10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2014

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File Number: 000-54910

RXi Pharmaceuticals Corporation

(Exact name of registrant as specified in its charter)

Delaware	45-3215903
(State of incorporation)	(I.R.S. Employer Identification No.)

257 Simarano Drive, Suite 101, Marlborough, MA 01752

(Address of principal executive office) (Zip code)

Registrant’s telephone number: (508) 767-3861

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter time that the registrant was required to submit and post such files).    Yes  x    No  ¨

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 Exchange Act. (Check one):

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	Smaller reporting company	x

Indicate by checkmark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

As of May 9, 2014, RXi Pharmaceuticals Corporation had 14,027,167 shares of common stock, $0.0001 par value, outstanding.

RXi PHARMACEUTICALS CORPORATION

FORM 10-Q — QUARTER ENDED MARCH 31, 2014

INDEX

Part No.	Item No.		Description	Page No.
I			FINANCIAL INFORMATION
		1	Financial Statements (unaudited)		3
			Condensed Balance Sheets as of March 31, 2014 and December 31, 2013		3
			Condensed Statements of Operations for the three months ended March 31, 2014 and 2013 and the cumulative period from January 1, 2003 (date of inception) to March 31, 2014		4
			Condensed Statements of Cash Flows for the three months ended March 31, 2014 and 2013 and the cumulative period from January 1, 2003 (date of inception) to March 31, 2014		5
			Notes to Condensed Financial Statements		7
		2	Management’s Discussion and Analysis of Financial Condition and Results of Operations		12
		3	Quantitative and Qualitative Disclosures About Market Risk		17
		4	Controls and Procedures		17
II			OTHER INFORMATION		17
		1	Legal Proceedings		17
		1A	Risk Factors		18
		2	Unregistered Sales of Equity Securities and Use of Proceeds		18
		3	Defaults Upon Senior Securities		18
		4	Mine Safety Disclosures		18
		5	Other Information		18
		6	Exhibits		18
Index to Exhibits					18
Signatures					19
EX-31.1 SARBANES-OXLEY ACT SECTION 302
EX-32.1 SARBANES-OXLEY ACT SECTION 906
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT

2

PART I

ITEM 1. FINANCIAL STATEMENTS

RXi PHARMACEUTICALS CORPORATION

(A Development Stage Company)

CONDENSED BALANCE SHEETS

(Amounts in thousands, except share and per share data)

(Unaudited)

	March 31, 2014			December 31, 2013
ASSETS
Current assets:
Cash and cash equivalents	$	9,010		$	11,390
Restricted cash		50			50
Short-term investments		3,000			3,000
Prepaid expenses and other current assets		226			303
Total current assets		12,286			14,743
Equipment and furnishings, net		155			177
Other assets		18			18
Total assets	$	12,459		$	14,938
LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	277		$	163
Accrued expenses and other current liabilities		1,024			1,795
Deferred revenue		89			118
Total current liabilities		1,390			2,076
Commitments and contingencies
Series A convertible preferred stock, $0.0001 par value, 15,000 shares authorized; 4,850 and 7,920 shares issued and outstanding at March 31, 2014 and December 31, 2013, respectively (at liquidation value)		4,850			7,920
Stockholders’ equity:
Preferred stock, $0.0001 par value; 10,000,000 authorized
Series A-1 convertible preferred stock, $0.0001 par value, 10,000 shares authorized; 4,620 and 2,054 issued and outstanding at March 31, 2014 and December 31, 2013, respectively (at liquidation value)		4,620			2,054
Common stock, $0.0001 par value, 1,500,000,000 shares authorized; 13,427,167 and 11,788,045 shares issued and outstanding at March 31, 2014 and December 31, 2013, respectively		1			1
Additional paid-in capital		41,964			40,969
Deficit accumulated during the developmental stage		(40,366	)		(38,082	)
Total stockholders’ equity		6,219			4,942
Total liabilities, convertible preferred stock and stockholders’ equity	$	12,459		$	14,938

The accompanying notes are an integral part of these financial statements.

3

RXi PHARMACEUTICALS CORPORATION

(A Development Stage Company)

CONDENSED STATEMENTS OF OPERATIONS

(Amounts in thousands, except share and per share data)

(Unaudited)

							Predecessor (RNAi) and RXi
	For the Three Months Ended March 31,						Period from January 1, 2003 (Date of Inception) to March 31, 2014
	2014			2013
Revenues:
Grant revenues	$	29		$	53		$	525
Total revenues		29			53			525
Operating Expenses:
Research and development expenses (1)		1,476			13,771			75,309
General and administrative expenses (1)		843			676			44,377
Total operating expenses		2,319			14,447			119,686
Operating loss		(2,290	)		(14,394	)		(119,161	)
Interest income (expense), net		6			—			628
Other income (expense), net		—			(3	)		6,441
Net loss		(2,284	)		(14,397	)		(112,092	)
Accretion of Series A and Series A-1 convertible preferred stock and dividends		(1,755	)		(3,547	)		(23,180	)
Net loss applicable to common stockholders	$	(4,039	)	$	(17,944	)	$	(135,272	)
Net loss per common share applicable to common stockholders (Note 1):
Basic and diluted	$	(0.32	)	$	(2.76	)
Weighted average common shares:
Basic and diluted		12,616,086			6,496,095
(1)    Non-cash stock-based compensation expenses included in operating expenses are as follows:
Research and development	$	210		$	425
General and administrative		281			203

The accompanying notes are an integral part of these financial statements.

4

RXi PHARMACEUTICALS CORPORATION

(A Development Stage Company)

CONDENSED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)

	For the Three Months Ended March 31,						Predecessor (RNAi) and RXi
	2014			2013			Period from January 1, 2003 (Date of Inception) to March 31, 2014
Cash flows from operating activities:
Net loss	$	(2,284	)	$	(14,397	)	$	(112,092	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		22			26			932
Loss on disposal of equipment		—			—			44
Non-cash rent expense		—			—			29
Accretion and receipt of bond discount		—			—			35
Non-cash share-based compensation		491			628			21,404
Fair value of common stock warrants issued in exchange for services		—			—			13
Fair value of common stock issued in exchange for patent and technology rights		—			12,250			18,423
Fair value of Parent Company’s shares mandatorily redeemable for cash upon exercise of warrants		—			—			(785	)
Fair value of Parent Company’s common stock and common stock warrants issued in exchange for services		—			—			2,689
Change in fair value of derivatives of Parent Company issued in connection with various equity financings		—			—			(5,604	)
Loss on exchange of equity instruments		—			—			900
Fair value of Parent Company common stock issued in exchange for licensing rights		—			—			3,954
Changes in operating assets and liabilities:
Prepaid expenses and other assets		77			110			(208	)
Accounts payable		114			(50	)		277
Due to former parent		—			—			390
Accrued expenses and other current liabilities		(771	)		(54	)		1,660
Deferred revenue		(29	)		359			89
Net cash used in operating activities		(2,380	)		(1,128	)		(67,850	)
Cash flows from investing activities:
Change in restricted cash		—			—			(50	)
Purchases of short-term investments		—			—			(46,532	)
Maturities of short-term investments		—			—			43,497
Cash paid for purchase of equipment and furnishings		—			—			(838	)
Proceeds from disposal of equipment and furnishings		—			—			32
Cash paid for lease deposit		—			—			(65	)
Net cash used in investing activities		—			—			(3,956	)
Cash flows from financing activities:
Cash contributions from Parent Company, net		—			—			55,923
Proceeds from issuance of Series A convertible preferred stock		—			—			8,500
Proceeds from issuance of convertible notes payable		—			—			1,000
Net proceeds from the issuance of common stock		—			15,647			15,651
Proceeds from exercise of stock options		—			—			5
Cash paid in lieu of fractional shares for 1:30 reverse stock split		—			—			(12	)
Proceeds from issuance of common stock in connection with employee stock purchase plan		—			—			28
Repayments of capital lease obligations		—			(3	)		(279	)
Net cash provided by financing activities		—			15,644			80,816
Net increase (decrease) in cash and cash equivalents		(2,380	)		14,516			9,010
Cash and cash equivalents at the beginning of period		11,390			5,127			—
Cash and cash equivalents at end of period	$	9,010		$	19,643		$	9,010

5

	For the Three Months Ended March 31,				Predecessor (RNAi) and RXi
	2014		2013		Period from January 1, 2003 (Date of Inception) to March 31, 2014
Supplemental disclosure of cash flow information:
Cash received during the period for interest	$	6	$	—	$	754
Cash paid during the period for interest	$	—	$	—	$	38
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	$	—	$	—	$	14,051
Fair value of Parent Company shares mandatorily redeemable for cash upon exercise of warrants	$	—	$	—	$	785
Allocation of management expenses	$	—	$	—	$	551
Equipment and furnishings exchanged for Parent Company common stock	$	—	$	—	$	48
Equipment and furnishings acquired through capital lease	$	—	$	—	$	277
Non-cash lease deposit	$	—	$	—	$	50
Value of Parent Company restricted stock units and common stock issued in lieu of bonuses included in accrued expenses	$	—	$	—	$	427
Value of Parent Company restricted stock units issued in lieu of cash bonuses	$	—	$	—	$	207
Fair value of Parent Company stock options modified	$	—	$	—	$	960
Reclassification of derivative liability upon elimination of obligation	$	—	$	—	$	9,249
Fair value of Series A convertible preferred stock beneficial conversion feature	$	—	$	—	$	9,500
Accretion of Series A convertible preferred stock	$	—	$	—	$	9,500
Conversion of notes payable into Series A convertible preferred stock	$	—	$	—	$	1,000
Conversion of Series A and Series A-1 convertible preferred stock into common stock	$	672	$	—	$	1,330
Fair value of Series A and Series A-1 convertible preferred stock dividends	$	1,755	$	3,547	$	13,680
Series A and Series A-1 convertible preferred stock dividends	$	168	$	170	$	1,245
Exchange of Series A convertible preferred stock into Series A-1 convertible preferred stock	$	3,000	$	—	$	5,000

The accompanying notes are an integral part of these financial statements.

6

RXi PHARMACEUTICALS CORPORATION

(A Development Stage Company)

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

1. Nature of Business and Basis of Presentation

RXi Pharmaceuticals Corporation (“RXi” or the “Company”) is a biotechnology company focused on discovering, developing and commercializing innovative therapies based on its proprietary, next-generation RNAi platform. Therapeutics that use RNA interference, or “RNAi,” have great promise because of their ability to “silence,” or down-regulate, the expression of a specific gene that may be overexpressed in a disease condition. The Company’s first RNAi product candidate, RXI-109, commenced human clinical trials in 2012. RXI-109 targets connective tissue growth factor (“CTGF”), a key regulator of fibrosis and scar formation, and is initially being developed to reduce or inhibit scar formation in the skin following surgery. The Company’s pipeline includes a clinical program in anti-scarring, a pre-clinical program in ophthalmology and a discovery program to identify potential sd-rxRNA^® lead compounds and targets from the RNAi-related assets acquired from OPKO Health, Inc.

Basis of Presentation

The accompanying condensed financial statements are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Certain information and footnote disclosures included in the Company’s annual financial statements have been condensed or omitted. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. In the opinion of management, all adjustments (including normal recurring accruals) considered necessary for a fair presentation of the condensed financial statements have been included. Interim results are not necessarily indicative of results for a full year.

Historical financial information from the period January 1, 2003 through September 23, 2011 included in the condensed financial statements for the cumulative period from inception (January 1, 2003) through March 31, 2014, has been “carved out” of the financial statements of the Company’s former parent company for such periods. Such financial information includes only our former parent company’s RNAi-related activities, assets and liabilities.

Uses of estimates in preparation of financial statements

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Cash and Cash Equivalents

The Company considers all highly liquid debt instruments with an original maturity of three months or less to be cash equivalents. Cash equivalents consist primarily of amounts invested in money market accounts and certificates of deposit.

Restricted Cash

Restricted cash consists of certificates of deposit held by financial institutions as collateral for the Company’s corporate credit cards.

