Oncternal Therapeutics, Inc. - Annual Report: 2008 (Form 10-K)
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
| þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2008
OR
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the transition period from
to
Commission file number 000-50549
GTx, Inc.
(Exact name of registrant as specified in its charter)
| Delaware | 62-1715807 | |
| (State or other jurisdiction of | (I.R.S. Employer Identification No.) | |
| incorporation or organization) | ||
| 175 Toyota Plaza | ||
| 7th Floor | ||
| Memphis, Tennessee | 38103 | |
| (Address of principal executive offices) | (Zip Code) |
(901) 523-9700
(Registrant’s telephone number, including area code)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Name of Each Exchange on Which Registered | |
| Common Stock, par value $0.001 per share | The NASDAQ Stock Market, LLC | |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act. Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions
of “large accelerated filer,” “accelerated filer” and “smaller reporting
company” in Rule 12b-2 of the
Exchange Act:
| Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o | Smaller reporting company o | |||
| (Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Act).
Yes o No þ
The aggregate market value of common stock held by non-affiliates of the registrant based on
the closing sales price of the registrant’s common stock on June 30, 2008 as reported on the NASDAQ
Global Market was $274,064,221.
There were 36,408,209 shares of registrant’s common stock issued and outstanding as of
February 26, 2009.
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DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the registrant’s definitive proxy statement to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A, not later than 120 days after the
end of the fiscal year covered by this Annual Report on Form 10-K, in connection with the
Registrant’s 2009 Annual Meeting of Stockholders are incorporated by reference into Part III of
this Annual Report on Form 10-K.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements. The forward-looking
statements are contained principally in the sections entitled “Risk Factors,” “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” These
statements involve known and unknown risks, uncertainties and other factors that may cause our
actual results, performance or achievements to be materially different from any future results,
performances or achievements expressed or implied by the forward-looking statements.
Forward-looking statements include statements about:
| • | the anticipated progress of our and our collaborators’ research, development and clinical programs, including the timing of regulatory submissions and whether future clinical trials will achieve similar results to clinical trials that we have successfully concluded; | ||
| • | potential future licensing fees, milestone payments and royalty payments including any milestone payments or royalty payments that we may receive under our collaborative arrangements with Ipsen Developments Limited, formerly known as Ipsen Limited, and Merck & Co., Inc.; | ||
| • | our and our collaborators’ ability to obtain and maintain regulatory approvals of our product candidates and any related restrictions, limitations, and/or warnings; | ||
| • | our and our collaborators’ ability to market, commercialize and achieve market acceptance for our product candidates or products that we may develop; | ||
| • | our and our collaborators’ ability to generate additional product candidates for clinical testing; | ||
| • | our ability to protect our intellectual property and operate our business without infringing upon the intellectual property rights of others; and | ||
| • | our estimates regarding the sufficiency of our cash resources. |
In some cases, you can identify forward-looking statements by terms such as “anticipates,”
“believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,”
“projects,” “should,” “will,” “would,” and similar expressions intended to identify forward-looking
statements. Forward-looking statements reflect our current views with respect to future events, are
based on assumptions, and are subject to risks, uncertainties and other important factors. We
discuss many of these risks, uncertainties and other important factors in this Annual Report on
Form 10-K in greater detail in the section entitled “Risk Factors” under Part I, Item 1A below.
Given these risks, uncertainties and other important factors, you should not place undue reliance
on these forward-looking statements. Also, forward-looking statements represent our estimates and
assumptions only as of the date of this Annual Report on Form 10-K. You should read this Annual
Report on Form 10-K and the documents that we incorporate by reference in and have filed as
exhibits to this Annual Report on Form 10-K, completely and with the understanding that our actual
future results may be materially different from what we expect.
Except as required by law, we assume no obligation to update any forward-looking statements
publicly, or to update the reasons actual results could differ materially from those anticipated in
any forward-looking statements, even if new information becomes available in the future.
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PART I
ITEM 1. BUSINESS
Overview
GTx, Inc., a Delaware corporation incorporated on September 24, 1997, is a biopharmaceutical
company dedicated to the discovery, development and commercialization of small molecules that
selectively target hormone pathways to treat cancer, osteoporosis and bone loss, muscle loss and
other serious medical conditions. We are developing toremifene citrate, a selective estrogen
receptor modulator, or SERM, in two separate clinical programs in men: first, toremifene 80 mg in a
completed pivotal Phase III clinical trial for the prevention of bone fractures and treatment of
other estrogen deficiency side effects of androgen deprivation therapy, or ADT, in men with
prostate cancer, and second, toremifene 20 mg in an ongoing pivotal Phase III clinical trial for
the prevention of prostate cancer in high risk men with precancerous prostate lesions called high
grade prostatic intraepithelial neoplasia, or high grade PIN. In the first quarter of 2008, we
announced that the Phase III clinical trial results for toremifene 80 mg for the prevention of bone
fractures and the treatment of other estrogen deficiency side effects of ADT in men with prostate
cancer showed that toremifene 80 mg reduced new morphometric vertebral fractures, met other key
estrogen deficiency endpoints of bone mineral density, or BMD, lipid profiles and gynecomastia, and
also showed that toremifene 80 mg demonstrated a reduction in hot flashes in a subset of patients.
In December 2008, we submitted a New Drug Application, or NDA, for toremifene 80 mg for the
prevention of bone fractures in men with prostate cancer on ADT, which has been accepted for filing
and review by the U.S. Food and Drug Administration, or FDA. We have licensed to Ipsen Developments
Limited (formerly known as Ipsen Limited), or Ipsen, exclusive rights in the European Union,
Switzerland, Norway, Iceland, Lichtenstein and the Commonwealth of Independent States, which we
collectively refer to as the European Territory, to develop and commercialize toremifene in all
indications which we have licensed from Orion Corporation, or Orion, which include all indications
in humans except breast cancer outside of the United States.
In December 2007, we and Merck & Co., Inc., or Merck, entered into a collaboration to discover
and develop selective androgen receptor modulators, or SARMs, a new class of drugs with the
potential to treat sarcopenia, which is the loss of skeletal muscle mass resulting in reduced
physical strength and ability to perform activities of daily living, cancer cachexia (cancer
induced muscle loss), and other musculoskeletal wasting or muscle loss conditions. We and Merck
are evaluating multiple SARM product candidates, including Ostarine™ (designated by Merck as
MK-2866) and MK-0773, for a variety of indications including sarcopenia and cancer cachexia. In
October 2008, we announced topline results of a Phase II clinical trial evaluating Ostarine™ in
patients with cancer cachexia. In 2009, we and Merck expect to complete an ongoing Phase II
clinical trial evaluating MK-0773 in sarcopenia and expect to initiate a clinical trial evaluating
Ostarine™ in cancer cachexia. In addition to cancer cachexia and sarcopenia, we and Merck are
evaluating additional muscle loss indications for potential SARM clinical development.
We are developing GTx-758, an oral luteinizing hormone, or LH, inhibitor for the treatment of
advanced prostate cancer. In preclinical in vitro and in vivo models, GTx-758 has demonstrated the
potential to reduce testosterone to castrate levels without causing certain estrogen deficiency
side effects such as bone loss and hot flashes. We have initiated a Phase I clinical trial
evaluating GTx-758 in healthy volunteers in the first quarter of 2009. We further expect to
establish proof of concept for GTx-758 with a Phase I multiple ascending dose clinical trial that
we are planning to initiate in the second quarter of 2009 and conclude in the fourth quarter of
2009. We also have an extensive preclinical pipeline generated from our own discovery program,
including GTx-878, an estrogen receptor beta agonist.
We currently market FARESTON® (toremifene citrate) 60 mg tablets, approved for the
treatment of metastatic breast cancer in postmenopausal women in the United States. The
active pharmaceutical ingredient in FARESTON® is the same as in our toremifene 80 mg and
toremifene 20 mg product candidates. In January
2005, we acquired from Orion the right to market FARESTON® tablets in the United States
for the metastatic breast cancer indication. We also acquired from Orion a license to toremifene
for all indications in humans worldwide, except breast cancer outside of the United States.
Our most advanced product candidate, toremifene, is being developed for the prevention
of bone fractures and treatment of other estrogen deficiency side effects of ADT in men with
prostate cancer and for the prevention of prostate cancer in high risk men with high grade PIN.
ADT is the most common treatment for advanced, recurrent, or metastatic prostate cancer, and we
believe that it is currently used to treat approximately 700,000 men with
prostate cancer in the United States. In men, aromatase converts testosterone to estrogen.
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By
reducing testosterone to castrate levels, ADT depletes up to 80% of a man’s estrogen, resulting in
multiple estrogen deficiency side effects. These side effects include increased risk of serious
bone fractures, which can reduce survival in men on ADT by more than three years, as well as
accelerated and continuous bone loss. Other estrogen deficiency side effects include adverse lipid
changes and increased risk of cardiovascular disease, as well as common symptomatic side effects,
such as hot flashes and gynecomastia (painful breast enlargement). No treatments have been
approved by the FDA for the prevention of bone fractures and other estrogen deficiency side effects
in men with prostate cancer on ADT. We commenced a pivotal Phase III clinical trial of toremifene
80 mg for the prevention of bone fractures and treatment of other estrogen deficiency side effects
of ADT in men with prostate cancer under a Special Protocol Assessment, or SPA, with the FDA in
November 2003. A SPA is designed to facilitate the FDA’s review and approval of drug products by
allowing the agency to evaluate the proposed design and size of clinical trials that are intended
to form the primary basis for determining a drug product’s efficacy. The primary endpoint of our
Phase III trial was the reduction of new morphometric vertebral fractures measured by x-ray, and
the secondary endpoints included BMD, lipid profile changes, gynecomastia and hot flashes. In the
first quarter of 2008, we announced that the results of the Phase III clinical trial showed that
toremifene 80 mg reduced new morphometric vertebral fractures, met other key estrogen deficiency
endpoints of BMD, lipid profiles and gynecomastia and also showed that toremifene 80 mg
demonstrated a reduction in hot flashes in a subset of patients. In December 2008, we submitted a
NDA to the FDA for toremifene 80 mg for the prevention of bone fractures in men with prostate
cancer on ADT. The NDA has been accepted for filing and review by the FDA. We cannot predict if
the NDA will be approved in a timely manner, or at all, and if approved, if the FDA will require
any restrictions, limitations, and/or warnings in the label.
In the United States, prostate cancer is one of the most commonly diagnosed cancers and the
second leading cause of cancer-related deaths in men. Men who have high grade PIN are at high risk
of developing prostate cancer. We believe that more than 40% of men with high grade PIN detected on
a prostate biopsy develop prostate cancer within three years. In the United States, there are
over 115,000 new cases of high grade PIN diagnosed each year and an estimated 14 million men under
the age of 80 may unknowingly harbor this condition. Currently, there is no approved treatment to
prevent prostate cancer in high risk men with high grade PIN. In January 2005, we initiated a
pivotal Phase III clinical trial of toremifene 20 mg for the prevention of prostate cancer in high
risk men with high grade PIN, which is being conducted under a SPA with the FDA. A planned
efficacy interim analysis was conducted in the second quarter of 2008 which did not reach the
specified statistical outcome of p<0.003 required under the SPA. We anticipate conducting a
planned efficacy analysis after a certain number of additional cancer events have been recorded
among study patients, which we currently expect to occur in the summer of 2009. If the efficacy
analysis achieves a prespecified statistical goal, we plan to submit a NDA to the FDA. If we are
able to submit a NDA based on the results of the planned efficacy analysis, we will continue the
study to collect efficacy data and safety data during the NDA review process to satisfy the FDA’s
safety requirements set forth in the SPA. If the results from the efficacy analysis do not satisfy
the specified statistical requirements, we will make a final determination about the continuation
of the toremifene 20 mg Phase III clinical trial.
In our third clinical program, SARMs are being developed to treat sarcopenia, which is the
loss of skeletal muscle mass resulting in reduced physical strength and ability to perform
activities of daily living, cancer cachexia (cancer induced muscle loss), and other musculoskeletal
wasting or muscle loss conditions. In December 2006, we
announced that
OstarineTM,
a SARM, met
its primary endpoint in a Phase II proof of concept, double blind, randomized, placebo controlled
clinical trial in 60 elderly men and 60 postmenopausal women. In October 2008, we announced
topline results of a Phase II clinical trial evaluating Ostarine™ in patients with cancer cachexia.
In this analysis, the study met its primary endpoint of absolute change in total lean body mass
(muscle) compared to placebo and the secondary endpoint of muscle function (performance) after 16
weeks of treatment in 159 cancer patients with reported weight loss. In 2009, we and Merck expect
to complete an ongoing Phase II clinical trial evaluating MK-0773 in sarcopenia and expect to
initiate a clinical trial evaluating Ostarine™ in cancer cachexia.
In December 2007, we entered into a license and collaboration agreement with Merck that
governs our and Merck’s joint research, development and commercialization of SARM compounds and
related SARM products, including SARMs currently being developed by us and Merck and those yet to
be discovered, for all potential indications of interest. Under the agreement, we are conducting
preclinical research of SARM compounds and products, and Merck is primarily responsible for
conducting and funding development and commercialization. Merck paid
us an upfront licensing fee of $40.0 million, which was received
in January 2008. Merck also agreed to pay us $15.0
million in guaranteed cost reimbursements for research and development activities in equal annual
installments over a three year period beginning on the first anniversary of the effective date of
the agreement. In December 2008, we received $5.0 million from Merck as the first of the three
annual installment payments.
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We are also eligible to receive up to $422.0 million in future
milestone payments associated with the development and regulatory approval of a lead product
candidate, including Ostarine™, as defined in the
agreement, if multiple indications are developed and receive required regulatory approvals, as
well as additional milestone payments for the development and regulatory approval of other product
candidates developed under the agreement, upon the achievement of such development and regulatory
approval milestones and assuming the continued effectiveness of the agreement. Merck also has
agreed to pay us tiered royalties on net sales of products that may be developed under the
agreement. On the date the license and collaboration agreement with Merck became effective in
December 2007, we issued to Merck 1,285,347 newly-issued shares of our common stock for an
aggregate purchase price of approximately $30.0 million.
In September 2006, we entered into a collaboration and license agreement with Ipsen pursuant
to which we granted Ipsen exclusive rights in the European Territory to develop and commercialize
toremifene in all indications that we have licensed from Orion. In accordance with the terms of
the agreement, Ipsen paid us €21.5 million (approximately $27.1 million) as a license fee and
expense reimbursement and is paying us a total of €1.5 million in equal installments over a
three year period from the date of the agreement, of which two installments have been received by
us. Pursuant to the agreement, we are also entitled to receive from Ipsen up to an aggregate of
€39.0 million in milestone payments depending on the successful development and launch of
toremifene in certain countries of the European Territory for the high grade PIN indication,
subject to certain conditions, and the ADT indication. In February 2008, we earned a milestone of
€1.0 million (approximately $1.5 million) with the achievement of the primary endpoint in the
toremifene 80 mg Phase III clinical trial. Ipsen has agreed to be responsible for and to pay for
all clinical development, regulatory and launch activities to commercialize toremifene in the
European Territory for the high grade PIN indication and the ADT indication. We will remain
similarly responsible for all development and regulatory activities outside of the European
Territory. However, Ipsen has agreed to pay a portion of our toremifene development costs in the
United States if certain conditions are met. Under the agreement, Ipsen must elect to retain its
rights to commercialize toremifene and other products containing toremifene for the high grade PIN
indication. Until such time as Ipsen shall make its election, however, Ipsen is required to
initiate and carry out the development of toremifene for the high grade PIN indication in the
European Territory and to pay all costs associated therewith.
Scientific Background on Estrogens and Androgens
Both estrogens and androgens are hormones that play critical roles in men’s and women’s
health, regulating not only the reproductive system, but also having important effects on the
muscular, skeletal, cardiovascular, metabolic and central nervous systems. In order for the body
to function properly, a balance must exist between estrogens and androgens.
Estrogens are the primary hormone regulating bone turnover and bone quality, reduce the risk
of skeletal fractures, may be cardioprotective by having a favorable effect on lipid profile and
may reduce hot flashes. As testosterone levels decrease in aging men, there is also a gradual
increase in estrogen levels in the blood relative to testosterone levels which may promote benign
prostatic hyperplasia, or BPH, initiate prostate cancer and cause gynecomastia.
Testosterone, the predominant androgen in men, is important for mental well-being and for
masculine physical characteristics, such as muscle size and strength and bone strength. Male
reproductive health is also dependent on testosterone to maintain sexual interest, fertility,
erectile function and normal prostate function. Testosterone is converted into a more potent
androgen, dihydrotestosterone, or DHT, which also stimulates sebaceous and hair glands and may
cause unwanted effects like acne and hair loss. DHT is the primary androgen involved in BPH. In
aging men, there is a gradual decline in testosterone levels, which contributes to a loss of muscle
mass and strength, and decreased bone mineralization, which may result in osteoporosis and bone
fractures, erectile dysfunction, decreased sexual interest, depression and mood changes.
Estrogens and androgens perform their physiologic functions by binding to and activating their
hormone receptors located in various tissues. Once a hormone binds with its receptor, this
activates a series of cellular events that results in estrogenic or androgenic tissue effects.
Pharmaceuticals that target estrogen or androgen receptors have been used medically for over
50 years. The drugs that have been used to stimulate androgen receptors are either natural or
synthetic hormones, known as steroids. Steroids activate hormone receptors in all tissue types in
a non-selective manner resulting in not only beneficial effects but also in unwanted clinical
effects. In men, the absence of selectivity and conversion of testosterone to DHT may result in
unwanted side effects, such as the potential stimulation of latent into clinical prostate cancer,
and may enhance BPH, cause acne, cause loss of hair in men and hair growth in women and cause
gynecomastia. Currently, no orally available testosterone products have been approved for use
in the United States, and those testosterone products that are available must be administered by
intramuscular injections or by transdermal patches or gels that may not be convenient for patients
and, in some cases, can result in inconsistent blood levels of testosterone.
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There are also classes of small molecules that are not steroids that can bind to the same
hormone receptors. These nonsteroidal small molecules may either stimulate or block hormone
receptors depending on the type of tissue in which the receptor is found and the interaction of the
small molecule with the receptor. A drug that has the ability to either block or stimulate the
hormone receptor is called a selective receptor modulator. A selective receptor modulator that can
either block or stimulate a hormone receptor in a tissue-selective manner may be able to mimic the
beneficial, while minimizing the unwanted, effects of natural or synthetic steroid hormones.
A SERM is a nonsteroidal small molecule that binds to and selectively modulates estrogen
receptors. SERMs have the ability to either stimulate or block estrogen’s activity in different
tissue types. SERMs have been shown to mimic estrogen’s beneficial action in bone and lipid
profiles, and we believe that SERMs have the potential to block estrogen’s harmful activity in the
prostate and the breast. Examples of SERMs currently on the market include toremifene, which is
FDA approved to treat metastatic female breast cancer, and raloxifene, which is used to prevent and
treat postmenopausal female osteoporosis.
A SARM is a small molecule that binds to and selectively modulates androgen receptors, the
primary receptor to which testosterone binds. In men, SARMs potentially have beneficial action in
bone and muscle while blocking testosterone’s unwanted action in the prostate and skin. We further
believe that SARMs can be designed to either cross or not cross into the central nervous system and
to selectively modulate androgen receptors in the brain to affect mood and sexual interest.
Although no SARMs have been commercialized to date, we believe that SARMs without the harmful side
effects of testosterone or other exogenous anabolic steroid therapies can potentially be developed
to treat a range of medical conditions, including: (1) muscle loss conditions of chronic diseases,
such as cancer, AIDS, chronic kidney disease, end-stage renal disease, neurodegenerative disorders,
trauma and burns; (2) muscle loss conditions associated with aging such as frailty and sarcopenia;
(3) the prevention and/or treatment of osteoporosis; (4) prostate disorders, such as BPH; (5)
disorders of the central nervous system, such as low libido, depression and other mood disorders;
(6) low testosterone conditions, such as primary and secondary hypogonadism; (7) male reproductive
functions, such as infertility, male contraception and erectile dysfunction; and (8) other
conditions, such as anemia and male hair loss.
Marketed Product
FARESTON®
We currently market FARESTON® (toremifene citrate) 60 mg tablets, approved for the
treatment of metastatic breast cancer in postmenopausal women in the United States. Toremifene is the active pharmaceutical ingredient in FARESTON® and is currently being
developed in two separate clinical programs for toremifene 80 mg and
toremifene 20 mg. Toremifene is
a SERM owned and manufactured by Orion. On January 1, 2005, we entered into a revised license and
supply agreement with Orion to exclusively license toremifene for all indications in the United
States and for all indications in humans except breast cancer outside of the United States.
As part of our effort to complete the requirements for the submission of applications for
regulatory approval of toremifene 80 mg and toremifene 20 mg, we have conducted a number of studies
of toremifene in addition to our clinical trials, including a Thorough QT study. The results of
the Thorough QT study of 250 healthy male volunteers showed that toremifene prolonged the QT
interval in a dose dependent manner. Since we market FARESTON® in the United States
under a license agreement with Orion, we notified the FDA of the Thorough QT study results and have
proposed modifications to the FARESTON® label in the United States. FDA action on the
proposed label changes is pending. Separately, Orion recommended label changes to the European
Medicines Agency, or EMEA. In January 2009, the EMEA recommended that the FARESTON®
label within the European Union reflect that toremifene should not be given to patients at risk of
prolonged QT intervals or other certain heart problems.
We currently sell FARESTON® primarily through wholesale drug distributors. The top
three distributors, McKesson Corporation, Cardinal Health, Inc. and AmerisourceBergen Corporation,
accounted for approximately 96% of our product sales generated from the sale of
FARESTON® for the year ended December 31, 2008. The loss of any of these three
distributors could have a material adverse effect on continued FARESTON® sales. FARESTON® net product sales accounted for 8%, 15%, and 18% of our total revenue for
the years ended December 31, 2008, 2007 and 2006, respectively.
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Product Candidates
The following table identifies the development phase and status for each of our clinical
product candidates:
| Product | ||||||
| Candidate/ | Development | |||||
| Program | Indication | Phase | Status | |||
SERM
|
Toremifene | |||||
| 80 mg Prevention of bone fractures and treatment of other estrogen deficiency side effects of ADT in men with prostate cancer |
NDA under FDA review |
NDA submitted for the prevention of bone fractures in December 2008 and has been accepted for filing and review by the FDA |
||||
| Toremifene | ||||||
| 20 mg Prevention of prostate cancer in high risk men with high grade PIN |
Pivotal Phase III clinical trial |
Phase III clinical trial ongoing under a SPA; planned efficacy analysis expected to occur in the summer of 2009 |
||||
SARM
|
OstarineTM (MK-2866)* | |||||
| Treatment of cancer cachexia | Phase II clinical trial | Phase II clinical trial completed in September 2008 | ||||
| MK-0773* | ||||||
| Treatment of sarcopenia | Phase II clinical trial | Phase II clinical trial ongoing and expected to be completed in 2009 | ||||
LH inhibitor
|
GTx-758 Treatment of advanced prostate cancer |
Phase I clinical trial |
Phase I clinical trial initiated in the first quarter of 2009 |
| * | Compound part of the GTx and Merck joint research, development and commercialization collaboration |
Toremifene
Our most advanced product candidate, toremifene, is a SERM. Toremifene is being developed as
a once-a-day oral tablet to (1) prevent bone fractures and treat other estrogen deficiency side
effects of ADT in men with prostate cancer (80 mg dose) and (2) prevent prostate cancer in high
risk men with high grade PIN (20 mg dose). In January 2005, we exclusively licensed toremifene
from Orion for all indications in humans, except breast cancer outside of the United States. We
licensed rights to toremifene based on toremifene’s established record of safety in the treatment
of postmenopausal women with metastatic breast cancer and our belief that SERMs can treat estrogen
related complications resulting from ADT and reduce the incidence of prostate cancer in high risk
men with high grade PIN. Under a license and supply agreement with Orion, Orion manufactures and
supplies us with FARESTON®, the 60 mg dose of toremifene citrate, for sale in the United
States to treat metastatic breast cancer in postmenopausal women, as well as toremifene 20 mg dose
of toremifene citrate for our Phase III clinical trial for the prevention of prostate cancer in
high risk men with high grade PIN. Additionally, Orion will manufacture our commercial supply of
toremifene 80 mg, if FDA approval is obtained.
In September 2006, we licensed to Ipsen exclusive rights to develop and commercialize
toremifene in the European Territory in all indications that we have licensed from Orion.
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Toremifene 80 mg for the Prevention of Bone Fractures and Treatment of Other Estrogen Deficiency
Side Effects of ADT in Men with Prostate Cancer
Side Effects of ADT in Men with Prostate Cancer
Scientific Overview. ADT is the most common treatment for patients who have advanced,
recurrent or metastatic prostate cancer. ADT reduces testosterone, a primary growth factor for
prostate cancer, to levels similar to that of castrated men. ADT is accomplished either surgically
by removal of the testes, or chemically by treatment with LH releasing hormone agonists, or LHRH
agonists. LHRH agonists work by shutting off LH secretion by the pituitary gland, which stops
testosterone production by the testes. Examples of commercially marketed LHRH agonists are
Lupron® (leuprolide acetate), Zoladex® (goserelin acetate),Viadur®
(leuprolide acetate) and Eligard® (leuprolide acetate). The reduction in testosterone
from ADT also results in very low estrogen levels in men, because estrogen is derived from
testosterone in men.
Estrogen deficiency side effects associated with ADT include high risk of bone fractures,
adverse lipid changes which may lead to higher risk of cardiovascular diseases, hot flashes,
gynecomastia, depression, and memory loss. Increased risk of skeletal fractures is a significant
clinical problem because clinical studies have shown that prostate cancer patients who develop
skeletal fractures have 39 month shorter survival rates. Hot flashes occur because of reduced
estrogen levels in the brain. Hot flashes experienced by prostate cancer patients on ADT tend to
be severe, frequent and protracted and is the side effect most frequently mentioned by prostate
cancer patients on ADT.
Based on the results of our Phase III clinical trial, our two Phase II clinical trials and our
preclinical testing of toremifene 80 mg, as well as preclinical and clinical information known
about toremifene, toremifene has shown estrogenic activity both in bone, which prevents bone
fractures, and in the brain, which may reduce hot flashes. Toremifene has been shown to improve
lipid profiles in postmenopausal women and, based on data received from our Phase III clinical
trial, toremifene has been shown to improve lipid profiles in men with prostate cancer on ADT.
Toremifene has also been shown to block estrogen’s action in the male breast, which may prevent and
treat gynecomastia. As a consequence, we believe that toremifene 80 mg has the potential to treat
the following estrogen deficiency related side effects of LHRH agonists: bone fractures, hot
flashes, adverse lipid changes and gynecomastia. Importantly, as evidenced by our two Phase II
clinical trials and our Phase III clinical trial, toremifene has not been shown to stimulate
prostate cancer growth or increase luteinizing hormone in men with prostate cancer on ADT.
Potential Market. In the United States, we believe that approximately 700,000 prostate cancer
patients are currently being treated with ADT, and approximately 100,000 new patients are started
on this therapy each year. An increasing number of prostate cancer patients are being treated by
androgen deprivation with LHRH agonists earlier than in the past because of two main factors:
first, medical studies have shown that early ADT prolongs the survival of prostate cancer patients,
and second, the serum test for prostate specific antigen, or PSA, is detecting advanced prostate
cancer earlier than in the past. The net effect of prostate cancer being treated sooner and for
longer periods is that the estrogen deficiency related side effects of ADT have now been shown to
contribute significantly to morbidity, and in some cases may lead to increased mortality.
Physicians are currently prescribing certain drugs on an off-label basis to help ameliorate some of
the specific estrogen deficiency related side effects of ADT. These drugs include bisphosphonates
for osteoporosis, Megace® (megestrol acetate) and antidepressants for hot flashes and
tamoxifen for gynecomastia. Radiation is also used to treat gynecomastia. Currently, no treatments
have been approved by the FDA for the prevention of bone fractures and other estrogen deficiency
side effects in men with prostate cancer on ADT.
Clinical Trials.
In November 2003, we initiated a pivotal Phase III clinical trial of orally administered
toremifene 80 mg dose in patients undergoing ADT for advanced, recurrent or metastatic prostate
cancer under a SPA, with the FDA. We designed this pivotal Phase III clinical trial principally
based on the results of our second Phase II clinical trial that evaluated patients who had been
receiving LHRH agonists for more than 12 months. The primary endpoint of the trial was the
reduction of new morphometric vertebral fractures measured by x-ray, and the secondary endpoints of
the trial included BMD, hot flashes, lipid profile changes and gynecomastia. We reached our
enrollment goal in the fall of 2005 and randomized approximately 1,400 patients into the trial with
advanced, recurrent or metastatic prostate cancer who had been receiving ADT for at least six
months and who had significant existing bone loss, or were greater than 70 years of age. The
patients were randomized to receive either a placebo or a daily 80 mg dose of toremifene for 24
months. We conducted the trial in approximately 150 sites in the United States and Mexico. In
December 2005 and in accordance with the SPA, we completed a planned interim BMD analysis among the
first 197 patients who completed one year of treatment. Patients treated with toremifene 80 mg
demonstrated statistically significant increases in BMD compared to placebo in all three skeletal
sites measured, with lumbar spine showing an improvement of 2.3 percentage points (p<0.001),
hip, a 2.0 percentage point improvement (p=0.001), and femoral neck, a 1.5 percentage point
improvement (p=0.009).
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The last patient completed the ADT clinical trial in November 2007. In February 2008, we
announced that the results of the Phase III clinical trial showed that toremifene 80 mg reduced new
morphometric vertebral fractures, met other key estrogen deficiency endpoints of BMD, lipid
profiles and gynecomastia, and also demonstrated a reduction in hot flashes in a subset of
patients. In the modified intent to treat analysis which included all patients with at least one
evaluable study radiograph and a minimum of one dose of study drug or placebo, toremifene
80 mg demonstrated a 50% reduction in new morphometric vertebral fractures (p<0.05; 5%
fracture rate in the placebo group). The estimated two year fracture rate for new morphometric
vertebral fractures in the placebo group was 6.2%. In an intent to treat analysis which included
all patients randomized into the trial and who received a minimum of one dose of study drug,
toremifene 80 mg demonstrated a 54% reduction in new morphometric vertebral fractures (p=0.034;
3.6% fracture rate in the placebo group). In prespecified subset analyses, in study patients who
were greater than 80% treatment compliant, toremifene 80 mg reduced new morphometric
vertebral fractures by 61% (p=0.017). When study patients who had greater than 7% bone loss at one
year and new morphometric vertebral fractures were considered as treatment failures,
toremifene 80 mg compared to placebo demonstrated a 56% reduction (p=0.003).
Patients treated with toremifene 80 mg compared to placebo demonstrated
statistically significant increases in BMD in the lumbar spine, hip, and femur skeletal sites (each
site demonstrating p<0.0001). Toremifene 80 mg treatment compared to placebo also
resulted in a decrease in total cholesterol (p=0.011), LDL (p=0.018), and triglycerides
(p<0.0001), and an increase in HDL (p=0.001). There were also statistically significant
improvements in gynecomastia (p=0.003). In March 2008, we announced that in an analysis of hot
flashes in a subset of patients in the toremifene 80 mg Phase III clinical trial experiencing six
or more hot flashes per day at baseline and not being treated with megestrol acetate (Megace(R)),
toremifene 80 mg treatment reduced the number of hot flashes by an average of 4.7 hot
flashes per day compared to placebo patients who had a reduction of 1.6 hot flashes per day
(p=0.03). The reduction of hot flashes in patients treated with toremifene 80 mg was
durable for at least 12 months.
Toremifene 80 mg had a favorable safety profile and was well tolerated. Among the most common
adverse events that occurred in over 2% of study subjects were joint pain (treated 7.3%, placebo
11.8%), dizziness (treated 6.3%, placebo 6.2%), back pain (treated 6.0%, placebo 5.2%), and
extremity pain (treated 5.0%, placebo 4.4%). Venous thromboembolic events, or VTEs, which included
both deep venous thrombosis and pulmonary embolism, were 17 (2.6%) in the toremifene 80
mg treated group and 7 (1.1 %) in the placebo group. The risk for VTE’s was similar between the
toremifene 80 mg treated group and the placebo group in the second year of treatment.
The majority of VTEs occurred in men at high risk for a VTE (including: age greater than 80 years,
history of VTEs, recent surgical procedure or immobilization). In men without major risk factors
for VTE, there were 5 VTEs in the toremifene 80 mg treated group and 3 VTEs in the
placebo group.
As part of our effort to complete the requirements for the submission of applications for
regulatory approval of toremifene 80 mg, we have conducted a number of studies of toremifene in
addition to our clinical trials, including a Thorough QT study, a bioequivalence study and a series
of drug-drug interaction studies. The results of the Thorough QT study of 250 healthy male
volunteers, with 5 parallel cohorts receiving 20 mg, 80 mg or 300 mg doses of toremifene,
moxifloxacin, or placebo, showed that toremifene prolonged the QT interval in a dose dependent
manner. The mean change in QTcB (a measurement of QT interval corrected by Bazett’s formula) from
baseline relative to placebo for toremifene 20 mg was 5.79 milliseconds, for toremifene 80 mg, it
was 22.43 milliseconds, and for moxifloxacin, it was 8.83 milliseconds. Since we market
FARESTON® in the United States under a license agreement with Orion, we notified the FDA
of the Thorough QT study results and have proposed modifications to the FARESTON® label
in the United States. FDA action on the proposed label changes is pending. Separately, Orion
recommended label changes to the EMEA. In January 2009, the EMEA recommended that the
FARESTON® label within the European Union reflect that toremifene should not be given to
patients at risk of prolonged QT intervals or other certain heart problems. Our Thorough QT study
was designed to better understand the risk of Torsades de Pointes, or Torsades, a rare and
potentially fatal arrhythmia. The degree of QT interval prolongation is recognized as an imperfect
surrogate marker for the risk of Torsades. Moreover, it is well established that not all medicines
which prolong QT will result in Torsades and Torsades can occur in the absence of QT prolongation.
The post marketing pharmacovigilance database of approximately 480,000 patient years of use of
toremifene at doses up to 240 mg in women, who are more sensitive to develop Torsades than are men,
and the extensive clinical development programs in women and now in men, substantiate that there
have been no reported cases of Torsades in patients taking toremifene. In our pivotal Phase III
clinical trial, there was no increase in adverse events that have been associated with cardiac
arrythmia in the toremifene group compared to placebo. The results of these completed studies have
been included as a part of the NDA submission to the FDA for our toremifene 80 mg product candidate
for the prevention of bone fractures in men with prostate cancer on ADT and, subject to receipt of
favorable results from our ongoing toremifene 20 mg Phase III clinical trial, will be included as a
part of the NDA submission for our
toremifene 20 mg product candidate for the prevention of prostate cancer in high risk men with
high grade PIN, and will be used to update the label for FARESTON®.
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The study results
could lead to the inclusion of restrictions, limitations and/or warnings in the label of
FARESTON® or an approved product candidate, which may adversely affect the marketability
of the product or limit the patients to whom the product is prescribed.
NDA Filing. In December 2008, we submitted a NDA for toremifene 80 mg for the prevention of
bone fractures in men with prostate cancer on ADT, which has been accepted for filing and review by
the FDA.
Toremifene 20 mg for the Prevention of Prostate Cancer in High Risk Men with High Grade PIN
Scientific Overview. Patients who have an abnormal serum PSA test, a prostate cancer blood
test that is commonly administered to men as part of physical examinations, or an abnormal digital
rectal examination routinely undergo a prostate biopsy to determine whether they have prostate
cancer. Precancerous prostate lesions known as high grade PIN, rather than prostate cancer, are
detected in approximately 15% of the patients who undergo prostate biopsies. Over the last 17
years, scientific evidence has established that men who have high grade PIN are at high risk for
developing prostate cancer. We believe that more than 40% of these men will progress to prostate
cancer within three years. We believe that this strong correlation between high grade PIN and
prostate cancer makes these men an appropriate population to treat to prevent prostate cancer.
Currently, there is no approved treatment to prevent prostate cancer in men who are diagnosed with
high grade PIN.
Testosterone and estrogens together are important for the initiation of prostate cancer.
Estrogens may promote the development of prostate cancer by stimulating high grade PIN and causing
it to progress into prostate cancer. Estrogen receptors are found in the normal prostate and in
high grade PIN lesions. In animal models of prostate cancer, blocking estrogens’ action has been
shown to reduce the incidence of prostate cancer. Because toremifene blocks estrogen receptors in
the prostate, we believe that it has the potential to reduce the incidence of prostate cancer in
high risk men with high grade PIN.
Potential Market. In the United States, prostate cancer is one of the most commonly diagnosed
cancers and the second leading cause of cancer-related deaths in men. There are approximately
186,000 new cases of prostate cancer diagnosed each year and 29,000 prostate cancer deaths annually
in the United States. In addition, in the United States, there are over 115,000 new cases of high
grade PIN diagnosed each year, with an estimated 14 million men under the age of 80 who unknowingly
harbor high grade PIN.
Patients who are diagnosed with high grade PIN may undergo repeat biopsies following the
diagnosis in order to detect the progression of high grade PIN into prostate cancer. Prostate
biopsies are performed through an ultrasound probe placed in the rectum. Hollow needles are then
inserted through the probe through the rectum into the prostate to obtain sample cores of tissue.
Complications from this procedure include bleeding, pain, prostate infection and, in rare
instances, life-threatening blood infection (sepsis). Because the prostate biopsy technique
randomly samples the prostate gland with a relatively thin needle, both prostate cancer and high
grade PIN may be missed by the biopsy. Patients with high grade PIN are exposed to the potential
complications and the discomfort of invasive, repeat prostate biopsies and are subject to the
mental anguish of fearing that a diagnosis of prostate cancer may be imminent.
