Institutional investors purchase $2.5 million worth of new cancer entity common stock and an 83% stake in spin-out.

RXi Therapeutics is restructuring and splitting into two public traded companies with the help of $12 million in investments by institutional players. The newly formed parent company, Galena Biopharma, will focus on the development of targeted cancer therapies,including existing lead Phase III-ready anticancer compound NeuVax (E75 peptide vaccine with GM-CSF adjuvant) and folate binding protein-E39.

RXi Pharmaceuticals, currently a wholly owned subsidiary of Galena, will be spun out later this year, to focus on development of RNAi-based therapeutics. Its main focus will be on moving lead antiscarring/antifibrosis product RXI-109 into the clinic in 2012.

As part of the transactions institutional investors have agreed to invest $9.5 million in RXi preferred stock and $2.5 million in Galena common stock. The RXi preferred stock will be convertible into 83% of the equity of RXi as part of the spin-off. Galena says it expects about another 8% of RXi equity will be distributed on a share-for-share basis such that a holder of one share of Galena common stock prior to the distribution will get one share of Rxi and one share of Galena after the spin-out. Galena will then retain a 4% equity stake in RXi, and RXi’s key licensor Advirna will acquire the remaining 5% in equity.

Galena president and CEO Mark Ahn, Ph.D., will serve on the board of RXi. Anastasia Khvorova, Ph.D., will serve as RXi’s svp and CSO. Pamela Pavco, Ph.D., has been appointed RXi’s svp for pharmaceutical development. RXi’s CEO has yet to be appointed.

NeuVax is a cancer immunotherapy targeted for low-to-intermediate Her2-expressing breast cancer patients not eligible for therapy with Herceptin®. Galena expects to start in a Phase III study, Present (prevention of recurrence in early-stage, node-positive breast cancer with low to intermediate Her2 expression with NeuVax treatment), during the first half of 2012.

Folate binding protein-E39 is a targeted vaccine for the treatment of gynecological cancers. It was licensed last week from the University of Texas MD Anderson Cancer Center and Henry M. Jackson Foundation for the Advancement of Military Medicine. The vaccine is expected to start in Phase I/II studies by the end of 2011.

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