Short-term Investments

The Company’s short-term investments consist of certificates of deposit with original maturities ranging from 6 months to 1 year.

Revenue Recognition

Principal sources of revenue consist of government research grants. Revenue from government grants is recognized over the respective contract periods as the services are performed, provided there is persuasive evidence of an arrangement, the fee is fixed or determinable and collection of the related receivable is reasonably assured, and no contingencies remain outstanding. Monies received prior to the recognition of revenue are recorded as deferred revenue.

Research and Development Expenses

Research and development costs are charged to expense as incurred and relate to salaries, employee benefits, facility-related expenses, supplies, stock-based compensation related to employees and non-employees involved in the Company’s research and development, external services, other operating costs and overhead related to our research and development departments, costs to acquire technology licenses and expenses associated with preclinical activities and our clinical trials. Payments made by the Company in advance for research and development services not yet provided and/or for materials not yet received are recorded as prepaid expenses. Accrued liabilities are recorded related to those expenses for which vendors have not yet billed us with respect to services provided and/or materials that we have received.

7

Preclinical and clinical trial expenses relate to third-party services, patient-related fees at the sites where our clinical trials are being conducted, laboratory costs, analysis costs, toxicology studies and investigator fees. Costs associated with these expenses are generally payable on the passage of time or when certain milestones are achieved. Expense is recorded during the period incurred or in the period in which a milestone is achieved. In order to ensure that we have adequately provided for preclinical and clinical expenses during the proper period, we maintain an accrual to cover these expenses. These accruals are assessed on a quarterly basis and are based on such assumptions as expected total cost, the number of patients and clinical trial sites and length of the study. Actual results may differ from these estimates and could have a material impact on our reported results. Our historical accrual estimates have not been materially different from our actual costs.

Stock-based Compensation

The Company follows the provisions of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718, “Compensation – Stock Compensation” (“ASC 718”), which requires the measurement and recognition of compensation expense for all stock-based payment awards made to employees, officers and non-employee directors, including stock options. Stock compensation expense based on the grant date fair value estimated in accordance with the provisions of ASC 718 is recognized as an expense over the requisite service period.

Net loss per share

The Company accounts for and discloses net loss per common share in accordance with FASB ASC Topic 260, “Earnings per Share.” Basic and diluted net loss per common share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding. When the effects are not anti-dilutive, diluted earnings per share is computed by dividing the Company’s net earnings by the weighted average number of common shares outstanding and the impact of all dilutive potential common shares. There were no potential dilutive common shares for all periods presented.

The following table sets forth the potential common shares excluded from the calculation of net loss per common share because their inclusion would be anti-dilutive:

	March 31,
	2014		2013
Options to purchase common stock		2,581,268		2,128,266
Common stock underlying Series A and Series A-1 convertible preferred stock		23,084,880		24,122,332
Warrants to purchase common stock		4,615		4,615
Total		25,670,763		26,255,213

Comprehensive Loss

The Company’s net loss is equal to its comprehensive loss for all periods presented.

2. Fair Value Measurements

The Company follows the provisions of FASB ASC Topic 820, “Fair Value Measurements and Disclosures”.

The Company’s 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 management’s best estimate of what market participants would use to price the assets or liabilities at the measurement date.

The Company categorized its restricted cash, cash equivalents and short-term investments as Level 2 hierarchy. The assets classified as Level 2 have initially been valued at transaction price and subsequently valued, at the end of each reporting period, using other market observable data. Observable market data points include quoted prices, interest rates, reportable trades and other industry and economic events. Financial assets measured at fair value on a recurring basis are summarized as follows, in thousands:

Description	March 31, 2014		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
Assets:
Cash equivalents	$	3,000	$	—	$	3,000	$	—
Restricted cash		50		—		50		—
Short-term investments		3,000		—		3,000	$	—
Total	$	6,050	$	—	$	6,050	$	—

8

Description	December 31, 2013		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
Assets:
Cash equivalents	$	9,500	$	—	$	9,500	$	—
Restricted cash		50		—		50		—
Short-term investments		3,000		—		3,000	$	—
Total	$	12,550	$	—	$	12,550	$	—

Fair Value of Financial Instruments

The carrying amounts reported in the balance sheet for cash equivalents, restricted cash, short-term investments and accounts payable approximate their fair values due to their short-term nature.

3. Preferred Stock

At March 31, 2014, 15,000 shares of Series A convertible preferred stock (“Series A Preferred Stock”), $0.0001 par value per share, were authorized for issuance.

The following table summarizes the Series A Preferred Stock activity for the three months ended March 31, 2014:

Issued and Outstanding at January 1, 2014	7,920
Conversions of Series A Preferred Stock into common stock	(166	)
Exchange of Series A Preferred Stock into Series A-1 Preferred Stock	(3,000	)
Dividends issued on Series A Preferred Stock	96
Issued and Outstanding at March 31, 2014	4,850

Accounting Treatment

The Series A Preferred Stock has been classified outside of permanent equity (within the mezzanine section between liabilities and equity on the condensed balance sheets) as the Company may not be able to control the actions necessary to issue the maximum number of common shares needed to provide for a conversion in full of the then outstanding Series A Preferred Stock, at which time a holder of the Series A Preferred Stock may elect to redeem their preferred shares outstanding in the amount equal to the face value per share, plus unpaid accrued dividends. The Company’s Series A-1 convertible preferred stock (the “Series A-1 Preferred Stock”) has the same rights, privileges and preferences as the Series A Preferred Stock, but does not provide for any potential payment in cash in the event that the Company has insufficient shares of common stock authorized to honor conversions. Accordingly, Series A-1 Preferred Stock is classified within permanent equity. The Series A-1 Preferred Stock are discussed further in Note 4 to the notes of the financial statements.

Dividends

Holders of Series A Preferred Stock are entitled to receive cumulative mandatory dividends at the rate per share of seven percent (7%) of the face amount ($1,000 per share) per annum, payable quarterly on each March 31, June 30, September 30 and December 31. Dividends shall be payable in additional shares of Series A Preferred Stock valued for this purpose at the face amount. In the event there are not sufficient authorized Series A Preferred Shares available to pay such a dividend, the dividend shall instead accrete to and increase the value of the outstanding Series A Preferred Stock. The fair value of the Series A Preferred Stock dividend, which is included in the Company’s net loss applicable to common shareholders, is calculated by multiplying the number of common shares that a preferred holder would receive upon conversion by the closing price of the Company’s common stock on the dividend payment date.

Included in the Company’s net loss applicable to common shareholders related to the fair value of the Series A Preferred Stock dividends was $1,010,000 and $3,547,000 for the three months ended March 31, 2014 and 2013, respectively.

Conversion

Each holder of shares of Series A Preferred Stock may, at any time and from time to time, convert each of its shares into a number of fully paid and non-assessable shares of common stock at the defined conversion rate. Initially, each share of Series A Preferred Stock is convertible into 2,437.57 shares of common stock. In no event shall any holder of shares of Series A Preferred Stock have the right to convert shares of Series A Preferred Stock into shares of common stock to the extent that, after giving effect to such conversion, the holder, together with any of its affiliates, would beneficially own more than 9.999% of the then-issued and outstanding shares of common stock.

9

During the three months ended March 31, 2014, 166 shares of Series A Preferred Stock were converted into 405,720 shares of common stock.

Exchange Transaction

On January 24, 2014, the Company entered into an exchange agreement (the “Exchange Agreement”) with Tang Capital Partners, L.P. (“TCP”) pursuant to which TCP exchanged a total of 3,000 shares of Series A Preferred Stock for a like number of shares of Series A-1 Preferred Stock. As result of this transaction, the face value of the Series A Preferred Stock was reclassified as Series A-1 Preferred Stock in the Company’s condensed balance sheet as of March 31, 2014, which resulted in a corresponding increase in stockholder’s equity as of March 31, 2014.

Liquidation Preference

The “Liquidation Preference” with respect to a share of Series A Preferred Stock means an amount equal to the face amount of the shares plus all accrued and unpaid dividends on the Series A Preferred Stock (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares). In the event of a liquidation, dissolution, or winding up, whether voluntary or involuntary, no distribution shall be made to the holders of any shares of capital stock of the Corporation (other than Senior Securities pursuant to the rights, preferences and privileges thereof) unless prior thereto the holders of shares of Series A Preferred Stock have received the Liquidation Preference with respect to each share then outstanding.

Voting

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 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.

4. Stockholder’s Equity

Series A-1 Preferred Stock

At March 31, 2014, 10,000 shares of Series A-1 Preferred Stock, $0.0001 par value per share, were authorized for issuance. On January 24, 2014, the Company filed a Certificate of Increase with the Secretary of State of the State of Delaware amending the Company’s previously filed Certificate of Designation for the Series A-1 Preferred Stock to increase the total number of shares of Series A-1 Preferred Stock authorized to 10,000 shares. The following table summarizes the Series A-1 Preferred Stock activity for the three months ended March 31, 2014:

Issued and Outstanding at January 1, 2014	2,054
Conversion of Series A-1 Preferred Stock	(506	)
Exchange of Series A Preferred Stock into Series A-1 Preferred Stock	3,000
Dividends issued on Series A-1 Preferred Stock	72
Issued and Outstanding at March 31, 2014	4,620

Accounting Treatment

The Series A-1 Preferred Stock has been classified as permanent equity as the Company is not required to effect a net cash settlement in the instance that the Company does not have enough shares of common stock available to permit the conversion of Series A-1 Preferred Stock into common stock. There are no other redemption triggering events related to the Series A-1 Preferred Stock that would require classification outside of permanent equity.

Dividends

Holders of Series A-1 Preferred Stock are entitled to receive cumulative mandatory dividends at the rate per share of seven percent (7%) of the face amount ($1,000 per share) per annum, payable quarterly on each March 31, June 30, September 30 and December 31. Dividends shall be payable in additional shares of Series A-1 Preferred Stock valued for this purpose at the face amount. In the event there are not sufficient authorized Series A-1 Preferred Shares available to pay such a dividend, the dividend shall instead accrete to and increase the value of the outstanding Series A-1 Preferred Stock. The fair value of the Series A-1 Preferred Stock dividend, which is included in the Company’s net loss applicable to common shareholders, is calculated by multiplying the number of common shares that a preferred holder would receive upon conversion by the closing price of the Company’s common stock on the dividend payment date.

Included in the Company’s net loss applicable to common shareholders related to the fair value of the Series A-1 Preferred Stock dividends was $745,000 for the three months ended March 31, 2014.

Conversion

Each holder of shares of Series A-1 Preferred Stock may, at any time and from time to time, convert each of its shares into a number of fully paid and non-assessable shares of common stock at the defined conversion rate. Initially, each share of Series A-1 Preferred Stock is convertible

10

into 2,437.57 shares of common stock. In no event shall any holder of shares of Series A-1 Preferred Stock have the right to convert shares of Series A-1 Preferred Stock into shares of common stock to the extent that such issuance or sale or right to effect such conversion would result in the holder or any of its affiliates together beneficially owning more than 9.999% of the then issued and outstanding shares of common stock.

During the three months ended March 31, 2014, 506 shares of Series A-1 Preferred Stock were converted into 1,233,402 shares of common stock.

Exchange Transaction

On January 24, 2014, the Company entered into the Exchange Agreement with TCP pursuant to which TCP exchanged a total of 3,000 shares of Series A Preferred Stock for a like number of shares of Series A-1 Preferred Stock. As result of this transaction, the face value of the Series A-1 Preferred Stock was increased in the Company’s condensed balance sheet as of March 31, 2014, which resulted in a corresponding increase in stockholder’s equity as of March 31, 2014.

Liquidation Preference

The “Liquidation Preference” with respect to a share of Series A-1 Preferred Stock means an amount equal to the face amount of the shares plus all accrued and unpaid dividends on the Series A-1 Preferred Stock (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares). In the event of a liquidation, dissolution, or winding up, whether voluntary or involuntary, no distribution shall be made to the holders of any shares of capital stock of the Corporation (other than Senior Securities pursuant to the rights, preferences and privileges thereof) unless prior thereto the holders of shares of Series A-1 Preferred Stock have received the Liquidation Preference with respect to each share then outstanding. The liquidation preference of the Series A Preferred Stock is pari passu with the liquidation preference of the Series A-1 Preferred Stock.

