##### 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 September 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
    
    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 SEPTEMBER 30, 2010
 INDEX
 Part No.
    
    Item No.
    
    Description
    
    Page No.I
    
    
    
    FINANCIAL INFORMATION1
    
    Unaudited Financial StatementsCondensed Balance Sheets as of September 30, 2010 and December 31, 2009
    
    
    3Condensed Statements of Expenses for the three months ended September
30, 2010 and 2009, the nine months ended September 30, 2010 and 2009
and the cumulative amounts for the period January 1, 2003 (date of
inception) to September 30, 2010
    
    
    4Condensed Statements of Cash Flows for the nine months ended September
30, 2010 and 2009 and the cumulative amounts for the period January 1,
2003 (date of inception) to September 30, 2010
    
    
    5Notes to Condensed Financial Statements
    
    
    62
    
    Managements Discussion and Analysis of Financial Condition and
Results of Operations4
    
    Controls and ProceduresII
    
    
    
    OTHER INFORMATION1
    
    Legal Proceedings1A
    
    Risk Factors2
    
    Unregistered Sales of Equity Securities and Use of Proceeds3
    
    Defaults Upon Senior Securities4
    
    Reserved5
    
    Other Information6
    
    ExhibitsIndex to ExhibitsSignaturesEX-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 data)
(Unaudited)
 September 30,
    
    
    December 31,2010
    
    
    2009ASSETSCurrent assets:Cash and cash equivalents
    
    $
    2,836
    
    
    $
    5,684Short-term investments
    
    
    5,996
    
    
    
    Prepaid expenses and other current assets
    
    
    334
    
    
    
    120Total current assets
    
    
    9,166
    
    
    
    5,804Equipment and furnishings, net
    
    
    423
    
    
    
    432Deposits
    
    
    16
    
    
    
    16Total assets
    
    $
    9,605
    
    
    $
    6,252LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    836
    
    
    $
    625Accrued expenses and other current liabilities
    
    
    1,176
    
    
    
    1,077Current maturities of capital lease obligations
    
    
    52
    
    
    
    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
    
    
    3,425
    
    
    
    3,721Total current liabilities
    
    
    6,274
    
    
    
    5,475Capital lease obligations, net of current maturities
    
    
    43
    
    
    
    36Total liabilities
    
    
    6,317
    
    
    
    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 September 30, 2010
and December 31, 2009, respectively
    
    
    3
    
    
    
    2Additional paid-in capital
    
    
    61,046
    
    
    
    44,489Deficit accumulated during the development stage
    
    
    (53,912
    )
    
    
    (43,750
    )Less treasury shares at cost, 675,000 and 0 shares at September
30, 2010 and December 31, 2009, respectively
    
    
    (3,849
    )
    
    
    Total stockholders equity
    
    
    3,288
    
    
    
    741Total liabilities and stockholders equity
    
    $
    9,605
    
    
    $
    6,252
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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 Nine
    
    
    For the Nine
    
    
    (Date ofMonths Ended
    
    
    Months Ended
    
    
    Months Ended
    
    
    Months Ended
    
    
    Inception) toSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009
    
    
    2010Expenses:Research and development expense
    
    $
    1,606
    
    
    $
    1,945
    
    
    $
    4,589
    
    
    $
    4,956
    
    
    $
    25,226Research and development
employee stock based
compensation expense
    
    
    274
    
    
    
    219
    
    
    
    814
    
    
    
    631
    
    
    
    2,137Research and development
non-employee stock based
compensation expense
    
    
    56
    
    
    
    (73
    )
    
    
    723
    
    
    
    946
    
    
    
    6,043Fair value of common stock in
exchange for licensing rights
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,954Total research and development
expenses
    
    
    1,936
    
    
    
    2,091
    
    
    
    6,126
    
    
    
    6,533
    
    
    
    37,360General and administrative
    
    
    1,126
    
    
    
    1,385
    
    
    
    4,228
    
    
    
    4,113
    
    
    
    19,845General and administrative
employee stock based
compensation
    
    
    503
    
    
    
    506
    
    
    
    1,921
    
    
    
    1,475
    
    
    
    6,765Common stock warrants issued
for general and administrative
expenses
    
    
    154
    
    
    
    
    
    
    
    654
    
    
    
    826
    
    
    
    2,230Fair value of common stock
issued in exchange for general
and administrative expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    281
    