We have entered into separate collaboration agreements with diagnostic companies, including
Hybritech, Inc., a wholly owned subsidiary of Beckman Coulter, Inc., MacroArray Technologies, LLC,
and Gen-Probe, Inc., to provide clinical samples to these companies from our Phase IIb clinical
trial and/or our ongoing Phase III clinical trial of toremifene 20 mg for the prevention of
prostate cancer in high risk men with high grade PIN. Information resulting from these
collaborations will be used to evaluate whether a commercial test using blood or urine may be
effectively developed to detect high grade PIN and/or prostate cancer. By continuing to
collaborate with leading diagnostic labs, we hope to have a urine or blood test developed to detect
high grade PIN in the millions of American men who may unknowingly harbor high grade PIN and/or
prostate cancer.
Clinical Trials. In 2004, we completed a randomized, double blind, placebo controlled, dose
finding Phase IIb clinical trial of toremifene in men diagnosed with high grade PIN to determine
the efficacy and safety of a daily dose of toremifene for 12 months. The trial enrolled 514 men
and was conducted at 64 clinical sites across the United States. The primary efficacy endpoint of
this trial was incidence of prostate cancer at 12 months. Participants were randomized to receive a
20 mg, 40 mg or 60 mg dose of toremifene or placebo. A screening prostate biopsy was performed on
each trial participant before enrollment into the trial, and eligibility was limited to
participants who were diagnosed with high grade PIN and had no evidence of prostate cancer.
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A
second biopsy was performed six months after enrollment in an effort to identify trial participants
who had prostate cancer that was not detected by the initial biopsy. The intent to treat
population consisted of all patients initially enrolled in the trial who returned for their
six-month biopsy. We also analyzed trial results in a predefined subgroup of patients that
excluded patients showing biopsy evidence of prostate cancer at six months and patients who did not
complete the full course of therapy in the trial (completer’s analysis).
We analyzed the results of this Phase IIb clinical trial on a stratified basis, in which we
assessed the effect of individual clinical sites on the overall statistical analysis of the trial
results, and on an unstratified basis, in which we did not assess such effect. In the stratified
analysis of the per protocol population, which is the intent to treat population less two patients
in the group that received 20 mg of toremifene who were deemed to be not compliant with the
protocol, the cumulative, or overall, risk of prostate cancer was 24.4% in the group that received
20 mg of toremifene compared with 31.2% in the group that received placebo. The p-value for this
result was less than 0.05. Thus, the cumulative risk of prostate cancer based on a stratified
analysis of the per protocol population was 22.0% lower in the 20 mg treatment group, which would
imply an annualized rate of prevention of cancers of 6.8 per 100 men treated. The p-value in the
unstratified analysis of the per protocol population for the comparison between the group that
received 20 mg of toremifene and the group that received placebo was 0.132. In the stratified
analysis of the intent to treat population, the cumulative risk of prostate cancer was 24.9% in the
group that received 20 mg of toremifene compared with 31.2% in the group that received placebo. The
p-value for this result was 0.081, which was statistically significant under the protocol for this
trial. Statistical significance under the protocol was defined as a p-value of 0.10 or less. The
p-value in the unstratified analysis of the intent to treat population for the comparison between
the group that received 20 mg of toremifene and the group that received placebo was 0.148.
In a stratified analysis of the subgroup of patients who had no biopsy evidence of prostate
cancer at their initial screening biopsy or their six-month biopsy and completed the full course of
therapy in the trial, the cumulative risk of prostate cancer was 9.1% in the group that received 20
mg of toremifene compared with 17.4% in the group that received placebo, a 48.2% reduction. The
p-value for this result was less than 0.05. For the 40 mg and 60 mg treatment arms, in the intent
to treat population, the per protocol population and the predefined patient subgroup, the
cumulative risk of cancer was lower than the placebo group, although these results were not
statistically significant.
The overall rates of drug-related adverse events and serious adverse events did not differ to
a significant degree between any of the toremifene dose groups and placebo. The results of our
pivotal Phase III clinical trial of toremifene 20 mg for this indication may not be the same as the
results of this Phase IIb clinical trial.
In January 2005, we initiated a randomized, double blind, placebo controlled pivotal Phase III
clinical trial of orally administered toremifene 20 mg for the prevention of prostate cancer in
high risk men with high grade PIN, which is being conducted under a SPA with the FDA.
Approximately 130 clinical sites across the United States and Canada are participating in this
trial. We have randomized a total of 1,590 patients into the trial, 330 patients above our
enrollment goal of 1,260 patients. These additional patients are also participating in bone and
ocular substudies requested by the FDA under the SPA. A planned efficacy interim analysis was
conducted in the second quarter of 2008 which did not reach the specified statistical outcome of
p<0.003 required under the SPA. We anticipate conducting a planned efficacy analysis after a
certain number of additional cancer events have been recorded among study patients, which we
currently expect to occur in the summer of 2009. If the efficacy analysis achieves a prespecified
statistical goal, we plan to submit a NDA to the FDA. If we are able to submit a NDA based on the
results of the planned efficacy analysis, we will continue the study to collect efficacy data and
safety data during the NDA review process to satisfy the FDA’s safety requirements set forth in the
SPA. If the results from the efficacy analysis do not satisfy the specified statistical
requirements, we will make a final determination about the continuation of the toremifene 20 mg
Phase III clinical trial.
A Data Safety Monitoring Board, or DSMB, meets every six months to review unblinded data from
the toremifene 20 mg Phase III clinical trial. In February 2009, an independent DSMB conducted a
planned, semi-annual review of unblinded safety data from the 1,590 patients participating in the
toremifene 20 mg Phase III high grade PIN clinical trial and recommended the clinical trial
continue as planned.
SARMs
We and Merck have entered into a global strategic collaboration to discover and develop SARMs, a
new class of drugs with the potential to treat sarcopenia, which is the loss of skeletal muscle
mass resulting in reduced physical strength and ability to perform activities of daily living,
cancer cachexia (cancer induced muscle loss), and other musculoskeletal wasting or muscle loss
conditions.
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OstarineTM for the Treatment of Cancer Cachexia
Scientific Overview. Cancer cachexia is defined as the unintentional loss of lean body mass
or muscle. Cancer causes the body to go into a starvation-like state that results in the
preferential loss of muscle. Loss of muscle may lead to weakness, fatigue, diminished response and
greater toxicity to chemotherapy, and in some cases, death. Approximately one-third of
newly-diagnosed cancer patients have cancer cachexia which accounts for approximately 20% of cancer
deaths. Weight loss is one of the most important indicators of how long a cancer patient will live
since the survival of a patient with cancer is greatly impacted by the degree and rate of muscle
loss. A greater lean body weight may increase strength, activity levels, quality of life, response
to chemotherapy and, ultimately, survival.
Testosterone increases lean body weight in both men and women. One of the causes of cancer
cachexia may be reduced levels of testosterone. Testosterone therapy, however, is not used for the
treatment of cancer cachexia for two reasons. First, the available delivery methods for
testosterone may not be convenient for patients, and second, testosterone can have a number of
undesirable side effects in men, such as the potential stimulation of latent prostate cancer,
aggravation of existing BPH and gynecomastia, and in women, masculinizing effects such as acne and
facial hair.
OstarineTM is an oral nonsteroidal agent designed to have anabolic activity on
muscle and bone without unwanted side effects on prostate and skin. We believe that
OstarineTM is similar to testosterone in activating androgen receptors in muscle,
thereby promoting lean body weight, but does not stimulate sebaceous glands, the cause of hair
growth and acne, or the prostate, which may exacerbate BPH or stimulate prostate cancer. In
addition, OstarineTM is being developed in an oral dosage form, which patients may find
is more convenient to take.
Potential Market. There are approximately 1.4 million patients diagnosed with cancer each
year in the United States. It has been estimated that cancer cachexia afflicts approximately
410,000 patients. The prevalence of precachexia at-risk patients is 2.9 million. Over 30 clinical
trials of supplemental nutritional support alone have reported little or no benefit in
counteracting cachexia in cancer patients receiving chemotherapy or radiation. There are no drugs
that have been approved by the FDA for the treatment of cancer cachexia. Although there are two
commercially available anabolic steroids being prescribed off-label for the treatment of cancer
cachexia, chronic use of these drugs may result in liver toxicity. Also, Megace®, an
appetite stimulant which has been used off-label for cancer patients, has not been shown to
increase lean body mass in spite of increasing appetite.
Clinical Trials. We have clinical data from two Phase I clinical trials and two Phase II
clinical trials of OstarineTM. In our first Phase I clinical trial, a double blind,
placebo controlled, single ascending dose study in 96 healthy male volunteers,
OstarineTM was well tolerated and there were no drug-related serious adverse events.
This clinical trial demonstrated that the half life of OstarineTM was approximately
24 hours.
The second Phase I clinical trial was a double blind multiple ascending dose 14 day study to
evaluate the safety, tolerability, pharmacokinetics, and specific pharmacodynamic characteristics
of OstarineTM in 48 healthy male volunteers between 18 and 45 years of age and 23
elderly males with an average age of 68 years. Measurements included routine blood chemistry and
hematology, sex hormones and gonadotropins, serum prostate specific antigen, metabolic markers of
bone and muscle, cutaneous sebum analysis and DEXA scanning for body composition. Overall, clinical
laboratory values and hormonal effects for the 71 volunteers were consistent with anabolic
activity. Comparisons of DEXA assessments from the beginning of the study to DEXA assessments after
14 days showed positive changes in body composition at clinically relevant doses; increases in lean body mass and
decreases in fat mass were observed. OstarineTM did not appear to have unwanted side
effects on the prostate (serum PSA) or the skin (sebum analysis). OstarineTM was well
tolerated with no drug-related serious adverse events. However, Phase I clinical trials are not
designed to show efficacy, and the results of future clinical trials may not be the same as these
early observations.
In May 2006, we initiated a Phase II proof of concept, double blind, randomized, dose finding
placebo controlled clinical trial in 60 elderly men and 60 postmenopausal women. The trial was
designed to evaluate OstarineTM treatment in building muscle, as well as to assess
safety in both elderly men and postmenopausal women. Enrollment was completed in July 2006, and in
December 2006, we reported the topline results. Without a prescribed diet or exercise regimen,
all subjects treated with OstarineTM had dose dependent increases in the primary
endpoint total lean body mass. Treatment with OstarineTM also resulted in a dose
dependent improvement in functional performance, a secondary endpoint, measured by a stair climb
test. OstarineTM had a favorable safety profile, with no serious adverse events
reported. OstarineTM also exhibited tissue selectivity with beneficial effects
on lean body mass and performance and with no apparent change in measurements of serum PSA,
sebum production, or serum LH.
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In July 2007, we initiated a Phase II randomized, double blind, placebo controlled clinical
trial evaluating Ostarine™ for the treatment of cancer cachexia in 159 patients diagnosed with
non-small cell lung cancer, colorectal cancer, non-Hodgkin’s lymphoma, chronic lymphocytic
leukemia, or breast cancer. In October 2008, we announced topline results of this clinical trial.
In this analysis, the study met its primary endpoint of absolute change in total lean body mass
(muscle) compared to placebo and the secondary endpoint of muscle function (performance) after 16
weeks of treatment in 159 cancer patients with reported weight loss. In 2009, we and Merck expect
to initiate a clinical trial evaluating Ostarine™ in cancer cachexia.
SARMs for the Treatment of Sarcopenia
Scientific Overview. Every year after age 30, people lose on average a half pound of muscle
and gain a pound of fat. A typical man may lose 35% of muscle between the ages of 20 and 80 years
of age. A contributing factor to muscle loss in men is that testosterone levels decrease by 1%
every year after the age of 30 years. Muscle plays several important roles: muscle provides
strength and endurance, supports the skeletal system, plays an important role in metabolism, and
helps protect the body by providing protein for the immune system. During an illness or trauma to
the body, the energy demands of the body increase, and the body breaks down muscle to get protein
to fuel the body’s needs, to repair damaged organs, and to replenish immune system cells. As
people lose muscle, they become fatigued more easily, making it more difficult for them to
rehabilitate and recover. Loss of muscle can cause frailty, loss of independence and can worsen
other conditions of aging such as osteoarthritis and osteoporosis. People who are fatigued may
become more sedentary, which can lead to a reduction in their quality of life. Loss of muscle and
bone with age is sometimes referred to as frailty whereas loss of bone only is referred to as
osteoporosis. A 2001 study among more than 5,000 elderly adults found that over a three-year period
the death rate among the frail elderly was 18%, versus a 3% mortality rate in the non-frail
elderly. The frail were also far more likely to experience falls, hospitalizations and loss of
independence.
We believe that SARMs can build muscle and bone by improving: (1) the body’s efficiency at
metabolizing protein from food, (2) the body’s ability to recycle protein, (3) the body’s ability
to burn fat and build muscle and (4) the body’s ability to maintain and promote bone. We believe
that SARMs can increase muscle size and strength, resulting in improved function, quality of life
and speed of recovery, and can prevent osteoporosis and bone fractures. SARMs have been designed
to have anabolic properties in muscle and bone without unwanted side effects, such as the
stimulation of prostate cancer in men and masculinization in women. In preclinical studies of
intact animals, SARMs have been shown to build muscle and bone while shrinking the prostate.
Potential Market. There are approximately 17.5 million people over the age of 65 in the
United States who have age related loss of muscle mass. In the United States in 2006, there were
approximately 13.1 million hospital discharges among the 35 million people over the age of 65
years. It has been shown that from the time of the onset of their illness, approximately 50% of
the elderly declined in health after their hospital stay. Muscle loss is a contributing factor in
their inability to completely recover. Current anabolic agents available in the market may be
experiencing limited acceptance by patients due to concerns about their potential undesirable side
effects, and inconvenient dosing. Testosterone is not available as an oral tablet in the United
States and topical gels and patches are the most utilized forms of delivery for testosterone
currently.
Clinical Trials. We and Merck are conducting an ongoing Phase II clinical trial evaluating
MK-0773, a SARM, in sarcopenia, which we expect to complete in 2009.
LH Inhibitor
GTx-758 for the Treatment of Advanced Prostate Cancer
Scientific
Overview. GTx-758 is an oral luteinizing hormone, or LH,
inhibitor which we are
developing for first line treatment of advanced prostate cancer. In animal models, GTx-758 rapidly
suppresses secretion of LH by feedback inhibition on the pituitary, inhibiting the production of
androgens by the testes.
ADT is the most common treatment for patients who have advanced prostate cancer. ADT reduces
testosterone, a primary growth factor for prostate cancer, to castrate levels. ADT is accomplished
either surgically by removal of the testes or chemically by LHRH therapy. LHRH agents work by
shutting off LH secretion by the pituitary gland thereby stopping testosterone production by the
testes.
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The reduction in testosterone by ADT also results in very low
estrogen levels in men, because estrogen is derived from testosterone in men. Estrogen
deficiency side effects associated with LHRH therapies may include bone loss and bone fractures,
adverse lipid changes, hot flashes, gynecomastia and impaired cognitive function. Increased risk
of skeletal fractures is a significant clinical problem because clinical studies have shown that
median survival in prostate cancer patients who develop skeletal fractures is reduced by 39 months.
In preclinical in vitro and in vivo models, GTx-758 has demonstrated the potential to reduce
testosterone to castrate levels without causing certain estrogen deficiency side effects such as
bone loss and hot flashes.
Potential Market. In the United States, we believe that approximately 700,000 prostate cancer
patients are currently being treated with ADT, and approximately 100,000 new patients are started
on this therapy each year. An increasing number of prostate cancer patients are being treated by
androgen deprivation with LHRH agonists. In 2008, the annual US sales
of drugs for androgen deprivation therapy, which include currently
marketed LHRH agonists, were approximately $1.7 billion.
Clinical Trials. We have initiated a Phase I clinical trial evaluating GTx-758 in healthy
volunteers in the first quarter of 2009. The Phase I study will evaluate the safety, tolerability
and pharmacokinetic profile of GTx-758 using a single ascending dose, double blind, placebo
controlled design in healthy male volunteers. We further expect to establish proof of concept for
GTx-758 with a Phase I multiple ascending dose clinical trial that we are planning to initiate in
the second quarter of 2009 and conclude in the fourth quarter of 2009.
Drug Discovery and Other Research and Development
Steroid hormone therapies, which include estrogen and testosterone therapies, have been used
to treat humans for many years. Steroid hormones by their nature have unselective effects in
various tissues. As a result, they have unintended side effects, which limit their clinical value.
SERM-based drugs, such as toremifene, tamoxifen and raloxifene, have achieved commercial
success in treating women as nonsteroidal small molecules that modulate hormone estrogen receptors
in a tissue selective way and minimize some of the side effects of the natural estrogen hormone to
treat breast cancer (toremifene and tamoxifen) or to treat postmenopausal osteoporosis
(raloxifene). We believe that the previous commercial and scientific success of SERMs indicates
that it is possible to design and develop classes of nonsteroidal small molecule drugs to modulate
hormone receptors in addition to estrogen receptors.
We have an extensive preclinical pipeline generated from our own discovery program, including
GTx-878, which is an estrogen receptor beta agonist that is currently in preclinical development
for the potential treatment of ophthalmic, prostatic, or inflammatory diseases. In preclinical
models, GTx-878 has demonstrated the potential to inhibit prostate growth, relax urethral smooth
muscle tone, prevent angiogenesis, protect from oxidative stress and affect body composition.
We believe that our drug discovery expertise will allow us to sustain our clinical pipeline
through the design and development of nonsteroidal small molecule drugs that selectively modulate
hormone receptors. Our in-house medicinal chemists and scientists provide us with significant
discovery and development expertise. Using our capabilities in hormone receptor biology and
medicinal chemistry, we are able to target many hormone receptors and generate compounds that are
designed to address the shortcomings of natural hormone therapies.
We design and synthesize new compounds based on computer, or in silico, models and crystal
structures of a hormone receptor’s binding sites. We continually modify and improve these models
to reflect our study of the activity of new compounds in the laboratory, in which we determine the
link between chemical structures and biological activity, or structure-activity relationships.
We also have significant medicinal scale-up and high throughput capabilities, which facilitate
our rapid synthesis and evaluation of new compounds. Throughout our discovery process, we build
diversity into our chemistry structures in order to improve our likelihood of success in developing
novel compounds that have the potential to treat multiple indications. Through this approach, we
have generated clinical product candidates for the androgen receptor such as OstarineTM,
a nuclear hormone receptor modulator. We also have conducted research and development efforts
focused on other SERM and SARM compounds, other hormone receptor modulator compounds and anticancer
agents.
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Our Strategy
Our objective is to discover, develop and commercialize small molecules that selectively
target hormone pathways to treat cancer, osteoporosis and bone loss, muscle loss and other serious
medical conditions. Key elements of our strategy to achieve this objective are to:
Obtain Regulatory Approvals of Toremifene 80 mg and Toremifene 20 mg. We have completed our
Phase III clinical trial of toremifene 80 mg to prevent bone fractures and treat other estrogen
deficiency side effects in men with prostate cancer on ADT, which was conducted under a SPA, and
submitted a NDA to the FDA in December 2008 for the prevention of bone fractures in men with
prostate cancer on ADT. In addition, we are conducting our Phase III clinical trial of toremifene
20 mg for the prevention of prostate cancer in high risk men with high grade PIN under a SPA with
the FDA. We are focused on obtaining regulatory approval and preparing for the potential
commercial launch of toremifene 80 mg.
Commercialize Toremifene 80 mg and Toremifene 20 mg in the United States and Establish a Sales
and Marketing Infrastructure. We have licensed from Orion the commercial rights to toremifene in
the United States. We believe that, if approved, we can effectively market toremifene to
urologists and medical oncologists in the United States through a specialty sales force that we
plan to build.
Partner Commercial Rights to Toremifene in Europe, Asia and the Rest of the World. In
September 2006, we licensed to Ipsen exclusive rights in the European Territory to develop and
commercialize toremifene in all indications which we have licensed from Orion. We are
currently pursuing a similar partnership for toremifene in Asia and other markets outside of the
United States and Europe. We and Ipsen also intend to apply for market exclusivity and regulatory
extensions of patent life under applicable European and U.S. laws, as appropriate, to protect our
exclusive rights in toremifene for the indications that we are currently testing in clinical
trials.
Develop Diagnostic Tests for High Grade PIN. We are currently collaborating with several
diagnostics companies, including Hybritech, Inc., a wholly owned subsidiary of Beckman Coulter,
Inc., MacroArray Technologies, LLC, and Gen-Probe, Incorporated to develop an accurate blood or
urine test to detect high grade PIN. We will continue to seek additional collaborations with other
companies with promising high grade PIN diagnostics. We believe that men would be more willing to
be tested for high grade PIN if the diagnostic test were less invasive than a prostate biopsy. In
February 2007, MacroArray Technologies reported in Clinical Cancer Research the development of a
urine test to non-invasively detect high grade PIN. Given the large number of patients with
undiagnosed high grade PIN, we believe that the development of a blood or urine test would increase
the detection of high grade PIN and thereby expand the already large potential market for
toremifene 20 mg.
Pursue Clinical Development of SARMs with Merck. In December 2007, we and Merck formed a
global strategic collaboration for the discovery, development and commercialization of SARMs. We
and Merck have pooled our programs and compounds and intend to work together to discover, develop
and commercialize current, as well as future SARMs.
Build Upon Our Other Drug Discovery Capabilities to Sustain Our Small Molecule Product
Candidate Pipeline to Selectively Target Hormone Pathways. While our clinical development efforts
to date have focused on SERM and SARM technologies, we have the capability to discover and develop
additional drug candidates that target other hormone receptors. We intend to develop new molecules
to treat diseases that affect large numbers of patients and are underserved by available
alternatives or for which there are no current alternatives. We have initiated a Phase I clinical
trial evaluating GTx-758, an oral LH inhibitor for advanced prostate cancer, in healthy volunteers
in the first quarter of 2009. We further expect to establish proof of concept for GTx-758 with a
Phase I multiple ascending dose clinical trial which we are planning to initiate in the second
quarter and conclude in the fourth quarter of 2009.
Maintain Commercial Sales of FARESTON®. We intend to continue to market
FARESTON® in the United States.
Licenses and Collaborative Relationships
In addition to our internally-developed and discovered small molecules, we have established
and intend to continue to pursue licenses from and collaborative relationships with pharmaceutical
companies and academic institutions to further the development and commercialization of our small
molecule product candidates.
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Merck & Co., Inc.
In December 2007, we and Merck entered into a global exclusive license and collaboration
agreement governing our and Merck’s joint research, development and commercialization of SARM
compounds and related SARM products, including SARMs currently being developed by us and Merck and
those yet to be discovered, for all potential indications of interest.
Under the agreement, we granted Merck an exclusive worldwide license under our SARM-related
patents and know-how. We are conducting preclinical research of SARM compounds and products, and
Merck is primarily responsible for conducting and funding development and commercialization of
products developed under the agreement. Merck paid us an upfront licensing fee of $40.0 million,
which was received in January 2008. In addition, Merck has agreed to pay us $15.0 million in
guaranteed cost reimbursements for research and development activities in equal annual installments
over a three year period beginning on the first anniversary of the effective date of the agreement.
In December 2008, we received $5.0 million from Merck as the first of the three annual installment
payments. We are also eligible to receive under the agreement up to $422.0 million in future
milestone payments associated with the development and regulatory approval of a lead product
candidate, including Ostarine™, as defined in the agreement, if multiple indications are developed
and receive required regulatory approvals, as well as additional milestone payments for the
development and regulatory approval of other product candidates developed under the agreement.
Merck has also agreed to pay us tiered royalties on net sales of products that may be developed
under the agreement. We are responsible for any payments owed to the University of Tennessee
Research Foundation, or UTRF, resulting from the agreement. On the date the agreement became
effective in December 2007, we issued Merck 1,285,347 newly issued shares of our common stock for
an aggregate purchase price of approximately $30.0 million.
Unless terminated earlier, the agreement will remain in effect in each country of sale at
least until the expiration of all valid claims of the licensed patents in such country. However,
Merck may terminate the agreement at its election at any time after a specified period of time
following the effectiveness of the agreement, and either party may terminate the agreement at any
time for the other party’s uncured material breach or bankruptcy. Under certain conditions, Merck
will continue to owe royalties on certain products after it terminates the agreement without cause.
Ipsen Group
In September 2006, we entered into a collaboration and license agreement with Ipsen pursuant
to which we granted Ipsen exclusive rights in the European Territory to develop and commercialize
toremifene in all indications which we have licensed from Orion, which include all indications in
humans except the treatment and prevention of breast cancer outside the United States. In the
agreement, both parties have agreed that neither party will seek to commercialize, promote, market
or sell certain products within the European Territory for an agreed upon period of time subsequent
to the time of the first commercial launch of toremifene within the European Territory. We and
Ipsen have also granted to each other a right of first negotiation with respect to the development,
marketing, sale and distribution of any new SERM-based products for the field of the prevention and
treatment of prostate cancer or related side effects, or any other indication the parties may agree
on.
In accordance with the terms of the agreement, Ipsen agreed to pay us €23.0 million as a
license fee and expense reimbursement, of which
€1.5 million is being paid in equal installments over a three year period from the date of the agreement. In October 2006, we received €21.5 million (approximately $27.1 million) from Ipsen as the initial payment for the license fee and expense reimbursement. In September 2007, we received €500,000 (approximately $688,000) from Ipsen as the first annual installment payment. The second annual installment payment of
€500,000 (approximately $711,000) was received from Ipsen in September 2008. Pursuant to the agreement, we are also entitled to receive from Ipsen up to an aggregate of €39.0 million in milestone payments depending on the successful development and launch of toremifene in certain countries of the European Territory for the high grade PIN indication, subject to certain conditions, and the ADT indication. In February 2008, we earned a milestone of €1.0 million (approximately $1.5 million) with the achievement of the primary endpoint in the toremifene 80 mg ADT Phase III clinical trial. This amount was recognized as collaboration revenue for the year ended December 31, 2008.
€1.5 million is being paid in equal installments over a three year period from the date of the agreement. In October 2006, we received €21.5 million (approximately $27.1 million) from Ipsen as the initial payment for the license fee and expense reimbursement. In September 2007, we received €500,000 (approximately $688,000) from Ipsen as the first annual installment payment. The second annual installment payment of
€500,000 (approximately $711,000) was received from Ipsen in September 2008. Pursuant to the agreement, we are also entitled to receive from Ipsen up to an aggregate of €39.0 million in milestone payments depending on the successful development and launch of toremifene in certain countries of the European Territory for the high grade PIN indication, subject to certain conditions, and the ADT indication. In February 2008, we earned a milestone of €1.0 million (approximately $1.5 million) with the achievement of the primary endpoint in the toremifene 80 mg ADT Phase III clinical trial. This amount was recognized as collaboration revenue for the year ended December 31, 2008.
Ipsen has agreed to be responsible for and to pay for all clinical development, regulatory and
launch activities to commercialize toremifene in the European Territory for both the high grade PIN
indication and ADT indication. We will remain similarly responsible for all development and
regulatory activities outside of the European Territory. However, Ipsen has agreed to pay a
portion of our toremifene development costs in the United States if certain conditions are met.
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Under the agreement, Ipsen must elect to retain its rights to commercialize toremifene and other
products containing toremifene for the high grade PIN indication. Until such time as Ipsen
shall make its election, however, it is required to initiate and carry out the development of
toremifene for the high grade PIN indication in the European Territory and to pay all costs
associated therewith. Depending on when Ipsen exercises this election, Ipsen may be required to
pay an additional license fee as well as a premium on its share of the development and clinical
trial expenses incurred by us in the United States since January 1, 2006, on account of toremifene
for high grade PIN. If Ipsen does not exercise its election within a certain period, Ipsen will
not be obligated to pay us for a portion of the development and clinical trial expenses incurred by
us in the United States since January 1, 2006, on account of toremifene for the high grade PIN
indication, and we may elect to terminate Ipsen’s rights to commercialize toremifene-based products
for this indication, in which event all of Ipsen’s rights to toremifene for the high grade PIN
indication (including all associated clinical trial data and regulatory filings and approvals) will
revert to us. Ipsen has agreed to pay us a royalty equal to a graduating percentage of aggregate
net sales of products containing toremifene in the mid-teens, which could reach the mid-twenties
based on certain sales price thresholds being met, and which rates will be dependent on whether
such sales are for the high grade PIN indication or the ADT indication. We are responsible for
paying upstream royalties on toremifene to both Orion and UTRF for the PIN indication and to Orion
only for the ADT indication. Ipsen will purchase the bulk drug product supply directly from Orion
and is responsible for the packaging and labeling of the final product.
Orion Corporation
In March 2000, we entered into a license and supply agreement with Orion to develop and
commercialize products containing toremifene. Our rights under the original license agreement were
limited to specific disease fields pertaining to prostate cancer. In December 2004, we entered
into an agreement with Orion to purchase specified FARESTON® related assets which Orion
had re-acquired from another licensee. We also entered into an amended and restated license and
supply agreement with Orion which replaced the original license agreement. We paid Orion
approximately $5.2 million under the 2004 agreements for the assets and related license rights.
Under the amended and restated license and supply agreement, we obtained an exclusive license
from Orion to develop and commercialize toremifene-based products for all human indications
worldwide, except breast cancer outside of the United States. We are required to pay Orion a
royalty on sales by us and our affiliates of FARESTON® for breast cancer in the United
States. We are also required to pay Orion a royalty on sales by us, our affiliates and third-party
sublicensees of other toremifene-based products, including toremifene 80 mg and toremifene 20 mg if
approved for commercial sale. Our license and supply agreement with Orion requires that Orion will
manufacture and supply all of our and our sublicensees’ needs for clinical trial and commercial
grade material for toremifene-based products developed and marketed in the United States and
abroad, including toremifene globally and FARESTON® in the United States. Orion may
terminate its supply obligations under specified circumstances. However, we have specified rights
to assume manufacture of toremifene if Orion terminates its supply of toremifene because it has
ceased to manufacture toremifene, although we would have to engage another supplier to do so. The
term of the amended and restated license and supply agreement lasts, on a country-by-country basis,
until the later of expiration of our own patents claiming the method of use or manufacture of
toremifene for prostate cancer or the end of all marketing or regulatory exclusivity which we may
obtain for toremifene-based products. Orion may terminate the agreement as a result of our uncured
material breach or bankruptcy.
University of Tennessee Research Foundation
In July 2007, we and UTRF entered into a Consolidated, Amended and Restated License Agreement,
or the SARM Agreement, to consolidate and replace our two previously existing SARM license
agreements with UTRF and to modify and expand certain rights and obligations of each of the parties
under both license agreements. Pursuant to the SARM Agreement, we were granted exclusive worldwide
rights in all existing SARM technologies owned or controlled by UTRF, including all improvements
thereto, and exclusive rights to future SARM technology that may be developed by certain scientists
at the University of Tennessee or subsequently licensed to UTRF under certain existing
inter-institutional agreements with The Ohio State University. Unless terminated earlier, the term
of the SARM Agreement will continue for the longer of 20 years or until the expiration of the last
valid claim of any licensed patent in the particular country in which a licensed product is being
sold. UTRF may terminate the SARM Agreement for our uncured breach or upon our bankruptcy.
In September 2007, we and UTRF entered into an Amended and Restated License Agreement, or the
SERM Agreement, to replace our previously existing exclusive worldwide license agreement for
toremifene. Pursuant to the SERM Agreement, we were granted exclusive worldwide rights to UTRF’s
method of use patents relating to SERMs, including toremifene for chemoprevention of prostate
cancer as well as future related SERM technologies
that may be developed by certain scientists at the University of Tennessee.
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Unless terminated
earlier, the term of the SERM Agreement will continue in a particular country for the longer of 20
years from the effective date of our previously existing exclusive worldwide license agreement with
UTRF for toremifene or until the expiration of the last valid claim of any licensed
patent in such country. UTRF may terminate the SERM Agreement for our uncured breach or upon our
bankruptcy.
Under these agreements with UTRF, we agreed to pay to UTRF a one-time, upfront fee of $290,000
per agreement as consideration for entering into the agreements. We are also obligated to pay UTRF
annual license maintenance fees and royalties on sublicense revenues and net sales of products. We
also agreed to pay all expenses to file, prosecute and maintain the patents relating to the
licensed SARM and SERM technologies, and are obligated to use commercially reasonable efforts to
develop and commercialize products based on the licensed SARM and SERM technologies.
In December 2008, we and UTRF amended the SARM Agreement and the SERM Agreement to, among
other things, clarify the treatment of certain payments that we may receive from our current and
future sublicensees for purposes of determining sublicense fees payable to UTRF, including the
treatment of payments made to us in exchange for the sale of our securities in connection with
sublicensing arrangements. In consideration for the execution of the amendments, we agreed to pay
UTRF an aggregate of $540,000. In connection with the execution of the amendments, we and UTRF
dismissed our respective claims and actions relating to the sale of our common stock to Merck in
December 2007.
Ortho Biotech
In March 2004, we entered into a joint collaboration and license agreement with Ortho Biotech
Products, L.P., a subsidiary of Johnson & Johnson, for andarine, one of our proprietary SARM
compounds, and specified backup SARM compounds. Under the terms of the agreement, we received in
April 2004 an upfront licensing fee and expense reimbursement totaling $6.7 million. The upfront
licensing fee and expense reimbursement were deferred and amortized into revenue on a straight-line
basis over the estimated five year andarine development period. In December 2006, we reacquired
full rights to develop and commercialize andarine and all backup compounds previously licensed to
Ortho Biotech, and the joint collaboration and license agreement was terminated by mutual agreement
of the parties. In connection with the termination of the Ortho Biotech agreement, we recognized
the associated $3.1 million balance of deferred revenue as
additional collaboration revenue in 2006.
Manufacturing
We do not currently own or operate manufacturing facilities for the production of clinical or
commercial quantities of FARESTON®, toremifene or any of our SARMs. We currently rely
and expect to continue to rely on third parties for the manufacture of our product candidates or
products that we may develop.
We have agreed to purchase from Orion our worldwide requirements for toremifene under an
exclusive license and supply agreement providing for Orion to supply our requirements for clinical
and commercial product. Orion has agreed to supply us with, and we have agreed to purchase from
Orion, our worldwide requirements of toremifene citrate in specified doses in finished tablet form
at specified prices. Similarly, Ipsen has agreed to purchase from Orion, toremifene
tablets for clinical testing and commercial sale in the European Territory under an amended
supply agreement with Orion. As such, both we and Ipsen rely on Orion as the single source
supplier of toremifene. Orion’s manufacturing facility also produces commercial quantities of
toremifene tablets for FARESTON® and complies with the FDA’s current Good Manufacturing
Practice regulations. The raw materials necessary to manufacture toremifene citrate tablets are
readily available, but Orion is our only supplier of toremifene tablets. Our license and supply
agreement with Orion does not provide us with the current right to manufacture toremifene. In
addition, under the terms of our agreement with Orion, we have agreed to purchase our requirements
for toremifene tablets from Orion during the term of the agreement, which extends for the life of
our patent rights, beyond the term of Orion’s patents with respect to the composition of matter of
toremifene.
Orion may terminate its obligation to supply us and Ipsen with toremifene if Orion permanently
ceases the manufacture of toremifene subject to giving us and Ipsen proper notice or Orion may
terminate its obligation to supply us with toremifene if marketing approval for toremifene for use
in any of the licensed fields, except breast cancer, is not granted in the United States prior to
December 31, 2009. There are a number of circumstances in which Orion is required to grant
manufacturing rights to us and Ipsen, including following termination of its supply obligation as
set forth above, failure by Orion to supply product to us for 90 days or to supply product in
dosages or
formulations other than the dosages and formulations specified in the agreement or termination
of the agreement by us following a breach by Orion.
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Also, under certain circumstances, if
additional manufacturing capacity is needed to supply our increasing need for product, we have the
right at certain sales levels to require Orion to qualify an additional manufacturing site at our
expense. Under these circumstances, we and Ipsen would need to make arrangements for an
alternative supply which would still have to be made with a qualified alternative supplier with the
appropriate FDA approval in order for us to obtain our supply requirements for toremifene.
However, in the event that Orion terminates the license agreement as a result of our bankruptcy or
a material breach of the agreement by us that is not cured, we would not have the right to
manufacture toremifene until Orion’s patents with respect to the composition of matter of
toremifene expire in the United States. Although Orion’s composition of matter patents within the
European Territory have expired, and as such, would not prevent Ipsen from manufacturing
toremifene within the European Territory, there is no obligation on the part of Orion to
transfer its manufacturing technology to Ipsen or to assist Ipsen in developing manufacturing
capabilities to meet Ipsen’s supply needs if Ipsen is in material breach of its supply agreement
with Orion. We and Ipsen have agreed to collaborate with each other in the event either of our
supply rights are terminated by Orion for any reason.
There are no complicated chemistries or unusual equipment required in the manufacturing
process for our SARMs. The active ingredient in OstarineTM and our other SARMs is
manufactured using a four-step synthetic process that uses commercially available starting
materials and raw materials for each step. Historically, we have relied on third party vendors for
the manufacture of OstarineTM drug substance. However, Merck has assumed primary
manufacturing responsibilities for OstarineTM and other SARM products developed under
our exclusive license and collaboration agreement with Merck.
Competition
The biotechnology and biopharmaceutical industries are characterized by rapidly advancing
technologies, intense competition and a strong emphasis on proprietary products. We face
competition from many different sources, including commercial pharmaceutical and biotechnology
enterprises, academic institutions, government agencies and private and public research
institutions.
Many of our competitors have significantly greater financial resources and expertise in
research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining
regulatory approvals and marketing approved products than we do. Smaller or early-stage companies
may also prove to be significant competitors, particularly through collaborative arrangements with
large and established companies. Our commercial opportunities will be reduced or eliminated if our
competitors develop and commercialize similar products that are safer, more effective, have fewer
side effects or are less expensive than any products that we and/or our collaborators may develop.
