CytRx creates subsidiary for gene-silencing technology: RXi will focus on RNAi interference for treatment of diseases.

CytRx Corp. last week said that it is spinning off its gene-silencing RNAi technology into a majority-owned subsidiary that will capitalize on what may become the Next Big Thing in drug development.

The Los Angeles company's announcement came as biotech leaders and investors gathered in San Francisco for the JPMorgan Healthcare Conference, an annual industry kick-off event.

"This is a very astute move by CytRx at the fight time," said Ram Selvaraju, associate biotech analyst at Rodman & Renshaw LLC, noting that shares of CytRx jumped more than 15 percent to $2.08 on Jan. 9. "This is a move that really unlocks much more value for the CytRx shareholder."

CytRx will own 85 percent of the subsidiary, to be called RXi Pharmaceuticals Corp., with the new company's scientific advisory team holding the remaining 15 percent.

Heightening interest in the subsidiary is the participation of some respected industry figures. Its advisory team includes Craig C. Mello, who won the 2006 Nobel Prize in Medicine for his role in co-discovering RNAi.

CytRx has no products on the market but is in clinical trials on three traditional pill-administered small-molecule compounds, including a treatment for amyotrophic lateral sclerosis, or Lou Gehrig's disease.

Its RNA interference program involves radically different technology, in partnership with the University of Massachusetts, that targets the gene at the root of a disease and attempts to switch it off without affecting other genes or cells. The approach could provide cancer treatments with fewer side effects than chemotherapy, though the product most likely to go to market first is also a Lou Gehrig's treatment.

"We have a very vibrant RNAi business but it wasn't commanding any value in the marketplace," said Chief Executive Steven Kriegsman. "Having our own pure play, if all goes well, will really enhance the value of CytRx's stock and whatever value RXi will develop down the road."

CytRx's stock barely budged a year ago when the company first began discussing a possibility of spin-off, but recent developments make this a strategic time for CytRx to high-light its assets in the sector, which could attract a pharmaceutical company with deeper pockets to develop the drugs.

Merck & Co. Inc.'s recent acquisition of San Francisco-based Sima Therapeutics for $1.1 billion leaves just one independent pure play in the sector, Cambridge, Mass.-based Alnylam Pharmaceuticals Inc., whose own stock has benefited from excitement over the Sima deal.