The Skinny on RXi Pharmaceuticals.
Most people are familiar with the phrase "you learn something new every day." Such is the case with myself learning about a rather intriguing under-the-radar biotechnology company called RXi Pharmaceuticals (NASDAQOTH: RXII). Many investors haven't heard of RXi even though one of its founders is an acclaimed Nobel Prize winner and the company might be poised to profit from its product line. This article will explore some of RXi's history, what the company does, and whether or not it would be a good investment. Overall, based on the information I've gathered, it seems that RXi is currently not a company worth risking substantial sums of capital on. RXi is a "feast-or-famine" sort of stock which can produce monstrously huge returns for investors, but will most likely decimate the value of its shares in the end.
A Brief History of the Company and what RXi Does
According to the RXi Pharmaceuticals company website, RXi is a biotechnology company seeking to develop drugs based on RNAi-based technologies. The company was originally founded in April 2006 as Argonaut Pharmaceuticals, a subsidiary of CytRx Corporation (NASDAQ: CYTR). Argonaut changed its name to RXi Pharmaceuticals in November of that same year.
In September 2011, the company went through restructuring, splitting its operations into two companies: one is the modern RXi Pharmaceuticals in question which deals with RNAi, while the other cancer-related division split off and became Galena Biopharma (NASDAQ: GALE).
In 2013, RXi stock spiked after the company's acquisition of RNAi technology from Opko. This technology is a bright spot for RXi and might become a key part of the company's turnaround strategy-after all, RXi has had some preliminary success in clinical trials. RXi also executed a 1 for 30 reverse stock split and applied to be listed on the NASDAQ. In general, reverse stock splits aren't viewed as a good thing for companies, and the CEO of RXi has openly admitted RXi initiated the reverse split in order to "appear to look better" to the investment community.
RXi's drugs may put the company in competition with pharmaceutical powerhouse Pfizer (NYSE: PFE), which can be either a good thing or a bad thing. Generally, getting into competition with a large, well established force in an industry is difficult at best. But, in the area of microcap pharmaceutical stocks this can be a factor to encourage Pfizer or another large company to buy out RXi.
Is RXi a Good Investment?
As mentioned in the section above, RXi does have some good points, and may be an acquisition candidate by Pfizer or another company. RXi is an interesting biotech microcap company in that seems to have more substance and potential than your average penny stock biotech. It appears to have fairly good management and a potentially revolutionary product line that decreases the expression of specific overexpressed genes.
However, I do believe that RXi is a stock to stay away from at this time pre-NASDAQ listing. RXi is bleeding cash profusely, and some have questioned whether the company can even survive past the first quarter of 2015. I expect the share value of RXi to decay even further downward until the first quarter of 2015 when it will be apparent if RXi can survive or not. Until that point, I would advise not investing in RXi. There would be plenty of time to jump in to RXi if they do become successful later on, but right now RXi is a company that has only given shareholders dubious unfulfilled promises and a negative return on investment.
The same analysis applies for the most part to both Galena and CytRx. Galena does have a promising breast cancer therapy called NeuVax but is not diversified and too overly dependent on that single drug for future growth. CytRx currently has no commercially available drugs but does have a few in development. At best, CytRx is more diversified than Galena but hasn't be able to recognize significant revenues for a while. Thus, the stock price of CytRx has significantly declined over the past few years.
Pfizer, on the other hand, is an internationally well-established medical empire that has consistently generated revenues and paid dividends to its investors. Pfizer might find a way to fit RXi's lineup into its own, but RXi investors shouldn't rely on that speculation. In and of itself Pfizer is a stable, solid pick in the medical industry superior to speculative microcap stocks like RXi, Galena, and CytRx.
Overall, while RXi and its fellow small cap biotech Galena might have some growth potential ahead of them, their business models are currently shaky at best. "Feast-or-famine" biotech stocks like RXi, Galena, and CytRx could produce good results during the feast times-but as CytRx has excellently demonstrated, the "famine" can be very destructive to investor capital. Pfizer is a more solid investment option for investors seeking to gain returns from the medical industry.