Toremifene 80 mg for the Prevention of Bone Fractures and Treatment of Other Estrogen Deficiency
Side Effects of ADT in Men with Prostate Cancer
Side Effects of ADT in Men with Prostate Cancer
Currently, there are no products that have been approved by the FDA for the prevention of bone
fractures and the treatment of other estrogen deficiency side effects of ADT in men with prostate
cancer. We are aware of a number of drugs that are marketed or prescribed off-label for the
treatment of single estrogen deficiency related side effects. For example, Evista®
(raloxifene hydrochloride), a SERM marketed by Eli Lilly, Fosamax® (alendronate sodium),
a bisphosphonate marketed by Merck, Zometa® (zoledronic acid) a bisphosphonate marketed
by Novartis, and Actonel® (risendronate sodium), a bisphosphonate marketed by
Sanofi-Aventis and Procter & Gamble, are each prescribed for the treatment of osteoporosis. Amgen
has submitted a Biologics License Application for denosumab, an investigational drug for treatment
of postmenopausal osteoporosis in women and bone loss in patients undergoing hormone ablation for
either prostate or breast cancer. Effexor® (venlafaxine hydrochloride), marketed by
Wyeth Pharmaceuticals, Catapres® (clonidine hydrochloride), marketed by Boehringer
Ingelheim, and Megace® (megesterol acetate), marketed by Bristol Myers Squibb, are
prescribed off-label to treat hot flashes caused by ADT. External beam radiation and tamoxifen are
both used to treat gynecomastia. There can be significant side effects associated with the use of
these drugs and radiation treatment. Most patients would need to take several different drugs and
potentially receive radiation treatments to treat multiple estrogen deficiency side effects of ADT.
In contrast, we believe that toremifene 80 mg as a single product candidate has the potential to
treat multiple estrogen deficiency side effects of ADT.
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Toremifene 20 mg for the Prevention of Prostate Cancer in High Risk Men with High Grade PIN
Currently, there are no drug products that have been approved by the FDA for the treatment of
high grade PIN
to reduce the incidence of prostate cancer. There are government sponsored studies looking at
the ability of nutritional supplements to prevent prostate cancer in men with high grade PIN.
These studies are much smaller than the toremifene 20 mg Phase III trial and may not have enough
clinical patients to show a statistically significant benefit. Avodart®, from GlaxoSmithKline, is being evaluated in a Phase
III clinical trial in prostate cancer prevention in men with elevated PSA, but men with high grade
PIN were excluded from the Avodart trial. Finasteride has been shown to reduce the risk of
prostate cancer and in a retrospective ad hoc analysis the risk of high grade PIN in men with a PSA
of 0-3 ng/dl. Because finasteride also increased the risk for high grade prostate cancer tumors
(Gleason Grade 7-10) and sexual side effects, some physicians have not recommended use of
finasteride for prevention of prostate cancer.
SARMs for the Treatment of Cancer Cachexia and Sarcopenia
There are currently no drugs that have been approved by the FDA for the treatment of cancer
cachexia. Although there are two commercially available drugs, nandrolone and oxandrolone, that are
being prescribed off-label for the treatment of some types of cancer cachexia, chronic use of these
drugs may result in bleeding liver cysts and liver cell tumors. Nandrolone is an oral steroid that
is available from Steris Laboratories, a subsidiary of Watson Pharmaceuticals.
Oxandrin® (oxandrolone) is indicated as an adjunctive therapy to promote weight gain
after weight loss following extensive surgery, chronic infections and severe trauma and in some
patients who without pathophysiologic reasons fail to maintain normal weight but has also been
prescribed off-label for cancer cachexia. Oxandrin® was marketed by Savient
Pharmaceuticals and generated approximately $60 million in annual sales. Savient has discontinued
production of Oxandrin® following the introduction of an authorized generic.
Oxandrin® has a black box warning for liver toxicity and has warnings and precautions
related to increasing the risk for prostate cancer and virilization in women.
Testosterone products have been used off-label to treat andropause and muscle loss. Owing to
its potentially unwanted effects in the prostate and possible inconvenient dosing, we believe that
testosterone products have had a limited impact on the market for muscle loss. Pharmacopeia (now
owned by Ligand Pharmaceuticals) licensed in the Bristol Myers Squibb SARM program and has a
product in a Phase I clinical study. Abbott Laboratories and Ligand Pharmaceuticals have a
collaboration to develop a SARM and have been conducting Phase I clinical studies. GlaxoSmithKline
also has SARM in a Phase I clinical study. Other pharmaceutical companies are also developing
SARMs. Wyeth and Amgen have myostatin inhibitors in development which may compete for similar
patients as OstarineTM. Megace® (megesterol acetate) and Marinol®
(dronasinol) are appetite stimulants approved for AIDS patients which are used off-label for cancer
cachexia. Neither Megace® nor Marinol® increase muscle and neither have been
shown to improve physical function.
FARESTON® for the Treatment of Breast Cancer
There are a number of drugs that have been approved by the FDA for the treatment of breast
cancer. Tamoxifen, which is marketed by AstraZeneca and several generic manufacturers, has been
approved by the FDA for the treatment of advanced breast cancer and the reduction of breast cancer
in women at high risk for developing the disease. Aromatase inhibitors, or AIs, such as
anastrozole, letrozole and exemestane, are used to treat breast cancer in postmenopausal women.
The AIs are growing at the expense of SERMs due to clinical trials such as the clinical trial
entitled “Arimidex and Tamoxifen: Alone or in Combination” which has shown efficacy and
tolerability advantages for AIs compared to tamoxifen.
Sales and Marketing
In order to commercialize any future products, we must broaden our sales and marketing
infrastructure or collaborate with third parties with sales and marketing experience and personnel.
We plan to build a specialty sales and marketing infrastructure, which we expect to include
approximately 65 sales consultants, to market toremifene 80 mg and toremifene 20 mg, if approved by
the FDA, to the relatively small and concentrated community of urologists and medical oncologists
in the United States. We have partnered with Ipsen to commercialize toremifene in Europe. We are
currently seeking partners to market toremifene in Asia and other markets outside of the United
States and Europe.
If Ostarine™ or another of the SARMs under development by us and Merck is approved by the FDA,
Merck will commercialize the drug and we will have the opportunity to participate in
commercialization through medical affairs and potentially also through copromotion.
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Intellectual Property
We will be able to protect our technology from unauthorized use by third parties only to the
extent it is covered by valid and enforceable patents or is effectively maintained as trade
secrets. Patents and other proprietary rights are an essential element of our business.
For toremifene in the United States and internationally, we have entered into an amended and
restated license and supply agreement with Orion Corporation granting us an exclusive license under
Orion’s patents covering the composition of matter of toremifene for all uses in humans in the
United States, and for all human uses outside the United States other than to treat breast cancer.
Orion’s patent for toremifene will expire in the United States in September 2009. Foreign
counterparts of this patent have expired prior to Ipsen or us receiving regulatory approval to
commercialize toremifene. As a result, outside of the United States and in the United States after
September 2009, we will need to rely primarily on the protection afforded by the method of use
patents that either have been already issued or may later issue from our owned or licensed patent
applications.
We have licensed from UTRF method of use patents and pending patent applications for specific
disease indications and doses in the United States, and issued and pending patent applications
internationally related to the use of toremifene 20 mg for the reduction in the incidence of
prostate cancer in high risk men with high grade PIN. The method of use patents issued in the
United States related to the use of toremifene for this indication will begin expiring in 2019.
We have our own method of use patents and applications in the United States and
internationally related to the use of toremifene 80 mg for the treatment of osteoporosis and
prevention of bone fractures in men with prostate cancer treated by ADT, as well as other side
effects from ADT such as gynecomastia and hot flashes. A method of use patent related to the use
of toremifene for the treatment of ADT-induced osteoporosis and bone fractures in men with prostate
cancer is issued in the United States and will expire in 2023.
In all countries in which we hold or have licensed rights to patents or patent applications
related to toremifene, the composition of matter patents for toremifene will expire before the
method of use patents expire. Furthermore, with respect to the method of use of toremifene 80 mg
for the treatment of osteoporosis and bone fractures and other side effects of ADT in men with
prostate cancer worldwide and the method of use of toremifene 20 mg for the reduction in the
incidence of prostate cancer in high risk men with high grade PIN outside the United States, we
have some patents issued and other pending patent applications.
Even though patents have issued in respect of our pending method of use patent applications,
after the expiration of the patent covering the composition of matter of toremifene in a particular
country, competitors could market and sell generic versions of toremifene at doses and in
formulations that are bioequivalent to FARESTON® (toremifene citrate 60 mg) for uses
other than the indications for toremifene covered by our issued and pending method of use patent
applications, and individual physicians would be permitted to prescribe generic versions of
toremifene 60 mg for indications that are protected by our or our licensors’ method of use patents
and pending patent applications. Assuming toremifene receives appropriate marketing
approval, after the expiration of the patent covering the composition of matter of toremifene in a
particular country, if patents do not issue in particular countries on account of our pending
method of use patent applications related to the use of toremifene 80 mg for the treatment of
osteoporosis and bone fractures and other side effects of ADT in men with prostate cancer and the
use of toremifene 20 mg for the reduction in the incidence of prostate cancer in high risk men with
high grade PIN outside the United States, competitors may be able to market and sell generic
versions of toremifene tablets for these indications.
For OstarineTM and our other SARMs, we have an exclusive license from UTRF under
its issued patents and pending patent applications in the United States and internationally
covering the composition of matter of the active pharmaceutical ingredient in these product
indications, pharmaceutical compositions and methods of synthesizing the active pharmaceutical
ingredients. We have also licensed issued and pending patent applications in the United States and
internationally related to methods for building muscle mass and bone in patients, for treating bone
related disorders including bone frailty and osteoporosis, and for treating muscle wasting
disorders including cancer cachexia using OstarineTM and other SARMs. As part of our
collaboration for the development and commercialization of SARMs with Merck, we have granted an
exclusive license to Merck for these issued patents and pending patent applications that we have
licensed from UTRF.
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We also rely on trade secrets, technical know-how and continuing innovation to develop and
maintain our competitive position. We seek to protect our proprietary information by requiring our
employees, consultants,
contractors, outside scientific collaborators and other advisors to execute non-disclosure and
confidentiality agreements and our employees to execute assignment of invention agreements to the
Company on commencement of their employment. Agreements with our employees also prevent them from
bringing any proprietary rights of third parties to us. We also require confidentiality or material
transfer agreements from third parties that receive our confidential data or materials.
Government Regulation
New Drug Development and Approval Process
Numerous governmental authorities in the United States and other countries extensively
regulate the testing, clinical development, manufacturing and marketing of pharmaceutical products
and ongoing research and development activities. In the United States, the FDA rigorously reviews
pharmaceutical products under the Federal Food, Drug, and Cosmetic Act and applicable regulations.
Non-compliance with FDA regulations can result in administrative and judicial sanctions, including
warning letters, clinical holds, fines, recall or seizure of products, injunctions, total or
partial suspension of production, refusal of the government to approve marketing applications or
allow entry into supply contracts, refusal to permit import or export of products, civil penalties,
criminal prosecution and other actions affecting a company and its products. The FDA also has the
authority to revoke previously granted marketing authorizations.
To secure FDA approval, an applicant must submit extensive preclinical and clinical data, as
well as information about product manufacturing processes and facilities and other supporting
information to the FDA for each indication to establish a product candidate’s safety and efficacy.
The development and approval process takes many years, requires the expenditure of substantial
resources and may be subject to delays or limitations of approval or rejection of an applicant’s
new drug application. Even if the FDA approves a product, the approval is subject to post-marketing
surveillance, adverse drug experience and other recordkeeping and reporting obligations, and may
involve ongoing requirements for post-marketing studies. The FDA also recently obtained authority
to place conditions on any approvals that could restrict the commercial applications, advertising,
promotion or distribution of these products. Product approvals may be withdrawn if compliance with
regulatory standards is not maintained or if problems occur following initial marketing.
Preclinical and Clinical Testing
Preclinical studies involve laboratory evaluation of product characteristics and animal
studies to assess the biological activity and safety of the product. In some cases, long-term
preclinical studies are conducted while clinical studies are ongoing. The FDA, under its Good
Laboratory Practices regulations, regulates preclinical studies. Violations of these regulations
can, in some cases, lead to invalidation of the studies, requiring these studies to be replicated.
When the preclinical testing is considered adequate by the sponsor to demonstrate the safety and
scientific rationale for initial human studies, the results of the preclinical tests, together with
manufacturing information and analytical data, are submitted to the FDA as part of an
Investigational New Drug application, or IND. The IND becomes effective, if not rejected by the
FDA, within 30 days after the FDA receives the IND. The FDA may, either during the 30-day period
after filing of an IND or at any future time, impose a clinical hold on proposed or ongoing
clinical trials on various grounds, including that the study subjects are or would be exposed to an
unreasonable and significant health risk. If the FDA imposes a clinical hold, clinical trials
cannot commence or recommence without FDA authorization and then only under terms authorized by the
FDA.
Clinical trials involve the administration of the investigational product candidates to humans
under the supervision of a qualified principal investigator. Clinical trials must be conducted in
accordance with Good Clinical Practices under protocols submitted to the FDA as part of the IND. In
addition, each clinical trial must be approved and conducted under the auspices of an
Investigational Review Board, or IRB, and with patient informed consent. The IRB typically
considers, among other things, ethical factors and the safety of human subjects.
Clinical trials are conducted in three sequential phases, but the phases may overlap. Phase I
clinical trials usually involve healthy human subjects. The goal of a Phase I clinical trial is to
establish initial data about the safety, tolerability and pharmacokinetic properties of the product
candidates in humans. In Phase II clinical trials, controlled studies are conducted on an expanded
population of patients with the targeted disease. The primary purpose of these tests is to evaluate
the effectiveness of the drug candidate on the patients to determine if there are any side effects
or other risks associated with the drug and to determine the optimal dose of the drug from the
safety and efficacy profile developed from the clinical study.
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Phase III trials involve even larger
patient populations, often
with several hundred or even several thousand patients, depending on the use for which the
drug is being studied. Phase III trials are intended to establish the overall risk-benefit ratio of
the drug and provide, if appropriate, an adequate basis for product labeling. During all clinical
trials, physicians monitor the patients to determine effectiveness and to observe and report any
reactions or other safety risks that may result from use of the drug candidate.
Product Formulation and Manufacture
Concurrent with clinical trials and preclinical studies, companies must develop information
about the chemistry and physical characteristics of the drug and finalize a process for
manufacturing the product. In addition, manufacturers, including contract manufacturers, are
required to comply with current applicable FDA Good Manufacturing Practice regulations. The current
Good Manufacturing Practice regulations include requirements relating to quality control and
quality assurance, as well as the corresponding maintenance of records and documentation. The
manufacturing process must be capable of consistently producing quality batches of the product and
the manufacturer must develop methods for testing the quality, purity and potency of the final
drugs. Additionally, appropriate packaging must be selected and tested and chemistry stability
studies must be conducted to demonstrate that the product does not undergo unacceptable
deterioration over its shelf-life.
Compliance with current Good Manufacturing Practice regulations also is a condition of new
drug application approval. The FDA must approve manufacturing facilities before they can be used in
the commercial manufacture of drug products. In addition, manufacturing establishments are subject
to pre-approval inspections and unannounced periodic inspections.
New Drug Application Process
After the completion of the clinical trial phases of development, if the sponsor concludes
that there is substantial evidence that the drug candidate is safe and effective for its intended
use, the sponsor may submit a NDA to the FDA. The application must contain all of the information
on the drug candidate gathered to that date, including data from the clinical trials, and be
accompanied by a user fee.
Under the Prescription Drug User Fee Act, or PDUFA, submission of a NDA with clinical data
requires payment of a fee, with some exceptions. In return, the FDA assigns a goal of six or ten
months from filing of the application to return of a first “complete response,” in which the FDA
may approve the product or request additional information. There can be no assurance that an
application will be approved within the performance goal timeframe established under PDUFA. The
FDA initially determines whether a NDA as submitted is acceptable for filing. The FDA may refuse to
file an application, in which case the FDA retains one-half of the user fees. If the submission is
accepted for filing, the FDA begins an in-depth review of the application. As part of this review,
the FDA may refer the application to an appropriate advisory committee, typically a panel of
clinicians, for review, evaluation and a recommendation. The FDA is not bound by the recommendation
of an advisory committee.
If the FDA evaluations of the NDA and the manufacturing facilities are favorable, the FDA may
issue an approval letter authorizing commercial marketing of the drug candidate for specified
indications. The FDA could also issue a “complete response” letter at the end of the review period.
A “complete response” letter will be issued to let a company know that the review period for a
drug is complete and that the application is not yet ready for approval. The letter will describe
specific deficiencies and, when possible, will outline recommended actions the applicant might take
to get the application ready for approval.
Marketing Approval and Post-Marketing Obligations
If the FDA approves an application, the drug becomes available for physicians to prescribe.
Periodic reports must be submitted to the FDA, including descriptions of any adverse reactions
reported. The FDA may require post-marketing studies, also known as Phase IV studies, as a
condition of approval. In addition to studies required by the FDA after approval, trials and
studies are often conducted to explore new indications for the drug. The purpose of these trials
and studies and related publications is to develop data to support additional indications for the
drug, which must be approved by the FDA, and to increase its acceptance in the medical community.
In addition, some post-marketing studies are done at the request of the FDA to develop additional
information regarding the safety of a product.
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In accordance with newly-gained authority pursuant to the Food and Drug Administration
Amendments Act of 2007, the FDA may impose risk evaluation mitigation strategies, or REMS, on a
product if the FDA believes there is
a reason to monitor the safety of the drug in the marketplace. REMS are a new tool for the
FDA that became effective in March 2008, and the agency has begun to implement this new authority
on a case-by-case assessment as to whether a REMS is needed and it is unclear how the agency will
implement this enforcement authority. REMS could add training requirements for healthcare
professionals, safety communications efforts, and limits on channels of distribution, among other
things. The sponsor would be required to evaluate and monitor the various REMS activities and
adjust them if need be. The financial impact of REMS are uncertain at this time.
Any products manufactured or distributed pursuant to FDA approvals are subject to continuing
regulation by the FDA, including record keeping requirements, reporting of adverse experiences with
the drug, drug sampling and distribution requirements, notifying the FDA and gaining its approval
of certain manufacturing or labeling changes, complying with certain electronic records and
signature requirements, and complying with FDA promotion and advertising requirements. Drug
manufacturers and their subcontractors are required to register their establishments and are
subject to periodic unannounced inspections for compliance with Good Manufacturing Practice
requirements. Also, newly discovered or developed safety or effectiveness data may require changes
to a product’s approved labeling, including the addition of new warnings and contraindications, or
even in some instances revocation or withdrawal of the product’s approval.
Drug Price Competition and Patent Term Restoration Act of 1984
Under the Drug Price Competition and Patent Term Restoration Act of 1984, known as the
Hatch-Waxman Act, a portion of a product’s patent term that was lost during clinical development
and application review by the FDA may be restored. The Hatch-Waxman Act also provides for a statutory protection, known as
exclusivity, against the FDA’s acceptance or approval of certain competitor applications. The
Hatch-Waxman Act also provides the legal basis for the approval of abbreviated new drug
applications, or ANDAs.
Patent term extension can compensate for time lost during product development and the
regulatory review process by returning up to five years of patent life for a patent that covers a
new product or its use. This period is generally one-half the time between the effective date of an
IND and the submission date of a NDA, plus the time between the submission date of a NDA and the
approval of that application. Patent term extensions, however, are subject to a maximum extension
of five years, and the patent term extension cannot extend the remaining term of a patent beyond a
total of 14 years. The application for patent term extension is subject to approval by the United
States Patent and Trademark Office in conjunction with the FDA. It generally takes at least six
months to obtain approval of the application for patent term extension.
The Hatch-Waxman Act also provides for a period of statutory protection for new drugs that
receive NDA approval from the FDA. If a new drug receives NDA approval as a new chemical entity,
meaning that the FDA has not previously approved any other new drug containing the same active
entity, then the Hatch-Waxman Act prohibits an ANDA or a NDA submitted pursuant to section
505(b)(2) of the Federal Food, Drug, and Cosmetics Act, where the applicant does not own or have a
legal right of reference to all of the data required for approval to be submitted by another
company for a generic version of such drug (505(b)(2) NDA), with some exceptions, for a period of
five years from the date of approval of the NDA. The statutory protection provided pursuant to the
Hatch-Waxman Act will not prevent the filing or approval of a full NDA, as opposed to an ANDA or
505(b)(2) NDA, for any drug, including, for example, a drug with the same active ingredient, dosage
form, route of administration, strength and conditions of use. In order to obtain a NDA, however, a
competitor would be required to conduct its own clinical trials, and any use of the drug for which
marketing approval is sought could not violate another NDA holder’s patent claims.
If NDA approval is received for a new drug containing an active ingredient that was previously
approved by the FDA but the NDA is for a drug that includes an innovation over the previously
approved drug, for example, a NDA approval for a new indication or formulation of the drug with the
same active ingredient, and if such NDA approval was dependent upon the submission to the FDA of
new clinical investigations, other than bioavailability studies, then the Hatch-Waxman Act
prohibits the FDA from making effective the approval of an ANDA or 505(b)(2) NDA for a generic
version of such drug for a period of three years from the date of the NDA approval. This three year
exclusivity, however, only covers the innovation associated with the NDA to which it attaches.
Thus, the three year exclusivity does not prohibit the FDA, with limited exceptions, from approving
ANDAs or 505(b)(2) NDAs for drugs containing the same active ingredient but without the new
innovation.
While the Hatch-Waxman Act provides certain patent restoration and exclusivity protections to
innovator drug manufacturers, it also permits the FDA to approve ANDAs for generic versions of
their drugs assuming the approval would not violate another NDA holder’s patent claims.
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The ANDA
process permits competitor companies to obtain
marketing approval for a drug with the same active ingredient for the same uses but does not
require the conduct and submission of clinical studies demonstrating safety and effectiveness for
that product. Instead of safety and effectiveness data, an ANDA applicant needs only to submit data
demonstrating that its product is bioequivalent to the innovator product as well as relevant
chemistry, manufacturing and product data. The Hatch-Waxman Act also instituted a third type of
drug application that requires the same information as a NDA, including full reports of clinical
and preclinical studies, except that some of the information from the reports required for
marketing approval comes from studies which the applicant does not own or have a legal right of
reference. This type of application, a 505(b)(2) NDA, permits a manufacturer to obtain marketing
approval for a drug without needing to conduct or obtain a right of reference for all of the
required studies.
If a competitor submits an ANDA or 505(b)(2) NDA for a compound or use of any compound covered
by another NDA holder’s patent claims, the Hatch-Waxman Act requires, in some circumstances, the
applicant to notify the patent owner and the holder of the approved NDA of the factual and legal
basis of the applicant’s opinion that the patent is not valid or will not be infringed. Upon
receipt of this notice, the patent owner and the NDA holder have 45 days to bring a patent
infringement suit in federal district court and obtain a 30-month stay against the company seeking
to reference the NDA. The NDA holder could still file a patent suit after the 45 days, but if they
miss the 45-day deadline, they would not have the benefit of the 30-month stay. Alternatively,
after this 45-day period, the applicant may file a declaratory judgment action, seeking a
determination that the patent is invalid or will not be infringed. Depending on the circumstances,
however, the applicant may not be able to demonstrate a controversy sufficient to confer
jurisdiction on the court. The discovery, trial and appeals process in such suits can take several
years. If such a suit is commenced, the Hatch-Waxman Act provides a 30-month stay on the approval
of the competitor’s ANDA or 505(b)(2) NDA. If the litigation is resolved in favor of the competitor
or the challenged patent expires during the 30-month period, unless otherwise extended by court
order, the stay is lifted and the FDA may approve the application. Under regulations recently
issued by the FDA, and essentially codified under the recent Medicare prescription drug
legislation, the patent owner and the NDA holder have the opportunity to trigger only a single
30-month stay per ANDA or 505(b)(2) NDA. Once the applicant of the ANDA or 505(b)(2) NDA has
notified the patent owner and the NDA holder of the infringement, the applicant cannot be subjected
to another 30-month stay, even if the applicant becomes aware of additional patents that may be
infringed by its product.
Pharmaceutical Pricing and Reimbursement
In both domestic and foreign markets, sales of any products for which we receive regulatory
approval for commercial sale will depend in part on the availability of reimbursement from
third-party payors. Third-party payors include government health administrative authorities,
managed care providers, private health insurers and other organizations. These third-party payors
are increasingly challenging the price and examining the cost-effectiveness of medical products and
services. In addition, significant uncertainty exists as to the reimbursement status of newly
approved healthcare product candidates. We may need to conduct expensive pharmacoeconomic studies
in order to demonstrate the cost-effectiveness of our products. Our product candidates may not be
considered cost-effective. Adequate third-party reimbursement may not be available to enable us to
maintain price levels sufficient to realize an appropriate return on our investment in product
development. The United States and state governments continue to propose and pass legislation
designed to reduce the cost of healthcare. Adoption of new legislation could further limit
reimbursement for pharmaceuticals.
The marketability of any products for which we receive regulatory approval for commercial sale
may suffer if the government and third-party payors fail to provide adequate coverage and
reimbursement. In addition, an increasing emphasis on managed care in the United States has and
will continue to increase the pressure on pharmaceutical pricing. Currently, our only marketed
product, FARESTON® for the treatment of metastatic breast cancer, is eligible for
coverage and reimbursement by third-party payors.
Research and Development
Since our inception, we have been focused on drug discovery, preclinical development and
clinical development programs. Our research and development expenses were $44.3 million for the
year ended December 31, 2008, $38.5 million for the year ended December 31, 2007, and $33.9 million
for the year ended December 31, 2006.
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Employees
As of December 31, 2008, we had 147 employees, 37 of whom were M.D.s and/or Ph.D.s. None of
our employees is subject to a collective bargaining agreement. We believe that we have good
relations with our employees.
Available Information
We file reports with the Securities and Exchange Commission, or SEC, including annual reports
on Form 10-K, quarterly reports on Form 10-Q, and other reports from time to time. The public may
read and copy any materials filed with the SEC at the SEC’s Public Reference Room at 100 F Street,
NW, Washington, DC 20549. The public may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. We are an electronic filer and the SEC
maintains an Internet site at http://www.sec.gov that contains the reports, proxy and information
statements, and other information filed electronically. Our website address is
http://www.gtxinc.com. Please note that these website addresses are provided as inactive textual
references only. We make available free of charge through our website our Annual Report on Form
10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those
reports as soon as reasonably practicable after such material is electronically filed with or
furnished to the SEC. The information provided on our website is not part of this report, and is
therefore not incorporated by reference unless such information is otherwise specifically
referenced elsewhere in this report.
Executive Officers of the Registrant
The following table sets forth information about our executive officers as of February 26,
2009.
| Name | Age | Position(s) | ||||
Mitchell S. Steiner, M.D., F.A.C.S.
|
48 | Chief Executive Officer and Vice Chairman of the Board of Directors | ||||
Marc S. Hanover
|
46 | President, Chief Operating Officer and Director | ||||
Ronald A. Morton, Jr., M.D., F.A.C.S.
|
50 | Vice President, Chief Medical Officer | ||||
Henry P. Doggrell
|
60 | Vice President, General Counsel and Secretary | ||||
Mark E. Mosteller
|
46 | Vice President, Chief Financial Officer and Treasurer | ||||
James T. Dalton, Ph.D.
|
46 | Vice President, Preclinical Research and Development | ||||
Gregory A. Deener
|
47 | Vice President, Sales and Marketing | ||||
Mitchell S. Steiner, M.D., F.A.C.S., a co-founder of GTx, has served as our Chief Executive
Officer and Vice Chairman of our Board of Directors since our inception in September 1997. From
1995 to 2003, Dr. Steiner held numerous academic appointments, including Chairman and Professor of
Urology, Director of Urologic Oncology and Research and the Chair of Excellence in Urologic
Oncology at the University of Tennessee. Since 2003, Dr. Steiner has continued to serve on the
faculty at the University of Tennessee. Dr. Steiner holds a B.A. in Molecular Biology from
Vanderbilt University and an M.D. from the University of Tennessee, and performed his surgery and
urologic training at The Johns Hopkins Hospital.
Marc S. Hanover, a co-founder of GTx, has served as our President and Chief Operating Officer
and a director since our inception in September 1997. Prior to joining GTx, Mr. Hanover was a
founder of Equity Partners International, Inc., a private equity firm in Memphis, Tennessee, and
participated as a founder and investor in three healthcare companies. From 1985 to 1997, Mr.
Hanover was a Senior Vice President and a member of the Executive Management Committee of National
Bank of Commerce in Memphis, Tennessee. Mr. Hanover holds a B.S. in Biology from the University of
Memphis and a MBA in Finance from the University of Memphis.
Ronald A. Morton, Jr., M.D., F.A.C.S., was appointed Vice President and Chief Medical Officer
in April 2007. He joined GTx from the University of Medicine & Dentistry of New Jersey Robert Wood
Johnson Medical School, where he served as Professor of Surgery, Chief of Urology and Director of
Urologic Oncology for the Cancer Institute of New Jersey from January 2004 until April 2007.
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Dr.
Morton also held the Conzen Chair for Clinical
Research and was the Director of the New Jersey Center for Clinical and Translational
Sciences. Prior to joining Robert Wood Johnson Medical School in 2004, Dr. Morton held a dual
faculty appointment at the Baylor College of Medicine in the Scott Department of Urology and in the
Department of Molecular and Cell Biology (May 1994 to December 2003), was Clinical Director of the
Baylor Adult Urology Program (July 2000 to December 2003), Chief of Urology at the Houston Veterans
Administration Medical Center (January 1999 to December 2003), and Director of the Baylor Prostate
Cancer Center Research Laboratories (July 1996 to December 2003). He received his bachelor and
medical degrees from The Johns Hopkins University and completed his urology training and
postdoctoral fellowship and was an AFUD Scholar at the Johns Hopkins Brady Urological Institute.
Henry P. Doggrell has served as our General Counsel and Secretary since October 2001 and was
appointed Vice President on January 20, 2005. From April 1998 to August 2001, Mr. Doggrell was
Senior Vice President, Corporate Affairs at Buckeye Technologies, Inc., a specialty cellulose
company, where he was responsible for matters including corporate finance, investor relations,
mergers and acquisitions, intellectual property and licensing and strategic development. From 1996
to 1998, Mr. Doggrell served as General Counsel and Secretary of Buckeye Technologies. Prior to
joining Buckeye Technologies, Mr. Doggrell was a partner of the Baker, Donelson, Bearman, Caldwell
and Berkowitz law firm from 1988 to 1996, where he served as a member of the law firm management
committee and Chair of the firm’s Corporate Securities department. Mr. Doggrell holds a B.S. in
Commerce from the University of Virginia and a JD from Vanderbilt University.
Mark E. Mosteller has served as our Chief Financial Officer since August 2001 and was
appointed Vice President and Treasurer on January 20, 2005. From April 1997 to August 2001, Mr.
Mosteller was an Executive Vice President of Union Planters Bank National Association, a subsidiary
of Union Planters Corporation, a bank holding company, and Chief Operating Officer of Union
Planters Mortgage, the mortgage division of Union Planters Bank National Association. From 1994 to
1997, Mr. Mosteller was the Chief Financial Officer of Boatmen’s National Mortgage, Inc., the
mortgage subsidiary of Boatmen’s Bancshares, Inc. From 1984 to 1994, Mr. Mosteller was employed as
an audit senior manager with Ernst & Young LLP. Mr. Mosteller is a Certified Public Accountant and
holds a B.S. in Accounting from the University of Tennessee.
James T. Dalton, Ph.D., has served as Vice President, Preclinical Research and Development
since January 2005. Dr. Dalton served as a scientific consultant to GTx from 1999 to 2005. Prior
to joining GTx, Dr. Dalton held several academic appointments including Assistant and Associate
Professor of Pharmaceutical Sciences in the College of Pharmacy at the University of Tennessee,
Memphis (1992-2000) and Professor in the Division of Pharmaceutics, College of Pharmacy at The Ohio
State University (2000-2007). SARMs were first discovered in Dr. Dalton’s research laboratories,
and he is co-inventor on all SARM patents. Dr. Dalton holds a B.S. in Pharmacy from the University
of Cincinnati and a Ph.D. in Pharmaceutics and Pharmaceutical Chemistry from The Ohio State
University.
Gregory A. Deener was appointed Vice President, Sales and Marketing on January 20, 2005, and
prior to that he served as our Director of Marketing and Sales since February 2004. Mr. Deener has
over 20 years of experience in Marketing and Sales and has launched a urology medicine within the
U.S. From 1996 to December 2003, Mr. Deener served as a Marketing Director for GlaxoSmithKline in
various roles within the U.S. and Europe. Most recently Mr. Deener was responsible for the launch
of Avodart, a urology medicine for BPH. From 1983 to 1996, Mr. Deener worked for Procter & Gamble
in Brand Management and Sales. Mr. Deener holds a B.S. in Business Administration from the
University of North Carolina at Chapel Hill.
ITEM 1A. RISK FACTORS
We have identified the following additional risks and uncertainties that may have a material
adverse effect on our business, financial condition or results of operations. Investors should
carefully consider the risks described below before making an investment decision. Our business
faces significant risks and the risks described below may not be the only risks we face.
Additional risks not presently known to us or that we currently believe are immaterial may also
significantly impair our business operations. If any of these risks occur, our business, results
of operations or financial condition could suffer, the market price of our common stock could
decline and you could lose all or part of your investment in our common stock.
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Risks Related to Our Financial Results and Need for Additional Financing
We have incurred losses since inception and anticipate that we will incur continued
losses for the foreseeable future.
We have a limited operating history. As of December 31, 2008, we had an accumulated
deficit of $321.9 million, of which $96.3 million related to non-cash dividends and adjustments to
the preferred stock redemption value. We have incurred losses in each year since our inception in
1997. Net losses were $51.8 million for the year ended December 31, 2008, $40.4 million in 2007,
and $35.5 million in 2006. We expect to continue to incur significant and increasing operating
losses for the foreseeable future. These losses have had and will continue to have an adverse
effect on our stockholders’ equity and working capital.
Because of the numerous risks and uncertainties associated with developing small molecule
drugs, we are unable to predict the extent of any future losses or when we will become profitable,
if at all. We have primarily financed our operations and internal growth through sales of common
stock and preferred stock. In addition, we have received upfront license fees and milestone and
other payments pursuant to our collaborative arrangements with third parties, including $40.0
million in upfront license fees from Merck received in January 2008, a $1.5 million milestone
payment from Ipsen Developments Limited, or Ipsen, received in April 2008, and $5.0 million
received from Merck in guaranteed cost reimbursements for research and development activities in
December 2008. FARESTON® is currently our only commercial product and, until such time
that we receive regulatory approval to market any of our product candidates, we expect that
FARESTON® will account for all of our product revenue. For the year ended December 31,
2008, we recognized $1.1 million in net revenues from the sale of FARESTON®.
We expect our research and development expenses to increase in connection with our
efforts to obtain regulatory approval of toremifene 80 mg for the prevention of bone fractures and
treatment of other estrogen deficiency side effects of androgen deprivation therapy in men with
prostate cancer, our ongoing clinical trials, our increasing SARM research efforts with Merck as a
part of our collaboration, and the continued preclinical and clinical development of other product
candidates, including GTx-758. In addition, subject to regulatory approval of any of our product
candidates, we expect to incur additional sales and marketing expenses and increased manufacturing
expenses.
We will need substantial additional funding and may be unable to raise capital when
needed, which would force us to delay, reduce or eliminate our product development programs or
commercialization efforts.
We will need to raise additional capital to:
| • | fund our operations and clinical trials; | ||
| • | continue our research and development; and | ||
| • | commercialize our product candidates, if any such product candidates receive regulatory approval for commercial sale. |
We
estimate that our current cash and cash equivalent balances, short-term
investments, interest income and product revenue from the sale of FARESTON® will
be sufficient to meet our projected operating requirements through at least the next twelve months.
This estimate does not include funding from future milestone payments that we may receive under
our existing collaborations with Merck and Ipsen, nor does it include any funding that we may
receive under potential future collaboration arrangements with other pharmaceutical companies or
potential future issuances and sales of our securities. Our future funding requirements will
depend on many factors, including:
| • | the scope, rate of progress and cost of our and/or our collaborators’ clinical trials and other research and development activities; | ||
| • | future clinical trial results; | ||
| • | the achievement of certain milestone events under, and other matters related to, our collaborative arrangements with Merck and Ipsen; | ||
| • | the terms and timing of any future collaborative, licensing and other arrangements that we may establish; |
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| • | the cost and timing of regulatory filings and/or approvals and any related restrictions, limitations, and/or warnings; | ||
| • | potential future licensing fees, milestone payments and royalty payments, including any milestone payments or royalty payments that we may receive under our collaborative arrangements with Merck and Ipsen; | ||
| • | the cost and timing of establishing medical education, sales, marketing and distribution capabilities; | ||
| • | the cost of establishing clinical and commercial supplies of our product candidates and any products that we and/or our collaborators may develop; | ||
| • | the effect of competing technological and market developments; | ||
| • | the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights; and | ||
| • | the extent to which we acquire or invest in businesses, products and technologies, although we currently have no commitments or agreements relating to any of these types of transactions. |
Until we can generate a sufficient amount of product revenue, we expect to finance future cash
needs through public or private equity offerings, debt financings or collaboration and licensing
arrangements, such as our arrangements with Merck and Ipsen, as well as through interest income
earned on the investment of our cash balances and short-term investments, and revenues from the
sale of FARESTON®. With the exception of payments that we may receive under our
collaborations with Merck and Ipsen, we do not currently have any commitments for future external
funding.
If we raise additional funds by issuing equity securities, our stockholders will
experience dilution. Debt financing, if available, may involve restrictive covenants. Any debt
financing or additional equity that we raise may contain terms that are not favorable to us or our
stockholders. If we raise additional funds through collaboration and/or licensing arrangements
with third parties, it may be necessary to relinquish some rights to our technologies or product
candidates, or we may be required to grant licenses on terms that are not favorable to us. Our
ability to raise additional funds may be adversely impacted by current economic conditions,
including the effects of the recent disruptions to and volatility in the credit and financial
markets in the United States and worldwide, which have resulted in the bankruptcy, failure,
collapse or sale of various financial institutions and an unprecedented level of U.S. and other
governmental intervention. As a result of these and other factors, we cannot be certain that
additional funding will be available on acceptable terms, or at all. If adequate funds are not
available due to the recent disruptions to and volatility in the credit and financial markets in
the United States and worldwide or other factors, we may be required to delay, reduce the scope of
or eliminate one or more of our research or development programs or obtain funds through
collaborations with others that are on unfavorable terms or that may require us to relinquish
rights to some of our technologies or product candidates that we would otherwise seek to develop on
our own.
