GTx, Inc.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2007
OR
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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)
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Delaware
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62-1715807 |
(State or other jurisdiction of
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(I.R.S. Employer Identification No.) |
incorporation or organization) |
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3 N. Dunlap Street
Van Vleet Building
Memphis, Tennessee 38163
(Address of principal executive offices, including zip code)
(901) 523-9700
(Registrants telephone number, including area code)
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 whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer.
Large accelerated filer o Accelerated filer þ Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
As of August 1, 2007, 34,910,039 shares of the registrants Common Stock were outstanding.
GTx, INC.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2007
INDEX
2
PART I: FINANCIAL INFORMATION
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ITEM 1. |
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FINANCIAL STATEMENTS |
GTx, Inc.
CONDENSED BALANCE SHEETS
(in thousands, except share data)
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June 30, |
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December 31, |
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2007 |
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2006 |
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(unaudited) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
102,028 |
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$ |
119,550 |
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Accounts receivable, net |
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107 |
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61 |
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Inventory |
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142 |
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207 |
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Prepaid expenses and other current assets |
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2,933 |
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1,882 |
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Total current assets |
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105,210 |
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121,700 |
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Property and equipment, net |
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1,638 |
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1,448 |
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Intangible assets, net |
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4,538 |
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4,714 |
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Other assets |
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1,349 |
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1,393 |
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Total assets |
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$ |
112,735 |
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$ |
129,255 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
3,364 |
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$ |
1,336 |
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Accrued expenses |
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3,460 |
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3,149 |
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Deferred revenue current portion |
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5,852 |
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5,852 |
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Total current liabilities |
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12,676 |
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10,337 |
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Deferred revenue, less current portion |
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18,628 |
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21,554 |
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Capital lease obligation |
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13 |
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15 |
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Other long term liability |
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263 |
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300 |
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Commitments and contingencies
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Stockholders equity: |
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Common stock, $0.001 par value: 60,000,000
shares authorized; 34,890,371 shares issued
and outstanding at June 30, 2007 and
34,822,362 shares issued and outstanding at
December 31, 2006 |
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35 |
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35 |
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Additional paid-in capital |
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328,226 |
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326,793 |
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Accumulated deficit |
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(247,106 |
) |
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(229,779 |
) |
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Total stockholders equity |
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81,155 |
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97,049 |
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Total liabilities and stockholders equity |
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$ |
112,735 |
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$ |
129,255 |
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The accompanying notes are an integral part of these financial statements.
3
GTx, Inc.
CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
(unaudited)
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Three Months Ended |
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Six Months Ended |
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June 30, |
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June 30, |
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2007 |
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2006 |
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2007 |
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2006 |
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Revenues: |
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Product sales, net |
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$ |
360 |
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$ |
288 |
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$ |
552 |
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$ |
1,164 |
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Collaboration revenue |
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1,463 |
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335 |
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2,926 |
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669 |
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Total revenue |
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1,823 |
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623 |
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3,478 |
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1,833 |
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Costs and expenses: |
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Cost of product sales |
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206 |
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170 |
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315 |
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637 |
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Research and development expenses |
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8,575 |
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8,444 |
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16,582 |
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16,885 |
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General and administrative expenses |
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3,609 |
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2,692 |
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6,726 |
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5,642 |
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Total costs and expenses |
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12,390 |
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11,306 |
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23,623 |
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23,164 |
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Loss from operations |
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(10,567 |
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(10,683 |
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(20,145 |
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(21,331 |
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Interest income |
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1,364 |
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699 |
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2,818 |
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1,423 |
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Net loss |
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$ |
(9,203 |
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$ |
(9,984 |
) |
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$ |
(17,327 |
) |
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$ |
(19,908 |
) |
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Net loss per share: |
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Basic |
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$ |
(0.26 |
) |
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$ |
(0.32 |
) |
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$ |
(0.50 |
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$ |
(0.64 |
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Diluted |
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$ |
(0.26 |
) |
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$ |
(0.32 |
) |
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$ |
(0.50 |
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$ |
(0.64 |
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Weighted average shares used in computing net loss per share: |
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Basic |
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34,885,213 |
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31,002,338 |
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34,863,807 |
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30,999,044 |
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Diluted |
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34,885,213 |
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31,002,338 |
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34,863,807 |
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30,999,044 |
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The accompanying notes are an integral part of these financial statements.
4
GTx, Inc.
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
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Six Months Ended |
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June 30, |
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2007 |
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2006 |
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Cash flows from operating activities: |
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Net loss |
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$ |
(17,327 |
) |
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$ |
(19,908 |
) |
Adjustments to reconcile net loss to net cash used in
operating activities: |
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Depreciation and amortization |
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562 |
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606 |
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Share-based compensation |
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875 |
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621 |
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Directors deferred compensation |
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75 |
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70 |
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Deferred revenue amortization |
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(2,926 |
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(669 |
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Foreign currency transaction gain |
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(66 |
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Changes in assets and liabilities: |
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Accounts receivable, net |
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(46 |
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90 |
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Inventory |
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65 |
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(79 |
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Prepaid expenses and other assets |
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(941 |
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171 |
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Accounts payable |
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2,028 |
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(417 |
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Accrued expenses and other long term liability |
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274 |
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1,350 |
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Net cash used in operating activities |
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(17,427 |
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(18,165 |
) |
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Cash flows from investing activities: |
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Purchase of property and equipment |
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(492 |
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(276 |
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Purchase of intangible assets |
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(84 |
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(75 |
) |
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Net cash used in investing activities |
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(576 |
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(351 |
) |
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Cash flows from financing activities: |
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Proceeds from exercise of employee stock options |
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483 |
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66 |
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Payments on capital lease obligation |
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(2 |
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(3 |
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Net cash provided by financing activities |
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481 |
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63 |
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Net decrease in cash and cash equivalents |
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(17,522 |
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(18,453 |
) |
Cash and cash equivalents, beginning of period |
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119,550 |
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74,014 |
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Cash and cash equivalents, end of period |
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$ |
102,028 |
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$ |
55,561 |
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The accompanying notes are an integral part of these financial statements.
