Today we are considering an emerging micro cap called RXi Pharmaceuticals (RXII). This company operates within the biopharmaceutical industry, has roughly a $39 million market cap and is listed on the Nasdaq CM. In order to gain more insight on this opportunity, we reached out to Dr. Geert Cauwenbergh, President and Chief Executive Officer of RXi.

The Interview

In layman’s terms, what is RXi all about?

RXi is all about using a biological mechanism (RNAi), that exists in the human cells, to selectively reduce the levels of bad or excessively expressed proteins to fight diseases, while only minimally affecting other biological systems in the body.

RNAi is a naturally occurring phenomenon by which short double-stranded RNAs interfere with the expression of targeted genes. The development of therapeutics based on RNAi technology takes advantage of this phenomenon and potentially allows us to reduce the expression of particular genes within living cells. The discovery of RNAi is regarded as a significant advancement in the scientific community, as evidenced by the selection of RNAi as the “Breakthrough of the Year” in 2002 by the journal Science and by the 2006 Nobel Prize in Medicine being awarded to the co-discoverers of RNAi, including Dr. Craig Mello. RNAi offers a novel approach to the drug development process because RNAi compounds can potentially be designed to target any one of the thousands of human genes, many of which are undruggable by other modalities.

RXi is focused on developing innovative therapies based on our proprietary, self-delivering RNAi (sd-rxRNA®) platform. Therapeutics that use RNA interference, or "RNAi," have great promise because of their ability to down-regulate the expression of specific genes that may be over-expressed in disease conditions. RXi’s sd-rxRNA oligonucleotides are designed for therapeutic use and have drug-like properties, such as high potency, target specificity, serum stability, reduced immune response activation, and efficient cellular uptake. This allows sd-rxRNAs to achieve efficient cellular uptake and potent, long-lasting intracellular activity.

Could you provide a brief technical explanation?

RXi Pharmaceuticals has developed a proprietary RNAi platform of ‘self-delivering’ RNAi compounds termed sd-rxRNA®. These compounds are efficiently taken up by cells without the need for a delivery vehicle, and represent an advancement in the RNAi therapeutics field for local applications. RXi's sd-rxRNA oligonucleotides are designed for therapeutic use and have drug-like properties, such as high potency, target specificity, serum stability, reduced immune response activation, and efficient cellular uptake. These hybrid oligonucleotide combine the beneficial properties of conventional RNAi and antisense technologies. Taken together, the design, modification pattern and shorter duplex region allows sd-rxRNAs to achieve efficient cellular uptake and potent, long-lasting intracellular activity.

RXI-109 is an sd-rxRNA that targets the mRNA of connective tissue growth factor (CTGF), a gene known to modulate fibrosis and scar formation. RXI-109 is initially being developed to reduce or inhibit scar formation in the skin following surgery. RXi Pharmaceuticals believes that reducing the level of CTGF early in the wound healing process will result in a reduced level of scarring. RXI-109 may have broad applicability for prevention of scarring or fibrosis in other tissues and indications including the eye.

At this point, do you have any idea of how effective RXI-109 is for anti-scarring?

The first clinical trials with RXI-109 (RXI-109-1201 and RXI-109-1202) showed excellent safety and tolerability, with ascending single and multiple doses, as well as dose dependent reduction of the CTGF protein and the mRNA that controls production of this protein. Thus, we were able to detect the expected RNAi effect in our first clinical trials.

Two Phase 2 clinical trials are currently underway to evaluate the effectiveness and safety of RXI-109 on the outcome of scar revision surgeries performed on hypertrophic scars on the lower abdomen (RXI-109-1301) or elective surgical excision of two similarly sized and placed keloids (RXI-109-1401). In these studies, the subjects are predisposed to scarring, either hypertrophic scars or keloids, and a difference in RXI-109 vs. placebo treated areas will be evaluated. Preliminary results will be compiled and reported before the end of 2014 for initial patients reaching 3 months post treatment.

What are the main challenges that the industry in which you operate faces today?

From an operational perspective, biotech is an industry that absorbs a lot of money in order to arrive at meaningful innovation for the health and wellbeing of people. The chronic need for cash combined with the short term orientation of many investors today creates a difficult environment to be long term focused for small companies.

