Tamara McGrillen - Head of Investor Relations Geert Cauwenbergh - Geert Cauwenbergh Pamela Pavco - President and Chief Executive Officer Caitlin Kontulis - Principal Accounting Officer.

Analysts:.

Good afternoon ladies and gentlemen, and welcome to the RXi Pharmaceuticals’ Second Quarter 2016 Earnings Conference Call. Today’s call is being recorded. At this time, I would like to turn the floor over to Ms. Tamara McGrillen, Head of Investor Relations for RXi. Ma’am, the floor is yours..

Thank you, Operator. Good afternoon ladies and gentlemen and thank you for participating on our call today. We are joined today by our President and CEO, Dr. Geert Cauwenbergh; our Chief Development Officer, Dr. Pamela Pavco; and our Principal Accounting Officer, Ms. Caitlin Kontulis.

I would like to remind listeners that this call will contain certain statements concerning RXi’s future expectations, plans, and processes which constitute forward-looking statements for the purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995.

Actual results may differ materially from those indicated by these forward-looking statements and as a result of various important factors including those discussed in our most recent Form 10-Q filed today with the SEC.

In addition, any forward-looking statements represent our views only as of the date of this recording and should not be relied upon as representing our views as of any subsequent date. We specifically disclaim any obligations to update such statements. Now, I would like to turn the call over to our President and CEO, Dr. Cauwenbergh..

Thank you, Tammie, and thank you all for being on the call this afternoon. To put this update call in perspective, I want to remind you of the key milestones we outlined in our presentation to you on Monday, January 11 of this year, during the Biotech Showcase Meeting in San Francisco.

For those who want to look at it, I’m referring to the slide number 32 of our corporate presentation from that date. We wanted this quarterly update to serve as a mid-year status check for what we have achieved against those goals to-date. And I will follow in discussion to the sequence of the slide.

First, to begin with our dermal program, we remain on track to meet all of our stated goals as outlined in January. We committed to be fully enrolled with our topical immunotherapy compound Samcyprone by the end of the year. We have worked hard to uphold that promise.

To-date we have improved our formulation to the point that we will be able to move for the next studies of the compounding pharmacies to a CGMP facility that can produce large quantities of medication.

I’m proud to say that this has allowed us to further strengthen our patent position proud [indiscernible] and that we have now four clinical sites online that has significantly ramped up recruitment for this Samcyprone 1502 Study in cutaneous warts.

Bottom line we are on track to fulfill our promise to have this Study fully enrolled by the end of 2016 and have a first readout on the efficacy of Samcyprone in cutaneous warts for a relevant subset of the patient population.

In addition, some dermatology companies have expressed an interest in talking to us about the potential license once the Phase II data would be comparable and would indicate a good efficacy safety profile.

Also for Samcyprone we would like to point to a recent publication by Rockefeller, remember the group is working on the cutaneous metastases of melanoma project.

It was published in the Journal of Investigative Dermatology and the [indiscernible] molecular profiling of immune activation associated with regression of melanoma metastases induced by Samcyprone.

That report successful treatment with our [Samcyprone] (Ph) in five patients with cutaneous metastases of melanoma and that elucidates some of the biomarkers in these patients that are susceptible to DPCP treatment.

In January 2016, we also projected that we would be able to explore human testing on one of our consumers health compounds, also commonly known as functional skin care, before the end of 2016.

In order to maintain that promise, we initiated a larger synthesis process with a European manufacturer of [indiscernible] and we should have sufficient quantity of RXI-231 our anti-tyrosinase compound available to start the testing.

In the meantime, we are well underway to complete all necessary in-vitro safety testing that is required to advance our compounds into human testing.

We have also made good progress in percutaneous delivery of our compounds under defined circumstances that should allow us to demonstrate phenotypically measurable improvement in the appearance of pigmented skin. Let's now move to hypertrophic scars and Study 1402.

