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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2010
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from           to
 Commission File number 001-33958
 RXi Pharmaceuticals Corporation
  Delaware
    
    20-8099512(State of incorporation)
    
    (I.R.S. Employer Identification No.)
 60 Prescott Street, Worcester, MA 01605
 (508) 767-3861
  þ o
  o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
  o þ




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##### 



RXi PHARMACEUTICALS CORPORATION
FORM 10-Q  QUARTER ENDED MARCH 31, 2010
 INDEX
 Part No.
    
    Item No.
    
    Description
    
    Page No.I
    
    
    

FINANCIAL
INFORMATION1
    
    Financial Statements
    
    
     3Condensed Balance Sheets as of March 31, 2010 and December 31, 2009
    
    
    3Condensed Statements of Expenses for the three months ended March
31, 2010 and 2009, and the cumulative amounts for the period
January 1, 2003 (date of inception) to March 31, 2010
    
    
    4Condensed Statements of Cash Flows for the three months ended
March 31, 2010 and 2009 and the cumulative amounts for the period
January 1, 2003 (date of inception) to March 31, 2010
    
    
    5Notes
to Condensed Financial Statements
    
    
    72
    
    Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    134
    
    Controls and Procedures
    
    
    17II
    
    
    
    OTHER INFORMATION
    
    
    181
    
    Legal Proceedings
    
    
    181A
    
    Risk Factors
    
    
    182
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    183
    
    Defaults Upon Senior Securities
    
    
    184
    

Reserved
    
    
    185
    
    Other Information
    
    
    186
    
    Exhibits
    
    
    18Index to Exhibits
    
    
    18Signatures
    
    
    19EX-31.1EX-31.2EX-32.1
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PART I
 
 ITEM 1. FINANCIAL STATEMENTS
 RXi PHARMACEUTICALS CORPORATION
(A Development Stage Company)
 
 CONDENSED BALANCE SHEETS(Amounts in thousands, except share and per share data)
(Unaudited)
 March 31,
    
    
    December 31,2010
    
    
    2009ASSETSCurrent assets:Cash and cash equivalents
    
    $
    14,854
    
    
    $
    5,684Prepaid expenses and other current assets
    
    
    460
    
    
    
    120Total current assets
    
    
    15,314
    
    
    
    5,804Equipment and furnishings, net
    
    
    432
    
    
    
    432Deposits
    
    
    16
    
    
    
    16Total assets
    
    $
    15,762
    
    
    $
    6,252LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    1,121
    
    
    $
    625Accrued expenses and other current liabilities
    
    
    1,226
    
    
    
    1,077Current maturities of capital lease obligations
    
    
    51
    
    
    
    52Fair value
of common stock mandatorily redeemable for cash upon the
exercise of warrants
    
    
    785
    
    
    
    Fair value of warrants potentially settleable in cash
    
    
    5,616
    
    
    
    3,721Total current liabilities
    
    
    8,799
    
    
    
    5,475Capital lease obligations, net of current maturities
    
    
    52
    
    
    
    36Total liabilities
    
    
    8,851
    
    
    
    5,511Commitments and contingencies (Note 4)Stockholders equity:Preferred stock, $0.0001 par value; 5,000,000 shares
authorized; no shares issued and outstanding
    
    
    
    
    
    
    Common stock, $0.0001 par value; 50,000,000 shares
authorized;19,033,339 shares issued and 18,358,339 shares
outstanding and 16,207,625 shares issued and outstanding at
March 31, 2010 and December 31, 2009, respectively
    
    
    3
    
    
    
    2Additional paid-in capital
    
    
    58,393
    
    
    
    44,489Deficit accumulated during the developmental stage
    
    
    (47,636
    )
    
    
    (43,750
    )Less treasury shares at cost, 675,000 and 0 shares at March
31, 2010 and December 31, 2009, respectively
    
    
    3,849
    
    
    
    Total stockholders equity
    
    
    6,911
    
    
    
    741Total liabilities and stockholders equity
    
    $
    15,762
    
    
    $
    6,252
  3




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RXi PHARMACEUTICALS CORPORATION
(A Development Stage Company)
 
 CONDENSED STATEMENTS OF EXPENSES(Amounts in thousands, except share and per share data)
(Unaudited)
 Period fromJanuary 1, 2003For the Three
    
    
    For the Three
    
    
    (Date ofMonths Ended
    
    
    Months Ended
    
    
    Inception) toMarch 31,
    
    
    March 31,
    
    
    March 31,2010
    
    
    2009
    
    
    2009Expenses:Research and development expense
    
    $
    1,499
    
    
    $
    1,194
    
    
    $
    22,136Research and development employee stock-based compensation
expense
    
    
    273
    
    
    
