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RXi Spin-Out | 12 Months Ended
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Dec. 31, 2011
RXi Spin-Out and Related Party Transactions [Abstract] |
RXi Spin-Out | 5. RXi Spin-Out Contribution Agreement On September 24, 2011, the Company entered into a Contribution Agreement (“Contribution Agreement”) with RXi pursuant to which we assigned and contributed to RXi substantially all of the Company’s RNAi-related technologies and assets. The contributed assets consist primarily of our novel RNAi compounds and licenses relating to our RNAi technologies, as well as the lease of our Worcester, Massachusetts laboratory facility, fixed assets and other equipment located at the facility and our employment arrangements with certain scientific, corporate and administrative personnel who have become employees of RXi. The Company also contributed $1.5 million of cash to the capital of RXi. Pursuant to the Contribution Agreement, RXi has agreed to assume certain recent accrued expenses of our RXI-109 development program and all future obligations under the contributed licenses, employment arrangements and other agreements. RXi has also agreed to make future milestone payments to us of up to $45 million, consisting of two one-time payments of $15 million and $30 million, respectively, if RXi achieves annual net sales equal to or greater than $500 million and $1 billion, respectively, of any covered products that may be developed with the contributed RNAi technologies. In the Contribution Agreement, the Company made customary representations and warranties to RXi regarding the contributed assets and other matters, and the parties have agreed to customary covenants regarding the conduct of RXi’s business pending the spin-off of RXi. The parties also have agreed to indemnify each other against losses arising from a breach of their respective representations, warranties and covenants set forth in the Contribution Agreement. Securities Purchase Agreement On September 24, 2011, the Company also entered into a Securities Purchase Agreement (“Securities Purchase Agreement”) with RXi and two institutional Investors (the “Investors”), pursuant to which the Investors agreed to purchase a total of $9,500,000 of Series A Preferred Stock of RXi (“RXi Preferred Stock”) at the closing of the spin-off of RXi, and to lend up to $1,500,000 to RXi to fund its operations between signing and closing (the “Bridge Loan”). The outstanding principal and accrued interest from the Bridge Loan will, except under certain circumstances described below, be converted into RXi Preferred Stock at the closing of the spin-off of RXi and will represent a portion of the $9,500,000 total investment, which is referred to herein as the “RXi financing.” The RXi financing and the spin-off of RXi are subject to customary closing conditions, including the registration under the Securities Act of 1933, as amended (the “Securities Act”), of the distribution by us of the spin-off shares. There is no assurance that the RXi financing and the spin-off of RXi will be completed. The RXi Preferred Stock will be convertible by a holder at any time into shares of RXi common stock, except to the extent that the holder would own more than 9.999% of the shares of RXi common stock outstanding immediately after giving effect to such conversion. Without regard to this conversion limitation, the shares of the Preferred Stock to be held by the Investors upon completion of the RXi financing and the spin-off of RXi will be convertible into shares of RXi common stock representing approximately 83% of the shares of RXi common stock that would be outstanding, assuming the conversion in full of the Preferred Stock, which we refer to as the “as-converted common stock.” The Company will own approximately 12% of the as-converted common stock immediately prior to the spin-off of RXi, and Advirna, LLC, a key licensor of RXi, will be issued the remaining 5% of the as-converted common stock pursuant to the agreement with Advirna, LLC as described below. Spin-Off The Company has agreed in the Securities Purchase Agreement to undertake to distribute to our stockholders on a share-for-share basis approximately 8% of the as-converted common stock of RXi, subject to the registration of the distribution of such shares under the Securities Act of 1933 and other conditions. Assuming the spin-off of RXi is completed, the Company will initially retain 4% of the as-converted common stock, and the Company agreed, in the Securities Purchase Agreement, not to sell or dispose of our shares of RXi common stock for a one-year period following completion of the spin-off of RXi. The Securities Purchase Agreement provides that the spin-off will be on a share-for-share basis, so that one share of RXi will be distributed as a dividend on each share of Galena that is issued and outstanding as of the record date for the distribution. On February 27, 2012, the Company announced, as required by NASDAQ Listing Rule 5250(e)(6), that its board of directors had declared a conditional dividend on Galena common stock of one share of common stock of RXi for each outstanding share of Galena common stock. The spin-off shares will be payable, subject to certain conditions described below, to the Company’s stockholders as of close of business (Eastern time) on March 8, 2012, the record date for the distribution, in the ratio of one RXi share for each share of Galena common stock held as of the record date. In light of the conditional nature of the partial spin-off of RXi, the Company’s board of directors has not set a payment date for the distribution, and under NASDAQ rules Galena common stock is not yet trading “ex-dividend.” The distribution of the spin-off shares will be taxable to Galena stockholders who receive RXi shares in the distribution. The distribution to Galena stockholders of the spin-off shares is to be made pursuant to the registration statement filed by RXi with the Securities and Exchange Commission and declared effective on February 14, 2012. Because the RXi registration statement will go “stale” on April 30, 2012, the Company must complete the distribution of the spin-off shares by that date, unless the Company were to cause RXi to amend the registration statement. It is likely that the Company would abandon the partial spin-off of RXi if the distribution of the spin-off shares has not been made by April 30, 2012, although the Company’s board of directors has not made any decision in this regard. The establishment of a payment date for the distribution and the payment of the distribution is dependent upon the timing of effectiveness of an application filed with FINRA to permit RXi common stock to be graded in the OTC Markets Group under the symbol “RXII.” The payment of the distribution also is conditioned upon the closing of the RXi financing, which is subject to certain closing conditions that may or may not be satisfied. In addition, the securities purchase agreement among Galena, RXi and the Investors provides that the agreement