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RXi to separate into 2 companies, changes name to Galena Biopharma

Published: 01:04 27 Sep 2011 AEST

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RXi Pharmaceuticals Corp (NASDAQ:RXII) said Monday that it plans to separate into two publicly traded companies, in a bid to enhance shareholder value.

As part of this process, the company will change its name to Galena Biopharma, and will focus on the development of targeted cancer therapies.

The new RXi Pharmaceuticals, which is expected to be spun-off later this year, meanwhile, will focus on the development of RNAi-based programs, including the advancement of its main anti-scarring and anti-fibrosis product, RXI-109, into the clinic in 2012.

RNAi, or RNA interference, is a naturally-occurring mechanism that regulates gene expression, and can be harnessed to selectively inhibit the activity of any human gene, potentially treating diseases by “turning-off” genes that lead to disease.

"We believe that the spin-off transaction will enhance shareholder value by providing a sharper strategic focus for both of the company's key programs," said president and CEO of Galena, Dr. Mark Ahn.

"Galena will focus its resources on its lead product, NeuVax, a cancer immunotherapy that is expected to initiate its Phase 3... study in the first half of 2012. Galena also recently acquired Folate Binding Protein-E39, a targeted vaccine scheduled to commence Phase 1/2 trials by year-end 2011."

Portland, Oregon-based Galena, which is developing its breast cancer drug NeuVax, will continue to trade under the ticker symbol "RXII" until the spin-off transaction is completed, the company said.

It is expected that roughly 8% of the equity in RXi will be distributed on a share-for-share basis, so that a holder of one Galena share prior to the distribution will hold one share of RXi and one share of Galena after the spin-off.

Galena will retain a 4% minority equity position in RXi, with the potential to secure up to $45 million in milestones, it said, and Advirna, a private company and key licensor of RXi, will acquire 5% of the equity.

As part of these transactions, institutional investors have agreed to invest $9.5 million in RXi preferred stock, and $2.5 million in Galena common stock, for a total of $12 million.

The RXi preferred stock will be convertible into 83% of the equity of RXi, as of the completion of the spin-off, while the investment in Galena common stock will be priced "at market", the company said, based on a volume-weighted average trading price.

No warrants will be issued in the transaction.

"We are delighted to be strengthening our balance sheet at this uncertain time in the financial markets. We view this pair of financings from a strong group of investors as an endorsement of both of our platforms and our planned path forward."

The transactions, including financings, will be subject to certain conditions, including the registration of the spin-off distribution with the SEC.

In addition to serving as the president and CEO of Galena, Dr. Ahn will also serve on the board of RXi. The company said there is also currently a search underway for the CEO of the new RXi.

RXi's shares were down more than 22% on Monday, trading at $0.77 as of 11:07am EDT.

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