Risks Related to Development of Product Candidates
We will not be able to commercialize our product candidates if our preclinical studies
do not produce successful results or if our or our collaborators’ clinical trials do not
demonstrate safety and efficacy in humans.
Preclinical and clinical testing is expensive, can take many years and has an uncertain
outcome. Success in preclinical testing and early clinical trials does not ensure that later
clinical trials will be successful, and interim results of a clinical trial do not necessarily
predict final results. Typically, the failure rate for development candidates is high.
Significant delays in clinical testing could materially impact our product development costs. We
do not know whether planned clinical trials will begin on time, will need to be restructured or
will be completed on schedule, if at all.
In clinical studies, the efficacy and/or safety results from the trial may be
insufficient to support the submission or approval of a new drug application, or NDA, with the U.S.
Food and Drug Administration, or FDA. For example, in connection with our pivotal Phase III
clinical trial of toremifene 20 mg for the prevention of prostate cancer in high risk men with
precancerous prostate lesions called high grade prostatic intraepithelial neoplasia, or high grade
PIN, a planned efficacy interim analysis was conducted in the second quarter of 2008, which
concluded that the efficacy results did not reach the specified statistical outcome and we were
therefore unable to submit a NDA to the FDA based on this efficacy interim analysis. Although we
anticipate conducting a planned efficacy analysis in the summer of
2009, the analysis may conclude that the efficacy results are insufficient to support the
submission of a NDA in which case we would not submit a NDA to the FDA until the end of the full
36-month clinical trial period, if at all.
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We or our collaborators may experience numerous unforeseen events during, or as a result
of, preclinical testing, and the clinical trial process that could delay or prevent our or our
collaborators’ ability to commercialize our product candidates, including:
| • | regulators or institutional review boards may not authorize us or our collaborators to commence a clinical trial or conduct a clinical trial at a prospective trial site; | ||
| • | preclinical or clinical trials may produce negative or inconclusive results, which may require us or our collaborators to conduct additional preclinical or clinical testing or to abandon projects that we expect to be promising; | ||
| • | registration or enrollment in clinical trials may be slower than we currently anticipate, resulting in significant delays; | ||
| • | we or our collaborators may suspend or terminate clinical trials if the participating patients are being exposed to unacceptable health risks; | ||
| • | regulators or institutional review boards may suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements; and | ||
| • | our product candidates may not have the desired effects or may include undesirable side effects. |
If any of these events were to occur and, as a result, we or our collaborators have
significant delays in or termination of clinical trials, our costs could increase and our ability
to generate revenue could be impaired, which would adversely impact our financial results.
For some of the indications for which we intend to conduct or are currently conducting
clinical trials for our product candidates, we do not have evidence from prior preclinical studies
in animals or clinical trials in humans of the potential effectiveness of such product candidates
for such indications. In the absence of preclinical or clinical data, our beliefs regarding the
potential effectiveness of our product candidates for these indications is generally based on
pharmacokinetic data and analyses and pharmacological rationales. Our or our collaborators’
preclinical or clinical trials may produce negative or inconclusive results that would not support
our beliefs regarding the potential effectiveness of our product candidates.
If we or our collaborators observe serious or other adverse events during the time our
product candidates are in development or after our products are approved and on the market, we or
our collaborators may be required to perform lengthy additional clinical trials, may be denied
regulatory approval of such products, may be forced to change the labeling of such products or may
be required to withdraw any such products from the market, any of which would hinder or preclude
our ability to generate revenues.
In our Phase III clinical trial for toremifene 20 mg for the prevention of
prostate cancer in high risk men with high grade PIN, some patients have experienced venous
thromboembolic events, or VTEs, such as deep vein thromboses and pulmonary embolisms, as well as
myocardial infarctions, or heart attacks, which have been considered by investigators as possibly
related to treatment with toremifene 20 mg. Because this trial is blinded, we cannot
establish whether these patients received placebo or toremifene 20 mg in this trial. In addition,
although the results from our Phase III clinical trial for toremifene 80 mg for the prevention of
bone fractures and treatment of other estrogen deficiency side effects of androgen deprivation
therapy, or ADT, in men with prostate cancer showed that the drug had a favorable safety profile
and was well tolerated, there were a higher number of VTEs in the toremifene 80 mg treatment group
17 (2.6%) versus 7 (1.1%) in the placebo group. Even though the majority of VTEs occurred in men
who were at high risk for a VTE (including: age greater than 80 years, history of VTEs, recent
surgical procedure or immobilization) and our results showed that the number of men without major
risk factors for VTEs in whom a VTE occurred was 5 in the toremifene 80 mg treatment group versus 3
in the placebo group, the FDA will consider the overall safety profile when making its
determination to grant approval and the requirement of any potential warnings in the label if
approval is granted.
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As part of our effort to complete the requirements for the submission of applications for
regulatory approval of toremifene 80 mg and 20 mg, we have conducted a number of studies of
toremifene in addition to our clinical trials, including a Thorough QT study (toremifene 80 mg and
toremifene 20 mg), a bioequivalence study (toremifene 80
mg) and a series of drug-drug interaction studies (toremifene 80 mg and toremifene 20 mg), and
are conducting a semen quality study (toremifene 20 mg) to assess the effect of toremifene. The
results of the Thorough QT study of 250 healthy male volunteers, with 5 parallel cohorts receiving
20 mg, 80 mg or 300 mg doses of toremifene, moxifloxacin, or placebo, showed that toremifene
prolonged the QT interval in a dose dependent manner. The mean change in QTcB (a measurement of QT
interval corrected by Bazett’s formula) from baseline relative to placebo for toremifene 20 mg was
5.79 milliseconds, for toremifene 80 mg, it was 22.43 milliseconds, and for moxifloxacin, it was
8.83 milliseconds. Since we market FARESTON® in the United States under a license
agreement with Orion, we notified the FDA of the Thorough QT study results and have proposed
modifications to the FARESTON® label in the United States. FDA action on the proposed
label changes is pending. Separately, Orion recommended label changes to the European Medicines
Agency, or EMEA. In January 2009, the EMEA recommended that the FARESTON® label within
the European Union reflect that toremifene should not be given to patients at risk of prolonged QT
intervals or other certain heart problems. The results of these completed studies have been
included as a part of the NDA submission to the FDA for our toremifene 80 mg product candidate for
the prevention of bone fractures in men with prostate cancer on ADT and, subject to receipt of
favorable results from our ongoing toremifene 20 mg Phase III clinical trial, will be included as a
part of the NDA submission for our toremifene 20 mg product candidate for the prevention of
prostate cancer in high risk men with high grade PIN, and will be used to update the label for
FARESTON®. The study results could lead to the inclusion of restrictions, limitations
and/or warnings in the label of FARESTON® or an approved product candidate, which may
adversely affect the marketability of the product or limit the patients to whom the product is
prescribed.
In addition, in our Phase II clinical trial for OstarineTM for the treatment of
cancer cachexia (cancer induced muscle loss), we observed mild elevations of hepatic enzymes in a
few patients, and in our preclinical studies for OstarineTM, only at the highest doses,
we observed expected selective effects on the reproductive and other target organs in the male
population consistent with the stimulating and inhibiting effects on the androgen receptor which is
located in these organs.
If the incidence of the events described above increases in number or severity, if a
regulatory authority believes that these or other events constitute an adverse effect caused by the
drug, or if other effects are identified during clinical trials that we are currently conducting,
during clinical trials that we or our collaborators may conduct in the future or after any of our
product candidates are approved and marketed:
| • | we or our collaborators may be required to conduct additional preclinical or clinical trials, make changes in labeling of any such approved products, reformulate any such products, or implement changes to or obtain new approvals of our contractors’ manufacturing facilities; | ||
| • | regulatory authorities may be unwilling to approve our product candidates or may withdraw approval of our products; | ||
| • | we may experience a significant drop in the sales of the affected products; | ||
| • | our reputation in the marketplace may suffer; and | ||
| • | we may become the target of lawsuits, including class action suits. |
Any of these events could prevent approval or harm sales of the affected product
candidates or products, or could substantially increase the costs and expenses of commercializing
and marketing any such products.
Risks Related to Our Dependence on Third Parties
If third parties do not manufacture our product candidates in sufficient quantities, in
the required timeframe, and at an acceptable cost, clinical development and commercialization of
our product candidates would be delayed.
We do not currently own or operate manufacturing facilities, and we rely, and expect to
continue to rely, on third parties for the production of clinical and commercial quantities of our
product candidates. Our current and anticipated future dependence upon others for the manufacture
of our product candidates may adversely affect our future profit margins and our ability to develop
product candidates and commercialize any product candidates on a timely and competitive basis.
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We have agreed to purchase from Orion Corporation, or Orion, our worldwide requirements
of toremifene in a finished tablet form at specified prices under a license and supply agreement.
Similarly, Ipsen has agreed to purchase from Orion toremifene tablets for clinical testing and
commercial sale in the European Union, Switzerland, Norway, Iceland, Lichtenstein and the
Commonwealth of Independent States, which we refer to collectively as the European Territory, under
an amended supply agreement with Orion. As such, both we and Ipsen rely on Orion as the single
source supplier of toremifene.
In the event that Orion terminates our license and supply agreement due to our uncured
material breach or bankruptcy, we would not be able to manufacture toremifene until the expiration
of Orion’s patents with respect to the composition of matter of toremifene. Although Orion’s
composition of matter patents within the European Territory have expired, and as such, would not
prevent Ipsen from manufacturing toremifene within the European Territory, there is no obligation
on the part of Orion to transfer its manufacturing technology to Ipsen or to assist Ipsen in
developing manufacturing capabilities to meet Ipsen’s supply needs if Ipsen is in material breach
of its supply agreement with Orion. Although we and Ipsen have agreed to collaborate with each
other in the event either of our supply rights are terminated by Orion for any reason, a disruption
in the supply of toremifene could delay the development of and impair our and Ipsen’s ability to
commercialize toremifene. In addition, Orion may terminate its obligation to supply us and Ipsen
with toremifene if Orion ceases its manufacture of toremifene permanently, or Orion may terminate
its obligation to supply us with toremifene if toremifene is not approved for commercial sale in
the United States prior to December 31, 2009. If such termination occurs because Orion is no
longer manufacturing toremifene, or because such regulatory approval is not obtained prior to the
specified date, we and Ipsen will have the right to manufacture toremifene, but any arrangements we
make for an alternative supply would still have to be made with a qualified alternative supplier
with appropriate FDA approval in order for us to obtain our supply requirements for toremifene. We
and Ipsen have mutually agreed to cooperate in the manufacture of toremifene in the event Orion
ceases manufacture of toremifene for any of the above-mentioned reasons.
We also rely on Orion to cooperate with us in the filing and maintenance of regulatory
filings with respect to the manufacture of toremifene. Orion may terminate its obligation to
assist us in obtaining and maintaining regulatory approval of toremifene if we do not receive
regulatory approval for toremifene in the United States prior to December 31, 2009. If Orion
terminates its obligation to cooperate in these activities, or does not cooperate with us or
otherwise does not successfully file or maintain these regulatory filings, we would be required to
make arrangements with a qualified alternative supplier, which could delay or prevent regulatory
approval of toremifene.
Historically, we have relied on third party vendors for the manufacture of
OstarineTM drug substance. However, Merck has assumed primary manufacturing
responsibilities for OstarineTM and other SARM products developed under our exclusive
license and collaboration agreement with Merck. If Merck does not manufacture and supply
sufficient quantities of clinical trial materials to support our clinical trials, we could
experience a delay in conducting clinical trials of OstarineTM or other SARM product
candidates. We may not be able to maintain or renew our existing or any other third-party
manufacturing arrangements on acceptable terms, if at all. If we are unable to continue
relationships with Orion for toremifene and Merck for OstarineTM and other SARM product
candidates, or to do so at an acceptable cost, or if Merck or other suppliers fail to meet our
requirements for OstarineTM or other SARM product candidates for any reason, we would be
required to obtain alternate suppliers. However, we may not be permitted to obtain alternate
suppliers for toremifene under our license agreement with Orion if Orion terminates its supply of
toremifene due to our uncured material breach or bankruptcy. Any inability to obtain alternate
suppliers, including an inability to obtain approval from the FDA of an alternate supplier, would
delay or prevent the clinical development and commercialization of these product candidates.
Use of third-party manufacturers may increase the risk that we will not have adequate supplies
of our product candidates.
Reliance on third-party manufacturers entails risks, to which we would not be subject if
we manufactured product candidates or products ourselves, including:
| • | reliance on the third party for regulatory compliance and quality assurance; | ||
| • | the possible breach of the manufacturing agreement by the third party because of factors beyond our control; | ||
| • | the possible termination or non-renewal of the agreement by the third party, based on its own business priorities, at a time that is costly or inconvenient for us; | ||
| • | drug product supplies not meeting the requisite requirements for clinical trial use; and |
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| • | the possible exercise by Orion of its right to terminate its obligation to supply us with toremifene: |
| • | if it permanently ceases manufacture of toremifene or if we do not obtain regulatory approval of toremifene in the United States prior to December 31, 2009; or | ||
| • | if Orion terminates due to our uncured material breach or bankruptcy. |
If we are not able to obtain adequate supplies of our product candidates, it will be more
difficult for us to develop our product candidates and compete effectively. Our product candidates
and any products that we and/or our collaborators may develop may compete with other product
candidates and products for access to manufacturing facilities. For example, the active
pharmaceutical ingredient in our toremifene 80 mg and toremifene 20 mg product candidates is also
the active pharmaceutical ingredient in FARESTON®. Further, Orion has agreed to supply
toremifene tablets to Ipsen for clinical trials and commercial supply in the European Territory.
Orion also manufactures toremifene for third parties for sale outside the United States for the
treatment of metastatic breast cancer in postmenopausal women.
Our present or future manufacturing partners may not be able to comply with FDA-mandated
current Good Manufacturing Practice regulations, other FDA regulatory requirements or similar
regulatory requirements outside the United States. Failure of our third-party manufacturers or us
to comply with applicable regulations could result in sanctions being imposed on us, including
fines, injunctions, civil penalties, failure of regulatory authorities to grant marketing approval
of our product candidates, delays, suspension or withdrawal of approvals, license revocation,
seizures or recalls of product candidates or products, operating restrictions and criminal
prosecutions, any of which could significantly and adversely affect supplies of our product
candidates.
We are dependent on our collaborative arrangement with Ipsen to develop and
commercialize toremifene in the European Territory and are dependent on our collaborative
arrangement with Merck for the joint research, development and commercialization of SARM compounds
and products. We may also be dependent upon additional collaborative arrangements to complete the
development and commercialization of some of our other product candidates. These collaborative
arrangements may place the development and commercialization of our product candidates outside our
control, may require us to relinquish important rights or may otherwise be on terms unfavorable to
us.
The loss of Ipsen or Merck as a collaborator in the development or commercialization of
toremifene or SARM compounds and related SARM products, respectively, any dispute over the terms of
our collaborations with Ipsen or Merck, or any other adverse developments in our relationships with
Ipsen or Merck could materially harm our business and might accelerate our need for additional
capital. For example, Ipsen is obligated to initiate and conduct appropriate clinical studies as
required by the appropriate regulatory authorities in order to obtain marketing approvals of
toremifene within the European Territory. Any failure on the part of Ipsen to initiate these
studies could delay the commercialization of toremifene within the European Territory. Likewise,
Merck is responsible for conducting all clinical trials for SARM product candidates developed under
the collaboration, and the failure of Merck to initiate one or more of these clinical trials would
adversely affect the development of our SARM product candidates.
We may not be successful in entering into additional collaborative arrangements with
other third parties. If we fail to enter into additional collaborative arrangements on favorable
terms, it could delay or impair our ability to develop and commercialize our other product
candidates and could increase our costs of development and commercialization.
Dependence on collaborative arrangements, including our arrangements with Ipsen and Merck
for the development and commercialization of toremifene and SARM compounds and products,
respectively, subjects us to a number of risks, including:
| • | we are not able to control either the amount and timing of resources that Ipsen devotes to toremifene or the amount of timing and resources that Merck devotes to SARM compounds and products developed under our collaboration with Merck; | ||
| • | we may not be able to control the amount and timing of resources that our potential future partners may devote to our product candidates; | ||
| • | our partners may experience financial difficulties or changes in business focus; | ||
| • | we may be required to relinquish important rights such as marketing and distribution rights; |
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| • | under certain circumstances, Ipsen may not be required to commercialize toremifene in certain countries of the European Territory if Ipsen determines that it is not commercially reasonable for it to do so; | ||
| • | pricing reimbursement constraints within the European Territory may diminish the prospects of our receiving royalty payments from Ipsen on aggregate net sales of toremifene in some or all of the countries within the European Territory; | ||
| • | should a collaborator fail to develop or commercialize one of our compounds or product candidates, we may not receive any future milestone payments and will not receive any royalties for the compound or product candidate; | ||
| • | business combinations or significant changes in a collaborator’s business strategy may also adversely affect a collaborator’s willingness or ability to complete its obligations under any arrangement; | ||
| • | under certain circumstances, a collaborator could move forward with a competing product candidate developed either independently or in collaboration with others, including our competitors; and | ||
| • | collaborative arrangements are often terminated or allowed to expire, which would delay the development and may increase the cost of developing our product candidates. |
We may not realize the anticipated benefits from our collaborative arrangements with
Ipsen and Merck.
We may not receive any future milestone payments provided for under our collaborative
arrangements with Ipsen and Merck if our agreements with them are terminated, if certain clinical
development and regulatory milestones under our agreements with them are not achieved, with
respect to our agreement with Ipsen, if Ipsen fails to develop and commercialize toremifene in the
European Territory, or, with respect to our agreement with Merck, if we and Merck fail to develop
and commercialize any of the SARMs included in or arising from our collaboration. In addition,
even if required regulatory approvals are obtained, it is possible that neither Ipsen nor Merck
will successfully market and sell toremifene or any SARM products, respectively, in which case we
would not receive royalties to the extent that we currently anticipate. Furthermore, our royalty
rates under our collaboration and license agreement with Ipsen are subject to a possible reduction
if a generic version of toremifene achieves specified sales levels in a major country within the
European Territory, and each of Ipsen and Merck may be entitled to offset a portion of any
royalties due to us if Ipsen or Merck licenses patent rights from a third party that would
otherwise be infringed by Ipsen’s or Merck’s use, manufacture, sale or import of toremifene or
SARM compounds, respectively.
Under our agreement with Ipsen, we and Ipsen have agreed that neither party will seek to
commercialize, promote, market or sell certain products within the European Territory for an
agreed period of time subsequent to the time of the first commercial launch of toremifene within
the European Territory. We and Ipsen have also agreed to grant to the other a right of first
negotiation with respect to the development, marketing, sale and distribution of any new
SERM-based products for the field of the prevention and treatment of prostate cancer or related
side effects, or any other indication the parties agree on. However, we cannot assure you that we
will be able to reach an agreement with Ipsen on reasonable terms, or at all, for any new
SERM-based products.
Under our agreement with Merck, we and Merck have agreed that neither party will engage
in the development and commercialization of SARMs with any third party for an agreed upon period of
time. However, we cannot assure you that we and Merck will be able to successfully develop new
SARM products or identify new indications for existing and/or future SARM products under our
collaboration with Merck. Additionally, Merck has the right to terminate our agreement with Merck
for any reason after a specified period of time with prior written notice, and Ipsen has the right
to terminate our agreement with Ipsen with 12 months prior written notice for any reason and with
30 days prior written notice as a result of legitimate and documented safety concerns. Both Ipsen
and Merck may terminate their agreements with us following our uncured material breach or
bankruptcy. If our agreements with Ipsen and Merck are terminated, the anticipated future benefits
to us from these agreements would be eliminated, the development and commercialization of
toremifene in the European Territory and the development and commercialization of our SARM product
candidates could be delayed, and our costs of development would increase. For example, Merck’s
obligation to pay us the remaining $10.0 million of the $15.0 million in guaranteed cost
reimbursements for research funding over a three year period is subject to our exclusive license
and collaboration agreement with Merck not being terminated for cause and there not occurring
certain change of control
events involving us during such three year period. In any such or similar events, we may not
realize the anticipated benefits from our collaborative arrangements with Ipsen and Merck.
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If third parties on whom we rely do not perform as contractually required or expected, we may
not be able to obtain regulatory approval for or to commercialize our product candidates.
We do not have the ability to independently conduct clinical trials for our product
candidates, and we must rely on third parties, such as contract research organizations, medical
institutions, clinical investigators and contract laboratories to conduct our clinical trials. In
addition, we rely on third parties to assist with our preclinical development of product
candidates. If these third parties do not successfully carry out their contractual duties or
regulatory obligations or meet expected deadlines, if the third parties need to be replaced, or if
the quality or accuracy of the data they obtain is compromised due to the failure to adhere to our
clinical protocols or regulatory requirements or for other reasons, our preclinical development
activities or clinical trials may be extended, delayed, suspended or terminated, and we may not be
able to obtain regulatory approval for or successfully commercialize our product candidates.
Risks Related to Our Intellectual Property
Our license agreement with Orion excludes the use of toremifene in humans to treat
breast cancer outside the United States and may limit our ability to market toremifene for human
uses outside the United States.
Our exclusive license and supply agreement from Orion excludes the use of toremifene for
the treatment of metastatic breast cancer outside the United States. Orion has licensed to other
parties the right to market, sell and distribute toremifene for the treatment of advanced breast
cancer outside the United States and could license additional parties to market, sell and
distribute toremifene for this indication outside the United States.
Under the terms of our license agreement with Orion, Orion may require us and Ipsen to
modify our final toremifene development plans for specified major markets outside the United States
if those development plans could adversely affect Orion’s or Orion’s other licensees’ activities
related to FARESTON® for breast cancer outside the United States or toremifene-based
animal health products. Although we do not believe that our or Ipsen’s development plans adversely
affect these activities, any future modifications to our or Ipsen’s plans imposed by Orion may
limit our and Ipsen’s ability to maximize the commercial potential of toremifene.
Furthermore, we and our affiliates are prohibited from marketing or selling products
containing SERM compounds (other than toremifene) for human use in the United States and other
major countries located outside the European Union during the term of Orion’s patents covering
toremifene in such major countries, which prohibition shall expire when Orion’s patents in the
United States expire in September 2009. The binding effect of this noncompetition provision on us
and our affiliates may make it more difficult for us to be acquired by some potential buyers during
the relevant time periods even if we determine that a sale of the company would be in the best
interests of our stockholders.
If some or all of our, or our licensors’, patents expire or are invalidated or are found to be
unenforceable, or if some or all of our patent applications do not result in issued patents or
result in patents with narrow or unenforceable claims, or if we are prevented from asserting that
the claims of an issued patent cover a product of a third party, we may be subject to competition
from third parties with products with the same active pharmaceutical ingredients as our product
candidates.
Our commercial success will depend in part on obtaining and maintaining patent and trade
secret protection for our product candidates, the methods for treating patients in the product
indications using these product candidates and the methods used to synthesize these product
candidates. We will be able to protect our product candidates and the methods for treating
patients in the product indications using these product candidates from unauthorized use by third
parties only to the extent that we or our exclusive licensors own or control such valid and
enforceable patents or trade secrets. Additionally, Ipsen’s ability to successfully market
toremifene within a substantial portion of the European Territory may depend on having marketing
and data exclusivity from the appropriate regulatory authorities.
Our rights to certain patent applications relating to SARM compounds that we have
licensed from the University of Tennessee Research Foundation, or UTRF, are subject to the terms of
UTRF’s inter-institutional agreements with The Ohio State University, or OSU, and our rights to
future related improvements in some instances are subject to UTRF’s exercise of exclusive options
under its agreements with OSU for such improvements. In addition, under the terms of our
agreements with the diagnostic companies to which we provided clinical samples from our Phase IIb
and Phase III clinical trials of toremifene 20 mg tablets, we will not obtain any intellectual
property rights in any of their developments, including any test developed to detect high grade PIN
or prostate cancer.
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Even if our product candidates and the methods for treating patients for prescribed
indications using these product candidates are covered by valid and enforceable patents and have
claims with sufficient scope and support in the specification, the patents will provide protection
only for a limited amount of time. For example, the patent that we have licensed from Orion
covering the composition of matter of toremifene expires in the United States in September 2009.
Foreign counterparts of this patent have expired prior to Ipsen or us receiving regulatory approval
to commercialize toremifene. As a result, outside the United States and in the United States after
2009, we will need to rely primarily on the protection afforded by method of use patents relating
to the use of toremifene for the relevant product indications that have been issued or may be
issued from our owned or licensed patent applications. Also, within the European Union, Ipsen may
need to rely primarily on the protection afforded by marketing and data exclusivity for the
toremifene products to be sold within the countries comprising the European Union. To date, many
of our applications for method of use patents filed for toremifene outside of the United States are
still pending and have not yielded issued patents. Loss of marketing and data exclusivity for the
toremifene products to be commercialized within the European Union could adversely affect its
ability to successfully commercialize these products. We are not eligible for any such exclusivity
or further extension of the composition of matter patent of toremifene licensed to us by Orion in
the United States.
Our and our licensors’ ability to obtain patents can be highly uncertain and involve
complex and in some cases unsettled legal issues and factual questions. Furthermore, different
countries have different procedures for obtaining patents, and patents issued in different
countries provide different degrees of protection against the use of a patented invention by
others. Therefore, if the issuance to us or our licensors, in a given country, of a patent
covering an invention is not followed by the issuance, in other countries, of patents covering the
same invention, or if any judicial interpretation of the validity, enforceability or scope of the
claims in a patent issued in one country is not similar to the interpretation given to the
corresponding patent issued in another country, our ability to protect our intellectual property in
those countries may be limited. Changes in either patent laws or in interpretations of patent laws
in the United States and other countries may diminish the value of our intellectual property or
narrow the scope of our patent protection.
Even if patents are issued to us or our licensors regarding our product candidates or
methods of using them, those patents can be challenged by our competitors who can argue such
patents are invalid or unenforceable or that the claims of the issued patents should be limited or
narrowly construed. Patents also will not protect our product candidates if competitors devise
ways of making or using these product candidates without legally infringing our patents. The
Federal Food, Drug, and Cosmetic Act and FDA regulations and policies create a regulatory
environment that encourages companies to challenge branded drug patents or to create non-infringing
versions of a patented product in order to facilitate the approval of abbreviated new drug
applications for generic substitutes. These same types of incentives encourage competitors to
submit new drug applications that rely on literature and clinical data not prepared for or by the
drug sponsor, providing another less burdensome pathway to approval.
We also rely on trade secrets to protect our technology, especially where we do not
believe that patent protection is appropriate or obtainable. However, trade secrets are difficult
to protect. Our employees, consultants, contractors, outside scientific collaborators and other
advisors may unintentionally or willfully disclose our confidential information to competitors, and
confidentiality agreements may not provide an adequate remedy in the event of unauthorized
disclosure of confidential information. Enforcing a claim that a third party illegally obtained
and is using our trade secrets is expensive and time-consuming, and the outcome is unpredictable.
Moreover, our competitors may independently develop equivalent knowledge, methods and know-how.
Failure to obtain or maintain trade secret protection could adversely affect our competitive
business position.
If we lose our licenses from Orion and UTRF, we may be unable to continue our business.
We have licensed intellectual property rights and technology from Orion and UTRF under
our license agreements with each of them. Each of these license agreements may be terminated by
the other party if we are in breach of our obligations under, or fail to perform any terms of, the
agreement and fail to cure that breach. If any of these agreements were terminated, then we may
lose our rights to utilize the technology and intellectual property covered by that agreement to
market, distribute and sell our licensed products, which may prevent us from continuing our
business. Additionally, the termination of our UTRF license related to SARM technology could lead
to a termination of our exclusive license and collaboration agreement with Merck, which would
terminate our rights to any potential milestone or royalty payments from Merck. In addition, the
termination of our UTRF license for chemoprevention of prostate cancer could lead to a termination
of our license and collaboration agreement with Ipsen, which would terminate our rights to any
potential milestone or royalty payments from Ipsen.
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Off-label sale or use of toremifene products could decrease sales of toremifene 80 mg
and toremifene 20 mg tablets if approved for commercial sale and could lead to pricing pressure if
such products become available at competitive prices and in dosages that are appropriate for the
indications for which we and Ipsen are developing toremifene.
In all countries in which we hold or have licensed rights to patents or patent
applications related to toremifene, the composition of matter patents we license from Orion will
expire before our method of use patents, and in countries outside the United States, the
composition of matter patents have already expired. Our method of use patents may not protect
toremifene from the risk of off-label sale or use of other toremifene products in place of
toremifene 80 mg and toremifene 20 mg tablets. Physicians are permitted to prescribe legally
available drugs for uses that are not described in the drug’s labeling and that differ from those
uses tested and approved by the FDA or its equivalent. Such off-label uses are common across
medical specialties and are particularly prevalent for cancer treatments. Any off-label sales of
toremifene may adversely affect our or Ipsen’s ability to generate revenue from the sale of
toremifene 80 mg and 20 mg tablets, if approved for commercial sale.
Even in the event that patents are issued from our pending method of use patent
applications, after the expiration of the patent covering the composition of matter of toremifene
in a particular country, competitors could market and sell toremifene products for uses for which
FARESTON® has already been approved. Thus, physicians in such countries would be
permitted to prescribe these other toremifene products for indications that are protected by our
method of use patents or patents issuing from pending patent applications, even though these other
toremifene products would not have been approved for those uses, and in most cases, the physician
would not be liable for contributing to the infringement of our patents. Moreover, because Orion
has licensed and could further license other parties to market, sell and distribute toremifene for
breast cancer outside the United States, physicians in such countries could prescribe these
products sold pursuant to another Orion license off-label. This further increases the risk of
off-label competition developing for toremifene for the indications for which we and Ipsen are
developing this product candidate. In addition, if no patents are issued with respect to our
pending method of use patent applications related to the use of toremifene in the countries outside
of the United States where these applications are currently pending, after the expiration of the
patent covering the composition of matter of toremifene in a particular country, we would have no
patent to prevent competitors from marketing and selling generic versions of toremifene at doses
and in formulations equivalent to toremifene 80 mg and toremifene 20 mg tablets for the indications
covered by our pending method of use patent applications. Also, regulatory authorities may not
recognize marketing and data exclusivity for toremifene in the European Union for the treatment of
prostate cancer and estrogen deficiency related side effects resulting from ADT. If generic
versions of toremifene are able to be sold in countries within the European Territory for the
indications for which Ipsen anticipates marketing toremifene, the royalties to be paid to us by
Ipsen will be reduced if the total generic sales exceed a certain threshold for a certain period of
time. Similarly, the royalties we will be paying to Orion for its licensing and supply of
toremifene will be reduced if generic sales thresholds are reached.
If we infringe intellectual property rights of third parties, it may increase our costs
or prevent us from being able to commercialize our product candidates.
There is a risk that we are infringing the proprietary rights of third parties because
numerous United States and foreign issued patents and pending patent applications, which are owned
by third parties, exist in the fields that are the focus of our drug discovery, development, and
manufacture and process synthesis efforts. Others might have been the first to make the inventions
covered by each of our or our licensors’ pending patent applications and issued patents and might
have been the first to file patent applications for these inventions. In addition, because patent
applications can take many years to issue, there may be currently pending applications, unknown to
us or our licensors, which may later result in issued patents that cover the production,
manufacture, synthesis, commercialization, formulation or use of our product candidates. In
addition, the production, manufacture, synthesis, commercialization, formulation or use of our
product candidates may infringe existing patents of which we are not aware. Defending ourselves
against third-party claims, including litigation in particular, would be costly and time consuming
and would divert management’s attention from our business, which could lead to delays in our
development or commercialization efforts. If third parties are successful in their claims, we
might have to pay substantial damages or take other actions that are adverse to our business.
As a result of intellectual property infringement claims, or to avoid potential claims,
we might:
| • | be prohibited from selling or licensing any product that we and/or collaborators may develop unless the patent holder licenses the patent to us, which the patent holder is not required to do; | ||
| • | be required to pay substantial royalties or grant a cross license to our patents to another patent holder; or |
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| • | be required to redesign the formulation of a product candidate so it does not infringe, which may not be possible or could require substantial funds and time. |
In addition, under our collaboration and license agreement with Ipsen and our exclusive
license and collaboration agreement with Merck, Ipsen and Merck may be entitled to offset a portion
of any royalties due to us in any calendar year on account of product sales to pay for costs
incurred by Ipsen or Merck to obtain a license to any dominant intellectual property rights that
are infringed by the products at issue.
Risks Related to Regulatory Approval of Our Product Candidates
If we or our collaborators are not able to obtain required regulatory approvals, we or
our collaborators will not be able to commercialize our product candidates, and our ability to
generate revenue will be materially impaired.
Our product candidates and the activities associated with their development and
commercialization are subject to comprehensive regulation by the FDA, other regulatory agencies in
the United States and by comparable authorities in other countries. Failure to obtain regulatory
approval for a product candidate will prevent us or our collaborators from commercializing the
product candidate. We have not received regulatory approval to market any of our product
candidates in any jurisdiction. In addition, we will not receive a substantial majority of the
milestone payments provided under our collaboration and license agreement with Ipsen or any royalty
payments if Ipsen is unable to obtain the necessary regulatory approvals to commercialize
toremifene within the European Territory. Likewise, we may not receive a majority of the milestone
payments or any royalty payments provided for under our exclusive license and collaboration
agreement with Merck if Merck is not able to obtain the necessary regulatory approvals to
commercialize any SARM products, including OstarineTM, developed under the
collaboration. The process of obtaining regulatory approvals is expensive, often takes many years,
if approval is obtained at all, and can vary substantially based upon the type, complexity and
novelty of the product candidates involved.
Changes in the regulatory approval policy during the development period, changes in or
the enactment of additional regulations or statutes, or changes in regulatory review for each
submitted product application, may cause delays in the approval or rejection of an application.
For example, the Food and Drug Administration Amendments Act of 2007, or the FDA Amendments Act,
which was enacted in September 2007, expands the FDA’s authority to regulate drugs throughout the
product life cycle, including enhanced authority to require post-approval studies and clinical
trials. Other proposals have been made to impose additional requirements on drug approvals,
further expand post-approval requirements and restrict sales and promotional activities. This new
legislation, and the additional proposals if enacted, may make it more difficult or burdensome for
us or our collaborators to obtain approval of our product candidates. Even if the FDA approves a
product candidate, the approval may impose significant restrictions on the indicated uses,
conditions for use, labeling, advertising, promotion, marketing and/or production of such product,
and may impose ongoing requirements for post-approval studies, including additional research and
development and clinical trials. The approval may also impose risk evaluation mitigation
strategies, or REMS, on a product if the FDA believes there is a reason to monitor the safety of
the drug in the market place. REMS may include requirements for additional training for health
care professionals, safety communication efforts and limits on channels of distribution, among
other things. The sponsor would be required to evaluate and monitor the various REMS activities
and adjust them if need be. The FDA also may impose various civil or criminal sanctions for
failure to comply with regulatory requirements, including withdrawal of product approval.
Furthermore, the approval procedure and the time required to obtain approval varies among
countries and can involve additional testing beyond that required by the FDA. Approval by one
regulatory authority does not ensure approval by regulatory authorities in other jurisdictions.
The FDA has substantial discretion in the approval process and may refuse to accept any
application or may decide that our data are insufficient for approval and require additional
preclinical, clinical or other studies. For example, we completed our Phase III clinical trial of
toremifene 80 mg for the prevention of bone fractures and treatment of other estrogen deficiency
side effects of ADT in men with prostate cancer and are conducting our Phase III clinical trial of
toremifene 20 mg for the prevention of prostate cancer in high risk men with high grade PIN, under
Special Protocol Assessments, or SPAs, with the FDA. A SPA is designed to facilitate the FDA’s
review and approval of drug products by allowing the FDA to evaluate the proposed design and size
of clinical trials that are intended to form the primary basis for determining a drug product’s
efficacy. If agreement is reached with the FDA, a SPA documents the terms and conditions under
which the design of the subject trial will be adequate for submission of the efficacy and human
safety portion of a NDA.
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However, there are circumstances under which we
may not receive the benefits of a SPA, notably if the FDA subsequently identifies a substantial
scientific issue essential to determining the product’s safety or efficacy. In addition, varying
interpretations of the data obtained from preclinical and clinical testing could delay, limit or
prevent regulatory approval of a product candidate. Furthermore, even if we submit an application
to the FDA for marketing approval of a product candidate, it may not result in marketing approval
from the FDA.
We may not receive regulatory approval for the commercial sale of any of our product
candidates that are in development for at least the next several months, if ever. In February
2009, however, we completed an initial step in the approval process in the United States when the
FDA accepted for filing our application to market toremifene 80 mg for the prevention of bone
fractures in men with prostate cancer on ADT. This acceptance means the application met the FDA’s
standards for conducting a full review but does not predict whether the application will be
approved or not. Similarly, it is not anticipated that Ipsen will receive the appropriate
regulatory approvals to market toremifene within the European Territory any sooner than we will
achieve regulatory approval in the United States, and it likely will be thereafter. The inability
to obtain FDA approval or approval from comparable authorities in other countries for our product
candidates would prevent us or our collaborators from commercializing these product candidates in
the United States or other countries. See the section entitled “Business — Government Regulation”
under Part I, Item 1 above for additional information regarding risks associated with marketing
approval, as well as risks related to post-approval requirements.
Risks Related to Commercialization
The commercial success of any products that we and/or our collaborators may develop,
including our toremifene products, will depend upon the market and the degree of market acceptance
among physicians, patients, healthcare payors and the medical community.
