November 2011
by Jeffrey Bouley  |  Email the author


WORCESTER, Mass.—Looking to strengthen its strategic focus, RXi Pharmaceuticals in late September began the process of splitting into two separate publicly traded companies, with RXi Pharmaceuticals to carry on with the work of RNAi-based therapeutics, and a new company, Galena Biopharma, to focus on targeted cancer therapies.  
As part of the transactions involved in separating the operations into two public companies, institutional investors have agreed to invest $9.5 million in RXi preferred stock and $2.5 million in Galena common stock, for a total of $12 million. The RXi preferred stock will be convertible into 83 percent of the equity of RXi as of the completion of the spinoff. The investment in Galena common stock will be priced "at market" based on a volume-weighted average trading price. No warrants will be issued in the transaction.  
The expectation is that approximately 8 percent of the equity in RXi will be distributed on a share-for-share basis so that a holder of one share of Galena common stock prior to the distribution will hold one share of RXi and one share of Galena after the spinoff. Galena will retain a 4 percent equity position in RXi, and Advirna LLC, a private company and key licensor of RXi, will acquire 5 percent of the equity. The completion of the spinoff and the related transactions, including the financing of RXi, remain subject to certain conditions, including registration of the spinoff distribution with the U.S. Securities and Exchange Commission.  
"We believe that the spinoff transaction will enhance shareholder value by providing a sharper strategic focus for both of the company's key programs," Galena President and CEO Dr. Mark Ahn said about the deal. He notes that Galena will focus its resources on its lead product, NeuVax, a cancer immunotherapy that is expected to initiate its Phase III PRESENT (Prevention of Recurrence in Early-Stage, Node-Positive Breast Cancer with Low to Intermediate HER2 Expression with NeuVax Treatment) study in the first half of 2012. He adds that Galena also recently acquired Folate Binding Protein-E39 (FBP), a targeted vaccine to prevent recurrence in gynecological cancers such as ovarian and endometrial adenocarcinomas, from the University of Texas MD Anderson Cancer Center and Henry M. Jackson Foundation for the Advancement of Military Medicine. That vaccine is scheduled to commence Phase I/II trials by the end of 2011.
It seems clear to many market- watchers that the decision to split certainly had a lot to do with the introduction of NeuVax—an E75 peptide vaccine with GM-CSF adjuvant—into the pipeline. After all, it was just a couple weeks before the announced split that RXi had received official notification from the U.S. Food and Drug Administration (FDA) that the Chemistry, Manufacturing and Controls (CMC) partial clinical hold on NeuVax had been lifted, and that RXi had satisfied all requirements specified by the FDA and had initiated a clinical trial material manufacturing plan to remain on schedule to meet the planned trial start date.  
This news led Zacks Investment Research to note, "We think RXi is making great progress in the advancement of its lead candidate NeuVax for breast cancer. We maintain our Outperform rating on RXII and reiterate our 12-month price target of $2.5 per share."  
Of course, that rating may not apply anymore to the future RXi now that Galena will be carrying the cancer therapies forward—with the new company self-described as a "biopharmaceutical company that develops innovative, targeted oncology treatments that address major unmet medical needs to advance cancer care." Also, investors still need some convincing in terms of both companies, as the share price for RXII dropped 23 percent to 76 cents per share on the announcement. Between then and Oct. 24, when this story went to press, it had gone as high as 80 cents at times, but continued to spend much time in the 76-cent range.  
The entire split is still very much a work in progress. The RNAi programs have been contributed to the new RXi to be spun off later this year, but for a time, RXi is, in a sense, disappearing from the picture temporarily. The new Galena Biopharma will continue to trade under the ticker symbol RXII until the completion of the spin-off, after which RXi will reportedly regain use of that symbol.  
Also, Galena is based in Portland, Ore., and there is no official word yet on whether Massachusetts-based RXi will stay in New England, move to Oregon or be located elsewhere, though a search is underway for a new RXi CEO, given that former RXi CEO Mark Ahn is going to be heading up Galena Biopharma. He will also serve on the boards of Galena and RXi. Reportedly, Dr. Anastasia Khvorova will serve as RXi's senior vice president and chief scientific officer and Dr. Pamela Pavco will serve as RXi's senior vice president of pharmaceutical development.
Also still in progress is the online home of RXi. In late September and early October, the RXi website at http://rxipharma.com/ redirected to the new Galena website, with a pop-up message titled "Thank you for visiting the Galena Biopharma (formerly RXi Pharmaceuticals) website," telling visitors: "On Sept. 26, we announced a change in structure and name for RXi Pharmaceuticals. Effective immediately, the new name is Galena Biopharma and the company will focus solely on building and developing its oncology pipeline. Over the next several months, Galena will formally spin out its RNAi assets into a separate entity that has already been funded and will retain the RXi Pharmaceuticals name. At that time, a new RXi Pharmaceuticals website will be available." The process of creating that new website already seems likely to be well underway, as the URL no longer redirects to Galena as of late October, instead redirecting to a popup menu asking for login information.
And what of the future of RXi once it does reappear on the scene? Ahn says that "RXi will focus on advancing its lead anti-scarring and anti-fibrosis product, RXI-109, into the clinic in 2012, as well as unlocking the therapeutic potential of gene silencing more broadly through its proprietary, next-generation RNAi platform with several ongoing and future partners."  
Ahn sees the split in part as a way to reduce the pain of the cash burn that RNAi development represents and to strengthen the balance sheet "at this uncertain time in the financial markets. We view this pair of financings from a strong group of investors as an endorsement of both of our platforms and our planned path forward."  
It is worth noting the splitting up and splitting off isn't anything new for RXi. It was itself a split-off from Los Angeles-based CytRx Corp. back in 2007.  

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