In terms of the use of RNA technology, many of the early challenges in the industry have been at least partially met. The addition of nucleotide modifications have improved compound stability, reduced inflammatory response, and helped to improve specificity. The main challenge remaining is delivery, not just into the cells (which the sd-rxRNAs achieve) but to the site of action in the body. At RXI we are focusing on local applications to avoid the issue of systemic delivery. In addition to dermal applications, RXi has initiated an ophthalmology program in which local delivery to the retina is possible via intraocular administration. Other RNAi companies are developing a variety of delivery options, including lipid nanoparticles, as a way to support systemic delivery to the liver. Numerous programs are in place in which the oligonucleotide / lipid nanoparticle is taken up by the liver and reduction of their specific target can be evaluated in vivo. Many of these have shown the desired effect in human clinical studies. Delivery to organs other than the liver is the next challenge to be met.

In what ways do you feel the current stock price does not value Rxi’s strengths or weaknesses?

With one of the most exciting technology platforms in the siRNA space, RXi Pharmaceuticals is by far the smallest company among the publicly traded RNAi companies. Its fully diluted market cap is 2 to 5 times lower than that of other companies in this space, some of which don’t even have a product in clinical development.

Could you please go over your patent portfolio?

RXi was recently granted a patent from the USPTO (patent # 8,664,189), covering CTFG-targeting sd-rxRNAs for the treatment of fibrotic disorders. In addition, RXi has received a Notice of Allowance for a key patent, titled “Reduced Size Self-Delivering RNAi Compounds”, which broadly covers both the composition and methods of use of RXi’s self-delivering platform technology. This key patent broadly covers RXi’s technology platform. This platform differentiates us from the competition, providing us with a powerful advantage to deliver our RNAi compounds without complicated formulations, which are commonly used with the other siRNA compounds in clinical development.

RXi’s intellectual property estate includes patents and patent applications related to chemistries, sequences, configurations, compounds, delivery technologies, and therapeutic targets. This IP has been developed by RXi as well as in-licensed or acquired from third parties. We believe these patents and patent applications define broad coverage for the development and commercialization of advanced RNAi therapeutics. In particular, they relate to novel and proprietary structural and chemical modification patterns, used to introduce “drug-like” properties to rxRNA® compounds. Fundamental IP related to development of RXi’s rxRNA compounds covers distinct structures with duplex length shorter than 15 bases, or longer than 25 bases in the con- text of advanced and diverse chemical modification patterns. These patents also cover RNAi compounds against targets that are believed to play an important role in fibrosis as well as diseases of the eye, cancer and inflammatory diseases.

In 2013, RXi further strengthened its patent portfolio with the acquisition of the OPKO RNAi intellectual property estate. The OPKO RNAi estate includes 12 patent families and provides broad patent filings for siRNA compounds which target genes involved in angiogenesis, cancer, immune disorders and inflammatory diseases. Methods for siRNA delivery across the blood-brain and blood-retina barrier are also disclosed for therapeutic and diagnostic use.

Who are the emerging competitors in the RNAi industry? 

While some large pharmaceutical companies have reduced their programs in RNAi, it still remains a large component of the oligonucleotide therapies being pursued. Many companies, including smaller biotechs like RXi, are focused on developing RNAi-based therapeutics. Some of the main RNAi companies actively working on the use of RNAi through systemic delivery are Alnylam Pharmaceuticals, Dicerna Pharmaceuticals, Tekmira Pharmaceuticals, Arrowhead Research, PhaseRx, Arcturus Therapeutics and Silence Therapeutics. In addition to RXi, RNAi companies focused primarily on a local delivery approach include Quark Pharmaceuticals, AuraSense Therapeutics and Sylentis. The local delivery approach includes ophthalmology applications.

There are numerous companies working in the wound healing or dermal scarring area but few are utilizing an oligonucleotide approach. Of active programs using oligonucleotides, at least two companies are targeting CTGF, RXi with RXI-109 and Pfizer with an antisense oligonucleotide. As noted here, RXi is currently conducting its Phase 2 trials, while Pfizer has completed several Phase 2 trials with positive results showing reduced scar formation. Additional wound healing targets are being pursued by other companies using oligonucleotides; an example is Coda Therapeutics which is in Phase 2 with an antisense that targets connexin43 for improved wound healing.

What differentiates your therapies from others on the market, as well as those currently in development?

There are currently no FDA approved therapeutics that are intended to reduce the formation of dermal scars. If approved, RXI-109 would fill a very large unmet medical need, especially for those people prone to poor scarring. This type of therapeutic could ultimately have great benefit for trauma, surgical or burn patients (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 the US, there are approximately 177,000 scar revision surgeries conducted each year, and over 42M surgical procedures.

