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Update: RXi Pharmaceuticals Reports Q3 Earnings; My Thoughts On Its Cash Position
Thu, Nov 13 | by Christopher F. Davis | About: RXII
Summary
RXi Pharmaceuticals has just reported its third quarter earnings, losing $0.17 per share.
I previously cautioned that we needed to watch the cash burn rate and that expenses were key; the results were in line with my expectations.
I maintain a $3.00 2015 price target on shares, and feel that under $2.00 the stock is attractive.
RXi Pharmaceuticals (NASDAQ:RXII) has just reported its third quarter earnings. Since the company is developmental stage, actual earnings do not mean much, but what we do care about is expenses and cash burn as the company ramps up its research. Net loss for the quarter was $2.2 million or $0.17 per share which actually beat expectations by $0.05. Since the company is in the developmental stage it has little to no revenues, though it did bring in $16,000. Now to the meat. What is the company spending? Research and development expenses for quarter were $1.5 million, compared to $1.2 million in last year's quarter. The increase is due to preclinical ophthalmology studies in support of an investigational new drug application for an ocular indication. General and administrative expenses for quarter were $0.8 million, compared to $0.9 million last year. At the end of the quarter, the company had cash, cash equivalents and short-term investments of approximately $10.1 million, compared to $14.4 million to start the year. With the current cash burn rate of an average-to-high estimate of $2.5 million a quarter, the company should have sufficient cash to last to around Q4 2015.
When I recently opined on the attractiveness of RXi stock, I had highlighted the potential of the company's multi-center randomized controlled trial on scar prevention, as well as its technology as a whole. I cautioned that we needed to watch the cash burn rate and that expenses were key. While I did not predict how much the company would lose in the present quarter, I did opine that it would be roughly around the mid $2 million mark and the company's cash would last to late 2015. I feel this quarter was in line with these expectations.
The present news does not change my bullish outlook. Prior results show that RXI-109 is indeed having an effect and the company has to keep spending to fund its trials. As investors in biotech, we need to be aware of the data but also the cash stance of the company. The trial data is extremely positive but the cash is only good for another year. While I continue to recommend a buy in RXII shares, the company will be out of cash in late 2015 based on its current burn rate. Therefore, either more partnerships need to be entered into, the company will have to secure a loan, or most likely, will have to issue shares, which could keep a lid on share prices. That said, I maintain a $3.00 2015 price target on shares, and feel that under $2.00 the stock is attractive.
Disclosure: The author is long RXII. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: I am adding a bit on each selloff while the stock is under $2.00