5
GTx, Inc.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
(unaudited)
1. Business and Basis of Presentation
Business
GTx, Inc. (GTx, the Company, or we), 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 wasting and other serious medical
conditions. GTx operates in one business segment.
GTx is developing ACAPODENE® (toremifene citrate), a selective estrogen receptor
modulator, or SERM, in two separate clinical programs in men: first, a pivotal Phase III clinical
trial for the treatment of serious side effects of androgen deprivation therapy, or ADT, for
advanced prostate cancer and second, a 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. GTx has licensed to 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 ACAPODENE® and other products containing toremifene for all indications
which we have licensed from Orion Corporation (Orion). GTx is also developing
OstarineTM, a selective androgen receptor modulator, or SARM, initially for the
treatment of cancer wasting, which is known as cancer cachexia, and for the treatment of muscle
wasting in chronic kidney disease and end-stage renal disease patients.
Basis of Presentation
The accompanying unaudited condensed financial statements reflect, in the opinion of
management, all adjustments (consisting of normal recurring adjustments) necessary for a fair
presentation of GTxs financial position, results of operations and cash flows for each period
presented in accordance with accounting principles generally accepted in the United States for
interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the United States have been
condensed or omitted from the accompanying condensed financial statements. These interim condensed
financial statements should be read in conjunction with the audited financial statements and
related notes thereto, which are included in the Companys Annual Report on Form 10-K for the year
ended December 31, 2006. Operating results for the three and six months ended June 30, 2007 are
not necessarily indicative of the results that may be expected for the entire fiscal year ending
December 31, 2007.
6
GTx, Inc.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
(unaudited)
Use of Estimates
The preparation of condensed 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 condensed financial statements, and the reported amounts of revenues
and expenses during the reporting period. Actual amounts and results could differ from those
estimates.
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 Statement of Financial
Accounting Standards 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 products labeled expiration date. The Company estimates its 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 June 30, 2007 and December 31, 2006, the Companys accrual for product returns
was $343 and $415, respectively. If actual future results are different than the Companys
estimates, the Company may need to adjust its estimated accrual for product returns, which could
have a material effect on revenues in the period of the adjustment.
Collaboration revenue consists of non-refundable up-front payments and license fees associated
with the Companys collaboration and license agreements discussed in Note 4. The Company
recognized revenue in accordance with SAB No. 104 and Emerging Issues Task Force Issue 00-21,
Revenue Arrangements with Multiple Deliverables". Accordingly, revenues from licensing agreements
are recognized based on the performance requirements of the agreement. Non-refundable up-front
fees, where the Company has an ongoing involvement or performance obligation, are recorded as
deferred revenue in the balance sheet and amortized as collaboration revenue in the condensed
statements of operations over the term of the performance obligation.
Recent Accounting Pronouncements
In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes-an interpretation of FASB Statement No. 109 (FIN 48), which clarifies the accounting for
uncertainty in tax positions. FIN 48 requires the recognition in the condensed financial
statements, the impact of a tax position, if that position is more likely than not of being
sustained on audit, based on the technical merits of the position. The provisions of FIN 48 were
effective as of January 1, 2007. The adoption of the standard had no effect on the Companys
financial condition or results of operations.
7
GTx, Inc.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
(unaudited)
2. Share-Based Compensation
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. Share-based payments include stock option grants under the Companys stock
option plans.
Total share-based compensation expense for the three months ended June 30, 2007 was $443, of
which $193 and $250 were recorded in the condensed statements of operations as research and
development expenses and general and administrative expenses, respectively. Total share-based
compensation expense for the three months ended June 30, 2006 was $358, of which $114 and $244 were
recorded in the condensed statements of operations as research and development expenses and general
and administrative expenses, respectively. Total share-based compensation expense for the six
months ended June 30, 2007 was $950, of which $426 and $524 were recorded in the condensed
statements of operations as research and development expenses and general and administrative
expenses, respectively. Total share-based compensation expense for the six months ended June 30,
2006 was $691, of which $277 and $414 were recorded in the condensed statements of operations as
research and development expenses and general and administrative expenses, respectively. Included
in share-based compensation expense for all periods presented is share-based compensation expense
related to deferred compensation arrangements for the Companys directors which was $37 and $35 for
the three months ended June 30, 2007 and 2006, and $75 and $70 for the six months ended June 30,
2007 and 2006, respectively.
The Company grants options to purchase common stock to certain employees and directors under
various plans at prices equal to the market value of the stock on the dates the options are
granted. 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 of up to five years from the grant date for employee
options. Employees have 90 days after the employment relationship ends to exercise all vested
options except in the case of retirement, permanent disability or death, where exercise periods are
generally longer. The Company issues new shares of common stock upon the exercise of options. The
fair value of each option grant is separately estimated for each vesting date. 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 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 weighted average for key assumptions
used in determining the fair value of options granted for the periods presented and a summary of
the methodology applied to develop each assumption are as follows:
8
GTx, Inc.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
(unaudited)
|
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Three Months Ended |
|
Six Months Ended |
|
|
June 30, |
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June 30, |
|
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2007 |
|
2006 |
|
2007 |
|
2006 |
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Expected price volatility |
|
|
50.2 |
% |
|
|
77.9 |
% |
|
|
50.7 |
% |
|
|
69.8 |
% |
Risk-free interest rate |
|
|
4.6 |
% |
|
|
4.9 |
% |
|
|
4.6 |
% |
|
|
4.6 |
% |
Weighted average expected life in years |
|
|
6.7 |
|
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|
6.0 |
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6.9 |
|
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|
6.0 |
|
Dividend yield |
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
0.0 |
% |
|
|
0.0 |
% |
Forfeiture rate |
|
|
12.0 |
% |
|
|
13.0 |
% |
|
|
12.0 |
% |
|
|
12.0 |
% |
Expected Price Volatility This is a measure of the amount by which a price has
fluctuated or is expected to fluctuate. For the three and six months ended June 30, 2007, the
Company based its determination of expected volatility on its historical stock price volatility.