    200
    
    
    
    1,596Research and development non-employee stock-based
compensation expense
    
    
    154
    
    
    
    22
    
    
    
    5,474Fair value of common stock in exchange for licensing rights
    
    
    
    
    
    
    
    
    
    
    3,954Total research and development expenses
    
    
    1,926
    
    
    
    1,416
    
    
    
    33,160General and administrative
    
    
    1,448
    
    
    
    1,303
    
    
    
    17,065General and administrative employee stock-based compensation
    
    
    772
    
    
    
    437
    
    
    
    1,886Common stock warrants issued for general and administrative
expenses
    
    
    310
    
    
    
    734
    
    
    
    5,616Fair value of common stock issued in exchange for general
and administrative expenses
    
    
    
    
    
    
    281
    
    
    
    281Total general and administrative expenses
    
    
    2,530
    
    
    
    2,755
    
    
    
    24,848Operating loss
    
    
    (4,456
    )
    
    
    (4,171
    )
    
    
    (58,008
    )Interest income (expense)
    
    
    (1
    )
    
    
    
    
    
    
    622Other income (expense)
    
    
    571
    
    
    
    
    
    
    
    (291
    )Net loss
    
    $
    (3,886
    )
    
    $
    (4,171
    )
    
    $
    (57,677
    )Net loss per common share:Basic and diluted loss per share
    
    $
    (0.24
    )
    
    $
    (0.30
    )
    
    
    N/AWeighted average common shares outstanding:Basic and diluted
    
    
    16,386,435
    
    
    
    13,802,812
    
    
    
    N/A
  4




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RXi PHARMACEUTICALS CORPORATION
(A Development Stage Company)
 
 CONDENSED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
 Period fromJanuary 1, 2003(Date ofFor the Three
    
    
    For the Three
    
    
    Inception)Months Ended
    
    
    Months Ended
    
    
    throughMarch 31,
    
    
    March 31,
    
    
    March 31,2010
    
    
    2009
    
    
    2010Cash flows from operating activities:Net loss
    
    $
    (3,886
    )
    
    $
    (4,171
    )
    
    $
    (57,677
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization expense
    
    
    42
    
    
    
    38
    
    
    
    371Loss on disposal of equipment
    
    
    
    
    
    
    
    
    
    
    12Non-cash rent expense
    
    
    
    
    
    
    
    
    
    
    29Accretion and receipt of bond discount
    
    
    
    
    
    
    
    
    
    
    35Non-cash share-based compensation
    
    
    1,199
    
    
    
    659
    
    
    
    12,688Fair value of common stock warrants issued in exchange for services
    
    
    310
    
    
    
    734
    
    
    
    1,886Fair value of common stock issued as a commitment fee in connection
with the SEDA
    
    
    
    
    
    
    281
    
    
    
    281Change in fair value of common stock warrants issued in connection with
various equity financings
    
    
    (571
    )
    
    
    
    
    
    
    287Fair value of common stock issued in exchange for licensing rights
    
    
    
    
    
    
    
    
    
    
    3,954Changes in assets and liabilities:Prepaid expenses
    
    
    (340
    )
    
    
    (318
    )
    
    
    (460
    )Accounts payable
    
    
    496
    
    
    
    15
    
    
    
    1,121Due to former parent
    
    
    
    
    
    
    
    
    
    
    (207
    )Accrued expenses and other current liabilities
    
    
    306
    
    
    
    90
    
    
    
    1,383Net cash used in operating activities
    
    
    (2,444
    )
    
    
    (2,672
    )
    
    
    (36,297
    )Cash flows from investing activities:Purchase of short-term investments
    
    
    
    
    
    
    
    
    
    
    (31,542
    )Maturities of short-term investments
    
    
    
    
    
    
    
    
    
    
    31,507Cash paid for purchase of equipment and furnishings
    
    
    (14
    )
    
    
    (8
    )
    
    
    (595
    )Cash paid for lease deposit
    
    
    
    
    
    
    
    
    
    
    (45
    )Net cash used in investing activities
    
    
    (14
    )
    
    
    (8
    )
    
    
    (675
    )Cash flows from financing activities:Net proceeds from issuance of common stock
    
    
    15,235
    
    
    
    
    
    
    
    46,367Cash paid for repurchase of common stock
    
    
    (3,849
    )
    
    
    
