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Stockholders' Equity
 12 Months Ended
Dec. 31, 2011
Stockholders' Equity [Abstract]  
Stockholders' Equity

10.    Stockholders’ Equity

Preferred Stock — The Company has authorized up to 5,000,000 shares of preferred stock, $0.0001 par value per share, for issuance. The preferred stock will have such rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, as shall be determined by the Company’s board of directors upon its issuance. At December 31, 2011, there were no shares of preferred stock outstanding.

Common Stock — The Company has authorized up to 125,000,000 shares of common stock, $0.0001 par value per share, for issuance. Shares of common stock are reserved as follows:

 

         
    As of
December 31,
2011		  

Warrants outstanding

     14,120,642  

Stock options outstanding

     6,163,137  

Options reserved for future issuance under the Company’s 2007 Incentive Plan

     1,299,717  
   

 

 

  

Total reserved for future issuance

     21,583,496  
   

 

 

  

 

Common Stock Warrants — On August 7, 2008, the Company issued 190,000 warrants to an investment bank as consideration for investment and business advisory services. The warrants have an exercise price of $7.036 per share and expire 5 years from the date of issuance, on August 7, 2013. The warrants vested as to 94,000 shares upon issuance, and vested at a rate of 32,000 shares per month starting on the 90 day anniversary of issuance, and are exercisable for a period of five years. All shares were vested and compensation cost was fully recorded at December 31, 2009. The Company also agreed to give the holder of the warrants unlimited “piggy back” registration rights with respect to the shares of the Company’s common stock underlying the warrants in any registration statement the Company files in connection with an underwritten offering of its common stock.

On October 3, 2008, the Company acquired the rights to license exclusive worldwide technology for the oral delivery of RNAi therapeutics. As consideration for this license, the Company agreed to pay a total license fee of $2,500,000 over a 12 month period, which can be paid in cash, in equity or a combination thereof, provided that a specified amount of the license fee must be made in cash. Payments made in equity may only be made if, at the time of such payment, the shares of common stock issuable upon conversion of the warrant have been registered for resale under the Securities Act of 1933. No warrants have been issued under this agreement thru the date of this report. The Company continually assesses the progress of its research and development efforts as it relates to its licensed technology and may terminate with notice to the Licensor at any time. Accordingly, the amounts are being expensed, as payments are made. There was no expense for this license for the years ended December 31, 2011 and 2010.

On January 29, 2009, the Company issued 142,500 warrants to an investment bank as consideration for investment and business advisory services. The warrants have an exercise price of $4.273 per share and expire five years from the date of issuance on January 29, 2014. The warrants vested as to 71,250 shares upon issuance, and vested at a rate of 23,750 shares per month starting on the 90 day anniversary of issuance, and are exercisable for a period of five years. All shares were vested and compensation expense was fully recorded at December 31, 2009. The Company has also agreed to give the holder of the warrants unlimited “piggy back” registration rights with respect to the shares of Common Stock underlying the warrants in any registration statement the Company files in connection with an underwritten offering of the common stock.

In connection with the 2009 Offering, the Company issued warrants to purchase 978,142 shares of the Company’s common stock. Details of the transaction can be found under the heading “2009 Registered Direct Offering” below.

In connection with the 2010 Offering, the Company issued warrants to purchase 540,000 shares of the Company’s common stock. Details of the transaction can be found under the heading “2010 Registered Direct Offering” below.

In connection with the March 2011 Offering, the Company issued warrants to purchase 6,000,000 shares of the Company’s common stock. Details of the transaction can be found under the heading “March 2011 Registered Direct Offering” below.

In connection with the April 2011 Offering, the Company issued warrants to purchase 11,950,000 shares of the Company’s common stock. Details of the transaction can be found under the heading “April 2011 Registered Direct Offering” below.