may be unilaterally terminated by the Company or by the Investors if the closing of the transactions has not occurred by March 31, 2012, and it is not possible for the closing to occur by this date. Accordingly, unless this date is extended by mutual agreement of the Investors and the Company, either the Company or the Investors generally may terminate the securities purchase agreement at any time after March 31, 2012, unless the failure of the closing to occur was due to the fault of the party seeking to terminate the securities purchase agreement. Although the Company has no present intention to terminate the securities purchase agreement or to abandon the partial spin-off of RXi, the Investors may choose to do so. The Company also may decide to do so at any time if its board of directors determines that it is in the best interests of the Company. For all of the foregoing reasons, there is no assurance that the payment and distribution of the spin-off shares will be completed. Purchase Agreement Terms and Conditions In the Securities Purchase Agreement, the parties have made customary representations and warranties to the other parties and have agreed to customary covenants regarding the parties’ actions in connection with the spin-off of RXi and other matters, including the filing of a resale registration statement registering a portion of the common stock underlying the conversion of the Preferred Stock. The parties also have agreed to indemnify each other against losses arising from a breach of their respective representations, warranties and covenants set forth in the Securities Purchase Agreement. RXi has agreed, upon completion of the spin-off of RXi, to reimburse the Company and the Investors for up to a total of $300,000 and $100,000, respectively, of transaction costs relating to the Contribution Agreement, the Securities Purchase Agreement and the transactions contemplated by the agreements. The Securities Purchase Agreement may be terminated in certain circumstances, including by the Investors or the Company if the spin-off of RXi has not occurred by March 31, 2012. If the Securities Purchase Agreement is terminated without cause due to the fact that the spin-off has not occurred by such date, then a portion of the Bridge Loan will be converted into common stock of RXi, as described below. Bridge Loan Pursuant to the Securities Purchase Agreement, the Investors agreed to provide the Bridge Loan by purchasing $500,000 of secured convertible promissory notes of RXi (“RXi convertible notes”) and agreeing to purchase up to an additional $1,000,000 of RXi convertible notes prior to the closing of the spin-off of RXi. The RXi convertible notes will, except as described below, be convertible into shares of RXi Preferred Stock at a conversion price of $1,000 per share. The proceeds from the Bridge Loan will be used by RXi in accordance with an operating budget approved by the Investors to fund RXi’s business and operations pending completion of the spin-off of RXi. The RXi convertible notes accrue interest at a rate of 7% per annum (or 18% per annum in the case of an event of default) and mature on March 31, 2012, or earlier in the case of an event of default. The obligations due under the RXi convertible notes are secured by a first-priority blanket lien on the assets of RXi and are guaranteed by Galena. Additionally, Galena has pledged all of the shares of RXi common stock that it holds to further guaranty the timely repayment of the amounts due under the RXi convertible notes, if not converted into RXi Preferred Stock at the closing under the Securities Purchase Agreement. If the closing under the Securities Purchase Agreement has not occurred by the March 31, 2012 maturity date of the RXi convertible notes, then 50% of the outstanding Bridge Loan balance will be converted into a number of shares of RXi common stock equal to 51% of the post-conversion shares outstanding. RXi will remain obligated to repay the remaining balance of the principal and accrued interest under the Bridge Loan, and Galena has agreed to guarantee RXi’s repayment of the RXi convertible notes to the extent they are not converted. In this event, Galena and Advirna, LLC will beneficially own 44% and 5%, respectively, of the outstanding shares of RXi common stock, and RXi will carry on as a stand-alone private company under the Investors’ control. Neither the Investors nor Galena will be obliged to provide any funding to RXi in this event. As of the date of the filing of the Annual Report on Form 10-K of which these Consolidated Financial Statements are a part, the Company was in discussions with the Investors to extend the current March 31, 2012 maturity date of the RXi convertible notes, but there is no assurance that the maturity date will be extended. The RXi convertible notes will be issued, and the Bridge Loan will be funded, in three tranches of $500,000 each. The first and second tranches were issued and funded on September 24, 2011 and February 24, 2012, respectively, and the third tranche is to be issued and funded as needed by RXi prior to the closing under the Securities Purchase Agreement and following the approval by the Investors, in their discretion, of RXi’s budget for the use of such funds. At December 31, 2011, the first tranche of $500,000 had been received and recorded to convertible notes payable as a current liability. There are additional features of the RXi post spin-off Series A Convertible Preferred Stock which represent contingent beneficial conversion features, to be reevaluated in the future. In the event that the facts and circumstances indicate that a contingency is removed, at that point the beneficial conversion feature, if any, will be recorded. On February 24, 2012, the second tranche of $500,000 was received and recorded to convertible notes payable. Advirna Agreement As part of the transactions contemplated by the Contribution Agreement and Securities Purchase Agreement, RXi has entered into an agreement with Advirna, LLC, which the Company refers to as “Advirna,” a company affiliated with Anastasia Khvorova, Ph.D., the Company’s former Senior Vice President and Chief Scientific Officer. In the agreement, Advirna has agreed to amend its existing patent and technology assignment agreement with RXi to eliminate all clinical milestone and royalty payments to Advirna under the amended agreement; obligations remain to make an annual $100,000 maintenance fee and a one-time milestone payment of $350,000 to Advirna upon the issuance of a patent with valid claims covering the assigned technology. Additionally, RXi will be required to pay a 1% royalty to Advirna for any licensing revenue received by RXi on the license of the assigned Advirna technology. In exchange, RXi has agreed to issue to Advirna upon the earlier of the closing under the Securities Purchase Agreement or the partial conversion of the RXi convertible notes, a number of shares of RXi common stock equal to 5% of the as-converted common stock of RXi.

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