RXi Pharmaceuticals

Samcyprone data at AAD

Clinical data

Pharma & biotech

3 August 2016

Price	US$2.35
Market cap	US$15m

Net cash ($m) at end June 2016 (estimate)		6.2

Shares in issue	6.53m
Free float	96%
Code	RXII

Primary exchange	NASDAQ
Secondary exchange	N/A

Share price performance

%	1m	3m	12m
Abs	(4.2)	4.0	(43.7)
Rel (local)	(6.6)	0.4	(45.2)

52-week high/low

US$5.97

US$1.59

Business description

RXi Pharmaceuticals is a clinical-stage RNAi company developing therapeutics in dermatology and ophthalmology. Lead projects for RXI-109 in dermal indications (Phase II) and in wet AMD (Phase I/II) stem from its proprietary self-delivering (sd-rxRNA) platform. Licensed-in immunomodulator Samcyprone (Phase II) is initially being developed for warts, alopecia areata and melanoma.

Next events

Samcyprone Phase IIa enrolment completion	Q416
RXI-109 early data in retinal and dermal scarring	Q416

Analysts

Maxim Jacobs	+1 646 653 7027
Nathaniel Calloway	+1 646 653 7036

healthcare@edisongroup.com

Edison profile page

RXi Pharmaceuticals is a research client of Edison Investment Research Limited

At the American Academy of Dermatology (AAD) Summer Meeting, data from a pilot study of Samcyprone (diphenylcyclopropenone ointment) in the treatment of common warts was presented. Overall, 38.1% of subjects saw a greater than 50% clearance over seven weeks compared to 6.7% in the placebo arm (p=0.051). On a per-protocol basis, 47.6% saw greater than 50% clearance (p=0.011). A Phase IIa with an improved formulation and 10-week treatment period was initiated in December 2015, with enrolment expected to be completed by year-end 2016.

Year end	Revenue ($m)	PBT* ($m)	EPS* ($)	DPS ($)	P/E (x)	Yield (%)
12/14	0.1	(7.0)	(4.25)	0.0	N/A	N/A
12/15	0.0	(8.5)	(1.70)	0.0	N/A	N/A
12/16e	0.0	(9.8)	(1.50)	0.0	N/A	N/A
12/17e	0.0	(13.1)	(2.01)	0.0	N/A	N/A

Note: *PBT and EPS are normalised, excluding amortization of acquired intangibles, exceptional items and share-based payments.

Increased confidence following data

Diphenylcyclopropenone (DPCP) has been used for decades as a compounded drug, though never FDA approved, with no standardized formulation or regimen and little clinical data. The presentation at AAD provides some much needed clarity on the effect size for the product and increases our confidence that Samcyprone will be useful for dermatologists given that up to a third of warts are considered recalcitrant.

Phase IIa clinical trial underway

In December 2015 RXi initiated a 40-patient Phase IIa trial of Samcyprone for the treatment of common warts, with an improved topical formulation for better stability and consistency. Patients will be treated once weekly for up to 10 weeks, up from seven weeks in the pilot study.

Late-2016 and 2017 filled with potential catalysts

Data for RXi’s lead compound RXI-109, being studied in a Phase I/II for the prevention of retinal scarring and in a Phase II for the prevention of dermal scarring, should start reading out later this year with more complete data available in 2017. The company is also exploring a range of M&A and business development options to enhance shareholder value, though timelines for this are indeterminate.

Valuation: $111.5m or $17.06 per share

Positive pilot study data presented for Samcyprone

At the American Academy of Dermatology (AAD) Summer Meeting in Boston, MA, data from a pilot, placebo-controlled study of Samcyprone for the treatment of common warts was presented. The study enrolled subjects between the ages of 19 and 59 who had at least one common wart. Patients were sensitized with 0.4% ointment or placebo and then two weeks later were administered once-weekly treatments of 0.04% or placebo on each wart for seven weeks. Efficacy was determined by measuring wart lesion surface area and through the four-point Investigator’s Global Assessment Score (IGAS) of wart clearance. A patient was deemed a responder if they had a greater than 50% reduction in the area of all treated warts or if at least half of treated warts were completely eradicated.

Exhibit 1: Pilot study of Samcyprone in common warts*

	>50% clearance			Total number of warts
	Samcyprone	Placebo	P-value	Samcyprone	Placebo
Intent to treat	38.1%	6.7%	0.051	35	15
Per protocol	47.6%	6.7%	0.011	21	15

Source: RXi Pharmaceuticals. Note: *Conducted by Hapten Pharmaceuticals from which RXi licensed Samcyprone.