For the three and six months ended June 30, 2006, the Company used an average expected price
volatility of other publicly traded biopharmaceutical companies as it was the Companys belief that
it was the best indicator of future volatility as it had less than two years of its own historical
stock price volatility. This change in estimate did not have a material effect on the Companys
results from operations for the three and six months ended June 30, 2007. 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 grant having a term
approximating the expected life of the option. An increase in the risk-free interest rate will
increase compensation expense.
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 SEC Staff Accounting Bulletin No. 107. 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.
Forfeiture Rate This is the estimated percentage of options granted that are expected to be
forfeited or canceled before becoming fully vested. This estimate is based on historical
experience. An increase in the forfeiture rate will decrease compensation expense.
9
GTx, Inc.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
(unaudited)
The following is a summary of stock option transactions for all of the Companys stock option
plans since its most recent fiscal year end:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
Number of |
|
Exercise Price Per |
|
|
Shares |
|
Share |
Options outstanding at December 31, 2006 |
|
|
1,458,289 |
|
|
$ |
8.33 |
|
Options granted |
|
|
527,667 |
|
|
|
18.42 |
|
Options forfeited |
|
|
(35,500 |
) |
|
|
12.63 |
|
Options exercised |
|
|
(68,009 |
) |
|
|
7.10 |
|
|
|
|
|
|
|
|
|
|
Options outstanding at June 30, 2007 |
|
|
1,882,447 |
|
|
|
11.12 |
|
|
|
|
|
|
|
|
|
|
3. Basic and Diluted Net Loss Per Share
The Company computed net loss per share attributable to common stockholders according to SFAS
No. 128, Earnings per Share, which requires disclosure of basic and diluted earnings (loss) per
share.
Basic net loss per share attributable to common stockholders is calculated based on the
weighted average number of common shares outstanding during the period. Diluted net loss per share
attributable to common stockholders gives effect to the dilutive potential of common stock
consisting of stock options.
10
GTx, Inc.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
(unaudited)
The following table sets forth the computation of the Companys basic and diluted net loss per
common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Basic net loss per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(9,203 |
) |
|
$ |
(9,984 |
) |
|
$ |
(17,327 |
) |
|
$ |
(19,908 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator (weighted average shares): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock outstanding at beginning of
period |
|
|
34,877,079 |
|
|
|
30,998,217 |
|
|
|
34,822,362 |
|
|
|
30,993,967 |
|
Exercise of employee stock options |
|
|
8,134 |
|
|
|
4,121 |
|
|
|
41,445 |
|
|
|
5,077 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in
computing
basic net loss per share |
|
|
34,885,213 |
|
|
|
31,002,338 |
|
|
|
34,863,807 |
|
|
|
30,999,044 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net loss per share |
|
$ |
(0.26 |
) |
|
$ |
(0.32 |
) |
|
$ |
(0.50 |
) |
|
$ |
(0.64 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Diluted net loss per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(9,203 |
) |
|
$ |
(9,984 |
) |
|
$ |
(17,327 |
) |
|
$ |
(19,908 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator (weighted average shares): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock outstanding at beginning of
period |
|
|
34,887,079 |
|
|
|
30,998,217 |
|
|
|
34,822,362 |
|
|
|
30,993,967 |
|
Exercise of employee stock options |
|
|
8,134 |
|
|
|
4,121 |
|
|
|
41,445 |
|
|
|
5,077 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in
computing diluted net loss per share |
|
|
34,885,213 |
|
|
|
31,002,338 |
|
|
|
34,863,807 |
|
|
|
30,999,044 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net loss per share |
|
$ |
(0.26 |
) |
|
$ |
(0.32 |
) |
|
$ |
(0.50 |
) |
|
$ |
(0.64 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average options outstanding to purchase shares of common stock of 1,830,791 and
1,472,579 for the three months ended June 30, 2007 and 2006, respectively, and 1,795,733 and
1,457,596 for the six months ended June 30, 2007 and 2006, respectively, were excluded from the
calculations of diluted net loss per share as inclusion of the options would have had an
anti-dilutive effect on the net loss per share for the periods.
11
GTx, Inc.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
(unaudited)
4. Collaboration and License Agreements
Ipsen Collaboration and License Agreement
In September 2006, the Company entered into a collaboration and license agreement with Ipsen
pursuant to which the Company granted Ipsen exclusive rights in the European Territory to develop
and commercialize ACAPODENE® and other products containing 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. In accordance with the
terms of the license agreement, Ipsen has agreed to pay the Company 23,000 as a license fee and
expense reimbursement, of which 1,500 will be paid in equal installments over a three year period.
In October 2006, the Company received 21,500 (approximately $27,100) from Ipsen as the initial
payment for the license fee and expense reimbursement. Pursuant to the agreement, GTx 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 ACAPODENE® in certain countries of the European
Territory for the high grade PIN indication, subject to certain conditions, and the ADT indication.
Ipsen has agreed to be responsible for and to pay all clinical development, regulatory and launch
activities to commercialize ACAPODENE® 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 (including
ACAPODENE®) 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 ACAPODENE® to both Orion and the University of Tennessee Research
Foundation (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.
