Good day, ladies and gentlemen, and welcome to today's webcast entitled RXi Pharmaceuticals Second Quarter 2018 Financial Results Earnings Call. Today's call is being recorded. At this time, it is my pleasure to turn the floor over to the Head of Investor Relations for RXi, Tamara McGrillen. Ma'am, the floor is yours.

Thank you, operator, and good afternoon, ladies and gentlemen, and thank you for participating on our call today. We are joined by our President and CEO, Dr. Geert Cauwenbergh; our Chief Development Officer, Dr. Gerrit Dispersyn; 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 disclosed in our most recent Form 10-Q filed 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. And now, I'd like to turn the call over to our President and CEO, Dr. Cauwenbergh.

Thank you, Tammy, and good afternoon, everybody. The second quarter has been a pivotal quarter for RXi in its move towards the immuno-oncology and cell therapy space. A key component of the strategy is obviously access to capital, ideally in a shareholder-friendly manner. And that continues to be major focus of our management team. As we mentioned earlier in the year, one of our core projects in the context of accessing non-dilutive cash is our out-licensing and partnering effort of our dermatology and ophthalmology franchises. At the beginning of 2018, some of our clinical Phase 2 work in dermatology and our Phase 1/2 study in ophthalmology was still ongoing or had not yet been reported out. We have put a lot of energy and resources in the collection and analysis of those data. And we were very pleased to report the successful top-line data of our Phase 1/2 study for retinal scarring with RXI-109 in ophthalmology at the end of July, adding to a successful conclusion of our RXI-109 study in hypertrophic scars, as well as the Samcyprone study in cutaneous warts. These activities have allowed us to update data rooms that are used for due diligence, the out-licensing and partnering process for our ophthalmology and dermatology assets. The outreach to interested companies is practically complete, and we are moving into negotiations with those companies that have shown an interest. A pleasant collateral consequence of the completion of our clinical work has been a reduction in our cash burn, which is evidenced by the reduction in our spending compared to previous quarters. Ms. Kontulis will talk more about it later. Also very important is the fact that our clinical studies with RXI-109 provides solid evidence of the positive disease-modifying effect of our self-delivering RNAi, while at the same time indicating…

Thank you, Geert. Good afternoon, everyone. The company filed its second quarter Form 10-Q with the SEC today. The filing includes detailed information on the company's financial performance for the quarterly period ending June 30, 2018. Today's call will focus on select financial highlights from this quarterly period. The company continued to recognize revenue during the quarter, related to our collaborative effort with BioAxone Biosciences, under the government grant awarded by the National Institute of Neurological Disorders and Stroke. This grant provides funding for the development of a novel sd-rxRNA compound that targets PTEN for the treatment of spinal cord injury. In June, we announced that BioAxone was awarded funding for the second year of the grant, in which RXi is a sub-awardee. We received $129,000 in the first year and will receive an additional $119,000 for our contributions under the grant in the second year. The company didn't recognize revenue during the three months ended June 30, 2017. Research and development expenses for the quarter ended June 30, 2018 were $1.2 million as compared with $1.3 million for the quarter ended June 30, 2017. The decrease was primarily due to a decrease in clinical trial related expenses as subject participation is complete for all the company's clinical trial. The company did not have acquired in-process research and development expense for the quarter ended June 30, 2018. During the three months ended June 30, 2017, the company recorded a one-time charge to acquire in-process research and development expense related to the fair value of consideration given in acquisition of MirImmune. General and administrative expenses for the quarter ended June 30, 2018 were $0.8 million, as compared with $1.1 million for the quarter ended June 30, 2017. The decrease was primarily due to decreases in payroll-related expenses as a result of…