While on an intent to treat basis, Samcyprone did narrowly miss statistical significance with a p-value of 0.051, given that this was just a small pilot study, Samcyprone clearly demonstrated a higher clearance rate than placebo, especially considering the per protocol data (a handful of patients did not comply with the seven-week treatment regimen). With an improved formulation and longer treatment regimen in the ongoing Phase IIa trial, we would expect results to improve. Note that in one published retrospective study of a compounded version of DPCP, the active ingredient in Samcyprone, 135 out of 154 patients (87.7%) had complete clearance of warts following an average treatment period of six months.1

Upitis JA et al, The use of diphenylcyclopropenone in the treatment of recalcitrant warts. Journal of Cutaneous Medicine and Surgery. 2002 May-June; 6(3):214-7.

Assessing Samcyprone versus competitors (see Exhibit 2) is rather challenging as datasets tend to be small and highly variable. Even the prescription treatment that is most frequently used for warts, imiquimod, has only small trials indicating efficacy and was never officially approved for the indication by the FDA (it is approved for genital warts however). In one uncontrolled trial of 50 patients, imiquimod achieved clearance in 30% of patients or a greater than 50% reduction in wart size in another 26% for a total response rate of 56% following a mean treatment period of 9.2 weeks.2 In another 37-patient uncontrolled trial, imiquimod achieved clearance in 27% of patients (an average of 19.2 weeks of therapy were necessary for clearance) or a greater than 50% reduction in another 49% of patients for a total response rate of 76%.3

Hengge UR et al, Self-administered topical 5% imiquimod for the treatment of common warts and molluscum contagiosum,.British Journal of Dermatology, 2000 November; 143(5):1026-31

Grussendorf-Conen El et al, Topical 5% imiquimod long-term treatment of cutaneous warts resistant to standard therapy modalities Dermatology. 2002; 205(2):139-45

Exhibit 2: Treatments for cutaneous warts

Mechanism	Examples
Ablative therapies	Salicylic, lactic and other acids; cantharidin; silver nitrate; cryotherapy; laser therapy and photodynamic therapy; hyfrecation; curettage
Antimitotic and antiviral therapy	5-fluorouracil, bleomycin, topical cidofovir, podophyllin/podophyllotoxin
Stimulate host immune responses against the virus	Imiquimod, oral cimetidine; topical and oral zinc; intralesional candida, mumps, or Trichophyton antigen; intralesional interferon; contact sensitizers such as diphenylcyclopropenone
Other	Ingenol mebutate (Picato), duct tape, retinoids

Mechanism

Ablative therapies

Antimitotic and antiviral therapy

Stimulate host immune responses against the virus

Other

Examples

Salicylic, lactic and other acids; cantharidin; silver nitrate; cryotherapy; laser therapy and photodynamic therapy; hyfrecation; curettage

5-fluorouracil, bleomycin, topical cidofovir, podophyllin/podophyllotoxin

Imiquimod, oral cimetidine; topical and oral zinc; intralesional candida, mumps, or Trichophyton antigen; intralesional interferon; contact sensitizers such as diphenylcyclopropenone

Ingenol mebutate (Picato), duct tape, retinoids

Source: Edison Investment Research, Practical Dermatology

While the final efficacy profile of Samcyprone is yet to be known, if approved, it is likely to be a part of the armamentarium used by dermatologists to combat warts given that a third of warts are considered recalcitrant to therapy and many have had experience using the compounded form of the drug.

The next milestone for Samcyprone will be the completion of enrolment of the 40-patient Phase IIa trial by the end of 2016, which, given the 10-week treatment period, would mean full data should be released in the Q1/Q217 timeframe, though interim data might be released sooner.

Valuation

We have increased our valuation slightly to $111.5m or $17.06 per basic share, from $107.2m or $16.50 per basic share. This is mainly due to increasing the chance of success of Samcyprone from 30% to 40% due to the presentation of its pilot study data as well as near-term expense controls. This was mitigated slightly by a lower cash balance and a slightly higher share count. The company has stated that it has enough cash to enter Q217 and we calculate a capital need of $20m through 2017. It is important to note that it has hired Griffin Securities to assess strategic options. Upcoming catalysts that could alter our valuation for the company will include data for lead compound RXI-109. It is being studied in a Phase I/II for the prevention of retinal scarring and in a Phase II for the prevention of dermal scarring, with readouts later this year and more complete data available in 2017.