Any products that we and/or our collaborators may develop may not gain market acceptance
among physicians, patients, health care payors and the medical community. If these products do not
achieve an adequate level of acceptance, we may not generate material product revenues or receive
royalties to the extent we currently anticipate, and we may not become profitable. The degree of
market acceptance of our product candidates, if approved for commercial sale, will depend on a
number of factors, including:
| • | efficacy and safety results in clinical trials; | ||
| • | the prevalence and severity of any side effects; | ||
| • | potential advantages over alternative treatments; | ||
| • | the ability to offer our product candidates for sale at competitive prices; | ||
| • | relative convenience and ease of administration; | ||
| • | the strength of marketing and distribution support; and | ||
| • | sufficient third-party coverage or reimbursement. |
As part of our effort to complete the requirements for the submission of applications for
regulatory approval of toremifene 80 mg and toremifene 20 mg, we have conducted a number of studies
of toremifene in addition to our clinical trials, including a Thorough QT study (toremifene 80 mg
and toremifene 20 mg), a bioequivalence study (toremifene 80 mg) and a series of drug-drug
interaction studies (toremifene 80 mg and toremifene 20 mg), and are conducting a semen quality
study (toremifene 20 mg) to assess the effect of toremifene. The results of the Thorough QT study
of 250 healthy male volunteers, with 5 parallel cohorts receiving 20 mg, 80 mg or 300 mg doses of
toremifene, moxifloxacin, or placebo, showed that toremifene prolonged the QT interval in a dose
dependent manner. The mean change in QTcB (a measurement of QT interval corrected by Bazett’s
formula) from baseline relative to placebo for toremifene 20 mg was 5.79 milliseconds, for
toremifene 80 mg, it was 22.43 milliseconds, and for moxifloxacin, it was 8.83 milliseconds. Since
we market FARESTON® in the United States under a license agreement with Orion, we
notified the FDA of the Thorough QT study results and have proposed modifications to the
FARESTON® label in the United States. FDA action on the proposed label changes is
pending. Separately, Orion recommended label changes to the European Medicines Agency, or EMEA. In
January 2009, the EMEA recommended that the FARESTON® label within the European Union
reflect that toremifene should not be given to
patients at risk of prolonged QT intervals or other certain heart problems.
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The results of
these completed studies have been included as a part of the NDA submission to the FDA for our
toremifene 80 mg product candidate for the prevention of bone fractures in men with prostate cancer
on ADT and, subject to receipt of favorable results from our ongoing toremifene 20 mg Phase III
clinical trial, will be included as a part of the NDA submission for our toremifene 20 mg product
candidate for the prevention of prostate cancer in high risk men with high grade PIN, and will be
used to update the label for FARESTON®. The study results could lead to the inclusion
of restrictions, limitations and/or warnings in the label of FARESTON® or an approved
product candidate, which may adversely affect the marketability of the product or limit the
patients to whom the product is prescribed.
Our only marketed product generating revenue is FARESTON®, which is subject
to a number of risks. These risks may cause sales of FARESTON® to continue to decline.
FARESTON® is currently our only marketed product. The sales volume of
FARESTON® in the United States has been declining, and we anticipate that it will
continue to do so. Sales of pharmaceuticals for breast cancer in the SERM class have declined in
recent years as aromatase inhibitors have gained market share. We believe that aromatase
inhibitors will continue to capture breast cancer market share from SERMs, including from
FARESTON®, resulting in a continued decline in FARESTON® sales volume.
Continued sales of FARESTON® also could be impacted by many other factors. The
occurrence of one or more of the following risks may cause sales of FARESTON® to decline
more than we currently anticipate:
| • | the loss of the availability of Orion’s website to market FARESTON®, which is an important source of advertising; | ||
| • | the loss of one or more of our three largest wholesale drug distributors, which together accounted for approximately 96% of our product sales of FARESTON® for the year ended December 31, 2008; | ||
| • | any restrictions, limitations, and/or warnings added to the FARESTON® label as a result of our studies of toremifene, including a Thorough QT study and drug interaction studies, or otherwise; | ||
| • | the continued success of competing products, including aromatase inhibitors; | ||
| • | the loss of coverage or reimbursement for FARESTON® from Medicare and Medicaid, private health insurers or other third-party payors; | ||
| • | exposure to product liability claims related to the commercial sale of FARESTON®, which may exceed our product liability insurance; | ||
| • | the failure of Orion to maintain regulatory filings or comply with applicable FDA requirements with respect to FARESTON®; | ||
| • | the ability of third parties to market and sell generic toremifene products that will compete with FARESTON® for the treatment of breast cancer after the composition of matter patents that we license from Orion expire in the United States in September 2009; | ||
| • | the loss of Orion, upon which we rely as a single source, as our supplier of FARESTON®; and | ||
| • | our inability to manufacture FARESTON® until Orion’s patents with respect to the composition of matter of toremifene expire if Orion terminates our license and supply agreement due to our uncured material breach or bankruptcy. |
If we are unable to expand our sales and marketing capabilities or establish and
maintain agreements with third parties to market and sell our product candidates, we may be unable
to generate product revenue from such candidates.
We have limited experience as a company in the sales, marketing and distribution of
pharmaceutical products. There are risks involved with building our own sales and marketing
capabilities, as well as entering into arrangements with third parties to perform these services.
For example, building a sales force is expensive and time-consuming and could delay any launch of a
product candidate. We are relying on Ipsen to market and distribute our toremifene product
candidates through Ipsen’s established sales and marketing network within the European Territory.
If our collaboration and license agreement with Ipsen is terminated for any reason, our ability to
sell our toremifene product candidates in the European Territory would be adversely affected, and
we may be unable to
develop or engage an effective sales force to successfully market and sell our toremifene product
candidates in the European Territory.
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Currently, we do not have a partner outside of the European
Territory and our success in regions other than the European Territory may be dependent on our
ability to find suitable partners in other regions of the world. Similarly, we are relying on
Merck for the commercialization of any SARM products developed under our collaboration with Merck,
and if our exclusive license and collaboration agreement with Merck is terminated for any reason,
our ability to successfully market and sell any of our SARM product candidates would be adversely
affected, and we may be unable to develop or engage an effective sales force to successfully market
and sell any SARM products that we may develop, including OstarineTM. In addition, to
the extent that we enter into arrangements with third parties to perform sales, marketing and
distribution services, our product revenues are likely to be lower than if we market and sell any
products that we develop ourselves.
If we or our collaborators are unable to obtain adequate coverage and reimbursement from
third-party payors for products we sell at acceptable prices, our revenues and prospects for
profitability will suffer.
Many patients will not be capable of paying for any products that we and/or our
collaborators may develop and will rely on Medicare and Medicaid, private health insurers and other
third-party payors to pay for their medical needs. If third-party payors do not provide coverage
or reimbursement for any products that we and/or our collaborators may develop, our revenues and
prospects for profitability may suffer. For example, the Medicare Prescription Drug, Improvement
and Modernization Act of 2003 created a prescription drug benefit program for Medicare recipients.
The prescription drug program established by this legislation may have the effect of reducing the
prices that we or our collaborators are able to charge for products we and/or our collaborators
develop and sell through the program. This legislation may also cause third-party payors other
than the federal government, including the states under the Medicaid program, to discontinue
coverage for products that we and/or our collaborators may develop or to lower the amount that they
pay. In addition, members of the United States Congress have stated their desire to reduce the
government’s cost for reimbursements of prescription drugs by amending this legislation.
State Medicaid programs generally have outpatient prescription drug coverage, subject to
state regulatory restrictions, for the population eligible for Medicaid. The availability of
coverage or reimbursement for prescription drugs under private health insurance and managed care
plans varies based on the type of contract or plan purchased.
A primary trend in the United States health care industry is toward cost containment. In
addition, in some foreign countries, particularly the countries of the European Union, the pricing
of prescription pharmaceuticals is subject to governmental control. In these countries, pricing
negotiations with governmental authorities can take six to twelve months or longer after the
receipt of regulatory marketing approval for a product. To obtain reimbursement or pricing
approval in some countries, we or our collaborators may be required to conduct a clinical trial
that compares the cost effectiveness of our product candidates or products to other available
therapies. The conduct of such a clinical trial could be expensive and result in delays in our or
our collaborators’ commercialization efforts. Third-party payors are challenging the prices
charged for medical products and services, and many third-party payors limit reimbursement for
newly-approved health care products. In particular, third-party payors may limit the indications
for which they will reimburse patients who use any products that we and/or our collaborators may
develop or sell. Cost-control initiatives could decrease the price we might establish for products
that we or our collaborators may develop or sell, which would result in lower product revenues or
royalties payable to us.
Another development that may affect the pricing of drugs is proposed congressional action
regarding drug reimportation into the United States. The Medicare Prescription Drug, Improvement
and Modernization Act of 2003 gives discretion to the Secretary of Health and Human Services to
allow drug reimportation into the United States under some circumstances from foreign countries,
including countries where the drugs are sold at a lower price than in the United States.
Proponents of drug reimportation may attempt to pass legislation which would directly allow
reimportation under certain circumstances. If legislation or regulations were passed allowing the
reimportation of drugs, they could decrease the price we or our collaborators receive for any
products that we and/or our collaborators may develop, negatively affecting our revenues and
prospects for profitability.
If product liability lawsuits are brought against us, we may incur substantial
liabilities and may be required to limit commercialization of any products that we may develop.
We face an inherent risk of product liability exposure related to the testing of our
product candidates in human clinical trials and will face an even greater risk if we commercially
sell any product that we may develop. If we cannot successfully defend ourselves against claims
that our product candidates or products caused injuries, we will incur substantial liabilities.
Regardless of merit or eventual outcome, liability claims may result in:
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| • | decreased demand for any product candidates or products; | ||
| • | injury to our reputation; | ||
| • | withdrawal of clinical trial participants; | ||
| • | costs to defend the related litigation; | ||
| • | substantial monetary awards to trial participants or patients; | ||
| • | loss of revenue; and | ||
| • | the inability to commercialize any products for which we obtain or hold marketing approvals. |
We have product liability insurance that covers our clinical trials and commercial
products up to a $25 million annual aggregate limit. Insurance coverage is increasingly expensive.
We may not be able to maintain insurance coverage at a reasonable cost and we may not be able to
obtain insurance coverage that will be adequate to satisfy any liability that may arise.
If our competitors are better able to develop and market products than any products that
we and/or our collaborators may develop, our commercial opportunity will be reduced or eliminated.
We face competition from commercial pharmaceutical and biotechnology enterprises, as well
as from academic institutions, government agencies and private and public research institutions.
Our commercial opportunities will be reduced or eliminated if our competitors develop and
commercialize products that are safer, more effective, have fewer side effects or are less
expensive than any products that we and/or our collaborators may develop. In addition, significant
delays in the development of our product candidates could allow our competitors to bring products
to market before us and impair our or our collaborators’ ability to commercialize our product
candidates.
Various products are currently marketed or used off-label for some of the diseases and
conditions that we are targeting, and a number of companies are or may be developing new
treatments. These product uses, as well as promotional efforts by competitors and/or clinical
trial results of competitive products, could significantly diminish our or our collaborators’
ability to market and sell any products that we and/or our collaborators may develop. For example,
although there are no products that have been approved by the FDA for the prevention of bone
fractures and treatment of estrogen deficiency related side effects of ADT, we are aware of a
number of drugs marketed by Eli Lilly (Evista®), Merck (Fosamax®),
Sanofi-Aventis and Procter & Gamble (Actonel®), Wyeth Pharmaceuticals
(Effexor®), Boehringer Ingelheim (Catapres®), Novartis (Zometa®)
and Bristol Myers Squibb (Megace®) that are prescribed to treat single side effects of
androgen deprivation therapy; that external beam radiation and tamoxifen are used to treat breast
pain and enlargement, or gynecomastia; and that Amgen is developing a product candidate for the
treatment of osteoporosis in prostate cancer patients. While we have the only pharmaceutical
product in clinical development to prevent prostate cancer in high risk men with high grade PIN,
GlaxoSmithKline is conducting a Phase III study for Avodart® on prostate cancer
prevention in men with elevated prostate specific antigen. Additionally, recent literature has
suggested that finasteride may be effective in reducing the risk of prostate cancer progression,
and there are nutritional supplement studies (for example, selenium) investigating prostate cancer
prevention in men with high grade PIN. Similarly, while there are no drugs that have been approved
by the FDA for the treatment of muscle loss from cancer, there are drugs marketed by Steris
Laboratories and Savient Pharmaceuticals that are being prescribed off-label for the treatment of
some types of muscle loss from cancer. Testosterone and other anabolic agents are used to treat
involuntary weight loss in patients who have acute muscle loss. There are other SARM product
candidates in development that may compete with our product candidates. Wyeth and Amgen have
myostatin inhibitors in development which may compete for similar patients as
OstarineTM. This could result in reduced sales and pricing pressure on our product
candidates, if approved, which in turn would reduce our ability to generate revenue and have a
negative impact on our results of operations.
Many of our competitors have significantly greater financial resources and expertise in
research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining
regulatory approvals and marketing approved products than we do. Smaller or early-stage companies
may also prove to be significant competitors, particularly through collaborative arrangements with
large and established companies. These third parties compete with us in recruiting and retaining
qualified scientific and management personnel, establishing clinical trial sites and patient
registration for clinical trials, as well as in acquiring technologies and technology licenses
complementary to our programs or advantageous to our business.
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Risks Related to Employees and Growth
If we fail to attract and keep senior management and key scientific personnel, we may be
unable to successfully develop or commercialize our product candidates.
Our success depends on our continued ability to attract, retain and motivate highly
qualified management, clinical and scientific personnel and on our ability to develop and maintain
important relationships with leading academic institutions, clinicians and scientists. If we are
not able to attract and keep senior management and key scientific personnel, particularly
Dr. Mitchell S. Steiner, we may not be able to successfully develop or commercialize our product
candidates. All of our employees are at-will employees and can terminate their employment at any
time. We do not carry “key person” insurance covering members of senior management, other than
$25 million of insurance covering Dr. Steiner.
We will need to hire additional employees in order to continue our clinical trials and
commercialize our product candidates. Any inability to manage future growth could harm our ability
to commercialize our product candidates, increase our costs and adversely impact our ability to
compete effectively.
In order to continue our clinical trials and commercialize our product candidates, we
will need to expand the number of our managerial, operational, financial and other employees. We
currently anticipate that we will need between 100 and 200 additional employees by the time
toremifene 80 mg or toremifene 20 mg is initially commercialized,
including approximately 65 sales consultants. The competition for qualified personnel in the biotechnology field is intense.
Future growth will impose significant added responsibilities on members of management,
including the need to identify, recruit, maintain and integrate additional employees. Our future
financial performance and our ability to commercialize our product candidates and to compete
effectively will depend, in part, on our ability to manage any future growth effectively.
Risks Related to Our Common Stock
Market volatility may cause our stock price and the value of your investment to decline.
The market prices for securities of biotechnology companies in general have been highly
volatile and may continue to be so in the future. The following factors, in addition to other risk
factors described in this section, may have a significant impact on the market price of our common
stock:
| • | adverse results or delays in our clinical trials; | ||
| • | the timing of achievement of our and our collaborators’ clinical, regulatory and other milestones, such as the commencement of clinical development, the completion of a clinical trial or the receipt of regulatory approval; | ||
| • | announcement of FDA approval or non-approval of our product candidates or delays in the FDA review process; | ||
| • | actions taken by regulatory agencies with respect to our product candidates or products, our clinical trials or our sales and marketing activities, including regulatory actions requiring or leading to restrictions, limitations and/or warnings in the label of FARESTON® or an approved product candidate; | ||
| • | the commercial success of any product approved by the FDA or its foreign counterparts; | ||
| • | developments with respect to our collaborations with Ipsen and Merck; | ||
| • | market conditions for equity investments in general, or the biotechnology or pharmaceutical industries in particular; | ||
| • | the terms and timing of any collaborative, licensing or other arrangements that we may establish; | ||
| • | regulatory developments in the United States and foreign countries; |
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| • | changes in the structure of health care payment systems; | ||
| • | any intellectual property infringement lawsuit involving us; | ||
| • | announcements of technological innovations or new products by us or our competitors; | ||
| • | actual or anticipated fluctuations in our results of operations; | ||
| • | changes in financial estimates or recommendations by securities analysts; | ||
| • | sales of large blocks of our common stock; | ||
| • | sales of our common stock by our executive officers, directors and significant stockholders; | ||
| • | changes in accounting principles; and | ||
| • | the loss of any of our key scientific or management personnel. |
The stock markets in general, and the markets for biotechnology stocks in particular,
have experienced significant volatility that has often been unrelated to the operating performance
of particular companies. Recently, the financial markets have faced almost unprecedented turmoil,
resulting in a decline in investor confidence and concerns about the proper functioning of the
securities markets, which decline in general investor confidence has resulted in depressed stock
prices for many companies not withstanding the lack of a fundamental change in their underlying
business models or prospects. These broad market fluctuations may adversely affect the trading
price of our common stock. In the past, class action litigation has often been instituted against
companies whose securities have experienced periods of volatility in market price. Any such
litigation brought against us could result in substantial costs, which would hurt our financial
condition and results of operations and divert management’s attention and resources, which could
result in delays of our clinical trials or commercialization efforts.
Our executive officers, directors and largest stockholders have the ability to control all
matters submitted to stockholders for approval.
As of January 31, 2009, our executive officers, directors and holders of 5% or more of
our outstanding common stock beneficially owned approximately 76.5% of our outstanding common
stock, and our executive officers and directors alone beneficially owned approximately 47.5% of our
outstanding common stock. As a result, these stockholders, acting together, will be able to
control all matters requiring approval by our stockholders, including the election of directors and
the approval of mergers or other business combination transactions. The interests of this group of
stockholders may not always coincide with our interests or the interests of other stockholders.
Anti-takeover provisions in our charter documents and under Delaware law could make an
acquisition of us, which may be beneficial to our stockholders, more difficult and may prevent
attempts by our stockholders to replace or remove our current management.
Provisions in our certificate of incorporation and our bylaws may delay or prevent an
acquisition of us or a change in our management. In addition, these provisions may frustrate or
prevent any attempts by our stockholders to replace or remove our current management by making it
more difficult for stockholders to replace members of our Board of Directors. Because our Board of
Directors is responsible for appointing the members of our management team, these provisions could
in turn affect any attempt by our stockholders to replace current members of our management team.
These provisions include:
| • | a classified Board of Directors; | ||
| • | a prohibition on actions by our stockholders by written consent; | ||
| • | the ability of our Board of Directors to issue preferred stock without stockholder approval, which could be used to institute a “poison pill” that would work to dilute the stock ownership of a potential hostile acquirer, effectively preventing acquisitions that have not been approved by our Board of Directors; and | ||
| • | limitations on the removal of directors. |
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Moreover, because we are incorporated in Delaware, we are governed by the provisions of
Section 203 of the Delaware General Corporation Law, which prohibits a person who owns in excess of
15% of our outstanding voting stock from merging or combining with us for a period of three years
after the date of the transaction in which the person acquired in excess of 15% of our outstanding
voting stock, unless the merger or combination is approved in a prescribed manner. Finally, these
provisions establish advance notice requirements for nominations for election to our Board of
Directors or for proposing matters that can be acted upon at stockholder meetings. These
provisions would apply even if the offer may be considered beneficial by some stockholders.
If there are substantial sales of our common stock, the market price of our common stock
could drop substantially, even if our business is doing well.
For the 12-month period ended December 31, 2008, the average daily trading volume of our
common stock on the NASDAQ Global Market was approximately 298,611 shares. As a result, future
sales of a substantial number of shares of our common stock in the public market, or the perception
that such sales may occur, could adversely affect the then-prevailing market price of our common
stock. As of December 31, 2008, we had 36,392,443 shares of common stock outstanding.
Moreover, J.R. Hyde, III, and Oracle Partners, L.P., two of our largest stockholders, and
their affiliates, have rights, subject to some conditions, to require us to file registration
statements covering the approximately 10.8 million shares of common stock they hold in the
aggregate which are subject to registration rights or to include these shares in registration
statements that we may file for ourselves or other stockholders. In addition, we filed a
registration statement covering the 1,285,347 shares of common stock that we issued to Merck in
December 2007. Finally, all shares of common stock that we may issue under our employee benefit
plans can be freely sold in the public market upon issuance.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
We sublease approximately 53,000 square feet of laboratory and office space at 3 North Dunlap
Street, Memphis, Tennessee, under an operating lease through December 31, 2008 with an option to
extend the sublease for up to two additional years. We have exercised
an option to extend the sublease
until December 31, 2009. We are working with the landlord to add additional options to extend the
term of this sublease. This sublease is terminable by either party on 90 days’ notice. In December
2007, we entered into a sublease for approximately 31,000 square feet of additional office space at
175 Toyota Plaza, Memphis, Tennessee, under an operating lease through April 30, 2015. We have an
option to cancel this sublease beginning December 31, 2010. In July 2008, we amended the sublease
to add approximately 22,000 square feet of additional office space in Memphis, Tennessee through
April 30, 2015. We have an option to cancel the sublease for this additional space on December 31,
2012.
ITEM 3. LEGAL PROCEEDINGS
We are not currently involved in any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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PART II
| ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Market for Registrant’s Common Equity
Our common stock began trading on The NASDAQ Global Market under the symbol “GTXI” on February
3, 2004. The following table presents, for the periods indicated, the high and low closing sales
prices per share of our common stock as reported on The NASDAQ Global Market.
| 2008 | 2007 | |||||||||||||||
| High | Low | High | Low | |||||||||||||
First Quarter
|
$ | 17.59 | $ | 10.79 | $ | 22.95 | $ | 15.83 | ||||||||
Second Quarter
|
18.32 | 14.25 | 23.38 | 16.19 | ||||||||||||
Third Quarter
|
20.03 | 14.40 | 18.36 | 14.25 | ||||||||||||
Fourth Quarter
|
18.80 | 13.00 | 18.19 | 13.67 | ||||||||||||
On
February 26, 2009, the closing price of our common stock as reported on The NASDAQ Global
Market was $9.61 per share and there were approximately 71 holders of record of our common stock.
Performance Graph1
The rules of the SEC require that we include in our annual report to stockholders a line-graph
presentation comparing cumulative stockholder returns on our common stock with a broad equity
market index that includes companies whose equity securities are traded on the NASDAQ and either a
published industry or line-of-business standard index or an index of peer companies selected by us.
We have elected to use the NASDAQ Composite Index (which tracks the aggregate price performance of
equity securities of companies traded on NASDAQ) and the NASDAQ Biotechnology Index (consisting of
a group of approximately 130 companies in the biotechnology sector, including us) for purposes of
the performance comparison that appears below.
The following graph shows the cumulative total stockholder return assuming the investment of
$100.00 at the closing prices on February 3, 2004, the first day of trading of our common stock on
the NASDAQ Global Market: (1) our common stock; (2) NASDAQ Composite Index and (3) NASDAQ
Biotechnology Index. All values assume reinvestment of the full amounts of all dividends. No
dividends have been declared on our common stock. The closing sale price of our common stock on
December 31, 2008 as reported on the NASDAQ Global Market was $16.84.
The stockholder return shown on the graph below is not necessarily indicative of future
performance, and we do not make or endorse any predictions as to future stockholder returns.
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| 1 | The material in this section is not “soliciting material,” is not deemed filed with the SEC and is not to be incorporated by reference in any filing of GTx, Inc. under the Securities Act of 1933 or the Exchange Act whether made before or after the date hereof and irrespective of any general incorporation language in such filing. |
Dividend Policy
We have never declared or paid any cash dividends on our capital stock. We currently intend to
retain any future earnings to fund the development and expansion of our business, and therefore we
do not anticipate paying cash dividends on our common stock in the foreseeable future. Any future
determination to pay dividends will be at the discretion of our Board of Directors.
ITEM 6. SELECTED FINANCIAL DATA
You should read the selected financial data below in conjunction with “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” and the audited financial
statements, notes thereto and other financial information included elsewhere in this Annual Report
on Form 10-K. The statements of operations data for the years ended December 31, 2008, 2007 and
2006, and the balance sheet data as of December 31, 2008 and 2007, are derived from our audited
financial statements included elsewhere in this Annual Report on Form 10-K. The statements of
operations data for the years ended December 31, 2005 and 2004, and the consolidated balance sheet
data as of December 31, 2006, 2005 and 2004, are derived from our audited financial statements that
are not included in this Annual Report on Form 10-K. Historical results are not indicative of the
results to be expected in the future.
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| Years Ended December 31, | ||||||||||||||||||||
| 2008 | 2007 | 2006 | 2005 | 2004 | ||||||||||||||||
| (in thousands, except per share data) | ||||||||||||||||||||
Statement of Operations Data: |
||||||||||||||||||||
Revenues: |
||||||||||||||||||||
Product sales, net |
$ | 1,088 | $ | 1,076 | $ | 1,357 | $ | 2,445 | $ | — | ||||||||||
Total collaboration revenue |
12,440 | 6,050 | 6,148 | 1,337 | 1,867 | |||||||||||||||
Total revenues |
13,528 | 7,126 | 7,505 | 3,782 | 1,867 | |||||||||||||||
Operating expenses: |
||||||||||||||||||||
Cost of product sales |
649 | 621 | 773 | 1,573 | — | |||||||||||||||
Research and development expenses |
44,259 | 38,508 | 33,897 | 30,923 | 17,950 | |||||||||||||||
General and administrative expenses |
23,105 | 13,501 | 11,352 | 9,845 | 7,211 | |||||||||||||||
Loss from operations |
(54,485 | ) | (45,504 | ) | (38,517 | ) | (38,559 | ) | (23,294 | ) | ||||||||||
Interest income |
2,705 | 5,145 | 3,007 | 1,720 | 946 | |||||||||||||||
Net loss |
(51,780 | ) | (40,359 | ) | (35,510 | ) | (36,839 | ) | (22,348 | ) | ||||||||||
Accrued preferred stock dividends |
— | — | — | — | (455 | ) | ||||||||||||||
Adjustment to preferred stock redemption value |
— | — | — | — | 17,125 | |||||||||||||||
Net loss attributable to common stockholders |
$ | (51,780 | ) | $ | (40,359 | ) | $ | (35,510 | ) | $ | (36,839 | ) | $ | (5,678 | ) | |||||
Net loss per share attributable to common stockholders: |
||||||||||||||||||||
Basic |
$ | (1.43 | ) | $ | (1.16 | ) | $ | (1.14 | ) | $ | (1.42 | ) | $ | (0.25 | ) | |||||
Diluted |
$ | (1.43 | ) | $ | (1.16 | ) | $ | (1.14 | ) | $ | (1.42 | ) | $ | (0.93 | ) | |||||
| As of December 31, | ||||||||||||||||||||
| 2008 | 2007 | 2006 | 2005 | 2004 | ||||||||||||||||
| (in thousands) | ||||||||||||||||||||
Balance Sheet Data: |
||||||||||||||||||||
Cash, cash equivalents and short-term investments |
$ | 97,667 | $ | 100,178 | $ | 119,550 | $ | 74,014 | $ | 64,528 | ||||||||||
Working capital |
79,047 | 132,932 | 111,363 | 70,030 | 61,298 | |||||||||||||||
Total assets |
108,109 | 159,730 | 129,255 | 82,811 | 73,082 | |||||||||||||||
Accumulated deficit |
(321,918 | ) | (270,138 | ) | (229,779 | ) | (194,269 | ) | (157,430 | ) | ||||||||||
Total stockholders’ equity |
32,018 | 78,917 | 97,049 | 73,579 | 63,909 | |||||||||||||||
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our financial
statements and related notes included elsewhere in this Annual Report on Form 10-K. This discussion
contains forward-looking statements based upon current expectations that involve risks and
uncertainties. Our actual results and the timing of selected events could differ materially from
those anticipated in these forward-looking statements as a result of several factors, including
those set forth under Part I, Item 1A “Risk Factors” and elsewhere in this Annual Report on Form 10-K. See
“Special Note Regarding Forward-Looking Statements” in this Annual Report on Form 10-K.
Overview
We are a biopharmaceutical company dedicated to the discovery, development and
commercialization of small molecules that selectively target hormone pathways to treat cancer,
osteoporosis and bone loss, muscle loss and other serious medical conditions. We are developing
toremifene citrate, a selective estrogen receptor modulator, or SERM, in two separate clinical
programs in men: first, toremifene 80 mg in a completed pivotal Phase III clinical trial for the
prevention of bone fractures and treatment of other estrogen deficiency side effects of androgen
deprivation therapy, or ADT, in men with prostate cancer, and second, toremifene 20 mg in an
ongoing pivotal Phase III clinical trial for the prevention of prostate cancer in high risk men
with precancerous prostate lesions called high grade prostatic intraepithelial neoplasia, or high
grade PIN.
We commenced a pivotal Phase III clinical trial of toremifene 80 mg under a Special Protocol
Assessment, or SPA, with the U.S. Food and Drug Administration, or FDA, for the prevention of bone
fractures and treatment of estrogen deficiency related side effects of ADT in men with prostate
cancer in November 2003. The last patient completed the ADT clinical trial in November 2007. In
the first quarter of 2008, we announced that the Phase III clinical trial results for toremifene 80
mg for the prevention of bone fractures and treatment of other estrogen deficiency side effects of
ADT in men with prostate cancer showed that toremifene 80 mg reduced new morphometric vertebral
fractures, met other key endpoints of bone mineral density, or BMD, lipid profiles and
gynecomastia, and also showed that toremifene 80 mg demonstrated a reduction in hot flashes in a
subset of patients. In December 2008, we submitted a New Drug Application, or NDA, for toremifene
80 mg for the prevention of bone fractures in men with prostate cancer on ADT, which has been
accepted for filing and review by the FDA.
In January 2005, we initiated a pivotal Phase III clinical trial of toremifene 20 mg for the
prevention of prostate cancer in high risk men with high grade PIN, which is being conducted under
a SPA with the FDA. A planned efficacy interim analysis was conducted in the second quarter of
2008 that did not reach the specified statistical outcome of p<0.003 required under the SPA. We
anticipate conducting a planned efficacy analysis after a certain number of additional cancer
events have been recorded among study patients, which we currently expect to occur in the summer of
2009. If the efficacy analysis achieves a prespecified statistical goal, we plan to submit a NDA
to the FDA. If we are able to submit a NDA based on the results of the planned efficacy analysis,
we will continue the study to collect efficacy data and safety data during the NDA review process
to satisfy the FDA’s safety requirements set forth in the SPA. If the results from the efficacy
analysis do not satisfy the specified statistical requirements, we will make a final determination
about the continuation of the toremifene 20 mg Phase III clinical trial.
We have licensed to Ipsen Developments Limited (formerly known as Ipsen Limited), or Ipsen,
exclusive rights in the European Union, Switzerland, Norway, Iceland, Lichtenstein and the
Commonwealth of Independent States, which we refer to collectively as the European Territory, to
develop and commercialize toremifene in all indications which we have licensed from Orion
Corporation, or Orion, which include all indications in humans except the treatment and prevention
of breast cancer outside of the United States.
In our third clinical program, selective androgen receptor modulators, or SARMs, are being
developed to treat sarcopenia, which is the loss of skeletal muscle mass resulting in reduced
physical strength and ability to perform activities of daily living, cancer cachexia (cancer
induced muscle loss), and other musculoskeletal wasting or muscle loss conditions. In December
2006, we announced that OstarineTM (designated by Merck as MK-2866) met its primary
endpoint in a Phase II proof of concept, double blind, randomized, placebo controlled clinical
trial in 60 elderly men and 60 postmenopausal women. In December 2007, we and Merck & Co., Inc.,
or Merck, entered into a collaboration agreement governing our and Merck’s joint research,
development and commercialization of SARM compounds and related SARM products, including SARMs
currently being developed by us and Merck and those yet to be discovered, for all indications of
interest.
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We and Merck are evaluating multiple SARM product
candidates, including Ostarine™ and MK-0773, for a variety of indications including sarcopenia
and cancer cachexia. In October 2008, we announced topline results of a Phase II clinical trial
evaluating Ostarine™ in patients with cancer cachexia. In this analysis, the study met its primary
endpoint of absolute change in total lean body mass (muscle) compared to placebo and the secondary
endpoint of muscle function (performance) after 16 weeks of treatment in 159 cancer patients with
reported weight loss. In 2009, we and Merck expect to complete an ongoing Phase II clinical trial
evaluating MK-0773 in sarcopenia and expect to initiate a clinical trial evaluating Ostarine™ in
cancer cachexia. We and Merck are evaluating additional muscle loss indications for potential SARM
clinical development.
We are developing GTx-758, an oral luteinizing hormone, or LH, inhibitor for the treatment of
advanced prostate cancer. In preclinical in vitro and in vivo models, GTx-758 has demonstrated the
potential to reduce testosterone to castrate levels without causing certain estrogen deficiency
side effects such as bone loss and hot flashes. We have initiated a Phase I clinical trial
evaluating GTx-758 in healthy volunteers in the first quarter of 2009. We further expect to
establish proof of concept for GTx-758 with a Phase I multiple ascending dose clinical trial that
we are planning to initiate in the second quarter of 2009 and conclude in the fourth quarter of
2009. We also have an extensive preclinical pipeline generated from our own discovery program,
including GTx-878, an estrogen receptor beta agonist.
We currently market FARESTON® (toremifene citrate) 60 mg tablets, approved for the
treatment of metastatic breast cancer in postmenopausal women in the United States. The active
pharmaceutical ingredient in FARESTON® is the same as in our toremifene 80 mg and
toremifene 20 mg product candidates.
Our net loss for the year ended December 31, 2008 was $51.8 million. Our net loss included
FARESTON® net product sales of $1.1 million and the recognition of collaboration revenue
of $12.4 million. We have financed our operations and internal growth primarily through public
offerings and private placements of our common stock and preferred stock, as well as proceeds from
our collaborations. We expect to continue to incur net losses as we continue our clinical
development and research and development activities, apply for regulatory approvals, expand our
sales and marketing capabilities and grow our operations.
Sales and Marketing
We currently market FARESTON® (toremifene citrate) 60 mg tablets, approved for the
treatment of metastatic breast cancer in postmenopausal women in the United States. The
active pharmaceutical ingredient in FARESTON® is the same as in our toremifene 80 mg and
toremifene 20 mg product candidates, but in a different dose. In January
2005, we acquired from Orion the right to market FARESTON® tablets in the United States
for the metastatic breast cancer indication. We also acquired from Orion a license to toremifene
for all indications in humans worldwide, except breast cancer outside of the United States. In order to commercialize any future
products, we must broaden our sales and marketing infrastructure or collaborate with third parties
with sales and marketing experience and personnel. We plan to build a specialty sales and
marketing infrastructure, which we expect to include approximately 65 sales consultants, to market
toremifene 80 mg and toremifene 20 mg, if approved by the FDA, to the relatively small and
concentrated community of urologists and medical oncologists in the United States. We have
partnered with Ipsen to commercialize toremifene in Europe. We are currently seeking partners to
market toremifene in Asia and other markets outside of the United States and Europe.
Research and Development
Since our inception in 1997, we have been focused on drug discovery and development programs.
Research and development expenses represented 66% of our total operating expenses for the year
ended December 31, 2008. Research and development expenses include our expenses for personnel
associated with our research activities, screening and identification of product candidates,
formulation and synthesis activities, manufacturing, preclinical studies, toxicology studies,
clinical trials, regulatory affairs, quality assurance activities and license and royalty fees.
We expect that research and development expenditures will continue to increase in future
periods due to:
| • | activities relating to our efforts to obtain regulatory approval of toremifene 80 mg for the prevention of bone fractures and treatment of other estrogen deficiency side effects of ADT in men with prostate cancer; | ||
| • | the continuation of the pivotal Phase III clinical trial of toremifene 20 mg for the prevention of prostate cancer in high risk men with high grade PIN; |
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| • | our ongoing SARM research and development efforts with Merck as a part of our collaboration; | ||
| • | the continued preclinical and clinical development of other product candidates, including GTx-758; and | ||
| • | increases in research and development personnel. |
There is a risk that any drug discovery and development program may not produce revenue.
Moreover, because of uncertainties inherent in drug discovery and development, including those
factors described in Part I, Item 1A “Risk Factors” of this Annual Report on Form 10-K, we may not
be able to successfully develop and commercialize any of our product candidates.
Drug development in the United States is a process that includes several steps defined by the
FDA. The FDA approval process for a new drug involves completion of preclinical studies and the
submission of the results of these studies to the FDA, together with proposed clinical protocols,
manufacturing information, analytical data and other information in an Investigational New Drug
application which must become effective before human clinical trials may begin. Clinical
development typically involves three phases of study: Phase I, II and III. The most significant
costs associated with clinical development are the Phase III clinical trials as they tend to be the
longest and largest studies conducted during the drug development process. After completion of
clinical trials, a NDA may be submitted to the FDA. In responding to a NDA, the FDA may refuse to
file the application, or if accepted for filing, the FDA may not grant marketing approval, request
additional information or deny the application if it determines that the application does not
provide an adequate basis for approval. Even if the FDA grants marketing approval, the FDA may
impose restrictions, limitations and/or warnings in the label of an approved product candidate,
which may adversely affect the marketability of the product or limit the patients to whom the
product is prescribed.
The successful development and commercialization of our product candidates is highly
uncertain. We cannot reasonably estimate or know the nature, timing and estimated costs of the
efforts necessary to complete the development and commercialization of, or the period in which
material net cash inflows are expected to commence from, any of our product candidates, including
the product candidates developed and/or commercialized through our collaborations with Merck and
Ipsen, due to the numerous risks and uncertainties associated with developing and commercializing
drugs, including the uncertainty of:
| • | the scope, rate of progress and cost of our and/or our collaborators’ clinical trials and other research and development activities; | ||
| • | future clinical trial results; | ||
| • | the achievement of certain milestone events under, and other matters related to, our collaborative arrangements with Merck and Ipsen; | ||
| • | the terms and timing of any future collaborative, licensing and other arrangements that we may establish; | ||
| • | the cost and timing of regulatory filings and/or approvals, and any related restrictions, limitations, and/or warnings; | ||
| • | potential future licensing fees, milestone payments and royalty payments, including any milestone payments or royalty payments that we may receive under our collaborative arrangements with Merck and Ipsen; | ||
| • | the cost and timing of establishing sales, marketing and distribution capabilities; | ||
| • | the cost of establishing clinical and commercial supplies of our product candidates and any products that we and/or our collaborators may develop; | ||
| • | the effect of competing technological and market developments; and |
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| • | the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights. |
Any failure to complete the development of our product candidates in a timely manner could
have a material adverse effect on our operations, financial position and liquidity. A discussion of
the risks and uncertainties associated with completing our development and commercialization
efforts on schedule, or at all, and some consequences of failing to do so, are set forth under Part
I, Item 1A “Risk Factors” of this Annual Report on Form 10-K.