Voting

The holders of Series A-1 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 Certificate of Designations, regarding: (i) any proposed amendment to the Series A-1 Preferred Stock or its right and preferences; and (ii) any proposed “Deemed Liquidation Event” as defined in the Certificate of Designations.

Common Stock

The Company currently has authorized a total of 1,500,000,000 shares of common stock, $0.0001 par value per share, for issuance.

5. Stock-Based Compensation

The Company 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, the Company recognizes compensation expense in accordance with the requirements of FASB ASC Topic 505-50, “Equity Based Payments to Non-Employees”. Non-employee option grants that do not vest immediately upon grant are recorded as an expense over the requisite service period of the underlying stock options. At the end of each financial reporting period prior to vesting, the value of these options, as calculated using the Black-Scholes option-pricing model, will be re-measured using the fair value of the Company’s 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.

Stock-Based Compensation

The Company is currently using the Black-Scholes option-pricing model to determine the fair value of all its option grants. There were no option grants awarded during the three months ended March 31, 2013. For option grants issued in the three month period ended March 31, 2014, the following assumptions were used:

	For the Three Months Ended March 31,
	2014			2013
Weighted average risk-free interest rate		2.96	%		N/A
Weighted average expected volatility		106.64	%		N/A
Weighted average expected lives (years)		9.83			N/A
Weighted average expected dividend yield		0.00	%		N/A
Weighted average grant date fair value per share of options granted	$	4.62			N/A

The risk-free interest rate used for each grant was based upon the yield on zero-coupon U.S. Treasury securities with a term similar to the expected life of the related option. The Company’s expected stock price volatility assumption is based upon the volatility of a composition of comparable companies. The expected life assumption for employee grants was based upon the simplified method provided for under ASC 718-10 and the expected life assumptions for non-employees was based upon the contractual term of the option. The dividend yield assumption of zero is based upon the fact that the Company has never paid cash dividends and presently has no intention of paying cash dividends.

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The following table summarizes the activity of Company’s stock option plan for the period January 1, 2014 to March 31, 2014:

	Total Number of Shares		Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value
Balance at January 1, 2014		2,556,269	$	3.47
Granted		24,999		5.02
Exercised		—		—
Cancelled		—		—
Balance at March 31, 2014		2,581,268	$	3.48		8.36 years	$	2,879,168
Exercisable at March 31, 2014		1,159,004	$	3.32		8.25 years	$	1,341,673

Stock-based compensation expense for the three months ended March 31, 2014 and 2013 was approximately $491,000 and $628,000, respectively. Of this, the Company recognized approximately $37,000 and $52,000 of expense related to non-employee stock options for the same period.

Employee Stock Purchase Plan

On June 7, 2013, the Compensation Committee approved an employee stock purchase plan (“ESPP”), subject to the approval of the Company’s stockholders within twelve months of the date the ESPP was adopted. The ESPP allows employees to contribute a percentage of their cash earnings, subject to certain maximum amounts, to be used to purchase shares of the Company’s common stock on each of two semi-annual purchase dates. The purchase price is equal to 90% of the market value per share on either (a) the date of grant of a purchase right under the ESPP or (b) the date on which such purchase right is deemed exercised, whichever is lower. The maximum number of shares available for issuance pursuant to the ESPP is equal to the lesser of: (a) 50,000 shares, increased on each anniversary of the adoption of the ESPP by one percent (1%) of the total shares of stock then outstanding, and (b) 113,333 shares.

The Company is currently using the Black-Scholes option-pricing model to determine the fair value of the ESPP stock rights. There were no stock rights issued during the three months ended March 31, 2013. For stock rights issued in the three month period ended March 31, 2014, the following assumptions were used:

	For the Three Months Ended March 31,
	2014			2013
Risk-free interest rate		0.09	%		N/A
Expected volatility		94.99	%		N/A
Expected lives (years)		0.50			N/A
Expected dividend yield		0.00	%		N/A
Weighted average grant date fair value per share of options granted	$	0.88			N/A

The risk-free interest rate used was based upon the prevailing short-term interest rates. The Company’s expected volatility is based upon the volatility of a composition of comparable companies for the expected term. The expected life assumption was based upon the purchase period and the dividend yield assumption of zero is based upon the fact that the Company has never paid cash dividends and presently has no intention of paying cash dividends.

The Company recorded $6,600 of stock-based compensation expense for the three months ended March 31, 2014 related to the ESPP.

6. Subsequent Events

On April 22, 2014, the Company entered into a purchase agreement (the “Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“LPC”), pursuant to which the Company has the right to sell to LPC up to $20,000,000 in shares of the Company’s common stock, subject to certain limitations and conditions set forth therein, over the 30-month term of the Purchase Agreement.

Pursuant to the Purchase Agreement, on April 22, 2014, LPC purchased 500,000 shares of the Company’s common stock at $4.00 per share, with gross proceeds to the Company of $2,000,000 and the Company issued 100,000 shares of common stock to LPC as a commitment fee.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

In this document, “we,” “our,” “ours,” “us,” “RXi” and the “Company” refer to RXi Pharmaceuticals Corporation.

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This management’s discussion and analysis of financial condition as of March 31, 2014 and results of operations for the three months ended March 31, 2014 and 2013 should be read in conjunction with the financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2013 which was filed with the SEC on March 28, 2014.

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as “intend,” “believe,” “indicate,” “plan,” “expect,” “may,” “should,” “designed to,” “will” and similar references. Such statements include, but are not limited to, statements about: our ability to successfully develop RXI-109 and our other product candidates; the timing and future success of our clinical trials with RXI-109; our expectation that we will complete our Phase 2 clinical trials for RXI-109 within anticipated time periods and budgets; our ability to implement cost-saving measures and statements about other future expectations. Forward-looking statements are neither historical facts nor assurances of future performance. These statements are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others: the risk that our clinical trials with RXI-109 may not be successful in evaluating the continued safety and tolerability of RXI-109 or providing preliminary evidence of the reduction of formation of surgical scars; the successful and timely completion of clinical trials; uncertainties regarding the regulatory process; the availability of funds and resources to pursue our research and development projects, including our clinical trials with RXI-109; and those identified in our Annual Report on Form 10-K for the year ended December 31, 2013 under the heading “Risk Factors,” and in other filings the Company periodically makes with the Securities and Exchange Commission. Forward-looking statements contained in this Quarterly Report on Form 10-Q speak as of the date hereof and the Company does not undertake to update any of these forward-looking statements to reflect a change in its views or events or circumstances that occur after the date of this report.

Overview

We are a biotechnology company focused on discovering, developing and commercializing innovative therapies based on our proprietary, next-generation RNAi platform. Therapeutics that use RNA interference, or RNAi,” have great promise because of their ability to “silence,” or down-regulate, the expression of a specific gene that may be over-expressed in a disease condition. The Company’s first RNAi product candidate, RXI-109, commenced human clinical trials in 2012. RXI-109 targets connective tissue growth factor (“CTGF”), a key regulator of fibrosis and scar formation, and is initially being developed to reduce or inhibit scar formation in the skin following surgery. The Company’s pipeline includes a clinical program in anti-scarring, a pre-clinical program in ophthalmology and a discovery program to identify potential sd-rxRNA^® lead compounds and targets from the RNAi-related assets acquired from OPKO Health, Inc. (“OPKO”).

By utilizing the expertise in RNAi and the comprehensive RNAi platform that we have established, we believe that we have discovered and 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 novel RNAi compounds, referred to as rxRNA® compounds, that are distinct from, and we believe convey significant advantages over, conventional 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® 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 modifications to eliminate off-target effects, and, in the case of the sd-rxRNA compounds, access to cells and tissues with no additional formulation required, and, hence, reduced cell toxicity, which is known to be an issue with unmodified siRNAs.

RXI-109 Clinical Development Program

Our lead clinical product candidate is RXI-109, a self-delivering RNAi compound (sd-rxRNA) being developed for the reduction of dermal scarring. RXI-109 is designed to reduce the expression of CTGF, a critical regulator of several biological pathways involved in scarring and fibrotic diseases. RXI-109 is being developed to prevent or reduce dermal scarring following surgery or trauma, as well as for the management of hypertrophic scars and keloids.

In June 2012, we initiated our first clinical trial of RXI-109, known as Study 1201. Study 1201 was designed to evaluate the safety and tolerability of several single-dose levels of RXI-109 in humans. Study 1201 enrolled fifteen subjects in a single-center, randomized, single-dose, double-blind, ascending dose, within-subject controlled study of RXI-109 for the treatment of incision scars, during which single, intradermal injections of escalating doses were administered. Subjects received an injection of RXI-109 in two separate areas on the abdomen and placebo injections in two other areas of the abdomen, followed by a small incision at each injection site. RXI-109 was well tolerated by intradermal injection. No serious local or systemic side effects were observed in the subjects at any of the doses administered, and maximum systemic exposure after intradermal administration was assessed at approximately 5% of the total dose administered. In this study, RXI-109 showed excellent safety and tolerability with ascending single doses and significantly reduced the expression of CTGF protein in the wounded area in a dose-dependent manner 84 days after a single dose, suggesting a potent and long lasting effect on this key biomarker for abnormal scarring.

In December 2012, we initiated a second Phase 1 clinical trial with RXI-109, known as Study 1202. Study 1202 was designed to evaluate the safety and tolerability of multi-dose administration of RXI-109 in healthy volunteers, including an evaluation of surrogate end points of clinical efficacy. In total, Study 1202 enrolled fifteen subjects (5 cohorts of 3 subjects each) in a single-center, randomized, multi-dose, double-blind, ascending dose, within-subject controlled study of RXI-109 for the treatment of incision scars. Eight small skin incisions were made in their abdomen and subjects received treatment with RXI-109 at the four incision sites on one side of the abdomen and placebo treatment

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at the four incision sites on the other side of the abdomen. Treatments were given by three intradermal injections over a 2-week period. Subjects were monitored for safety and local and systemic effects over a total study period of 84 days. Multiple dermal injections were well tolerated at all dose levels. Treatment with RXI-109 demonstrated a trend for dose-dependent silencing of CTGF mRNA in the treated areas, resulting in 43-50% reduction of CTGF mRNA levels compared to the placebo when measured three days after the last dose. In one of two highest-dose cohorts, the dosing period was delayed by two weeks after the incisions were made. No additional benefit was seen on mRNA reduction.

Based on the safety profile shown in our two Phase 1 clinical trials, we initiated a Phase 2 clinical trial for RXI-109 in November 2013 known as Study 1301. In this study, patients with a long hypertrophic scar in the lower abdominal area are eligible to receive scar revision surgery and subsequent treatment with RXI-109 in one of two treatment regimens. Patients receive RXI-109 and placebo on a blinded basis at the distal ends of their revised scar, leaving a central untreated section of the scar. Each patient’s revised scar area will provide the opportunity to compare the appearance of the revised areas after treatment with RXI-109 or placebo or when left untreated. This design allows for intra-subject comparison of the three revised scar segments, thereby increasing the power of the study.

The Company initiated a second Phase 2 clinical trial for RXI-109 in April 2014, known as Study 1401, for treatment to prevent recurrence of keloids in patients undergoing keloidectomy (removal of a keloid). In this study, two keloids of similar size and location on each patient are selected for keloidectomy. After this procedure, the lesions are closed and one is treated with RXI-109, and the other is treated with placebo. The study will follow patients for six months to evaluate the clinical evolution of the lesions which, in these enrolled patients, have a high risk for recurrence of keloids.

In 2014, we expect to initiate an additional Phase 2 study. The study will evaluate the effect of RXI-109 on suppressing recurrence of hypertrophic scars in the skin after scar revision surgery in various areas of the body.

Other Development Programs

While focusing our efforts on our RXI-109 development program, we also intend to continue to advance additional development programs both on our own and through collaborations with academic and corporate third parties.

