharmaceuticals Corporation
Worcester, Massachusetts
We have
audited the accompanying balance sheets of the Predecessor (RNAi) (the
carve-out entity) (the Company), a development stage company, as of
December 31, 2010 and 2009 and the related statements of expenses,
divisional equity (deficit), and cash flows for the years then ended.
These financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements
based on our audits.
We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of its internal control
over financial reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the Companys internal control
over financial reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall presentation of the financial statements. We believe that our
audits provide a reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all material
respects, the financial position of the Predecessor (RNAi) (the
carve-out entity) at December 31, 2010 and 2009 and the results
of its operations and its cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States of America.
Boston, Massachusetts
October 25, 2011
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
RXi Pharmaceuticals Corporation
Worcester, Massachusetts
We have
audited the accompanying balance sheet of RXi Pharmaceuticals
Corporation, (Registrant) (a subsidiary of Galena Biopharma,
Inc.) (the Company), a development stage company, as of
September 8, 2011.
This financial statement is the responsibility of the Companys management. Our
responsibility is to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of its internal control
over financial reporting. Our audit included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the Companys internal control
over financial reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall presentation of the financial statement. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statement referred to above present fairly, in all material
respects, the financial position of RXi Pharmaceuticals Corporation
(Registrant) at September 8, 2011, in conformity with
accounting principles generally accepted in the United States of America.
Boston, Massachusetts
February 10, 2012
F-3
RXi
PHARMACEUTICALS CORPORATION (REGISTRANT) AND PREDECESSOR (RNAi)
(A Development Stage Company)
BALANCE SHEETS
(Amounts in thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RXi (Registrant) |
|
Predecessor
(RNAi) |
|
|
Registrant |
|
Registrant |
|
December 31, |
|
|
|
September 30, 2011 |
|
September 8, 2011 |
|
2010 |
|
|
2009 |
|
|
|
(unaudited) |
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
422 |
|
$ |
|
|
$ |
6,891 |
|
|
$ |
5,684 |
|
Prepaid expenses |
|
|
298 |
|
|
|
|
|
150 |
|
|
|
120 |
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
720 |
|
|
|
|
|
7,041 |
|
|
|
5,804 |
|
|
|
|
|
|
|
|
|
|
|
|
Equipment and furnishings, net of accumulated
depreciation and amortization of $615, $491 and $320 in 2011,
2010 and 2009, respectively |
|
|
428 |
|
|
|
|
|
419 |
|
|
|
432 |
|
Deposits |
|
|
|
|
|
|
|
|
16 |
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,148 |
|
$ |
|
|
$ |
7,476 |
|
|
$ |
6,252 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES,
STOCKHOLDERS EQUITY (DEFICIT)
AND DIVISIONAL EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
936 |
|
$ |
|
|
$ |
724 |
|
|
$ |
625 |
|
Accrued expense and other current liabilities |
|
|
604 |
|
|
|
|
|
1,113 |
|
|
|
1,077 |
|
Convertible notes payable |
|
|
500 |
|
|
|
|
|
|
|
|
|
|
|
Deferred revenue |
|
|
877 |
|
|
|
|
|
|
|
|
|
|
|
Current maturities of capital lease obligations |
|
|
40 |
|
|
|
|
|
51 |
|
|
|
52 |
|
Derivatives potentially settleable in cash |
|
|
|
|
|
|
|
|
3,138 |
|
|
|
3,721 |
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
2,957 |
|
|
|
|
|
5,026 |
|
|
|
5,475 |
|
Capital lease obligations, net of current maturities |
|
|
5 |
|
|
|
|
|
20 |
|
|
|
36 |
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
2,962 |
|
|
|
|
|
5,046 |
|
|
|
5,511 |
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Notes 7, 11, and 12) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders
equity (deficit): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock, $0.0001 par value; 1,000 shares authorized and 100 issued and
outstanding at September 30, 2011 and September 8, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
accumulated since incorporation (Note 1) |
|
|
(1,814 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
stockholders equity (deficit) |
|
|
(1,814 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
divisional equity |
|
|
|
|
|
|
|
|
2,430 |
|
|
|
741 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities, stockholders equity (deficit) and divisional equity |
|
$ |
1,148 |
|
$ |
|
|
$ |
7,476 |
|
|
$ |
6,252 |
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
F-4
RXi
PHARMACEUTICALS CORPORATION (REGISTRANT) AND PREDECESSOR (RNAi)
(A Development Stage Company)
STATEMENTS OF EXPENSES
(Amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
(RNAi) and RXi (Registrant)(1) |
|
|
Predecessor
(RNAi) |
|
|
Period from |
|
|
|
|
|
|
|
|
|
January 1, 2003 |
|
|
Nine Months Ended |
|
|
Years Ended |
|
|
|
(Date of Inception) |
|
|
September 30, |
|
|
December 31, |
|
|
|
to
September 30, 2011 |
|
|
2011 |
|
|
2010 |
|
|
2010 |
|
|
2009 |
|
|
|
(unaudited) |
|
|
(unaudited) |
|
|
(unaudited) |
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expense |
|
$ |
31,335 |
|
|
$ |
4,652 |
|
|
$ |
4,589 |
|
|
$ |
6,046 |
|
|
$ |
6,728 |
|
Research and development employee stock-based compensation expense |
|
|
2,878 |
|
|
|
471 |
|
|
|
814 |
|
|
|
1,084 |
|
|
|
867 |
|
Research and development non-employee stock-based compensation
expense |
|
|
6,014 |
|
|
|
(49 |
) |
|
|
723 |
|
|
|
743 |
|
|
|
1,297 |
|
Fair value of Parent Company common stock issued in exchange for
licensing rights |
|
|
3,954 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total research and development expense |
|
|
44,181 |
|
|
|
5,074 |
|
|
|
6,126 |
|
|
|
7,873 |
|
|
|
8,892 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expense |
|
|
24,637 |
|
|
|
3,527 |
|
|
|
4,228 |
|
|
|
5,493 |
|
|
|
5,483 |
|
Fair value of Parent Company common stock warrants issued for
general and administrative expense |
|
|
2,385 |
|
|
|
91 |
|
|
|
654 |
|
|
|
718 |
|
|
|
826 |
|
Fair value of Parent Company common stock issued in exchange for
general and administrative expenses |
|
|
304 |
|
|
|
23 |
|
|
|
|
|
|
|
|
|
|
|
281 |
|
General and administrative employee stock-based compensation expense |
|
|
8,950 |
|
|
|
1,565 |
|
|
|
1,921 |
|
|
|
2,541 |
|
|
|
2,038 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total general and administrative expense |
|
|
36,276 |
|
|
|
5,206 |
|
|
|
6,803 |
|
|
|
8,752 |
|
|
|
8,628 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
(80,457 |
) |
|
|
(10,280 |
) |
|
|
(12,929 |
) |
|
|
(16,625 |
) |
|
|
(17,520 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income (expense) |
|
|
629 |
|
|
|
1 |
|
|
|
5 |
|
|
|
5 |
|
|
|
(5 |
) |
Other income (expense) |
|
|
6,278 |
|
|
|
2,513 |
|
|
|
2,762 |
|
|
|
4,627 |
|
|
|
(862 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before provision for income taxes |
|
|
(73,550 |
) |
|
|
(7,766 |
) |
|
|
(10,162 |
) |
|
|
(11,993 |
) |
|
|
(18,387 |
) |
Provision for income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(73,550 |
) |
|
$ |
(7,766 |
) |
|
$ |
(10,162 |
) |
|
$ |
(11,993 |
) |
|
$ |
(18,387 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The statements of expenses for the nine months ended
September 30, 2011 and for the period from January 1, 2003 (date of
inception) to September 30, 2011 include the results of operations of
the carved-out Predecessor (RNAi) entity from the beginning of the periods
presented to September 23, 2011 combined with the results of operations
of RXi (Registrant) for the period September 24, 2011 to September 30,
2011. |
See accompanying notes to financial statements.
F-5
RXi
PHARMACEUTICALS CORPORATION (REGISTRANT) AND PREDECESSOR (RNAi)
(A Development Stage Company)
STATEMENTS
OF STOCKHOLDERS EQUITY (DEFICIT) FOR THE PERIOD FROM SEPTEMBER 24, 2011 TO SEPTEMBER 30, 2011, DIVISIONAL EQUITY FOR THE PERIOD FROM APRIL 3, 2006 TO
SEPTEMBER 23,
2011 AND PARENT COMPANYS NET DEFICIT FOR THE PERIOD FROM
JANUARY 1, 2003 (DATE OF INCEPTION) TO
DECEMBER 31, 2006
(Amounts in thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
Predecessor |
|
|
|
|
|
|
RXi (Registrant) |
|
|
(RNAi) |
|
|
(CytRx) |
|
| |
|
|
|
|
|
|
|
|
Deficit Accumulated |
|
|
|
|
|
Parent |
|
|
|
|
|
|
Common Stock |
|
|
Since |
|
|
Divisional |
|
|
Companys |
|
|
|
|
|
|
Shares Issued |
|
|
Amount |
|
|
Incorporation |
|
|
Equity |
|
|
Net Deficit |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inception, January 1, 2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(89 |
) |
|
|
(89 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(89 |
) |
|
|
(89 |
) |
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,272 |
) |
|
|
(3,272 |
) |
Net transactions with Parent Company |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,393 |
|
|
|
2,393 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(968 |
) |
|
|
(968 |
) |
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,209 |
) |
|
|
(2,209 |
) |
Net transactions with Parent Company |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,727 |
|
|
|
2,727 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(450 |
) |
|
|
(450 |
) |
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,405 |
) |
|
|
(2,405 |
) |
Net transactions with Parent Company |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,587 |
|
|
|
2,587 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
(268 |
) |
|
$ |
(268 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 3, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Cash contributions from Parent Company |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
2 |
|
Non-cash equity adjustments from Parent Company |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,318 |
|
|
|
|
|
|
|
4,318 |
|
Cash contributions from Parent Company |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,679 |
|
|
|
|
|
|
|
15,679 |
|
Stock-based compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,814 |
|
|
|
|
|
|
|
1,814 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,990 |
) |
|
|
|
|
|
|
(10,990 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,823 |
|
|
|
|
|
|
|
10,823 |
|
Non-cash equity adjustments from Parent Company |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
750 |
|
|
|
|
|
|
|
750 |
|
Cash contributions from Parent Company |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,944 |
|
|
|
|
|
|
|
7,944 |
|
Stock based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,824 |
|
|
|
|
|
|
|
3,824 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,373 |
) |
|
|
|
|
|
|
(14,373 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,968 |
|
|
|
|
|
|
|
8,968 |
|
Non-cash equity adjustments from Parent Company, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,756 |
) |
|
|
|
|
|
|
(1,756 |
) |
Cash contributions from Parent Company |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,714 |
|
|
|
|
|
|
|
7,714 |
|
Stock based compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,202 |
|
|
|
|
|
|
|
4,202 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18,387 |
) |
|
|
|
|
|
|
(18,387 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
741 |
|
|
|
|
|
|
|
741 |
|
Non-cash equity adjustments from Parent Company, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,326 |
) |
|
|
|
|
|
|
(2,326 |
) |
Cash contributions from Parent Company, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,640 |
|
|
|
|
|
|
|
11,640 |
|
Stock-based compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,368 |
|
|
|
|
|
|
|
4,368 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,993 |
) |
|
|
|
|
|
|
(11,993 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,430 |
|
|
|
|
|
|
|
2,430 |
|
Non-cash equity adjustments from Parent Company, net (unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,083 |
) |
|
|
|
|
|
|
(8,083 |
) |
Cash contributions to Parent Company, net (unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
369 |
|
|
|
|
|
|
|
369 |
|
Stock-based compensation expense (unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,987 |
|
|
|
|
|
|
|
1,987 |
|
Reclassification
of derivative liability upon elimination of obligation (unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,249 |
|
|
|
|
|
|
|
9,249 |
|
Net loss -
Predecessor (RNAi) (unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,682 |
) |
|
|
|
|
|
|
(7,682 |
) |
Recapitalization
of divisional deficit (unaudited) |
|
|
100 |
|
|
|
|
|
|
|
(1,730 |
) |
|
|
1,730 |
|
|
|
|
|
|
|
|
|
Net loss - RXi (Registrant) (unaudited) |
|
|
|
|
|
|
|
|
|
|
(84 |
) |
|
|
|
|
|
|
|
|
|
|
(84 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2011 (unaudited) |
|
|
100 |
|
|
$ |
|
|
|
$ |
(1,814 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
(1,814 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
F-6
RXi
PHARMACEUTICALS CORPORATION (REGISTRANT) AND PREDECESSOR (RNAi)
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(Amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
(RNAi) and RXi (Registrant)(1) |
|
|
Predecessor
(RNAi) |
|
|
Period from |
|
|
|
|
|
|
|
|
|
January 1, 2003 |
|
|
|
|
|
|
|
|
|
(Date of |
|
|
|
|
|
|
|
|
|
Inception) through |
|
|
Nine
Months Ended September 30, |
|
|
Years Ended December 31, |
|
|
|
September
30, 2011 |
|
|
2011 |
|
|
2010 |
|
|
2010 |
|
|
2009 |
|
|
|
(unaudited) |
|
|
(unaudited) |
|
|
(unaudited) |
|
|
|
|
|
|
|
Cash flows from operating activities : |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(73,550 |
) |
|
$ |
(7,766 |
) |
|
$ |
(10,162 |
) |
|
$ |
(11,993 |
) |
|
$ |
(18,387 |
) |
Adjustment to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense |
|
|
625 |
|
|
|
124 |
|
|
|
127 |
|
|
|
172 |
|
|
|
162 |
|
Loss on disposal of equipment |
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4 |
|
Non-cash rent expense |
|
|
29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion and receipt of bond discount |
|
|
35 |
|
|
|
|
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
Non-cash stock-based compensation |
|
|
17,844 |
|
|
|
1,987 |
|
|
|
3,458 |
|
|
|
4,368 |
|
|
|
4,202 |
|
Loss on exchange of derivatives |
|
|
900 |
|
|
|
900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of Parent Companys shares mandatorily redeemable for cash upon
exercise of warrants |
|
|
(785 |
) |
|
|
|
|
|
|
|
|
|
|
(785 |
) |
|
|
|
|
Fair value of Parent Company derivatives issued in exchange for services |
|
|
2,385 |
|
|
|
91 |
|
|
|
654 |
|
|
|
718 |
|
|
|
826 |
|
Fair value of Parent Companys common stock issued in exchange for services |
|
|
304 |
|
|
|
23 |
|
|
|
|
|
|
|
|
|
|
|
281 |
|
Change in fair value of derivatives of Parent Company issued in connection with
various equity financings |
|
|
(5,604 |
) |
|
|
(3,413 |
) |
|
|
(2,762 |
) |
|
|
(3,049 |
) |
|
|
858 |
|
Fair value of Parent Companys common stock issued in exchange for licensing rights |
|
|
3,954 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and other assets |
|
|
(282 |
) |
|
|
(132 |
) |
|
|
(214 |
) |
|
|
(30 |
) |
|
|
(47 |
) |
Accounts payable |
|
|
936 |
|
|
|
212 |
|
|
|
211 |
|
|
|
99 |
|
|
|
231 |
|
Due to former Parent Company |
|
|
(207 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued expenses and other current liabilities |
|
|
1,238 |
|
|
|
(82 |
) |
|
|
306 |
|
|
|
243 |
|
|
|
101 |
|
Deferred revenue |
|
|
877 |
|
|
|
877 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities |
|
|
(51,289 |
) |
|
|
(7,179 |
) |
|
|
(8,388 |
) |
|
|
(10,257 |
) |
|
|
(11,769 |
) |
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of short-term investments |
|
|
(37,532 |
) |
|
|
|
|
|
|
(5,990 |
) |
|
|
(5,990 |
) |
|
|
|
|
Maturities of short-term investments |
|
|
37,497 |
|
|
|
|
|
|
|
|
|
|
|
5,990 |
|
|
|
|
|
Cash paid for purchase of equipment and furnishings |
|
|
(739 |
) |
|
|
(53 |
) |
|
|
(65 |
) |
|
|
(106 |
) |
|
|
(82 |
) |
Disposal of equipment and furnishings |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
Cash refunded (paid) for lease deposit |
|
|
(45 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(820 |
) |
|
|
(53 |
) |
|
|
(6,055 |
) |
|
|
(106 |
) |
|
|
(83 |
) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash contributions from Parent Company, net |
|
|
43,497 |
|
|
|
369 |
|
|
|
11,641 |
|
|
|
11,640 |
|
|
|
7,714 |
|
Proceeds from convertible note |
|
|
500 |
|
|
|
500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of capital lease obligations |
|
|
(232 |
) |
|
|
(106 |
) |
|
|
(46 |
) |
|
|
(70 |
) |
|
|
(34 |
) |
Cash advances from former Parent Company, net |
|
|
8,766 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
52,531 |
|
|
|
763 |
|
|
|
11,595 |
|
|
|
11,570 |
|
|
|
7,680 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents |
|
|
422 |
|
|
|
(6,469 |
) |
|
|
(2,848 |
) |
|
|
1,207 |
|
|
|
(4,172 |
) |
Cash and cash equivalents at the beginning of period |
|
|
|
|
|
|
6,891 |
|
|
|
5,684 |
|
|
|
5,684 |
|
|
|
9,856 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
422 |
|
|
$ |
422 |
|
|
$ |
2,836 |
|
|
$ |
6,891 |
|
|
$ |
5,684 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash received during the period for interest |
|
$ |
724 |
|
|
$ |
|
|
|
$ |
1 |
|
|
$ |
|
|
|
$ |
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for interest |
|
$ |
8 |
|
|
$ |
1 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The statements of cash flows for the nine months ended
September 30, 2011 and for the period from January 1, 2003 (date of
inception) to September 30, 2011 include the cash flows of the carved-out
Predecessor (RNAi) entity from the beginning of the periods
presented to September 23, 2011 combined with the cash flows
of RXi (Registrant) for the period September 24, 2011 to September 30,
2011. |
See accompanying notes to financial statements.