Thank you, Caitlin, and good afternoon, everyone. Since our last earnings call, we've shared some very exciting news with you, namely the positive outcomes of our 1501 and 1502 clinical studies. In addition, as Geert has mentioned, we have made good progress in the execution of our immuno-oncology R&D strategy. During this call, I will give you a brief overview of these topics. In May, we announced the top line data of our 1502 study of Phase 2 clinical study in 88 patients to investigate to safety and efficacy of Samcyprone in cutaneous warts. As Samcyprone is our proprietary topical formulation of the small molecule diphenylcyclopropenone. As a reminder, this study was a multi-center, multi-dose trial conducted in subjects with at least one non-genital wart present for at least four weeks. In the study subjects were first treated with a sensitization dose on the inner arm and one or more preselected wart lesions. Once the sensitization response was confirmed, subjects continued with weekly treatments for up to 10 weeks followed by an optional extension phase up to in order 10 weeks of weekly treatments. The study successfully met its primary effectiveness objectives and its secondary safety and tolerability objectives. The primary effectiveness objectives were met are shown by: one high levels of immune sensitization response; and two high levels of therapeutic response. The immunotherapeutic response rate, a prerequisite for therapeutic response was 97.7% across all 88 subjects are enrolled in the study. From a therapeutic response view point, with once weekly dosing for up to 10 weeks more than 70% of all warts showed a positive wart response rate, mainly a wart size reduction of more than 50%. Complete wart clearance throughout the study was 54% for all warts and more than 71% for certain wart types namely non-plantar warts.…

Thank you, Gerrit. This concludes the formal presentation for today. Operator, we would like to open the call to questions, please.

Thank you. The floor is now open for questions. [Operator Instructions] And our first question comes from the line of Ram Selvaraju from H.C. Wainwright. Your line is now open.

Hi there, this Julian on for Ram. First, I was just curious, when you plan to conduct IND enabling studies for the most advanced candidate under collaboration with Iovance, is that something you're able to comment on at this time?

So, yeah, thanks for your question. As we have previously indicated, our direct route to the market or to the clinic, I should say, is with collaborations with centers such as CCIT, because these are centers that have been doing this translational work before. So these are the experts that have been developing TIL-based therapies and translated them into clinical use. What happens with these institutions, most of the time is that, they know exactly what they need in terms of data for an IND or in case of CCIT, an IMPD. So in discussions with them, we're very well aware essentially of the datasets that are required to get such an IND or international equivalent there of a proof [ph]. And it's also logical there to understand that the most direct way to get these done is through investigator-initiated INDs, or investigator-initiated IMPD, so very likely our first clinical study will be through such a route.

Okay, great. Thanks for that. And my last question is just to clarify, your out-licensing efforts for both RXI-109 and Samcyprone are near complete. Did I hear that correctly?

They are ongoing. It is complete when we have the right partner and they have signed for the right amount. We have - to give you a little bit of an idea what has been going on together with an advisory firm, we have basically approached through well over 50 companies dermatology, ophthalmology combined. And we currently are in the second phase with about a dozen companies for both dermatology and ophthalmology combined, where they are doing in depth due diligence and where by a certain time we expect from them a non-binding bid, after which we will decide with whom we continue the process to a final stage.

Okay. Thanks very much.

Thank you.

And our next question comes from the line of Steven Zelcer [ph]. Your line is now open.

Hi, thank you for taking my call. My question is about the skin lightener product, the RXI-231. And a similar question as to the previous caller is what is the out-licensing status of that product?

Well, I can - I'll hand it over to Gerrit. But first of all, the skin lightening product which was - which is a very interesting product is more into the skincare dermatology sphere. And that is something that is going to be out-licensed when we out-license or partner with the dermatology asset. But maybe Gerrit can provide a little bit more of the background in case people would have missed that.

Yeah, so it's a good question. So as Geert has mentioned, this is essentially - so if you - to dial back on our business development strategy is that we're focusing to, in essence, by lack of a better word, bundle up our derm assets in - with one partner. We believe that providing them with access to the lead compounds, 109 and 231 and a few others, that is essentially the best strategy so that company has access to compounds in a more advanced stage of development as well as having access to essentially a pipeline of self-delivering RNAi molecules moving forward. So in our discussions with potential partners, we're - that would be our preferred approach. However, as Geert has mentioned, we're looking at it from different perspectives to get the maximum valuation. And so, if in case, the specific assets for RCI-231 fits better with a company that is more specifically focused on cosmetics and that I need to translate that. If such a company would provide a more significant valuation of that, they would definitely consider that. But our initial idea here is to keep intact, before essentially spreading our wealth and our compounds over different companies.

