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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 June 30, 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
(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(Do not check if a smaller reporting company)
Smaller reporting company þ  o þ




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##### 



RXi PHARMACEUTICALS CORPORATION
FORM 10-Q  QUARTER ENDED JUNE 30, 2010
 INDEX
 Part No.
    
    Item No.
    
    Description
    
    Page No.I
    
    
    
    FINANCIAL INFORMATION1
    
    Financial Statements
    
    
    3Condensed Balance Sheets as of June 30, 2010 and December 31, 2009
    
    
    3Condensed Statements of Expenses for the three months ended June
30, 2010 and 2009, the six months ended June 30, 2010 and 2009
and the cumulative amounts for the period from January 1, 2003 (date
of inception) to June 30, 2010
    
    
    4Condensed Statements of Cash Flows for the six months ended June
30, 2010 and 2009 and the cumulative amounts for the period
from January 1, 2003 (date of inception) to June 30, 2010
    
    
    5Notes to Condensed
Financial Statements
    
    
    62
    
    Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    134
    
    Controls and Procedures
    
    
    19II
    
    
    
    OTHER INFORMATION
    
    
    201
    
    Legal Proceedings
    
    
    201A
    
    Risk Factors
    
    
    202
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    333
    
    Defaults Upon Senior Securities
    
    
    334
    
    Reserved
    
    
    335
    
    Other Information
    
    
    336
    
    Exhibits
    
    
    34Index to Exhibits
    
    
    
    
    34Signatures
    
    
    
    
    35EX-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 data)
(Unaudited)
 June 30,
    
    
    December 31,2010
    
    
    2009ASSETSCurrent assets:Cash and cash equivalents
    
    $
    5,093
    
    
    $
    5,684Short term investments
    
    
    5,996
    
    
    
    Prepaid expenses and other current assets
    
    
    310
    
    
    
    120Total current assets
    
    
    11,399
    
    
    
    5,804Equipment and furnishings, net
    
    
    429
    
    
    
    432Deposits
    
    
    16
    
    
    
    16Total assets
    
    $
    11,844
    
    
    $
    6,252LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    329
    
    
    $
    625Accrued expenses and other current liabilities
    
    
    1,203
    
    
    
    1,077Current maturities of capital lease obligations
    
    
    50
    
    
    
    52Fair value of common stock mandatorily redeemable for cash upon
the exercise of warrants
    
    
    785
    
    
    
    Fair value of common stock warrants potentially settleable in cash
    
    
    3,006
    
    
    
    3,721Total current liabilities
    
    
    5,373
    
    
    
    5,475Capital lease obligations, net of current maturities
    
    
    35
    
    
    
    36Total liabilities
    
    
    5,408
    
    
    
    5,511Commitments and contingencies (Note 6)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;19,047,759 shares issued and 18,372,759 shares
outstanding and 16,207,625 shares issued and outstanding at June
30, 2010 and December 31, 2009, respectively
    
    
    3
    
    
    
    2Additional paid-in capital
    
    
    60,059
    
    
    
    44,489Deficit accumulated during the developmental stage
    
    
    (49,777
    )
    
    
    (43,750
    )Less treasury shares at cost, 675,000 and 0 shares at June 30,
2010 and December 31, 2009, respectively
    
    
    (3,849
    )
    
    
    Total stockholders equity
    
    
    6,436
    
    
    
    741Total liabilities and stockholders equity
    
    $
    11,844
    
    
    $
    6,252
  3




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RXi PHARMACEUTICALS CORPORATION
(A Development Stage Company)
 
 CONDENSED STATEMENTS OF EXPENSES
(Amounts in thousands, except per share data)
(Unaudited)
 Period fromJanuary 1, 2003For the Three
    
    
    For the Three
    
    
    For the Six
    
    
    For the Six
    
    
    (Date ofMonths Ended
    
    
    Months Ended
    
    
    Months Ended
    
    
    Months Ended
    
    
    Inception) toJune 30,
    
    
    June 30,
    
    
    June 30,
    
    
    June 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009
    
    
    2010Expenses:Research and development expense
    
    $
    1,484
    
    
    $
    1,817
    
    
    $
    2,983
    
    
    $
    3,011
    
    
    $
    23,620Research and development
employee stock based
compensation expense
    
    
    267
    
    
    
    212
    
    
    
    540
    
    
    
    412
    
    
    
    1,863Research and development
non-employee stock based
compensation expense
    
    
    513
    
    
    
    997
    
    
    
    667
    
    
    
    1,019
    
    
    
    5,987Fair value of common stock in
exchange for licensing rights
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,954Total research and development
expenses
    