Current programs in the discovery and preclinical stages include:

• a Small Business Innovation Research grant to evaluate and develop sd-rxRNAs as potential therapeutics for the treatment of retinoblastoma;

• a collaboration evaluating the potential to use a CTGF-targeting sd-rxRNA as a therapeutic to reduce or inhibit retinal scarring, which often occurs as a consequence of some retinal diseases and following retinal detachment; and

• a discovery program to identify potential sd-rxRNA lead compounds and targets from the RNAi-related assets acquired from OPKO, which are at an early stage of development.

Future Applications of RXI-109

Overexpression of CTGF is implicated in dermal scarring and fibrotic disease, and because of this, we believe that RXI-109 or other CTGF-targeting RNAi compounds may be able to treat other fibrotic indications, including pulmonary fibrosis, liver fibrosis, acute spinal injury, ocular scarring, joint fibrosis and vascular restenosis. If the current clinical trials of RXI-109 produce successful results in dermal anti-scarring, we may explore opportunities in these additional indications, as well as other possible dermatology applications (e.g., cutaneous scleroderma).

Market Opportunity

There are currently no FDA-approved therapeutics in the United States for the treatment and prevention of scars in the skin. However, there are over 42 million procedures in the United States each year that could potentially benefit from a therapeutic treatment that could successfully reduce or prevent scarring; thus, the market potential is quite large. According to the American Society for Plastic Surgery, there were 177,000 scar revision surgeries alone in 2013¹. In addition to cosmetic and reconstructive surgeries, medical interventions which could incorporate an anti-scarring agent include scarring that results from trauma, surgery or burns (especially relating to raised or hypertrophic scarring or contracture scarring), surgical revision of existing unsatisfactory scars, and in the treatment, removal and inhibition of keloids (scars which extend beyond the original skin injury).

In November 2013, we signed a distribution agreement with Ethicor Ltd. (“Ethicor”), a UK-based unlicensed medicinal products (“Specials”) pharmaceutical company. The agreement provides Ethicor with the distribution rights to RXI-109 in the European Union, with the possibility to negotiate in the future to extend such rights to other regions of the world, excluding the United States, Canada and Mexico. If approved for commercialization, Ethicor will pay us a double-digit percentage of any gross profits from its sales of RXI-109. Ethicor’s distribution rights continue until the agreement is terminated; provided, however, that should we obtain marketing authorization for RXI-109 in any of the countries covered by the agreement, we have the option to terminate the agreement with respect to each such country in which marketing authorization has been obtained. Under the European medicines legislation (Directive 2001/83/EC, Article 5(1)), we expect that Ethicor will be able to supply, prior to regulatory approval, RXI-109 as a “Special” drug. A “Special” drug may be requested by an authorized health-care professional to meet the special needs of an individual patient under their direct responsibility. The collaboration is important for health-care professionals and patients who can get safe controlled early access to a development drug and is a significant milestone for the Company, not only in possible early revenue, but as increased exposure to RXI-109 may be key in accelerating the development of our drug. The Company has not yet generated product revenue and expects minimal revenue during the early stages of the distribution agreement with Ethicor.

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 or systemic administration, as appropriate, for diseases 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.

¹  “American Society of Plastic Surgeons Reports 15.1 Million Cosmetic Procedures in 2013; Marks Fourth Consecutive Year of Growth,” American Society of Plastic Surgeons press release, February 26, 2014 on the American Society of Plastic Surgeons Website, http://www.plasticsurgery.org/news/plastic-surgery-procedures-continue-steady-growth-in-us.html.

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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:

• Our ability to advance product candidates into preclinical research and clinical trials;

• The scope and rate of progress of our preclinical program and other research and development activities;

• The scope, rate of progress and cost of any clinical trials we commence;

• The cost of filing, prosecuting, defending and enforcing patent claims and other intellectual property rights;

• Clinical trial results;

• The terms and timing of any collaborative, licensing and other arrangements that we may establish;

• The cost and timing of regulatory approvals;

• The cost of establishing clinical and commercial supplies of our product candidates and any products that we may develop;

• The cost and timing of establishing sales, marketing and distribution capabilities;

• The effect of competing technological and market developments; and

• 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.

Critical Accounting Policies and Estimates

There have been no significant changes to our critical accounting policies since the beginning of this fiscal year. Our critical accounting policies are described in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of our Annual Report on Form 10-K for the year ended December 31, 2013, which we filed with the SEC on March 28, 2014.

Results of Operations

The following data summarizes the results of our operations for the periods indicated, in thousands:

	Three Months Ended March 31,
	2014			2013
Revenues	$	29		$	53
Research and development expenses		(1,476	)		(13,771	)
General and administrative expenses		(843	)		(676	)
Operating loss		(2,290	)		(14,394	)
Net loss		(2,284	)		(14,397	)
Net loss applicable to common stockholders	$	(4,039	)	$	(17,944	)

Comparison of the Three Months Ended March 31, 2014 and 2013

Revenues

We generate revenues through government grants. The following table summarizes our total revenues from government grants, for the periods indicated, in thousands:

	Three Months Ended March 31,
	2014		2013
Grant revenues	$	29	$	53
Total revenues	$	29	$	53

Total revenues were approximately $29,000 for the three months ended March 31, 2014, compared with $53,000 for the three months ended March 31, 2013. The decrease of $24,000, or 45%, was due to a reduction of work related to government grants during the three months ended March 31, 2014 as compared with the same period in the prior year.

We also had $89,000 of deferred revenue at March 31, 2014, which consists of receipt of grant awards from the government, but which we have not yet recognized, pursuant to our revenue recognition policies, as the work has not been completed.

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For the foreseeable future, we expect our revenue to continue to be derived primarily from government grants and we expect the amount of our grant revenue to fluctuate period to period.

Operating Expenses

The following table summarizes our total operating expenses, for the periods indicated, in thousands:

	Three Months Ended March 31,
	2014		2013
Research and development expenses	$	1,476	$	13,771
General and administrative expenses		843		676
Total operating expenses	$	2,319	$	14,447

Research and Development Expenses

Research and development expenses consist of compensation-related costs for our employees dedicated to research and development activities, fees related to our Scientific Advisory Board members, expenses related to our ongoing research and development efforts primarily related to our clinical trials, drug manufacturing, outside contract services, licensing and patent fees and laboratory supplies and services for our research programs. We expect research and development expenses to increase as we expand our discovery, development and clinical activities.

Total research and development expenses were approximately $1,476,000 for the three months ended March 31, 2014, compared with $13,771,000 for the three months ended March 31, 2013. The decrease of $12,295,000, or 89%, was due to a decrease of $12,250,000 related to the one-time charge for the fair value of common stock issued in exchange for patent and technology rights acquired from OPKO in March 2013, a decrease of $201,000 in employee stock-based compensation expense and a decrease of $14,000 in non-employee stock-based compensation expense related to changes in the fair value of stock options offset by an increase of $170,000 in research and development expenses due to a one-time milestone payment to Advirna, LLC upon the issuance of our first patent on March 4, 2014.

General and Administrative Expenses

General and administrative expenses consist primarily of compensation-related costs for our employees dedicated to general and administrative activities, legal fees, audit and tax fees, consultants, professional services and general corporate expenses.

General and administrative expenses were approximately $843,000 for the three months ended March 31, 2014, compared with $676,000 for the three months ended March 31, 2013. The increase of $167,000, or 25%, was primarily due to an increase of $78,000 in employee stock-based compensation expense and $89,000 in general and administrative expenses due to listing fees incurred by the Company in connection with our recent listing the on NASDAQ Stock Market.

Series A and Series A-1 Preferred Stock Accretion and Dividends

The following table summarizes our Series A and Series A-1 Preferred Stock dividends for the periods indicated, in thousands:

	Three Months Ended March 31,
	2014		2013
Series A and Series A-1 Preferred Stock dividends		1,755		3,547
Accretion of Series A and Series A-1 Preferred Stock and dividends	$	1,755	$	3,547

Accretion of Series A and Series A-1 Preferred Stock and dividends was approximately $1,755,000 for the three months ended March 31, 2014, compared with $3,547,000 Series A and Series A-1 Preferred Stock accretion and dividends for the three months ended March 31, 2013. The decrease of $1,792,000 is due changes in the Company’s closing common stock price on the dividend payment dates and the number of preferred shares earning dividends each quarter.

The rights and preferences of the Series A and Series A-1 Preferred Stock and the calculation of the dividend payable, are described further in Notes 3 and 4 of the financial statements.

Liquidity and Capital Resources

We expect to incur significant operating losses as we advance our product candidates through the drug development and regulatory process. We have generated significant losses to date, have not generated any product revenue to date and may not generate product revenue in the foreseeable future, if ever. In the future, we will be dependent on obtaining funding from third parties, such as proceeds from the issuance of debt, sale of equity, funded research and development programs and payments under partnership and collaborative 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 the Company on acceptable terms, or at all. If we fail to obtain additional funding when needed, we may be forced to scale back or terminate operations or to seek to merge with or to be acquired by another company.

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We had cash, cash equivalents and short-term investments of approximately $12.0 million as of March 31, 2014, compared with approximately $14.4 million as of December 31, 2013.

On April 22, 2014, the Company entered into a purchase agreement with Lincoln Park Capital Fund, LLC (“LPC”), pursuant to which the Company has the right to sell to LPC up to $20 million in shares of our common stock over the 30-month term of the agreement. Under the agreement, LPC purchased $2 million in shares of our common stock on April 22, 2014 at $4.00 per share.

The Company believes that its existing cash and cash equivalents will be sufficient to fund the Company’s operations, including the planned Phase 2 programs for RXI-109, into fiscal 2015.

Net Cash Flow from Operating Activities

Net cash used in operating activities was approximately $2,380,000 for the three months ended March 31, 2014 and was primarily due to the Company’s net loss and an increase in accrued expenses and other current liabilities. Net cash used in operating activities was approximately $1,128,000 for the three months ended March 31, 2014 and was primarily due to net loss and an increase in deferred revenue. In addition, net cash used in operating activities is adjusted for non-cash items to reconcile net loss to net cash used in operating activities. These non-cash adjustments consist primarily of share-based compensation, depreciation and amortization and the fair value of common shares issued in exchange for technology rights.

Net Cash Flow from Investing Activities

There were no cash flows related to investing activities for the three months ended March 31, 2014 and 2013, respectively.

Net Cash Flow from Financing Activities

There were no cash flows related to financing activities for the three months ended March 31, 2014. For the three months ended March 31, 2013, net cash provided by financing activities was approximately $15,644,000 and was primarily due to net proceeds of $15,651,000 received from the issuance of approximately 3.8 million shares of our common stock in a private offering during the prior year period.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements or relationships.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

As of the end of the period covered by this quarterly report on Form 10-Q, Dr. Geert Cauwenbergh, our Chief Executive Officer and acting Chief Financial Officer (the “Certifying Officer” ), evaluated the effectiveness of our disclosure controls and procedures. Disclosure controls and procedures are controls and procedures designed to reasonably assure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934 (the “Exchange Act”), such as this Form 10-Q, is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms. Disclosure controls and procedures are also designed to reasonably assure that such information is accumulated and communicated to our management, including the Certifying Officer, as appropriate to allow timely decisions regarding required disclosure. Based on these evaluations, the Certifying Officer has concluded, that, as of the end of the period covered by this quarterly report on Form 10-Q:

(a) our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports we file or submit under the Exchange Act was recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms; and

(b) our disclosure controls and procedures were effective to provide reasonable assurance that material information required to be disclosed by us in the reports we file or submit under the Exchange Act was accumulated and communicated to our management, including the Certifying Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There has not been any change in our internal control over financial reporting that occurred during the quarterly period ended March 31, 2014 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

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ITEM 1A. RISK FACTORS

You should consider the “Risk Factors” included under Item 1A. of our Annual Report on Form 10-K for the year ended December 31, 2013 filed with the SEC on March 28, 2014.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

EXHIBIT INDEX

Exhibit Number	Description
31.1	Sarbanes-Oxley Act Section 302 Certification of Chief Executive Officer and Chief Financial Officer.
32.1	Sarbanes-Oxley Act Section 906 Certification of Chief Executive Officer and Chief Financial Officer.
101	The following financial information from the Quarterly Report on Form 10-Q of RXi Pharmaceuticals Corporation for the quarter ended March 31, 2014, formatted in XBRL (eXtensible Business Reporting Language): (1) Condensed Balance Sheets as of March 31, 2014 and December 31, 2013; (2) Condensed Statements of Operations for the three months ended March 31, 2014 and 2013 and for the cumulative period from January 1, 2003 (inception) to March 31, 2014; (3) Condensed Statements of Cash Flows for the three months ended March 31, 2014 and 2013 and for the cumulative period from January 1, 2003 (inception) to March 31, 2014; and (4) Notes to Condensed Financial Statements (Unaudited).*

* In accordance with Rule 406T of Regulation S-T, the XBRL-related information in Exhibit 101 to this Quarterly Report on Form 10-Q is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 and 12 of the Securities Act, is deemed not filed for purposes of Section 18 of the Exchange Act, and otherwise is not subject to liability under these sections, is not part of any registration statement or prospectus to which it relates and is not incorporated by reference into any registration statement, prospectus or other document.