I can understand the desire to get the maximum value. But the reality is for the - for the company, reality is that, you don't have any money to really pursue your efforts in immuno-oncology or whatever. And the clock keeps ticking. I don't know how else to say that.

That is correct. I'm not sure that was a question or a comment. But…

Well, both, yes.

Okay. As I try to point out, we have followed a routine process, a funnel process with broad outreach and then basically bringing it down to a smaller number that's had about dozen for dermatology and ophthalmology combined at this point. And, yes, the clock is ticking. But at the same time, first of all, it depends on which clock you're talking about. If it is a financial clock, we are very much aware of that, of course. If it is the patent clock, then it should be comforting to know that the IP for the self-delivering technology, the core IP goes until 2029. And the IP for 231, which is the pigmentation compound you were mentioning, that is going to go a lot beyond that, because that is IP that was filed maybe two years ago. So that is going to add probably five, six years to the patent life here, if that was the clock you're talking about.

Well, yes, to all of that. I mean, with the 231 product, your skin lightener, I've always been particularly interested in it, because that product alone will give you financial freedom. And yet, I look at the main presentation and the progress got to proof of concept and you stated in that presentation that both the magnitude and longevity of the effects still needs to be researched. Okay, I'll end my comment with - I hope you get a deal. That's all I can just say. Thank you.

We're working hard to get there. And I'm counting on that too.

Okay.

And our next question comes from the line of Anita, Zacks Small Capital Research. Your line is now open.

Hi, good afternoon. This is Antia on behalf of John. And thank you for taking my call today. My first question would be, ever since the release on the first Phase 2 clinical trial for RXI-109, what kind of interest have you seen since the FDA approval? Like what kind of interest have you seen in terms of awareness? Has that helped increase the awareness?

So, yeah, so in fact it's good question, so a couple of things that you were asking in one sentence maybe. So first of all, you're absolutely correct that the recent approval of the first RNAi therapeutic by the FDA is a huge milestone. And obviously, in our discussions with potential partners, they're very well aware of that and quite frankly it validates something that everyone working in the RNAi space knows it's a fact for several years already that RNAi technology is a real deal and is there to stay. So quite frankly, the regulatory - quite frankly, the first regulatory hurdle [effect you want for] [ph] of an approval, of the first approval of a new therapeutic definitely makes everyone excited including ourselves and including the potential partners we were talking to. So I think your question then was on RXi and our Phase 2 data and our most recent data in ophthalmology. And I think that's somewhat additive, right. So we've seen throughout the development of RXI-109 in derm indications and now more recently also with 109 in ophthalmology. We see really very important elements that are the foundation for becoming a very important therapeutic as a follow-up. And so the - interestingly the data on 109 in ophthalmology is even also of interest to potential partners looking for ophthalmology, because again the eyes are very sensitive area, so further evidence about the safety and tolerability of our technology platform is obviously very welcome. So I think it's a combination of our internal data generation as much as a regulatory milestone if you want, it's definitely helping us and so that therefore plays a role in our interactions with potential partners.

Okay, great. So in terms of getting the approval itself from the FDA, any observation from the approval process that is relevant to RXI and does it provide more clarity on the approval pathway for other products.

Well, that's a very good question. And I would say it is somewhat different depending on what indication you are looking for, quite frankly it will also is a little bit of what we mentioned before, why we are focusing now on immuno-oncology. Clearly, when a new technology platform is going to be pursued, a regulatory body would much more be minimal approve something that is serious disease, whether we look real clinical unmet need versus going into the indication that, let's say, more benign and chronic in nature, where maybe some other solutions that exist for. That being said, we believe that L-91 [ph] was playing the right card with going forward on orphan indication. I also believe that we are playing the right card with focusing on immuno-oncology, which there is a significant unmet need in the existing Adoptive Cell Therapy world that our technology could fit. But that doesn't take away for the value of our pipe, and even though more let's say more traditional development pathway that you can envision for ophthalmology and dermatology indications. You're going to take likely somewhat longer than for often drug indications and/or life threatening diseases like cancer. But it's going to be very relevant. So what I would say is that, yes, we better understand that FDA - well, first of all, it confirms that FDA is very open for technology like this, again they allowed us to move into IND for dermatology and ophthalmology without any hiccups. So we know that FDA is open for that and the approval now for the L-91 [ph] product is further confirming that.