General and Administrative Expenses
Our general and administrative expenses consist primarily of salaries and other related costs
for personnel serving executive, finance, legal, human resources, information technology, investor
relations and marketing functions. Other costs include facility costs not otherwise included in
research and development expense and professional fees for legal, accounting, public relations, and
marketing services. General and administrative expenses also include insurance costs and
FARESTON® selling and distribution expenses. We expect that our general and
administrative expenses will increase in future periods as we add personnel, additional office
space and other expenses to support the planned growth of our business. In addition, we plan to
expand our sales and marketing efforts which will result in increased sales and marketing expenses
in future years.
Critical Accounting Policies and Significant Judgments and Estimates
Our management’s discussion and analysis of our financial condition and results of operations
is based on our financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States of America. The preparation of these financial
statements requires us to make estimates and assumptions that affect the reported amounts of assets
and liabilities and the disclosure of contingent assets and liabilities at the date of the
financial statements as well as the reported revenues and expenses during the reporting periods.
On an ongoing basis, we evaluate our estimates and judgments related to revenue recognition, income
taxes, intangible assets, long-term service contracts and other contingencies. We base our
estimates on historical experience and on various other factors that we believe are reasonable
under the circumstances, the results of which form the basis for making judgments about the
carrying value of assets and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or conditions.
While our significant accounting policies are more fully described in Note 2 to our financial
statements appearing at the end of this Annual Report on Form 10-K, we believe that the following
accounting policies are most critical to aid you in fully understanding and evaluating our reported
financial results.
Revenue Recognition
Our revenues consist of product sales of FARESTON® and revenues derived from our
collaboration and license agreements.
We use revenue recognition criteria outlined in Staff Accounting Bulletin (“SAB”) No. 101,
Revenue Recognition in Financial Statements as amended by SAB No. 104, (together, “SAB 104”),
Statement of Financial Accounting Standards (“SFAS”) No. 48, Revenue Recognition When Right of
Return Exists (“SFAS No. 48”), Emerging Issues Task Force (“EITF”) Issue No. 00-21, Revenue
Arrangements with Multiple Deliverables (“EITF 00-21”) and EITF Issue No. 99-19, Reporting Revenue
Gross as a Principal Versus Net as an Agent (“EITF 99-19”). Accordingly, revenues from licensing
agreements are recognized based on the performance requirements of the agreement. We have analyzed
our agreements with multiple element arrangements to determine whether the deliverables under the
agreement, including license and performance obligations such as joint steering committee
participation and research and development activities, can be separated or whether all of the
deliverables must be accounted for as a single unit of accounting in accordance with EITF 00-21.
For these arrangements, we were not able to identify evidence of fair value for the undelivered
elements and therefore recognize any consideration for a single unit of accounting in the same
manner as the revenue is recognized for the final deliverable, which is ratable over the
performance period. The performance period is estimated at the inception of the agreement and is
reevaluated at each reporting period.
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Cost reimbursements for research activities are recognized
as collaboration
revenue if the provisions of EITF 99-19 are met, the amounts are determinable and collection of the
related receivable is reasonably assured. Revenues from milestone payments for which we have no
continuing performance obligations are recognized upon achievement of the performance milestone, as
defined in the related agreement, provided the milestone is substantive and a culmination of the
earnings process has occurred. Performance obligations typically consist of significant milestones
in the development life cycle of the related product candidates and technology, such as initiation
of clinical trials, achievement of specified clinical trial endpoints, filing for approval with
regulatory agencies and approvals by regulatory agencies.
We estimate the performance obligation period to be ten years for our collaboration agreement
with Merck and five years for the development of toremifene for both the high grade PIN and ADT
indications in the European Territory under our collaboration agreement with Ipsen. The factors
that drive the actual development period of a pharmaceutical product are inherently uncertain and
include determining the timing and expected costs to complete the project, projecting regulatory
approvals and anticipating potential delays. We use all of these factors in initially estimating
the economic useful lives of our performance obligations, and we also continually monitor these
factors for indications of appropriate revisions
We recognize net product sales revenue from sales of FARESTON® less deductions for
estimated sales discounts and sales returns. We recognize revenue from product sales when the
goods are shipped and title and risk of loss pass to the customer and the other criteria of SAB No.
104 and SFAS No. 48 are satisfied. We account for rebates to certain governmental agencies as a
reduction of product sales. We allow customers to return product within a specified time period
prior to and subsequent to the product’s labeled expiration date. As a result, we estimate an
accrual for product returns, which is recorded as a reduction of product sales. We consider
historical product return trend information that we continue to update each period. We estimate
the number of months of product on hand and the amount of product which is expected to exceed its
expiration date and be returned by the customer by receiving information from our three largest
wholesale customers about the levels of FARESTON® inventory held by these customers.
These three largest wholesale customers accounted for 96% of our product sales of
FARESTON® for the year ended December 31, 2008. Based on this information, and other
factors, we estimate an accrual for product returns. At December 31, 2008 and 2007, our accrual
for product returns was $815,000 and $324,000, respectively. In the fourth quarter of 2008, we
increased the price of FARESTON®. While we do not estimate a material increase in the
volume of product returns as a result of the price increase, the price increase did increase the
amount of the estimated product returns accrual as certain product returns are accepted at or near
the current sales price of FARESTON®.
Research and Development Expenses
Research and development expenses include, but are not limited to, expenses for personnel and
facilities associated with research activities, screening and identification of product candidates,
formulation and synthesis activities, manufacturing, preclinical studies, toxicology studies,
clinical trials, regulatory affairs, quality assurance activities and license and royalty fees. We
expense these costs in the period in which they are incurred. We estimate our liabilities for
research and development expenses in order to match the recognition of expenses to the period in
which the actual services are received. As such, accrued liabilities related to third party
research and development activities are recognized based upon our estimate of services received and
degree of completion of the services in accordance with the specific third party contract.
Share-Based Compensation
We have stock option plans that provide for the purchase of our common stock by certain of our
employees and directors. Effective January 1, 2006, we adopted SFAS 123(R), Share-Based Payment,
and began recognizing compensation expense for our share-based payments based on the fair value of
the awards.
The determination of the fair value of share-based payment awards on the date of grant include
the expected life of the award, the expected stock price volatility over the expected life of the
awards, expected dividend yield, and risk-free interest rate. We estimate the expected life of
options by calculating the average of the vesting term and contractual term of the options, as
allowed by SAB 110. We estimate the expected stock price volatility based on the historical
volatility of our common stock. The risk-free interest rate is determined using U.S. Treasury
rates where the term is consistent with the expected life of the stock options. Expected dividend
yield is not considered as we have not made any dividend payments and have no plans of doing so in
the foreseeable future. Forfeitures are estimated at the time of valuation and reduce expense
ratably over the vesting period. This estimate is adjusted
periodically based on the extent to which actual forfeitures differ, or are expected to
differ, from the previous estimate.
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Total share-based compensation expense for the year ended December 31, 2008 was $3.7 million,
of which $1.7 million and $2.0 million were recorded in the statements of operations as research
and development expenses and general and administrative expenses, respectively. Total share-based
compensation expense for the years ended December 31, 2007 and 2006 was $2.2 million and $1.4
million, respectively. Included in share-based compensation expense for all periods presented is
share-based compensation expense related to deferred compensation arrangements for our directors,
which was $178,000, $183,000 and $140,000 for the years ended December 31, 2008, 2007 and 2006,
respectively. On the date of adoption of SFAS 123R, the unamortized balance of deferred stock
compensation of $1.7 million was reduced to zero with an offsetting adjustment to additional
paid-in capital. At December 31, 2008, the total compensation cost related to non-vested awards
not yet recognized was approximately $8.8 million with a weighted average expense recognition
period of 2.42 years.
Income Taxes
We account for deferred taxes by recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in the financial statements or
tax returns. Under this method, deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax basis of assets and liabilities using enacted
tax rates in effect for the year in which the differences are expected to reverse. Realization of
deferred tax assets is dependent on future earnings, if any, the timing and amount of which is
uncertain. A valuation allowance is provided when it is more likely than not that some portion or
all of the deferred tax assets will not be realized. At December 31, 2008 and 2007, net of the
valuation allowance, the net deferred tax assets were reduced to zero as we have incurred losses
since inception and anticipate that we will incur continued losses for the foreseeable future.
Intangible Assets
We account for our intangible assets in accordance with SFAS No. 142, Goodwill and Other
Intangible Assets, which requires that purchased intangible assets with finite lives be amortized
over their estimated economic lives. Our purchased intangible assets, license fees, represent
license fees paid to Orion in connection with entering into an amended and restated license and
supply agreement and to UTRF in connection with entering into amended and restated license
agreements. The Orion license fee is being amortized on a straight-line basis over the term of the
agreement which we estimate to be 16 years. The UTRF license fees are being amortized on a
straight-line basis over the term of the agreements which we estimate to be approximately 14 years
and 11.5 years. In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets and for Long-Lived Assets to be Disposed of, we review long-lived assets for
impairment whenever events or changes in facts and circumstances, both internally and externally,
may indicate that an impairment of long-lived assets held for use are present. An impairment loss
would be recognized when estimated future cash flows is less than the carrying amount. The cash
flow estimates would be based on management’s best estimates, using appropriate and customary
assumptions and projections at the time.
Recent Accounting Pronouncements
In November 2007, the Emerging Issues Task Force issued EITF Issue No. 07-01, Accounting for
Collaborative Arrangements (“EITF 07-01”). EITF 07-01 concludes that the equity method of
accounting cannot be applied to collaborative arrangement activities that are not conducted within
a separate legal entity. Instead, the revenues and costs incurred with third parties in connection
with the collaborative arrangement should be presented gross or net by the collaborators based on
the criteria in EITF 99-19, and other applicable accounting literature. EITF 07-01 is effective
for years beginning after December 15, 2008. We do not expect the adoption of EITF 07-01 will have
a material impact on our financial position or results of operations.
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Results of Operations
Comparison of Years Ended December 31, 2008 and December 31, 2007
Revenues. Revenues for the year ended December 31, 2008 were $13.5 million as compared to $7.1
million for the same period of 2007. Revenues for the year ended December 31, 2008 included net
sales of FARESTON® marketed for the treatment of metastatic breast cancer and
collaboration income from Ipsen and Merck. During the years ended December 31, 2008 and 2007,
FARESTON® net sales were $1.1 million for both periods, while cost of products sales
were $649,000 and $621,000, respectively. Although FARESTON® net product sales for the
year ended December 31, 2008 were consistent with the prior year, the current year net product
sales include an increase in the average price of FARESTON® of 44% as a result of a
price increase in the fourth quarter. The sales volume of FARESTON® also increased 4%
for the year ended December 31, 2008 as compared to year ended December 31, 2007. The increase in
net product sales due to the increase in price and volume in 2008 was offset by an increase in the
provision for product returns. While we do not estimate a material increase in the volume of product returns
as a result of the price increase, the price increase did increase the amount of the estimated
product returns accrual as certain product returns are accepted at or near the current sales price
of FARESTON®. We expect FARESTON® sales volume to decline in future periods,
particularly as a result of aromatase inhibitors continuing to capture breast cancer market share
from SERMs, including FARESTON®. Collaboration income was $12.4 million for the year
ended December 31, 2008, which consisted of approximately $5.9 million and $5.1 million from the
amortization of deferred revenue from Ipsen and Merck, respectively, and approximately $1.5 million
from an earned milestone from Ipsen with the achievement of the primary endpoint in the toremifene
80 mg Phase III clinical trial. For the year ended December 31, 2007, collaboration income was
$6.1 million, of which $5.9 million and $198,000 was from Ipsen and Merck, respectively.
Research and Development Expenses. Research and development expenses increased 15% to $44.3
million for the year ended December 31, 2008 from $38.5 million for the year ended December 31,
2007. The following table identifies the research and development expenses for each of our most
advanced product candidates, as well as research and development expenses pertaining to our other
research and development efforts for each of the periods presented. Research and development
expenses for the year ended December 31, 2008 included payment of a $1.2 million fee to the FDA for
the submission of the NDA for toremifene 80 mg for the prevention of bone fractures in men with
prostate cancer on ADT. This amount is included in “Toremifene 80 mg” in the table below.
Additionally, research and development expenses for the year ended December 31, 2008 included a
payment to UTRF of $540,000 for the execution of amendments to our existing SARM and SERM license
agreements. This amount is included in “Other research and development” in the table below.
Included in “Other research and development” for the year ended December 31, 2007 is a sublicense
royalty of approximately $1.9 million paid to UTRF as a result of our collaboration with Merck.
Research and development spending for past periods is not indicative of spending in future periods.
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| Product | ||||||||||||||
| Candidate/ | Years Ended December 31, | Increase | ||||||||||||
| Program | Indication | 2008 | 2007 | (Decrease) | ||||||||||
| (in thousands) | ||||||||||||||
SERM
|
Toremifene 80 mg Prevention of bone fractures and treatment of other estrogen deficiency side effects of ADT in men with prostate cancer |
$ |
11,724 |
$ |
9,422 |
$ |
2,302 |
|||||||
SERM
|
Toremifene 20 mg Prevention of prostate cancer in high risk men with high grade PIN |
9,338 |
8,694 |
644 |
||||||||||
SARM
|
OstarineTM Treatment of cancer cachexia |
5,973 | 7,056 | (1,083 | ) | |||||||||
LH inhibitor
|
GTx-758 Treatment of advanced prostate cancer |
3,786 | — | 3,786 | ||||||||||
Other research and
development
|
13,438 | 13,336 | 102 | |||||||||||
Total research and
development
expenses
|
$ | 44,259 | $ | 38,508 | $ | 5,751 | ||||||||
General and Administrative Expenses. General and administrative expenses increased 71% to
$23.1 million for the year ended December 31, 2008 from $13.5 million for the year ended December
31, 2007. The increase of approximately $9.6 million was primarily the result of increased
personnel and personnel related expenses of approximately $4.5 million, marketing expenses of
approximately $1.9 million in connection with the planned commercialization of our toremifene
product candidates, medical education expenses of approximately $1.6 million, and $460,000 in
losses from our investment in the Bank of America’s Columbia Strategic Cash Portfolio.
Interest Income. Interest income decreased to $2.7 million for the year ended December 31,
2008 from $5.1 million for the year ended December 31, 2007. The decrease of approximately $2.4
million was attributable to lower average interest rates offset by slightly higher average cash and
cash equivalents balances during the year ended December 31, 2008, as compared to the prior year.
Comparison of Years Ended December 31, 2007 and December 31, 2006
Revenues. Revenues for the year ended December 31, 2007 were $7.1 million as compared to $7.5
million for the same period of 2006. Revenues for the year ended December 31, 2007 included net
sales of FARESTON® marketed for the treatment of metastatic breast cancer and
collaboration income from Ipsen and Merck. During the years ended December 31, 2007 and 2006,
FARESTON® net sales were $1.1 million and $1.4 million, respectively, while costs of
products sales were $621,000 and $773,000, respectively. The 21% decrease in net sales of
FARESTON® for the year ended December 31, 2007, as compared to the same period of 2006,
was due to a decrease in sales volume of 42%, which was offset by a 7% increase in sales price and
a reduction in the provision for product returns. Collaboration income was $6.1 million for the
year ended December 31, 2007, of which $5.9 million and $198,000 was from Ipsen and Merck,
respectively. For the year ended December 31, 2006, collaboration income was $6.1 million, of
which $4.3 million and $1.8 million was from Ortho Biotech Products, L.P., a subsidiary of Johnson
& Johnson, and Ipsen, respectively. In December 2006, we reacquired full rights to develop and
commercialize andarine and all backup compounds previously licensed to Ortho Biotech, and our joint
collaboration and license agreement with Ortho Biotech was terminated by mutual agreement of
the parties. In connection with the termination of this agreement, we recognized the associated
$3.1 million balance of deferred revenue as additional collaboration revenue for the year ended
December 31, 2006.
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Research and Development Expenses. Research and development expenses increased 13.6% to
$38.5 million for the year ended December 31, 2007 from $33.9 million for the year ended December
31, 2006. The following table identifies the research and development expenses for certain of our
product candidates, as well as research and development expenses pertaining to our other research
and development efforts for each of the periods presented. Included in “Other research and
development” for the year ended December 31, 2007 is a sublicense royalty of approximately $1.9
million paid to UTRF as a result of our collaboration with Merck. Research and development
spending for past periods is not indicative of spending in future periods.
| Product | ||||||||||||||
| Candidate/ | Years Ended December 31, | Increase | ||||||||||||
| Program | Indication | 2007 | 2006 | (Decrease) | ||||||||||
| (in thousands) | ||||||||||||||
SERM
|
Toremifene 80 mg Prevention of bone fractures and treatment of other estrogen deficiency side effects of ADT in men with prostate cancer |
$ |
9,422 |
$ |
8,446 |
$ |
976 |
|||||||
SERM
|
Toremifene 20 mg Prevention of prostate cancer in high risk men with high grade PIN |
8,694 |
10,737 |
(2,043 |
) |
|||||||||
SARM
|
Ostarine TM
Treatment of cancer cachexia |
7,056 | 6,723 | 333 | ||||||||||
Other research and
development
|
13,336 | 7,991 | 5,345 | |||||||||||
Total research and
development expenses
|
$ | 38,508 | $ | 33,897 | $ | 4,611 | ||||||||
General and Administrative Expenses. General and administrative expenses increased 18.4% to
$13.5 million for the year ended December 31, 2007 from $11.4 million for the year ended December
31, 2006. The increase of approximately $2.1 million was primarily the result of increased
personnel related expenses of approximately $1.0 million, an increase in marketing and promotional
expenses of $757,000 and an increase in intellectual property and other legal expenses of $730,000.
Interest Income. Interest income increased to $5.1 million for the year ended December 31,
2007 from $3.0 million for the year ended December 31, 2006. The increase of approximately $2.1
million was attributable to higher average interest rates in addition to higher average cash and
cash equivalents balances during the year ended December 31, 2007, as compared to the prior year.
Liquidity and Capital Resources
Through December 31, 2008, we financed our operations and internal growth through private
placements of preferred stock and common stock, the proceeds of our public offerings of our common
stock, and proceeds from our collaborations. We have incurred significant losses since our
inception in 1997 as we have devoted substantially all of our resources to research and
development, including our clinical trials. As of December 31, 2008, we had an
accumulated deficit of $321.9 million, of which $96.3 million related to non-cash dividends
and adjustments to the preferred stock redemption value. Our accumulated deficit as of December 31,
2008 resulted primarily from:
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| • | our research and development activities associated with: |
| • | toremifene 80 mg for the prevention of bone fractures and the treatment of other estrogen deficiency side effects of ADT in men with prostate cancer, including two Phase II clinical trials, a pivotal Phase III clinical trial, and the preparation and submission of a NDA to the FDA; | ||
| • | toremifene 20 mg for the prevention of prostate cancer in high risk men with high grade PIN, including our Phase IIb clinical trial and an ongoing pivotal Phase III clinical trial; | ||
| • | our ongoing SARM research efforts with Merck as part of our collaboration; | ||
| • | the continued preclinical and clinical development of other product candidates, including GTx-758; |
| • | general and administrative expenses; and | ||
| • | non-cash dividends and adjustments to the preferred stock redemption value of $96.3 million related to our cumulative redeemable convertible preferred stock, which was converted to common stock in conjunction with our initial public offering. |
We expect to continue to incur net losses as we continue our clinical development and research
and development activities, apply for regulatory approvals, expand our sales and marketing
capabilities and grow our operations.
At December 31, 2008, we had cash, cash equivalents and short-term investments of $97.7
million, compared to $110.0 million at December 31, 2007 and $119.6 million at December 31, 2006.
As of December 31, 2008, our cash and cash equivalents consisted of bank deposits and money market
mutual funds which are required to comply with Rule 2a-7 under the Investment Company Act of 1940.
Our short-term investments consisted of an investment in Bank of America Corporation’s Columbia
Strategic Cash Portfolio.
In December 2007, we entered into an exclusive license and collaboration agreement with Merck
and received an upfront licensing fee of $40.0 million in January 2008. Merck also agreed to pay
us $15.0 million in guaranteed cost reimbursements for research and development activities in equal
annual installments over a three year period beginning on the first anniversary of the effective
date of the agreement. We received the first $5.0 million payment in December 2008. We are also
eligible to receive up to $422.0 million in future milestone payments associated with the
development and regulatory approval of a lead product candidate, including Ostarine™, as defined in
the agreement, if multiple indications are developed and receive required regulatory approvals, as
well as additional milestone payments for the development and regulatory approval of other product
candidates developed under the agreement, upon the achievement of such development and regulatory
approval milestones and assuming the continued effectiveness of the agreement. Merck also has
agreed to pay us tiered royalties on net sales of products that may be developed under the
agreement. On the date the license and collaboration agreement with Merck became effective in
December 2007, we issued to Merck 1,285,347 newly-issued shares of our common stock for an
aggregate purchase price of approximately $30.0 million.
In September 2006, we entered into a collaboration and license agreement with Ipsen under
which Ipsen paid us €21.5 million (approximately $27.1 million) as a license fee and expense
reimbursement and is paying us €1.5 million in equal installments over a three year period from
the date of the agreement. In September 2007, we received €500,000 (approximately $688,000)
from Ipsen as the first annual installment payment. The second annual installment payment of
€500,000 (approximately $711,000) was received from Ipsen in September 2008. Pursuant to the
agreement, we are also entitled to receive from Ipsen up to €39.0 million in milestone payments
depending on the successful development and launch of toremifene in certain countries of the
European Territory for the high grade PIN indication, subject to certain conditions, and the ADT
indication. In February 2008, we earned a milestone of
€1.0 million (approximately $1.5 million) with
the achievement of the primary endpoint in the toremifene 80 mg Phase III clinical trial. Ipsen
has agreed to pay a portion of our toremifene development costs in the United States if certain
conditions are met. Under the agreement, Ipsen must elect to retain its rights to commercialize
toremifene and other products containing toremifene for the high grade PIN indication.
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In December 2006, we completed a public offering of 3,799,600 shares of common stock at an
offering price to the public of $16.00 per share resulting in net proceeds of approximately
$57.4 million.
Net cash used in operating activities was $2.9 million, $37.6 million and $11.5 million for
the years ended December 31, 2008, 2007 and 2006, respectively. The use of cash in all periods
resulted primarily from funding our net losses. In 2008, this was offset by the receipt of $40.0
million in conjunction with our exclusive license and collaboration agreement with Merck,
approximately $1.5 million from Ipsen due to achievement of the primary endpoint in the toremifene
80 mg Phase III clinical trial, approximately $711,000 related to the second annual license fee and
expense reimbursement installment payment from Ipsen in conjunction with our collaboration and
license agreement with Ipsen, $5.0 million from Merck related to the first annual installment
payment in conjunction with our exclusive license and collaboration agreement with Merck, and
approximately $7.1 million in distributions from our investment in Bank of America Corporation’s
Columbia Strategic Cash Portfolio. Net cash used in operating activities for the year ended
December 31, 2007 was reduced by the receipt of approximately $688,000 from Ipsen related to the
first annual license fee and expense reimbursement installment payment in conjunction with our
collaboration and license agreement with Ipsen. Net cash used in operating activities for the year
ended December 31, 2006 was reduced by the receipt of approximately $27.1 million in connection
with our collaboration with Ipsen. Cash requirements for operating activities are expected to
increase in future periods, due in part to anticipated costs related to the potential
commercialization of our product candidates, if approved by the FDA, the continuation of our
pivotal Phase III clinical trial for toremifene 20 mg, our ongoing SARM research efforts with Merck
as part of our collaboration, as well as the continued clinical and preclinical development of our
other product candidates, including GTx-758.
Net cash used in investing activities for the year ended December 31, 2008 was $2.9 million
and was primarily for the purchase of furniture and fixtures, leasehold improvements, office
equipment, software and information technology equipment related to the addition of office space
required to support our growth. Additionally, investing activities in 2008 included the purchase of
research and development equipment. Net cash used in investing activities for the year ended
December 31, 2007 was $1.7 million and was primarily for the purchase of research and development
equipment, office equipment, computer equipment and software and the purchase of intangible assets
(license fees) of $513,000. Net cash used in investing activities for 2006 was $578,000 and was
primarily for the purchase of research and development equipment, computer equipment and software.
We currently expect to make capital expenditures of approximately $1.3 million for the year ending
December 31, 2009.
Net cash provided by financing activities was $1.2 million, $20.0 million and $57.6 million
for the years ended December 31, 2008, 2007 and 2006, respectively. Net cash provided by financing
activities for the year ended December 31, 2008 reflected proceeds of $1.2 million from the
exercise of employee stock options offset by principal payments under a capital lease obligation.
Net cash provided by financing activities for the year ended December 31, 2007 reflected proceeds
of approximately $30.0 million from our private placement of 1,285,347 shares of common stock to
Merck in December 2007 and proceeds of $826,000 from the exercise of employee stock options. Net
cash provided by financing activities for the year ended December 31, 2006 reflected net proceeds
of approximately $57.4 million from our follow-on public offering, which closed on December 18,
2006.
We estimate that our current cash and cash equivalent balances, short-term investments,
interest income and product revenue from the sale of FARESTON® will be sufficient to
meet our projected operating requirements through at least the next twelve months. This estimate
does not include funding from future milestone payments that we may receive under our existing
collaborations with Merck and Ipsen, nor does it include any funding that we may receive under
potential future collaboration arrangements with other pharmaceutical companies or potential future
issuances and sales of our securities.
Our forecast of the period of time through which our financial resources will be adequate to
support our projected operating requirements is a forward-looking statement and involves risks and
uncertainties, and actual results could vary as a result of a number of factors, including the
factors discussed under Part I, Item 1A “Risk Factors” section of this Annual Report on Form 10-K.
We have based this estimate on assumptions that may prove to be wrong, and we could utilize our
available capital resources sooner than we currently expect. Because of the numerous risks and
uncertainties associated with the development and potential commercialization of our product
candidates and other research and development activities, including risks and uncertainties that
could impact the rate of progress of our development and commercialization activities, we are
unable to estimate with certainty the amounts of increased capital outlays and operating
expenditures associated with our current and anticipated clinical trials, other research and
development activities, and commercialization activities. Our future funding requirements will
depend on many factors, including:
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| • | the scope, rate of progress and cost of our and/or our collaborators’ clinical trials and other research and development activities; | ||
| • | future clinical trial results; | ||
| • | the achievement of certain milestone events under, and other matters related to, our collaborative arrangements with Merck and Ipsen; | ||
| • | the terms and timing of any future collaborative, licensing and other arrangements that we may establish; | ||
| • | the cost and timing of regulatory filings and/or approvals, and any related restrictions, limitations, and/or warnings; | ||
| • | potential future licensing fees, milestone payments and royalty payments, including any milestone payments or royalty payments that we may receive under our collaborative arrangements with Merck and Ipsen; | ||
| • | the cost and timing of establishing medical education, sales, marketing and distribution capabilities; | ||
| • | the cost of establishing clinical and commercial supplies of our product candidates and any products that we and/or our collaborators may develop; | ||
| • | the effect of competing technological and market developments; | ||
| • | the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights; and | ||
| • | the extent to which we acquire or invest in businesses, products and technologies, although we currently have no commitments or agreements relating to any of these types of transactions. |
Until we can generate a sufficient amount of product revenue, we expect to finance future cash
needs through public or private equity offerings, debt financings or collaboration and licensing
arrangements, such as our arrangements with Merck and Ipsen, as well as through interest income
earned on the investment of our cash balances and short-term investments and revenues from the sale
of FARESTON®. With the exception of payments that we may receive under our
collaborations with Merck and Ipsen, we do not currently have any commitments for future external
funding. To the extent that we raise additional funds by issuing equity securities, our
stockholders may experience dilution, and debt financing, if available, may involve restrictive
covenants. To the extent that we raise additional funds through collaboration and licensing
arrangements, such as our arrangements with Merck and Ipsen, it may be necessary to relinquish some
rights to our technologies or product candidates, or grant licenses on terms that are not favorable
to us. Our ability to raise additional funds may be adversely impacted by current economic
conditions, including the effects of the recent disruptions to and volatility in the credit and
financial markets in the United States and worldwide, which have resulted in bankruptcy, failure,
collapse or sale of various financial institutions and an unprecedented level of U.S. and other
governmental intervention. As a result of these and other factors, we cannot be certain that
additional funding will be available on acceptable terms, or at all. If adequate funds are not
available due to the recent disruptions to and volatility in the credit and financial markets in
the United States and worldwide or other factors, we may be required to delay, reduce the scope of
or eliminate one or more of our research or development programs or to obtain funds through
collaborations with others that are on unfavorable terms or that may require us to relinquish
rights to some of our technologies or product candidates that we would otherwise seek to develop on
our own.
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We have no long-term debt. At December 31, 2008, we had contractual obligations as follows:
| Payment Due by Period | ||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||
| Less than | More than | |||||||||||||||||||
| Total | 1 year | 1-3 years | 3-5 years | 5 years | ||||||||||||||||
Capital lease obligations |
$ | 5 | $ | 5 | $ | — | $ | — | $ | — | ||||||||||
Operating lease obligations |
2,844 | 1,317 | 1,527 | — | — | |||||||||||||||
Purchase obligations |
23 | 23 | — | — | — | |||||||||||||||
Total |
$ | 2,872 | $ | 1,345 | $ | 1,527 | $ | — | $ | — | ||||||||||
Our long-term commitments under the operating leases shown above consist of payments relating
to a sublease for laboratory and office space at 3 North Dunlap Street, Memphis, Tennessee and a
sublease for office space at 175 Toyota Plaza, Memphis, Tennessee.
Our sublease agreement for the
premises located at 3 North Dunlap Street originally expired on December 31, 2008, with options to
extend for up to two additional years. We have exercised an option to
extend the sublease until
December 31, 2009. We amended our original sublease agreement for the premises located at 175
Toyota Plaza to add additional office space. The amended sublease includes escalating rental
payments and expires on April 30, 2015. We have the ability to cancel the original sublease
beginning on December 31, 2010 and to cancel the sublease for additional space on December 31,
2012. The table above excludes contingent payments under the license agreements to which we are a
party.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to market risk for changes in interest rates relates to our cash equivalents on
deposit in highly liquid money market funds. The primary objective of our cash investment
activities is to preserve principal while at the same time maximizing the income we receive from
our invested cash without significantly increasing risk of loss. We do not use derivative
financial instruments in our investment portfolio. The effect of a hypothetical decrease of ten
percent in the average yield earned on our cash equivalents and short-term investments would have
resulted in a decrease in our interest income of approximately $280,000 for the year ended December
31, 2008.
Our exposure to credit risk relates to our investment in money market funds and in Bank of
America Corporation’s Columbia Strategic Cash Portfolio (the “Fund”). In December 2007, Columbia
Management Group, LLC, the Fund’s manager, determined that the assets of the Fund had declined in
fair value and the Fund would no longer seek to maintain a net asset value (“NAV”) of one dollar
per share. As a result, the Fund’s NAV began to fluctuate based on changes in the market values of
the assets owned by the Fund. The Fund ceased accepting orders for new shares and began an orderly
liquidation of Fund assets for distribution to its shareholders. At December 31, 2008 and 2007,
the Fund’s NAV was $0.8266 per share and 0.9874 per share, respectively. For the year ended
December 31, 2008, we recognized a loss on our investment in the Fund of approximately $597,000.
For the year ended December 31, 2007, we recognized a loss on our investment in the Fund of
approximately $137,000. If the current credit environment continues to deteriorate, our
investments in money market funds could become impaired and our investment in the Columbia
Strategic Cash Portfolio could suffer additional losses, which would adversely impact our financial
results.
We operate primarily in the United States. However, some of our clinical trial sites are
located in Canada and the United Kingdom which requires us to make payments for certain clinical
trial services in foreign currencies. In accordance with the terms of our collaboration and
license agreement with Ipsen, Ipsen is required to pay us €500,000 as additional license fees
next year. We are also entitled to receive from Ipsen up to €39.0 million in milestone payments
subject to the successful development and launch of toremifene in certain countries of the European
Territory. Ipsen’s obligation to make payments to us in Euros exposes us to potential foreign
currency transaction losses. Our exposure to foreign currency rate fluctuations will increase if
and to the extent we are able to commercialize toremifene 80 mg and toremifene 20 mg because we are
obligated to pay Orion Corporation, our supplier of toremifene, in Euros. However, we do not
expect that our total exposure to changes in foreign currencies will be material to our operating
results in 2009. We do not currently use derivative financial instruments to mitigate this
exposure.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our financial statements and the reports of our independent registered public accounting firm
are included in this Annual Report on Form 10-K beginning on page F-1. The index to these reports
and our financial statements is included in Part IV, Item 15 below.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of
the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure
that information required to be disclosed in the reports that we file or submit under the Exchange
Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s
rules and forms and that such information is accumulated and communicated to our management,
including our chief executive officer and chief financial officer, as appropriate, to allow for
timely decisions regarding required disclosures.
We have carried out an evaluation, under the supervision and with the participation of our
management, including our chief executive officer and chief financial officer, of the effectiveness
of the design and operation of our disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report.
Based on the evaluation of these disclosure controls and procedures, our chief executive officer
and chief financial officer have concluded that our disclosure controls and procedures were
effective.
Management’s Report on Internal Control over Financial Reporting
We, as management of GTx, Inc., are responsible for establishing and maintaining adequate
internal control over financial reporting, as such term is defined in Securities Exchange Act Rule
13a-15(f). Internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with United States generally accepted accounting
principles. Any system of internal control, no matter how well designed, has inherent limitations,
including the possibility that a control can be circumvented or overridden and misstatements due to
error or fraud may occur and not be detected. Also, because of changes in conditions, internal
control effectiveness may vary over time. Accordingly, even an effective system of internal
control will provide only reasonable assurance that the objectives of the internal control system
are met.
Under the supervision and with the participation of management, including our principal
executive officer and principal financial officer, we conducted an evaluation of the effectiveness
of our internal control over financial reporting as of December 31, 2008 using the criteria for
effective internal control over financial reporting as described in “Internal Control — Integrated
Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based
on this evaluation, we concluded that, as of December 31, 2008, our internal control over financial
reporting was effective. The effectiveness of our internal control over financial reporting has
been audited by Ernst & Young LLP, an independent registered public accounting firm.
Attestation Report of the Independent Registered Public Accounting Firm
Ernst & Young LLP, an independent registered public accounting firm, has issued an audit
report on the effectiveness of our internal control over financial reporting, which report is
included elsewhere herein.
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Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the fourth
quarter of 2008 that have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
On November 5, 2008, we exercised our option to extend, for a term of one year, the term of
that certain sublease agreement, dated April 1, 2005 (the “Lease”), with the University of
Tennessee Research Foundation (successor-in-interest to TriStar Enterprises, Inc.) (“Landlord”) for
the lease of approximately 53,000 square feet of laboratory and office space located at 3 North
Dunlap Street, Memphis, TN (the “Premises”). Under the terms of the Lease, the term of the Lease
was extended for a period of 12 months expiring on December 31, 2009, unless sooner terminated in
accordance with the terms of the Lease. Further, we have the option to extend the sublease for an
additional year. The monthly base rent for the Premises during the extended term under the Lease
is $36,000 per month.
Under the terms of the Lease, we continue to be responsible for our proportionate share of all
operating expenses, including utilities, taxes, and repairs and maintenance. We are also
responsible for maintaining certain insurance policies during the remaining term. In the event of a
default of certain of our obligations under the Lease, the Landlord would have right to terminate
the Lease. The foregoing is only a brief description of the material terms of the Lease and does
not purport to be a complete statement of the rights and obligations of the parties under the
Lease, and is qualified in its entirety by reference to the Lease that is filed as Exhibit 10.27 to
our Quarterly Report on Form 10-Q filed with the SEC on July 27, 2005.
PART III
Certain information required by Part III is omitted from this Annual Report on Form 10-K
because we will file our definitive proxy statement for our 2009 Annual Meeting of Stockholders
with the U.S. Securities and Exchange Commission pursuant to Regulation 14A (the “2009 Proxy
Statement”) not later than 120 days after the end of the fiscal year covered by this Annual Report
on Form 10-K, and certain information included in the 2009 Proxy Statement is incorporated herein
by reference.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
(1) The information required by this Item concerning our directors and nominees for director,
including information with respect to our audit committee and audit committee financial experts,
may be found under the section entitled “Proposal No. 1 — Election of Directors” and “Additional
Information About the Board of Directors” appearing in the 2009 Proxy Statement. Such information
is incorporated herein by reference.
(2) The information required by this Item concerning compliance with Section 16(a) of the
Securities Exchange Act of 1934 may be found in the section entitled “Section 16(a) Beneficial
Ownership Reporting Compliance” appearing in the 2009 Proxy Statement. Such information is
incorporated herein by reference.
(3) The information required by this Item concerning our executive officers is set forth in
the section entitled “Executive Officers of Registrant” in Part I, Item 1 of this Form 10-K and is
incorporated herein by reference.
(4) Our Board has adopted a Code of Business Conduct and Ethics applicable to all officers,
directors and employees as well as Guidelines on Governance Issues. These documents are available
on our website (www.gtxinc.com) under “About GTx” at “Governance.” We will provide a copy of these
documents to any person, without charge, upon request, by writing to us at GTx, Inc., Director,
Corporate Communications and Financial Analysis, 175 Toyota Plaza, Suite 700, Memphis, Tennessee
38103. We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding an
amendment to, or waiver from, a provision of the Code of Business Conduct and Ethics by posting
such information on our website at the address and the locations specified above.
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ITEM 11. EXECUTIVE COMPENSATION
(1) The information required by this Item concerning director and executive compensation is
incorporated herein by reference to the information from the 2009 Proxy Statement under the
sections entitled “Compensation Discussion and Analysis,” “Executive Compensation” and “Director
Compensation.”
(2) The information required by this Item concerning Compensation Committee interlocks and
insider participation is incorporated herein by reference to the information from the 2009 Proxy
Statement under the section entitled “Compensation Committee Interlocks and Insider Participation.”
(3) The information required by this Item concerning our Compensation Committee’s review and
discussion of our Compensation Discussion and Analysis is incorporated herein by reference to the
information from the 2009 Proxy Statement under the section entitled “Compensation Committee
Report.”
| ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
(1) The information required by this Item with respect to security ownership of certain
beneficial owners and management is incorporated herein by reference to the information from the
2009 Proxy Statement under the section entitled “Security Ownership of Certain Beneficial Owners
and Management.”
