##### Table of Contents



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, 2011
 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
(State of incorporation)
    
    20-8099512
(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, 2011
 INDEX
  
 PagePart No.
    
    Item No.
    
    Description
    
    No.I
    
    
    
    FINANCIAL INFORMATION1
    
    Financial Statements
    
    
    2Condensed Balance Sheets as of March 31, 2011 and December 31, 2010 (unaudited)
    
    
    2Condensed Statements of Expenses for the three months ended March 31, 2011 and 2010, and
the cumulative amounts for the period January 1, 2003 (date of inception) to March 31,
2011 (unaudited)
    
    
    3Condensed Statements of Cash Flows for the three months ended March 31, 2011 and 2010
and the cumulative amounts for the period January 1, 2003 (date of inception) to March
31, 2011(unaudited)
    
    
    4Notes to Condensed Financial Statements (unaudited)
    
    
    62
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    134
    
    Controls and Procedures
    
    
    15II
    
    
    
    OTHER INFORMATION1
    
    Legal Proceedings
    
    
    161A
    
    Risk Factors
    
    
    162
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    163
    
    Defaults Upon Senior Securities
    
    
    164
    
    Reserved
    
    
    165
    
    Other Information
    
    
    166
    
    Exhibits
    
    
    16Index to ExhibitsSignatures
    
    
    
    
    17EX-31.1EX-31.2EX-32.1




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##### Table of Contents



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)
 DecemberMarch 31,
    
    
    31,2011
    
    
    2010ASSETSCurrent assets:Cash and cash equivalents
    
    $
    11,115
    
    
    $
    6,891Prepaid expenses and other current assets
    
    
    283
    
    
    
    150Total current assets
    
    
    11,398
    
    
    
    7,041Equipment and furnishings, net
    
    
    466
    
    
    
    419Deposits
    
    
    16
    
    
    
    16Total assets
    
    $
    11,880
    
    
    $
    7,476LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    726
    
    
    $
    724Accrued expenses and other current liabilities
    
    
    1,916
    
    
    
    1,113Current maturities of capital lease obligations
    
    
    59
    
    
    
    51Fair value of warrants potentially settleable in cash
    
    
    5,915
    
    
    
    3,138Total current liabilities
    
    
    8,616
    
    
    
    5,026Capital lease obligations, net of current maturities
    
    
    33
    
    
    
    20Total liabilities
    
    
    8,649
    
    
    
    5,046Commitments and contingencies (Note 5)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; 25,469,086 shares issued and
24,794,086 shares outstanding and 19,047,759 shares issued and 18,372,759 outstanding at
March 31, 2011 and December 31, 2010, respectively
    
    
    2
    
    
    
    2Additional paid-in capital
    
    
    66,662
    
    
    
    62,020Deficit accumulated during the developmental stage
    
    
    (59,585
    )
    
    
    (55,743
    )Less treasury shares at cost, 675,000 shares
    
    
    (3,848
    )
    
    
    (3,849
    )Total stockholders equity
    
    
    3,231
    
    
    
    2,430Total liabilities and stockholders equity
    
    $
    11,880
    
    
    $
    7,476
  2




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##### Table of Contents



RXi PHARMACEUTICALS CORPORATION
(A Development Stage Company)
 
 CONDENSED STATEMENTS OF EXPENSES
 (Amounts in thousands, except share and per share data)
 (Unaudited)
 PeriodfromJanuary 1,2003(Date ofFor the Three
    
    
    For the Three
    
    
    Inception)Months Ended
    
    
    Months Ended
    
    
    toMarch 31,
    
    
    March 31,
    
    
    March 31,2011
    
    
    2010
    
    
    2011Expenses:Research and development expenses
    
    $
    1,941
    
    
    $
    1,499
    
    
    $
    28,624Research and development employee stock-based compensation expense
    
    
    246
    
    
    
    273
    
    
    
    2,653Research and development non-employee stock-based compensation expense (income)
    
    
    (31
    )
    
    
    154
    
    
    
    6,032Fair value of common stock in exchange for licensing rights
    
    
    
    
    
    
    
    
    
    
    3,954Total research and development expenses
    
    
    2,156
    
    
    
    1,926
    
    
    
    41,263General and administrative expenses
    
    
    1,921
    
    
    
    1,448
    
    
    
    23,031General and administrative employee stock-based compensation
    
    
    1,099
    
    
    
    772
    
    
    
    8,484Common stock warrants issued for general and administrative expenses
    
    
    76
    
    
    
    310
    
    
    
    2,370Fair value of common stock issued in exchange for general and administrative expenses
    
    
    23
    
    
    
    
    
    
    