Okay, great. Thank you. And my last question would be, can you explain how the RNAi will modify the T-cell receptor, so I know, you're working towards several ways to use the RNAi to reduce or eliminate PD-1 receptors from CAR T-cells. Will that focus on PD-1 or the PD-L1 pathway?

Well, first of all the RNAi mechanism is fairly straight forward. So what the RNAi does, it locks to production of protein. That means that the T-cell receptors, you are talking about are examples of proteins. Every protein has a very specific messenger RNA, which in the case of RNAi locks that specific messenger RNA. So anti-PD1 RNAi is going to block the messenger RNA that is responsible for the product of the PD-1 receptor that you mentioned. The advantages of RNAi is that an empty body works only when the protein is already expressed, and RNAi can avoid that protein gets expressed, so actually it's more prevention than treatment. Having said that, so the mechanistically this is fairly straight forward, we have taken actually - and Gerrit has been spearheading that. He has taken PD-1 as the first compound to go, because there at least known and the known is that PD-1 blockage has a physiological as a treatment effect, because there is PD-1 inhibitors that have been approved. So that is the reason why we also work in the first phase with PD-1. But I need to say that the wealth and diversity of the RNAi platform is going to allow us to block many checkpoints, but also other proteins as evidence in the buckets that Gerrit mentioned. And so it's going to be a lot of work, but exciting work.

Yeah, I think, Anita, it was a good question, and obviously I'm going to add one thing to that, and I think you maybe own - that your question maybe own to that. I think what you're aiming at is looking at the potential synergies of pipeline products that we have in the different buckets. So right now, even though, we're focusing on PD-1, which is - as you know, expressed in the immune effector cells. As Geert mentioned, it's straight forward, why we're doing that it's a proven clinical target, right. So we're taking away development risk by growing after something that's already proven. But we're improving on that as well. But as Geert mentioned by having these cells pretreated by given them back to the patients, so therefore no longer having the need for expensive and sometimes quite risky antibody treatments for those patients. But what indeed is a potential - I mean, it's a forward looking statement, while potential future of our technology that indeed, we can also through direct tumor target proteins into tumor microenvironment. So technically speaking, we could do both, we could do PD-1 and PD-L1, we're now doing PD-L1, because it would be nonsensical to attack the exact same signaling pathway. But you can imagine that a combination of therapies, we could be playing there by having Adoptive Cell Therapy, weaponize by our sd-rxRNA compounds, so by treating the cells are essentially [ex vigo and prime] [ph] giving them back to the patient. At the same time, through into tumoral injections in the tumor or tumor microenvironment, further modifying that area to further help the killing of the tumor cells. So that's the beauty of our platform technology that we're not one-trick-pony even though the last people are just focusing on that one pipeline product that we've mentioned. And I hope some of the information that we provided early in the call, gives a little bit of an insight into that we have more in development than just that PD-1 compound.

From a business development point of view, for instance, it's becoming clear with the approaches that are made by other players in the space that management's in the other companies to realize that our technology to self-delivering RNAi technology can indeed enhance their capabilities and broaden their possibilities. Today cell therapy is primarily focused on liquid tumors, the reason why Medigene and Iovance want to work with our technology, and try to marry it with their technology is because it opens for them the opportunity to get not just in the liquid tumor space, but also end up in the solid tumor space, which is 90% of the oncology market.

It's great. Okay. That was very insightful. Thank you. Thank you. That will be all for me.

Thank you, Anita.

And our next question comes from the line of [Justin Foster] [ph]. Your line is now open.