18

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

RXi Pharmaceuticals Corporation (Registrant)
By:	/s/ Geert Cauwenbergh
	Geert Cauwenbergh, Dr. Med. Sc.
	President, Chief Executive Officer and Chief Financial Officer
	Date: May 14, 2014

19

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Geert Cauwenbergh, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of RXi Pharmaceuticals Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Dated: May 14, 2014

/s/ Geert Cauwenbergh

Geert Cauwenbergh, Dr. Med. Sc.

President, Chief Executive Officer and Chief Financial Officer

(as Principal Executive and Financial Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of RXi Pharmaceuticals Corporation (the “Company”) on Form 10-Q for the period ended March 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned officer of the Company certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the Company’s financial condition and result of operations.

/s/ Geert Cauwenbergh

Geert Cauwenbergh, Dr. Med. Sc.

President, Chief Executive Officer and Chief Financial Officer

(as Principal Executive and Financial Officer)

May 14, 2014

XML

Stockholder's Equity - Additional Information (Detail) (USD $)	0 Months Ended	3 Months Ended
	Jan. 24, 2014	Mar. 31, 2014	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013
Class of Stock [Line Items]
Preferred stock, par value, per share		$ 0.0001	$ 0.0001
Preferred stock, shares authorized		10,000,000	10,000,000
Common stock, shares authorized		1,500,000,000	1,500,000,000
Common stock, par value		$ 0.0001	$ 0.0001
Series A-1 Convertible Preferred Stock [Member]
Class of Stock [Line Items]
Preferred stock, par value, per share		$ 0.0001
Preferred stock, shares authorized	10,000	10,000
Preferred stock, dividend rate per share			7.00%	7.00%	7.00%	7.00%
Preferred stock, face amount			$ 1,000	$ 1,000	$ 1,000	$ 1,000
Fair value of Series A-1 Preferred Stock dividends		$ 745,000
Percentage of affiliates owning shares		9.999%
Preferred Stock convertible to common stock		2,437.57
Conversion of preferred stock into common shares		506
Number of common stock issuable on conversion of preferred stock per preferred stock		1,233,402
Shares of Series A Preferred Stock exchanged for Series A-1 Preferred Stock	3,000	3,000
Capital distribution

XML

Fair Value Measurements

3 Months Ended

Mar. 31, 2014

Fair Value Disclosures [Abstract]

Fair Value Measurements

2. Fair Value Measurements

The Company follows the provisions of FASB ASC Topic 820, “Fair Value Measurements and Disclosures”.

The Company’s 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 management’s best estimate of what market participants would use to price the assets or liabilities at the measurement date.

The Company categorized its restricted cash, cash equivalents and short-term investments as Level 2 hierarchy. The assets classified as Level 2 have initially been valued at transaction price and subsequently valued, at the end of each reporting period, using other market observable data. Observable market data points include quoted prices, interest rates, reportable trades and other industry and economic events. Financial assets measured at fair value on a recurring basis are summarized as follows, in thousands:

Description	March 31, 2014		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
Assets:
Cash equivalents	$	3,000	$	—	$	3,000	$	—
Restricted cash		50		—		50		—
Short-term investments		3,000		—		3,000	$	—
Total	$	6,050	$	—	$	6,050	$	—

Description	December 31, 2013		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
Assets:
Cash equivalents	$	9,500	$	—	$	9,500	$	—
Restricted cash		50		—		50		—
Short-term investments		3,000		—		3,000	$	—
Total	$	12,550	$	—	$	12,550	$	—

Fair Value of Financial Instruments

The carrying amounts reported in the balance sheet for cash equivalents, restricted cash, short-term investments and accounts payable approximate their fair values due to their short-term nature.

XML

Stock-Based Compensation - Summary of Stock Option Activity (Detail) (USD $)	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]
Total Number of Shares, Beginning Balance	2,556,269
Total Number of Shares, Granted	24,999
Total Number of Shares, Exercised
Total Number of Shares, Cancelled
Total Number of Shares, Ending Balance	2,581,268
Total Number of Shares, Exercisable	1,159,004
Weighted-Average Exercise Price Per Share, Beginning Balance	$ 3.47
Weighted-Average Exercise Price Per Share, Granted	$ 5.02
Weighted-Average Exercise Price Per Share, Exercised
Weighted-Average Exercise Price Per Share, Cancelled
Weighted-Average Exercise Price Per Share, Ending Balance	$ 3.48
Weighted-Average Exercise Price Per Share, Exercisable	$ 3.32
Weighted-Average Remaining Contractual Term, Ending Balance	8 years 4 months 10 days
Weighted-Average Remaining Contractual Term, Exercisable	8 years 3 months
Aggregate Intrinsic Value, Ending Balance	$ 2,879,168
Aggregate Intrinsic Value, Exercisable	$ 1,341,673

XML

Stock-Based Compensation - Schedule of Assumptions Used to Determine Fair Value of Option Grants (Detail) (USD $)	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]
Weighted average risk-free interest rate	2.96%
Weighted average expected volatility	106.64%
Weighted average expected lives (years)	9 years 9 months 29 days
Weighted average expected dividend yield	0.00%
Weighted average grant date fair value per share of options granted	$ 4.62

XML

Stock-Based Compensation - Schedule of Assumptions Used to Determine Fair Value of Employee Stock Purchase Plan Stock Rights (Detail) (USD $)	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Risk-free interest rate	2.96%
Expected lives (years)	9 years 9 months 29 days
Expected dividend yield	0.00%
Weighted average grant date fair value per share of options granted	$ 4.62
Employee Stock Purchase Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Risk-free interest rate	0.09%
Expected volatility	94.99%
Expected lives (years)	6 months
Expected dividend yield	0.00%
Weighted average grant date fair value per share of options granted	$ 0.88

XML

Subsequent Events - Additional Information (Detail) (Lincoln Park Capital Fund, LLC [Member], Subsequent Events [Member], USD $)	0 Months Ended
	Apr. 22, 2014
Lincoln Park Capital Fund, LLC [Member] | Subsequent Events [Member]
Subsequent Event [Line Items]
Stock issued during period, value	$ 20,000,000
Stock issued during period, shares	500,000
Stock issued during period, per share price	$ 4.00
Stock issued during period, gross proceeds	$ 2,000,000
Stock issued as a commitment fee, shares	100,000

XML

Nature of Business and Basis of Presentation

3 Months Ended

Mar. 31, 2014

Accounting Policies [Abstract]

Nature of Business and Basis of Presentation

1. Nature of Business and Basis of Presentation

RXi Pharmaceuticals Corporation (“RXi” or the “Company”) is a biotechnology company focused on discovering, developing and commercializing innovative therapies based on its proprietary, next-generation RNAi platform. Therapeutics that use RNA interference, or “RNAi,” have great promise because of their ability to “silence,” or down-regulate, the expression of a specific gene that may be overexpressed in a disease condition. The Company’s first RNAi product candidate, RXI-109, commenced human clinical trials in 2012. RXI-109 targets connective tissue growth factor (“CTGF”), a key regulator of fibrosis and scar formation, and is initially being developed to reduce or inhibit scar formation in the skin following surgery. The Company’s pipeline includes a clinical program in anti-scarring, a pre-clinical program in ophthalmology and a discovery program to identify potential sd-rxRNA^® lead compounds and targets from the RNAi-related assets acquired from OPKO Health, Inc.

Basis of Presentation

The accompanying condensed financial statements are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Certain information and footnote disclosures included in the Company’s annual financial statements have been condensed or omitted. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. In the opinion of management, all adjustments (including normal recurring accruals) considered necessary for a fair presentation of the condensed financial statements have been included. Interim results are not necessarily indicative of results for a full year.

Historical financial information from the period January 1, 2003 through September 23, 2011 included in the condensed financial statements for the cumulative period from inception (January 1, 2003) through March 31, 2014, has been “carved out” of the financial statements of the Company’s former parent company for such periods. Such financial information includes only our former parent company’s RNAi-related activities, assets and liabilities.

Uses of estimates in preparation of financial statements

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Cash and Cash Equivalents

The Company considers all highly liquid debt instruments with an original maturity of three months or less to be cash equivalents. Cash equivalents consist primarily of amounts invested in money market accounts and certificates of deposit.

Restricted Cash

Restricted cash consists of certificates of deposit held by financial institutions as collateral for the Company’s corporate credit cards.

Short-term Investments

The Company’s short-term investments consist of certificates of deposit with original maturities ranging from 6 months to 1 year.

Revenue Recognition

Principal sources of revenue consist of government research grants. Revenue from government grants is recognized over the respective contract periods as the services are performed, provided there is persuasive evidence of an arrangement, the fee is fixed or determinable and collection of the related receivable is reasonably assured, and no contingencies remain outstanding. Monies received prior to the recognition of revenue are recorded as deferred revenue.

Research and Development Expenses

Research and development costs are charged to expense as incurred and relate to salaries, employee benefits, facility-related expenses, supplies, stock-based compensation related to employees and non-employees involved in the Company’s research and development, external services, other operating costs and overhead related to our research and development departments, costs to acquire technology licenses and expenses associated with preclinical activities and our clinical trials. Payments made by the Company in advance for research and development services not yet provided and/or for materials not yet received are recorded as prepaid expenses. Accrued liabilities are recorded related to those expenses for which vendors have not yet billed us with respect to services provided and/or materials that we have received.

Preclinical and clinical trial expenses relate to third-party services, patient-related fees at the sites where our clinical trials are being conducted, laboratory costs, analysis costs, toxicology studies and investigator fees. Costs associated with these expenses are generally payable on the passage of time or when certain milestones are achieved. Expense is recorded during the period incurred or in the period in which a milestone is achieved. In order to ensure that we have adequately provided for preclinical and clinical expenses during the proper period, we maintain an accrual to cover these expenses. These accruals are assessed on a quarterly basis and are based on such assumptions as expected total cost, the number of patients and clinical trial sites and length of the study. Actual results may differ from these estimates and could have a material impact on our reported results. Our historical accrual estimates have not been materially different from our actual costs.

Stock-based Compensation

The Company follows the provisions of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718, “Compensation – Stock Compensation” (“ASC 718”), which requires the measurement and recognition of compensation expense for all stock-based payment awards made to employees, officers and non-employee directors, including stock options. Stock compensation expense based on the grant date fair value estimated in accordance with the provisions of ASC 718 is recognized as an expense over the requisite service period.

Net loss per share

The Company accounts for and discloses net loss per common share in accordance with FASB ASC Topic 260, “Earnings per Share.” Basic and diluted net loss per common share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding. When the effects are not anti-dilutive, diluted earnings per share is computed by dividing the Company’s net earnings by the weighted average number of common shares outstanding and the impact of all dilutive potential common shares. There were no potential dilutive common shares for all periods presented.