F-7
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor
(RNAi) and RXi (Registrant)(1) |
|
|
Predecessor
(RNAi) |
|
|
Period From |
|
|
|
|
|
|
|
|
|
January 1, 2003 |
|
|
|
|
|
|
|
|
|
(Date of |
|
|
|
|
|
|
|
|
|
Inception) through |
|
|
Nine
Months Ended September 30, |
|
|
Years Ended December 31, |
|
|
|
September
30, 2011 |
|
|
2011 |
|
|
2010 |
|
|
2010 |
|
|
2009 |
|
|
|
(Amounts in thousands) |
|
|
|
(unaudited) |
|
|
(unaudited) |
|
|
(unaudited) |
|
|
|
|
|
|
|
Supplemental disclosure of
non-cash investing and financing
activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement of corporate
formation expenses in exchange
for Parent Company common stock |
|
$ |
978 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of derivatives
issued in connection with Parent Company common
stock |
|
$ |
14,072 |
|
|
$ |
8,743 |
|
|
$ |
2,466 |
|
|
$ |
2,466 |
|
|
$ |
2,863 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of Parent
Company shares mandatorily
redeemable for cash upon
exercise of warrants |
|
$ |
785 |
|
|
$ |
|
|
|
$ |
785 |
|
|
$ |
785 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocation of management expenses |
|
$ |
551 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment and furnishings
exchanged for Parent Company common stock |
|
$ |
48 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment and furnishings
acquired through capital lease |
|
$ |
277 |
|
|
$ |
80 |
|
|
$ |
53 |
|
|
$ |
53 |
|
|
$ |
101 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash lease deposit |
|
$ |
50 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of Parent Company
restricted stock units and common
stock issued in lieu of bonuses
included in accrued expenses |
|
$ |
474 |
|
|
$ |
427 |
|
|
$ |
47 |
|
|
$ |
47 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of Parent Company
restricted stock units issued in
lieu of cash bonuses |
|
$ |
207 |
|
|
$ |
|
|
|
$ |
207 |
|
|
$ |
207 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclass of derivative liability upon elimination of obligation |
|
$ |
9,249 |
|
|
$ |
9,249 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The statements of cash flows for the nine months ended
September 30, 2011 and for the period from January 1, 2003 (date of
inception) to September 30, 2011 include the cash flows of the carved-out
Predecessor (RNAi) entity from the beginning of the periods
presented to September 23, 2011 combined with cash the flows
of RXi (Registrant) for the period September 24, 2011 to September 30,
2011. |
See accompanying notes to financial statements.
F-8
RXi
PHARMACEUTICALS CORPORATION (REGISTRANT) AND PREDECESSOR (RNAi)
(A Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
(Information as of September 30, 2011 and for the
nine months ended September 30, 2011 and 2010 is
unaudited)
1. Nature of Business
Prior
to December 31, 2010, Galena Biopharma, Inc. (Galena or
the Parent Company) (formerly known as RXi
Pharmaceuticals Corporation) engaged primarily in conducting
discovery research and preclinical development activities based on RNAi, and Galenas financial
statements for periods through December 31, 2010 primarily reflected assets, liabilities and
results of operations attributable to Galenas RNAi-based assets, liabilities and results of
operations. Subsequent to December 31, 2010 but prior to September 30, 2011, Galena broadened its
strategic direction by adding the development and commercialization of cancer therapies that
utilize peptide-based immunotherapy products, including a main product candidate, NeuVax, for the
treatment of various cancers. On September 24, 2011, Galena contributed to RXi Pharmaceuticals
Corporation (RXi, Registrant, or the Company), a newly
formed subsidiary of Galena, substantially all of
Galenas RNAi-related technologies and assets. The newly formed RXi was incorporated on September 8, 2011 with the
issuance of 100 initial shares at a price of $0.01 per share for total
consideration of $1.00.
Accordingly,
the historical financial information for the nine-month periods ended September 30,
2011 and 2010, the fiscal years ended December 31, 2010 and 2009, as well as the cumulative period from
inception (January 1, 2003) through September 30, 2011, has been
carved out of the financial
statements of Galena, as our Predecessor, for such periods, and includes activities through September 23, 2011. Such financial information is limited
to Galenas RNAi-related activities, assets and liabilities
only, and excludes activities, assets and
liabilities that are attributable to Galenas cancer therapy
activities. The financial information for the periods ended September 30, 2011 also includes the results of RXi for the period from September 24, 2011 to September 30, 2011. RXi was formed on September 8, 2011 and
was not engaged in any activities other than its initial
incorporation from September 8, 2011 to September 23, 2011. The
Company has also included the balance sheet of RXi (Registrant) as of
September 8, 2011, the date of incorporation. There was no other
activity on that date. Accordingly, no statement of expenses or cash
flows has been presented for the period ended September 8, 2011.
The carved-out financial information includes both direct and indirect expenses. The
historical direct expenses consist primarily of the various costs for technology license
agreements, sponsored research agreements and fees paid to scientific advisors, and employees
directly involved in RNAi-related activities. Indirect expenses represent expenses incurred by
Galena on behalf of the RNAi business that have been allocated to the RNAi business. The indirect expenses are based upon (1)
estimates of the percentage of time spent by individual Galena employees working on RNAi business matters and
(2) allocations of various expenses associated with each employee including salary, benefits, rent
associated with an employees office space, accounting and other general and administrative
expenses. The percentage of time spent by individual Galena employees was then multiplied by the
allocation of various expenses associated with those employees to develop an allocation of expense
per employee and the sum of such allocations for these employees equals the total expense
allocable to the RNAi business and reflected in the carved-out financial
statements.
Management believes the assumptions underlying the allocations of indirect
expenses in the carve-out financial information are reasonable;
however, the financial
position, results of operations, and cash flows may have been materially different if the RNAi business
had operated as a stand-alone entity as of and for nine months ended September 30, 2011.
The financial statements included
in this filing reflect the recapitalization of our Predecessors
divisional deficit as of September 24, 2011, the
date Galena contributed assets to RXi. This information was not
separately disclosed in previous filings. The recapitalization on September 24, 2011 reflects the elimination of the
Predecessors divisional deficit of $1,730,000 and the issuance of
100 shares of RXi common stock, par value $0.0001,
with a corresponding charge of $(1,730,000) to deficit accumulated
since incorporation. No amounts were reflected in
additional paid-in capital due to the divisional deficit at the date of
the recapitalizaton.
RXi was formed on September 8, 2011 and was not engaged in any
activities other than its initial incorporation from September 8,
2011 to September 23, 2011. The RNAi business operated as a division
of Galena prior to September 24, 2011.
The balance of $(1,814,000) in deficit accumulated since incorporation at September 30, 2011
includes RXis net loss of $84,000 for the period September 24, 2011 to September 30, 2011
and the Predecessors cumulative net loss of $73,466,000
through September 23, 2011 offset
by cash and non-cash equity transactions of $71,736,000.
To
date, RXis principal activities including that of its
Predecessor have consisted
of conducting discovery research and preclinical development activities utilizing the
RNAi therapeutic platform, acquiring RNAi technologies and patent rights through
exclusive, co-exclusive and non-exclusive licenses, recruiting an RNAi-focused management
and scientific/clinical advisory team, capital raising activities and conducting business
development activities aimed at establishing research and development partnerships with
pharmaceutical and larger biotechnology companies.
The Company and its Predecessor have not generated any revenues since inception nor
are any revenues expected for the foreseeable future and as such the Company is considered
a development stage company for accounting purposes. The Company expects to incur
significant operating losses for the foreseeable future while the Company advances its
future product
F-9
RXi
PHARMACEUTICALS CORPORATION (REGISTRANT) AND PREDECESSOR (RNAi)
(A Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
(Information as of September 30, 2011 and for the
nine months ended September 30, 2011 and 2010 is
unaudited)
candidates from discovery through preclinical studies and clinical trials and seek
regulatory approval and potential commercialization, even if the Company is collaborating
with pharmaceutical and larger biotechnology companies. The Company will need to generate
significant revenues to achieve profitability and may never do so.
On September 24, 2011, RXi entered into a contribution agreement with Galena pursuant to which:
|
|
|
Galena assigned and contributed to us substantially all of its RNAi-related technologies and
assets, which consist primarily of novel RNAi compounds and licenses from Dharmacon,
Inc., Northwestern University, the Carnegie Institute of Washington, and the University of
Massachusetts Medical School relating to its RNAi technologies, as well as the lease of its
Worcester, Massachusetts laboratory facility, fixed assets and other equipment located at the
facility and its employment arrangements with certain scientific, corporate and administrative
personnel who have become our employees, as well as research grants from the National
Institute of Neurological Disorders and Stroke, National Institute of Allergy and Infectious
Diseases, and the National Institute of General Medical Sciences of approximately $800,000
that are subject to the approval of the granting institutions; and
|
|
|
|
RXi agreed to assume certain recent accrued expenses of the RXi-109 development program and
all future obligations under the contributed licenses, employment arrangements and other agreements, and RXi agreed to
make future milestone payments to Galena of up to $45 million, consisting of two one-time payments of $15 million and $30
million, respectively, if RXi achieves annual net sales equal to or greater than $500 million and $1 billion, respectively,
of any covered products that may be developed with the contributed RNAi technologies. |
On September 24, 2011, RXi entered into a securities purchase agreement with Galena,
Tang Capital Partners, LP (TCP) and RTW Investments, LLC
(RTW) pursuant to which:
|
|
|
TCP and RTW agreed to purchase a total of $9,500,000 of RXis Series A Convertible
Preferred Stock (the Series A Preferred Stock) at the closing of the spin-off transaction
and to lend to RXi up to $1,500,000 to fund RXis operations prior to the closing, with the
outstanding principal and accrued interest on the loan to be converted into Series A Preferred
Stock at the closing, at a conversion price of $1,000 per share, and such conversion will be
applied to the $9,500,000 total investment by TCP and RTW;
|
|
|
|
RXi agreed that the Series A Preferred Stock will be convertible by TCP or RTW at any time
into shares of RXi common stock, except to the extent that the holder would own more than
9.999% of the shares of RXi common stock outstanding immediately after giving effect to
such conversion. Without regard to this conversion limitation, the shares of the Series A
Preferred Stock to be held by TCP and RTW would be convertible into shares of RXi
common stock representing approximately 83% of the fully diluted shares of RXi common
stock upon the completion of the spin-off transaction;
|
|
|
|
Galena agreed to contribute $1.5 million of cash to RXi; |
|
|
|
Galena agreed to distribute to its stockholders 8% of the fully diluted shares of common stock
of RXi that will be outstanding immediately upon the completion of the spin-off transaction; and
|
|
|
|
RXi agreed to reimburse, upon completion of the spin-off transaction, Galena for up to a total
of $300,000, and TCP and RTW for a total of up to $100,000, of transaction costs relating to
the contribution agreement with Galena, the securities purchase agreement summarized above
and the transactions contemplated by those agreements.
|
As of November 28, 2011, TCP and
RTW have advanced $500,000 to RXi under this bridge loan arrangement. The Company believes that the cash received from the
securities purchase agreement should be sufficient to fund RXis operations through December 31, 2012. In the future,
RXi will be dependent on obtaining funding from third parties, such as proceeds from the sale of equity, funded research
and development programs and payments under partnership and collaborative agreements, in order to maintain RXis
operations and meet RXis obligations to licensors. There is no guarantee that debt, additional equity or other funding
will be available to the Company on acceptable terms, or at all. If the Company fails to obtain additional funding
when needed, RXi would be forced to scale back, or terminate the Company operations or to seek to merge with or to
be acquired by another company.
