RNAi must feel like Rodney Dangerfield – it gets no respect. Back in 1998, RNAi was hot. It was so hot that just 8 years later, Andrew Fire and Craig Mello, received the Nobel Prize in Physiology or Medicine for their work. Today, you will have a hard time finding investors willing to put their hard-earned dollars into these companies.

To rub a bit of salt into the wound, RXI ($RXII), originally an RNAi-based therapeutics company founded in part by Dr. Mello, has been passed around and recently dropped by its Board for the new, hot co-ed in therapeutics, immunotherapy (see sipuleucel-T and ipilimumab).

Taking a quick step back, this is how the story unfolds: at the end of March, the company announced “RXi Pharmaceuticals Aggressively Moves into Late-Stage Clinical Development with the Agreement to Acquire Apthera, Inc.” This was an interesting move, but we can assume that the Board recognized the challenges with RNAi therapeutics and in the spirit of creating shareholder value brought in a late-stage asset to get them into the clinics – why this particular asset? That’s another story. A short 6-months later, they announced “RXI Pharmaceuticals to Strengthen Strategic Focus by Separating into Two Publicly Traded Companies”. So, exactly, who acquired whom? Who got ditched?

Hmm…I wonder if the March investors knew that they were going to be shareholders of an immunotherapy company.

Given how this story has developed, it would have been fun as a fly on the wall to see/hear how this strategy evolved from the Board: 1) $RXII acquires Apthera/Galena for a Phase III ready asset, with the concurrent departure of its CEO; and 2) Apthera/Galena sends RXI off to fend for itself as a separate entity, with the current CEO staying to run Apthera/Galena. If I were RXI, I’d feel like a cheap, used date, but I guess that’s the way it goes sometimes.

Some fun questions to ask: Which Board member(s) pushed for this immunotherapy asset? Did they plan to drop RNAi from the beginning? Why not do this in one simple stroke? If NeuVax was so compelling, how did a small biotech company with no experience in immunotherapy get it without cash upfront? and without any competition – were they the only suitor? If you are going to wait 3-5 years for data, why not stick with RNAi? Will anyone from old $RXII/Galena will stay with RXI? Does Board member Steve Kriegsman finally do the inevitable, and really drop RXI for good – first from CytRx and now with Apthera/Galena? Oh well, the deed has been done.

On the flip side, the new RXI will be 83% owned by two well-known biotech investors, Kevin Tang and Rod Wong (who had previously managed Davidson-Kempner’s healthcare portfolio) – Galena will retain 12% ownership and Advirna (CSO’s company) will own 5%. The company will be capitalized with $9.5 MM to get their anti-fibrotic program to an inflection point (simply, my assumption). Not a bad start, given that $RXII reported $11.1 MM cash 1Q11, from which $7.3 MM (net) was raised March 1. I wonder how much enterprise value other investors will give them? I haven’t thought this through yet, but at this point, does it makes more sense for them to go private – save some money, stay out of the limelight?

Do they have enough cash to create some value? Probably, but they’ll need to raise more if they want to keep going. In 2010, the company spent roughly $6 MM on R&D and $5.5 MM on G&A, but that was before they trimmed their staff by ⅔ (from 32, 1Q11) with their new strategy. Assuming they save about $2 MM in salary, that leaves them with $7.5 MM to run the business. This means, they can conduct some research, complete their GMP toxicology studies, file and run a Phase I trial and pay the bills to keep the lights on. Certainly do-able, but I suspect any new investors would wait for data, maybe by YE12 or early 2013, at which point, they could be low on cash. I guess, we could simply view this as a single shot on goal. If it works, great, if not, we still have the ALS program with UMass. I’m certainly looking forward to see what their Phase I trial will look like and if they can generate clinically useful data.

In any case, RXI and RNAi has seen better days – just ask $ALNY, $MRNA, $SLN.L, TKM.TO, Quark (pulled IPO in September).

No position in any company mentioned.