The following table sets forth the potential common shares excluded from the calculation of net loss per common share because their inclusion would be anti-dilutive:

	March 31
	2014		2013
Options to purchase common stock		2,581,268		2,128,266
Common stock underlying Series A and Series A-1 convertible preferred stock		23,084,880		24,122,332
Warrants to purchase common stock		4,615		4,615
Total		25,670,763		26,255,213

Comprehensive Loss

The Company’s net loss is equal to its comprehensive loss for all periods presented.

XML

Condensed Balance Sheets (Unaudited) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013
Current assets:
Cash and cash equivalents	$ 9,010	$ 11,390
Restricted cash	50	50
Short-term investments	3,000	3,000
Prepaid expenses and other current assets	226	303
Total current assets	12,286	14,743
Equipment and furnishings, net	155	177
Other assets	18	18
Total assets	12,459	14,938
Current liabilities:
Accounts payable	277	163
Accrued expenses and other current liabilities	1,024	1,795
Deferred revenue	89	118
Total current liabilities	1,390	2,076
Commitments and contingencies
Stockholders' equity:
Preferred stock
Common stock, $0.0001 par value, 1,500,000,000 shares authorized; 13,427,167 and 11,788,045 shares issued and outstanding at March 31, 2014 and December 31, 2013, respectively	1	1
Additional paid-in capital	41,964	40,969
Deficit accumulated during the developmental stage	(40,366)	(38,082)
Total stockholders' equity	6,219	4,942
Total liabilities, convertible preferred stock and stockholders' equity	12,459	14,938
Series A Convertible Preferred Stock [Member]
Current liabilities:
Series A convertible preferred stock, $0.0001 par value, 15,000 shares authorized; 4,850 and 7,920 shares issued and outstanding at March 31, 2014 and December 31, 2013, respectively (at liquidation value)	4,850	7,920
Series A-1 Convertible Preferred Stock [Member]
Stockholders' equity:
Preferred stock	$ 4,620	$ 2,054

XML

Condensed Statements of Cash Flows (Unaudited) (USD $) In Thousands, unless otherwise specified	3 Months Ended		135 Months Ended
	Mar. 31, 2014	Mar. 31, 2013	Mar. 31, 2014 Predecessor [Member]
Cash flows from operating activities:
Net loss	$ (2,284)	$ (14,397)	$ (112,092)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	22	26	932
Loss on disposal of equipment			44
Non-cash rent expense			29
Accretion and receipt of bond discount			35
Non-cash share-based compensation	491	628	21,404
Fair value of common stock warrants issued in exchange for services			13
Fair value of common stock issued in exchange for patent and technology rights		12,250	18,423
Fair value of Parent Company's shares mandatorily redeemable for cash upon exercise of warrants			(785)
Fair value of Parent Company's common stock and common stock warrants issued in exchange for services			2,689
Change in fair value of derivatives of Parent Company issued in connection with various equity financings			(5,604)
Loss on exchange of equity instruments			900
Fair value of Parent Company common stock issued in exchange for licensing rights			3,954
Changes in operating assets and liabilities:
Prepaid expenses and other assets	77	110	(208)
Accounts payable	114	(50)	277
Due to former parent			390
Accrued expenses and other current liabilities	(771)	(54)	1,660
Deferred revenue	(29)	359	89
Net cash used in operating activities	(2,380)	(1,128)	(67,850)
Cash flows from investing activities:
Change in restricted cash			(50)
Purchases of short-term investments			(46,532)
Maturities of short-term investments			43,497
Cash paid for purchase of equipment and furnishings			(838)
Proceeds from disposal of equipment and furnishings			32
Cash paid for lease deposit			(65)
Net cash used in investing activities			(3,956)
Cash flows from financing activities:
Cash contributions from Parent Company, net			55,923
Proceeds from issuance of Series A convertible preferred stock			8,500
Proceeds from issuance of convertible notes payable			1,000
Net proceeds from the issuance of common stock		15,647	15,651
Proceeds from exercise of stock options			5
Cash paid in lieu of fractional shares for 1:30 reverse stock split			(12)
Proceeds from issuance of common stock in connection with employee stock purchase plan			28
Repayments of capital lease obligations		(3)	(279)
Net cash provided by financing activities		15,644	80,816
Net increase (decrease) in cash and cash equivalents	(2,380)	14,516	9,010
Cash and cash equivalents at the beginning of period	11,390	5,127
Cash and cash equivalents at end of period	9,010	19,643	9,010
Supplemental disclosure of cash flow information:
Cash received during the period for interest	6		754
Cash paid during the period for interest			38
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			14,051
Fair value of Parent Company shares mandatorily redeemable for cash upon exercise of warrants			785
Allocation of management expenses			551
Equipment and furnishings exchanged for Parent Company common stock			48
Equipment and furnishings acquired through capital lease			277
Non-cash lease deposit			50
Value of Parent Company restricted stock units and common stock issued in lieu of bonuses included in accrued expenses			427
Value of Parent Company restricted stock units issued in lieu of cash bonuses			207
Fair value of Parent Company stock options modified			960
Reclassification of derivative liability upon elimination of obligation			9,249
Fair value of Series A convertible preferred stock beneficial conversion feature			9,500
Accretion of Series A convertible preferred stock			9,500
Conversion of notes payable into Series A convertible preferred stock			1,000
Conversion of Series A and Series A-1 convertible preferred stock into common stock	672		1,330
Fair value of Series A and Series A-1 convertible preferred stock dividends	1,755	3,547	13,680
Series A and Series A-1 convertible preferred stock dividends	168	170	1,245
Exchange of Series A convertible preferred stock into Series A-1 convertible preferred stock	$ 3,000		$ 5,000

XML

Fair Value Measurements - Fair Value Measurements (Detail) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013
Assets:
Restricted cash	$ 50	$ 50
Short-term investments	3,000	3,000
Fair Value, Measurements, Recurring [Member]
Assets:
Cash equivalents	3,000	9,500
Restricted cash	50	50
Short-term investments	3,000	3,000
Total	6,050	12,550
Fair Value, Measurements, Recurring [Member] | Quoted Prices in Active Markets (Level 1) [Member]
Assets:
Cash equivalents
Restricted cash
Short-term investments
Total
Fair Value, Measurements, Recurring [Member] | Significant Other Observable Inputs (Level 2) [Member]
Assets:
Cash equivalents	3,000	9,500
Restricted cash	50	50
Short-term investments	3,000	3,000
Total	6,050	12,550
Fair Value, Measurements, Recurring [Member] | Unobservable Inputs (Level 3) [Member]
Assets:
Cash equivalents
Restricted cash
Short-term investments
Total

XML

Preferred Stock - Summary of Series A Preferred Stock (Detail) (Series A Convertible Preferred Stock [Member])	3 Months Ended
	Mar. 31, 2014
Series A Convertible Preferred Stock [Member]
Increase (Decrease) in Temporary Equity [Roll Forward]
Issued, Beginning Balance	7,920
Outstanding, Beginning Balance	7,920
Conversions of Series A Preferred Stock into common stock	(166)
Exchange of Series A Preferred Stock into Series A-1 Preferred Stock	(3,000)
Dividends issued on Series A Preferred Stock	96
Issued, Ending Balance	4,850
Outstanding, Ending Balance	4,850

XML

Condensed Statements of Cash Flows (Unaudited) (Parenthetical)	3 Months Ended
	Mar. 31, 2014
Statement Of Cash Flows [Abstract]
Reverse Stock Split Conversion Ratio	0.033

XML

Condensed Balance Sheets (Unaudited) (Parenthetical) (USD $)	Mar. 31, 2014	Dec. 31, 2013
Preferred stock, par value	$ 0.0001	$ 0.0001
Preferred stock, shares authorized	10,000,000	10,000,000
Common stock, par value	$ 0.0001	$ 0.0001
Common stock, shares authorized	1,500,000,000	1,500,000,000
Common stock, shares issued	13,427,167	11,788,045
Common stock, shares outstanding	13,427,167	11,788,045
Series A Convertible Preferred Stock [Member]
Preferred stock, par value	$ 0.0001	$ 0.0001
Preferred stock, shares authorized	15,000	15,000
Preferred stock, shares issued	4,850	7,920
Preferred stock, shares outstanding	4,850	7,920
Series A-1 Convertible Preferred Stock [Member]
Preferred stock, par value	$ 0.0001	$ 0.0001
Preferred stock, shares authorized	10,000	10,000
Preferred stock, shares issued	4,620	2,054
Preferred stock, shares outstanding	4,620	2,054

XML

Preferred Stock (Tables)

3 Months Ended

Mar. 31, 2014

Text Block [Abstract]

Summary of Series A Preferred Stock

The following table summarizes the Series A Preferred Stock activity for the three months ended March 31, 2014:

Issued and Outstanding at January 1, 2014	7,920
Conversions of Series A Preferred Stock into common stock	(166	)
Exchange of Series A Preferred Stock into Series A-1 Preferred Stock	(3,000	)
Dividends issued on Series A Preferred Stock	96
Issued and Outstanding at March 31, 2014	4,850

XML

Document and Entity Information	3 Months Ended
	Mar. 31, 2014	May 09, 2014
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2014
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q1
Entity Registrant Name	RXi Pharmaceuticals Corp
Entity Central Index Key	0001533040
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		14,027,167

XML

Stockholder's Equity (Tables) (Series A-1 Convertible Preferred Stock [Member])

3 Months Ended

Mar. 31, 2014

Series A-1 Convertible Preferred Stock [Member]

Summary of Series A-1 Preferred Stock

The following table summarizes the Series A-1 Preferred Stock activity for the three months ended March 31, 2014:

Issued and Outstanding at January 1, 2014	2,054
Conversion of Series A-1 Preferred Stock	(506	)
Exchange of Series A Preferred Stock into Series A-1 Preferred Stock	3,000
Dividends issued on Series A-1 Preferred Stock	72
Issued and Outstanding at March 31, 2014	4,620

XML

Condensed Statements of Operations (Unaudited) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended				135 Months Ended
	Mar. 31, 2014		Mar. 31, 2013		Mar. 31, 2014 Predecessor [Member]
Revenues:
Grant revenues	$ 29		$ 53		$ 525
Total revenues	29		53		525
Operating Expenses:
Research and development expenses	1,476	[1]	13,771	[1]	75,309	[1]
General and administrative expenses	843	[1]	676	[1]	44,377	[1]
Total operating expenses	2,319		14,447		119,686
Operating loss	(2,290)		(14,394)		(119,161)
Interest income (expense), net	6				628
Other income (expense), net			(3)		6,441
Net loss	(2,284)		(14,397)		(112,092)
Accretion of Series A and Series A-1 convertible preferred stock and dividends	(1,755)		(3,547)		(23,180)
Net loss applicable to common stockholders	$ (4,039)		$ (17,944)		$ (135,272)
Net loss per common share applicable to common stockholders (Note 1):
Basic and diluted	$ (0.32)		$ (2.76)
Weighted average common shares:
Basic and diluted	12,616,086		6,496,095

[1] Non-cash stock-based compensation expenses included in operating expenses are as follows: Research and development $ 210 $ 425 General and administrative 281 203

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Stock-Based Compensation

3 Months Ended

Mar. 31, 2014

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Stock-Based Compensation

5. Stock-Based Compensation

The Company 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, the Company recognizes compensation expense in accordance with the requirements of FASB ASC Topic 505-50, “Equity Based Payments to Non-Employees”. Non-employee option grants that do not vest immediately upon grant are recorded as an expense over the requisite service period of the underlying stock options. At the end of each financial reporting period prior to vesting, the value of these options, as calculated using the Black-Scholes option-pricing model, will be re-measured using the fair value of the Company’s 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.

Stock-Based Compensation

The Company is currently using the Black-Scholes option-pricing model to determine the fair value of all its option grants. There were no option grants awarded during the three months ended March 31, 2013. For option grants issued in the three month period ended March 31, 2014, the following assumptions were used:

	For the Three Months Ended March 31,
	2014			2013
Weighted average risk-free interest rate		2.96	%		N/A
Weighted average expected volatility		106.64	%		N/A
Weighted average expected lives (years)		9.83			N/A
Weighted average expected dividend yield		0.00	%		N/A
Weighted average grant date fair value per share of options granted	$	4.62			N/A

The risk-free interest rate used for each grant was based upon the yield on zero-coupon U.S. Treasury securities with a term similar to the expected life of the related option. The Company’s expected stock price volatility assumption is based upon the volatility of a composition of comparable companies. The expected life assumption for employee grants was based upon the simplified method provided for under ASC 718-10 and the expected life assumptions for non-employees was based upon the contractual term of the option. The dividend yield assumption of zero is based upon the fact that the Company has never paid cash dividends and presently has no intention of paying cash dividends.