As part of the transactions contemplated by the contribution and securities purchase agreements, on
September 24, 2011, RXi entered into an agreement with Advirna, LLC (Advirna), a company affiliated
with Anastasia Khvorova, Ph.D., RXis Senior Vice President and Chief Scientific Officer, pursuant to which:
|
|
|
Advirna assigned to RXi its existing patent and technology rights related to sd-rxRNA
technology in exchange for RXis agreement to pay Advirna an annual $100,000 maintenance
fee and a one-time $350,000 milestone payment upon the future issuance of the first patent
with valid claims covering the assigned patent and technology rights;
|
|
|
|
RXi will be required to pay a 1% royalty to Advirna for any licensing revenue received by
RXi with respect to future licensing of the assigned Advirna patent and technology rights;
|
|
|
|
RXi has granted back to Advirna a license under the assigned patent and technology for fields
of use outside the fields of human therapeutics and diagnostics; and
|
|
|
|
RXi has agreed to issue to Advirna, upon the completion of the spin-off transaction, shares of
RXis common stock equal to approximately 5% of the fully diluted shares of RXi common
stock assuming the conversion in full of all outstanding Series A Preferred Stock.
|
On September 24, 2011, RXi entered into employment agreements with Anastasia Khvorova, Ph.D., and Pamela Pavco, Ph.D., pursuant to which:
|
|
|
Dr. Khvorova serves as RXi's Senior Vice President and Chief Scientific Officer at an annual
salary of $310,000 and is entitled to a grant of stock options to purchase 2% of RXi's fully
diluted shares of common stock after the spin-off transaction at an exercise price per share to
be determined based on the fair value of RXi common stock at the date of grant; and
|
|
|
|
Dr. Pavco serves as RXis Senior Vice President of Pharmaceutical Development
at an annual salary of $300,000 and also is entitled to a grant of stock options to purchase 2% of RXis fully
diluted shares of common stock after the spin-off transaction at an exercise price per share to be determined based
on the fair value of RXi common stock at the date of grant. |
Immediately
following the record date for the distribution, the Company intends
to declare and pay a 236,708-for-1 stock dividend with respect to the
outstanding common stock.
2. Summary of Significant Accounting Policies
Basis of Presentation For the period from January 1, 2003 (date of inception)
to December 31, 2006, the Predecessor financial information consists of various
transactions of CytRx Corporation (CytRx) which were identified as direct expenses
related to RNAi therapeutics and disaggregated (carved out) from CytRxs financial
statements. In addition, various indirect costs related to RNAi therapeutics (mainly
senior management and accounting) were estimated and included as part of the Predecessor
carved-out financial information. For the period from April 3, 2006 (date of incorporation
of Galena) through December 31, 2007, Galena was operating as a subsidiary of CytRx. CytRx
is the former parent of Galena. Galena was formed by CytRx and four prominent RNAi
researchers to pursue the development of proprietary therapeutics based on RNAi for the
treatment of human diseases. The financial information for the period from
April 3, 2006 (date of incorporation of Galena) to September 30, 2011 was compiled from
Galenas books and records through
September 23, 2011, as well as an allocation in 2007 of indirect costs from CytRx
for overhead and general administrative costs provided through December 31, 2007 (that
have been allocated based upon estimates developed by CytRxs management and include
corporate salaries, benefits, accounting, rent and other general and administrative
expenses). There are no Predecessor financial statements for the period from April 3, 2006
(date of incorporation of Galena) to December 31, 2006 as there
was no activity. In addition, the financial information for the
periods ended September 30, 2011 also includes the results of RXi, the registrant, for the period from
September 24, 2011 to September 30, 2011. RXi was formed on September
8, 2011 and was not engaged in any activities other than its initial
incorporation from September 8, 2011 to September 23, 2011.
RXis net loss for the period September 24, 2011 to September
30, 2011, included in the financial information for the periods ended
September 30, 2011, was $84,000.
Unaudited Financial Information The information presented as of and for the
periods ended September 30, 2011 and 2010, as well as the cumulative financial information for
the period from January 1, 2003 (date of inception) through
September 30, 2011, is unaudited and
has been prepared on the same basis as the audited financial statements and includes all
adjustments, consisting of only normal recurring adjustments, necessary for the fair
presentation of this information in all material respects. The results of any interim
period are not necessarily indicative of the results of operations to be expected for a
full year.
Uses of estimates in preparation of financial statements The preparation of
financial statements in accordance with accounting principles generally accepted in the
United States of America 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 materially from
those estimates.
Cash and Cash Equivalents The Company considers all highly-liquid debt
instruments with an original maturity of 90 days or less to be cash equivalents. Cash
equivalents consist primarily of amounts invested in money market accounts.
Fair Value of Financial Instruments The carrying amounts reported in the balance
sheet for cash equivalents, accounts payable and capital leases approximate their fair
values due to their short-term nature and market rates of interest.
F-10
RXi
PHARMACEUTICALS CORPORATION (REGISTRANT) AND PREDECESSOR (RNAi)
(A Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
(Information as of September 30, 2011 and for the
nine months ended September 30, 2011 and 2010 is
unaudited)
Equipment and Furnishings Equipment and furnishings are stated at cost and
depreciated using the straight-line method based on the estimated useful lives (generally
three to five years for equipment and furniture) of the related assets.
Depreciation
and amortization expense for the nine months ended September 30, 2011 and 2010
was approximately $124,000 and $127,000, respectively and for the years ended December 31,
2010 and 2009 was approximately $172,000 and $162,000, respectively.
Impairment of Long-Lived Assets The Company reviews long-lived assets, including
finite lived intangible assets, for impairment on an annual basis, as of December 31, or
on an interim basis if an event occurs that might reduce the fair value of such assets
below their carrying values. An impairment loss would be recognized based on the
difference between the carrying value of the asset and its estimated fair value, which
would be determined based on either discounted future cash flows or other appropriate fair
value methods. The Company believes no impairment existed as of December 31, 2009 and 2010
or September 30, 2011.
Patents and Patent Application Costs Although the Company believes that its
patents and underlying technology have continuing value, the amount of future benefits to
be derived from the patents is uncertain. Patent costs are, therefore, expensed as
incurred.
Stock-based
Compensation Stock-based compensation was allocated to the RXi
Pharmaceuticals Corporation and Predecessor carved-out financial statements in a similar
manner as other indirect expenses.
RXi 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 and non-employee directors,
including employee 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 (ASC 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 vesting 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.
RXi recognized $743,000 and $1,297,000 of stock based compensation expense related to
non-employee stock options for the years ended December 31, 2010 and 2009, respectively.
Additionally, stock compensation expense (credit) related to non-employee stock options
reflected in the nine month periods ended September 30, 2011 and
2010 amounted to ($49,000)
and $723,000, respectively.
F-11
RXi
PHARMACEUTICALS CORPORATION (REGISTRANT) AND PREDECESSOR (RNAi)
(A Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
(Information as of September 30, 2011 and for the
nine months ended September 30, 2011 and 2010 is
unaudited)
Derivative Financial Instruments During the normal course of business, from time
to time, Galena issues warrants and options to vendors as consideration to perform
services. It may also issue warrants as part of a debt or equity
financing. The Company does not enter into any derivative contracts for speculative purposes.
The Company recognizes all derivatives as assets or liabilities measured at fair
value with changes in fair value of derivatives reflected as current period income or loss
unless the derivatives qualify for hedge accounting and are accounted for as such. In
accordance with FASB ASC Topic 815-40, Derivatives and Hedging Contracts in Entitys
Own Stock, the value of these derivatives is required to be recorded as a liability, as
the holders have an option to put the derivatives back to the Company
for cash upon the occurrence of
certain events set forth in the agreement.
Obligations to Repurchase Shares of Galenas Equity Securities In accordance with
FASB ASC Topic 480-10, Distinguishing Liabilities from
Equity, the Company recognizes
all obligations to repurchase shares of Galenas equity securities allocated to the
Company that require or may require settlement of the obligation by transferring assets,
as liabilities or assets in some circumstances measured at fair value with changes in fair
value reflected as current period income or loss and are accounted for as such.
Deferred Revenue Deferred revenue consists of advance payments received under government
grants. The Company will recognize revenue when the obligations under the grants are fulfilled.
Research and Development Expenses Research and development costs are expensed as
incurred. Included in research and development costs are wages, benefits and other
operating costs, facilities, supplies, external services and overhead directly related to
the Companys research and development departments, as well as costs to acquire technology
licenses.
Income Taxes The Company recognizes liabilities or assets for the deferred
tax consequences of temporary differences between the tax basis of assets or liabilities
and their reported amounts in the financial statements in accordance with FASB ASC 740-10,
Accounting for Income Taxes (ASC 740-10). These temporary differences will result in
taxable or deductible amounts in future years when the reported amounts of the assets or
liabilities are recovered or settled. ASC 740-10 requires that a valuation allowance be
established when management determines that it is more likely than not that all or a
portion of a deferred asset will not be realized. RXi evaluates the realizability of its
net deferred income tax assets and valuation allowances as necessary, at least on an
annual basis. During this evaluation, the Company reviews its forecasts of income in
conjunction with other positive and negative evidence surrounding the realizability of its
deferred income tax assets to determine if a valuation allowance is required. Adjustments
to the valuation allowance will increase or decrease the Companys income tax provision or
benefit. The recognition and measurement of benefits related to the Companys tax
positions requires significant judgment, as uncertainties often exist with respect to new
laws, new interpretations of existing laws, and rulings by taxing authorities. Differences
between actual results and RXis assumptions or changes in the Companys assumptions in
future periods are recorded in the period they become known.
For the periods presented, RXi was not a separate taxable entity for federal, state,
and local income tax purposes and its operating results were included in Galenas tax
returns. RXi calculated its income taxes under the separate return method and accounted
for deferred tax assets and liabilities under the asset and liability method described
above.
F-12
RXi
PHARMACEUTICALS CORPORATION (REGISTRANT) AND PREDECESSOR (RNAi)
(A Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
(Information as of September 30, 2011 and for the
nine months ended September 30, 2011 and 2010 is
unaudited)
Concentrations of Credit Risk Financial instruments that potentially subject the
Company to significant concentrations of credit risk consist principally of cash and cash
equivalents. The Company maintains cash balances in several accounts with one bank, which
at times are in excess of federally insured limits. The Companys investment policy
disallows investment in any debt securities rated less than investment grade by national
ratings services.
Comprehensive Loss The Companys comprehensive loss is equal to its net loss for
all periods presented.
Parent Companys Net Deficit The Parent Companys Net Deficit of the Predecessor
consists of CytRxs initial investment in Galena and subsequent changes in Galenas net
investment resulting from Galena being an integrated part of CytRx. All disbursements for
the Predecessor were made by CytRx.
Non-cash equity adjustments from Parent Company Non-cash equity adjustments from Parent Company consist of credits for employee and non-employee stock-based awards of Galena stock options, common stock and warrants issued to individuals engaged in RNAi activities, net of charges for the fair value of Galena warrants that were allocated to the RNAi business and accounted for as a cost of equity at the time of issuance.
3. Recent Accounting Pronouncements
Effective January 1, 2010, the Company adopted Accounting Standards Update (ASU) No.
2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair
Value Measurements, or ASU 2010-06. A reporting entity should provide additional disclosures about
the different classes of assets and liabilities measured at fair value, the valuation techniques
and inputs used, the activity in Level 3 fair value measurements, and the transfers between Levels
1, 2 and 3 fair value measurements. The adoption of the additional disclosures for Level 1 and
Level 2 fair value measurements did not have an impact on the Companys financial position, results
of operations or cash flows. The disclosures regarding Level 3 fair value measurements were adopted
by the Company January 1, 2011 and did not have an impact on the Companys financial position,
results of operations or cash flows or require additional disclosures.
Effective January 1, 2010, the Company adopted ASU No. 2009-17, Consolidations (Topic 810):
Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities, or ASU
2009-17. The amendments in this update replace the quantitative-based risks and rewards calculation
for determining which reporting entity, if any, has a controlling financial interest in a variable
interest entity with an approach focused on identifying which reporting entity has the power to
direct the activities of a variable interest entity that most significantly impact the entitys
economic performance and (1) the obligation to absorb losses of the entity or (2) the right to
receive benefits from the entity. An approach that is expected to be primarily qualitative will be
more effective for identifying which reporting entity has a controlling financial interest in a
variable interest entity. The amendments in this update also require additional disclosures about a
reporting entitys involvement in variable interest entities, which will enhance the information
provided to users of financial statements. The Company evaluated its business relationships to
identify potential variable interest entities and has concluded that consolidation of such entities
is not required for the periods presented. On a quarterly basis, the Company will continue to
reassess its involvement with variable interest entities.
F-13
RXi
PHARMACEUTICALS CORPORATION (REGISTRANT) AND PREDECESSOR (RNAi)
(A Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
(Information as of September 30, 2011 and for the
nine months ended September 30, 2011 and 2010 is
unaudited)
In
December 2010, the FASB issued ASU No. 2010-29, Business Combinations (Topic 805) -
Disclosure of Supplementary Pro Forma Information for Business Combinations (Update No. 2010-29).