The Company recorded deferred revenue of $29,259 related to the Ipsen up-front 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 ACAPODENE® in the European Territory.
The Company recognized collaboration revenue of $1,463 and $2,926 for the three and six months
ended June 30, 2007, respectively, from the amortization of the Ipsen deferred revenue.
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 up-front licensing fee and expense reimbursement totaling $6,687. The up-front licensing
fee and expense reimbursement were deferred and amortized into revenue on a straight-line basis
over the estimated five year andarine development period. The Company recognized revenue of $335
and $669 for the three and six months ended June 30, 2006 from the amortization of the up-front
license fee and expense reimbursement. 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 for the year
ended December 31, 2006.
12
Accordingly, the Company did not recognize any collaboration revenue for the three and six months
ended June 30, 2007 with respect to the Ortho Biotech deferred revenue.
|
|
|
ITEM 2. |
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS |
The following discussion should be read in conjunction with the condensed financial statements
and the notes thereto included in Part 1, Item 1 of this Quarterly Report on Form 10-Q.
Forward-Looking Information
This Quarterly Report on Form 10-Q contains forward-looking statements. The forward-looking
statements are contained principally in the sections entitled Managements Discussion and Analysis
of Financial Condition and Results of Operations and Risk Factors. These statements involve
known and unknown risks, uncertainties and other factors which 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 research, development and clinical programs, including
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 collaboration and
license agreement with Ipsen Limited; |
|
|
|
|
our and our collaborators ability to market, commercialize and achieve market
acceptance for our product candidates or products that we may develop; |
|
|
|
|
our 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 and uncertainties. We discuss many of these
risks in this Quarterly Report on Form 10-Q in greater detail in the section entitled Risk
Factors under Part II, Item 1A below. Given these uncertainties, 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 Quarterly Report on Form 10-Q. You should
read this Quarterly Report on Form 10-Q and the documents that we incorporate by reference in and
have filed as exhibits to this Quarterly Report on Form 10-Q, 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
13
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.
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 wasting and other serious medical conditions. We are developing
ACAPODENE® (toremifene citrate), a selective estrogen receptor modulator, (or SERM),
in two separate clinical programs in men: first, a pivotal Phase III clinical trial for the
treatment of multiple serious side effects of androgen deprivation therapy, (or ADT), for
advanced prostate cancer, and second, a 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 have licensed to Ipsen Limited, or Ipsen,
exclusive rights in the European Union, Switzerland, Norway, Iceland, Lichtenstein and the
Commonwealth of Independent States to develop and commercialize ACAPODENE® and other
products containing 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. We are also developing Ostarine, a selective androgen receptor
modulator, (or SARM), initially for the treatment of cancer wasting, which is known as cancer
cachexia, and for the treatment of muscle wasting in chronic kidney disease (or CKD) and
end-stage renal disease (or ESRD) patients. We have initiated a Phase IIb clinical trial
evaluating Ostarine for the treatment of cancer cachexia and are planning to initiate a Phase IIb
clinical trial evaluating Ostarine for the treatment of CKD muscle wasting patients by the end of
the year. We believe that Ostarine and our other SARMs have the potential to treat a variety of
other indications related to muscle wasting and bone loss, including sarcopenia and osteoporosis.
Even though we will primarily maintain our focus in urology and oncology, GTx is evolving into a
selective nuclear hormone receptor modulator company that develops small molecules to target
hormone pathways to address a myriad of unmet medical needs in men and women.
We also have an extensive preclinical pipeline generated from our own discovery program
including two new product candidates GTx-838, a SARM for the treatment of sarcopenia, and GTx-878,
an estrogen receptor beta agonist, a new class of drugs for the treatment of benign prostatic
hyperplasia and chronic prostatitis. GTx is planning to file an Investigational New Drug
application (or IND) with the FDA for GTx-838 by year end 2007 and to file an IND for GTx-878
during 2008.
We commenced a pivotal Phase III clinical trial of ACAPODENE® 80 mg under a Special
Protocol Assessment, or a SPA, with the United States Food and Drug Administration, (or FDA), for
the treatment of multiple serious side effects of ADT in November 2003. We reached our enrollment
goal in the fall of 2005 and randomized approximately 1,400 patients into the trial. The last
patient is expected to complete the ADT clinical trial in November 2007, and GTx anticipates
announcing top-line results from the trial by the end of the first quarter of 2008, with a New Drug
Application, (or NDA), filing expected later that year if the results are favorable.
In January 2005, we initiated a pivotal Phase III clinical trial of ACAPODENE® 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. We reached our enrollment goal of 1,260 patients in May 2006.
We have enrolled 330 additional patients into the trial who are also participating in bone and
ocular substudies requested by the FDA under the SPA. We will evaluate efficacy endpoints for the
clinical trial at 36 months after completion of enrollment, and we anticipate conducting an interim
efficacy analysis after a certain number of cancer events have been recorded among study patients,
which we currently expect to occur in
14
the first quarter of 2008. If the efficacy results from the interim analysis achieve the
statistical outcome specified in the SPA, we plan to file a NDA with the FDA. If we are able to
file a NDA based on the results of the interim efficacy analysis, we will continue to collect
efficacy data and safety data during the review process to satisfy the FDAs safety requirements
set forth in the SPA.