    304Total general and administrative expenses
    
    
    3,119
    
    
    
    2,530
    
    
    
    34,189Operating loss
    
    
    (5,275
    )
    
    
    (4,456
    )
    
    
    (75,452
    )Interest income (expense)
    
    
    (1
    )
    
    
    (1
    )
    
    
    627Other income
    
    
    1,435
    
    
    
    571
    
    
    
    5,200Net loss
    
    $
    (3,841
    )
    
    $
    (3,886
    )
    
    $
    (69,625
    )Net loss per common share:Basic and diluted loss per share
    
    $
    (0.19
    )
    
    $
    (0.24
    )
    
    
    N/AWeighted average common shares outstanding:Basic and diluted
    
    
    20,316,170
    
    
    
    16,386,435
    
    
    
    N/A
  3




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RXi PHARMACEUTICALS CORPORATION
(A Development Stage Company)
 
 CONDENSED STATEMENTS OF CASH FLOWS
 (Amounts in thousands)
(Unaudited)
 Period fromFor the Three
    
    
    
    
    
    
    January 1, 2003Months
    
    
    For the Three
    
    
    (Date ofEnded
    
    
    Months Ended
    
    
    Inception)March 31,
    
    
    March 31,
    
    
    through2011
    
    
    2010
    
    
    March 31, 2011Cash flows from operating activities:Net loss
    
    $
    (3,841
    )
    
    $
    (3,886
    )
    
    $
    (69,625
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization expense
    
    
    37
    
    
    
    42
    
    
    
    538Loss on disposal of equipment
    
    
    
    
    
    
    
    
    
    
    12Non-cash rent expense
    
    
    
    
    
    
    
    
    
    
    29Accretion and receipt of bond discount
    
    
    
    
    
    
    
    
    
    
    35Non-cash share-based compensation
    
    
    1,314
    
    
    
    1,199
    
    
    
    17,171Fair value of shares mandatorily redeemable for cash upon exercise of warrants
    
    
    
    
    
    
    
    
    
    
    (785
    )Fair value of common stock warrants issued in exchange for services
    
    
    76
    
    
    
    310
    
    
    
    2,370Fair value of common stock issued in exchange for services
    
    
    23
    
    
    
    
    
    
    
    304Change in fair value of common stock warrants issued in connection with various equity financings
    
    
    (1,435
    )
    
    
    (571
    )
    
    
    (3,626
    )Fair value of common stock issued in exchange for licensing rights
    
    
    
    
    
    
    
    
    
    
    3,954Changes in assets and liabilities:Prepaid expenses
    
    
    (133
    )
    
    
    (340
    )
    
    
    (283
    )Accounts payable
    
    
    2
    
    
    
    496
    
    
    
    726Due to former parent
    
    
    
    
    
    
    
    
    
    
    (207
    )Accrued expenses and other current liabilities
    
    
    930
    
    
    
    306
    
    
    
    2,250Net cash used in operating activities
    
    
    (3,027
    )
    
    
    (2,444
    )
    
    
    (47,137
    )Cash flows from investing activities:Purchase of short-term investments
    
    
    
    
    
    
    
    
    
    
    (37,532
    )Maturities of short-term investments
    
    
    
    
    
    
    
    
    
    
    37,497Cash paid for purchase of equipment and furnishings
    
    
    (40
    )
    
    
    (14
    )
    
    
    (726
    )Disposal of equipment and furnishings
    
    
    
    
    
    
    
    
    
    
    (1
    )Cash refunded (paid) for lease deposit
    
    
    
    
    
    
    
    
    
    
    (45
    )Net cash used in investing activities
    
    
    (40
    )
    
    
    (14
    )
    
    
    (807
    )Cash flows from financing activities:Net proceeds from issuance of common stock
    
    
    7,314
    
    
    
    15,235
    
    
    
    53,681Cash paid for repurchase of common stock
    
    
    
    
    
    
    (3,849
    )
    
    
    (3,849
    )Net proceeds from exercise of common stock options
    
    
    
    
    
    
    255
    
    
    
    610Repayments of capital lease obligations
    
    
    (23
    )
    
    
    (13
    )
    
    
    (149
    )Cash advances from former parent company, net
    
    
    
    
    
    
    
    
    
    
    8,766Net cash provided by financing activities
    
    
    7,291
    
    
    
    11,628
    
    
    
    59,059Net increase in cash and cash equivalents
    
    
    4,224
    
    
    
    9,170
    
    
    
    11,115Cash and cash equivalents at the beginning of period
    
    
    6,891
    
    
    
    5,684
    
    
    
    Cash and cash equivalents at end of period
    
    $
    11,115
    
    

