Grant Zeng, CFA
RXII: initiating with an outperform rating
RXi Pharmaceuticals Corporation (RXII) is a late stage biotechnology company focused on the discovery, development and commercialization of cancer immunotherapy and RNAi therapeutics.
The Company holds two proprietary drug discovery platform technologies: peptide-based immunotherapy and RNA interference (RNAi) technology. RXi is pursuing cancer immunotherapeutic programs using the peptide-based immunotherapy technology and RNAi therapeutics using the RNAi technology.
Cancer Immunotherapy: RXi’s lead product candidate for cancer immunotherapy is NeuVax, which is a peptide-based immunotherapy to reduce the recurrence of breast cancer in node-positive, low-to-intermediate HER2-positive breast cancer patients not eligible for Herceptin. The Company acquired NeuVax from privately held Apthera in April 2011. Apthera completed Phase II trials of NeuVax with positive efficacy data and favorable safety profile. RXi is currently preparing the chemistry, manufacturing and control (CMC) information and plans to initiate a Phase III clinical trial (PRESENT: Prevention of Recurrence in Early-Stage, Node-Positive Breast Cancer with Low to Intermediate HER2 Expression with NeuVax Treatment) under FDA approved Special Protocol Assessment (SPA) of NeuVax during the first half of 2012. In addition to breast cancer, NeuVax has the potential to treat other cancers, including prostate, bladder and ovarian cancers.
At the front of RNAi therapeutics, RXi has developed various novel RNAi compounds called rxRNA® with built-in drug delivery properties. The Company’s self-delivering RNAi (sd-rxRNATM) does not require an additional delivery vehicle for efficient cellular uptake or tissue distribution in vivo, which holds advantages over conventional RNAi compounds.
RXi’s lead drug candidate in the RNAi area is RXI-109. RXI-109 is the Company’s first RNAi product candidate, which is a dermal anti-scarring therapy that targets CTGF (connective tissue growth factor). Preclinical results using intra-dermal injection of RXI-109 have demonstrated robust, dose dependent, durable CTGF (connective tissue growth factor) silencing with direct impact on targets affecting tissue architecture in fibrosis.
The Company is currently working towards filing an investigational new drug application (IND) for RXI-109 in the second half of 2011 and commencing a Phase I clinical trial in the first half of 2012. RXI-109 may be able to treat other indications, including pulmonary fibrosis, liver fibrosis, acute spinal injury, ocular scarring and restinosis. RXi intends to maintain its core RNAi discovery and development capability to advance current collaborations, as well as enable alliances.
We believe NeuVax has a blockbuster potential if it ultimately reaches the market. RXI-109 also targets the relatively large scar market, which is underserved and has unmet medical needs.
Based on the Company’s strong fundamentals, we believe RXi’s shares are undervalued compared to its peers.
Currently, the Company’s shares are trading at about $1.30 per share which values the Company at about $55 million in market cap based on 41.7 million shares outstanding. We believe this is a discount compared to its peers. Most small biotech companies of development stage in the business of cancer are valued from $50 million to $500 million in market cap depending on how advanced the pipeline is and which indications the company is targeting. RXi is a late stage development biotech company, and its lead candidate NeuVax will enter into Phase III clinical trials in the second half of 2012. RXi also is in the business of RNAi therapeutics.
Using sum-of-the-parts (break-up) analysis, we believe RXi’s cancer business is worth $60 million and its RNAi business is worth $40 million. Therefore, total value of RXi should be about $100 million, which translates into share value of $2.50 based on 41.7 million outstanding shares.
Risks associated with the price target include clinical and regulatory uncertainties and cash burn concern.
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