In our third clinical program, OstarineTM, a SARM, is being developed to treat a
variety of medical conditions relating to muscle wasting and/or bone loss. In December 2006, we
announced that OstarineTM 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. The trial was designed to evaluate the activity of OstarineTM on building
muscle as well as to assess safety in both elderly men and postmenopausal women. In 2006, we
conducted discussions with various divisions of the FDA to investigate the required regulatory
pathways for several indications under consideration for the ongoing clinical development of
Ostarine, and have selected cancer cachexia and CKD muscle wasting as the initial indications for
Ostarine development. We have initiated a Phase IIb randomized, double blind, placebo controlled
clinical trial evaluating Ostarine for the treatment of cancer cachexia in 150 patients diagnosed
with non-small cell cancer, colorectal cancer, non-Hodgkins lymphoma, or chronic lymphocytic
leukemia. The clinical trial is being conducted at approximately 35 clinical sites in the United
States and Argentina. We are planning to initiate another Phase IIb clinical trial evaluating
Ostarine for the treatment of CKD muscle wasting patients by the end of 2007.
In December 2006, we executed a letter of intent with UTRF to modify each of our license
agreements with UTRF, including our exclusive worldwide license agreement for ACAPODENE®
for the treatment of PIN and prevention of prostate cancer and our two SARM license agreements
covering all of our existing SARM technology. On July 24, 2007, we and UTRF entered into a
Consolidated, Amended, and Restated License Agreement (or the Consolidated SARM License) 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. We agreed to pay to UTRF a
one-time, upfront fee of $290,000 as consideration for entering into the Consolidated SARM License.
We also agreed to pay an annual license maintenance fee during the term of the Consolidated SARM
License, which fee is creditable against various royalties we agreed to pay to UTRF on sublicense
revenues and net sales of products subject to the Consolidated SARM License. Pursuant to the
Consolidated SARM License, 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. Consistent with the December 2006 letter of intent, we anticipate
entering into a revised and restated license agreement with UTRF to replace our existing exclusive
worldwide license agreement for ACAPODENE®, with terms and provisions similar to the
Consolidated SARM License, for which we will make a payment similar to the SARM upfront fee to UTRF
as consideration for this license agreement. We also expect to enter into revised and restated
license agreements with UTRF for other preclinical technology with terms and provisions similar to
those in the Consolidated SARM License for which we expect to pay minimal amounts as consideration
for those license agreements.
Our net loss for the six months ended June 30, 2007 was $17.3 million. Our net loss included
FARESTON® net product sales of $552,000 and the recognition of collaboration revenue of
$2.9 million. We have financed our operations and internal growth primarily through private
placements of preferred stock and public offerings. We expect to continue to incur net losses over
the next several years 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.
15
Research and Development
Since our inception in 1997, we have been focused on drug discovery and development programs.
Research and development expenses represented 71% of our total operating expenses for the six
months ended June 30, 2007. Research and development expenses included our expenses for personnel
associated with our research activities, including screening and identification of product
candidates, preclinical studies, toxicology studies, formulation and synthesis activities, product
development and manufacturing, clinical trials, regulatory affairs, and quality assurance
activities.
We expect that research and development expenditures will continue to increase in future years
due to (1) the continuation of the pivotal Phase III clinical trial of ACAPODENE® 80 mg
for the treatment of multiple serious side effects of ADT for advanced prostate cancer, (2) the
continuation of the pivotal Phase III clinical trial of ACAPODENE® 20 mg for the
prevention of prostate cancer in high risk men with high grade PIN, (3) the continued clinical and
preclinical development of OstarineTM, (4) the continued preclinical development of
other potential product candidates, including GTx-838, a SARM for the treatment of sarcopenia, and
GTx-878, an estrogen receptor beta agonist for the treatment of benign prostatic hyperplasia and
chronic prostatitis and (5) increases in research and development personnel. We anticipate filing
an IND application for GTx-838 by year end and an IND for GTx-878 in 2008.
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 II, Item 1A Risk Factors of this Quarterly Report on Form 10-Q, we may
not be able to successfully develop and commercialize any of our product candidates.
16
The following table identifies the development phase and status for each of our product
candidates:
|
|
|
|
|
|
|
|
|
Product |
|
|
|
|
|
|
Candidate/ |
|
Development |
|
|
Program |
|
Indication |
|
Phase |
|
Status |
|
|
|
|
|
|
|
SERM
|
|
ACAPODENE®
80 mg
Multiple serious
side effects of ADT
|
|
Pivotal Phase III
clinical trial
|
|
Phase III clinical
trial ongoing under
a SPA; attained
enrollment goal;
obtained
statistically
significant results
from a planned BMD
interim analysis in
fourth quarter of
2005 and from a
lipid interim
analysis in second
quarter of 2006 |
|
|
|
|
|
|
|
|
|
ACAPODENE®
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; attained
enrollment goal |
|
|
|
|
|
|
|
SARM
|
|
OstarineTM |
|
|
|
|
|
|
Cancer cachexia
|
|
Phase IIb clinical
trial
|
|
Phase II proof of
concept clinical
trial completed
December 2006;
Phase IIb trial to
treat cancer
cachexia ongoing |
|
|
|
|
|
|
|
|
|
OstarineTM |
|
|
|
|
|
|
CKD/ESRD
muscle wasting
|
|
Phase IIb clinical
trial
|
|
Phase II proof of
concept clinical
trial completed
December 2006;
Phase IIb trial to
treat CKD muscle
wasting patients
planned to commence
by year end 2007 |
|
|
|
|
|
|
|
|
|
Andarine
|
|
Phase I clinical trial
|
|
Four Phase I
clinical trials
completed |
Sales and Marketing
We currently market FARESTON® (toremifene citrate 60 mg) tablets, which have been
approved by the FDA, for the treatment of metastatic breast cancer in postmenopausal women in the
United States. 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. The active pharmaceutical ingredient in FARESTON® is the same as
in ACAPODENE®, but in a different dose. We plan to build specialized sales and marketing
capabilities to promote our product candidates to urologists and medical oncologists in the United
States and to seek partners to commercialize our product candidates in broader markets in the
United States and in the rest of the world.