Our goal is to provide early results and later readouts from this trial before the end of the year. I’m pleased to announced today that we have fully enrolled score three and four for this Study 1402. And that I expect this to key to our progress that is to provide the first readout on the additional two cohorts before the end of this year.

The combined set of clinical studies with RXI-109 in approximately 100 subjects today should provide us with very valuable information to develop a winning strategy for the next steps in the clinical development of RXI-109.

Pam Pavco, our Chief Development Officer, will provide additional details surrounding this and our other projects as well a little later on this call.

Moving now to our ocular program, our growth as outlined in January is to provide initial safety readouts from our Phase I/II study, because this is in-patients not in healthy volunteers, remember 1501.

Here we are accelerating the safety improvement and the clinical activity of RXI-109 simply then the progression of retinal scarring of harmful component of numerous retinal diseases. Given the nature of the disease and the target population, we anticipate this to be a very difficult Study to enroll. Accordingly to our lead investigator Dr.

[indiscernible] from John Hopkins, he expected that this Study could lap as long as two years. Not only are we happy to reported more than half of the patients have been enrolled in only seven months.

We are also please to say that we are close to the end of the second drug concentration in this dose escalation safety Study closing on the five concentration to be tested.

Thus far, we are [indiscernible] the safety or tolerability issues to report and we are grateful to those patients, who continue to actively participate for the follow-up visits, it is their dedication that may allow one day for RXI-109 to be use in the broad patient population with retinal scarring.

With regard to the corporate development and initiatives, I’m pleased to report that our projected goals are on-track for successful completion. As in previous years, we committed in January that we would continue to broaden and deepen our patent state.

I’m happy to report that up to now in 2016, we have been granted four patents and notices of allowance and have filed for additional applications thereby bolstering our [indiscernible] not only for our self delivering RNA platform, but also for our immunotherapy agents Samcyprone as well.

For a public company, it is important that we broader our shareholder base to arrive at a stable valuation point. That has also been one of our stated goals for 2016 in January of this year. Compared to 2015, when we still had one [indiscernible] as key investigator with preferred shares in the first half of 2015.

We now have been able to arrive at a broader shareholder base. From a position of less than 30% of common shares being in the hands of institutional investors of mutual funds around this time last year, we now are currently at 40%.

Although, this is still not our desired split between institution and mutual fund shareholders versus retail shareholders. We certainly see this as a good step in the right direction. We expect that with our business and corporate development activities in the remainder of this year, this is balance will continue to improve.

Finally, we promised in January to aggressively pursue shareholder value through business development collaborations and partnerships.

Approximately six months ago, we embarked on a [indiscernible] mostly on our own but some aspects with the help of banker to identify companies based on independent and internal assessment that could be complementary to RXI either for the purpose of collaborations, partnerships or joint ventures for specific disease area.

In this process it became obvious, there is also the potential of fully fledge merger should not be excluded. We started with the list of mostly private and some companies with R&D activities including of course [indiscernible]. And we use the scoring system for the following characteristics.

One complimentarily or the technology platforms, two combined pipeline and milestone timelines, three, experience of the management team to build the best possible combined team and four work composition and invest systemic.

This scoring system provided us with a numerical score for each of those companies in that [indiscernible] that allowed us select 10 company as candidates for first reach out.

This process is currently underway that reach out process and we hope to be able in the next several months to come to an arrangement with one of the potentially followed by further expansion of this approach. Cash is obviously the key component for proper progress in an R&D company.

In the past we have been able to work with limited cash flow, fluctuating between $1.5 million to $2.5 million per quarter, sold between $8 million to $10 million a year. To-date even with the progress that I mentioned in my previous points, we have been able to maintain quarterly burn rate around $2 million per quarter mark.

Since we still have equity line in place with Lincoln Park Capital, we are able going forward to draw that money in smaller amounts that helps us to better manage our cash reserves, while not pulling undo pressure on our share price.

Considering the possibility of the creation of a JV or a merger, we are also considering what amount of cash would be in the specific case to execute on such a transaction and setting out for success. In summary, our team has been working diligently towards achieving all of the key milestones presented at the beginning of the year.

