Rxi Pharmaceuticals Is Undervalued In The RNAi Sector

| About: RXI Pharmaceuticals (RXII)

Rxi Pharmaceuticals (NASDAQ:RXII) presents a huge opportunity for investors, because in my opinion it is severely undervalued. Rxi uses RNAi (RNA Interference) like other RNAi biotechs, but it does so in a substantially different way. This biotech currently has a $40 million market cap, and we think that investors should get in now before major catalysts arrive.

Tech that Matters

In the past RNAi technology has had one significant problem. That problem was, that there was no viable delivery method to deliver the RNAi into the cells for cellular uptake. In this case, a lot of the biotechs were delivering what they call in the field naked siRNA molecules. The end result was that a lot of these biotechs had huge promise, but in the end didn't deliver due to low efficacy.

A lot of RNAi biotechs have now developed delivery vehicles for the siRNA molecules. These delivery vehicles, thus far in early trials, have shown substantial efficacy. Tekmira (TKMR) has developed a delivery platform known as LNP. LNP stands for "Lipid Nanoparticle", and is the mechanism in which siRNA is delivered to the targeted cell. Arrowhead Research Corp. (NASDAQ:ARWR) has a different type of delivery vehicle. Arrowhead uses a technology known as DPC. DPC stands for "Dynamic Polyconjugates", and uses nanoparticles to deliver siRNA molecules to their target.

All these other RNAi biotechs use some kind of delivery system, but Rxi Pharmaceuticals is different. Rxi is in a unique situation, because it is the only RNAi company that has developed something known as the sd-rxRNA platform. What makes this platform special over other RNAi biotech stocks, is that there is no delivery vehicle required. The company rearranged around the guide strand and other parts of the RNAi molecule, to create the oligonucleotide into a drug that could easily penetrate the target cells. With this, sd-rxRNA was coined as a "self delivery" compound, because of no need for a delivery vehicle.

RXI-109 Anti-scarring drug candidate

With the Rxi technology in place, this biotech has targeted many different diseases. The majority of the compounds in the pipeline, though, have one key thing in common. They are all being developed from reduced CTGF expression. CTGF stands for Connective Tissue Growth Factor, which is the expression in skin. So it would make sense that the first product candidate for Rxi is in anti scarring of the skin.

In our opinion that is not the only reason for this company choosing to expand in this area. For instance it is convenient, because another small cap biotech, Excaliard Pharmaceuticals, already ran trials for CTGF expression and was successful. Excaliard was acquired by Pfizer (NYSE:PFE) for $4.4 million dollars upfront, and $14.4 million over time. In addition Isis stands to get royalty payments if the product reaches the market. Another reason is the huge market opportunity with this type of unmet medical need. There are on average around 43 million surgery procedures per year. In many of these surgeries an anti scarring drug would help immensely, by reducing scars in patients. With all this in mind, Rxi Pharmaceuticals just with RX-109 alone, is expected to become a $5 billion dollar drug.

RXI-109 had phase 1 results that came out that were far better than Pfizer's Excaliard. For instance in a phase 1 trial Excaliard used a higher dosing regimen, but obtained up to 40% gene knockdown in its phase 1 trial. Rxi used a lower dosing regimen, and obtained a 43% gene knockdown. Not any hard evidence, but one can infer that if Rxi used the same dosage that Excaliard used, then its results could have seen a greater gap difference.

Stock Market cap Share Price
Rxi Pharmaceuticals $40 million $3.23 per share
Alnylam Pharmaceuticals (NASDAQ:ALNY) $3.4 billion $59 per share
Isis Pharmaceuticals (ISIS) $3.7 billion $33.39 per share

As we can see above Alnylam has a huge valuation, as well as Isis Pharmaceuticals. No doubt they have big pipelines so they deserve their current valuation, but just the one drug alone from Rxi will lead to a $5 billion dollar market potential. With that said, we think that Rxi Pharmaceuticals should have a significantly higher market cap.

Rxi Has Friends

The technology is nothing short of amazing. Just ask Dr. Phillip Frost who met with the CEO of Rxi Pharmaceuticals Dr. Geert Cauwenbergh. During the sit down Dr. Phillip Frost was impressed with preclinical work for the sd-rxRNA technology against eye diseases.

Dr. Frost probably saw what Rxi's technology could do with Bevasirinib. Bevasirinib was in a phase three trial for Wet AMD by Opko Health (NYSEMKT:OPK). On March 14, 2009 the Bevasirinib phase 3 trial failed. Dr. Frost must have liked what he saw with the preclinical work of eye diseases from Rxi Pharmaceuticals. He figured the sd-rxRNA platform could improve upon the bevasirinib compound. So Opko Health, and Rxi Pharmaceuticals came to a deal.

Rxi Pharmaceuticals obtained private placement money of $16.4 million dollars from OPKO Health and Frost Gamma Investments. Rxi Pharmaceuticals also acquired all of OPKO Health's RNAi assets in exchange for 50 million shares of Rxi stock. Rxi will have to pay royalty fees to OPKO upon marketing of its siRNA patents though. Despite this, it allows Rxi to have an expanded portfolio of RNAi assets.

Upcoming Catalysts for Rxi

There are several catalysts coming for Rxi that could push the stock higher in the coming months. Some of these catalysts are:

  1. One Phase 2a trial start for anti scarring in lower abdomen Q4 2013
  2. 3 month data from the 2 additional phase 1 cohorts added Q4 2013
  3. Pre IND meeting with FDA for Ophthalmology Q4 2013
  4. Phase 2a trial start for keloid revision surgery Q1 2014
  5. Possible phase 2a trial start for breast scar revision surgery Q1 2014
  6. Results from all three phase 2a trials by months 3, 6, and then month 9

Risk Factors

With any type of biotech stock we invest in, there are risk factors. The trial in phase two may not do well against keloid scars, but work well in lower abdomen scars as we have seen in the RXI-109 phase 1 multidose results. RNAi was founded in 1995, and there have been many setbacks as have been mentioned in the beginning of the article about delivery methods. Whether these delivery methods materialize remains to be seen in the RNAi sector. Rxi may have other risks, such as no claim to certain RNAi patents. That means later on it may, or may not have to obtain license rights from Alnylam for RNAi patents. On the patents part I don't think there should be a problem as Rxi's technology is far different than what Alnylam uses currently.


In conclusion Rxi is undervalued in the RNAi sector, and it deserves a higher market cap than it currently has at only $40 million. The low share price along with the low float presents a huge opportunity for long term investors to get on board. There are still plenty of catalysts to cause a huge upside move in the stock price. Rxi's first drug candidate RXI-109 has the chance to become the first FDA approved drug ever for anti scarring. The potential market value for RXI-109 is $5 billion dollars, and that is not even including Rxi's Ophthalmology program.

Disclosure: I am long RXII. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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