General and Administrative Expenses
Our general and administrative expenses consisted primarily of salaries and other related
costs for personnel serving executive, finance, legal, human resources, information technology,
investor relations
17
and marketing functions. Other costs included 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 included 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 and infrastructure 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 managements discussion and analysis of our financial condition and results of operations
is based on our condensed financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States of America. The preparation of these
condensed 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 condensed 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 in our Annual Report on Form 10-K for the year ended December 31, 2006 filed
with the SEC, 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) and
Statement of Financial Accounting Standards No. 48, Revenue Recognition When Right of Return
Exists or SFAS No. 48 and Emerging Issues Task Force Issue 00-21, Revenue Arrangements with
Multiple Deliverables or EITF 00-21. Accordingly, revenues from licensing and collaboration
agreements are recognized based on the performance requirements of the agreement. Non-refundable
up-front fees, where we have an ongoing involvement or performance obligation, are generally
recorded as deferred revenue in the balance sheet and amortized as collaboration revenue in the
condensed statements of operations over the term of the performance obligation. We estimate the
performance obligation period to be five years for the development of ACAPODENE® for
both the high grade PIN and ADT indications in the European Territory 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.
18
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 products labeled expiration date. As a result, we estimate 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. We retained substantially the same wholesale customers of,
and the distribution channel that was used by, another pharmaceutical company that distributed
FARESTON® for six years prior to our obtaining the rights to market FARESTON®
in January 2005. We also obtained historical product return trend information that we continue to
update with our own product return data. We estimate the amount of product in the distribution
channel 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 92% of the total sales of FARESTON® for the six months ended June 30,
2007. Based on this information, and other factors, we estimate the number of months of product on
hand. At June 30, 2007 and December 31, 2006, our accrual for product returns was $343,000 and
$415,000, respectively. If actual future results are different than our estimates, we may need to
adjust our estimated accrual for product returns, which could have a material effect on earnings in
the period of the adjustment.
Research and Development Expenses
We expense research and development costs in the period in which they are incurred. These
costs consist of direct and indirect costs associated with specific projects as well as fees paid
to various entities that perform research, development and clinical trial studies on our behalf.
Patent Costs
We expense patent costs, including legal fees, in the period in which they are incurred.
Patent expenses are included in general and administrative expenses in our condensed statements of
operations.
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 123R, Share-Based Payment,
or SFAS 123R, and began recognizing compensation expense for our share-based payments based on the
fair value of the awards. Share-based payments include stock option grants under our stock option
plans. Under SFAS 123R, 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.
Total share-based compensation expense for the three months ended June 30, 2007 was $443,000,
of which $193,000 and $250,000 were recorded in the statements of operations as research and
development expenses and general and administrative expenses, respectively. Total share-based
compensation for the three months ended June 30, 2006 was $358,000, of which $114,000 and $244,000
were recorded in the condensed statements of operations as research and development expenses and
general and administrative expenses, respectively. Total share-based compensation expense for the
six months ended June 30, 2007 was $950,000 of which $426,000 and $524,000 were recorded in the
condensed statements of operations as research and development expenses and general and
administrative expenses, respectively. Total share-based compensation expense for the six months
ended June 30, 2006 was $691,000 of which
19
$277,000 and $414,000 were recorded in the condensed statements of operations as research and
development expenses and general and administrative expenses, respectively.
Recent Accounting Pronouncements
In July 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes-an interpretation of FASB Statement No. 109 (FIN 48), which clarifies the accounting for
uncertainty in tax positions. FIN 48 requires the recognition in the condensed financial
statements, the impact of a tax position, if that position is more likely than not of being
sustained on audit, based on the technical merits of the position. The provisions of FIN 48 were
effective as of January 1, 2007. The adoption of the standard had no effect on our financial
condition or results of operations.
Results of Operations
Three Months Ended June 30, 2007 and 2006
Revenues
Revenues for the three months ended June 30, 2007 were $1.8 million, as compared to $623,000
for the same period of 2006. Revenues include net sales of FARESTON® marketed for the
treatment of metastatic breast cancer and collaboration income from Ipsen for ACAPODENE®
in the second quarter of 2007 and from Ortho Biotech for andarine in the second quarter of 2006.
During the three months ended June 30, 2007 and 2006, FARESTON® net sales were $360,000
and $288,000, respectively, while cost of product sales were $206,000 and $170,000,
respectively. During the three months ended June 30, 2007, we increased the price of
FARESTON® by 9.5%, which resulted in an increase in sales revenues of
FARESTON® for that period. During the three months ended June 30, 2007, aromatase
inhibitors continued to gain market share at the expense of SERMs, including FARESTON®
which resulted in a decrease in sales volume of approximately 5% during the three months ended June
30, 2007, as compared to the same period of the prior year. Collaboration income was $1.5 million
for the three months ended June 30, 2007, and $335,000 for the three months ended June 30, 2006.
Research and Development Expenses
Research and development expenses increased by $131,000 to $8.6 million for the three months
ended June 30, 2007 from $8.4 million for the same period of 2006. The following table identifies
the research and development expenses for each of our product candidates, as well as expenses
pertaining to our other research and development efforts for the three months ended June 30, 2007
and 2006. Research and development spending for past periods is not indicative of spending in
future periods.