During 2011, the Company issued 150,000 warrants in exchange for business advisory services. The Company recognizes the total fair value of these warrants as stock compensation expense, over the requisite service period. The Company used the Black-Scholes option pricing model to compute the estimated fair value of these warrant grants on the date of the award. Total expense related to these warrants was $108,000 in 2011.

Private Investment in Public Equity — On June 24, 2008, the Company entered into a Securities Purchase Agreement pursuant to which RXi issued and sold to certain investors an aggregate of 1,073,299 shares of common stock in a private placement at a price of $8.12 per share. Net proceeds to the Company were approximately $7.9 million.

 

2009 Registered Direct Offering — On March 17, 2009, the Company entered into a placement agency agreement, which was subsequently amended on May 26, 2009 and July 22, 2009, with Rodman & Renshaw, LLC (“Rodman”) as the exclusive placement agent, relating to a proposed offering by the Company of new securities to potential investors. On July 30, 2009, the Company entered into definitive agreements for the sale and issuance by the Company to certain investors of 2,385,715 units, with each unit consisting of one share of the Company’s common stock and a warrant to purchase 0.40 of a share of common stock, at a purchase price of $3.50 per unit (the “2009 Offering”). The 2009 Offering closed on August 4, 2009. The warrants have an exercise price of $4.50 per share and are exercisable for a period beginning on February 3, 2010 until their expiration on August 3, 2014. The Company raised gross proceeds of approximately $8,350,000 in the 2009 Offering and net cash proceeds, after deducting the placement agents’ fees and other offering expenses payable by the Company, of approximately $7.7 million. Total warrants issued in connection with the transaction were 954,285.

As part of the placement agency agreement, the Company issued a warrant to purchase 23,857 shares of the Company’s common stock to Rodman. The warrant has an exercise price of $4.38 per share. The warrant is immediately vested and is exercisable until its expiration on August 3, 2014.

Certain warrants issued in connection with the stock offering on August 4, 2009 were determined not to be indexed to the Company’s common stock as they are potentially settleable in cash. The fair value of the warrants at the dates of issuance totaling $2,863,000 was recorded as a liability and a cost of equity and was determined by the Black-Scholes option pricing model. Due to the fact that the Company has limited trading history, the Company’s expected stock volatility assumption is based on a combination of implied volatilities of similar entities whose share or option prices are publicly traded. The Company used a weighted average expected stock volatility of 122.69%. The expected life assumption is based on the contract term of five years. The dividend yield of zero is based on the fact that RXi has no present intention to pay cash dividends in the future. The risk free rate of 1.72% used for the warrant is equal to the zero coupon rate in effect at the time of the grant. The change in the fair value of the warrants during the years ended December 31, 2011 and 2010 was $1,879,000 and $1,778,000, respectively. These amounts have been included in other income and expense in the accompanying consolidated statements of expenses. The fair value of the warrants at December 31, 2011 of $64,000 is included as a current liability in the accompanying balance sheet as of that date and was determined by the Black-Scholes option pricing model. The following assumptions were used to determine the fair value as of December 31, 2011: weighted average expected stock volatility of 98.91%; an expected life of 2.6 years and a dividend yield of zero and a risk free rate of 0.31%.

2010 Registered Direct Offering — On March 22, 2010, the Company entered into a placement agency agreement relating to a proposed offering by the Company of new securities to potential investors. On March 23, 2010, the Company entered into definitive agreements for the sale and issuance by the Company to certain investors of 2,700,000 units, with each unit consisting of one share of the Company’s common stock and a warrant to purchase 0.20 of a share of the Company’s common stock, at a purchase price of $6.00 per unit (the “2010 Offering”). The 2010 Offering closed on March 26, 2010. The Company issued warrants to purchase 540,000 shares of the Company’s common stock at an exercise price of $6.00 per share and that are exercisable beginning on September 26, 2010 until their expiration on March 26, 2016. The Company raised gross proceeds of approximately $16.2 million in the 2010 Offering and net cash proceeds, after deducting the placement agent fees and other offering expenses payable by the Company, of approximately $15.2 million.