This update requires a public entity to disclose pro forma information for business combinations
that occurred in the current reporting period. The disclosures include pro forma revenue and
earnings of the combined entity for the current reporting period as though the acquisition date for
all business combinations that occurred during the year had been as of the beginning of the annual
reporting period. If comparative financial statements are presented, the pro forma revenue and
earnings of the combined entity for the comparable prior reporting period should be reported as
though the acquisition date for all business combinations that occurred during the current year had
been as of the beginning of the comparable prior annual reporting period. This Update affects any
public entity that enters into business combinations that are material on an individual or
aggregate basis and is effective prospectively for business combinations for which the acquisition
date is on or after the beginning of the first annual reporting period beginning on or after
December 15, 2010. The Company adopted updated No. 2010-29
beginning January 1, 2011 and it did not have a material impact on its financial statements.
In
May 2011, the FASB issued a new accounting
standard that clarifies the application of certain existing fair value measurement guidance and
expands the disclosures for fair value measurements that are estimated using significant
unobservable (Level 3) inputs. This new standard is effective on a prospective basis for annual and
interim reporting periods beginning on or after December 15, 2011. The Company does not expect that
adoption of this new standard will have a material impact on its financial statements.
F-14
RXi PHARMACEUTICALS CORPORATION (REGISTRANT) AND PREDECESSOR (RNAi)
(A Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
(Information as of September 30, 2011 and for the
nine months ended September 30, 2011 and 2010 is
unaudited)
4. Fair Value Measurements
In January 2010, the FASB issued ASU 2010-06, Improving Disclosures about Fair
Value Measurements (ASU 2010-06). The standard amends FASB ASC Topic 820, Fair
Value Measurements and Disclosures (ASC 820), to require additional disclosures
related to transfers in and out of Levels 1 and 2 and for activity in Level 3 and
clarifies other existing disclosure requirements. The Company adopted ASU 2010-06
beginning January 1, 2010. This update had no impact on the Companys financial
statements.
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 as 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 Company categorized its cash equivalents as Level 1 hierarchy. The valuation for Level 1
was determined based on a market approach using quoted prices in active markets for identical
assets. Valuations of these assets do not require a significant degree of judgment. The Company
categorized its derivatives potentially settleable in cash, which were issued by Galena and
allocated to the Company, as a Level 2 hierarchy. The derivatives are
measured at market value of Galenas stock on a
recurring basis using the fixed monetary amount of each derivative that would be received by Galena
under the conditions specified in the stock redemption agreement and are being marked to market
each quarter-end until they are completely settled. The derivatives are valued using the
Black-Scholes method, using assumptions consistent with our application of ASC 718.
F-15
RXi PHARMACEUTICALS CORPORATION (REGISTRANT) AND PREDECESSOR (RNAi)
(A Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
(Information as of September 30, 2011 and for the
nine months ended September 30, 2011 and 2010 is
unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in |
|
|
Significant Other |
|
|
|
|
|
|
September 30, |
|
|
Active Markets |
|
|
Observable Inputs |
|
|
Unobservable Inputs |
|
Description |
|
2011 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
Assets: |
|
Cash equivalents |
|
$ |
422 |
|
|
$ |
422 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
422 |
|
|
$ |
422 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in |
|
|
Significant Other |
|
|
|
|
|
|
December 31, |
|
|
Active Markets |
|
|
Observable Inputs |
|
|
Unobservable Inputs |
|
Description |
|
2010 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents |
|
$ |
6,891 |
|
|
$ |
6,891 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
6,891 |
|
|
$ |
6,891 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocated derivative
liabilities to
Company for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Company derivatives
potentially
settleable in cash |
|
$ |
3,138 |
|
|
$ |
|
|
|
$ |
3,138 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
3,138 |
|
|
$ |
|
|
|
$ |
3,138 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-16
RXi PHARMACEUTICALS CORPORATION (REGISTRANT) AND PREDECESSOR (RNAi)
(A Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
(Information as of September 30, 2011 and for the
nine months ended September 30, 2011 and 2010 is
unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in |
|
|
Significant Other |
|
|
|
|
|
|
December 31, |
|
|
Active Markets |
|
|
Observable Inputs |
|
|
Unobservable Inputs |
|
Description |
|
2009 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents |
|
$ |
5,684 |
|
|
$ |
5,684 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
5,684 |
|
|
$ |
5,684 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocated
derivatives
liabilities to
Company for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent Company
derivatives
potentially
settleable in cash |
|
$ |
3,721 |
|
|
$ |
|
|
|
$ |
3,721 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
3,721 |
|
|
$ |
|
|
|
$ |
3,721 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5. Capital Lease Obligations
The Company acquires equipment under capital leases that is included in equipment and furnishings
in the balance sheet. The cost and accumulated amortization of capitalized leased equipment was
approximately $240,000 and $94,000 at September 30, 2011, respectively, $196,000 and $56,000 at December
31, 2010, respectively, and $143,000 and $17,000 at December 31, 2009, respectively. Amortization expense
for capitalized leased equipment was approximately $38,000 and $30,000 for the nine months ended
September 30, 2011, and September 30, 2010, respectively, and $39,000 and $10,000 for the years ended
December 31, 2010 and 2009, respectively. Future minimum lease payments under the capital leases including
interest are $12,000 for the three months ended December 31, 2011 and $27,000 and $7,000 for the years ending December 31, 2012 and 2013, respectively.
6. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2011 |
|
|
2010 |
|
|
2009 |
|
Professional fees |
|
$ |
73 |
|
|
$ |
313 |
|
|
$ |
390 |
|
Research and development costs |
|
|
210 |
|
|
|
60 |
|
|
|
28 |
|
Payroll related costs |
|
|
321 |
|
|
|
740 |
|
|
|
659 |
|
|
|
|
|
|
|
|
|
|
|
Total accrued expenses and other current liabilities |
|
$ |
604 |
|
|
$ |
1,113 |
|
|
$ |
1,077 |
|
|
|
|
|
|
|
|
|
|
|
7. Commitments and Contingencies
The Company acquires assets still in development and enters into research and
development arrangements with third parties that often require milestone and royalty
payments based on the progress of the asset through development stages. Milestone payments
may be required, for example, upon approval of the product for marketing by a regulatory
agency. In certain agreements, the Company is required to make royalty payments based upon
a percentage
F-17
RXi PHARMACEUTICALS CORPORATION (REGISTRANT) AND PREDECESSOR (RNAi)
(A Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
(Information as of September 30, 2011 and for the
nine months ended September 30, 2011 and 2010 is
unaudited)
of the sales. Because of the contingent nature of these payments, they are not included in
the table of contractual obligations shown below (see also Note 11).
These arrangements may be material individually, and in the unlikely event that
milestones for multiple products covered by these arrangements were reached in the same
period, the aggregate charge to expense could be material to the results of operations. In
addition, these arrangements often give the Company the discretion to unilaterally
terminate development of the product, which would allow the Company to avoid making the
contingent payments; however, the Company is unlikely to cease development if the compound
successfully achieves clinical testing objectives. The Companys contractual obligations
that will require future cash payments as of September 30, 2011 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Cancelable |
|
|
|
|
|
|
Cancelable |
|
|
|
|
|
|
Operating |
|
|
Employment |
|
|
|
|
|
|
License |
|
|
|
|
|
|
Leases(1) |
|
|
Agreements(2) |
|
|
Subtotal |
|
|
Agreements(3) |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
|
|
Three months ended December 31,
2011 |
|
$ |
48 |
|
|
$ |
298 |
|
|
$ |
346 |
|
|
$ |
110 |
|
|
$ |
456 |
|
Years Ended December 31: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012 |
|
|
98 |
|
|
|
802 |
|
|
|
900 |
|
|
|
228 |
|
|
|
1,128 |
|
2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
228 |
|
|
|
228 |
|
2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
213 |
|
|
|
213 |
|
2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
213 |
|
|
|
213 |
|
2016 and Thereafter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,561 |
|
|
|
1,561 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
146 |
|
|
$ |
1,100 |
|
|
$ |
1,246 |
|
|
$ |
2,553 |
|
|
$ |
3,799 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Operating leases are primarily facility and equipment related obligations with third
party vendors. Operating lease expenses during the nine months ended September 30, 2011 and
2010 were approximately $170,000 and $156,000, respectively. Operating lease expenses during
the years ended December 31, 2010 and 2009 were approximately $274,000 and $260,000,
respectively. |
|
(2) |
|
Employment agreement obligations include management contracts, as well as scientific advisory
board member compensation agreements. Certain agreements, which have been revised from time to
time, provide for minimum salary levels, adjusted annually at the discretion of the Board of
Directors, as well as for minimum bonuses that are payable. |
|
(3) |
|
License agreements generally relate to the Companys obligations associated with RNAi.
The
Company continually assesses the progress of its licensed technology and the progress of its
research and development efforts as it relates to its licensed technology and may terminate
with notice to the licensor at any time. In the event these licenses are terminated, no
amounts will be due. |
On September 24, 2011, RXi entered into employment agreements with Anastasia Khvorova, Ph.D., and Pamela Pavco, Ph.D., pursuant to which:
|
|
|
Dr. Khvorova serves as RXis Senior Vice President and Chief Scientific Officer at an
annual salary of $310,000 and is entitled to a grant of stock options to purchase 2% of RXis
fully diluted shares of common stock after the spin-off transaction at an exercise price per share to be determined based on the fair value of RXi common stock at the date of grant;
and |
|
|
|
Dr. Pavco serves as RXis Senior Vice President of Pharmaceutical Development at an annual salary
of $300,000 and also is entitled to a grant of stock options to purchase 2% of RXis
fully diluted shares of common stock after the spin-off transaction at an exercise price per share to be determined based on the fair value of RXi common stock at the date of grant. |
The Company applies the disclosure provisions FASB ASC Topic 460 (ASC 460),
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, to its agreements that contain
guarantee or indemnification clauses. The Company provides (i) indemnifications of
varying scope and size to certain investors and other parties for certain losses
suffered or incurred by the indemnified
F-18
RXi PHARMACEUTICALS CORPORATION (REGISTRANT) AND PREDECESSOR (RNAi)
(A Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
(Information as of September 30, 2011 and for the
nine months ended September 30, 2011 and 2010 is
unaudited)
party in connection with various types of third-party claims and (ii)
indemnifications of varying scope and size to officers and directors against third
party claims arising from the services they provide to us. These indemnifications
give rise only to the disclosure provisions of ASC 460. To date, the Company has
not incurred costs as a result of these obligations and does not expect to incur
material costs in the future. Accordingly, the Company has not accrued any
liabilities in its financial statements related to these indemnifications.
8.
Stock-Based Compensation
The following stock based compensation information relates to stock options issued by Galena.
Stock based compensation expense is allocated to the carved out financial statements based on an
estimate of time spent by Galena employees, board members, scientific advisory board members, and
outside consultants on RXi related matters. Galena follows the provisions of the FASB 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 and
non-employee directors including employee 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, Galena
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 vesting 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 Galenas 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.
Galena is currently using the Black-Scholes option-pricing model to determine the fair value
of all its option grants. For option grants issued in the nine months
ended September 30, 2011
and 2010 and the years ended December 31, 2010 and 2009, the following assumptions were used:
|
|
|
|
|
|
|
|
|
|
|
For
the Nine Months ended September 30, |
|
|
|
2011 |
|
|
2010 |
|
Weighted average risk-free interest rate |
|
|
1.59 |
% |
|
|
3.02 |
% |
Weighted average expected volatility |
|
|
103.27 |
% |
|
|
121.19 |
% |
Weighted average expected lives (years) |
|
|
5.49 |
|
|
|
7.37 |
|
Weighted average expected dividend yield |
|
|
0.00 |
% |
|
|
0.00 |
% |
|
|
|
|
Year Ended December 31, |
|
|
2010 |
|
2009 |
Weighted average risk free interest rate |
|
|
1.88% - 3.28 |
% |
|
|
1.55% - 3.91 |
% |
Weighted average volatility |
|
|
118.3% - 133.62 |
% |
|
|
116.72% - 122.93 |
% |
Expected lives (years) |
|
|
6-10 |
|
|
|
6-10 |
|
Expected dividend yield |
|
|
0 |
% |
|
|
0 |
% |
The
weighted average fair value of options granted during the nine months
ended September
30, 2011 and 2010 was $0.91 and $4.34 per share, respectively. The weighted average fair
value of options granted during the years ended December 31, 2010 and 2009 was $4.31 and
$4.11 per share, respectively.
F-19
RXi PHARMACEUTICALS CORPORATION (REGISTRANT) AND PREDECESSOR (RNAi)
(A Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
(Information as of September 30, 2011 and for the
nine months ended September 30, 2011 and 2010 is
unaudited)
Galenas expected common stock price volatility assumption is based upon the
volatility of a basket of comparable companies. The expected life assumptions for employee
grants were based upon the simplified method provided for under ASC 718-10. The expected
life assumptions for non-employees were based upon the contractual term of the option. The
dividend yield assumption of zero is based upon the fact that Galena has never paid cash
dividends and presently has no intention of paying cash dividends in the future. The
risk-free interest rate used for each grant was also based upon prevailing short-term
interest rates. Galena has estimated an annualized forfeiture rate of 15% for options
granted to its employees, 8% for options granted to senior management and no forfeiture
rate for the directors. The Company will record additional expense if the actual forfeitures
are lower than estimated and will record a recovery of prior expense if the actual
forfeiture rates are higher than estimated.
The
following table summarizes the activity of Galenas stock option plan for
options allocated to the Company for the period January 1, 2009 to September 30, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
Stock |
|
|
Average |
|
|
|
Options |
|
|
Exercise Price |
|
Outstanding January 1, 2009 |
|
|
2,223,452 |
|
|
$ |
6.11 |
|
Granted |
|
|
1,622,546 |
|
|
|
3.84 |
|
Exercised |
|
|
(281 |
) |
|
|
4.19 |
|
Forfeited |
|
|
(263,378 |
) |
|
|
5.05 |
|
|
|
|
|
|
|
|
Outstanding December 31, 2009 |
|
|
3,582,339 |
|
|
|
5.16 |
|
Granted |
|
|
926,768 |
|
|
|
4.81 |
|
Exercised |
|
|
(53,500 |
) |
|
|
4.75 |
|
Forfeited |
|
|
(122,471 |
) |
|
|
4.85 |
|
|
|
|
|
|
|
|
Outstanding December 31, 2010 |
|
|
4,333,136 |
|
|
|
5.10 |
|
Granted |
|
|
3,262,500 |
|
|
|
0.87 |
|
Exercised |
|
|
|
|
|
|
|
|
Forfeited |
|
|
(1,144,067 |
) |
|
|
4.22 |
|
|
|
|
|
|
|
|
Outstanding
September 30, 2011 |
|
|
6,451,569 |
|
|
$ |
3.29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable December 31, 2009 |
|
|
2,131,298 |
|
|
$ |
5.42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable December 31, 2010 |
|
|
3,155,900 |
|
|
$ |
5.22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
September 30, 2011 |
|
|
4,652,517 |
|
|
$ |
3.71 |
|
|
|
|
|
|
|
|
The weighted average
remaining contractual life of options outstanding and
exercisable at September 30, 2011 was 8.05 years and 7.69 years, respectively. The weighted
average remaining contractual life of options outstanding and exercisable at December 31,
2010 was 7.35 years and 7.09 years, respectively. The weighted average remaining
contractual life of options outstanding and exercisable at December 31, 2009 was 8.47
years and 8.14 years, respectively.
