RXi Pharmaceuticals plans to split into two public companies

WORCESTER, Mass.—Looking to strengthen its strategic focus,RXi Pharmaceuticals has begun the process of splitting into two separatepublicly traded companies, with a new name, Galena Biopharma, entering thepicture to handle a focus on targeted cancer therapies, while the RXi Pharmaceuticalsname will carry on with the work of RNAi-based therapeutics.

Interestingly, though, the process has started with Galenajumping to the forefront and RXi taking a kind of back seat. Attempting toaccess the RXi website at https://rxipharma.com/ this week redirects visitors tothe new Galena website and URL at www.galenabiopharma.com/, along with a popupmessage titled "Thank you for visiting the Galena Biopharma(formerly RXi Pharmaceuticals) Website" and the popupcontinuing with the message: "On September 26, 2011, we announced a change instructure and name for RXi Pharmaceuticals. Effective immediately, the new nameis Galena Biopharma and the company will focus solely on building anddeveloping its oncology pipeline. Over the next several months, Galena willformally spin out its RNAi assets into a separate entity that has already beenfunded and will retain the RXi Pharmaceuticals name. At that time, a new RXiPharmaceuticals website will be available."

Adding to the potential near-term confusion, while the RNAiprograms have been contributed to the new RXi to be spun off later this year,the new Galena Biopharma will continue to trade under the ticker symbol RXIIuntil the completion of the spin-off, after which RXi will reportedly regainuse of that symbol. Galena Biopharma is describing itself as "a Portland,Oregon-based biopharmaceutical company that develops innovative, targetedoncology treatments that address major unmet medical needs to advance cancercare." Whether RXi will continue to be based in Massachusetts is not noted.

As part of the transactions involved in separating theoperations into two public companies, institutional investors have agreed toinvest $9.5 million in RXi preferred stock and $2.5 million in Galena commonstock, for a total of $12 million. The RXi preferred stock will be convertibleinto 83 percent of the equity of RXi as of the completion of the spin-off. Theinvestment in Galena common stock will be priced "at market" based ona volume-weighted average trading price. No warrants will be issued in thetransaction.

The expectation is that approximately 8 pecent of the equityin RXi will be distributed on a share-for-share basis so that a holder of oneshare of Galena common stock prior to the distribution will hold one share ofRXi and one share of Galena after the spin-off. Galena will retain a 4 percentequity position in RXi, and Advirna LLC, a private company and key licensor ofRXi, will acquire 5 percent of the equity. The completion of the spin-off andthe related transactions, including the financing of RXi, remain subject tocertain conditions, including registration of the spin-off distribution withthe Securities and Exchange Commission.

A search is currently underway for a new CEO for RXi, as Dr.Mark Ahn will be the president and CEO of Galena Biopharma, as well as serve onthe board of RXi. Dr. Anastasia Khvorova, will serve as RXi's senior vicepresident and chief scientific officer and Dr .Pamela Pavco will serve as RXi'ssenior vice president of pharmaceutical development.

"We believe that the spin-off transaction will enhanceshareholder value by providing a sharper strategic focus for both of theCompany's key programs," Ahn said in the news release about the deal. "Galenawill focus its resources on its lead product, NeuVax, a cancer immunotherapythat is expected to initiate its Phase III PRESENT (Prevention of Recurrence inEarly-Stage, Node-Positive Breast Cancer with Low to Intermediate HER2Expression with NeuVax Treatment) study in the first half of 2012. Galena alsorecently acquired Folate Binding Protein-E39 (FBP), a targeted vaccinescheduled to commence Phase I/II trials by year-end 2011."

As for the other half of the duo, Ahn said that "RXi willfocus 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 genesilencing more broadly through its proprietary, next-generation RNAi platformwith several ongoing and future partners."

Ahn sees the move in part as a way to strengthen the balancesheet "at this uncertain time in the financial markets. We view this pair offinancings from a strong group of investors as an endorsement of both of ourplatforms and our planned path forward."