    
    
    
    (3,849
    )Net proceeds from exercise of common stock options
    
    
    255
    
    
    
    
    
    
    
    611Repayments of capital lease obligations
    
    
    (13
    )
    
    
    (4
    )
    
    
    (69
    )Cash advances from former parent company, net
    
    
    
    
    
    
    
    
    
    
    8,766Net cash provided by (used in) financing activities
    
    
    11,628
    
    
    
    (4
    )
    
    
    51,826Net increase (decrease) in cash and cash equivalents
    
    
    9,170
    
    
    
    (2,684
    )
    
    
    14,854Cash and cash equivalents at the beginning of period
    
    
    5,684
    
    
    
    9,856
    
    
    
    Cash and cash equivalents at end of period
    
    $
    14,854
    
    
    $
    7,172
    
    
    $
    14,854Supplemental disclosure of cash flow information:Cash received during the period for interest
    
    $
    1
    
    
    $
    
    
    
    $
    725Cash paid during the period for interest
    
    $
    
    
    
    $
    1
    
    
    $
    7
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Period fromJanuary 1, 2003(Date ofFor the Three
    
    
    For the Three
    
    
    Inception)Months Ended
    
    
    Months Ended
    
    
    throughMarch 31,
    
    
    March 31,
    
    
    March 31,2010
    
    
    2009
    
    
    2010Supplemental disclosure of non-cash investing and
financing activities:Settlement of corporate formation expenses in exchange
for common stock
    
    $
    
    
    
    $
    
    
    
    $
    978Fair value of warrants issued in connection with common
stock recorded as a cost of equity
    
    $
    2,466
    
    
    $
    
    
    
    $
    5,329Fair value
of shares mandatorily redeemable for cash upon the
exercise of warrants
    
    $
    785
    
    
    $
    
    
    
    $
    785Allocation of management expenses
    
    $
    
    
    
    $
    
    
    
    $
    551Equipment and furnishings exchanged for common stock
    
    $
    
    
    
    $
    
    
    
    $
    48Equipment and furnishings acquired through capital lease
    
    $
    28
    
    
    $
    
    
    
    $
    172Value of restricted stock units issued in lieu of
bonuses included in accrued expenses
    
    $
    157
    
    
    $
    
    
    
    $
    157Non-cash lease deposit
    
    $
    
    
    
    $
    
    
    
    $
    50
  6




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1. Description of Business and Basis of Presentation
      Uses of estimates in preparation of financial statements
  Derivative Financial Instruments
  7




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Derivatives and Hedging  Contracts in Entitys Own Stock
 Obligations to Repurchase Shares of the Companys Equity Securities
 Distinguishing Liabilities from Equity"
 2. Stock Based Compensation
 Compensation  Stock
Compensation
 Equity Based Payments to Non- Employees.
   2010
    
    2009Weighted average risk-free interest rate
    
    
    2.79
    %
    
    
    1.88
    %Weighted average expected volatility
    
    
    111.61
    %
    
    
    117.85
    %Weighted average expected lives (years)
    
    
    5.94
    
    
    
    6.86Weighted average expected dividend yield
    
    
    0.00
    %
    
    
    0.00
    %
   8




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Total Number
    
    
    Weighted Average
    
    
    Aggregateof Shares
    
    
    Exercise Price
    
    
    Intrinsic ValueOutstanding at January 1, 2010
    
    
    3,582,339
    
    
    $
    5.16
    
    
    $
    1,240,110Granted
    
    
    622,440
    
    
    
    5.63
    
    
    
    Exercised
    
    
    53,500
    
    
    
    4.75
    
    
    
    163,889Cancelled
    
    
    
    
    
    
    
    
    
    
    Outstanding at March 31, 2010
    
    
    4,151,279
    
    
    $
    5.24
    
    
    $
    1,234,005Options exercisable at March 31, 2010
    
    
    2,322,928
    
    
    $
    5.42
    
    
    $
    196,999
  3. Net Loss per Share
 Earnings per Share.
  March 31,2010
    
    
    2009Options to purchase common stock
    
    
    4,151,279
    
    
    
    3,094,608Warrants to purchase common stock
    
    
    2,100,642
    
    
    
    332,500Total
    
    
    6,251,921
    
    
    
    3,427,108
 4. License Agreements
   9




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5. Fair Value Measurements
 Fair Value
Measurements and Disclosures
      6. Equity
   10




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7. Recent Accounting Pronouncements
  Transfers and Servicing of Financial
Assets,
 11