The aggregate intrinsic
value of outstanding options as of September 30, 2011 and December 31, 2010 and 2009 is $167,250, $137,000 and
$1,262,000, respectively. The aggregate intrinsic value of exercisable options as of September 30, 2011 and December
31, 2010 and 2009 is $94,500, $34,000 and $139,000, respectively. The aggregate intrinsic value is calculated
based on the positive difference between the closing fair market value of the Parent Companys common stock
and the exercise price of the underlying options.
F-20
RXi PHARMACEUTICALS CORPORATION (REGISTRANT) AND PREDECESSOR (RNAi)
(A Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
(Information as of September 30, 2011 and for the
nine months ended September 30, 2011 and 2010 is
unaudited)
The aggregate intrinsic value of options exercised during 2010 and 2009 was approximately $164,000 and $1,000, respectively. No options were exercised during the period ended September 30, 2011.
RXi recorded approximately $1,987,000 and $3,458,000 of stock-based compensation for the nine months ended September 30, 2011 and 2010, respectively. RXi recorded approximately $4,368,000 and $4,202,000 of stock-based compensation for the years ended December 31, 2010 and 2009, respectively.
On November 4, 2009, as part of a planned succession in leadership, Tod Woolf, Ph.D.,
resigned as Galenas President, Chief Executive Officer and a member of
Galenas Board of Directors.
According to the Separation Agreement between Dr. Woolf and Galena, Dr. Woolf
received in one lump sum payment his full severance equivalent to a six (6) month salary
($187,500), six (6) months acceleration of vesting of all of his outstanding unvested
stock options of Galena as of November 4, 2009, and an offer to join the Companys
Scientific Advisory Board (SAB) for 3 years (the New Position). In addition, and as part
of the Separation Agreement, Galena agreed to extend the exercise period for all of
Dr. Woolfs vested Stock Options as of November 4, 2009, to the later of: (i) a period of
two (2) years from his resignation (until November 4, 2011), or (ii) ninety (90) days
following the end of the term of the SAB Agreement (February 4, 2013) or such earlier date
as the SAB Agreement may be terminated pursuant to the terms of the SAB Agreement provided
Dr. Woolf has not violated the non-competition provisions of the SAB Agreement prior to
the date of exercise (whether or not the SAB Agreement is still in effect at that time).
Notwithstanding any provision of Galenas 2007 Incentive Plan, the Company also
agreed that Dr. Woolfs previously awarded stock options shall continue to vest during his
continuing role in Galena in the New Position. The option modification resulted in an
incremental value of the options of approximately $153,000 of which $37,000 was expensed
during 2009. The total expense for 2010 was $193,000. As of September 30, 2011, there were
28,335 shares subject to future vesting. Total expense for the nine months ended September 30, 2011 and 2010 was
$64,000 and $171,000, respectively.
As
of September 30, 2011, an aggregate of 8,750,000 shares of common
stock were reserved for issuance under the Galena Biopharma, Inc. 2007 Incentive Plan,
including 6,451,569 shares subject to outstanding common stock options granted under this
plan and 1,348,785 shares available for future grants. The administrator of the plan
determines the times when an option may become exercisable. Vesting periods of options
granted to date include vesting upon grant
to vesting at the end of a four year period. The options will expire, unless
previously exercised, no later than ten years from the grant date.
As of December 31, 2010,
an aggregate 6,750,000 shares of common stock were reserved for issuance under the Galena Biopharma Inc. 2007
Incentive Plan, including 4,333,136 shares subject to outstanding common stock options granted under this
plan and 2,199,497 shares available for future grants.
Restricted Stock Units In addition to options to purchase shares of common stock,
Galena may grant restricted stock units (RSUs) as part of its compensation package. Each
RSU is granted at the fair market value based on the date of grant. Vesting is determined
on a grant by grant basis.
In
March 2011, Galena granted a total of 220,729 RSUs. The RSUs had
an aggregate intrinsic value of $256,046. In 2010 and 2009, Galena granted a total of 43,541 and
48,500 RSUs, respectively. The RSUs granted in 2010 and 2009 had an aggregate intrinsic value of
$112,000 and $222,000. As of September 30, 2011, all of the RSUs had vested in full.
F-21
RXi PHARMACEUTICALS CORPORATION (REGISTRANT) AND PREDECESSOR (RNAi)
(A Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
(Information as of September 30, 2011 and for the
nine months ended September 30, 2011 and 2010 is
unaudited)
Derivatives
Potentially Settleable in Cash On August 7, 2008, Galena issued 190,000 warrants to an
investment bank as consideration for investment and business advisory services. The
warrants have an exercise price of $7.036 per share and expire five years from the date of
issuance, on August 7, 2013. The warrants vested as to 94,000 shares upon issuance, and
vested at a rate of 32,000 shares per month starting on the 90 day anniversary of
issuance, and are exercisable for a period of five years. All shares were vested at
December 31, 2009. Galena also agreed to give the holder of the warrants unlimited piggy
back registration rights with respect to the shares of Galenas common stock underlying
the warrants in any registration statement Galena files in connection with an underwritten
offering of its common stock. The fair value of these warrants has been estimated based on
the Black-Scholes options pricing model and changes in the fair value are recorded in the
statement of expenses in accordance with the requirements of ASC 718 and ASC 505-50. There
was no expense recorded for these warrants for the year ended December 31, 2010. Total
expense related to these warrants was approximately $318,000 during the year ended
December 31, 2009 and has been allocated entirely to the Company.
On October 3, 2008, Galena acquired the rights to license exclusive worldwide
technology for the oral delivery of RNAi therapeutics. As consideration for this license,
Galena agreed to pay a total license fee of $2,500,000 over a 12 month period, which can
be paid in cash, in equity or a combination thereof, provided that a specified amount of
the license fee must be made in cash. Payments made in equity may only be made if, at the
time of such payment, the shares of common stock issuable upon conversion of the warrant
have been registered for resale under the Securities Act of 1933. No warrants have been
issued under this agreement thru the date of this report. The Company continually assesses
the progress of its research and development efforts as it relates to its licensed
technology and may terminate with notice to the Licensor at any time. Accordingly, the
amounts are being expensed, as payments are made. There was no expense for this license
for the nine months ended September 30, 2011 and 2010 and for the year ended December 31, 2010.
Total expense for the year ended December 31, 2009 was $250,000 and has been allocated
entirely to the Company.
On January 29, 2009, Galena issued 142,500 warrants to an investment bank as
consideration for investment and business advisory services. The warrants have an exercise
price of $4.273 per share and expire five years from the date of issuance on January 29,
2014. The
warrants vested as to 71,250 shares upon issuance, and vested at a rate of 23,750
shares per month starting on the 90 day anniversary of issuance, and are exercisable for a
period of five years. All shares were vested at December 31, 2009. Galena has also agreed
to give the holder of the warrants unlimited piggy back registration rights with respect
to the shares of Common Stock underlying the warrants in any registration statement the
Galena files in connection with an underwritten offering of the common stock. The fair
value of these warrants has been estimated based on the Black-Scholes options pricing
model and changes in the fair value until fully vested are recorded in the statement of
expenses in accordance with the requirements of ASC Topic 718 and ASC Topic 505-50. Total
expense related to these warrants was approximately $509,000 during the year ended
December 31, 2009 and has been allocated entirely to the Company.
In connection with the 2009 Offering, Galena issued warrants to purchase 978,142
shares of Galenas common stock. Details of the transaction can be found under the heading
2009 Registered Direct Offering below.
F-22
RXi PHARMACEUTICALS CORPORATION (REGISTRANT) AND PREDECESSOR (RNAi)
(A Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
(Information as of September 30, 2011 and for the
nine months ended September 30, 2011 and 2010 is
unaudited)
In connection with the 2010 Offering, Galena issued warrants to purchase 540,000
shares of Galenas common stock. Details of the transaction can be found under the heading
2010 Registered Direct Offering below.
In connection with the 2011 Offerings, Galena issued warrants to purchase 17,950,000
shares of Galenas common stock. Details of the transaction can be found under the heading
2011 Offering below.
2009 Registered Direct Offering On March 17, 2009, Galena entered into a
placement agency agreement, which was subsequently amended on May 26, 2009 and July 22,
2009, with Rodman & Renshaw, LLC (Rodman) as the exclusive placement agent, relating to
a proposed offering by Galena of new securities to potential investors. On July 30, 2009,
Galena entered into definitive agreements for the sale and issuance by Galena to certain
investors of 2,385,715 units, with each unit consisting of one share of Galenas common
stock and a warrant to purchase 0.40 of a share of common stock, at a purchase price of
$3.50 per unit (the 2009 Offering). The 2009 Offering closed on August 4, 2009. The
warrants have an exercise price of $4.50 per share and are exercisable for a period
beginning on February 3, 2010 until their expiration on August 3, 2014. Galena raised
gross proceeds of approximately $8,350,000 in the 2009 Offering and net cash proceeds,
after deducting the placement agents fees and other offering expenses payable by Galena,
of approximately $7.7 million. Total warrants issued in connection with the transaction
were 954,285.
As part of the placement agency agreement, Galena issued a warrant to purchase 23,857
shares of Galenas common stock to Rodman. The warrant has an exercise price of $4.38 per
share. The warrant is immediately vested and is exercisable until its expiration on August
3, 2014.
The Company follows the guidance of ASC Topic 815-40, as certain warrants issued in
connection with the stock offering on August 4, 2009 were determined not to be indexed to
Galenas common stock as they are potentially settleable in cash. The fair value of the
warrants at the dates of issuance totaling $2,863,000 was recorded as a derivative
liability and was determined by the Black-Scholes option pricing
model. Due to the fact that Galena has limited trading history, Galenas expected stock
volatility assumption is based on a combination of implied volatilities of similar
entities whose share or option prices are publically traded. Galena used a weighted
average expected stock volatility of 122.69%. The expected life
assumption is based on the contract term of five years. The dividend yield of zero is
based on the fact that Galena has no present intention to pay cash dividends in the
future. The risk free rate of 1.72% used for the warrant is equal to the zero coupon rate
in effect at the time of the grant.
The decrease in the fair value of the warrants from the date of issuance to September 24, 2011 is
$2,586,000, of which $1,666,000 has been included in other income(expense) in the accompanying statements
of expenses for the nine months ended September 30, 2011. The fair
value of these warrants at September 24, 2011 of $277,000 was
reclassified to divisional deficit immediately prior to the
recapitalization of the Company, as the Company was effectively released of any liability or obligation to settle
the warrants pursuant to the contribution agreement with Galena entered into on this date. The fair value of the warrants was determined by the Black-Scholes option pricing model. Due to the fact that Galena has limited trading history,
Galenas expected stock volatility assumption is based on a combination of implied volatilities of similar
entities whose shares or options are publicly traded. Galena used a weighted average expected stock volatility
of 98.87%. The expected life assumption is based on the remaining contract term of 2.8 years. The dividend yield of zero is based on the fact that Galena has no present intention to pay cash dividends. The risk free rate
of 0.37% used for the warrants is equal to the zero coupon rate in effect on the date of the re-measurement. All
changes related to the value of these warrants have been allocated entirely to the Company.
F-23
RXi PHARMACEUTICALS CORPORATION (REGISTRANT) AND PREDECESSOR (RNAi)
(A Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
(Information as of September 30, 2011 and for the
nine months ended September 30, 2011 and 2010 is
unaudited)
2010 Registered Direct Offering On March 22, 2010, Galena entered into a placement
agency agreement relating to a proposed offering by Galena of new securities to potential
investors. On March 23, 2010, Galena entered into definitive agreements for the sale and
issuance by Galena to certain investors of 2,700,000 units, with each unit consisting of
one share of Galenas common stock and a warrant to purchase 0.20 of a share of Galenas
common stock, at a purchase price of $6.00 per unit (the 2010 Offering). The 2010
Offering closed on March 26, 2010. Galena issued warrants to purchase 540,000 shares of
Galenas common stock at an exercise price of $6.00 per share and that are exercisable
beginning on September 26, 2010 until their expiration on March 26, 2016. Galena raised
gross proceeds of approximately $16.2 million in the 2010 Offering and net cash proceeds,
after deducting the placement agent fees and other offering expenses payable by Galena, of
approximately $15.2 million.
As part of the 2010 Offering, Galena entered in a stock redemption agreement whereby
Galena was required to use 25% of the net proceeds from the 2010 Offering to repurchase
from CytRx 675,000 shares of Galenas common stock held by CytRx
Shares of common stock that are mandatorily redeemable under the stock
redemption agreement upon the exercise of warrants issued in the 2010 Offering, were
determined to embody an obligation that may require Galena to settle the obligation by
transferring assets, and as such, shall be classified as a liability. The fair value of
the common stock potentially redeemable under the stock redemption agreement totaling
$785,000 was recorded as a derivative liability was determined
using the fixed monetary amount of each warrant multiplied by assumptions regarding the
number and timing of warrants to be exercised. On December 29, 2010, CytRx sold all of
their shares held in Galena, thus reducing the potential redemption liability to zero as
December 31, 2010. The Company recorded a gain of $785,000 as other income as a result of this settlement.