As part of the 2010 Offering, the Company entered in a stock redemption agreement whereby the Company was required to use 25% of the net proceeds from the 2010 Offering to repurchase from CytRx Corporation (“CytRx”) 675,000 shares of the Company’s common stock held by CytRx (“CytRx shares”). The Company repurchased such shares on March 29, 2010. The values of the shares at the date of repurchase totaling $3,849,000 were recorded at cost and have been included in treasury stock in the accompanying consolidated balance sheet at December 31, 2011 and 2010.

 

Shares of common stock that are mandatorily redeemable under the stock redemption agreement upon the exercise of warrants issued in the 2010 Offering, were determined to embody an obligation that may require the Company to settle the obligation by transferring assets, and as such, shall be classified as a liability. The fair value of the common stock potentially redeemable under the stock redemption agreement totaling $785,000 was recorded as a liability and a cost of equity and was determined using the fixed monetary amount of each warrant multiplied by assumptions regarding the number and timing of warrants to be exercised. On December 29, 2010, CytRx sold all of their shares held in Galena, thus reducing the potential redemption liability to zero as December 31, 2010.

Certain warrants issued in connection with the 2010 Offering were determined not to be indexed to the Company’s common stock as they are potentially settleable in cash. The fair value of the warrants at the dates of issuance totaling $2,466,000 was recorded as a liability and a cost of equity and was determined by the Black-Scholes option pricing model. Due to the fact that the Company has limited trading history, the Company’s expected stock volatility assumption is based on a combination of implied volatilities of similar entities whose share or option prices are publically traded. The Company used a weighted average expected stock volatility of 119.49%. The expected life assumption is based on the contract term of 6.5 years. The dividend yield of zero is based on the fact that the Company has no present intention to pay cash dividends. The risk free rate of 3.22% used for the warrant is equal to the zero coupon rate in effect at the time of the grant. The change in the fair value of the warrants during the years ended December 31, 2011 and 2010 was $1,079,000 and $1,271,000, respectively. These amounts have been included in other income and expense in the accompanying consolidated statements of expenses. The fair value of the warrants at December 31, 2011 of $116,000 is included as a current liability in the accompanying consolidated balance sheets and was determined by the Black-Scholes option pricing model. In the model, the Company used a weighted average expected stock volatility of 98.91%. The expected life assumption is based on the remaining contract term of 4.8 years. The dividend yield of zero is based on the fact that the Company has no present intention to pay cash dividends. The risk free rate of 0.83% used for the warrant is equal to the zero coupon rate in effect on the date of the re-measurement.

March 2011 Registered Direct Offering — On March 4, 2011, the Company closed an underwritten public offering of 6,000,000 units at a price to the public of $1.35 per unit for gross proceeds of $8.1 million (the “March 2011 Offering”). The offering provided approximately $7.3 million to the Company after deducting the underwriting discounts and commissions and offering expenses. Each unit consists of (i) one share of common stock, (ii) a thirteen-month warrant to purchase 0.50 of a share of common stock at an exercise price of $1.70 per share (subject to anti-dilution adjustment) and (iii) a five-year warrant to purchase 0.50 of a share of common stock at an exercise price of $1.87 per share (subject to anti-dilution adjustment). On April 15, 2011, the holders of outstanding warrants issued in the March 2011 Offering to purchase an aggregate of 3,450,000 shares of common stock agreed to exchange such warrants for warrants exercisable for the same number of shares as those being exchanged, but otherwise on the same terms of the warrants sold in the Company’s April 2011 financing. Prior to the exchange, the Company recorded a decrease in fair value of $1,000,000 related to the exchanged warrants. Upon the exchange, the Company recorded a loss of $900,000, which represented the difference between the adjusted fair value of the March 2011 warrants as compared to the fair value of the April 2011 warrants received in the exchange. As a result of a subsequent offering that was completed on April 15, 2011, the exercise price of the remaining 2,550,000 outstanding warrants sold in the March 2011 Offering was reduced to $1.00 per share as a result of the anti-dilution adjustment. At December 31, 2011, 150,000 warrants from the March 2011 Offering had been exercised with a remaining outstanding balance of 5,850,000. As a result of the subsequent offering on September 26, 2011, the exercise price of the remaining 5,850,000 warrants sold in the March 4, 2011 Offering were reduced to $0.65 per share as a result of the anti-dilution adjustment.