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Determining Fair
Value When the Volume and Level of Activity for the Asset or Liability have Significantly Decreased
and Identifying Transactions That Are Not Orderly Recognition and Presentation of Other-Than-Temporary Impairment Interim Disclosures about Fair Value of Financial Instruments
 8. Subsequent Events
   12




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 In this document, we, our, ours and us refer to RXi Pharmaceuticals Corporation
 This managements discussion and analysis of financial condition as of March 31, 2010 and
results of operations for the three months ended March 31, 2010 and 2009 should be read in
conjunction with managements discussion and analysis of financial condition and results of
operations included in our Annual Report on Form 10-K for the year ended December 31, 2009 which
was filed with the SEC on March 31, 2010.
 The discussion and analysis below includes certain forward-looking statements related to
future operating losses and our potential for profitability, the sufficiency of our cash resources,
our ability to obtain additional equity or debt financing, possible partnering or other strategic
opportunities for the development of our products, as well as other statements related to the
progress and timing of product development, present or future licensing, collaborative or financing
arrangements or that otherwise relate to future periods, which are all forward-looking statements
as defined by the Private Securities Litigation Reform Act of 1995. These statements represent,
among other things, the expectations, beliefs, plans and objectives of management and/or
assumptions underlying or judgments concerning the future financial performance and other matters
discussed in this document. The words may, will, should, plan, believe, estimate,
intend, anticipate, project, and expect and similar expressions are intended to identify
forward-looking statements. All forward-looking statements involve certain risks, uncertainties and
other factors described elsewhere in our Annual Report on Form 10-K for the year ended December 31,
2009, that could cause our actual results of operations, performance, financial position and
business prospects and opportunities for this quarter and the periods that follow to differ
materially from those expressed in, or implied by, those forward-looking statements. We caution
investors not to place significant reliance on the forward-looking statements contained in this
report. These statements, like all statements in this report, speak only as of the date of this
report (unless another date is indicated) and we undertake no obligation to update or revise
forward-looking statements.
 Overview
     13




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Results of Operations
 For the Three Months ended March 31, 2010, and March 31, 2009
  Research and Development Expense
   General and Administrative Expense
   Interest
Income
  14




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Other Income/Expense
  Operating Results
   Liquidity and Capital Resources
       15




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Net Cash Flow from Operating Activities
  Net Cash Flow from Investing Activities
  Net Cash Flow from Financing Activities
  Off-Balance Sheet Arrangements
  Critical Accounting Policies and Estimates
  16




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ITEM 4. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
  (a)
    
    our disclosure controls and procedures were effective to provide reasonable assurance that
information required to be disclosed by us in the reports we file or submit under the Exchange
Act was recorded, processed, summarized and reported within the time periods specified in the
SECs rules and forms; and
 (b)
    
    our disclosure controls and procedures were effective to provide reasonable assurance that
material information required to be disclosed by us in the reports we file or submit under the
Exchange Act was accumulated and communicated to our management, including the Certifying
Officers, as appropriate to allow timely decisions regarding required disclosure.
 Changes in Internal Control over Financial Reporting
  17




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RXi PHARMACEUTICALS CORPORATION
 
 PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1.A RISK FACTORS
 You should carefully review and consider the Risk Factors included under Item 1A. of our annual report on Form 10-K for the year ended December 31, 2009, filed on March 31, 2010 with the SEC.
 
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. RESERVED
 
 ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
 
 EXHIBIT INDEX
 ExhibitNumber
    
    Description3.1
    
    Form of Amended and Restated Certificate of Incorporation of RXi
Pharmaceuticals Corporation(1)3.2
    
    Form of Amended and Restated By-laws of RXi Pharmaceuticals Corporation(1)31.1
    
    Sarbanes-Oxley Act Section 302 Certification of Noah D. Beerman31.2
    
    Sarbanes-Oxley Act Section 302 Certification of Amy B. Tata32.1
    
    Sarbanes-Oxley Act Section 906 Certification of Noah D. Beerman and Amy B. Tata
 
 (1)
    
    Previously filed as an Exhibit to the Companys Registration Statement on Form S-1 filed on
October 30, 2007 (File No. 333-147009) and incorporated by reference herein 18




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RXi PHARMACEUTICALS CORPORATION(Registrant)By:
    /s/ Noah D. BeermanNoah D. BeermanPresident and Chief Executive Officer
(Principal Executive Officer)By:
    /s/ Amy B. TataAmy B. TataPrincipal Accounting Officer and Controller
(Principal Accounting Officer)
Date: May 17, 2010 19