    
    2,264
    
    
    
    3,026
    
    
    
    4,190
    
    
    
    4,442
    
    
    
    35,424General and administrative
    
    
    1,654
    
    
    
    1,425
    
    
    
    3,102
    
    
    
    2,728
    
    
    
    18,719General and administrative
employee stock based
compensation
    
    
    646
    
    
    
    532
    
    
    
    1,418
    
    
    
    969
    
    
    
    6,262Common stock warrants issued
for general and administrative
expenses
    
    
    190
    
    
    
    92
    
    
    
    500
    
    
    
    826
    
    
    
    2,076Fair value of common stock
issued in exchange for general
and administrative expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    281
    
    
    
    281Total general and
administrative expenses
    
    
    2,490
    
    
    
    2,049
    
    
    
    5,020
    
    
    
    4,804
    
    
    
    27,338Operating loss
    
    
    (4,754
    )
    
    
    (5,075
    )
    
    
    (9,210
    )
    
    
    (9,246
    )
    
    
    (62,762
    )Interest income (expense)
    
    
    3
    
    
    
    (2
    )
    
    
    2
    
    
    
    (2
    )
    
    
    625Other income (expense)
    
    
    2,610
    
    
    
    (4
    )
    
    
    3,181
    
    
    
    (4
    )
    
    
    2,319Net loss
    
    $
    (2,141
    )
    
    $
    (5,081
    )
    
    $
    (6,027
    )
    
    $
    (9,252
    )
    
    $
    (59,818
    )Net loss per common share:Basic and diluted loss per share
    
    $
    (0.12
    )
    
    $
    (0.37
    )
    
    $
    (0.35
    )
    
    $
    (0.67
    )
    
    
    N/AWeighted average common shares
outstanding:Basic and diluted
    
    
    18,371,808
    
    
    
    13,821,817
    
    
    
    17,384,606
    
    
    
    13,812,367
    
    
    
    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 Six
    
    
    For the Six
    
    
    Inception)Months Ended
    
    
    Months Ended
    
    
    throughJune 30,
    
    
    June 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010Cash flows from operating activities:Net loss
    
    $
    (6,027
    )
    
    $
    (9,252
    )
    
    $
    (59,818
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization expense
    
    
    85
    
    
    
    80
    
    
    
    414Loss on disposal of equipment
    
    
    
    
    
    
    4
    
    
    
    12Non-cash rent expense
    
    
    
    
    
    
    
    
    
    
    29Accretion and receipt of bond discount
    
    
    
    
    
    
    
    
    
    
    35Non-cash stock based compensation
    
    
    2,625
    
    
    
    2,400
    
    
    
    14,114Fair value of common stock warrants issued in exchange for services
    
    
    500
    
    
    
    826
    
    
    
    2,076Fair 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 potentially settleable in cash
    
    
    (3,181
    )
    
    
    
    
    
    
    (2,323
    )Fair value of common stock issued in exchange for licensing rights
    
    
    
    
    
    
    
    
    
    
    3,954Changes in assets and liabilities:Prepaid expenses
    
    
    (190
    )
    
    
    (260
    )
    
    
    (310
    )Accounts payable
    
    
    296
    
    
    
    186
    
    
    
    329Due to former parent
    
    
    
    
    
    
    
    
    
    
    (207
    )Accrued expenses and other current liabilities
    
    
    333
    
    
    
    298
    
    
    
    1,410Net cash used in operating activities
    
    
    (6,151
    )
    
    
    (5,437
    )
    
    
    (40,004
    )Cash flows from investing activities:Purchase of short-term investments
    
    
    (5,996
    )
    
    
    
    
    
    
    (37,538
    )Maturities of short-term investments
    
    
    
    
    
    
    
    
    
    
    31,507Cash paid for purchase of equipment and furnishings
    
    
    (54
    )
    
    
    (46
    )
    
    
    (635
    )Disposal of equipment and furnishings
    
    
    
    
    
    
    (1
    )
    
    
    Cash paid for lease deposit
    
    
    
    
    
    
    
    
    
    
    (45
    )Net cash used in investing activities
    
    
    (6,050
    )
    
    
    (47
    )
    
    
    (6,711
    )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
    
    
    (31
    )
    
    
    (10
    )
    
    
    (87
    )Cash advances from former parent company, net
    
    
    
    
    
    
    
    
    
    
    8,766Net cash provided by (used in) financing activities
    
    
    11,610
    
    
    
    (10
    )
    
    
    51,808Net increase (decrease) in cash and cash equivalents
    
    
    (591
    )
    