    $

    14,854
    
    
    $
    11,115Supplemental disclosure of cash flow information:Cash received during the period for interest
    
    $
    
    
    
    $
    1
    
    
    $
    724Cash paid during the period for interest
    
    $
    1
    
    
    $
    
    
    
    $
    8
 4




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Period FromFor the
    
    
    For the
    
    
    January 1,Three
    
    
    Three
    
    
    2003Months
    
    
    Months
    
    
    (Date ofEnded
    
    
    Ended
    
    
    Inception)March
    
    
    March
    
    
    through31,
    
    
    31,
    
    
    March 31,2011
    
    
    2010
    
    
    2011Supplemental 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
    
    $
    4,212
    
    
    $
    2,466
    
    
    $
    9,541Fair 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
    
    $
    44
    
    
    $
    28
    
    
    $
    241Value of restricted stock units and common stock issued in lieu of bonuses included in accrued expenses
    
    $
    427
    
    
    $
    157
    
    
    $
    634Non-cash lease deposit
    
    $
    
    
    
    $
    
    
    
    $
    50
  5




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RXi PHARMACEUTICALS CORPORATION
(A Development Stage Company)
 
 NOTES TO CONDENSED FINANCIAL STATEMENTS
 (Unaudited)
 1. Description of Business and Basis of Presentation
      Uses of estimates in preparation of financial statements
  Derivative Financial Instruments
  6




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RXi PHARMACEUTICALS CORPORATION
(A Development Stage Company)
 NOTES TO CONDENSED FINANCIAL STATEMENTS  (Continued)
 Derivatives and Hedging  Contracts in Entitys Own Stock
 Obligations to Repurchase Shares of the Companys Equity Securities
 Distinguishing Liabilities from Equity
 2. Fair Value Measurements
 Fair Value
Measurements and Disclosures
      Quoted Prices in
    
    
    Significant OtherMarch 31,
    
    
    Active Markets
    
    
    Observable Inputs
    
    
    Unobservable InputsDescription
    
    2011
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Assets:Cash equivalents
    
    $
    11,115
    
    
    $
    11,115
    
    
    $
    
    
    
    $
    Total assets
    
    $
    11,115
    
    
    $
    11,115
    
    
    $
    
    
    
    $
    Liabilities:Warrants potentially settleable in cash
    
    $
    6,215
    
    
    $
    
    
    
    $
    6,215
    
    
    $
    Common stock potentially settleable in cash
    
    $
    300
    
    
    
    
    
    
    $
    300
    
    
    
    Total liabilities
    
    $
    6,515
    
    
    $
    
    
    
    $
    6,515
    
    
    $
    
 Quoted Prices in
    
    
    Significant OtherDecember 31,
    
    
    Active Markets
    
    
    Observable Inputs
    
    
    Unobservable InputsDescription
    
    2010
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)Assets:Cash equivalents
    
    $
    6,891
    
    
    $
    6,891
    
    
    $
    
    
    
    $
    Total assets
    
    $
    6,891
    
    
    $
    6,891
    
    
    $
    
    
    
    $
    Liabilities:Warrants potentially settleable in cash
    
    
    3,138
    
    
    
    
    
    
    
    3,138
    
    
    
    Total liabilities
    
    $
    3,138
    
    
    $
    
    
    
    $
    3,138
    
    
    $
    
 Fair Value of Financial Instruments
  7




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##### Table of Contents



RXi PHARMACEUTICALS CORPORATION
(A Development Stage Company)
 NOTES TO CONDENSED FINANCIAL STATEMENTS  (Continued)
 3. Stock Based Compensation
 Compensation  Stock
Compensation
 Equity Based Payments to Non- Employees.
   2011
    
    2010Weighted average risk-free interest rate
    
    
    2.33
    %
    
    
    2.79
    %Weighted average expected volatility
    
    
    112.95
    %
    
    
    111.61
    %Weighted average expected lives (years)
    
    
    5.76
    
    
    
    5.94Weighted average expected dividend yield
    
    
    0.00
    %
    
    
    0.00
    %
    WeightedAverage
    
    
    AggregateTotal Number
    
    
    Exercise
    
    
    Intrinsicof Shares
    
    
    Price
    
    
    ValueOutstanding at January 1, 2011
    
    
    4,333,136
    
    
    $
    5.10
    
    
    $
    137,000Granted
    
    
    1,832,500
    
    
    
    1.44
    
    
    
    180,000Exercised
    
    
    
    
    
    
    
    
    
    
    Cancelled
    
    
    100,372
    
    
    
    4.79
    
    
    
    Outstanding at March 31, 2011
    
    
    6,065,264
    
    
    
    3.98
    
    
    