Certain warrants issued in connection with the 2010 Offering were determined not to
be indexed to Galenas common stock as they are potentially settleable in cash. The fair
value of the warrants at the dates of issuance totaling $2,466,000 was recorded as a
derivative liability and a cost of equity and was determined by the Black-Scholes option
pricing model. Due to the fact that Galena has limited trading history, Galenas expected
stock volatility assumption is based on a combination of implied volatilities of similar
entities whose share or option prices are publicly traded. Galena used a weighted
average expected stock volatility of 119.49%. The expected life assumption is based on the
contract term of 6.5 years. The dividend yield of zero is based on the fact that Galena
has no present intention to pay cash dividends. The risk free rate of 3.22% used for the
warrant is equal to the zero coupon rate in effect at the time of the grant.
The
decrease in the fair value of the warrants from date of issuance to
September 24, 2011 is $2,152,000, of which $881,000 has been included in other income (expense)
in the accompanying statements of expenses for the nine months ended
September 30, 2011. The fair value of these warrants at
September 24, 2011 of $314,000 was reclassified to divisional deficit immediately prior to the
recapitalization of the Company, as the Company was effectively released of any liability or obligation to settle
the warrants pursuant to the contribution agreement with Galena entered into on this date. The fair value of the warrants was determined by the Black-Scholes option pricing model. Due to the fact that Galena
has limited trading history, Galenas expected stock volatility assumption is based on a
combination of implied volatilities of
F-24
RXi PHARMACEUTICALS CORPORATION (REGISTRANT) AND PREDECESSOR (RNAi)
(A Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
(Information as of September 30, 2011 and for the
nine months ended September 30, 2011 and 2010 is
unaudited)
similar entities whose shares or options are publicly traded. Galena used a weighted average
expected stock volatility of 98.87%. The expected life assumption is based on the remaining
contract term of 5.0 years. The dividend yield of zero is based on the fact that Galena has no
present intention to pay cash dividends. The risk free rate of 0.89% used for the warrants is equal
to the zero coupon rate in effect on the date of the re-measurement. All changes related to the value of
these warrants have been allocated entirely to the Company.
2011 Offerings On March 4, 2011, Galena closed an underwritten public offering of
6,000,000 units at a price to the public of $1.35 per unit for gross proceeds of $8.1 million
(the March 2011 Offering). The offering provided approximately $7.3 million to Galena after
deducting the underwriting discounts and commissions and offering expenses. Each unit consists of
(i) one share of common stock, (ii) a thirteen-month warrant to purchase 0.50 of a share of common
stock at an exercise price of $1.70 per share (subject to anti-dilution adjustment) and (iii) a
five-year warrant to purchase 0.50 of a share of common stock at an exercise price of $1.87 per
share (subject to anti-dilution adjustment). On April 15, 2011, the holders of outstanding warrants
issued in the March 2011 Offering to purchase an aggregate of 3,450,000 shares of common stock
agreed to exchange such warrants for warrants exercisable for the same number of shares as those
being exchanged, but otherwise on the same terms of the warrants sold in Galenas April 2011
financing. Prior to the exchange, the Company recorded a decrease in fair value of $1,000,000
related to the exchanged warrants. Upon the exchange, the Company recorded a loss of $900,000,
which represented the difference between the adjusted fair value of the March 2011 warrants as
compared to the fair value of the April 2011 warrants received in the exchange. As a result of a
subsequent offering that was completed on April 15, 2011, the exercise price of the remaining
2,550,000 outstanding warrants sold in the March 2011 Offering was reduced to $1.00 per share as a
result of the anti-dilution adjustment.
The thirteen-month and five-year warrants issued in connection with the March 2011 Offering
were determined not to be indexed to Galenas common stock as they are potentially settleable in
cash. The fair value of the remaining 2,550,000 warrants at the date of issuance totaling
$1,790,000 was recorded as a derivative liability and was determined using the
Black-Scholes option pricing model. Due to the fact that Galena has limited trading history,
Galenas expected stock volatility assumption is based on a combination of implied volatilities of
similar entities whose shares or options are publicly traded. Galena used a weighted average
expected stock volatility of 113.25%. The expected life assumption is based on the contract term of
1.08 years used for the thirteen-month warrants and 5 years used for the five-year warrants. The
dividend yield of zero is based on the fact that we have no
present intention to pay cash dividends. The risk free rate of 0.26% used for the
thirteen-month warrants and 2.17% used for the five-year warrants is equal to the zero coupon rate
in effect at the time of the grant.
In July 2011, 75,000 of the thirteen-month warrants were exercised at
$1.00 per common share which resulted in a $34,000 reduction of the
derivative liability. In July 2011, 75,000 of the five-year warrants
were exercised at $1.00 per common share which resulted in a $68,000
reduction in the derivative liability.
The decrease in the fair value of the warrants from date of
issuance to September 24, 2011 of $625,000 has been included in
other income (expense) in the
accompanying statements of expenses for the nine months ended
September 30, 2011. The fair value of these warrants at
September 24, 2011 of $1,165,000 was reclassified to divisional deficit immediately prior to the
recapitalization of the Company, as the Company was effectively released of any
liability or obligation to settle
the warrants pursuant to the
contribution agreement with Galena entered into on this date. The fair value of the
warrants was determined using the Black-Scholes option pricing model. Due to
the fact that Galena has limited trading history, Galenas expected stock volatility assumption is
based on a combination of implied volatilities of similar entities whose shares or options are
publicly traded. Galena used a weighted average expected stock
volatility of 98.87%. The expected
life assumption is based on the remaining contract term of 0.5 years used for the thirteen-month
warrants and 4.4 years used for the five- year warrants. The dividend yield of zero is based on the
fact that Galena has no present intention to pay cash dividends. The
risk free rate of 0.02% used
for the thirteen-month warrants and 0.63% used for the five-year warrants is equal to the zero
coupon rate in effect on the date of the re-measurement. All changes related to the value of these warrants has been allocated entirely to the Company.
On April 20, 2011, Galena completed an underwritten public offering of 11,950,000 units at a
price to the public of $1.00 per unit for gross proceeds of approximately $12 million (the April
2011 Offering). Each unit consisted of one share of common stock and a warrant to purchase one
share of
F-25
RXi PHARMACEUTICALS CORPORATION (REGISTRANT) AND PREDECESSOR (RNAi)
(A Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
(Information as of September 30, 2011 and for the
nine months ended September 30, 2011 and 2010 is
unaudited)
common stock at an exercise price of $1.00 per share. The shares of common stock and warrants were
immediately separable and no separate units were issued. The warrants are exercisable beginning one
year and one day from the date of issuance, but only if Galenas stockholders approve an increase
in the number of authorized shares of common stock of Galena, and expire on the sixth anniversary
of the date of issuance. Net proceeds, after underwriting discounts and commissions and other
offering expenses, were approximately $10.9 million. In connection with the April financing, Galena
agreed to hold a stockholders meeting no later than July 31, 2011 in order to seek stockholder
approval for an amendment to Galenas Amended and Restated Certificate of Incorporation to increase
the authorized number of shares or our common stock. The Board of Directors of Galena subsequently
adopted an amendment to increase the authorized shares of common stock to 125,000,000, which was
presented to and approved by the stockholders of Galena at the 2011 Annual Meeting of Stockholders
held on July 15, 2011.
The warrants issued in connection with the April 2011 Offering, including the warrants issued
in exchanged for the March 2011 warrants, were determined not to be indexed to Galenas common
stock as they are potentially settleable in cash. A portion of the liability was allocated to the
Company based on the expected use of proceeds at the time the Offering was
completed. The fair value of the warrants at the dates of issuance allocated to the Company
totaling $6,932,000 was
recorded as a derivative liability and was determined using the Black-Scholes
option pricing model. Due to the fact that the Company has limited trading history, Galenas
expected stock volatility assumption is based on a combination of implied volatilities of similar
entities whose shares or options are publicly traded. Galena used a weighted average expected stock
volatility of 99.04%. The expected life assumption is based on the contract term of 7.0 years. The
dividend yield of zero is based on the fact that we have no present intention to pay cash
dividends. The risk free rate of 2.81% used for the warrants is equal to the zero coupon rate in
effect at the time of the grant. The increase in the fair value of
the warrants allocated to the Company from date of
issuance to September 24, 2011 is $339,000, which has been
included in other income (expense)
in the accompanying statements of expenses for the nine months ended September 30, 2011. The fair value of the warrants at September 24, 2011 of $7,493,000 was
reclassified to divisional deficit immediately prior to the
recapitalization of the Company, as the Company was
effectively released of any liability or obligation to settle the warrants pursuant to the contribution
agreement with Galena entered into on this date. The fair value
of the warrants was determined by the Black-Scholes option pricing model. Due
to the fact that Galena has limited trading history, Galenas expected stock volatility assumption
is based on a combination of implied volatilities of similar entities whose shares or options are
publicly traded. Galena used a weighted average expected stock volatility of 98.87%. The expected
life assumption is based on the remaining contract term of 6.56 years. The dividend yield of zero is
based on the fact that Galena has no present intention to pay cash dividends. The risk free rate of
1.35% used for the warrants is equal to the zero coupon rate in effect on the date of the
re-measurement. Additionally, in connection with the
previously discussed exchange, the Company recorded a loss of approximately $900,000 which
accounts for the remaining change in value during the period.
F-26
RXi PHARMACEUTICALS CORPORATION (REGISTRANT) AND PREDECESSOR (RNAi)
(A Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
(Information as of September 30, 2011 and for the
nine months ended September 30, 2011 and 2010 is
unaudited)
9. Income Taxes
The components of federal and state income tax expense are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
2010 |
|
|
2009 |
|
Current |
|
|
|
|
|
|
|
|
Federal |
|
$ |
|
|
|
$ |
|
|
State |
|
|
|
|
|
|
|
|
Deferred |
|
|
|
|
|
|
|
|
Federal |
|
|
(4,853 |
) |
|
|
(5,533 |
) |
State |
|
|
(1,283 |
) |
|
|
(2,257 |
) |
|
|
|
|
|
|
|
Total deferred |
|
|
(6,136 |
) |
|
|
(7,790 |
) |
Valuation allowance |
|
|
6,136 |
|
|
|
7,790 |
|
|
|
|
|
|
|
|
Total income tax expense |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
The components of net deferred tax assets are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
2010 |
|
|
2009 |
|
Net operating loss carryforwards |
|
$ |
13,328 |
|
|
$ |
10,348 |
|
Tax credit carryforwards |
|
|
1,061 |
|
|
|
753 |
|
Stock based compensation |
|
|
5,864 |
|
|
|
4,222 |
|
Other |
|
|
104 |
|
|
|
74 |
|
Licensing deduction deferral |
|
|
3,264 |
|
|
|
2,089 |
|
|
|
|
|
|
|
|
Gross deferred tax assets |
|
|
23,621 |
|
|
|
17,486 |
|
Valuation allowance |
|
|
(23,621 |
) |
|
|
(17,486 |
) |
|
|
|
|
|
|
|
Net deferred tax asset |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
F-27
RXi PHARMACEUTICALS CORPORATION (REGISTRANT) AND PREDECESSOR (RNAi)
(A Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
(Information as of September 30, 2011 and for the
nine months ended September 30, 2011 and 2010 is
unaudited)
The Company has incurred net operating losses from inception. At December 31,
2010, Galena had domestic federal and state net operating loss carry forwards of
approximately $34.0 million available to reduce future taxable income, which expire at
various dates beginning in 2012 through 2030. Galena also had federal and state research
and development tax credit carry forwards of approximately $705,000 and $536,000,
respectively, available to reduce future tax liabilities and which expire at various dates
beginning in 2022 through 2030.
Under the provisions of the Internal Revenue Code, certain substantial changes in
Galenas ownership may result in a limitation on the amount of net operating loss carry
forwards and research and development credit carry forwards which could be utilized
annually to offset future taxable income and taxes payable.
Based on an assessment of all available evidence including, but not limited to the
Companys limited operating history in its core business and lack of profitability,
uncertainties of the commercial viability of its technology, the impact of government
regulation and healthcare reform initiatives, and other risks normally associated with
biotechnology companies, the Company has concluded that it is more likely than not that
these net operating loss carry forwards and credits will not be realized and, as a result,
a 100% deferred income tax valuation allowance has been recorded against these assets.
The Company adopted certain provisions of the ASC 740, effective January 1, 2007
which clarifies the accounting for uncertainty in income taxes recognized in financial
statements and requires the impact of a tax position to be recognized in the financial
statements if that
position is more likely than not of being sustained by the taxing authority. The
adoption of ASC 740-10 did not have any effect on the Companys financial position or
results of operations.
Galena files income tax returns in the U.S. federal and Massachusetts jurisdictions.
Galena is subject to tax examinations for the 2007 tax year and beyond. Galena does not
believe there will be any material changes in its unrecognized tax positions over the next
12 months. Galena has not incurred any interest or penalties. In the event that Galena is
assessed interest or penalties at some point in the future, they will be classified in the
financial statements as general and administrative expense.
The
operating results of the RXi for the nine months ended September 30, 2011 will be
included in Galenas tax return for the year ended December 31, 2011. No tax provision has
been recorded for RXi for the nine months ended September 30, 2011 due to both Galenas and RXis
projected loss for the year.
10. License Agreements
As part of its business, Galena enters into numerous licensing agreements. These
license agreements with third parties often require milestone and royalty payments based
on the progress of the asset through development stages. Milestone payments may be
required, for example, upon approval of the product for marketing by a regulatory agency.
In certain agreements, Galena is required to make royalty payments based upon a percentage
of net sales.
The expenditures required under these arrangements may be material individually in
the event that Galena develops product candidates covered by the intellectual property
licensed under any such arrangement, and in the unlikely event that milestones for
multiple products covered by these arrangements were reached in the same period, the
aggregate charge to expense could be material to the results of operations. In addition,
these arrangements often give Galena the discretion to unilaterally terminate development
of the product, which would allow Galena to avoid making the contingent payments; however,
Galena is unlikely to cease development if the compound successfully achieves clinical
testing objectives.
F-28
RXi PHARMACEUTICALS CORPORATION (REGISTRANT) AND PREDECESSOR (RNAi)
(A Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
(Information as of September 30, 2011 and for the
nine months ended September 30, 2011 and 2010 is
unaudited)
During the year ended December 31, 2007, Galena entered into a license agreement with
Cold Spring Harbor Laboratory (CSHL) for small hairpin RNA, or shRNA, for which Galena
paid $50,000 and agreed to make future milestone and royalty payments upon successful
development and commercialization of products. Galena also entered into four exclusive
license agreements and an invention disclosure agreement with the University of
Massachusetts Medical School (UMMS) for which the Company paid cash of $453,000 and
issued 462,112 shares of its common stock valued at $2.3 million, or $5.00 per share. For
each RNAi product developed in connection with the license granted by CSHL, the possible
aggregate milestone payments equal $2,650,000. The invention disclosure agreement has an
initial term of three years and provides the option to negotiate licenses to certain RNAi
technologies discovered at UMMS. During the nine months ended September 30, 2011, the Company
cancelled several of its licenses with UMMS.