    
    (5,494
    )
    
    
    5,093Cash and cash equivalents at the beginning of period
    
    
    5,684
    
    
    
    9,856
    
    
    
    Cash and cash equivalents at end of period
    
    $
    5,093
    
    
    $
    4,362
    
    
    $
    5,093Supplemental disclosure of cash flow information:Cash received during the period for interest
    
    $
    2
    
    
    $
    
    
    
    $
    725Cash paid during the period for interest
    
    $
    
    
    
    $
    2
    
    
    $
    7Supplemental 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 cash bonuses
    
    $
    207
    
    
    $
    
    
    
    $
    207Value of restricted stock units issued in lieu of bonuses
included in accrued expenses
    
    $
    47
    
    
    $
    
    
    
    $
    47Non-cash lease deposit
    
    $
    
    
    
    $
    
    
    
    $
    50
  5




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1. Description of Business and Basis of Presentation
      Uses of estimates in preparation of financial statements
  6




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Derivative Financial Instruments
  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
 Improving
Disclosures about Fair Value Measurements Fair Value Measurements and Disclosures
       7




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3. Short Term Investments
  4. Stock Based Compensation
 Compensation  Stock
Compensation
 Equity Based Payments to Non- Employees.
   For the Three Months Ended June 30,

    
    For the Six Months Ended June 30,2010
    
    2009
    
    2010
    
    2009Weighted average risk-free interest rate
    
    
    3.21
    %
    
    
    3.49
    %
    
    
    3.06
    %
    
    
    2.25
    %Weighted average expected volatility
    
    
    124.03
    %
    
    
    121.90
    %
    
    
    120.84
    %
    
    
    119.05
    %Weighted average expected lives (years)
    
    
    9.29
    
    
    
    8.98
    
    
    
    7.26
    
    
    
    7.4Weighted average expected dividend yield
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    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
    
    
    $
    143,500Granted
    
    
    898,768
    
    
    
    4.87
    
    
    
    Exercised
    
    
    53,500
    
    
    
    4.75
    
    
    
    163,889Cancelled
    
    
    100,644
    
    
    
    4.56
    
    
    
    Outstanding at June 30, 2010
    
    
    4,326,963
    
    
    $
    5.12
    
    
    $
    143,500Options exercisable at June 30, 2010
    
    
    2,755,201
    
    
    $
    5.21
    
    
    $
    17,938
   5. Net Loss per Share
 Earnings per Share.
  June 30,2010
    
    
    2009Options to purchase common stock
    
    
    4,326,963
    
    
    
    3,382,342Warrants to purchase common stock
    
    
    2,100,642
    
    
    
    332,500Total
    
    
    6,427,605
    
    
    
    3,714,842
 6. License Agreements
   9




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7. Capital Transactions
      10




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8. Recent Accounting Pronouncements
   Transfers and Servicing of Financial
Assets
 9. Subsequent Events
   11




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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 June 30, 2010 and
results of operations for three and six months ended June 30, 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
    
    
    Novel RNAi Compounds, referred to as rxRNA compounds, that are distinct from, and we
believe convey significant advantages over classic siRNA (conventionally-designed small
interfering RNA compounds), and offer many of the properties that we believe are important
to the clinical development of RNAi-based drugs. We have developed a number of unique forms
of rxRNA compounds, all of which have been shown to be highly potent both in vitroand in
vivo.These RNAi compounds include rxRNAoriTM,
rxRNAsoloTM and sd-rxRNATM, or self delivering
RNA. Based on our research we believe that these different, novel siRNA configurations have
various advantages for therapeutic use. These advantages include high potency, increased
resistance to nucleases and off-target effects, and, in the case of the sd-rxRNA compounds,
access to cells and tissues with no additional formulation required.
    
    Advanced Delivery Technologies, may enable the delivery of our rxRNA compounds to treat
a variety of acute and chronic diseases using both local and systemic approaches,
potentially providing a competitive advantage in the development of many RNAi therapeutic
compounds. Our suite of delivery technologies is comprised of delivery vehicles, which can
be combined with various rxRNA compounds, as well as sd-rxRNA compounds, which are
chemically modified and have the unique property of entering cells and tissues to effect
silencing without the need for any additional delivery vehicle. This suite of delivery
technologies has broad applications for multiple therapeutic areas targeting both local and
systemic applications.
 Therapeutic Programs
  13




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Core Areas
 Dermatology  Anti-Scarring
  Ophthalmology  Retinal Disorders
  Strategic Interest
 Neurology  Spinal Cord
  Oncology  Liver Metastases and Hepatocellular Carcinoma
  Financial Overview
   14