    180,000Options exercisable at March 31, 2011
    
    
    4,091,857
    
    
    
    4.49
    
    
    $
    80,000
   4. Net Loss Per Share
 Earnings per Share.
 8




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##### Table of Contents



RXi PHARMACEUTICALS CORPORATION
(A Development Stage Company)
 NOTES TO CONDENSED FINANCIAL STATEMENTS  (Continued)
   March 31,2011
    
    2010Options to purchase common stock
    
    
    6,065,264
    
    
    
    4,151,279Warrants to purchase common stock
    
    
    8,250,642
    
    
    
    2,100,642Total
    
    
    14,315,906
    
    
    
    6,251,921
 5. License Agreements
   6. Equity
    9




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##### Table of Contents



RXi PHARMACEUTICALS CORPORATION
(A Development Stage Company)
 NOTES TO CONDENSED FINANCIAL STATEMENTS  (Continued)
   7. Recent Accounting Pronouncements
 Fair
Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value
Measurements
 Consolidations (Topic 810):
Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities
 Intangibles  Goodwill and Other (Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for
Reporting Units with Zero or Negative Carrying Amounts
 Business Combinations (Topic 805) -
Disclosure of Supplementary Pro Forma Information for Business Combinations
 10




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##### Table of Contents



RXi PHARMACEUTICALS CORPORATION
(A Development Stage Company)
 NOTES TO CONDENSED FINANCIAL STATEMENTS  (Continued)
 8. Subsequent Events
      (in 000s)Calculation of allocable purchase price(i):Fair value of shares issued at closing including escrowed shares expected to be released
    
    $
    6,367
    (ii)Estimated value of earn-out
    
    
    3,194Total allocable purchase price
    
    $
    9,561Estimated allocation of purchase price(i):Cash
    
    $
    168Prepaid expenses and other current assets
    
    
    14Equipment and furnishings
    
    
    11Goodwill
    
    
    846In-process research and development
    
    
    9,637Accounts payable
    
    
    (972
    )Accrued expenses and other current liabilities
    
    
    (142
    )Notes payable
    
    
    (1
    )$
    9,561
 
 (i)
    
    The purchase price allocation has not been finalized and is subject to change upon completion of the valuation of intangible assets.(ii)
    
    The value of the Companys common stock was based upon a per share value of $1.28, the closing price of the Companys common stock as of the close of business on April 13, 2011. 11




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##### Table of Contents



RXi PHARMACEUTICALS CORPORATION
(A Development Stage Company)
 NOTES TO CONDENSED FINANCIAL STATEMENTS  (Continued)
  For the Three Months EndedMarch 31,2011
    
    
    2010Net loss
    
    $
    (4,402
    )
    
    $
    (4,430
    )Net loss per common share
    
    $
    (0.17
    )
    
    $
    (0.21
    )Weighted average shares outstanding
    
    
    25,290,260
    
    
    
    21,360,525
       12




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##### Table of Contents



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, 2011 and
results of operations for the three months ended March 31, 2011 and 2010 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, 2010 which
was filed with the SEC on April 15, 2011.
 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,
2010, 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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##### Table of Contents



Results of Operations
 For the Three Months Ended March 31, 2011 and March 31, 2010
  Research and Development Expense
   General and Administrative Expense
   Interest Income
  Other Income/Expense
  Liquidity and Capital Resources
    14




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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
  
 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
  15




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##### Table of Contents



RXi PHARMACEUTICALS CORPORATION
 
 PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1.A RISK FACTORS
 You should consider the Risk Factors included under Item 1A. of our annual report on Form 10-K
for the year ended December 31, 2010, filed on April 15,2011 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
    
    Description4.1
    
    Form of 13-Month Common Stock Purchase Warrant issued in March 2011(1).4.2
    
    Form of Five-Year Common Stock Purchase Warrant issued in March 2011(1).31.1
    
    Sarbanes-Oxley Act Section 302 Certification of Chief Executive Officer.31.2
    
    Sarbanes-Oxley Act Section 302 Certification of Chief Financial Officer.32.1
    
    Sarbanes-Oxley Act Section 906 Certification of Chief Executive Officer and Chief Financial Officer.
 
 (1)
    
    Previously filed as an Exhibit to the Companys Form 8-K filed on March 1, 2011 (File No. 001-33958) and incorporated by reference herein. 16




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##### Table of Contents



RXi PHARMACEUTICALS CORPORATION(Registrant)By:
    /s/  Mark AhnMark J. AhnPresident and Chief Executive OfficerBy:
    /s/ Robert KennedyRobert E. KennedyVice President and Chief Financial
Officer


Date: May 15, 2011 17