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product |
|
|
|
|
|
|
Candidate/ |
|
|
Three Months Ended June 30, |
|
Program |
|
Indication |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
(in thousands) |
|
SERM |
|
ACAPODENE® |
|
|
|
|
|
|
|
|
|
|
80 mg |
|
$ |
2,150 |
|
|
$ |
1,964 |
|
|
|
Multiple serious |
|
|
|
|
|
|
|
|
|
|
side effects of ADT |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACAPODENE® |
|
|
|
|
|
|
|
|
|
|
20 mg |
|
|
2,327 |
|
|
|
3,002 |
|
|
|
Prevention of prostate |
|
|
|
|
|
|
|
|
|
|
cancer in high risk men |
|
|
|
|
|
|
|
|
|
|
with high grade PIN |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SARM |
|
OstarineTM |
|
|
|
|
|
|
|
|
|
|
Cancer cachexia and |
|
|
1,560 |
|
|
|
1,422 |
|
|
|
CKD/ESRD |
|
|
|
|
|
|
|
|
|
|
muscle wasting |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Andarine |
|
|
|
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other research
and
development |
|
|
|
|
|
|
2,538 |
|
|
|
2,040 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total research and development expenses |
|
|
|
|
|
$ |
8,575 |
|
|
$ |
8,444 |
|
|
|
|
|
|
|
|
|
|
|
|
General and Administrative Expenses
General and administrative expenses increased during the three months ended June 30, 2007 to
$3.6 million from $2.7 million for the three months ended June 30, 2006. The increase was
primarily the result of increased marketing and promotional expenses of approximately $396,000,
intellectual property related expenses of approximately $257,000, and personnel related expenses of
approximately $238,000.
Interest Income
Interest income increased to $1.4 million for the three months ended June 30, 2007 from
$699,000 for the three months ended June 30, 2006. The increase was attributable to higher average
interest rates in addition to higher average cash and cash equivalents balances during the three
months ended June 30, 2007, as compared to the same period in 2006.
Results of Operations
Six Months Ended June 30, 2007 and 2006
Revenues
Revenues for the six months ended June 30, 2007 were $3.5 million as compared to $1.8 million
for the same period of 2006. Revenues include net sales of FARESTON® marketed for the
treatment of metastatic breast cancer and collaboration income from Ipsen for ACAPODENE®
in the first six months of 2007 and from Ortho Biotech for andarine in the first six months
of 2006. During the six months
21
ended June 30, 2007 and 2006, FARESTON net sales were $552,000 and $1.2 million,
respectively, while cost of product sales were $315,000 and $637,000, respectively.
During the six months ended June 30, 2007, product sales revenue decreased 53% and sales volume
decreased 59% as compared to the same period in 2006. Collaboration income was $2.9 million for
the six months ended June 30, 2007 and $669,000 for the six months ended June 30, 2006.
Research and Development Expenses
Research and development expenses decreased by $303,000 to $16.6 million for the six months
ended June 30, 2007 from $16.9 million for the same period of 2006. The following table identifies
the research and development expenses for each of our product candidates, as well as expenses
pertaining to our other research and development efforts for each of the periods presented.
Research and development spending for past periods is not indicative of spending in future periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product |
|
|
|
|
|
|
Candidate/ |
|
|
Six Months Ended June 30, |
|
Program |
|
Indication |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
(in thousands) |
|
SERM |
|
ACAPODENE® |
|
|
|
|
|
|
|
|
|
|
80 mg |
|
|
|
|
|
|
|
|
|
|
Multiple serious side effects of ADT |
|
$ |
4,462 |
|
|
$ |
4,321 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACAPODENE® |
|
|
|
|
|
|
|
|
|
|
20 mg |
|
|
|
|
|
|
|
|
|
|
Prevention of prostate |
|
|
4,660 |
|
|
|
6,075 |
|
|
|
cancer in high risk |
|
|
|
|
|
|
|
|
|
|
men with high grade |
|
|
|
|
|
|
|
|
|
|
PIN |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SARM |
|
Ostarine |
|
|
|
|
|
|
|
|
|
|
Cancer cachexia and |
|
|
2,864 |
|
|
|
2,529 |
|
|
|
CKD/ESRD |
|
|
|
|
|
|
|
|
|
|
muscle wasting |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Andarine |
|
|
|
|
|
|
30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other research
and
development |
|
|
|
|
|
|
4,596 |
|
|
|
3,930 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total research
and
development
expenses |
|
|
|
|
|
$ |
16,582 |
|
|
$ |
16,885 |
|
|
|
|
|
|
|
|
|
|
|
|
22
General and Administrative Expenses
General and administrative expenses increased during the six months ended June 30, 2007 to
$6.7 million from $5.6 million for the six months ended June 30, 2006. The increase of $1.1
million was primarily the result of increased marketing and promotional expenses of approximately
$363,000, intellectual property related expenses of approximately $302,000, and personnel related
expenses of approximately $554,000, and was partially offset by decreases in other administrative
expenses.
Interest Income
Interest income increased to $2.8 million for the six months ended June 30, 2007 from $1.4
million for the six months ended June 30, 2006. The increase of $1.4 million was attributable to
higher average interest rates in addition to higher average cash and cash equivalents balances
during the six months ended June 30, 2007, as compared to the same period in 2006.
Liquidity and Capital Resources
At June 30, 2007, we had cash and cash equivalents of $102.0 million, compared to $119.6
million at December 31, 2006. Net cash used in operating activities was $17.4 million and $18.2
million for the six months ended June 30, 2007 and 2006, respectively. The use of cash in both
periods resulted primarily from funding our net losses. Net cash used in investing activities was
$576,000 and $351,000 for the six months ended June 30, 2007 and 2006, respectively. Net cash used
in investing activities for both periods was primarily for the purchase of research and development
equipment, computer equipment, and software. We currently expect to make capital expenditures of
approximately $600,000 for the remainder of 2007.