Exhibit 3: RXi valuation table

Product	Launch	Peak sales ($m)	Risk adjustment	Royalty rate	rNPV ($m)	rNPV/share ($)
RX-109 scarring	2021	1,453	20%	17.5%	75.3	11.53
RX-109 AMD	2022	1,077	10%	15%	10.6	1.63
Samcyprone	2020	177	40%	17.5%	16.4	2.52
RXI-231 and RXI-185 (Cosmeceuticals)	2019	250	20%	4.0%	2.9	0.45
Implied enterprise value					99.3	15.20
Net cash estimate (30 June)					6.2	0.94
Overall valuation					111.5	17.06

Source: Edison Investment Research

Financials

As of the end of Q116, RXi had $7.7m in cash and equivalents, which the company states is enough to get into Q217, at which point additional data from its three main clinical programs should be available. As the company is making capital preservation a priority we have decreased our estimates for R&D spending in 2016 from $9m to $7.5m, which still represents growth over $6.9m R&D spending in 2015. That said, RXi has enlisted Griffin Securities to review a number of M&A and business development options, so investors should expect either a capital raise or news on the M&A front in the coming months. Although the company has never incurred debt, for illustrative purposes our forecasts currently include $10m in illustrative long-term debt in our model in each of 2016 and 2017, ie a $20m near-term funding requirement, mainly to cover expected R&D costs.

Exhibit 4: Financial summary

	$000s	2013	2014	2015	2016e	2017e
Year end 31 December		US GAAP	US GAAP	US GAAP	US GAAP	US GAAP
PROFIT & LOSS
Revenue		399	71	34	10	0
Cost of Sales		0	0	0	0	0
Gross Profit		399	71	34	10	0
Research and development		(5,401)	(5,680)	(6,925)	(7,500)	(10,000)
General & administrative		(3,697)	(3,217)	(3,346)	(3,614)	(3,975)
EBITDA		(6,819)	(7,067)	(8,551)	(9,586)	(12,430)
Operating Profit (before GW and except.)		(6,720)	(6,980)	(8,474)	(9,538)	(12,378)
Intangible Amortisation		0	0	0	0	0
Exceptionals/Other		(12,250)	0	(228)	0	0
Share-based payments		(1,979)	(1,846)	(1,535)	(1,566)	(1,597)
Operating Profit		(18,970)	(6,980)	(8,702)	(9,538)	(12,378)
Net Interest		24	17	14	(284)	(749)
Other (includes change in fair value of warrants)		0	9	0	7	0
Profit Before Tax (norm)		(6,696)	(6,954)	(8,460)	(9,822)	(13,127)
Profit Before Tax (FRS 3)		(20,925)	(8,800)	(10,223)	(11,388)	(14,724)
Tax		0	0	0	0	0
Deferred tax		0	0	0	0	0
Profit After Tax (norm)		(6,696)	(6,954)	(8,460)	(9,822)	(13,127)
Profit After Tax (FRS 3)		(20,925)	(8,800)	(10,223)	(11,388)	(14,724)

Average Number of Shares Outstanding (m)		1.0	1.6	5.0	6.5	6.5
EPS - normalised fully diluted ($)		(6.52)	(4.25)	(1.70)	(1.50)	(2.01)
EPS - FRS 3 ($)		(28.78)	(7.90)	(2.10)	(1.77)	(2.29)
Dividend per share ($)		0.0	0.0	0.0	0.0	0.0

BALANCE SHEET
Fixed Assets		195	201	181	191	199
Intangible Assets		0	0	0	0	0
Tangible Assets		177	183	163	173	181
Other		18	18	18	18	18
Current Assets		14,743	8,988	10,978	11,278	7,779
Stocks		0	0	0	0	0
Debtors		0	0	0	0	0
Cash		14,440	8,546	10,667	11,013	7,514
Other		303	442	311	265	265
Current Liabilities		(2,076)	(1,334)	(2,269)	(2,609)	(2,454)
Creditors		(2,076)	(1,334)	(2,269)	(2,609)	(2,454)
Short term borrowings		0	0	0	0	0
Long Term Liabilities		0	0	0	(10,000)	(20,000)
Long term borrowings		0	0	0	(10,000)	(20,000)
Other long term liabilities		0	0	0	0	0
Net Assets		12,862	7,855	8,890	(1,140)	(14,476)

CASH FLOW
Operating Cash Flow		(6,311)	(7,758)	(7,317)	(9,590)	(13,740)
Net Interest		0	0	0	0	0
Tax		0	0	0	0	0
Capex		(78)	(95)	(57)	(58)	(60)
Acquisitions/disposals		0	12	0	0	0
Financing		15,684	1,947	9,495	0	0
Dividends		0	0	0	(6)	0
Other		(35)	0	0	0	0
Net Cash Flow		9,260	(5,894)	2,121	(9,654)	(13,799)
Opening net debt/(cash)		(5,180)	(14,440)	(8,546)	(10,667)	(1,013)
HP finance leases initiated		0	0	0	0	0
Exchange rate movements		0	0	0	0	0
Other		0	0	0	0	300
Closing net debt/(cash)		(14,440)	(8,546)	(10,667)	(1,013)	12,486

Source: Edison Investment Research

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