TICKERS: RXII

Agreement Launches RXi Pharmaceuticals into Dynamic Immuno-Oncology Arena

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By securing an exclusive option to acquire MirImmune Inc., RXi Pharmaceuticals has expanded its reach into the "high-value" field of immuno-oncology, a move that has energized the company and prompted a pair of analysts to express optimism about RXi's future.

Keith Markey of Griffin Securities called the RXi Pharmaceuticals Corp. (RXII:NASDAQ) acquisition option "an attractive opportunity" in a research report released following the Oct. 12 announcement.

"Given the interest in cellular immunotherapies and the proven ability of checkpoint inhibitors to enhance T cell activity, RXi's relatively small investments may well pay off handsomely, particularly if the sd-rxRNA pretreatment obviates the need for expensive checkpoint inhibitors," Markey wrote.

RXi's self-delivering RNAi (sd-rxRNA) compounds have the ability to "'silence' or down-regulate the expression of a specific gene that may be overexpressed in a disease condition," according to the company. Thus far, the partnership with MirImmune has shown in cell cultures that the technology can enhance inhibition of checkpoints such as PD-1, and has the potential to improve the efficacy of innovative immunotherapies such as CAR T-cells.

According to RXi's Chief Development Officer Pamela Pavco, the sd-rxRNA technology has been shown to efficiently penetrate the cell wall in both cell culture and a mouse model of human cancer, and is nontoxic to the cell. It's also demonstrated the ability to produce an "80% reduction" in checkpoint inhibitor expression, Pavco said.

"We can block intracellular targets, which antibodies can't do, and we can also target extracellular targets, reducing their expression, so there aren't as many of those on the surface of the cell." Pavco explained. "By targeting more than one of these checkpoint inhibitors, we can have a more efficacious therapy."

Though still in preclinical development in the immuno-oncology realm, Pavco said RXi's sd-rxRNA technology has potential applications in treatment of "recalcitrant," or difficult-to-treat cancers—pancreatic and ovarian, for example.

"It's a very good application of our technology in an area that's underserved," Pavco explained. "Being able to target a recalcitrant cancer would be a huge thing for patients who are underserved. . .it could be really transformational in that kind of therapy, and make a difference in the lives of patients."

In addition, Pavco said, moving into immuno-oncology "brings value to our company because we're going into a new area. We're really excited to be able to do this."

Maxim Jacobs of Edison Investments, in an Oct. 25 research report, noted that with the agreement, RXi has embarked on "a relatively inexpensive route into a high-value area." The analyst also noted Edison had bumped up its valuation to $17.57 per share from $17.06.

The platforms of the two companies have demonstrated synergies, according to Jacobs. "Since licensing RXi's technology, MirImmune has selected six lead compounds against different extracellular and intracellular immune checkpoints," the analyst wrote. In these preclinical studies, MirImmune has "demonstrated the silencing of all six targets. . .both singly and in combination."

The analyst went on to note that the ability "to simultaneously silence multiple checkpoint genes and to target intracellular targets which antibodies cannot reach could be a competitive advantage."

The option agreement with privately held MirImmune follows a 2015 licensing agreement between the two companies that coupled RXi's proprietary sd-rxRNA technology and MirImmune's cell-based cancer immunotherapies, according to RXi's press release.

The agreement entitles RXi to "acquire all outstanding capital stock of MirImmune Inc. . .in consideration for a number of shares equal to 19.99% of the then outstanding shares of common stock of RXi, plus additional potential consideration contingent on MirImmune reaching certain milestones," the release stated. The option expires April 5, 2017.

With the company's cash burn rate expected to increase as clinical development of the "oncology-related compounds" gets underway, both Markey and Jacobs noted the company will employ equity financing in the short term; RXi also announced plans for a securities offering on Oct. 12.

The offering will be used to "enable the smooth integration of MirImmune Inc. into RXi in the event that RXi exercises its option to acquire MirImmune Inc., and the timely development of RXi's current pipeline, as well as sd-rxRNA in cell therapy," the company stated in its press release.

"Being a small company, we have to remain focused and be very diligent with our cash spend," company representative Tamara McGrillen said. By entering into agreements with companies like MirImmune, RXi can "license out our technology for the possible development of new therapeutics in areas that could really make a difference in patients' lives. With MirImmune, it made perfect sense for us to join together and bring value to both the company, our shareholders, and patients."

Markey thinks "2016 will likely close in fine fashion" for RXi, citing progress in the company's other programs. "The clinical study of Samcyprone, RXi's wart treatment, is on schedule to complete enrollment shortly, so interim results should be available before year-end and final data should be out next summer," the analyst wrote, adding the company's Phase 1/2 trial for "RXI-109 for retinal scarring in wet AMD patients has enrolled 2 of the 3 cohorts and no evidence of toxicity has been reported to date."

"We have three other clinical trials ongoing, and we are sticking to the timeline on those," Pavco noted.

RXi also released its Q3/16 financial statements and a corporate update on Nov. 10.

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Disclosures:
1) Tracy Salcedo compiled this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor. She owns, or members of her immediate household or family own, shares of the following companies mentioned in this article: None. She is, or members of her immediate household or family are, paid by the following companies mentioned in this article: None.
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