(2) The information required by this Item with respect to securities authorized for issuance
under our equity compensation plans is incorporated herein by reference to the information from the
2009 Proxy Statement under the section entitled “Equity Compensation Plan Information.”
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
(1) The information required by this Item concerning related party transactions is
incorporated herein by reference to the information from the 2009 Proxy Statement under the section
entitled “Certain Relationships and Related Party Transactions.”
(2) The information required by this Item concerning director independence is incorporated
herein by reference to the information from the 2009 Proxy Statement under the section entitled
“Additional Information About the Board of Directors — Director Independence.”
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item is incorporated herein by reference to the information
from the 2009 Proxy Statement under the section entitled “Proposal No. 2 — Ratification of
Appointment of Independent Registered Public Accounting Firm.”
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1) Index to Financial Statements
| Page | Description | |
F-2
|
Management’s Report on Internal Control Over Financial Reporting | |
F-3
|
Reports of Independent Registered Public Accounting Firm | |
F-5
|
Balance Sheets at December 31, 2008 and 2007 | |
F-6
|
Statements of Operations for the Years Ended December 31, 2008, 2007 and 2006 | |
F-7
|
Statements of Stockholders’ Equity for the Years Ended December 31, 2008, 2007 and 2006 |
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| Page | Description | |
F-8
|
Statements of Cash Flows for the Years Ended December 31, 2008, 2007 and 2006 | |
F-9
|
Notes to Financial Statements |
(a)(2) Financial statement schedules are omitted as they are not applicable.
(a)(3) See 15(b) below.
(b) Exhibits
| Number | Description | |
3.1
|
Restated Certificate of Incorporation of GTx, Inc. (1) | |
3.2
|
Amended and Restated Bylaws of GTx, Inc.(2) | |
4.1
|
Reference is made to Exhibits 3.1 and 3.2 | |
4.2
|
Specimen of Common Stock Certificate(3) | |
4.3
|
Amended and Restated Registration Rights Agreement between Registrant and Oracle Partners, L.P. dated August 7, 2003(3) | |
4.4*
|
Amended and Restated Registration Rights Agreement between Registrant and J. R. Hyde, III dated August 7, 2003(3) | |
4.5
|
Consent, Waiver and Amendment between the Registrant and Oracle Partners, L.P., Oracle Investment Management, Inc. and Oracle Institutional Partners, L.P. dated November 29, 2007(4) | |
4.6*
|
Consent, Waiver and Amendment between Registrant and J. R. Hyde, III and Pittco Associates, L.P. dated December 3, 2007(4) | |
4.7
|
Registration Rights Agreement between Registrant and Merck & Co., Inc. dated December 18, 2007(5) | |
10.1*+
|
Genotherapeutics, Inc. 1999 Stock Option Plan, as amended through November 4, 2008, and Form of Stock Option Agreement | |
10.2*+
|
GTx, Inc. 2000 Stock Option Plan, as amended through November 4, 2008, and Form of Stock Option Agreement | |
10.3*+
|
GTx, Inc. 2001 Stock Option Plan, as amended through November 4, 2008, and Form of Stock Option Agreement | |
10.4*+
|
GTx, Inc. 2002 Stock Option Plan, as amended through November 4, 2008, and Form of Stock Option Agreement | |
10.5*
|
GTx, Inc. 2004 Equity Incentive Plan and Form of Stock Option Agreement(3) | |
10.6*
|
GTx, Inc. 2004 Equity Incentive Plan, as amended effective April 30, 2008(6) | |
10.7*
|
GTx, Inc. Directors’ Deferred Compensation Plan(7) | |
10.8*+
|
Amended and Restated Employment Agreement dated November 10, 2008, between Registrant and Mitchell S. Steiner, M.D. | |
10.9*+
|
Amended and Restated Employment Agreement dated November 10, 2008, between Registrant and Marc S. Hanover | |
10.10*+
|
Amended and Restated Employment Agreement dated November 10, 2008, between Registrant and Mark E. Mosteller | |
10.11*+
|
Amended and Restated Employment Agreement dated November 10, 2008, between Registrant and Henry P. Doggrell | |
10.12*
|
Form of Indemnification Agreement(3) | |
10.13
|
Lease Agreement, dated March 7, 2001, between The University of Tennessee and TriStar Enterprises, Inc.(3) | |
10.14
|
Sublease Agreement dated October 1, 2000, as amended, between Registrant and TriStar Enterprises, Inc.(3) | |
10.15†
|
Amended and Restated License and Supply Agreement dated October 22, 2001, between Registrant and Orion Corporation(8) | |
10.16†
|
Amendment No. 1 to the License and Supply Agreement dated March 5, 2003, between Registrant and Orion Corporation(3) | |
10.20
|
Reserved | |
10.21
|
Reserved | |
10.22
|
Reserved | |
10.23†
|
Amendment No. 2 to the License and Supply Agreement dated December 29, 2003, between Registrant and Orion Corporation(3) | |
10.24†
|
Purchase Agreement dated December 13, 2004, between Registrant and Orion Corporation(9) | |
10.25†
|
Amended and Restated License and Supply Agreement effective January 1, 2005, between Registrant and Orion Corporation(10) | |
10.26
|
Sublease Agreement dated April 1, 2005, as amended, between Registrant and TriStar Enterprises, Inc.(11) |
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| Number | Description | |
10.27*+
|
Amended and Restated Employment Agreement dated November 10, 2008 between Registrant and James T. Dalton | |
10.28*
|
2008 Compensation Information for Registrant’s Executive Officers(12) | |
10.29*+
|
2009 Compensation Information for Registrant’s Executive Officers | |
10.30*
|
GTx, Inc. 2004 Non-Employee Directors’ Stock Option Plan and Form of Stock Option Agreement(13) | |
10.31*
|
Amended and Restated GTx, Inc. 2004 Non-Employee Directors’ Stock Option Plan, effective April 26, 2006(14) | |
10.32†
|
Amendment dated May 23, 2006 to the Amended and Restated License and Supply Agreement effective January 1, 2005, between Registrant and Orion Corporation(15) | |
10.33†
|
Amendment dated June 30, 2006 to the Amended and Restated License and Supply Agreement effective January 1, 2005, between Registrant and Orion Corporation(16) | |
10.34*
|
Form of Stock Option Agreement under the Amended and Restated GTx, Inc. 2004 Non-Employee Directors’ Stock Option Plan(17) | |
10.35†
|
Partial Assignment Agreement among Registrant, Orion Corporation and Ipsen Limited dated September 7, 2006(18) | |
10.36†
|
Collaboration and License Agreement between Registrant and Ipsen Limited dated September 7, 2006(19) | |
10.37*
|
GTx, Inc. Executive Bonus Compensation Plan(20) | |
10.38*+
|
Amended and Restated Employment Agreement dated November 10, 2008, between Registrant and Ronald A. Morton, Jr., M.D. | |
10.39
|
Reserved | |
10.40†
|
Consolidated, Amended, and Restated License Agreement dated July 24, 2007, between Registrant and University of Tennessee Research Foundation(7) | |
10.41†
|
Amended and Restated License Agreement dated September 24, 2007, between Registrant and University of Tennessee Research Foundation(7) | |
10.42
|
Stock Purchase Agreement, dated November 5, 2007, between the Registrant and Merck & Co., Inc.(21) | |
10.43†
|
Exclusive License and Collaboration Agreement between the Registrant and Merck & Co., Inc. dated November 5, 2007(22) | |
10.44*+
|
Amended and Restated Employment Agreement, dated November 10, 2008, between Registrant and Gregory A. Deener | |
10.45*
|
2008 Non-Employee Director Compensation Arrangements(22) | |
10.46
|
Sublease Agreement, dated December 17, 2007 by and between the Registrant and ESS SUSA Holdings, LLC(22) | |
10.47+
|
Amendment, dated December 29, 2008, to the Consolidated, Amended and Restated License Agreement dated July 24, 2007 between the Registrant and University of Tennessee Research Foundation | |
10.48+
|
Amendment, dated December 29, 2008, to the Amended and Restated License Agreement dated September 24, 2007 between the Registrant and University of Tennessee Research Foundation | |
10.49*+
|
Directors’ Deferred Compensation Plan, as amended effective November 4, 2008 | |
10.50*+
|
Non-Employee Director Compensation Policy of GTx, Inc., effective January 1, 2009 | |
10.51*+
|
Amended and Restated GTx, Inc. 2004 Non-Employee Directors’ Stock Option Plan, as amended effective November 4, 2008 | |
10.52*+
|
GTx, Inc. 2004 Equity Incentive Plan, as amended effective November 4, 2008 and Form of Stock Option Agreement | |
10.53*+
|
Amended and Restated GTx, Inc. Executive Bonus Compensation Plan, effective November 4, 2008 | |
10.54+
|
Amendment, dated July 21, 2008, to the Sublease Agreement dated December 17, 2007 by and between the Registrant and ESS SUSA Holdings, LLC | |
12.1+
|
Statement of Computation of Deficiency of Earnings Available to Cover Fixed Charges | |
23.1+
|
Consent of Independent Registered Public Accounting Firm | |
24.1+
|
Power of Attorney (included on the signature pages hereto) | |
31.1+
|
Certification of Chief Executive Officer, as required by Rule 13a-14(a) or Rule 15d-14(a) | |
31.2+
|
Certification of Chief Financial Officer, as required by Rule 13a-14(a) or Rule 15d-14(a) | |
32.1+
|
Certification of Chief Executive Officer, as required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350)(23) | |
32.2+
|
Certification of Chief Financial Officer, as required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350)(23) |
| † | Confidential treatment has been granted with respect to certain portions of this exhibit. This exhibit omits the information subject to this confidentiality request. Omitted portions have been filed separately with the SEC. |
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| * | Indicates a management contract or compensation plan or arrangement. | |
| + | Filed herewith | |
| (1) | Filed as Exhibit 4.1 to the Registrant’s registration statement on Form S-3 (File No. 333-127175), filed with the SEC on August 4, 2005, and incorporated herein by reference. | |
| (2) | Filed as the like numbered Exhibit to the Registrant’s Current Report on Form 8-K (File No. 000-50549), filed with the SEC on July 26, 2007 and incorporated herein by reference. | |
| (3) | Filed as the like numbered Exhibit to the Registrant’s registration statement on Form S-1 (File No. 333-109700), filed with the SEC on October 15, 2003, as amended, and incorporated herein by reference. | |
| (4) | Filed as the like numbered Exhibit to the Registrant’s registration statement on Form S-3 (File No. 333-148321), filed with the SEC on December 26, 2007, and incorporated herein by reference. | |
| (5) | Filed as the like numbered Exhibit to the Registrant’s Current Report on Form 8-K (File No. 000-50549), filed with the Securities and Exchange Commission on December 18, 2007, and incorporated herein by reference. | |
| (6) | Filed as the like numbered Exhibit to the Registrant’s Current Report on Form 8-K (File No. 000-50549), filed with the SEC on May 6, 2008, and incorporated herein by reference. | |
| (7) | Filed as the like numbered Exhibit to the Registrant’s Quarterly Report on Form 10-Q (File No. 000-50549), filed with the SEC on November 9, 2007, and incorporated herein by reference. | |
| (8) | Filed as the like numbered Exhibit to the Registrant’s Annual Report on Form 10-K (File No. 000-50549), filed with the SEC on March 9, 2007, and incorporated herein by reference. | |
| (9) | Filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K/A (File No. 000-50549), filed with the SEC on March 7, 2005, and incorporated herein by reference. | |
| (10) | Filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K/A (File No. 000-50549), filed with the SEC on March 7, 2005, and incorporated herein by reference. | |
| (11) | Filed as Exhibit 10.27 to the Registrant’s Quarterly Report on Form 10-Q (File No. 000-50549), filed with the SEC on July 27, 2005, and incorporated herein by reference. | |
| (12) | Filed as Exhibit 10.44 to the Registrant’s Annual Report on Form 10-K (File No. 000-50549), filed with the SEC on March 11, 2008, and incorporated herein by reference. | |
| (13) | Filed as Exhibit 10.6 to the Registrant’s registration statement on Form S-1 (File No. 333-109700), filed with the SEC on October 15, 2003, as amended, and incorporated herein by reference. | |
| (14) | Filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 000-50549), filed with the SEC on April 27, 2006, and incorporated herein by reference. | |
| (15) | Filed as Exhibit 10.33 to the Registrant’s Quarterly Report on Form 10-Q (File No. 000-50549), filed with the SEC on August 9, 2006, and incorporated herein by reference. | |
| (16) | Filed as Exhibit 10.34 to the Registrant’s Quarterly Report on Form 10-Q (File No. 000-50549), filed with the SEC on August 9, 2006, and incorporated herein by reference. | |
| (17) | Filed as Exhibit 10.35 to the Registrant’s Quarterly Report on Form 10-Q (File No. 000-50549), filed with the SEC on August 9, 2006, and incorporated herein by reference. | |
| (18) | Filed as Exhibit 10.36 to the Registrant’s Quarterly Report on Form 10-Q (File No. 000-50549), filed with the SEC on November 3, 2006, and incorporated herein by reference. | |
| (19) | Filed as Exhibit 10.37 to the Registrant’s Quarterly Report on Form 10-Q (File No. 000-50549), filed with the |
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| SEC on November 3, 2006, and incorporated herein by reference. | ||
| (20) | Filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K (File No. 000-50549), filed with the SEC on November 3, 2006, and incorporated herein by reference. | |
| (21) | Filed as the like numbered Exhibit to the Registrant’s Current Report on Form 8-K (File No. 000-50549), filed with the SEC on November 6, 2007, and incorporated herein by reference. | |
| (22) | Filed as the like numbered Exhibit to the Registrant’s Annual Report on Form 10-K (File No. 000-50549), filed with the SEC on March 11, 2008, and incorporated herein by reference. | |
| (23) | This certification accompanies the Form 10-K to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of the Registrant under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-K), irrespective of any general incorporation language contained in such filing. |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
| GTx, Inc. | ||||||
| By | /s/ Mitchell S. Steiner | |||||
| Mitchell S. Steiner, M.D., F.A.C.S. | ||||||
| Chief Executive Officer, Vice Chairman and Director | Date: February 27, 2009 |
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENT, that each person whose signature appears below constitutes
and appoints Mitchell S. Steiner and Mark E. Mosteller, and each of them, acting individually, as
his attorney-in-fact, each with full power of substitution and resubstitution, for him or her and
in his or her name, place and stead, in any and all capacities, to sign any and all amendments to
this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith and about the
premises, as fully to all intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or
his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the capacities and on the
dates indicated.
| Date | ||||
/s/ J. R. Hyde, III
|
Chairman of the Board of Directors | February 27, 2009 | ||
/s/ Mitchell S. Steiner
|
Chief Executive Officer, Vice Chairman and Director (Principal Executive Officer) | February 27, 2009 | ||
/s/ Mark E. Mosteller
|
Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) | February 27, 2009 | ||
/s/ Marc S. Hanover
|
Director | February 27, 2009 | ||
/s/ Michael G. Carter
|
Director | February 27, 2009 | ||
/s/ J. Kenneth Glass
|
Director | February 27, 2009 | ||
/s/ Robert W. Karr
|
Director | February 27, 2009 | ||
/s/ Rosemary Mazanet
|
Director | February 27, 2009 | ||
/s/ John H. Pontius
|
Director | February 27, 2009 | ||
/s/ Kenneth S. Robinson
|
Director | February 27, 2009 | ||
/s/ Timothy R. G. Sear
|
Director | February 27, 2009 |
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GTx, Inc.
INDEX TO FINANCIAL STATEMENTS
| Page | ||||
| F-2 | ||||
| F-3 | ||||
| F-5 | ||||
| F-6 | ||||
| F-7 | ||||
| F-8 | ||||
| F-9 | ||||
F-1
Table of Contents
MANAGEMENT’S REPORT ON
INTERNAL CONTROL OVER FINANCIAL REPORTING
INTERNAL CONTROL OVER FINANCIAL REPORTING
We, as management of GTx, Inc., are responsible for establishing and maintaining adequate
internal control over financial reporting, as such term is defined in Securities Exchange Act Rule
13a-15(f). Internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with United States generally accepted accounting
principles. Any system of internal control, no matter how well designed, has inherent limitations,
including the possibility that a control can be circumvented or overridden and misstatements due to
error or fraud may occur and not be detected. Also, because of changes in conditions, internal
control effectiveness may vary over time. Accordingly, even an effective system of internal
control will provide only reasonable assurance that the objectives of the internal control system
are met.
Under the supervision and with the participation of management, including our principal
executive officer and principal financial officer, we conducted an evaluation of the effectiveness
of our internal control over financial reporting as of December 31, 2008 using the criteria for
effective internal control over financial reporting as described in “Internal Control – Integrated
Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based
on this evaluation, we concluded that, as of December 31, 2008, our internal control over financial
reporting was effective. The effectiveness of our internal control over financial reporting has
been audited by Ernst & Young LLP, an independent registered public accounting firm.
/s/ Mitchell S. Steiner
|
/s/ Mark E. Mosteller | |
Mitchell S. Steiner, M.D., F.A.C.S.
|
Mark E. Mosteller, CPA | |
Vice Chairman and
|
Vice President, Chief Financial Officer | |
Chief Executive Officer
|
and Treasurer |
Memphis, Tennessee
February 27, 2009
February 27, 2009
F-2
Table of Contents
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of GTx, Inc.
We have audited GTx, Inc.’s internal control over financial reporting as of December 31, 2008,
based on criteria established in Internal Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (the COSO criteria). GTx Inc.’s management is
responsible for maintaining effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over financial reporting included in the
accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility
is to express an opinion on the Company’s internal control over financial reporting based on our
audit.
We conducted our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and
directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s assets that could have
a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Also, projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because of changes in conditions, or
that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, GTx, Inc. maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2008, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the accompanying balance sheets of GTx, Inc. as of December 31,
2008 and 2007, and the related statements of operations, stockholders’ equity and cash flows for
each of the three years in the period ended December 31, 2008 and our report dated February 27,
2009 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Memphis, Tennessee
February 27, 2009
February 27, 2009
F-3
Table of Contents
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of GTx, Inc.
We have audited the accompanying balance sheets of GTx, Inc. as of December 31, 2008 and 2007,
and the related statements of operations, stockholders’ equity and cash flows for each of the three
years in the period ended December 31, 2008. These financial statements are the responsibility of
the Company’s management. Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the financial position of GTx, Inc. at December 31, 2008 and 2007, and the results of its
operations and its cash flows for each of the three years in the period ended December 31, 2008, in
conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of GTx, Inc.’s internal control over financial
reporting as of December 31, 2008, based on criteria established in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our
report dated February 27, 2009 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Memphis, Tennessee
February 27, 2009
February 27, 2009
F-4
Table of Contents
GTx, Inc.
BALANCE SHEETS
(in thousands, except share data)
(in thousands, except share data)
| December 31, | ||||||||
| 2008 | 2007 | |||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 95,510 | $ | 100,178 | ||||
Short-term investments |
2,157 | 9,810 | ||||||
Accounts receivable, net |
487 | 117 | ||||||
Inventory |
92 | 78 | ||||||
Receivable from collaboration partners |
777 | 40,719 | ||||||
Prepaid expenses and other current assets |
1,001 | 1,362 | ||||||
Total current assets |
100,024 | 152,264 | ||||||
Property and equipment, net |
3,988 | 2,308 | ||||||
Intangible assets, net |
4,093 | 4,430 | ||||||
Other assets |
4 | 728 | ||||||
Total assets |
$ | 108,109 | $ | 159,730 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 2,821 | $ | 1,614 | ||||
Accrued expenses |
6,666 | 6,784 | ||||||
Deferred revenue – current portion |
11,490 | 10,934 | ||||||
Total current liabilities |
20,977 | 19,332 | ||||||
Deferred revenue, less current portion |
54,732 | 61,245 | ||||||
Other long-term liabilities |
382 | 236 | ||||||
Commitments and contingencies |
||||||||
Stockholders’ equity: |
||||||||
Common stock, $0.001 par value: 60,000,000
shares authorized; 36,392,443 shares issued
and outstanding at December 31, 2008 and
36,216,263 shares issued and outstanding at
December 31, 2007 |
36 | 36 | ||||||
Additional paid-in capital |
353,900 | 349,019 | ||||||
Accumulated deficit |
(321,918 | ) | (270,138 | ) | ||||
Total stockholders’ equity |
32,018 | 78,917 | ||||||
Total liabilities and stockholders’ equity |
$ | 108,109 | $ | 159,730 | ||||
The accompanying notes are an integral part of these financial statements.
F-5
Table of Contents
GTx, Inc.
STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
(in thousands, except share and per share data)
| Years Ended December 31, | ||||||||||||
| 2008 | 2007 | 2006 | ||||||||||
Revenues: |
||||||||||||
Product sales, net |
$ | 1,088 | $ | 1,076 | $ | 1,357 | ||||||
Collaboration revenue |
12,440 | 6,050 | 6,148 | |||||||||
Total revenues |
13,528 | 7,126 | 7,505 | |||||||||
Costs and expenses: |
||||||||||||
Cost of product sales |
649 | 621 | 773 | |||||||||
Research and development expenses |
44,259 | 38,508 | 33,897 | |||||||||
General and administrative expenses |
23,105 | 13,501 | 11,352 | |||||||||
Total costs and expenses |
68,013 | 52,630 | 46,022 | |||||||||
Loss from operations |
(54,485 | ) | (45,504 | ) | (38,517 | ) | ||||||
Interest income |
2,705 | 5,145 | 3,007 | |||||||||
Net loss |
$ | (51,780 | ) | $ | (40,359 | ) | $ | (35,510 | ) | |||
Net loss per share: |
||||||||||||
Basic and diluted |
$ | (1.43 | ) | $ | (1.16 | ) | $ | (1.14 | ) | |||
Weighted average shares used in
computing net loss per share: |
||||||||||||
Basic and diluted |
36,301,558 | 34,940,151 | 31,150,035 | |||||||||
The accompanying notes are an integral part of these financial statements.
F-6
Table of Contents
GTx,
Inc.
STATEMENTS OF STOCKHOLDERS’ EQUITY
For the Years Ended December 31, 2008, 2007 and 2006
(in thousands, except share and per share data)
For the Years Ended December 31, 2008, 2007 and 2006
(in thousands, except share and per share data)
| Stockholders’ Equity | ||||||||||||||||||||||||
| Common | Deferred | Total | ||||||||||||||||||||||
| Stock | Stock | Additional Paid-in | Accumulated | Stockholders’ | ||||||||||||||||||||
| Shares | Amount | Compensation | Capital | Deficit | Equity | |||||||||||||||||||
Balances at January 1, 2006 |
30,993,967 | $ | 31 | $ | (1,725 | ) | $ | 269,542 | $ | (194,269 | ) | $ | 73,579 | |||||||||||
Issuance of common stock |
3,799,600 | 4 | — | 57,422 | — | 57,426 | ||||||||||||||||||
Exercise of employee stock options |
28,795 | — | — | 153 | — | 153 | ||||||||||||||||||
Directors’ deferred compensation |
— | — | — | 140 | — | 140 | ||||||||||||||||||
Share-based compensation |
— | — | — | 1,261 | — | 1,261 | ||||||||||||||||||
Reversal of deferred stock
compensation |
— | — | 1,725 | (1,725 | ) | — | — | |||||||||||||||||
Net loss and comprehensive loss |
— | — | — | — | (35,510 | ) | (35,510 | ) | ||||||||||||||||
Balances at December 31, 2006 |
34,822,362 | 35 | — | 326,793 | (229,779 | ) | 97,049 | |||||||||||||||||
Issuance of common stock |
1,285,347 | 1 | — | 19,176 | — | 19,177 | ||||||||||||||||||
Exercise of employee stock options |
108,554 | — | — | 826 | — | 826 | ||||||||||||||||||
Directors’ deferred compensation |
— | — | — | 183 | — | 183 | ||||||||||||||||||
Share-based compensation |
— | — | — | 2,041 | — | 2,041 | ||||||||||||||||||
Net loss and comprehensive loss |
— | — | — | — | (40,359 | ) | (40,359 | ) | ||||||||||||||||
Balances at December 31, 2007 |
36,216,263 | 36 | — | 349,019 | (270,138 | ) | 78,917 | |||||||||||||||||
Exercise of employee stock options |
176,180 | — | — | 1,167 | — | 1,167 | ||||||||||||||||||
Directors’ deferred compensation |
— | — | — | 178 | — | 178 | ||||||||||||||||||
Share-based compensation |
— | — | — | 3,536 | — | 3,536 | ||||||||||||||||||
Net loss and comprehensive loss |
— | — | — | — | (51,780 | ) | (51,780 | ) | ||||||||||||||||
Balances at December 31, 2008 |
36,392,443 | $ | 36 | $ | — | $ | 353,900 | $ | (321,918 | ) | $ | 32,018 | ||||||||||||
The accompanying notes are an integral part of these financial statements.
F-7
Table of Contents
GTx, Inc.
STATEMENTS OF CASH FLOWS
(in thousands)
(in thousands)
| Years Ended December 31, | ||||||||||||
| 2008 | 2007 | 2006 | ||||||||||
Cash flows from operating activities: |
||||||||||||
Net loss |
$ | (51,780 | ) | $ | (40,359 | ) | $ | (35,510 | ) | |||
Adjustments to reconcile net loss to net cash used
in operating activities: |
||||||||||||
Depreciation and amortization |
1,562 | 1,150 | 1,140 | |||||||||
Share-based compensation |
3,536 | 2,041 | 1,261 | |||||||||
Directors’ deferred compensation |
178 | 183 | 140 | |||||||||
Deferred revenue amortization |
(10,957 | ) | (6,050 | ) | (6,148 | ) | ||||||
Foreign currency transaction loss (gain) |
34 | (140 | ) | 237 | ||||||||
Loss on retirement of property and equipment |
— | 9 | — | |||||||||
Changes in assets and liabilities: |
||||||||||||
Short-term investments |
7,653 | (9,810 | ) | — | ||||||||
Accounts receivable, net |
(370 | ) | (56 | ) | 92 | |||||||
Inventory |
(14 | ) | 129 | (72 | ) | |||||||
Receivable from collaboration partners |
40,610 | (39,372 | ) | (2,146 | ) | |||||||
Prepaid expenses and other assets |
383 | (21 | ) | 419 | ||||||||
Accounts payable |
1,207 | 278 | (71 | ) | ||||||||
Accrued expenses and other long-term liabilities |
33 | 3,561 | (61 | ) | ||||||||
Deferred revenue |
5,000 | 50,823 | 29,259 | |||||||||
Net cash used in operating activities |
(2,925 | ) | (37,634 | ) | (11,460 | ) | ||||||
Cash flows from investing activities: |
||||||||||||
Purchase of property and equipment |
(2,905 | ) | (1,223 | ) | (578 | ) | ||||||
Purchase of intangible assets |
— | (513 | ) | — | ||||||||
Net cash used in investing activities |
(2,905 | ) | (1,736 | ) | (578 | ) | ||||||
Cash flows from financing activities: |
||||||||||||
Proceeds from issuance of common stock |
— | 19,177 | 57,426 | |||||||||
Proceeds from exercise of employee stock options |
1,167 | 826 | 153 | |||||||||
Payments on capital lease obligation |
(5 | ) | (5 | ) | (5 | ) | ||||||
Net cash provided by financing activities |
1,162 | 19,998 | 57,574 | |||||||||
Net (decrease) increase in cash and cash equivalents |
(4,668 | ) | (19,372 | ) | 45,536 | |||||||
Cash and cash equivalents, beginning of year |
100,178 | 119,550 | 74,014 | |||||||||
Cash and cash equivalents, end of year |
$ | 95,510 | $ | 100,178 | $ | 119,550 | ||||||
The accompanying notes are an integral part of these financial statements.
F-8
Table of Contents
GTx, Inc.
NOTES TO FINANCIAL STATEMENTS
(in thousands, except share and per share data)
(in thousands, except share and per share data)
1. Business and Basis of Presentation
Business
GTx, Inc. (“GTx” or the “Company”), a Delaware corporation incorporated on September 24, 1997
and headquartered in Memphis, Tennessee, is a biopharmaceutical company dedicated to the discovery,
development and commercialization of small molecules that selectively target hormone pathways to
treat cancer, osteoporosis and bone loss, muscle loss and other serious medical conditions. GTx
operates in one business segment.
GTx is developing toremifene citrate, a selective estrogen receptor modulator (“SERM”) in two
separate clinical programs in men: first, toremifene 80 mg in a completed pivotal Phase III
clinical trial for the prevention of bone fractures and treatment of other estrogen deficiency side
effects of androgen deprivation therapy (“ADT”) in men with prostate cancer and second, toremifene
20 mg in an ongoing pivotal Phase III clinical trial for the prevention of prostate cancer in high
risk men with precancerous prostate lesions called high grade prostatic intraepithelial neoplasia
(“high grade PIN”). In December 2008, the Company submitted a New Drug Application, or NDA, for
toremifene 80 mg for the prevention of bone fractures in men with prostate cancer on ADT to the
U.S. Food and Drug Administration, or FDA. GTx has licensed to Ipsen Developments Limited,
formerly known as Ipsen Limited, (“Ipsen”) exclusive rights in the European Union, Switzerland,
Norway, Iceland, Lichtenstein, and the Commonwealth of Independent States (collectively, the
“European Territory”) to develop and commercialize toremifene for all indications which the Company
has licensed from Orion Corporation (“Orion”). In December 2007, the Company and Merck & Co., Inc.
(“Merck”) entered into a collaboration to discover and develop selective androgen receptor
modulators (“SARMs”), a new class of drugs with the potential to treat sarcopenia, which is the
loss of skeletal muscle mass resulting in reduced physical strength and ability to perform
activities of daily living, cancer cachexia (cancer induced muscle loss), and other musculoskeletal
wasting or muscle loss conditions. The Company and Merck are evaluating multiple SARM product
candidates, including Ostarine™ (designated by Merck as MK-2866) and MK-0773, for a variety of
indications including sarcopenia and cancer cachexia. The Company currently markets
FARESTON® (toremifene citrate) 60 mg tablets, approved for the treatment of metastatic
breast cancer in the United States.
2. Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at
the date of the financial statements, and the reported amounts of revenues and expenses during the
reporting period. Actual amounts and results could differ from those estimates.
Cash and Cash Equivalents
The Company considers highly liquid investments with initial maturities of three months or
less to be cash equivalents.
Short-term Investments
Short-term investments consist of an investment in Bank of America Corporation’s Columbia
Strategic Cash Portfolio (the “Fund”). In December 2007, Columbia Management Group, LLC, the
Fund’s manager, determined that the assets of the Fund had declined in fair value and the Fund
would no longer seek to maintain a net asset value (“NAV”) of $1.00 per share. The Fund ceased
accepting new orders for new shares and began an orderly distribution of Fund assets to its
shareholders. At December 31, 2008 and 2007, the Fund’s NAV was $0.8266 and $0.9874 per share,
respectively.
The Company has classified this investment as trading, in accordance with Statement of
Financial Accounting Standards (“SFAS”) No. 115, Accounting for Certain Investments in Debt and
Equity Securities. Accordingly, this investment is carried at fair value and all unrealized gains
and losses are included in the statements of operations as general and administrative expense. For
the years ended December 31,
F-9
Table of Contents
GTx, Inc.
NOTES TO FINANCIAL STATEMENTS
(in thousands, except share and per share data)
NOTES TO FINANCIAL STATEMENTS
(in thousands, except share and per share data)
2008 and 2007, the Company recognized losses on its investment in the
Fund of approximately $597 and $137, respectively. The fair value of this investment was
determined based on quoted market prices in active markets and other observable market data, or
Level 1 and Level 2 inputs as defined by SFAS No. 157, Fair Value Measurements. Where quoted
market prices in active markets were not available, inputs other than quoted prices that are
observable, either directly or indirectly, were used to determine the fair value of this
investment.
Accounts Receivable
Accounts receivable are recorded net of allowances for cash discounts for prompt payment. The
Company makes judgments as to its ability to collect outstanding receivables and will provide
allowances for the portion of receivables if and when collection becomes doubtful. The Company has
not recorded reserves related to the collectability of its accounts receivable for the years ended
December 31, 2008 and 2007.
Inventory
Inventory consists of FARESTON® tablets that are manufactured by Orion and delivered to
the Company as finished goods. Inventory is stated at the lower of cost (first-in, first-out
method) or market. The Company analyzes its current inventory levels and will write down
inventory if it has become un-saleable or has a cost basis in excess of its expected net realizable
value. To date, there have been no inventory write-downs.
Property and Equipment
Property and equipment is stated at cost. Amortization of leasehold improvements is recognized
over the shorter of the estimated useful life of the leasehold improvement or the lease term.
Depreciation is computed using the straight-line method over the estimated useful lives as follows:
Laboratory and office equipment |
3 to 5 years | |||
Leasehold improvements |
3 to 6 years | |||
Furniture and fixtures |
5 years | |||
Computer equipment and software |
3 years | |||
Intangible Assets
The Company accounts for its intangible assets in accordance with SFAS No.142, Goodwill and
Other Intangible Assets, which requires that purchased intangible assets with finite lives be
amortized over their estimated economic lives. The Company’s intangible assets consist of license
fees and represent the value of each license acquired by the Company pursuant to the agreements
described in Note 6. The license fees are being amortized on a straight-line basis over the
respective terms of the agreements.
Impairment of Long-Lived Assets
In accordance with SFAS No.144, Accounting for the Impairment or Disposal of Long-Lived Assets
and for Long-Lived Assets to be Disposed of, the Company reviews long-lived assets for impairment
whenever events or changes in facts and circumstances, both internally and externally, may indicate
that an impairment of long-lived assets held for use are present. An impairment loss would be
recognized when estimated future cash flows are less than the carrying amount. The cash flow
estimates would be based on management’s best estimates, using appropriate and customary
assumptions and projections at the time.
F-10
Table of Contents
GTx, Inc.
NOTES TO FINANCIAL STATEMENTS
(in thousands, except share and per share data)
NOTES TO FINANCIAL STATEMENTS
(in thousands, except share and per share data)
Fair Value of Financial Instruments
The carrying amounts of the Company’s financial instruments, which include cash, cash
equivalents, short-term investments, accounts receivable and accounts payable approximate their
fair values. The method of determining the fair value for the Company’s short-term investments is
discussed in Short-term Investments in this Note 2.
Concentration of Risk
Financial instruments that potentially subject the Company to a concentration of credit risk
consist of cash and cash equivalents, short-term investments and accounts receivable. The Company
has established guidelines relating to diversification and maturities of its cash equivalents and
short-term investments which are designed to manage risk. The Company’s cash equivalents consist
of bank deposits and money market mutual funds. Bank deposits may at times be in excess of FDIC
insurance limits. The Company’s short-term investments consist of an investment in Bank of America
Corporation’s Columbia Strategic Cash Portfolio as discussed in Short-term Investments in this Note
2.
Three wholesale drug distributors individually comprised 58%, 27% and 15%, respectively, of
the Company’s accounts receivable as of December 31, 2008. These same three distributors
represented 43%, 35% and 18%, respectively, of the Company’s product sales for the year ended
December 31, 2008.
Revenue Recognition
The Company recognizes net product sales revenue from the sale of FARESTON® less
deductions for estimated sales discounts and sales returns. Revenue from product sales is
recognized when the goods are shipped and title and risk of loss pass to the customer and the other
criteria outlined in Staff Accounting Bulletin (“SAB”) No. 101, Revenue Recognition in Financial
Statements, as amended by SAB No. 104 (together, “SAB No. 104”) and SFAS No. 48, Revenue
Recognition When Right of Return Exists, are satisfied. The Company accounts for rebates to
certain governmental agencies as a reduction of product sales. The Company allows customers to
return product within a specified time period prior to and subsequent to the product’s labeled
expiration date. The Company estimates an accrual for product returns, which is recorded as a
reduction of product sales, based on factors which include historical product returns and estimated
product in the distribution channel which is expected to exceed its expiration date. At December
31, 2008 and 2007, the Company’s accrual for product returns was $815 and $324, respectively.
Collaboration revenue consists of non-refundable upfront payments, license fees,
reimbursements for research and development activities, and milestone payments associated with the
Company’s collaboration and license agreements discussed in Note 8. The Company recognizes this
revenue in accordance with SAB No. 104, Emerging Issues Task Force (“EITF”) Issue No. 00-21,
Revenue Arrangements with Multiple Deliverables (“EITF 00-21”) and EITF Issue No. 99-19, Reporting
Revenue Gross as a Principal Versus Net as an Agent (“EITF 99-19”). Accordingly, revenues from
licensing agreements are recognized based on the performance requirements of the agreement. The
Company has analyzed agreements with multiple element arrangements to determine whether the
deliverables under the agreement, including license and performance obligations such as joint
steering committee participation and research and development activities, can be separated or
whether all of the deliverables must be accounted for as a single unit of accounting in accordance
with EITF 00-21. For these arrangements, the Company was not able to identify evidence of fair
value for the undelivered elements and therefore recognizes any consideration for a single unit of
accounting in the same manner as revenue is recognized for the final deliverable, which is ratable
over the performance period. The performance period was estimated at the inception of each
agreement and is reevaluated at each reporting period. Revenues from milestone payments for which
the Company has no continuing performance obligations are recognized upon achievement of the
performance milestone, as defined in the related agreement, provided the milestone is substantive
and a culmination of the earnings process has occurred. Performance obligations typically consist
of significant milestones in the development life cycle of the
related product candidates and technology, such as initiation of clinical trials, achievement
of specified clinical trial endpoints, filing for approval with regulatory agencies and approvals
by regulatory agencies.
F-11
Table of Contents
GTx, Inc.
NOTES TO FINANCIAL STATEMENTS
(in thousands, except share and per share data)
NOTES TO FINANCIAL STATEMENTS
(in thousands, except share and per share data)
Research and Development Costs
Research and development costs include, but are not limited to, expenses for personnel and
facilities associated with research activities, screening and identification of product candidates,
formulation and synthesis activities, manufacturing, preclinical studies, toxicology studies,
clinical trials, regulatory affairs, quality assurance activities and license and royalty fees.
