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RXi Reports Second Quarter Financial Results

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Grant Zeng, CFA

RXi Reports Second Quarter Financial Results

There was no revenue for the second quarter ended June 30, 2011.

Research and development expenses increased to $2.7 million in the second quarter of 2011 from $2.3 million in the second quarter of 2010, and increased to $4.8 million for the first six months of 2011 from $4.2 million for the first six months of 2010. The increase was primarily due to an increase of $1.0 million in research and development cash expenses due to a ramp up in NeuVax-related consulting fees and activities in progression toward releasing NeuVax off clinical hold offset by a decrease of $0.7 million in non-employee non-cash stock based compensation and $0.1 million in employee non-cash stock based compensation.

General and administrative expenses decreased to $1.9 million in the second quarter of 2011 from $2.5 million in the second quarter of 2010, and increased to $5.1 million for the first six months of 2011 from $5.0 million for the first six months in 2010. The decrease in general and administrative expenses for the second quarter of 2011 compared with the second quarter of 2010 was primarily due to a $0.3 million decrease in non-cash employee stock based compensation and a $0.2 million decrease in non-cash stock based compensation expense

Net loss for the three months ended June 30, 2011 was $1.4 million or $0.04 per basic and diluted share, compared with a net loss of $2.1 million, or $0.12 per basic and diluted share, for the comparable period in 2010. The decrease in net loss for the three months ended June 30, 2011 compared to the same periods in the prior year was primarily attributable to the non-cash expense as a result of the change in fair value of warrant liability of $3.2 million, which was primarily due to changes in the Black-Scholes assumptions.

Excluding the $3.2 million fair value change, Net loss for second quarter was $4.6 million, or $0.12 per share.

As of June 30, 2011, cash, cash equivalents and short-term investments totaled $17.9 million, compared with cash and cash equivalents of $6.9 million at December 31, 2010. This $11.0 million increase is attributable to the closing of two underwritten public offerings that provided net cash proceeds of approximately $18.2 million after underwriting fees and other estimated offering expenses (the March 2011 offering of net proceeds of $7.3 million and the April 2011 offering of net proceeds of $10.9 million), offset by net cash used in operating activities of $7.2 million for the six months ended June 30, 2011.

We think the earnings report is a non-event for RXII. Investors are focused on the clinical advancement of its drug candidates. In this regard, we think RXi is making great progress, especially in the advancement of its lead candidate NeuVax™ for breast cancer. RXi is on track to initiate the Phase III PRESENT trial for NeuVax in 1H12.

•    Dr. Beth Mittendorf announced as the Phase III Principle Investigator;

•    Obtained conditional Institutional Review Board approval of the NeuVax protocol from two sites; a total of at least five key sites are targeted for approval in Q4 2011;

•    Clinical Research Organization (CRO) selected to manage the international, multicenter Phase III PRESENT trial;

•    Submitted manufacturing amendment to the U.S. Food and Drug Administration (FDA), as well as initiated preparation of final Phase III clinical trial drug product.

We maintain our Outperform rating on RXII and reiterate our 12-month price target of $2.5 per share.

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