On August 29, 2007, Galena entered into a license agreement with TriLink
Biotechnologies, Inc. for three RNAi chemistry technologies for all therapeutic RNAi
applications, for which Galena paid $100,000 and agreed to pay yearly maintenance fees of
$30,000, as well as future clinical milestone payments and royalty payments based on sales
of therapeutic products developed from the licensed technologies. There was no expense
recorded in 2010 and 2011. The Company expensed $30,000 in 2009.
In October 2007, Galena entered into a license agreement with Dharmacon, Inc. (now
part of Thermo Fisher Scientific Inc.), pursuant to which Galena obtained an exclusive
license to
certain RNAi sequences to a number of target genes for the development of Galenas
rxRNA compounds. Further, Galena has obtained the right to license additional RNAi
sequences, under the same terms, disclosed by Thermo Fisher Scientific Inc. in its pending
patent applications against target genes and has received an option for exclusivity for
other siRNA configurations. As consideration for this license, Galena paid an up-front fee
of $150,000 and agreed to pay future clinical milestone payments and royalty payments
based on sales of siRNA compositions developed in connection with the licensed technology.
No amounts were expensed in 2009, 2010, and 2011 related to this license.
In November 2007, Galena entered into a license agreement with Life Technologies,
Inc., pursuant to which the Company was granted rights under four patents relating to RNA
target sequences, RNA chemical modifications, RNA configurations and/or RNA delivery to
cells. As consideration for this license, Galena paid an up-front fee of $250,000 and
agreed to pay yearly maintenance fees of the same amount beginning in 2008. Further,
Galena is obligated to pay a fee for each additional gene target added to the license as
well as a fee on the first and second anniversaries on the date of which consent to add
the gene target to the list of those covered by the license was granted. Galena has also
been granted, for each gene target, an option to secure preclinical rights and/or the
clinical rights, for which RXi would be required to pay additional fees. Further, Galena
is required to make future clinical milestone payments and royalty payments based on sales
of therapeutic products developed from the licensed technologies. The Company expensed
$187,500, $62,500 and $250,000 for the nine months ended September 30, 2011, and the years ended
December 31, 2010 and 2009 related to this license.
On October 3, 2008, Galena acquired co-exclusive rights to technology for the oral
delivery of RNAi therapeutics from UMMS. As consideration for this license, Galena agreed
to pay a total license fee of $2,500,000 over a 12 month period, which can be paid in
cash, in equity or a combination thereof, provided that a specified amount of the license
fee must be made in cash. This Agreement was amended on July 1, 2009, allowing Galena to
extend the periods for which certain milestone payments are due to UMMS. Payments made in
equity may only be made if, at the time of such payment, the shares of common stock
issuable upon conversion of the warrant have been registered for resale under the
Securities Act of 1933. No
F-29
RXi PHARMACEUTICALS CORPORATION (REGISTRANT) AND PREDECESSOR (RNAi)
(A Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
(Information as of September 30, 2011 and for the
nine months ended September 30, 2011 and 2010 is
unaudited)
warrants have been issued under this agreement through the date of this report. Galena
continually assesses the progress of its research and development efforts as it relates to
its licensed technology and may terminate with notice to the licensor at any time.
Accordingly, the amounts are being expensed, as payments are made. There were no expenses
recorded for the nine months ended September 30, 2011 and the year ended December 31, 2010. The
Company expensed $250,000 for the year ended December 31, 2009.
In September, 2009, Galena entered into a Patent and Technology Assignment Agreement
with Advirna, LLC (Advirna), a Colorado limited liability company co-founded by Galenas
former Chief Scientific Officer. Pursuant to the terms of the agreement, Advirna assigned to
Galena certain patent and technology rights related to chemically modified polynucleotides
(the Rights) and Galena granted to Advirna a fully paid-up license to the Rights in a
specified field. During the period
ended September 30, 2011 and the year ended December 31, 2009,
the Company paid and expensed $100,000 and $75,000, respectively, for the initial and
annual maintenance fees under this agreement. There was no expense recorded for the year
ended December 31, 2010.
As part of the
transactions contemplated by the contribution and securities purchase agreements, on
September 24, 2011, RXi entered into an agreement with Advirna pursuant to which:
|
|
|
Advirna assigned to RXi its existing patent and technology
rights related to sd-rxRNA
technology in exchange for RXis agreement to pay Advirna an annual $100,000 maintenance
fee and a one-time $350,000 milestone payment upon the future issuance of the first patent
with valid claims covering the assigned patent and technology rights;
|
|
|
|
|
RXi will be required to pay a 1% royalty to Advirna for any licensing revenue received by
RXi with respect to future licensing of the assigned Advirna patent and technology rights;
|
|
|
|
|
RXi has granted back to Advirna a license under the assigned patent and technology for fields
of use outside the fields of human therapeutics and diagnostics; and
|
|
|
|
|
RXi has agreed to issue to Advirna, upon the completion of the spin-off transaction, shares of
RXis common stock equal to approximately 5% of the fully diluted shares of RXi common
stock assuming the conversion in full of all outstanding Series A Preferred Stock.
|
11. Related Party Transactions
Galenas
former Senior Vice President and Chief Scientific Officer was a consultant to Galena from January 2008 until
the date of her employment. This consulting contract resulted in
payments to Advirna, the former Chief Scientific Officers
consulting firm, of approximately $13,400, which was recorded in the year ended December 31,
2008, in consulting fees and $5,000 recorded as license expense as discussed below. The approximate dollar value of
the former Chief Scientific Officers interest in this consulting
contract was approximately $9,250.
In
addition, Galena and Advirna were parties to an
option agreement whereby Galena paid $5,000 in 2008 for consideration to be granted the
exclusive worldwide rights to license certain technology and $75,000 for the initial
maintenance in 2009 under a Patent and Technology Assignment Agreement with Advirna
entered into in September 2009. As part of the transactions contemplated by the contribution and securities
purchase agreements, on September 24, 2011, RXi entered into an agreement with Advirna pursuant to which
Advirna assigned to RXi its
existing patent and technology rights related to sd-rxRNA technology in
exchange for RXis agreement to pay Advirna an annual maintenance fee and other consideration upon the
achievement of certain milestones(see also Note 10).
On February 26, 2007, Galena entered into Scientific Advisory Board Agreements (the
SAB Agreements), with four of its founders. At the time of the execution of the SAB
Agreements, each of the founders were beneficial owners of more than five percent of
Galenas outstanding stock. Pursuant to the SAB Agreements, on May 23, 2007, Galena
granted to each of the founders a stock option under the 2007 Plan to purchase 52,832
shares of its common stock. In addition, under the SAB Agreements, Galena will grant each
of the founders a stock option under the 2007 Plan to purchase 52,832 shares of its common
stock on February 26, 2008, June 5, 2009 and June 4, 2010 with a per share exercise price
equal to the closing price of such stock on the public market on the date of grant unless
a founder terminates a SAB Agreement without good reason (as defined) or Galena terminates
a SAB Agreement with cause (as defined therein) in which case no further option grants
will be made to the founder.
F-30
RXi PHARMACEUTICALS CORPORATION (REGISTRANT) AND PREDECESSOR (RNAi)
(A Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
(Information as of September 30, 2011 and for the
nine months ended September 30, 2011 and 2010 is
unaudited)
All options granted pursuant to the SAB
Agreements are fully vested on the date of grant and have a term of ten years. The fair
value of stock options granted during 2010 and 2009 under the SAB Agreement for each
founder is approximately $142,000 and $245,000 which was estimated using the Black-Scholes
option-pricing model as more fully discussed above under significant accounting policies
and the stock based compensation footnote. Included in the Companys financial statements
for the years ended December 31, 2010 and 2009 is approximately $566,000 and $978,000,
respectively, of expense related to the granting of these stock options. Included in the Companys
financial statements for
the nine months ended September 30, 2010 is approximately $566,000, of expense related to the granting of these stock options.
No options under the SAB agreements were issued during the nine months
ended September 30, 2011.
Additionally, pursuant to a letter agreement between Galena and each founder dated as
of April 30, 2007, the SAB Letters, in further consideration of the services to be
rendered by the founders under the SAB Agreements, Galena granted additional stock options
on May 23, 2007 under the 2007 Plan to each of the founders to purchase 26,416 shares of
its common stock. Unless a founder terminates a SAB Agreement without good reason (as
defined) or the Company terminates a SAB Agreement with cause (as defined therein), the
options granted pursuant to the SAB Letters will fully vest from and after April 29, 2012
and will have a term of ten years from the date of grant. At September 30, 2011 and December
31, 2010, the fair market value
of stock options under the SAB Agreement for each founder is
approximately $52,400
and $20,500, respectively, which was estimated using the Black-Scholes option-pricing
model as more fully discussed above under the summary of significant accounting policies
and the stock based compensation footnote. Included in the Companys financial statements
for the nine months ended September 30, 2011 and the years ended December 31, 2010 and 2009 is
approximately $125,000 and $38,000 of income and $73,000, of expense, respectively,
related to these stock options.
12. Subsequent Events
In accordance with ASC 855-10, Subsequent Events, management has evaluated subsequent
events through to the date these financial statements are filed. The Company did not have any material recognizable or unrecognizable
subsequent events except as otherwise disclosed in Note 1.
F-31
Shares of Common Stock
PROSPECTUS
Until
, 2012 (90 days after the date of this prospectus), all dealers that effect transactions in these securities may be required to deliver this prospectus.
____________
, 2012
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the expenses that are payable by us in connection with the
distribution of the common stock registered under this registration statement. All of the amounts
shown are estimates, except for the SEC registration fee.
|
|
|
|
|
Description |
|
Amount |
|
SEC registration fee |
|
$ |
14 |
|
Printing expenses |
|
$ |
125,000 |
|
Legal fees and expenses |
|
$ |
350,000 |
|
Accounting fees and expenses |
|
$ |
100,000 |
|
Transfer agent and registrar fees and expenses |
|
$ |
10,000 |
|
Miscellaneous fees and expenses |
|
$ |
10,000 |
|
|
|
|
|
Total |
|
$ |
595,014 |
|
|
|
|
|
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law
(DGCL) provides that a corporation may indemnify
any current or former director, officer or employee or other individual against expenses,
judgments, fines and amounts paid in settlement in connection with civil, criminal, administrative
or investigative actions or proceedings, other than a derivative action by or in the right of the
corporation, if the director, officer, employee or other individual acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, if he or she had no reasonable
cause to believe his or her conduct was unlawful. A similar standard is applicable in the case of
derivative actions, except that indemnification extends only to expenses incurred in connection
with the defense or settlement of such actions, and the statute requires court approval before
there can be any indemnification where the person seeking indemnification has been found liable to
the corporation. The statute provides that it is not exclusive of other indemnification that may be
granted by a corporations by-laws, disinterested director vote, stockholder vote, agreement or
otherwise.
Our certificate of incorporation provides that we will indemnify to the fullest extent
authorized or permitted by the DGCL or any other applicable
law as now or hereafter in effect any person made, or threatened to be made, a defendant or witness
to any action, suit or proceeding (whether civil, criminal or otherwise) by reason of the fact that
he is or was a director of our corporation or by reason of the fact that such director, at our
request, is or was serving any other corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise in any capacity. Our certificate of incorporation also provides
that no amendment or repeal of the certificate of incorporation will apply to or have any effect on
any right to indemnification provided in the certificate of incorporation with respect to any acts
or omissions occurring prior to such amendment or repeal.
As permitted by the DGCL, our bylaws,
as amended, provide that we will indemnify to the fullest extent authorized or permitted by
applicable law as now or hereafter in effect any person who was or is made, or is threatened
to be made, a party or is otherwise involved in any action, suit or proceeding (whether civil,
criminal, administrative or investigative), by reason of the fact that he (or a person for whom
he is the legal representative) is or was a director or officer of our corporation, is or was
serving at our request as a director, officer, employee, member, trustee or agent of another
corporation or of a partnership, joint venture, trust, nonprofit entity or other enterprise.
Consequently, no director of the
corporation will be personally liable to the corporation or its stockholders for monetary
damages for any breach of fiduciary duty by such a director as a director. However,
notwithstanding the preceding sentence, a director will be liable to the extent provided by
Delaware law (1) for any breach of the directors duty of loyalty to the corporation or its
stockholders, (2) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (3) for payments of unlawful dividends or for
unlawful stock repurchases or redemption, or (4) for any transaction from which the director
derived an improper personal benefit.
Effective upon the consummation of the
spin-off, we will have entered into indemnification agreements with each of our executive officers
and directors. These agreements provide that, subject to limited exceptions and among other things,
we will indemnify each of our executive officers and directors to the fullest extent permitted by law
and advance expenses to each indemnitee in connection with any proceeding in which a right to indemnification
is available.
We also intend to maintain insurance on
behalf of any person who is or was our director, officer, trustee, employee or agent or serving
at our request as a director, officer, trustee, employee or agent of another corporation,
partnership, joint venture, trust, non-profit entity or other enterprise against any liability
asserted against the person and incurred by the person in any such capacity, or arising out of
his or her status as such.
Insofar as indemnification for
liabilities arising under the Securities Act may be permitted for directors, officers, or
persons who control us, we have been informed that, in the opinion of the SEC, such
indemnification is against public policy as expressed in the Securities Act and is
therefore unenforceable.
Item 15. Recent Sales of Unregistered Securities
On September 19, 2011, in connection with our formation, we issued 100 shares of our common
stock to Galena in exchange for an aggregate cash purchase price of $1.00.
On
September 24, 2011, Tang Capital Partners, LP and RTW Investment, LLC purchased from us
secured convertible promissory notes, with an aggregate principal amount of $1,500,000, that are
convertible into our shares of our Series A Preferred Stock at a conversion price of $1,000 per
share.
II-1
All of the transactions described in this Item 15 were exempt from registration under the
Securities Act pursuant to Section 4(2) of the Securities Act, which exempts private issuances of
securities in which the securities are not offered or advertised to the general public.