    
    
    281Total general and
administrative expenses
    
    
    1,783
    
    
    
    1,891
    
    
    
    6,803
    
    
    
    6,695
    
    
    
    29,121Operating loss
    
    
    (3,719
    )
    
    
    (3,982
    )
    
    
    (12,929
    )
    
    
    (13,228
    )
    
    
    (66,481
    )Interest income (expense)
    
    
    3
    
    
    
    (1
    )
    
    
    5
    
    
    
    (3
    )
    
    
    628Other income (expense)
    
    
    (419
    )
    
    
    996
    
    
    
    2,762
    
    
    
    992
    
    
    
    1,900Net loss
    
    $
    (4,135
    )
    
    $
    (2,987
    )
    
    $
    (10,162
    )
    
    $
    (12,239
    )
    
    $
    (63,953
    )Net loss per common share:Basic and diluted loss per share
    
    $
    (0.23
    )
    
    $
    (0.19
    )
    
    $
    (0.57
    )
    
    $
    (0.85
    )
    
    
    N/AWeighted average common shares
outstanding:Basic and diluted
    
    
    18,372,759
    
    
    
    15,327,482
    
    
    
    17,717,610
    
    
    
    14,319,262
    
    
    
    N/A
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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 Nine
    
    
    For the Nine
    
    
    Inception)Months Ended
    
    
    Months Ended
    
    
    throughSeptember 30,
    
    
    September 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010Cash flows from operating activities:Net loss
    
    $
    (10,162
    )
    
    $
    (12,239
    )
    
    $
    (63,953
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization expense
    
    
    127
    
    
    
    122
    
    
    
    456Loss on disposal of equipment
    
    
    
    
    
    
    4
    
    
    
    12Non-cash rent expense
    
    
    
    
    
    
    
    
    
    
    29Accretion and receipt of discount on short-term investments
    
    
    (6
    )
    
    
    
    
    
    
    29Non-cash stock based compensation
    
    
    3,458
    
    
    
    3,052
    
    
    
    14,947Fair value of common stock warrants issued in exchange for services
    
    
    654
    
    
    
    826
    
    
    
    2,230Fair 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
    
    
    (2,762
    )
    
    
    (996
    )
    
    
    (1,904
    )Fair value of common stock issued in exchange for licensing rights
    
    
    
    
    
    
    
    
    
    
    3,954Changes in assets and liabilities:Prepaid expenses
    
    
    (214
    )
    
    
    (172
    )
    
    
    (334
    )Accounts payable
    
    
    211
    
    
    
    140
    
    
    
    836Due to former parent
    
    
    
    
    
    
    
    
    
    
    (207
    )Accrued expenses and other current liabilities
    
    
    306
    
    
    
    501
    
    
    
    1,383Net cash used in operating activities
    
    
    (8,388
    )
    
    
    (8,481
    )
    
    
    (42,241
    )Cash flows from investing activities:Purchase of short-term investments
    
    
    (5,990
    )
    
    
    
    
    
    
    (37,532
    )Maturities of short-term investments
    
    
    
    
    
    
    
    
    
    
    31,507Cash paid for purchase of equipment and furnishings
    
    
    (65
    )
    
    
    (82
    )
    
    
    (646
    )Disposal of equipment and furnishings
    
    
    
    
    
    
    (1
    )
    
    
    Cash paid for lease deposit
    
    
    
    
    
    
    
    
    
    
    (45
    )Net cash used in investing activities
    
    
    (6,055
    )
    
    
    (83
    )
    
    
    (6,716
    )Cash flows from financing activities:Net proceeds from issuance of common stock
    
    
    15,235
    
    
    
    7,714
    
    
    
    46,637Cash paid for repurchase of common stock
    
    
    (3,849
    )
    
    
    
    
    
    
    (3,849
    )Net proceeds from exercise of common stock options
    
    
    255
    
    
    
    
    
    
    
    611Repayments of capital lease obligations
    
    
    (46
    )
    
    
    (18
    )
    
    
    (102
    )Cash advances from former parent company, net
    
    
    
    
    
    
    
    
    
    
    8,766Net cash provided by financing activities
    
    
    11,595
    
    
    
    7,696
    
    
    
    51,793Net increase (decrease) in cash and cash equivalents
    
    
    (2,848
    )
    
    
    (868
    )
    