The thirteen-month and five-year warrants issued in connection with the March 2011 Offering were determined not to be indexed to the Company’s common stock as they are potentially settleable in cash. The fair value of the 2,550,000 warrants at the date of issuance totaling $1,790,000 was recorded as a liability and a cost of equity and was determined using the Black-Scholes option pricing model. Due to the fact that the Company has limited trading history, the Company expected stock volatility assumption is based on a combination of implied volatilities of similar entities whose shares or options are publicly traded. The Company used a weighted average expected stock volatility of 113.25%. The expected life assumption is based on the contract term of 1.08 years used for the thirteen-month warrants and 5 years used for the five-year warrants. The dividend yield of zero is based on the fact that we have no present intention to pay cash dividends. The risk free rate of 0.26% used for the thirteen-month warrants and 2.17% used for the five-year warrants is equal to the zero coupon rate in effect at the time of the grant. In July 2011, 75,000 of the thirteen-month warrants were exercised at $1.00 per common share which resulted in a $34,000 reduction of the warrant liability. In July 2011, 75,000 of the five-year warrants were exercised at $1.00 per common share which resulted in a $68,000 reduction of the warrant liability. The decrease in the fair value of the warrants from the date of issuance to December 31, 2011 of $1,378,000 has been included in other income and expense in the accompanying consolidated statements of expenses for the year ended December 31, 2011. The fair value of the warrants at December 31, 2011 of $412,000 is included as a current liability in the accompanying consolidated balance sheets and was determined using the Black-Scholes option pricing model. Due to the fact that the Company has limited trading history, the Company’s expected stock volatility assumption is based on a combination of implied volatilities of similar entities whose shares or options are publicly traded. The Company used a weighted average expected stock volatility of 98.91%. The expected life assumption is based on the remaining contract term of 0.3 years used for the thirteen-month warrants and 4.2 years used for the five- year warrants. The dividend yield of zero is based on the fact that the Company has no present intention to pay cash dividends. The risk free rate of 0.02% used for the thirteen-month warrants and 0.60% used for the five-year warrants is equal to the zero coupon rate in effect on the date of the re-measurement.

April 2011 Registered Direct Offering — On April 20, 2011, the Company completed an underwritten public offering of 11,950,000 units at a price to the public of $1.00 per unit for gross proceeds of approximately $12 million (the “April 2011 Offering”). Each unit consisted of one share of common stock and a warrant to purchase one share of common stock at an exercise price of $1.00 per share (subject to anti-dilution adjustment). The shares of common stock and warrants were immediately separable and no separate units were issued. The warrants are exercisable beginning one year and one day from the date of issuance, and expire on the sixth anniversary of the date of issuance. Net proceeds, after underwriting discounts and commissions and other offering expenses, were approximately $10.9 million. As a result of the subsequent offering that was completed on September 26, 2011, the exercise price of the 11,950,000 outstanding warrants sold in the April 2011 Offering was reduced to $0.65 per share as a result of the anti-dilution adjustment. On December 6, 2011, the Company effected a warrant exchange with a ratio of 1.42857 warrants in exchange for one share of common stock with several of the April 2011 warrant holders. In total, 5,930,000 warrants were exchanged for 4,151,000 shares of common stock in this transaction. At December 31, 2011, 6,020,000 warrants sold in the April 20, 2011 Offering remained outstanding.