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Results of Operations
 For the Three and Six Months Ended June 30, 2010, and June 30, 2009
 Operating Results
     Research and Development Expense
  15




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General and Administrative Expense
    Interest Income
  Other Income/Expense
   16




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Liquidity and Capital Resources
       Net Cash Flow from Operating Activities
   17




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Net Cash Flow from Investing Activities
  Net Cash Flow from Financing Activities
  Off-Balance Sheet Arrangements
  Critical Accounting Policies and Estimates
  18




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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
  19




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RXi PHARMACEUTICALS CORPORATION
 
 PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1.A RISK FACTORS
 Our business is subject to numerous risks. We caution you that the following important
factors, among others, could cause our actual results to differ materially from those expressed in
forward- looking statements made by us or on our behalf in filings with the SEC, press releases,
communications with investors and oral statements. Any or all of our forward-looking statements in
this quarterly report on Form 10-Q and in any other public statements we make may turn out to be
wrong. They can be affected by inaccurate assumptions or by known or unknown risks and
uncertainties. Many factors mentioned in the discussion below will be important in determining
future results. Consequently, no forward-looking statement can be guaranteed. Actual future results
may vary materially from those anticipated in forward-looking statements. When used in this Form
10-Q, the words believe, anticipate, expect, estimate, intend, plan, project, will
be, will continue, will result, seek, could, may, might and similar expressions are
intended to identify forward-looking statements. We explicitly disclaim any obligation to update
any forward-looking statements to reflect events or circumstances that arise after the date hereof.
You are advised, however, to consult any further disclosure we make in our reports filed with the
SEC.
 Risks Relating to RXis Business and Industry
 The approach we are taking to discover and develop novel therapeutics using RNAi is unproven
and may never lead to marketable products.
   We will be subject to competition and may not be able to compete successfully.
  20




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We may not be able to establish or maintain the third party relationships that are necessary to
develop or potentially commercialize some or all of our product candidates.
  We are dependent on technologies we license, and if we lose the right to license such technologies
or we fail to license new technologies in the future, our ability to develop new products would be
harmed.
  We will rely upon third parties for the manufacture of our clinical product candidates.
  21




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Any drug candidates we develop may fail in development or be delayed or may not be commercially
viable.
     22




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
    
    Delays in filing initial drug applications,
    
    Difficulty in securing centers to conduct trials,
    
    Conditions imposed on us by the FDA or comparable foreign authorities regarding
the scope or design of our clinical trials,
    
    Problems in engaging IRBs to oversee trials or problems in obtaining or
maintaining IRB approval of studies,
    
    Difficulty in enrolling patients in conformity with required protocols or
projected timelines,
    
    Third party contractors failing to comply with regulatory requirements or meet
their contractual obligations to us in a timely manner,
    
    Our drug candidates having very different chemical and pharmacological
properties in humans than in laboratory testing and interacting with human biological
systems in unforeseen, ineffective or harmful ways,
    
    The need to suspend or terminate our clinical trials if the participants are
being exposed to unacceptable health risks,
    
    Insufficient or inadequate supply or quality of our drug candidates or other
necessary materials necessary to conduct our clinical trials,
    
    Effects of our drug candidates not being the desired effects or including
undesirable side effects or the drug candidates having other unexpected
characteristics,
    
    The cost of our clinical trials may be greater than we anticipate,
    
    Negative or inconclusive results from our clinical trials or the clinical
trials of others for drug candidates similar to our own or inability to generate
statistically significant data confirming the efficacy of the product being tested,
    
    Changes in the FDAs requirements for our testing during the course of that
testing,
    
    Modification of the drug during testing,
    
    Reallocation of our limited financial and other resources to other clinical
programs, and
    
    Adverse results obtained by other companies developing RNAi drugs.
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The FDA approval process may be delayed for any drugs we develop that require the use of
specialized drug delivery devices or vehicles.
   If we are not successful in developing pre-clinical product candidates, we will not be able to
commence clinical trials in humans or obtain approval for our product candidates.
  Even if we obtain regulatory approvals, our marketed drugs will be subject to ongoing regulatory
review. If we fail to comply with continuing U.S. and foreign regulations, we could lose our
approvals to market drugs and our business would be materially adversely affected.
  Even if we receive regulatory approval to market our product candidates, our product candidates may
not be accepted commercially, which may prevent us from becoming profitable.
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
    
    The timing of our receipt of any marketing approvals, the terms of any
approvals and the countries in which approvals are obtained,
    