The following table summarizes the activity of Company’s stock option plan for the period January 1, 2014 to March 31, 2014:

	Total Number of Shares		Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value
Balance at January 1, 2014		2,556,269	$	3.47
Granted		24,999		5.02
Exercised		—		—
Cancelled		—		—
Balance at March 31, 2014		2,581,268	$	3.48		8.36 years	$	2,879,168
Exercisable at March 31, 2014		1,159,004	$	3.32		8.25 years	$	1,341,673

Stock-based compensation expense for the three months ended March 31, 2014 and 2013 was approximately $491,000 and $628,000, respectively. Of this, the Company recognized approximately $37,000 and $52,000 of expense related to non-employee stock options for the same period.

Employee Stock Purchase Plan

On June 7, 2013, the Compensation Committee approved an employee stock purchase plan (“ESPP”), subject to the approval of the Company’s stockholders within twelve months of the date the ESPP was adopted. The ESPP allows employees to contribute a percentage of their cash earnings, subject to certain maximum amounts, to be used to purchase shares of the Company’s common stock on each of two semi-annual purchase dates. The purchase price is equal to 90% of the market value per share on either (a) the date of grant of a purchase right under the ESPP or (b) the date on which such purchase right is deemed exercised, whichever is lower. The maximum number of shares available for issuance pursuant to the ESPP is equal to the lesser of: (a) 50,000 shares, increased on each anniversary of the adoption of the ESPP by one percent (1%) of the total shares of stock then outstanding, and (b) 113,333 shares.

The Company is currently using the Black-Scholes option-pricing model to determine the fair value of the ESPP stock rights. There were no stock rights issued during the three months ended March 31, 2013. For stock rights issued in the three month period ended March 31, 2014, the following assumptions were used:

	For the Three Months Ended March 31,
	2014			2013
Risk-free interest rate		0.09	%		N/A
Expected volatility		94.99	%		N/A
Expected lives (years)		0.50			N/A
Expected dividend yield		0.00	%		N/A
Weighted average grant date fair value per share of options granted	$	0.88			N/A

The risk-free interest rate used was based upon the prevailing short-term interest rates. The Company’s expected volatility is based upon the volatility of a composition of comparable companies for the expected term. The expected life assumption was based upon the purchase period and the dividend yield assumption of zero is based upon the fact that the Company has never paid cash dividends and presently has no intention of paying cash dividends.

The Company recorded $6,600 of stock-based compensation expense for the three months ended March 31, 2014 related to the ESPP.

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Stockholder's Equity

3 Months Ended

Mar. 31, 2014

Equity [Abstract]

Stockholder's Equity

4. Stockholder’s Equity

Series A-1 Preferred Stock

At March 31, 2014, 10,000 shares of Series A-1 Preferred Stock, $0.0001 par value per share, were authorized for issuance. On January 24, 2014, the Company filed a Certificate of Increase with the Secretary of State of the State of Delaware amending the Company’s previously filed Certificate of Designation for the Series A-1 Preferred Stock to increase the total number of shares of Series A-1 Preferred Stock authorized to 10,000 shares. The following table summarizes the Series A-1 Preferred Stock activity for the three months ended March 31, 2014:

Issued and Outstanding at January 1, 2014	2,054
Conversion of Series A-1 Preferred Stock	(506	)
Exchange of Series A Preferred Stock into Series A-1 Preferred Stock	3,000
Dividends issued on Series A-1 Preferred Stock	72
Issued and Outstanding at March 31, 2014	4,620

Accounting Treatment

The Series A-1 Preferred Stock has been classified as permanent equity as the Company is not required to effect a net cash settlement in the instance that the Company does not have enough shares of common stock available to permit the conversion of Series A-1 Preferred Stock into common stock. There are no other redemption triggering events related to the Series A-1 Preferred Stock that would require classification outside of permanent equity.

Dividends

Holders of Series A-1 Preferred Stock are entitled to receive cumulative mandatory dividends at the rate per share of seven percent (7%) of the face amount ($1,000 per share) per annum, payable quarterly on each March 31, June 30, September 30 and December 31. Dividends shall be payable in additional shares of Series A-1 Preferred Stock valued for this purpose at the face amount. In the event there are not sufficient authorized Series A-1 Preferred Shares available to pay such a dividend, the dividend shall instead accrete to and increase the value of the outstanding Series A-1 Preferred Stock. The fair value of the Series A-1 Preferred Stock dividend, which is included in the Company’s net loss applicable to common shareholders, is calculated by multiplying the number of common shares that a preferred holder would receive upon conversion by the closing price of the Company’s common stock on the dividend payment date.

Included in the Company’s net loss applicable to common shareholders related to the fair value of the Series A-1 Preferred Stock dividends was $745,000 for the three months ended March 31, 2014.

Conversion

Each holder of shares of Series A-1 Preferred Stock may, at any time and from time to time, convert each of its shares into a number of fully paid and non-assessable shares of common stock at the defined conversion rate. Initially, each share of Series A-1 Preferred Stock is convertible into 2,437.57 shares of common stock. In no event shall any holder of shares of Series A-1 Preferred Stock have the right to convert shares of Series A-1 Preferred Stock into shares of common stock to the extent that such issuance or sale or right to effect such conversion would result in the holder or any of its affiliates together beneficially owning more than 9.999% of the then issued and outstanding shares of common stock.

During the three months ended March 31, 2014, 506 shares of Series A-1 Preferred Stock were converted into 1,233,402 shares of common stock.

Exchange Transaction

On January 24, 2014, the Company entered into the Exchange Agreement with TCP pursuant to which TCP exchanged a total of 3,000 shares of Series A Preferred Stock for a like number of shares of Series A-1 Preferred Stock. As result of this transaction, the face value of the Series A-1 Preferred Stock was increased in the Company’s condensed balance sheet as of March 31, 2014, which resulted in a corresponding increase in stockholder’s equity as of March 31, 2014.

Liquidation Preference

The “Liquidation Preference” with respect to a share of Series A-1 Preferred Stock means an amount equal to the face amount of the shares plus all accrued and unpaid dividends on the Series A-1 Preferred Stock (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares). In the event of a liquidation, dissolution, or winding up, whether voluntary or involuntary, no distribution shall be made to the holders of any shares of capital stock of the Corporation (other than Senior Securities pursuant to the rights, preferences and privileges thereof) unless prior thereto the holders of shares of Series A-1 Preferred Stock have received the Liquidation Preference with respect to each share then outstanding. The liquidation preference of the Series A Preferred Stock is pari passu with the liquidation preference of the Series A-1 Preferred Stock.

Voting

The holders of Series A-1 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 Certificate of Designations, regarding: (i) any proposed amendment to the Series A-1 Preferred Stock or its right and preferences; and (ii) any proposed “Deemed Liquidation Event” as defined in the Certificate of Designations.

Common Stock

The Company currently has authorized a total of 1,500,000,000 shares of common stock, $0.0001 par value per share, for issuance.

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Preferred Stock - Additional Information (Detail) (USD $)	0 Months Ended	3 Months Ended
	Jan. 24, 2014	Mar. 31, 2014	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013
Series A Convertible Preferred Stock [Member]
Temporary Equity [Line Items]
Preferred stock, shares authorized		15,000
Preferred stock, par value		$ 0.0001
Preferred stock, dividend rate per share			7.00%	7.00%	7.00%	7.00%
Preferred stock, face amount			$ 1,000	$ 1,000	$ 1,000	$ 1,000
Fair value of Series A Preferred Stock dividends		$ 1,010,000				$ 3,547,000
Preferred stock, convertible to common stock		2,437.57
Percentage of affiliates owning shares		9.999%
Conversion of Series A Preferred Stock into Common Shares		166
Number of common stock issuable on conversion of preferred stock per preferred stock		405,720
Shares of Series A Preferred Stock exchanged for Series A-1 Preferred Stock		3,000
Capital distribution
Series A-1 Convertible Preferred Stock [Member]
Temporary Equity [Line Items]
Preferred stock, dividend rate per share			7.00%	7.00%	7.00%	7.00%
Preferred stock, face amount			$ 1,000	$ 1,000	$ 1,000	$ 1,000
Preferred stock, convertible to common stock		2,437.57
Percentage of affiliates owning shares		9.999%
Conversion of Series A Preferred Stock into Common Shares		506
Number of common stock issuable on conversion of preferred stock per preferred stock		1,233,402
Shares of Series A Preferred Stock exchanged for Series A-1 Preferred Stock	3,000	3,000

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Stock-Based Compensation (Tables)

3 Months Ended

Mar. 31, 2014

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Schedule of Assumptions Used to Determine Fair Value of Option Grants

The Company 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 three month period ended March 31, 2014, the following assumptions were used:

	For the Three Months Ended March 31,
	2014			2013
Weighted average risk-free interest rate		2.96	%		N/A
Weighted average expected volatility		106.64	%		N/A
Weighted average expected lives (years)		9.83			N/A
Weighted average expected dividend yield		0.00	%		N/A
Weighted average grant date fair value per share of options granted	$	4.62			N/A

Summary of Stock Option Activity

The following table summarizes the activity of Company’s stock option plan for the period January 1, 2014 to March 31, 2014:

	Total Number of Shares		Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value
Balance at January 1, 2014		2,556,269	$	3.47
Granted		24,999		5.02
Exercised		—		—
Cancelled		—		—
Balance at March 31, 2014		2,581,268	$	3.48		8.36 years	$	2,879,168
Exercisable at March 31, 2014		1,159,004	$	3.32		8.25 years	$	1,341,673

Schedule of Assumptions Used to Determine Fair Value of Employee Stock Purchase Plan Stock Rights

The Company is currently using the Black-Scholes option-pricing model to determine the fair value of the ESPP stock rights. For stock rights issued in the three month period ended March 31, 2014, the following assumptions were used:

	For the Three Months Ended March 31,
	2014			2013
Risk-free interest rate		0.09	%		N/A
Expected volatility		94.99	%		N/A
Expected lives (years)		0.50			N/A
Expected dividend yield		0.00	%		N/A
Weighted average grant date fair value per share of options granted	$	0.88			N/A

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Nature of Business and Basis of Presentation (Tables)

3 Months Ended

Mar. 31, 2014

Accounting Policies [Abstract]

Common Shares Excluded from Calculation of Net Loss Per Common Share

The following table sets forth the potential common shares excluded from the calculation of net loss per common share because their inclusion would be anti-dilutive:

	March 31
	2014		2013
Options to purchase common stock		2,581,268		2,128,266
Common stock underlying Series A and Series A-1 convertible preferred stock		23,084,880		24,122,332
Warrants to purchase common stock		4,615		4,615
Total		25,670,763		26,255,213

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Subsequent Events

3 Months Ended

Mar. 31, 2014

Subsequent Events [Abstract]

Subsequent Events

6. Subsequent Events

On April 22, 2014, the Company entered into a purchase agreement (the “Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“LPC”), pursuant to which the Company has the right to sell to LPC up to $20,000,000 in shares of the Company’s common stock, subject to certain limitations and conditions set forth therein, over the 30-month term of the Purchase Agreement.

Pursuant to the Purchase Agreement, on April 22, 2014, LPC purchased 500,000 shares of the Company’s common stock at $4.00 per share, with gross proceeds to the Company of $2,000,000 and the Company issued 100,000 shares of common stock to LPC as a commitment fee.

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Nature of Business and Basis of Presentation (Policies)

3 Months Ended

Mar. 31, 2014

Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation

The accompanying condensed financial statements are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Certain information and footnote disclosures included in the Company’s annual financial statements have been condensed or omitted. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. In the opinion of management, all adjustments (including normal recurring accruals) considered necessary for a fair presentation of the condensed financial statements have been included. Interim results are not necessarily indicative of results for a full year.