The warrants issued in connection with the April 2011 Offering, including the warrants issued in exchange for the 3,450,000 March 2011 warrants, were determined not to be indexed to the Company’s common stock as they are potentially settleable in cash. The fair value of the warrants at the dates of issuance totaling $11,015,000 was recorded as a liability and a cost of equity and was determined using the Black-Scholes option pricing model. Due to the fact that the Company has limited trading history, the Company’s expected stock volatility assumption is based on a combination of implied volatilities of similar entities whose shares or options are publicly traded. The Company used a weighted average expected stock volatility of 99.04%. The expected life assumption is based on the contract term of 6.0 years. The dividend yield of zero is based on the fact that we have no present intention to pay cash dividends. The risk free rate of 2.81% used for the warrants is equal to the zero coupon rate in effect at the time of the grant. In December 2011, the Company exchanged 4,151,000 shares of common stock in exchange for 5,930,000 of these April warrants at a ratio of 0.7 common shares for each warrant which resulted in a reduction to warrant liability of $3,120,000. The decrease in the fair value of the warrants from date of issuance to December 31, 2011 is $5,168,000, of which all has been included in other income and expense in the accompanying consolidated statements of expenses for the twelve months ended December 31, 2011. The fair value of the warrants at December 31, 2011 of $3,154,000 is included as a current liability in the accompanying consolidated balance sheets and was determined by the Black-Scholes option pricing model. Due to the fact that the Company has limited trading history, the Company’s expected stock volatility assumption is based on a combination of implied volatilities of similar entities whose shares or options are publicly traded. The Company used a weighted average expected stock volatility of 98.91%. The expected life assumption is based on the remaining contract term of 5.3 years. The dividend yield of zero is based on the fact that the Company has no present intention to pay cash dividends. The risk free rate of 0.83% used for the warrants is equal to the zero coupon rate in effect on the date of the re-measurement.

September 2011 Registered Direct Offering — On September 26, 2011, the Company completed a direct offering of 700,000 shares of common stock for gross proceeds of $455,000.

Stock Options Modified

On April 14, 2011, all of the Company’s directors and certain of the Company’s executive officers executed agreements with the Company under which they agreed that none of their outstanding stock options will be exercisable unless and until the Company increases the number of authorized shares of common stock to a number that is sufficient to permit the exercise or conversion in full of all then outstanding options of the Company (including their stock options), warrants and other securities of the Company that are convertible into shares of common stock. An aggregate of 3,498,256 option shares are covered by these agreements. For accounting purposes, the agreement of all of the Company’s directors and certain executive officers to place restrictions of the exercisability of their options is treated as a modification of their options resulting in the reclassification of the options from equity to a liability. In connection with the modification, the Company will recognize compensation cost equal to the greater of (a) the grant date fair value of the original equity award plus an incremental cost associated with the modification or (b) the fair value of the modified award when it is settled. On July 15, 2011, the Board of Directors of the Company adopted an amendment to increase the authorized shares of common stock to 125,000,000, which was presented to and approved by the stockholders of the Company at the 2011 Annual Meeting of Stockholders. This increase in the authorized shares was sufficient to permit the exercise or conversion in full of all then outstanding options of the Company (including their stock options), warrants and other securities of the Company that are convertible into shares of common stock, as a result, the liability was marked to market through July 15, 2011 and, upon settlement, the value of $1,036,000 was reclassified to additional paid in capital. As a result of the modification, the Company recorded additional stock compensation expense of $35,000 during the year ended December 31, 2011.

Other Equity Transactions

On March 30, 2011, the Company entered into a severance agreement with its former President and Chief Executive Officer whereby, among other things, it agreed to issue shares to the former officer such that the number of shares issued times the market price of the shares on the day immediately following the separation date equal a value of $300,000. As of December 31, 2011, all payments and shares due under this severance agreement have been issued and recorded to stock compensation expense.