    The safety, efficacy and ease of administration of our product candidates,
    
    The advantages of our product candidates over those of our competitors,
    
    The willingness of patients to accept relatively new therapies,
    
    The success of our physician education programs,
    
    The availability of government and third-party payor reimbursement,
    
    The pricing of our products, particularly as compared to alternative
treatments, and
    
    The availability of effective alternative treatments and the relative risks
and/or benefits of the treatments.
 We may be unable to protect our intellectual property rights licensed from others parties, our
intellectual property rights may be inadequate to prevent third parties from using our technologies
or developing competing products, and we may need to license additional intellectual property from
others.
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Our success depends upon our ability to obtain and maintain intellectual property protection for
our products and technologies.
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We are subject to potential liabilities from clinical testing and future product liability claims.
  Any drugs we develop may become subject to unfavorable pricing regulations, third-party
reimbursement practices or healthcare reform initiatives, which could have a material adverse
effect on our business.
   
    
    They are incidental to a physicians services,
    
    They are reasonable and necessary for the diagnosis or treatment of the
illness or injury for which they are administered according to accepted standard of
medical practice,
    
    They are not excluded as immunizations, and
    
    They have been approved by the FDA.
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If we fail to attract, hire and retain qualified personnel, we may not be able to design, develop,
market or sell our products or successfully manage our business.
   We use biological and hazardous materials and if we do not comply with laws regulating the
protection of the environment and health and human safety, our business could be adversely
affected.
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Risks Relating Our Financial Position and Capital Requirements
 We may not be able to obtain sufficient financing, and may not be able to develop our product
candidates.
   
    
    To conduct research and development to successfully develop our RNAi
technologies,
    
    To obtain regulatory approval for our product candidates,
    
    To file and prosecute patent applications and to defend and assess patents to
protect our technologies,
    
    To retain qualified employees, particularly in light of intense competition for
qualified scientists,
    
    To manufacture products ourselves or through third parties,
    
    To market our products, either through building our own sales and distribution
capabilities or relying on third parties, and
    
    To acquire new technologies, licenses, products or companies.
  We expect to continue to incur significant research and development expenses, which may make it
difficult for us to attain profitability, and may lead to uncertainty about or as to our ability to
continue as a going concern.
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Future financing may be obtained through, and future development efforts may be paid for by, the
issuance of debt or equity, which may have an adverse effect on our stockholders or may otherwise
adversely affect our business.
   You may have difficulty evaluating our business, because we have limited history and our historical
financial information may not be representative of our future results.
  We have limited operating experience and may not be able to effectively operate.
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The obligations associated with being an independent public company require significant resources
and management attention.
   Risks Related to Ownership of Our Common Stock
 The market price and trading volume of our common stock may be volatile
  
    
    Announcements of regulatory developments or technological innovations by us or
our competitors,
    
    Changes in our relationship with our licensors and other strategic partners,
    
    Changes in our ownership or other relationships with CytRx,
    
    Our quarterly operating results,
    
    Developments in patent or other technology ownership rights,
    
    Public concern regarding the safety of our products,
    
    Additional funds may not be available on terms that are favorable to us and, in
the case of equity financings, may result in dilution to our stock holders,
    
    Government regulation of drug pricing, and
    
    General changes in the economy, the financial markets or the pharmaceutical or
biotechnology industries.
  Sales of our shares by CytRx could adversely affect our stock price.
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We have granted CytRx preemptive rights to acquire shares that we may sell in the future, which may
impair our ability to raise funds.
  CytRxs ownership of our common stock could delay or prevent a change in corporate control.
  
    
    Delaying, deferring or preventing a change in control of our company,
    
    Impeding a merger, consolidation, takeover or other business combination
involving our company, or
    
    Discouraging a potential acquirer from making a tender offer or otherwise
attempting to obtain control of our company.
 CytRx could unilaterally effect a change of control of our company by selling or disposing of our
shares owned by it.
  Anti-takeover provisions of our certificate of incorporation and by-laws and provisions of Delaware
law could delay or prevent a change of control that you may favor.
  
    
    Divide our board of directors into three classes, with members of each class to
be elected for staggered three-year terms,
    
    Limit the right of stockholders to remove directors,
    
    Regulate how stockholders may present proposals or nominate directors for
election at annual meetings of stockholders, and
    
    Authorize our board of directors to issue preferred stock in one or more
series, without stockholder approval.
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We may acquire other businesses or form joint ventures that may be unsuccessful and could adversely
dilute your ownership of our company.
   
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. RESERVED
 
 ITEM 5. OTHER INFORMATION
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ITEM 6. EXHIBIT
 
 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 34




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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: August 16, 2010 35