Item 16. Exhibits and Financial Statement Schedules
|
|
|
Exhibit |
|
|
Number |
|
Description |
2.1
|
|
Contribution Agreement, dated as of September 24, 2011, between RXi
Pharmaceuticals Corporation (formerly RNCS, Inc.) and Galena
Biopharma, Inc. (formerly RXi Pharmaceuticals Corporation).*** |
|
|
|
2.2
|
|
Securities Purchase Agreement, dated as of September 24, 2011,
among RXi Pharmaceuticals Corporation (formerly RNCS, Inc.), Galena
Biopharma, Inc. (formerly RXi Pharmaceuticals Corporation), Tang
Capital Partners, LP and RTW Investments, LLC.*** |
|
|
|
|
2.3
|
|
Omnibus Amendment to Securities
Purchase Agreement, dated as of February 6, 2012,
among RXi Pharmaceuticals Corporation, Galena
Biopharma, Inc., Tang
Capital Partners, LP and RTW Investments, LLC.*** |
|
|
|
|
3.1
|
|
Amended and Restated Certificate of Incorporation of RXi
Pharmaceuticals Corporation.*** |
|
|
|
|
3.2
|
|
Certificate of Designations, Preferences and Rights of
Series A Convertible Preferred Stock of RXi Pharmaceuticals
Corporation.*** |
|
|
|
|
|
|
|
3.3
|
|
Bylaws of RXi Pharmaceuticals Corporation, as amended.*** |
|
|
|
4.1
|
|
Secured Convertible Promissory Note, dated September 24, 2011 of
RXi Pharmaceuticals Corporation (formerly RNCS, Inc.), issued to
Tang Capital Partners, LP.*** |
|
|
|
4.2
|
|
Secured Convertible Promissory Note, dated September 24, 2011 of
RXi Pharmaceuticals Corporation (formerly RNCS, Inc.), issued to
RTW Investments, LLC.*** |
|
|
|
|
5.1
|
|
Opinion of TroyGould PC regarding
the securities being registered.*** |
|
|
|
|
|
8.1
|
|
Opinion of TroyGould PC regarding
tax matters.*** |
|
|
|
|
10.1
|
|
Employment Agreement, dated September 24, 2011, between RXi
Pharmaceuticals Corporation (formerly, RNCS, Inc.) and Anastasia
Khvorova, Ph.D.(1)* |
|
|
|
10.2
|
|
Employment Agreement, dated September 24, 2011, between RXi
Pharmaceuticals Corporation (formerly, RNCS, Inc.) and Pamela
Pavco, Ph.D.(1)* |
|
|
|
|
10.3
|
|
License Agreement between RXi Pharmaceuticals Corporation and
Dharmacon, Inc. (now part of Thermo Fisher Scientific Inc.), dated
October 29, 2007.(+)*** |
|
|
|
|
|
10.4
|
|
Non-Exclusive License Agreement, between CytRx Corporation and the
University of Massachusetts Medical School, related to UMMS
disclosure number 01-36, dated April 15, 2003, as amended February
1, 2004.(+)*** |
|
|
|
|
10.5
|
|
Patent and Technology Assignment Agreement between RXi
Pharmaceuticals Corporation (formerly RNCS, Inc.) and Advirna, LLC,
effective as of September 24, 2011.*** |
|
|
|
10.6
|
|
Lease between RXi Pharmaceuticals Corporation and Newgate
Properties, LLC for One Gateway Place, Worcester, Massachusetts
01605, dated September 25, 2007.(2) |
|
|
|
10.7
|
|
Amendment to Lease between RXi Pharmaceuticals Corporation and
Newgate Properties, LLC for One Gateway Place, Worcester,
Massachusetts 01605, dated January 23, 2009.(3) |
II-2
|
|
|
Exhibit |
|
|
Number |
|
Description |
10.8
|
|
Amendment to Lease between RXi Pharmaceuticals Corporation and
Newgate Properties, LLC for One Gateway Place, Worcester,
Massachusetts 01605, dated March 5, 2009.(4) |
|
|
|
10.9
|
|
Amendment to Lease between RXi Pharmaceuticals Corporation and
Newgate Properties, LLC for One Gateway Place, Worcester,
Massachusetts 01605, dated August 28, 2008.*** |
|
|
|
10.10
|
|
Amendment to Lease between RXi Pharmaceuticals Corporation and
Newgate Properties, LLC for One Gateway Place, Worcester,
Massachusetts 01605, dated November 4, 2008.*** |
|
|
|
10.11
|
|
Amendment to Lease between RXi Pharmaceuticals Corporation and
Newgate Properties, LLC for One Gateway Place, Worcester,
Massachusetts 01605, dated June 9, 2011.*** |
|
|
|
10.12
|
|
RXi Pharmaceuticals Corporation
2012 Long Term Incentive Plan.* *** |
|
|
|
|
10.13
|
|
Form of Incentive Stock Option
Award.* *** |
|
|
|
10.14
|
|
Form of Non-qualified Stock Option
Award.* *** |
|
|
|
10.15
|
|
Form of Restricted Stock Unit
Award.* *** |
|
|
|
10.16
|
|
Form of Indemnification Agreement.* *** |
|
|
|
|
|
23.1
|
|
Consent of BDO USA, LLP.**** |
|
|
|
|
23.2
|
|
Consents of TroyGould PC (included in Exhibits 5.1 and 8.1). |
|
|
|
|
|
|
99.1
|
|
Consent of Kevin C. Tang.*** |
|
|
|
99.2
|
|
Consent of Roderick T. Wong.*** |
|
|
|
(1) |
|
Incorporated by reference to the Current Report on Form 8-K of Galena Biopharma, Inc. filed
with the SEC on September 26, 2011 (File No. 001-33958). |
|
(2) |
|
Incorporated by reference to the Amendment No. 1 to the Registration Statement on Form S-1 of
Galena Biopharma, Inc. filed with the SEC on November 19, 2007 (File No. 333-147009). |
|
(3) |
|
Incorporated by reference to the Current Report on Form 8-K of Galena Biopharma, Inc. filed
with the SEC on January 29, 2009 (File No. 001-33958). |
|
(4) |
|
Incorporated by reference to the Quarterly Report on Form 10-Q of Galena Biopharma, Inc. filed
with the SEC on May 15, 2009 (File No. 001-33958). |
|
* |
|
Indicates a management contract or compensatory plan or arrangement. |
|
|
|
*** |
|
Previously filed. |
|
|
**** |
|
Filed herewith. |
|
|
+ |
|
Confidential treatment has been requested or granted for certain portions which have been blanked
out in the copy of the exhibit filed with the Securities and Exchange Commission. The omitted
information has been filed separately with the Securities and Exchange Commission. |
II-3
(b) Financial Statement Schedules
All financial statement schedules are omitted because they are not applicable or required or
because the required information is included elsewhere in the financial statements or the notes to
the financial statements.
Item 17. Undertakings
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of 1933, the
information omitted from the form of prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of 1933, each
post-effective amendment that contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering thereof.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused
this amendment to registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Worcester,
Commonwealth of Massachusetts, on February 14, 2012.
|
|
|
|
|
|
RXi PHARMACEUTICALS CORPORATION
|
|
|
By: |
/s/ Mark J. Ahn, Ph.D.
|
|
|
|
Mark J. Ahn, Ph.D. |
|
|
|
President and Chief Financial Officer |
|
|
Pursuant
to the requirements of the Securities Act of 1933, this amendment to
registration statement has
been signed below by the following person in the capacities and on the date indicated.
|
|
|
|
|
|
Signatures |
|
Title |
|
Date |
|
|
|
|
|
|
|
President and Chief
Financial Officer
(Principal Executive
Officer and Principal
Accounting and Financial
Officer) and Sole Director
|
|
February 14, 2012 |
|
II-5
|
|
|
Exhibit |
|
|
Number |
|
Description |
2.1
|
|
Contribution Agreement, dated as of September 24, 2011, between RXi
Pharmaceuticals Corporation (formerly RNCS, Inc.) and Galena
Biopharma, Inc. (formerly RXi Pharmaceuticals Corporation).*** |
|
|
|
2.2
|
|
Securities Purchase Agreement, dated as of September 24, 2011,
among RXi Pharmaceuticals Corporation (formerly RNCS, Inc.), Galena
Biopharma, Inc. (formerly RXi Pharmaceuticals Corporation), Tang
Capital Partners, LP and RTW Investments, LLC.*** |
|
|
|
|
2.3
|
|
Omnibus Amendment to Securities
Purchase Agreement, dated as of February 6, 2012,
among RXi Pharmaceuticals Corporation, Galena
Biopharma, Inc., Tang
Capital Partners, LP and RTW Investments, LLC.*** |
|
|
|
|
3.1
|
|
Amended and Restated Certificate of Incorporation of RXi
Pharmaceuticals Corporation.*** |
|
|
|
|
3.2
|
|
Certificate of Designations, Preferences and Rights of
Series A Convertible Preferred Stock of RXi Pharmaceuticals
Corporation.*** |
|
|
|
|
|
|
|
3.3
|
|
Bylaws of RXi Pharmaceuticals Corporation, as amended.*** |
|
|
|
4.1
|
|
Secured Convertible Promissory Note, dated September 24, 2011 of
RXi Pharmaceuticals Corporation (formerly RNCS, Inc.), issued to
Tang Capital Partners, LP.*** |
|
|
|
4.2
|
|
Secured Convertible Promissory Note, dated September 24, 2011 of
RXi Pharmaceuticals Corporation (formerly RNCS, Inc.), issued to
RTW Investments, LLC.*** |
|
|
|
|
5.1
|
|
Opinion of TroyGould PC regarding
the securities being registered.*** |
|
|
|
|
|
8.1
|
|
Opinion of TroyGould PC regarding
tax matters.*** |
|
|
|
|
10.1
|
|
Employment Agreement, dated September 24, 2011, between RXi
Pharmaceuticals Corporation (formerly, RNCS, Inc.) and Anastasia
Khvorova, Ph.D.(1)* |
|
|
|
10.2
|
|
Employment Agreement, dated September 24, 2011, between RXi
Pharmaceuticals Corporation (formerly, RNCS, Inc.) and Pamela
Pavco, Ph.D.(1)* |
|
|
|
|
10.3
|
|
License Agreement between RXi Pharmaceuticals Corporation and
Dharmacon, Inc. (now part of Thermo Fisher Scientific Inc.), dated
October 29, 2007.(+)*** |
|
|
|
|
|
10.4
|
|
Non-Exclusive License Agreement, between CytRx Corporation and the
University of Massachusetts Medical School, related to UMMS
disclosure number 01-36, dated April 15, 2003, as amended February
1, 2004.(+)*** |
|
|
|
|
10.5
|
|
Patent and Technology Assignment Agreement between RXi
Pharmaceuticals Corporation (formerly RNCS, Inc.) and Advirna, LLC,
effective as of September 24, 2011.*** |
|
|
|
10.6
|
|
Lease between RXi Pharmaceuticals Corporation and Newgate
Properties, LLC for One Gateway Place, Worcester, Massachusetts
01605, dated September 25, 2007.(2) |
|
|
|
10.7
|
|
Amendment to Lease between RXi Pharmaceuticals Corporation and
Newgate Properties, LLC for One Gateway Place, Worcester,
Massachusetts 01605, dated January 23, 2009.(3) |
|
|
|
10.8
|
|
Amendment to Lease between RXi Pharmaceuticals Corporation and
Newgate Properties, LLC for One Gateway Place, Worcester,
Massachusetts 01605, dated March 5, 2009.(4) |
II-6
|
|
|
Exhibit |
|
|
Number |
|
Description |
10.9
|
|
Amendment to Lease between RXi Pharmaceuticals Corporation and
Newgate Properties, LLC for One Gateway Place, Worcester,
Massachusetts 01605, dated August 28, 2008.*** |
|
|
|
10.10
|
|
Amendment to Lease between RXi Pharmaceuticals Corporation and
Newgate Properties, LLC for One Gateway Place, Worcester,
Massachusetts 01605, dated November 4, 2008.*** |
|
|
|
10.11
|
|
Amendment to Lease between RXi Pharmaceuticals Corporation and
Newgate Properties, LLC for One Gateway Place, Worcester,
Massachusetts 01605, dated June 9, 2011.*** |
|
|
|
10.12
|
|
RXi Pharmaceuticals Corporation
2012 Long Term Incentive Plan.* *** |
|
|
|
|
10.13
|
|
Form of Incentive Stock Option
Award.* *** |
|
|
|
10.14
|
|
Form of Non-qualified Stock
Option Award.* *** |
|
|
|
10.15
|
|
Form of Restricted Stock Unit
Award.* *** |
|
|
|
10.16
|
|
Form of Indemnification Agreement.*
*** |
|
|
|
|
|
23.1
|
|
Consent of BDO USA, LLP.**** |
|
|
|
|
23.2
|
|
Consents of TroyGould PC (included in Exhibits 5.1 and 8.1). |
|
|
|
|
|
|
99.1
|
|
Consent of Kevin C. Tang.*** |
|
|
|
99.2
|
|
Consent of Roderick T. Wong.*** |
|
|
|
(1) |
|
Incorporated by reference to the Current Report on Form 8-K of Galena Biopharma, Inc. filed
with the SEC on September 26, 2011 (File No. 001-33958). |
|
(2) |
|
Incorporated by reference to the Amendment No. 1 to the Registration Statement on Form S-1 of
Galena Biopharma, Inc. filed with the SEC on November 19, 2007 (File No. 333-147009). |
|
(3) |
|
Incorporated by reference to the Current Report on Form 8-K of Galena Biopharma, Inc. filed
with the SEC on January 29, 2009 (File No. 001-33958). |
|
(4) |
|
Incorporated by reference to the Quarterly Report on Form 10-Q of Galena Biopharma, Inc. filed
with the SEC on May 15, 2009 (File No. 001-33958). |
|
* |
|
Indicates a management contract or compensatory plan or arrangement. |
|
|
|
*** |
|
Previously filed. |
|
|
**** |
|
Filed herewith. |
|
|
+ |
|
Confidential treatment has been requested or granted for certain portions which have been blanked
out in the copy of the exhibit filed with the Securities and Exchange Commission. The omitted
information has been filed separately with the Securities and Exchange Commission. |
II-7