Historical financial information from the period January 1, 2003 through September 23, 2011 included in the condensed financial statements for the cumulative period from inception (January 1, 2003) through March 31, 2014, has been “carved out” of the financial statements of the Company’s former parent company for such periods. Such financial information includes only our former parent company’s RNAi-related activities, assets and liabilities.

Uses of estimates in preparation of financial statements

Uses of estimates in preparation of financial statements

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Cash and Cash Equivalents

Cash and Cash Equivalents

The Company considers all highly liquid debt instruments with an original maturity of three months or less to be cash equivalents. Cash equivalents consist primarily of amounts invested in money market accounts and certificates of deposit.

Restricted Cash

Restricted Cash

Restricted cash consists of certificates of deposit held by financial institutions as collateral for the Company’s corporate credit cards.

Short-term Investments

Short-term Investments

The Company’s short-term investments consist of certificates of deposit with original maturities ranging from 6 months to 1 year.

Revenue Recognition

Revenue Recognition

Principal sources of revenue consist of government research grants. Revenue from government grants is recognized over the respective contract periods as the services are performed, provided there is persuasive evidence of an arrangement, the fee is fixed or determinable and collection of the related receivable is reasonably assured, and no contingencies remain outstanding. Monies received prior to the recognition of revenue are recorded as deferred revenue.

Research and Development Expenses

Research and Development Expenses

Research and development costs are charged to expense as incurred and relate to salaries, employee benefits, facility-related expenses, supplies, stock-based compensation related to employees and non-employees involved in the Company’s research and development, external services, other operating costs and overhead related to our research and development departments, costs to acquire technology licenses and expenses associated with preclinical activities and our clinical trials. Payments made by the Company in advance for research and development services not yet provided and/or for materials not yet received are recorded as prepaid expenses. Accrued liabilities are recorded related to those expenses for which vendors have not yet billed us with respect to services provided and/or materials that we have received.

Preclinical and clinical trial expenses relate to third-party services, patient-related fees at the sites where our clinical trials are being conducted, laboratory costs, analysis costs, toxicology studies and investigator fees. Costs associated with these expenses are generally payable on the passage of time or when certain milestones are achieved. Expense is recorded during the period incurred or in the period in which a milestone is achieved. In order to ensure that we have adequately provided for preclinical and clinical expenses during the proper period, we maintain an accrual to cover these expenses. These accruals are assessed on a quarterly basis and are based on such assumptions as expected total cost, the number of patients and clinical trial sites and length of the study. Actual results may differ from these estimates and could have a material impact on our reported results. Our historical accrual estimates have not been materially different from our actual costs.

Stock-based Compensation

Stock-based Compensation

The Company follows the provisions of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718, “Compensation – Stock Compensation” (“ASC 718”), which requires the measurement and recognition of compensation expense for all stock-based payment awards made to employees, officers and non-employee directors, including stock options. Stock compensation expense based on the grant date fair value estimated in accordance with the provisions of ASC 718 is recognized as an expense over the requisite service period.

Net loss per share

Net loss per share

The Company accounts for and discloses net loss per common share in accordance with FASB ASC Topic 260, “Earnings per Share.” Basic and diluted net loss per common share is computed by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding. When the effects are not anti-dilutive, diluted earnings per share is computed by dividing the Company’s net earnings by the weighted average number of common shares outstanding and the impact of all dilutive potential common shares. There were no potential dilutive common shares for all periods presented.

The following table sets forth the potential common shares excluded from the calculation of net loss per common share because their inclusion would be anti-dilutive:

	March 31
	2014		2013
Options to purchase common stock		2,581,268		2,128,266
Common stock underlying Series A and Series A-1 convertible preferred stock		23,084,880		24,122,332
Warrants to purchase common stock		4,615		4,615
Total		25,670,763		26,255,213

Comprehensive Loss

Comprehensive Loss

The Company’s net loss is equal to its comprehensive loss for all periods presented.

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Fair Value Measurements (Tables)

3 Months Ended

Mar. 31, 2014

Fair Value Disclosures [Abstract]

Fair Value Measurements

The assets classified as Level 2 have initially been valued at transaction price and subsequently valued, at the end of each reporting period, using other market observable data. Observable market data points include quoted prices, interest rates, reportable trades and other industry and economic events. Financial assets measured at fair value on a recurring basis are summarized as follows, in thousands:

Description	March 31, 2014		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
Assets:
Cash equivalents	$	3,000	$	—	$	3,000	$	—
Restricted cash		50		—		50		—
Short-term investments		3,000		—		3,000	$	—
Total	$	6,050	$	—	$	6,050	$	—

Description	December 31, 2013		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
Assets:
Cash equivalents	$	9,500	$	—	$	9,500	$	—
Restricted cash		50		—		50		—
Short-term investments		3,000		—		3,000	$	—
Total	$	12,550	$	—	$	12,550	$	—

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Nature of Business and Basis of Presentation - Common Shares Excluded from Calculation of Net Loss Per Common Share (Detail)	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Total amount of anti-dilutive securities excluded from computation of earnings per share	25,670,763	26,255,213
Stock Option [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Total amount of anti-dilutive securities excluded from computation of earnings per share	2,581,268	2,128,266
Common Stock Underlying Series A and Series A-1 Convertible Preferred Stock [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Total amount of anti-dilutive securities excluded from computation of earnings per share	23,084,880	24,122,332
Warrants to Purchase Common Stock [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Total amount of anti-dilutive securities excluded from computation of earnings per share	4,615	4,615

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Stockholder's Equity - Summary of Series A -1 Preferred Stock (Detail) (Series A-1 Convertible Preferred Stock [Member])	0 Months Ended	3 Months Ended
	Jan. 24, 2014	Mar. 31, 2014
Series A-1 Convertible Preferred Stock [Member]
Class of Stock [Line Items]
Issued, Beginning Balance		2,054
Outstanding, Beginning Balance		2,054
Conversion of Series A-1 Preferred Stock		(506)
Exchange of Series A Preferred Stock into Series A-1 Preferred Stock	3,000	3,000
Dividends issued on Series A-1 Preferred Stock		72
Issued, Ending Balance		4,620
Outstanding, Ending Balance		4,620

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Condensed Statements of Operations (Unaudited) (Parenthetical) (USD $)	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Research and Development Expense [Member]
Non-cash stock-based compensation expenses	$ 210,000	$ 425,000
General and Administrative Expense [Member]
Non-cash stock-based compensation expenses	$ 281,000	$ 203,000

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Preferred Stock

3 Months Ended

Mar. 31, 2014

Text Block [Abstract]

Preferred Stock

3. Preferred Stock

At March 31, 2014, 15,000 shares of Series A convertible preferred stock (“Series A Preferred Stock”), $0.0001 par value per share, were authorized for issuance.

The following table summarizes the Series A Preferred Stock activity for the three months ended March 31, 2014:

Issued and Outstanding at January 1, 2014	7,920
Conversions of Series A Preferred Stock into common stock	(166	)
Exchange of Series A Preferred Stock into Series A-1 Preferred Stock	(3,000	)
Dividends issued on Series A Preferred Stock	96
Issued and Outstanding at March 31, 2014	4,850

Accounting Treatment

The Series A Preferred Stock has been classified outside of permanent equity (within the mezzanine section between liabilities and equity on the condensed balance sheets) as the Company may not be able to control the actions necessary to issue the maximum number of common shares needed to provide for a conversion in full of the then outstanding Series A Preferred Stock, at which time a holder of the Series A Preferred Stock may elect to redeem their preferred shares outstanding in the amount equal to the face value per share, plus unpaid accrued dividends. The Company’s Series A-1 convertible preferred stock (the “Series A-1 Preferred Stock”) has the same rights, privileges and preferences as the Series A Preferred Stock, but does not provide for any potential payment in cash in the event that the Company has insufficient shares of common stock authorized to honor conversions. Accordingly, Series A-1 Preferred Stock is classified within permanent equity. The Series A-1 Preferred Stock are discussed further in Note 4 to the notes of the financial statements.

Dividends

Holders of Series A Preferred Stock are entitled to receive cumulative mandatory dividends at the rate per share of seven percent (7%) of the face amount ($1,000 per share) per annum, payable quarterly on each March 31, June 30, September 30 and December 31. Dividends shall be payable in additional shares of Series A Preferred Stock valued for this purpose at the face amount. In the event there are not sufficient authorized Series A Preferred Shares available to pay such a dividend, the dividend shall instead accrete to and increase the value of the outstanding Series A Preferred Stock. The fair value of the Series A Preferred Stock dividend, which is included in the Company’s net loss applicable to common shareholders, is calculated by multiplying the number of common shares that a preferred holder would receive upon conversion by the closing price of the Company’s common stock on the dividend payment date.

Included in the Company’s net loss applicable to common shareholders related to the fair value of the Series A Preferred Stock dividends was $1,010,000 and $3,547,000 for the three months ended March 31, 2014 and 2013, respectively.

Conversion

Each holder of shares of Series A Preferred Stock may, at any time and from time to time, convert each of its shares into a number of fully paid and non-assessable shares of common stock at the defined conversion rate. Initially, each share of Series A Preferred Stock is convertible into 2,437.57 shares of common stock. In no event shall any holder of shares of Series A Preferred Stock have the right to convert shares of Series A Preferred Stock into shares of common stock to the extent that, after giving effect to such conversion, the holder, together with any of its affiliates, would beneficially own more than 9.999% of the then-issued and outstanding shares of common stock.

During the three months ended March 31, 2014, 166 shares of Series A Preferred Stock were converted into 405,720 shares of common stock.

Exchange Transaction

On January 24, 2014, the Company entered into an exchange agreement (the “Exchange Agreement”) with Tang Capital Partners, L.P. (“TCP”) pursuant to which TCP exchanged a total of 3,000 shares of Series A Preferred Stock for a like number of shares of Series A-1 Preferred Stock. As result of this transaction, the face value of the Series A Preferred Stock was reclassified as Series A-1 Preferred Stock in the Company’s condensed balance sheet as of March 31, 2014, which resulted in a corresponding increase in stockholder’s equity as of March 31, 2014.

Liquidation Preference

The “Liquidation Preference” with respect to a share of Series A Preferred Stock means an amount equal to the face amount of the shares plus all accrued and unpaid dividends on the Series A Preferred Stock (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to such shares). In the event of a liquidation, dissolution, or winding up, whether voluntary or involuntary, no distribution shall be made to the holders of any shares of capital stock of the Corporation (other than Senior Securities pursuant to the rights, preferences and privileges thereof) unless prior thereto the holders of shares of Series A Preferred Stock have received the Liquidation Preference with respect to each share then outstanding.

Voting

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 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.

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Stock-Based Compensation - Additional Information (Detail) (USD $)	0 Months Ended	3 Months Ended
	Jun. 07, 2013	Mar. 31, 2014	Mar. 31, 2013
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Option grants awarded during period		24,999
Dividend yield		0.00%
Stock-based compensation expense		$ 491,000	$ 628,000
Non-Employee Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense, non-employee stock options		37,000	52,000
Employee Stock Purchase Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Dividend yield		0.00%
Percentage of common share offer price as to market price	90.00%
Maximum number of shares available for issuance	50,000
Maximum number of shares available for issuance	113,333
Increase in percentage of shares of outstanding stock available under ESPP	1.00%
Stock rights issued during period
Stock-based compensation expense related to the ESPP		$ 6,600

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Nature of Business and Basis of Presentation - Additional Information (Detail)	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Description Of Business And Basis Of Presentation [Line Items]
Debt instrument maturity period	Three months or less
Number of dilutive common shares
Minimum [Member] | Certificates of Deposit [Member]
Description Of Business And Basis Of Presentation [Line Items]
Certificates of deposit, maturity period	6 months
Maximum [Member] | Certificates of Deposit [Member]
Description Of Business And Basis Of Presentation [Line Items]
Certificates of deposit, maturity period	1 year