We look forward to keep you abreast of new corporate and research developments in the coming months. The Company has secured presentation slots of several leading conferences such as BioPharm America targeting ocular disorders, 16th Annual Biotech in Europe Forum and BIO Investor Forum.

With this, I’m happy to hand the call over to Caitlin Kontulis, who will provide you with the financial details of Q2 of 2016 and our projections going forward. Caitlin..

Thank you, Geert, and good afternoon everyone. As reported today the Company had net revenue of $900,000 for the three months ended June 30, 2016 as compared to no revenue for the same period of the prior year.

The net revenues during the quarter was due to common stock and warrants issued to RXI by Thera Neuropharma as per the terms of the exclusive licensing agreement between the two companies executed in May of this year.

Research and development expenses were $1.34 million for the quarter ended June 30, 2016 compared with $1.36 million for the quarter ended June 30, 2015.

This increase of approximately $20,000 was primarily related to a decrease in stock based compensation expense due to the full vesting of stock options that were granted in 2012 offset by an increase in research and development expenses related to manufacturing cost for Samcyprone and clinical trial fees for Study 1502 the Company’s warts trial that commenced in December 2015.

General and administrative expenses were $0.88 million for the quarter ended June 30, 2016 as compared with $0.8 million for the quarter ended June 30, 2015.

The increase of $80,000 was due to an increase in general and administrative expenses primarily related to legal and proxy related fees for the Company’s special meeting in reverse stock split in April.

And from the use of professional service providers due to the Company’s focus on business development activities offset by a decrease in stock based compensation expense as a result of the full vesting of stock options that were granted in 2012.

Net loss of $2.2 million for the quarter ended June 30, 2016 compared to $2.2 million for the same period of the prior year. Overall, net loss was consistent year-over-year with fluctuations in operating expenses as just discussed.

Net cash used in operating expenses during the second quarter of 2016 was $4.8 million, compared with $3.8 million during the second quarter of 2015 an increase of about a $1 million. The year-over-year increases due that R&D payments for the manufacturing Samcyprone RXI-109 drug product in the first quarter of 2016.

While we did see increase to our quarterly burn rate in the first quarter of year. Our burn rate for the second quarter was in line with expectations $2 million of quarterly spending.

Turning next to our balance sheet, the company has cash, cash equivalents and short-term improvements of $5.8 million at June 30, 2016, and compared to $10.6 million at December 31, 2015. The company plan to extended financial position through one or more option such us to the sale of strategies, a strategic opportunities as Geert spoke of earlier.

Additionally, the company currently has in place of purchase agreement with Lincoln Park Capital in which the company has a right to sell to LPC shares of the company’s common stock.

Due to the terms of the company’s public offering in June of last year, the company was not able to dry down plans on equity line until the 13 months overallotment purchase right expired. On July 2, the company is roughly 1.3 million outstanding overallotment as purchase right expired.

Listing their restriction to sell share to LPC under this agreement. Subsequent the quarter end, the company sold a total 35,000 shares LPC for net proceed for $82,000.

The company plans to continue benefiting line to increased capital to help under operations and to use and a very discipline in relative manner, so as not to put undue pressure on our share price.

Detailed information on the company’s financial performance for the second quarter of 2015 can be found in the company’s Form 10-Q filed with the SEC today. With that, I’ll turn the call over to Pam, who will provide an update on the company’s R&D activities..

Thank you, Caitlin, and hello everyone. In the three months since our last earnings call. We have made quite a bit of progress and continue to stay in line with all of our year-end research and development goals. From the clinical development side, we are on track or head of all of our initial internal enrollment goals.

This was all four cohort in our dermal scarring trial with RXI-109 Study 1402 will be completely enrolled and dates for scar revision surgery set. Our goal is to enroll by the end of this year, so we are about four months ahead of schedule.

Knowing the timing for the last person enter in this trail and receive their scar revision surgery and that the last data point is that nine months allows us to better predict the availability of data for interim and final reviews.

