RXi Pharmaceuticals Deal Promises Huge Upside

| About: Galena Biopharma, (GALE)

RXi Pharmaceuticals (NASDAQ:RXII) deserves a long look by serious-minded biotech investors. Why? Because this company is doing exactly what other small biotech oncology firms need to do -- get off their duffs and get growing. I'm impressed and that's why I'm featuring this low-flyer, because from top-down, even its website sets the standard for an up-and-coming biotech.

In case you don't know, on 31 March 2011, RXi announced its acquisition and merger with private oncology firm Apthera Inc. I love this merger because it reminds me of my favorite -- Zalicus (ZLCS), which merged private firm Neuromed Pharmaceuticals with CombinatoRx Inc.; like Zalicus, the RXi-Apthera deal was constructed around the dispersement/acquisition of common shares and the variable of achieving key milestones.

In this case, the deal was sealed for only 4.8 million shares worth $7.2 million (30 March 2011) plus the contingent milestones. Utterly brilliant! Makes me wonder why a cash-rich $100 million oncology biotech like SuperGen (SUPG) does't wake up to a creative option like this. Zalicus has proved in spades that it can work, and I envision the same success for RXi.

As a result, Apthera Inc. immediately gained access to the Nasdaq, and the merged company's new CEO is none other than Apthera's own CEO, Mark Ahn. Meanwhile, RXi's outgoing CEO Noah Beerman will stay on as a consultant.

The pay-off is what both companies gain. Apthera gains the leadership seat and access to the Nasdaq, as has been mentioned. RXi Pharmaceuticals gains front-runner oncology drug NeuVax, which is scheduled to start a phase 3 clinical trial in early 2012. From Apthera's website we learn:

Apthera is preparing to launch a large, international, pivotal Phase III clinical trial to evaluate NeuVax for the treatment of early stage, HER2-positive breast cancer. Clinical trials are currently underway to test NeuVax as a treatment for prostate cancer, and to use NeuVax in combination with Herceptin® to target breast cancer.

In addition, NeuVax is being studied in a phase 1/2 clinical trial for prostate cancer and in combination "with Herceptin in the treatment of tumors that over-express HER2/neu." Not a bad deal for $7.2 million! Well done, RXi.

The advantage for RXi, whose own pipeline is in the very early stages of development (e.g. RXI-109 for anti-scarring), is it immediately leap-frogs forward with the latter stage candidate NeuVax from Apthera. I deem this strategy brilliant and it reminds me of how Neuromed Pharmaceuticals (now Zalicus Pharmaceuticals, a subsidiary of Zalicus Inc.) licensed Exalgo, which was later acquired by Covidien (COV) and in the process gained a royalty stream. RXi and Apthera have demonstrated incredible business savvy and deserve to be congratulated.

In addition, take the time to study both Apthera's and RXi's legible websites. Their corporate boards, management teams, and scientists represent balance and acumen at all levels. RXi's team, for example, includes "Dr. Craig Mello, recipient of the 2006 Nobel Prize for Medicine for his co-discovery of RNAi and Blais University Chair of Molecular Medicine at the University of Massachusetts Medical School."

Earlier in the month, RXi raised after expenses approximately $7.3 million via a public offering of 6,000 common stocks (See full details here.). In the 8-K report of 8 November 2010, the company reported 18,372,759 shares of common stock outstanding (50M authorized). On Thursday, the daily average volume (3M) was 577,265 common shares. This is a very low share count.

Investors should note that RXi began trading on the Nasdaq on 12 March 2008 at $10.60/share and has since declined to Thursday's trade of $1.38/share. I think that slide is about to stop. It is my view that once the dust settles over the recent merger, RXi should be as competitive as other low-flying promising biotechs like Rexahn (NYSEMKT:RNN), AEterna Zentares (NASDAQ:AEZS), and BioSante (BPAX). With approximately 25M common shares outstanding, investing here now could be a long-term gold mine, assuming NeuVax and other drug candidates in the pipeline meet with success.

In earnest, I think RXi deserves well-earned market attention for exercising excellent business savvy. This merger arrangement is a win-win for both Apthera and RXi, and a potential winner for the investor who understands the merger's ingenuity and value to the share price. I think this company is a strong Buy.

Disclosure: I am long ZLCS.