    
    2,836Cash and cash equivalents at the beginning of period
    
    
    5,684
    
    
    
    9,856
    
    
    
    Cash and cash equivalents at end of period
    
    $
    2,836
    
    
    $
    8,988
    
    
    $
    2,836Supplemental disclosure of cash flow information:Cash received during the period for interest
    
    $
    1
    
    
    $
    1
    
    
    $
    725Cash paid during the period for interest
    
    $
    
    
    
    $
    
    
    
    $
    7
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Period fromJanuary 1, 2003(Date ofFor the Nine
    
    
    For the Nine
    
    
    Inception)Months Ended
    
    
    Months Ended
    
    
    throughSeptember 30,
    
    
    September 30,
    
    
    September 30,2010
    
    
    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
    
    
    $
    2,863
    
    
    $
    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
    
    $
    53
    
    
    $
    101
    
    
    $
    197Value 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
  6




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1. Description of Business and Basis of Presentation
      Uses
of Estimates in Preparation of Financial Statements
  7




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Reclassifications
  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
       8




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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
    
    For the Nine Months EndedSeptember 30,
    
    September 30,2010
    
    2009
    
    2010
    
    2009Weighted average risk-free interest rate
    
    
    N/A
    
    
    
    3.10
    %
    
    
    3.02
    %
    
    
    2.32
    %Weighted average expected volatility
    
    
    N/A
    
    
    
    121.74
    %
    
    
    121.19
    %
    
    
    120.46
    %Weighted average expected lives (years)`
    
    
    N/A
    
    
    
    7.00
    
    
    
    7.37
    
    
    
    7.40Weighted average expected dividend yield
    
    
    N/A
    
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    9




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Total Number
    
    
    Weighted Average
    
    
    Aggregateof Shares
    
    
    Exercise Price
    
    
    Intrinsic ValueOutstanding at January 1, 2010
    
    
    3,582,339
    
    
    $
    5.16
    
    
    $
    231,000Granted
    
    
    898,768
    
    
    
    4.87
    
    
    
    10,816Exercised
    
    
    53,500
    
    
    
    4.75
    
    
    
    163,890Cancelled
    
    
    108,295
    
    
    
    4.72
    
    
    
    Outstanding at September 30, 2010
    
    
    4,319,312
    
    
    $
    5.12
    
    
    $
    241,816Options exercisable at September 30, 2010
    
    
    2,956,377
    
    
    $
    5.21
    
    
    $
    53,895
   5. Net Loss per Share
 Earnings per Share.
  September 30,2010
    
    2009Options to purchase common stock
    
    
    4,319,312
    
    
    
    3,324,600Warrants to purchase common stock
    
    
    2,100,642
    
    
    
    1,310,642Total
    
    
    6,419,954
    
    
    
    4,635,302
 6. License Agreements
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7. Equity
     11




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8. Recent Accounting Pronouncements
   Transfers and Servicing of Financial
Assets,
 9. 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 September 30, 2010 and
results of operations for three and nine months ended September 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
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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 potential applications for multiple therapeutic areas targeting both
local and systemic applications.
 Therapeutic Programs
  Core Areas
  Fibrosis  Dermal Anti-Scarring
  Ophthalmology  Retinal Disorders
  Strategic Areas
  Neurology  Spinal Cord
  15




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Oncology  Liver Metastases and Hepatocellular Carcinoma
  Financial Overview
    Results of Operations
 For the Three and Nine Months Ended September 30, 2010, and September 30, 2009
 Operating Results
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Research and Development Expense
    General and Administrative Expense
    17




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Interest Income
  Other Income/Expense
   Liquidity and Capital Resources
       18




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Net Cash Flow from Operating Activities
   Net Cash Flow from Investing Activities
  Net Cash Flow from Financing Activities
   Critical Accounting Policies and Estimates
  19




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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
  20




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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 quarterly report on Form 10-Q
for the six months ended June 30, 2010, filed on August 16, 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
  21




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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 22




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RXi PHARMACEUTICALS CORPORATION(Registrant)By:
    
    /s/ Noah D. Beerman

Noah D. BeermanPresident and Chief Executive Officer(Principal Executive Officer)By:
    
    /s/ Amy B. Tata

Amy B. TataPrincipal Accounting Officer and Controller(Principal Accounting Officer)Date: November 15, 2010
 23