Assuming all revision surgeries will be scheduled and completed by mid September, the last 1402 subjects nine months as it will occur in mid-June 2017. Our plan however is to do preliminary internal review of a subset of data from cohorts three and four before the end of the year.

As of today, we have 11 subjects that have already reached three months and these subjects will reach seven months in December of 2016. So at the end of this year, we will be able to provide an interim review of the safety data and the preliminary clinical activity for these initial subjects and cohort three and four.

In addition, all subject cohort one and two will have reached their nine months visit before the end of the year. Our goal is to complete data entry into our data based for these subjects and provide a summary overview of the first two cohorts at the same time.

A full analysis of the data including cohort three and four will be conducted after all subjects had reached nine months and we have time to complete data entry, answer all queries and lock the database. Our estimates to complete the full analysis for Study 1402 is in the third quarter of 2017.

Our ophthalmology trial Study 1501 is enrolling ahead of schedule as well. As you know, we are enrolling very specific type of subject into this Phase I/II trial. The subjects that we are enrolling are patients with late stage age related back of degeneration who have already begun to develop sub-retinal scars.

We had anticipated that full enrollment could take well into the mid-2017. But as of today, we have enrolled five of the nine subjects. So we are ahead of schedule as we have already met our goal of being half enrolled by the end of 2016.

We are currently enrolling into the second of three cohorts and to-date as Geert mentioned, there have been no safety issues that have precluded the continued dosing of each patient up to their four planned doses in this study. The Phase II trial with Samcyprone Study 1502 is also on track for full enrollment by the end of the year.

While enrollment into this work Study was a bit slow at first, we have now initiated three additional sites for a total of four and enrollment has really stepped up. Our four sites are located in Miami, Chicago, New York and Indianapolis.

We recently presented information regarding our work on Samcyprone at the summer meeting of the American Academy of Dermatology. Our ongoing trial is built of a small pilot trial conducted by Hapten Pharmaceuticals from whom we licensed the compound.

The Hapten trial evaluated in seven weekly doses of Samcyprone and resulted in 47.6% clearance of warts, compared to only 6.7% clearance for subjects who completed the dosing regimen.

Our ongoing trial is intended to determine the appropriate concentration for the sensitization and the treatment doses as well as to establish the correct length of treatment. Since licensing the compound, we have optimized the formulation for better uptake and better consistency and have manufactured it for Study 1502 at larger scale.

Our current regimen is for a set of 10 weekly application of Samcyprone at the site of the warts for up to four warts. Interestingly, treatment seems to be working well for the first two subjects and if this trend continues to hold, we may have a very favorable therapy that which is currently available.

As with our other trials, we will continue to follow the progress with these subjects in this ongoing Study and if the data are trending in one way or another after 10 to 15 subjects, we have the option to adapt the treatment regimen in order to optimize the trial going forward.

Some of these options include reducing the number of doses and/or change in the concentration of location of the sensitization dose.

At the moment, approximately 15 subjects are in the process of entering the trial, which means that by the next earnings call in November of 2016 we should be able to summarize not only how those subjects are doing but also if we have adapted the trial in any way.

In the consumer health area, our recent work has been on confirming the safety of both potential compounds one targeting tyrosinase and one targeting collagenase. As we have discussed reduction of these enzymes are good mechanisms to improve pigmentation and skin laxity recessively.

Both compounds have not undergone in-vitro safety testing and neither have shown in any cytotoxicity in cell culture toxicity assays at doses far above what would be the consumer health product. Moreover, neither are classified as an R38 skin irritating compound when tested in MatTek’s EpiDerm skin irritation test.

We continue to refine potential formulation to support delivery either alone or in combination with the mechanical method such as the use of Dermapen to disrupt the skin’s top layer as I have mentioned before.

As either compounds for consumer health, this delivery optimization were being conducted in system, which mimic the layer of human skin such as 3-Dimentional skin cultures [indiscernible].

