TM Editors' Note: This article discusses a penny stock and/or microcap. Such stocks are easily manipulated; do your own careful due diligence.

On August 12, 2015 RXi Pharmaceuticals (RXII) held an investor conference call for earnings and an update on the upcoming catalysts that could potentially boost the share price of the company's common stock.

RXI-109 1402 Study

Firstly on the Conference Call the CEO of RXi Pharmaceuticals announced that the company will be reporting new scar data from its phase 2a trial in hypertrophic scarring known as RXI-109-1402. This phase 2a trial is testing 6 doses of RXi's RXI-109 RNAi drug over a 9 month period. But the CEO mentioned that the company will report on some early pictures -- possibly data -- for patients being dosed the first 3 months with 5 doses.

To fully understand the current comparison we will take a look at previous 3 month data pictures which will show a clearer picture where the company was at before these new scar pictures will be shown in the coming months. If we take a look at the Jefferies Presentation from June 4, 2015 and take a look at slide 11 you can see the difference between placebo and RXI-109 over a 3 month period. Notice that only after 3 doses of RXI-109 the compound is superior to its placebo counterpart.

This new scar data that will be shown in October of 2015 will be a look at a few patients as well but who have taken 5 doses instead of 3 doses of RXI-109 over a 3-month period. These new 3 month photos should show an even greater reduction of hypertrophic scar growth compared to the previous 3 -month photos. The trial itself is evaluating patients with 6 doses over 3 months but the company will make pictures available for patients with 5 of the 6 total doses for this cohort.

The 6-dose cohort will be very meaningful to the market because the last scar results were released at least a year ago. If these new results show additional scar reduction it would possibly look more flat compared to the previous 3 month pictures released. In addition it would further validate that the sd-rxRNA technology platform knocks down CTGF in a dose dependent manner. This means that as the company adds additional doses it could further knock down the CTGF throughout the entire trial, thus concluding that RXi's technology can be applied to other genetic target products as well for further clinical development. The company will still need to run a phase 2b trial to further extend the doses of the test out to 6 months or more that show  the CTGF -- connective tissue growth factor -- remains flat throughout the entire 9 months. In addition the company will definitely enroll more patients in the phase 2b trial as a confirmatory trial with the new dosing extension established from these phase 2a results. The phase 3 trial will be the final pivotal trial which will lend credibility to all previous clinical trials.

Financials

As of June 30, 2015 RXi Pharmaceuticals had cash on hand of $14 million, according to the 10-Q SEC filing. The company burns approximately $2 million per quarter for clinical research expenses and other company expenses. With the current cash burn of $2 million per quarter and the cash on hand of $14 million RXi expects its cash to last until Q1 of 2017. The influx of cash came from a stock offering RXi did back in May of 2015 where it sold 26 million units of shares and warrants at a cost of $0.40 per share to obtain $10.4 million of cash.

Risks

As with many biotechnology stocks there are certain risks:

• RXI-109 may not yield better results in the new 1402 scar data compared to the previous 1301 scar data
• RXI-109 will still need to run a formal phase 2b and phase 3 study before being approved, there is no guarantee those results will be successful
• Even if RXI-109 makes it through all clinical trials of testing there is a possibility it may or may not be approved depending upon the FDA decision
• RNAi science is new and no RNAi drugs have yet been approved by the FDA. Therefore the FDA may place RNAi drugs as New Chemical Entities -- NCE -- and may have longer review times for approval compared to other drugs

Catalysts

1. RXI-109-1402 scar pictures for patients taking 5 doses over 3 month period to be shown by Mid October 2015
2. Trial initiation for Phase 1 multi-dose trial of RXI-109-1501 to treat scarring of advanced macular degeneration patients by Q4 2015
3. Trial initiation for a phase 2 trial in patients with Warts before the end of 2015
4. Potential partnerships within Rxi's pipeline possibly including Collagenese and Tyrosinase pre-clinical products and other RNAi products.

Conclusion

The key driver for share price appreciation will be the catalyst of additional scar data for study RXI-109-1402 which will be released by mid-October of 2015. Right now the market cap of RXI-109 is $25 million. With successful clinical pictures released the market should revalue RXi Pharmaceuticals with a higher share price. The scar market is estimated to be approximately $3 billion to $5 billion globally. Even assuming the lower market value of $3 billion for scarring, and taking into account positive results for study RXI-109-1402 the company should trade higher on this news. If we take the current cap of $25 million and apply a $3B valuation to it for successful clinical results that would value RXi with a share price of $48 per share.

The reason for coming to this valuation is because there are no FDA approved drugs for scarring. There are some over the counter products sold in the market that treat scars after they have formed, but none that are powerful enough to knockdown CTGF to halt the growth of scars after scar removal surgery is performed. If RXI-109 is approved it will be the first scar product to be approved by the FDA. That is where the company will enjoy a 100% market share with no other FDA approved product to compete against it. That may change as there are many other biotechnology companies in clinical trials for scarring as well, but none that are this far along in terms of clinical development.

The alternative scenario would be the fact of market share. That is because the RXi CEO has stated that they want the U.S. market share for themselves, but could potentially partner RXI-109 with another pharmaceutical company. In this scenario RXi would probably split the profit of the RXI-109 product with its partner which would potentially lower the market value of the company. In that case we could cut the $5 billion potential market value by half to $2.5 billion of the market which should still give RXi a nice share price of $25 per share. Although this is dependent upon whether or not the company is looking to partner out RXI-109 for global marketing. This is a second scenario which may or may not play out depending upon the company's future long-term goals.

Of course that is pending positive clinical results and the market's perception of value over a certain period of time. We believe that investors have a good risk/reward scenario here as RXi's common stock trades at $0.40 per share. Downside risk is minimal and upside potential is huge. Investors should keep an eye out for the data in mid-October as it will definitely change the scope of the company one way or another. This stock for the moment has two phase 2 clinical products, therefore it is a long-term investment to hold onto. This is also because the majority of the other clinical products in Rxi's portfolio are in early stages of clinical development.