The Company expenses these costs in the period in which they are incurred. The Company estimates
its liabilities for research and development expenses in order to match the recognition of expenses
to the period in which the actual services are received. As such, accrued liabilities related to
third party research and development activities are recognized based upon the Company’s estimate of
services received and degree of completion of the services in accordance with the specific third
party contract.
Patent Costs
The Company expenses patent costs, including legal expenses, in the period in which they are
incurred. Patent expenses are included in general and administrative expenses in the Company’s
statements of operations.
Income Taxes
The Company accounts for deferred taxes by recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax assets and liabilities are determined
based on the difference between the financial statement and tax basis of assets and liabilities
using enacted tax rates in effect for the year in which the differences are expected to reverse. A
valuation allowance is provided when it is more likely than not that some portion or all of the
deferred tax assets will not be realized. Accordingly, at December 31, 2008 and 2007, net of the
valuation allowance, the net deferred tax assets were reduced to zero. See Note 9 for further
discussion.
Stock Options
The Company has stock option and equity incentive plans that provide for the purchase or
acquisition of the Company’s common stock by certain of the Company’s employees and directors.
Effective January 1, 2006, the Company adopted SFAS No. 123(R), Share-Based Payment (“SFAS 123R”)
and began recognizing compensation expense for its share-based payments based on the fair value of
the awards. See Note 3 for further discussion.
Basic and Diluted Net Loss Per Share
The Company computed net loss per share according to SFAS No. 128, Earnings per Share, which
requires disclosure of basic and diluted earnings (loss) per share.
Basic net loss per share is calculated based on the weighted average number of common shares
outstanding during the period. Diluted net loss per share gives effect to the dilutive potential
of common stock consisting of stock options.
F-12
Table of Contents
GTx, Inc.
NOTES TO FINANCIAL STATEMENTS
(in thousands, except share and per share data)
NOTES TO FINANCIAL STATEMENTS
(in thousands, except share and per share data)
The following table sets forth the computation of the Company’s basic and diluted net loss per
share for the years ended December 31, 2008, 2007 and 2006:
| Years Ended December 31, | ||||||||||||
| 2008 | 2007 | 2006 | ||||||||||
Basic and diluted net loss per share |
||||||||||||
Numerator: |
||||||||||||
Net loss |
$ | (51,780 | ) | $ | (40,359 | ) | $ | (35,510 | ) | |||
Denominator: |
||||||||||||
Common stock outstanding at beginning of period |
36,216,263 | 34,822,362 | 30,993,967 | |||||||||
Issuance of common stock on a weighted average basis |
— | 49,301 | 145,738 | |||||||||
Exercise of employee stock options on a weighted average basis |
85,295 | 68,488 | 10,330 | |||||||||
Weighted average shares used in computing basic and diluted
net loss per share |
36,301,558 | 34,940,151 | (1) | 31,150,035 | (2) | |||||||
Basic and diluted net loss per share |
$ | (1.43 | ) | $ | (1.16 | ) | $ | (1.14 | ) | |||
| (1) | The weighted average shares used in computing basic and diluted net loss per share for the year ended December 31, 2007 included 49,301 shares, which represents the weighted average effect during the period of the Company’s issuance of 1,285,347 shares of common stock to Merck on December 18, 2007. | |
| (2) | The weighted average shares used in computing basic and diluted net loss per share for the year ended December 31, 2006 included 145,738 shares, which represents the weighted average effect during the period of the Company’s issuance of 3,799,600 shares of common stock in a public offering on December 18, 2006. |
Weighted average options outstanding to purchase shares of common stock of 2,638,760,
1,835,743, and 1,462,842 were excluded from the calculation of diluted net loss per share for the
years ended December 31, 2008, 2007 and 2006, respectively, as inclusion of the options would have
an anti-dilutive effect on the net loss per share for the periods. At December 31, 2008, the
Company had outstanding 36,392,443 shares of common stock.
Comprehensive Loss
The Company has adopted the provisions of SFAS No. 130, Comprehensive Income (“SFAS 130”).
SFAS 130 establishes standards for the reporting and display of comprehensive income or loss and
its components for general purpose financial statements. For all periods presented, there were no
differences between net loss and comprehensive loss.
Recent Accounting Pronouncements
In November 2007, the Emerging Issues Task Force issued EITF Issue No. 07-01, Accounting for
Collaborative Arrangements (“EITF 07-01”). EITF 07-01 concludes that the equity method of
accounting cannot be applied to collaborative arrangement activities that are not conducted within
a separate legal entity. Instead, the revenues and costs incurred with third parties in connection
with the collaborative arrangement should be presented gross or net by the collaborators based on
the criteria in EITF 99-19, and other applicable accounting literature. EITF 07-01 is effective
for fiscal years beginning after December 15, 2008. The Company does not expect the adoption of
EITF 07-01 will have a material impact on its financial position or results of operations.
3. Share-Based Compensation
Share-based payments include stock option grants under the Company’s stock option and equity
incentive plans and deferred compensation arrangements for the Company’s directors. Effective
January 1, 2006, the Company adopted SFAS 123R and began recognizing compensation expense for its
share-based payments based on the fair value of the awards. On the date of adoption of SFAS 123R,
the unamortized balance of deferred stock compensation of $1,725 was reduced to zero with an
offsetting adjustment to additional paid-in capital.
F-13
Table of Contents
GTx, Inc.
NOTES TO FINANCIAL STATEMENTS
(in thousands, except share and per share data)
NOTES TO FINANCIAL STATEMENTS
(in thousands, except share and per share data)
The Company grants options to purchase common stock to certain employees and directors under
various plans at prices equal to the fair market value of the stock on the dates the options are
granted as determined in accordance with the terms of the applicable equity compensation plan. The
options have a term of ten years from the grant date and vest three years from the grant date for
director options and in periods up to five years from the grant date for employee options.
Employees generally have three months after the employment relationship ends to exercise all vested
options except in the case of retirement, disability or death, where exercise periods are generally
longer. The Company issues new shares of common stock upon the exercise of options. The Company
estimates the fair value of certain stock option awards as of the date of the grant by applying the
Black-Scholes-Merton option pricing valuation model. The application of this valuation model
involves assumptions that are judgmental and highly sensitive in the determination of compensation
expense.
The fair value of each option is amortized into compensation expense on a straight-line basis
between the grant date for the award and each vesting date. The amount of share-based compensation
expense recognized is reduced ratably over the vesting period by an estimate of the percentage of
options granted that are expected to be forfeited or canceled before becoming fully vested.
Total share-based compensation expense for the year ended December 31, 2008 was $3,714, of
which $1,682 and $2,032 were recorded in the statement of operations as research and development
expenses and general and administrative expenses, respectively. Total share-based compensation
expense for the year ended December 31, 2007 was $2,224, of which $1,047 and $1,177 were recorded
in the statement of operations as research and development expenses and general and administrative
expenses, respectively. Total share-based compensation expense for the year ended December 31,
2006 was $1,401, of which $540 and $861 were recorded in the statement of operations as research
and development expenses and general and administrative expenses, respectively. Share-based
compensation expense for the years ended December 31, 2008, 2007 and 2006 included share-based
compensation expense related to deferred compensation arrangements for the Company’s directors of
$178, $183 and $140, respectively. See Note 10 for further discussion of deferred compensation
arrangements for the Company’s directors.
For the years ended December 31, 2008, 2007 and 2006, the weighted average grant date fair
value per share of options granted was $8.54, $10.41 and $5.67, respectively. The weighted average
for key assumptions used in determining the fair value of options granted in 2008, 2007 and 2006
and a summary of the methodology applied to develop each assumption are as follows:
| Years Ended December 31, | ||||||||||||
| 2008 | 2007 | 2006 | ||||||||||
Expected price volatility |
51.6 | % | 50.6 | % | 70.3 | % | ||||||
Risk-free interest rate |
3.5 | % | 4.6 | % | 4.6 | % | ||||||
Weighted average expected life in years |
6.9 years | 6.9 years | 6.0 years | |||||||||
Dividend yield |
0 | % | 0 | % | 0 | % | ||||||
Expected Price Volatility — This is a measure of the amount by which a price has fluctuated or
is expected to fluctuate. Beginning in 2007, the Company based its determination of expected
volatility on its historical stock price volatility. Prior to 2007, the Company used an average
expected price volatility of other publicly traded biopharmaceutical companies because the Company
believed that it was the best indicator of future volatility, since
the Company had less than two years of its own historical stock price volatility. An increase
in the expected price volatility will increase compensation expense.
Risk-Free Interest Rate — This is the U.S. Treasury rate for the week of the grant having a
term approximating the expected life of the option. An increase in the risk-free interest rate will
increase compensation expense.
F-14
Table of Contents
GTx, Inc.
NOTES TO FINANCIAL STATEMENTS
(in thousands, except share and per share data)
NOTES TO FINANCIAL STATEMENTS
(in thousands, except share and per share data)
Expected Life — This is the period of time over which the options granted are expected to
remain outstanding and is determined by calculating the average of the vesting term and the
contractual term of the options, as allowed by SAB 110. The Company has utilized this method due
to the lack of historical option exercise information related to the Company’s stock option plans.
Options granted have a maximum term of ten years. An increase in the expected life will increase
compensation expense.
Dividend Yield — The Company has not made any dividend payments nor does it have plans to pay
dividends in the foreseeable future. An increase in the dividend yield will decrease compensation
expense.
The following is a summary of stock option transactions for all of the Company’s stock option
plans for the three year period ended December 31, 2008:
| Weighted | ||||||||
| Average | ||||||||
| Number of | Exercise Price | |||||||
| Shares | Per Share | |||||||
Options outstanding at January 1, 2006 |
1,301,750 | $ | 8.27 | |||||
Options granted |
225,834 | 8.50 | ||||||
Options forfeited |
(40,500 | ) | 9.42 | |||||
Options exercised |
(28,795 | ) | 5.32 | |||||
Options outstanding at December 31, 2006 |
1,458,289 | 8.33 | ||||||
Options granted |
566,417 | 18.23 | ||||||
Options forfeited |
(36,500 | ) | 12.70 | |||||
Options exercised |
(108,554 | ) | 7.61 | |||||
Options outstanding at December 31, 2007 |
1,879,652 | 11.27 | ||||||
Options granted |
1,013,000 | 15.19 | ||||||
Options forfeited or expired |
(42,496 | ) | 14.07 | |||||
Options exercised |
(176,180 | ) | 6.62 | |||||
Options outstanding at December 31, 2008 |
2,673,976 | 13.01 | ||||||
The following table summarizes information about stock options outstanding at December 31, 2008:
| Options Outstanding | Options Exercisable | |||||||||||||||||||
| Weighted Average |
Weighted | |||||||||||||||||||
| Remaining | Weighted | Average | ||||||||||||||||||
| Number | Contractual | Average | Number | Exercise | ||||||||||||||||
| Exercise Price | Outstanding | Life (years) | Exercise Price | Exercisable | Price | |||||||||||||||
$2.24 - $10.86 |
920,727 | 5.24 | $ | 7.62 | 635,889 | $ | 7.14 | |||||||||||||
$10.87 - $14.84 |
921,332 | 8.28 | 13.95 | 139,841 | 12.94 | |||||||||||||||
$14.85 - $20.45 |
831,917 | 8.59 | 17.95 | 15,891 | 19.97 | |||||||||||||||
| 2,673,976 | 7.33 | 13.01 | 791,621 | 8.42 | ||||||||||||||||
At December 31, 2008, the aggregate intrinsic value of all outstanding options was $11,209
with a weighted average remaining contractual term of 7.33 years, of which 791,621 of the
outstanding options are currently exercisable with an aggregate intrinsic value of $6,716, a
weighted average exercise price of $8.42 and a weighted average remaining contractual term of 4.79
years. There were 176,180 options exercised during the year ended December 31, 2008. The total
intrinsic value of options exercised during the years ended December 31, 2008, 2007, and 2006 was
$1,626, $1,191, and $204, respectively. At December 31, 2008, the total compensation cost related
to non-vested awards not yet recognized was $8,804 with a weighted average expense recognition
period of 2.42 years. Options available for future issuance under the Company’s stock option plans
were 1,859,699 at December 31, 2008. On January 1, 2009, options available for future issuance
increased to 3,737,321 in accordance with the provisions of the Company’s stock option plans.
F-15
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GTx, Inc.
NOTES TO FINANCIAL STATEMENTS
(in thousands, except share and per share data)
NOTES TO FINANCIAL STATEMENTS
(in thousands, except share and per share data)
4. Property and Equipment, Net
Property and equipment consist of the following:
| December 31, | ||||||||
| 2008 | 2007 | |||||||
Laboratory and office equipment |
$ | 4,174 | $ | 3,080 | ||||
Computer equipment and software |
2,465 | 1,581 | ||||||
Furniture and fixtures |
1,355 | 328 | ||||||
Leasehold improvements |
1,024 | 669 | ||||||
In process equipment and software |
36 | 491 | ||||||
| 9,054 | 6,149 | |||||||
Less: accumulated depreciation |
(5,066 | ) | (3,841 | ) | ||||
| $ | 3,988 | $ | 2,308 | |||||
Depreciation and amortization expense for the years ended December 31, 2008, 2007 and 2006 was
$1,225, $841 and $842, respectively. Of these amounts, $528, $388 and $403, respectively, were
included in research and development expenses in the statements of operations.
5. Accrued Expenses
Accrued expenses consist of the following:
| December 31, | ||||||||
| 2008 | 2007 | |||||||
Employee compensation |
$ | 2,131 | $ | 474 | ||||
Research and development |
1,687 | 3,314 | ||||||
Sales and marketing |
1,355 | 461 | ||||||
Clinical trials |
884 | 1,502 | ||||||
Other |
609 | 1,033 | ||||||
| $ | 6,666 | $ | 6,784 | |||||
6. Intangible Assets
Intangible assets consist of the following:
| December 31, | ||||||||
| 2008 | 2007 | |||||||
License fees |
$ | 5,339 | $ | 5,339 | ||||
Less: accumulated amortization |
(1,246 | ) | (909 | ) | ||||
| $ | 4,093 | $ | 4,430 | |||||
In accordance with the terms of the Amended and Restated License and Supply Agreement that the
Company entered into with Orion in December 2004 (“Orion License and Supply Agreement”), the
Company was required to pay a license fee of $4,826. This license fee is being amortized on a
straight-line basis over the term of the Orion License and Supply Agreement which the Company
estimates to be 16 years. In accordance with the terms of the Consolidated, Amended, and Restated
License Agreement (“SARM License Agreement”) and the Amended and Restated License Agreement (“SERM
License Agreement”) that the Company entered into with the University of Tennessee Research
Foundation (“UTRF”) in July 2007 and September 2007, respectively, the Company paid a one-time
up-front fee of $290 per license. The license fees under the SARM License Agreement and the SERM
License Agreement are being amortized on a straight-line basis over the respective terms of the
agreements, which the Company estimates to be approximately 14 years and 11.5 years, respectively.
Amortization expense for the years ended December 31, 2008, 2007 and 2006 was $337, $309 and $298,
respectively. See Note 8 for additional information on intangible assets.
F-16
Table of Contents
GTx, Inc.
NOTES TO FINANCIAL STATEMENTS
(in thousands, except share and per share data)
NOTES TO FINANCIAL STATEMENTS
(in thousands, except share and per share data)
Estimated future amortization expense for purchased intangible assets at December 31, 2008 is
as follows:
| Years Ending December 31, | ||||
2009 |
$ | 337 | ||
2010 |
337 | |||
2011 |
337 | |||
2012 |
337 | |||
2013 |
337 | |||
Thereafter |
2,408 | |||
Total |
$ | 4,093 | ||
7. Common and Preferred Stock
The Company’s certificate of incorporation authorizes the Company to issue 60,000,000 shares
of common stock with $0.001 par value per share and 5,000,000 shares of preferred stock, par value
$0.001.
On December 18, 2006, the Company completed a public offering of 3,799,600 shares of common
stock at a price to the public of $16.00 per share. Net cash proceeds from this offering were
$57,426 after deducting placement agent fees and other offering expenses.
On December 18, 2007, the Company completed a private placement of 1,285,347 shares of common
stock to Merck at a per share price of $23.34 (see Note 8).
8. Collaboration and License Agreements
Merck & Co., Inc. Collaboration and License Agreement
In December 2007, GTx and Merck entered into a global exclusive license and collaboration
agreement (the “Merck Collaboration Agreement”) governing the Company’s and Merck’s joint research,
development and commercialization of SARM compounds and related SARM products, including SARMs
currently being developed by the Company and Merck and those yet to be discovered, for all
potential indications of interest.
Under the Merck Collaboration Agreement, the Company granted Merck an exclusive worldwide
license under its SARM-related patents and know-how. The Company is conducting preclinical
research of SARM compounds and products, and Merck is primarily responsible for conducting and
funding development and commercialization of products developed under the Merck Collaboration
Agreement. Merck paid the Company an upfront licensing fee of $40,000, which was received in
January 2008. In addition, Merck has agreed to pay the Company $15,000 in guaranteed cost
reimbursements for research and development activities in equal annual installments over a three
year period beginning on the first anniversary of the effective date of the Merck Collaboration
Agreement. In
December 2008, the Company received $5,000 from Merck as the initial payment of the cost
reimbursement for research and development activities. The Company is also eligible to receive
under the Merck Collaboration Agreement up to $422,000 in future milestone payments associated with
the development and regulatory approval of a lead product candidate, including Ostarine™, as
defined in the Merck Collaboration Agreement, if multiple indications are developed and receive
required regulatory approvals, as well as additional milestone payments for the development and
regulatory approval of other product candidates developed under the Merck Collaboration Agreement.
Merck has also agreed to pay the Company tiered royalties on net sales of products that may be
developed under the Merck Collaboration Agreement. The Company is responsible for any payments
owed to the University of Tennessee Research Foundation (“UTRF”) resulting from the Merck
Collaboration Agreement.
F-17
Table of Contents
GTx, Inc.
NOTES TO FINANCIAL STATEMENTS
(in thousands, except share and per share data)
NOTES TO FINANCIAL STATEMENTS
(in thousands, except share and per share data)
Unless terminated earlier, the Merck Collaboration Agreement will remain in effect in each
country of sale at least until the expiration of all valid claims of the licensed patents in such
country. However, Merck may terminate the Merck Collaboration Agreement at its election at any
time after a specified period of time following the effectiveness of the Merck Collaboration
Agreement, and either party may terminate the Merck Collaboration Agreement at any time for the
other party’s uncured material breach or bankruptcy. Under certain conditions, Merck will continue
to owe royalties on certain products after it terminates the Merck Collaboration Agreement without
cause.
The Company and Merck also entered into a Stock Purchase Agreement pursuant to which the
Company sold to Merck on December 18, 2007, 1,285,347 newly-issued shares of the Company’s common
stock for an aggregate purchase price of approximately $30,000, or $23.34 per share.
The Company deferred the recognition of the upfront licensing fee of $40,000 and the $10,800
in equity premium received that represents the difference between the purchase price and the
closing price of the Company’s common stock on the date the stock was purchased by Merck. These
payments are being recognized as revenue over the period of the Company’s performance obligation,
which the Company estimates to be ten years. The $5,000 of cost reimbursement received in December
2008 is being recognized as collaboration revenue over the remaining period of the Company’s
performance obligation. The Company recognized as collaboration revenue $5,106 and $198 for the
years ended December 31, 2008 and 2007, respectively, from the amortization of the Merck deferred
revenue. The remaining cost reimbursements for research and development activities will begin to
be recognized as collaboration revenue when the amounts are determinable and collection of the
related receivable is reasonably assured.
Ipsen Collaboration and License Agreement
In September 2006, the Company entered into a collaboration and license agreement with Ipsen
(the “Ipsen Collaboration Agreement”) pursuant to which the Company granted Ipsen exclusive rights
in the European Territory to develop and commercialize toremifene in all indications which the
Company has licensed from Orion, which include all indications in humans except the treatment and
prevention of breast cancer outside of the United States. The Company currently markets
FARESTON® (toremifene citrate) 60 mg tablets, approved for the treatment of metastatic
breast cancer in postmenopausal women in the United States, and is developing toremifene in two
separate clinical programs for toremifene 80 mg for the ADT indication and toremifene 20 mg for the
high grade PIN indication.
In accordance with the terms of the Ipsen Collaboration Agreement, Ipsen agreed to pay the
Company €23,000 as a license fee and expense reimbursement, of which €1,500 is being paid in equal
installments over a three year period from the date of the Ipsen Collaboration Agreement. In
October 2006, the Company received €21,500 (approximately $27,100) from Ipsen as the initial
payment for the license fee and expense reimbursement. In September 2007, the Company received
€500 (approximately $688) from Ipsen as the first annual installment payment. The second annual
installment payment of €500 (approximately $711) was received from Ipsen in September 2008.
Pursuant to the Ipsen Collaboration Agreement, the Company is also entitled to receive from Ipsen
up to an aggregate of €39,000 in milestone payments depending on the successful development and
launch of toremifene in certain countries of the European Territory for the high grade PIN
indication, subject to certain
conditions, and the ADT indication. In February 2008, the Company earned a milestone of
€1,000 (approximately $1,482) with the achievement of the primary endpoint in the toremifene 80 mg
ADT Phase III clinical trial. This amount was recognized as collaboration revenue in the first
quarter of 2008. Ipsen has agreed to be responsible for and to pay all clinical development,
regulatory and launch activities to commercialize toremifene in the European Territory for both the
high grade PIN indication and ADT indication. Ipsen has agreed to pay the Company a royalty equal
to a graduating percentage of aggregate net sales of products containing toremifene which rates
will be dependent on whether such sales are for the high grade PIN indication or the ADT
indication. The Company will remain responsible for paying upstream royalties on toremifene to
both Orion and UTRF for the PIN indication and to Orion only for the ADT indication. Ipsen will
purchase the bulk drug product supply directly from Orion and is responsible for the packaging and
labeling of the final product.
F-18
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GTx, Inc.
NOTES TO FINANCIAL STATEMENTS
(in thousands, except share and per share data)
NOTES TO FINANCIAL STATEMENTS
(in thousands, except share and per share data)
The Company recorded deferred revenue of $29,259 related to the Ipsen upfront license fee and
expense reimbursement which is expected to be amortized into revenue on a straight-line basis over
the estimated five year development period for toremifene in the European Territory. The Company
recognized as collaboration revenue $5,852 for the years ended December 31, 2008 and 2007 and
$1,853 for the year ended December 31, 2006 from the amortization of the Ipsen deferred revenue.
University of Tennessee Research Foundation License Agreements
On July 24, 2007, the Company and UTRF entered into the SARM License Agreement to consolidate
and replace the Company’s two previously existing SARM license agreements with UTRF and to modify
and expand certain rights and obligations of each of the parties under both license agreements.
Pursuant to the SARM License Agreement, the Company was granted exclusive worldwide rights in all
existing SARM technologies owned or controlled by UTRF, including all improvements thereto, and
exclusive rights to future SARM technology that may be developed by certain scientists at the
University of Tennessee or subsequently licensed to UTRF under certain existing inter-institutional
agreements with The Ohio State University.
On September 24, 2007, the Company and UTRF entered into the SERM License Agreement to replace
the Company’s previously existing exclusive worldwide license agreement for toremifene. Pursuant
to the SERM License Agreement, the Company was granted exclusive worldwide rights to UTRF’s method
of use patents relating to SERMs, including toremifene for chemoprevention of prostate cancer as
well as future related SERM technologies that may be developed by certain scientists at the
University of Tennessee.
Under the agreements with UTRF, the Company paid to UTRF a one-time, upfront fee of $290 per
agreement as consideration for entering into the agreement. The Company is also obligated to pay
UTRF annual license maintenance fees and royalties on sublicense revenues and net sales of
products.
On December 29, 2008, the Company amended the SARM License Agreement and SERM Agreement
(together the “License Amendments”) with UTRF. The parties entered into the License Amendments to,
among other things, clarify the treatment of certain payments that may be received by the Company
from its current and future sublicensees for purposes of determining sublicense fees payable to
UTRF by the Company under the terms of the SARM License Agreement and SERM License Agreement,
including with respect to the treatment of payments made to the Company in exchange for the sale of
the Company’s securities in connection with sublicensing arrangements and to provide that any
consideration received in connection with an assignment of either agreement will not be treated as
sublicense revenue. In consideration for the execution of the License Amendments, the Company has
agreed to pay UTRF an aggregate of $540. This payment has been included in research and development
expense in the Company’s statement of operations for the year ended December 31, 2008. In
connection with the execution of the License Amendments, the parties also agreed to dismiss their
respective claims and actions relating to the Company’s sale of its common stock to Merck in
December 2007.
Orion Corporation License and Supply Agreement
On December 29, 2004, the Company entered into the Orion License and Supply Agreement granting
the Company exclusive rights to Orion’s compound, toremifene, for all products for human uses
excluding, however, products for breast cancer sold outside of the United States. Additionally,
the Orion License and Supply Agreement requires that Orion will manufacture and supply all of the
Company’s and the Company’s sublicensees’ needs for clinical trial and commercial grade material
for toremifene-based products developed and marketed in the United States and abroad, including
toremifene globally and FARESTON® in the United States. The Orion License and Supply
Agreement, which has an effective date of January 1, 2005, replaces an earlier agreement entered
into with Orion in 2000, and subsequently amended in 2001 and 2003 (“Original Orion License”).
Under the Orion License and Supply Agreement, the Company was required to pay a license fee of
$4,826. The term of the Orion License and Supply Agreement will survive for the term of the
Company’s patents, including the Company’s patents to treat complications arising from ADT and the
patents it licenses from UTRF for the treatment and/or prevention of high grade PIN and prostate
cancer. The term of the Company’s method of use patents extend from 2019 to 2023.
Under the Original Orion License, the Company paid Orion $400, which it is allowed to offset
along with clinical trial expenses against licensing fees and milestone payments it will pay to
Orion if the Company sublicenses rights to its patents to third parties. The Orion License and
Supply Agreement retains these provisions and obligates the Company to make future royalty payments
of varying amounts for toremifene based products for breast cancer in the United States and to
treat or prevent high grade PIN or prostate cancer or to treat complications arising from ADT.
F-19
Table of Contents
GTx, Inc.
NOTES TO FINANCIAL STATEMENTS
(in thousands, except share and per share data)
NOTES TO FINANCIAL STATEMENTS
(in thousands, except share and per share data)
The Company has agreed to achieve specified minimum sales requirements of toremifene in the
United States after commercialization of a product or it must pay Orion royalties based on the
amount of the shortfall. In addition, the Company is required to pay up to $1,000 if the Company
is acquired before receiving marketing approval for the use of toremifene for the prevention or
treatment of high grade PIN or prostate cancer or to treat complications arising from ADT. Orion
may terminate the Orion License and Supply Agreement if marketing approval for toremifene is not
granted in the United States by December 31, 2009.
Ortho Biotech Collaboration and License Agreement
In March 2004, the Company entered into a joint collaboration and license agreement with Ortho
Biotech Products, L.P., a subsidiary of Johnson & Johnson (“Ortho Biotech”), for andarine and
specified backup SARM compounds. Under the terms of the agreement, the Company received in April
2004 an upfront licensing fee and expense reimbursement totaling $6,687. The upfront licensing fee
and expense reimbursement were deferred and amortized into revenue on a straight-line basis over
the estimated five year andarine development period. In December 2006, the Company reacquired full
rights to develop and commercialize andarine and all backup compounds previously licensed to Ortho
Biotech, and the joint collaboration and license agreement was terminated by mutual agreement of
the parties. In connection with the termination of the Ortho Biotech agreement, the Company
recognized the associated $3,100 balance of deferred revenue as additional collaboration revenue.
The Company recognized revenue of $4,295 for the year ended December 31, 2006 from the amortization
of the upfront license fee and expense reimbursement.
9. Income Taxes
The Company has incurred net losses since inception and, consequently, has not recorded any
U.S. federal and state income taxes. Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
The principal components of the Company’s net deferred income tax assets consist of the
following:
| December 31, | ||||||||
| 2008 | 2007 | |||||||
Deferred income tax assets: |
||||||||
Net federal and state operating loss carryforwards |
$ | 57,719 | $ | 57,252 | ||||
Research and development credits |
7,908 | 6,200 | ||||||
Deferred revenue |
25,904 | 7,511 | ||||||
Share-based compensation |
3,251 | 2,010 | ||||||
Other |
633 | — | ||||||
Total deferred tax assets |
95,415 | 72,973 | ||||||
Deferred income tax liabilities: |
||||||||
Depreciation and amortization |
27 | 66 | ||||||
Other |
— | 284 | ||||||
Total deferred tax liabilities |
27 | 350 | ||||||
Net deferred income tax assets |
95,388 | 72,623 | ||||||
Valuation allowance |
(95,388 | ) | (72,623 | ) | ||||
| $ | — | $ | — | |||||
Realization of deferred tax assets is dependent upon future earnings, if any, the timing and
amount of which are uncertain. Accordingly, the net deferred tax assets have been fully offset by
a valuation allowance. The valuation allowance increased by $22,765, $17,027 and $14,690 in 2008,
2007 and 2006, respectively.
F-20
Table of Contents
GTx, Inc.
NOTES TO FINANCIAL STATEMENTS
(in thousands, except share and per share data)
NOTES TO FINANCIAL STATEMENTS
(in thousands, except share and per share data)
At December 31, 2008, the Company had net federal operating loss carryforwards of
approximately $151,000, which expire from 2018 to 2028 if not utilized. The Company had state
operating loss carryforwards of approximately $134,000, which expire from 2013 to 2023 if not
utilized. The Company also had research and development credits of approximately $7,900, which
expire from 2018 to 2028 if not utilized.
Both of the net federal and state operating loss carryforwards include approximately $1,900 of
deductions related to the exercise of stock options. This amount represents an excess tax benefit
as defined under SFAS 123R and has not been included in the gross deferred tax asset reflected for
net federal and state operating loss carryforwards. If utilized, the benefits from these
deductions will be recorded as an adjustment to additional paid in capital.
The Company has adopted the Financial Accounting Standards Board Interpretation No. 48,
Accounting for Uncertainty in Income Taxes-An Interpretation of FASB Statement No. 109 (“FIN 48”).
FIN 48 requires the recognition of the impact of a tax position in the financial statements if that
position is more likely than not of being sustained on audit based on the technical merits of the
position. At the adoption date of January 1, 2007 and through December 31, 2008, the Company had
no unrecognized tax benefits. Utilization of the Company’s net operating loss carryforwards may be
subject to a substantial annual limitation due to ownership change limitations provided by the
Internal Revenue Code of 1986, as amended and similar state provisions. The annual limitations may
result in the expiration of net operating loss carryforwards before utilization. The Company has
not yet performed a Section 382 change in control study in order to determine if there is a
limitation of its net operating loss carryforwards. Until this study is performed, the Company
cannot be certain of the use of these loss carryforwards. Additionally, the Company has not yet
conducted an in depth study of its research and development credits. This study may result in an
increase or decrease to the Company’s research and development credits. Until studies are
conducted of the Company’s net operating loss carryforwards and research and development credits,
no amounts are being presented as an uncertain tax position under FIN 48. The Company’s net
deferred tax assets have been fully offset by a valuation allowance. Therefore, future changes to
the Company’s unrecognized tax benefits would be offset by an adjustment to the valuation allowance
and there would be no impact on the Company’s balance sheet, statement of operations, or cash
flows. The Company does not expect its unrecognized tax benefits to change significantly over the
next 12 months.
The Company is currently open to audit under the statute of limitations by the Internal
Revenue Service and the appropriate state income taxing authorities for all years due to the net
loss carryforwards from those years. The Company is currently not under examination by the
Internal Revenue Service or any other taxing authorities. The Company has not recorded any
interest and penalties on any unrecognized tax benefits since its inception.
10. Directors’ Deferred Compensation Plan
Since June 30, 2004, non-employee directors have had the opportunity to defer all or a portion
of their fees under the Company’s Directors’ Deferred Compensation Plan until termination of their
status as directors. Deferrals can be made into a cash account, a stock account, or a combination
of both. Stock accounts will be paid out in the form of Company common stock, except that any
fractional shares will be paid out in cash valued at the then current market price of the Company’s
common stock. Cash accounts and stock accounts under the Directors’ Deferred Compensation Plan are
credited with interest or the value of any cash and stock dividends, as applicable. Non-employee
directors are fully vested in any amounts that they elect to defer under the Directors’ Deferred
Compensation Plan.
For the years ended December 31, 2008, 2007 and 2006, the Company incurred board of director
fee expense of $241, $207 and $163, respectively, of which $178, $183 and $140 was deferred into
stock accounts and will be paid in common stock. At December 31, 2008, 54,526 shares of the
Company’s common stock had been credited to individual director stock accounts under the Directors’
Deferred Compensation Plan, and no amounts had been credited to individual director cash accounts
under the Directors’ Deferred Compensation Plan.
F-21
Table of Contents
GTx, Inc.
NOTES TO FINANCIAL STATEMENTS
(in thousands, except share and per share data)
NOTES TO FINANCIAL STATEMENTS
(in thousands, except share and per share data)
11. 401(k) Plan
The Company sponsors a 401(k) retirement savings plan that is available to all eligible
employees. The plan is intended to qualify under Section 401(k) of the Internal Revenue Code of
1986, as amended. The plan provides that each participant may contribute up to a statutory limit of
their pre-tax compensation which was $15.5 for employees under age 50 and $20.5 for employees 50
and older in calendar year 2008. Employee contributions are held in the employees’ name and
invested by the plan’s trustee. The plan also permits the Company to make matching contributions,
subject to established limits. The Company elected to match a portion of employee’s contributions
to the plan in the amount of $395, $210, and $89 in 2008, 2007 and 2006, respectively.
12. Commitments and Contingencies
Operating Lease Commitments
The
Company leases laboratory facilities and office space pursuant to a
sublease, which is
accounted for as an operating lease. The sublease originally expired December 31, 2008, with options
to extend for up to two additional years and is terminable by either party upon 90 days’ notice.
The Company exercised an option to extend the sublease until December 31, 2009. In December 2007 and
July 2008, the Company entered into subleases for additional office space. These new office space
subleases are accounted for as operating leases and have terms from January 1, 2008 through April
15, 2015 and August 1, 2008 through April 15, 2015, respectively. These subleases have escalating
rent payments and the Company has options to cancel these subleases beginning December 31, 2010 and
December 31, 2012, respectively. Total rent expense under these real estate leases was
approximately $1,302, $765 and $712 for the years ended December 31, 2008, 2007 and 2006,
respectively.
As of December 31, 2008, minimum payments under operating lease arrangements were as follows:
2009 |
$ | 496 | ||
2010 |
811 | |||
2011 |
303 | |||
2012 |
413 | |||
Total |
$ | 2,023 | ||
Purchase Commitments
The Company had outstanding contractual purchase obligations of $23 and $280 at December 31,
2008 and 2007, respectively. These outstanding contractual purchase obligations are not recorded
in the accompanying financial statements as the amounts represent future obligations, not
liabilities, at December 31, 2008 and 2007 respectively.
F-22
Table of Contents
GTx, Inc.
NOTES TO FINANCIAL STATEMENTS
(in thousands, except share and per share data)
NOTES TO FINANCIAL STATEMENTS
(in thousands, except share and per share data)
13. Quarterly Financial Data (Unaudited)
The following is a summary of the quarterly results of operations for the years ended December 31,
2008 and 2007:
| 2008 Quarters Ended | ||||||||||||||||
| March 31 | June 30 | September 30 | December 31 | |||||||||||||
Revenues: |
||||||||||||||||
Product sales, net |
$ | 257 | $ | 274 | $ | 315 | $ | 242 | ||||||||
Collaboration revenue |
4,216 | 2,734 | 2,734 | 2,756 | ||||||||||||
Total revenues |
4,473 | 3,008 | 3,049 | 2,998 | ||||||||||||
Costs and expenses: |
||||||||||||||||
Cost of product sales
|
135 | 155 | 192 | 167 | ||||||||||||
Research and development expenses |
13,999 | 10,370 | 9,244 | 10,646 | ||||||||||||
General and administrative expenses |
4,250 | 6,424 | 6,107 | 6,324 | ||||||||||||
Total costs and expenses |
18,384 | 16,949 | 15,543 | 17,137 | ||||||||||||
Loss from operations |
(13,911 | ) | (13,941 | ) | (12,494 | ) | (14,139 | ) | ||||||||
Interest income |
1,168 | 698 | 568 | 271 | ||||||||||||
Net loss |
$ | (12,743 | ) | $ | (13,243 | ) | $ | (11,926 | ) | $ | (13,868 | ) | ||||
Net loss per share: |
||||||||||||||||
Basic and diluted |
$ | (0.35 | ) | $ | (0.37 | ) | $ | (0.33 | ) | $ | (0.38 | ) | ||||
| 2007 Quarters Ended | ||||||||||||||||
| March 31 | June 30 | September 30 | December 31 | |||||||||||||
Revenues: |
||||||||||||||||
Product sales, net |
$ | 192 | $ | 360 | $ | 268 | $ | 256 | ||||||||
Collaboration revenue |
1,463 | 1,463 | 1,463 | 1,661 | ||||||||||||
Total revenues |
1,655 | 1,823 | 1,731 | 1,917 | ||||||||||||
Costs and expenses: |
||||||||||||||||
Cost of product sales |
109 | 206 | 148 | 158 | ||||||||||||
Research and development expenses |
8,007 | 8,575 | 9,881 | 12,045 | ||||||||||||
General and administrative expenses |
3,117 | 3,609 | 3,182 | 3,593 | ||||||||||||
Total costs and expenses |
11,233 | 12,390 | 13,211 | 15,796 | ||||||||||||
Loss from operations |
(9,578 | ) | (10,567 | ) | (11,480 | ) | (13,879 | ) | ||||||||
Interest income |
1,454 | 1,364 | 1,238 | 1,089 | ||||||||||||
Net loss |
$ | (8,124 | ) | $ | (9,203 | ) | $ | (10,242 | ) | $ | (12,790 | ) | ||||
Net loss per share: |
||||||||||||||||
Basic and diluted |
$ | (0.23 | ) | $ | (0.26 | ) | $ | (0.29 | ) | $ | (0.36 | ) | ||||
F-23