As I reported in the last earnings call, use of the Dermapen with 1 millimeter needle facilitated delivery to approximately 400 micron, which is through that tough out of layer of your skin, the stratum corneum and close to the epidermal dermal junction.

This is exactly where the anti-tyrosinase compound needs to be in order to be taken up by the melanin producing cells called melanocytes in the basal layer of the epidermis. Delivery to melanin site their these steps will allow RXI-231 to reduce tyrosinase and disrupt the process of producing melanin.

Based in part of the ability to deliver to this layer of the skin. We have selected RXI-231 is the first consumer health product that we will take forward. To support this, we are already working with manufacture to produce the scaled up batch of the active group ingredient that can be included in the formulation for consumer testing.

The decision on the final formulation, for example the ingredient in the cream or ointment that RXI-231 will be provided in, will be made in the next few months. In addition, we are working on the streamlined consumer evaluation of RXI-231 in order to rapidly show proof-of-concept in human skin.

While ultimate goal for the use of 231, RXI-231 is to improve areas of existing hyperpigmentation. One way to more rapidly show proof-of-activity is to demonstrate the compound can pay hyperpigmentation from occurring.

Because UV exposure causing melanin content of your skin to increase, this is why we all get a sun tan, we can expose the small areas of skin to UV light and test with RXI-231 or placebo formulation to determine if the usage of RXI-231 reduces this effect.

The difference in color of the UV exposed areas can easily be measured using a chromameter and these differences between RXI-231 and the placebo test tested areas following that UV exposure can be used as a surrogate read out for whether we are presenting melanin deposition that leads to the hyperpigmentation.

A positive result would support continued consumer evaluation and hyperpigmented areas already present on an individual to evaluate the length of until the hyperpigmentation is reduced and color is more consistent with surrounding areas. The goal was to initiate consumer testing before the end of this year and we are on track to do this.

With that, I will hand the call back over to Tam..

Thank you, Pam. This now concludes the formal presentation for today and operator we would like to pull for questions please..

One moment. Okay. Thank you. The call is now open for questions. [Operator Instructions]. And our first question comes from [Keith Markey] (Ph). Please state question..

Good afternoon.

One question I had is when do you think or how long do you think the consumer application or trial of the tyrosinase product will take? And how long will due process takes sort of overall how long will it take for you to actually potentially get into the market with this product?.

Right. So the test that Pam described is standard test that is also being used for sunscreens, so it's how you test the SPF of sunscreens and in this case of course we are not interested in protection against sun rays, we are interested in the effects of rays of the melanocytes and melanin production.

That’s a standard test, so you basically recruit volunteers, you can take surgeons or whoever you want to take as volunteer for this. It is much more streamlined than a clinical trials, so it will be relatively quickly. I think that we can have this done in something like I would guess six months from the moment that we started until the readout..

Great and is the review process inside the FDA for it to be very long, do you think after you get the task completed?.

There is no review process by the FDA, that’s the nice thing with the functional skin care. In functional skin care consumer products you don’t need FDA approval you just cannot make therapeutic claims.

Of course, what does happen is when we show with our functional skin care product RXI-231 that it works in the hyperpigmentation then the lead into taking an analog for drug development for proper term drug development is an easy one. We will have our proof-of-concept for the drug by doing the consumer testing..

Right.

So do you anticipate being able to get a partner based upon the sunscreen test itself and possibly see get it into the market fairly soon?.

The number of the companies that are into that space including some of the larger multinationals that are into the consumer space and are interested in pigmentation and management of pigmentation in people have expressed an interest in talking to us when we have those data available..

Terrific.

And then another question on the 1502 clinical trials, I was just wondering when is that readout going to take place?.

So we will enroll everyone by the end of this year for sure. And if everyone sensitizes properly and gets 10 weeks of treatment, the last treatment is 12 weeks from the end of the year.

So, we are hoping that maybe we will be able to reduce the number of doses et cetera, but it will be sometime in the probably by the second quarter that we have the full set of data compiled into database and that kind of thing..

