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RestorGenex and Diffusion Pharmaceuticals Announce Merger to Form Oncology Biotech Company RESX

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The merger of RestorGenex Corp. (RESX: OTCQX) and privately held Diffusion Pharmaceuticals LLC, announced Tuesday, Dec. 15, will create an oncology-focused clinical-stage company with a diversified development portfolio of product candidates addressing novel targets, including several orphan indications, according to a press release issued by the companies. The combined company will be named Diffusion Pharmaceuticals Inc. and will be headquartered in Charlottesville, Virginia.

RestorGenex Pipeline

"We have chosen to combine with Diffusion in order to add a clinical-ready product to our oncology portfolio. Specifically, the key Diffusion product is scheduled to enter a Phase 3 clinical trial in 2016, thereby accelerating our product development dramatically…we believe the proposed merger provides an attractive opportunity for value appreciation for RestorGenex's stockholders," said Stephen M. Simes, RestorGenex's chief executive officer, in a news release when the deal was announced.

David Kalergis, chief executive officer of Diffusion Pharmaceuticals, explained the benefit of the all-stock deal to his investors this way: "The merger between Diffusion and RestorGenex will provide improved access to the capital markets, in order to obtain the resources necessary to accelerate development of TSC (lead molecule trans-sodium crocetinate, in development for treatment of glioblastoma multiforme [GBM]) in multiple clinical programs and continue to build an oncology-focused company." Diffusion will continue as a wholly owned subsidiary of RestorGenex.

RestorGenex, a specialty biopharmaceutical company with a $24.2 million ($24M) market cap, is focused on developing a portfolio of first-in-class therapeutic products to treat diseases across the oncologic, ophthalmologic and dermatologic space. RestorGenex's lead product is a PI3K/Akt/mTOR pathway inhibitor, which has completed two Phase 1 clinical trials for age-related macular degeneration, and is in preclinical development for GBM. The current pipeline also includes a "soft" anti-androgen compound for the treatment of acne vulgaris. The company believes its compounds and inhibitors may have utility in a number of additional diseases.

Diffusion Pharmaceuticals is a clinical-stage biotechnology company focused on extending the life expectancy of cancer patients by improving the effectiveness of current standard-of-care treatments, including radiation therapy and chemotherapy. Diffusion is developing its lead drug, TSC, for use in cancers where tumor hypoxia (oxygen deprivation) is known to diminish the effectiveness of current treatments. TSC targets the cancer's hypoxic microenvironment, reoxygenating treatment-resistant tissue and making the cancer cells more vulnerable to radiation therapy and chemotherapy, without the apparent addition of any serious side effects. TSC has potential application in other indications involving hypoxia, such as stroke and neurodegenerative diseases, the company stated.

A Phase 2 clinical program, completed in Q2/15, evaluated 59 patients with newly diagnosed GBM, a common and aggressive form of primary brain cancer and one of the most hypoxic of solid tumors. The study, according to the release, demonstrated a favorable safety and efficacy profile for TSC combined with standard of care. Median survival in the TSC-treated patients was 16.3 months, with a one-year survival of 71.2% and a two-year survival of 36.3%. Health‐related quality of life measures, including global health status and physical, social and motor functioning, remained stable or improved in TSC‐treated patients during the trial. No serious negative safety findings attributed to TSC were observed in the study, the company reported, and adverse events were consistent with those seen in previous trials of GBM featuring radiation therapy and temozolomide chemotherapy.

Diffusion's trial has been the basis for discussions with the FDA, the release states. A Phase 3 program in newly diagnosed GBM is expected to commence in 2016. Additional planned studies include a Phase 2/3 trial in pancreatic cancer, also expected to commence in 2016. A Phase 2/3 study in brain metastases is also being planned.

Initially, the combined company will focus on the development of Diffusion's lead molecule, which has received orphan drug designation for the treatment of GBM, according to the release. Future development of TSC includes other orphan indications such as pancreatic cancer and brain metastases.

Upon closing of the deal, RestorGenex will issue to Diffusion equity holders shares of RestorGenex common stock equal to approximately 83% of the combined company's outstanding shares and current stockholders of RestorGenex will own approximately 17%. Additionally, RestorGenex will distribute contingent value rights (CVRs) to stockholders providing payment rights with respect to the first $50M of net proceeds arising from a future sale, transfer, license or similar transaction involving RestorGenex's RES-440 product candidate for the treatment of acne vulgaris.

The current combined company will be under the leadership of Diffusion's current executive management team, with David G. Kalergis serving as CEO. The board of directors of the combined company is expected to consist of six members, all of whom will be designated by Diffusion.

The transaction was approved unanimously by the boards of directors of both companies. The proposed merger is expected to close in Q1/16.

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