Thank you. I just have one question, but excuse a brief prologue. I have been a long time shareholder, but have taken kind of an intellectual vacation from you all since your last stock split, reverse split that some us had begged you not to do. And as a result of the last two, your market cap is about 50th of what it was before the first of the last two just as we predicted. But I do have a question. And your company is unique. I don't think you really ever had a scientific reversal. Everything you worked on has come to some scientific fruition. And that's wonderful. The problem has been in terms of just shareholder, obviously, the financial problems, but you're dealing with that as best you can. But it's still the mafia of traders out there, T-R-A-D-E-R-S. As you know, given your float, your daily volume is absurd, the amount of people who trade. And on certain news days, the millions of shares that exchange hands, despite your limited float, it makes no sense. It makes no legal sense in a way. And I know that you've tried to confront the problems with all the problems that are out there with distorted trading these days. I've come to the conclusion that you can't escape it. I think that even if you have some of these deals and partnerships come through, if RXi is on the name of your company still, you're going to see this misuse of your stock in terms of trading. It's disgusting and not your fault. So here is my question. My thought is the only way to escape it is to have a different name on your company, i.e., to merge with another company to be bought out, and somehow try to escape this mafia of traders that is devastating you in trading daily. Any possibility, even if it means not the best terms for you, and this - I even said this three years ago, that if you could get yourself into another company's hands that doesn't - isn't plagued by the things that have plagued your company on the stock exchanges, there is some hope. I'm afraid that you're going to get good news and your shares are going to still be ripped apart. Sorry, about this long monologue. So that's my bottom-line question, how to escape the hands of the mafia of traders? The absurd volumes that are trading despite the small float and what you can do about it? Can you get yourself in the hands of another company without devastating your own company?

Well, Mr. Foster, those are all - well, that's one very good question with the multiple ramifications. I can assure you that we are very much aware of what's going on with the trading. The most recent one was pretty obvious if you think about it. A company with a total market cap of less than $10 million traded $25 million in volume. That gives you enough of an idea of what's going on. And the only way that we can break out of that is by a breakout event. And breakout events can be - for instance, if we would get at once - as a result of our business development activities, if we would get one or two years of non-dilutive cash coming in, that would probably put a pause on the pressure, probably would also result in millions of shares to be traded at the same time. And the other aspects like finding other companies to partner with or to merge with or in - or create a new entity, those are all possibilities. And the only way that you can work on those possibilities is by moving into relationships with those companies, other companies, so that on both sides you can have an open mind, is there a synergy, is there added value for both the groups of shareholders. And that is a process that our board is very much aware of and that we are doing on a constant basis. I could say, trust us; we are working on all those things.

Well, thank you. The level of trust is low since you proceeded to do the reverse splits. I understand the reasons for them. But be that as it may and I'll just make a final comment and thank you for your candid response and for being open to it. I doubt that even good news with better money is going to help. I think you are going to have to find another company to join with. And just escape the clutches. And even when your board looks at the bottom line and that deal was going to be a little less good than others, where you retain your RXi name, I think - I hope that you will be open to taking even a little less good offer bottom line if it allows you to escape the situation you're in. And I'm not just talking about a financial situation. And again, congratulations on being unique and really never having a profound set back in the hallmark of your work in the last years. Things have borne and you haven't been devastated like other companies, where, oops, it didn't work, we're out of business. You have other reasons for being out of business and it's unfair in a sense, because of your consciousness and wise use of your science and really your scrupulous bottom-line as you have not thrown money at things. Anyway, that's my compliment. And my pleading is you got to get off the exchange as RXi, otherwise they're always going to have you. Thank you so much and good luck to you.

Thank you for your rhythm [ph]. It's much appreciated.

Thanks.

And thanks for being a shareholder.

Thank you.

Thank you. And at this time, I'm showing no further questions.

Well, we'd like to thank everybody for participating on the call today. Operator, please close the call.

Thank you. This does conclude today's conference. We thank you for your participation. You may disconnect your lines at this time and have a great day.