Similar question for….

The ophthalmology trial?.

Yes, the ophthalmology, thank you..

So kind of the same thing. That one we are assured of having five subjects, we have five now, we need to enter four more subjects. Given that we are kind of ahead of schedule we are hoping that we will be able to do that by December or January. But that is not given. And then the endpoint is seven months from them.

So presumably, we will be into the later part of 2017 August or September by the time we are finishing up the trial and then of course we need some time to complete the data basin and lock it, before we can have the full side of data.

But obviously along the way, we will be reporting on safety and any preliminary efficacy endpoints that concern to the gap..

That looks like you are going to have a lot of very interesting data coming out next year. Congratulations and thank you..

Thank you..

Our next question comes from [Max Jacobs] (Ph). Please state your question..

Hi, everyone and thanks for taking my question. So I was just wondering, if you can expand on what where the enrollment issues related to the Samcyprone trial.

Was it just alternative therapies or was it just the fact that it was only one site?.

So there were couple of issues. One was that, while we open the trial, we were still refining the formulation and having it made. So that was one bit of a delay right at the beginning. The initial site was slow to recruit and we are not quite sure why. Because the other three sites almost immediately were able to enroll quite rapidly.

So it was somewhat of a some issue start..

Okay, great. It’s in terms of like the new formulation. I mean, if you are still kind of or you are in the process of until recently optimizing it.

Does that mean, you haven’t filed the patent application on it yet?.

We are filed in provisional, which allows us, within a year to finalize it. So there is a provisional factor has been filed and that includes formulation, as well as additional indications..

Great.

And so potentially you could go to like 20, 30 sets in terms of production?.

The four dose patents yes. Probably minus three is in the U.S., because usually patent [life] (Ph) in the U.S. is only 17 years depending on what approach you choose..

Okay. And then I was just wondering in terms of the strategic review. From your comments, it sounds like, it’s mostly kind of you are looking at company’s purchase kind of, it’s merge with RXI.

Is that the case or you also looking at potential sales of company?.

So you never going to exclude the sale for simple reason that somebody wants to purchase has the control over debt they basically said you know whether or something like that. We are not actively pursuing the sale of the company, if that is your question and as well that is my answer.

We are focusing on more strategic partnerships, but definitely mergers are at the top of our agenda..

Okay. Great. Yes. That’s all my questions. Thank you very much..

Thank you..

Thank you..

And our next question comes from [Carol Werther] (Ph). Please state your question..

So I just wondered if you could just give me a little bit more information about how you plan to do some of the financing going forward. I mean your planning came in less than I expected this quarter. But if you could help me with that I would appreciate it..

Well, there is a number of possibilities, Caitlin already elucidated to the fact that we have an equity line.

We have received signals from the [indiscernible] and another firms that they would be rolling to extend that equity line if we want to do it at under pretty much the same circumstances or pretty much to say the same conditions, which is in my opinion good news, because the condition for that equity were good in our opinion.

There is the possibility of a financing, so ideally we would like to do that in conjunction with a corporate transaction. So that people see the value from the corporate transactions and that there is not just a reason for we need more money but there is a good reason for the doing to financing.

And the nature of the financing could be whatever is available like conventional price, although that’s non [indiscernible] approach.

Right sort of offerings can be of interest, because then it shows appreciation and respect for our current shareholders who will be able, all of them not just a few of them, to participate in a financing if that is what they want to do..

And then just about how - you have a lot of data readouts coming up.

And should I be looking for press releases or are you targeting some medical meetings where things could be presented?.

Well, I could leave that to Tammy, but usually what we do is when there is news and we press release it, if it disclose to a medical meeting and we try to be see that so that the press release and the medical meeting goes sort of hand-in-hand..

Thank you..

Sure..

Thank you very much..

And there appears to be no more questions at this time..

Well, thank you everyone for participating on our call today. And operator, we may end the call..

Great. Thank you for your participation. You may disconnect your lines at this time and have a great day..