Our most direct competitor is Pfizer with the CTGF-targeting antisense oligonucleotide for which positive Phase 2 results have been obtained in the reduction of scarring following surgery. RXi is currently conducting a phase 2a trial which could demonstrate that RXI-109 is effective in reducing the recurrence of keloids after keloidectomy (keloid excision). Keloids are benign skin growths which are essentially scars that continue to grow past the original boundaries of the injury. People with certain skin types including those of African, Hispanic and Asian descent, may be more prone to keloids. While a cosmetic concern, keloids can also be very uncomfortable (itching, pain, tenderness) and can result in tightened skin areas that affect movement and function. As such, there is a large unmet medical need for a drug to reduce growth or recurrence of keloids.

In your opinion, is there risks in your current business that are under appreciated by investors?

Likely not. Indeed, some 10 years ago, as a result of many failures, the RNAi approach was all but abandoned by larger companies. It is only in the past few years that gradually people have started to realize that, with novel technologies, the issues of naked siRNAs and the delivery of those compounds can actually be resolved. There is still a lot of hesitation out there; hence the wild fluctuations in share prices for the companies involved in RNAi. I think it can only get better (slowly) from here.

What part of the business do you think is being ignored that has more upside potential than Wall Street is giving it?

Once people will understand that our sd-rxRNA platform is applicable to many body systems and diseases, Wall Street will see the upside potential. We will need to provide good proof of clinical efficacy, with one of our early clinical candidates, to start that recognition process.

Do you have any plans to increase awareness of the stock?

The best promotion of our stock will be delivering meaningful clinical data. In the meantime, we do talk regularly about our self-delivering platform, and how it can become transformational once we have been able to link the clear effects on biomarkers (lowered mRNA for the target proteins, and lower protein contents in the treated tissues) to the clinical benefits. Data will be the best promotion.

Is RXi actively considering partnership opportunities for RXI-109?

RXi’s therapeutic platform is broadly applicable to the discovery and development of products in multiple therapeutic areas. Our current partnering strategy for the dermal scarring program is focused on funding its development until the completion of clinical proof of concept studies. However, we remain interested in establishing early stage platform partnerships and collaborations — including research, discovery and development collaborations in the therapeutic areas of dermatology, fibrosis and ophthalmology as well as in specific diseases and targets of interest to our potential partners.

RXi also has opportunities in the establishment of platform development collaborations with potential pharmaceutical partners, to further improve and develop our RNAi therapeutic platform. As our preclinical and clinical pipeline continues to mature, we will establish specific product focused alliances, enabling us to further advance our pipeline. RXi continuously engages pharmaceutical companies, interested in RXi’s dermal and ophthalmology programs, to provide updates on our progress in these areas.

Why would someone purchase your product or service? What specific needs does it address?

It addresses medical needs that today cannot sufficiently be addressed by other products. In the specific case of hypertrophic scars and keloids, no FDA approved therapeutic agents exist. Physicians often use drugs off label (corticosteroids, cytostatics, radiotherapy etc.).

What is it about your management team that makes them uniquely capable of executing on this business plan?

Highly capable, hardworking, very knowledgeable in our space, nimble, and focused on getting the work done without spending hours in meeting rooms. Also, everybody in management actually does several aspects of the drug development process very much hands on themselves.

What are the probable exit scenarios?

Partnering; acquiring or being acquired; gradually building a complete organization including commercial activities.

At this point, what is management’s pipeline priority?

First our RXI-109 for dermal scarring, and second building up our ophthalmology franchise.

What potential value-driving catalysts can investors generally expect in both the short and long term?

Clinical data with RXI-109 in scarring; exciting results in ophthalmology; deals (in and out); and earlier stage interesting pharmacology data against other protein targets.

What is the adequacy of RXi’s funding relative to its goals?

At this point, our goals are aligned with our funding. Obviously we want to grow and do more. To achieve that we will need to selectively look for targeted financing.

What’s your current financial position?

On May 15, 2014, RXI had $13.2 million, and no debt. Cash burn is about $2.5 million per quarter and we have cash for another 5 quarters. We also have access to an equity line for another $18 million.

With the company currently advancing its clinical program, do you have an idea of what the associated costs will be?

We are currently only advancing one clinical program (i.e. skin scarring, specifically for hypertrophic scars and for keloids). We have generally a good idea of what the costs associated with that development will be.

Are you encouraged by institutional ownership? Do you think RXi is gaining traction among retail investors?

We are gradually building institutional ownership. Our move to NASDAQ has certainly been helpful in that regard. It appears that RXi seems to be a fairly popular company with the retail and day trading community. We cherish both the institutional side and the retail side very much.

Is there anything else you would like our readers to know about RXi?

RXi is potentially one of the few biotech companies that will have a material impact on the treatment approach for several diseases, based on its unique, self-delivering RNAi technology platform.

(End of interview)