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RXI Pharmaceuticals Could Benefit From Biotech Industry Dynamics

Jan. 24, 2014 9:41 AM ETPHIO, IONS, MRK, ALNY
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Seeking Alpha Analyst Since 2013

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RNA interference ("RNAi") therapeutics may have experienced some hurdles in the past, but favorable clinical results have boosted their profile in recent months. With new data supporting both safety and efficacy, larger pharmaceutical companies are starting to regain confidence in the sector. These dynamics have sparked a number of new deals and collaborations that have boosted industry valuations and opened the door to new opportunities.

RNAi therapeutics aim to silence the production of proteins that are associated with certain diseases and conditions. For example, RXi Pharmaceuticals' (OTCQX: RXII) most advanced clinical compound, RXI-109, is designed to silence the expression of CTGF protein that is overexpressed in scar formation in patients with hypertrophic scarring or keloids. The market for dermal scarring treatments alone could be worth hundreds of millions of dollars per year.

In this article, we'll take a look at some of the recent deals in the RNAi space and explore where the best opportunities remain.

Alnylam & Sanofi Form Alliance

Alnylam Pharmaceuticals, Inc. (NASDAQ: ALNY) and Genzyme, a Sanofi SA (NYSE: SNY) subsidiary, announced a new alliance in the development and commercialization of RNAi therapeutics as genetics medicines on January 13, 2014. Under the deal, Sanofi will purchase $700 million in newly issued stock at $80 per share, providing it with a 12% stake, in return for rights to its current and future genetic medicines pipeline.

The move came shortly after Alnylam acquired Merck & Co., Inc.'s (NYSE: MRK) subsidiary Sirna Therapeutics, Inc., which had been focused on RNAi assets including pre-clinical therapeutic candidates, chemistry, siRNA-conjugate and other delivery technologies. The deal was done for $175 million in cash and equity up front as well as $105 million in potential milestones and single-digit royalties associated with clinical progress.

Alnylam's alliance with Sanofi demonstrates Big Pharma's renewed confidence in RNAi therapeutics particularly given the deal's wide scope and equity component. Shares in Alnylam jumped more than 30% on the day of the news and trades up 40.9% over the past month despite the fact that the deal involved the issuance of $700 million new shares.

Isis' $100M Deal with Biogen

Isis Pharmaceuticals Inc. (NASDAQ: ISIS) and Biogen Idec Inc. (NASDAQ: BIIB) signed a deal last September to develop drugs targeting neurological disorders. Under the six-year deal, Biogen will pay Isis $100 million upfront and as much as $220 million per compound in potential milestone payments. The deal expands on three other agreements inked between the two companies over the past two years including one for spinal muscular atrophy.

The news also comes nine months after Isis obtained FDA approval for its first drug, Kynamro, for the treatment of homozygous familial hypercholesterolemia, a rare genetic disease that leads to severely high cholesterol levels. The drug approval is especially noteworthy as it's the first antisense ("asRNA") therapeutic to be administered systemically rather than in a specific location. Isis has an existing deal with Sanofi's Genzyme to market and sell the drug.

Isis' expanded deal with Biogen represents increasing confidence in RNA-based therapeutics like oligonucleotides, on the part of Big Pharma. Since January 4, 2013, Isis shares have surged more than 360% and is trading up 12.65% so far this month as investors price in significant cash payments and potential milestone payments over the coming years.

RXi Could Sign the Next Deal

RXi Pharmaceuticals recently reported positive results for its first and second Phase I multi-dose study of RXI-109 for the treatment of dermal scarring in patients with hypertrophic scars and keloids. The studies showed a reduction in CTGF mRNA in line with its mechanism of action and in a dose-dependent manner and was well tolerated at all doses. With the favorable results in hand, management is gearing up to begin a Phase II study.

While RXI-109's results have been positive, the company's real potential lies in licensing its sd-rxRNA platform to larger pharmaceutical companies through collaborations similar to Alnylam's alliance with Sanofi or Isis' deal with Biogen. The self-delivering RNAi platform has demonstrated spontaneous cellular uptake and a significant, sustained and reproducible silencing of the targeted mRNA in a market where delivery is exceedingly important.

RXi Pharmaceuticals shares are trading up more than 40% over the past month with these positive results in hand. With Phase II clinical trials on the way, the company is well positioned to prove the effectiveness of its sd-rxRNA platform in a specifically designed study which could pave the way for deal making over the coming quarters.

Click Here: Learn More about RXi Pharmaceuticals

Investing in RNAi's Growth

The RNAi industry has finally turned a corner with favorable data, FDA approvals, and new partnerships. Large pharmaceutical companies that are eager to refill clinical pipelines with recent patent expirations are positioned to fuel this rise. While companies like Alnylam and Isis have already reaped some of these benefits, other companies like RXi Pharmaceuticals have large potential catalysts ahead that investors should consider.

For more information about RXi Pharmaceuticals, see the following resources:

  1. Company Website
  2. Recent SEC Filings

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Additional disclosure: TDM Financial is a marketing and consulting firm that specializes in creating ongoing communications strategies for public and private companies. For full disclosure please visit: secfilings.com/Disclaimer.aspx

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