Net cash provided by financing activities was $481,000 for the six month period ended June 30,
2007 and included proceeds from the exercise of employee stock options of $483,000 offset by
principal payments under a capital lease obligation of $2,000. Net cash provided by financing
activities for the six months ended June 30, 2006 was $63,000 and included proceeds from the
exercise of employee stock options of $66,000, offset by principal payments under a capital lease
obligation of $3,000.
We estimate that our current cash resources, interest on these funds, and product revenue from
the sale of FARESTON® will be sufficient to meet our projected operating requirements
through the first quarter of 2009. This estimate does not include funding from milestone payments
that we may receive under our existing collaboration with Ipsen, potential future collaboration
agreements with pharmaceutical companies, or the potential future issuances and sales of our
securities. This estimate also does not include any potential product launch costs in connection
with the potential marketing approval of ACAPODENE® by the FDA.
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 II, Item 1A Risk Factors of this Quarterly Report on Form 10-Q. 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 of our product candidates and other research and
development activities, including risks and uncertainties that could impact the rate of progress of
our development 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 and other research and development activities. Our future funding requirements will depend
on many factors, including:
23
|
|
|
the scope, rate of progress and cost of our 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
collaboration and license agreement with Ipsen; |
|
|
|
|
the terms and timing of any future collaborative, licensing and other arrangements that
we may establish; |
|
|
|
|
the cost and timing of regulatory approvals; |
|
|
|
|
potential future licensing fees, milestone payments and royalty payments, including any
milestone payments or royalty payments that we may receive under our collaboration and
license agreement with 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 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 financing or corporate collaboration and
licensing arrangements, such as our arrangement with Ipsen, as well as through interest income
earned on the investment of our cash balances and revenues from the sale of FARESTON®.
With the exception of payments that we may receive under our collaboration with Ipsen, we do not
currently have any commitments for future external funding. We cannot be certain that additional
funding will be available on acceptable terms, or at all. 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, 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. If adequate funds are not available, 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.
24
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
During the six months ended June 30, 2007, there were no material changes to our market risk
disclosures as set forth in Part II, Item 7A of our Annual Report on Form 10-K for the year ended
December 31, 2006.
ITEM 4. 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 SECs
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 Rules13a-15(e)
and 15d-15(e) of 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.
There were no changes in our internal control over financial reporting during the second
quarter of 2007 that have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
25
PART II: OTHER INFORMATION
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.
We have marked with an asterisk (*) those risks described below that reflect substantive
changes from the risks described under Part I, Item 1A Risk Factors included in our Annual Report
on Form 10-K filed with the Securities and Exchange Commission on March 9, 2007.
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 June 30, 2007, we had an accumulated deficit of
$247.1 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 $17.3 million for the six months ended June 30, 2007, $35.5 million in 2006, $36.8
million in 2005 and $22.3 million in 2004. 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 up-front license fees and payments
pursuant to our collaboration agreement with Ortho Biotech for andarine and certain other selective
androgen receptor modulator, or SARMs, which was terminated in December 2006, and our collaboration
agreement with Ipsen Limited for European rights to ACAPODENE® and other
toremifene-based products. FARESTON® is currently our only commercial product and, we
expect, will account for all of our product revenue for the foreseeable future. For the six months
ended June 30, 2007, we recognized $552,000 in net revenues from the sale of FARESTON®.
We expect our research and development expenses to increase in connection with our ongoing
clinical trials. 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.
26
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 resources, interest on these funds and product revenue from
the sale of FARESTON®, will be sufficient to meet our projected operating requirements
through the first quarter of 2009. This estimate does not include funding from milestone payments
that we may receive under our existing collaboration with Ipsen, potential future collaboration
agreements with pharmaceutical companies, or potential future issuances and sales of our
securities. This estimate also does not include any potential product launch costs in connection
with the potential marketing approval of ACAPODENE® by the FDA.
Our future funding requirements will depend on many factors, including:
|
|
|
the scope, rate of progress and cost of our 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 collaboration and license agreement with Ipsen; |
|
|
|
|
the terms and timing of any future collaborative, licensing and other arrangements
that we may establish; |
|
|
|
|
the cost and timing of regulatory approvals; |
|
|
|
|
potential future licensing fees, milestone payments and royalty payments,
including any milestone payments or royalty payments that we may receive under our
collaboration and license agreement with 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 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, as
27
well as through interest income earned on the investment of our cash balances and revenues
from the sale of FARESTON®.
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 our product
candidates, or we may be required to grant licenses on terms that may not be favorable to us.
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 our 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.
For example, several patients in our Phase III clinical trial of ACAPODENE® 80 mg
for the multiple side effects of androgen deprivation therapy have withdrawn from the trial, in
accordance with the trial protocol, to seek treatment for a significant loss in bone mineral
density. Even if these patients are receiving a placebo, their withdrawal from the trial may result
in delays or an inability to achieve the proscribed statistical endpoint. Also, in this trial, as
well as in our other clinical studies, the efficacy and/or safety results from the trial may be
insufficient to support the filing or approval of a NDA.
We may experience numerous unforeseen events during, or as a result of, preclinical testing
and the clinical trial process that could delay or prevent our ability to commercialize our product
candidates, including:
|
|
|
regulators or institutional review boards may not authorize us to commence a clinical trial or
conduct a clinical trial at a prospective trial site; |
|
|
|
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our preclinical or clinical trials may produce negative or inconclusive results, which may
require us to conduct additional preclinical or clinical testing or to abandon projects that we
expect to be promising; |
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registration or enrollment in our clinical trials may be slower than we currently anticipate,
resulting in significant delays; |
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we may suspend or terminate our clinical trials if the participating patients are being exposed
to unacceptable health risks; |
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regulators or institutional review boards may suspend or terminate clinical research for
various reasons, including noncompliance with regulatory requirements; and |
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our product candidates may not have the desired effects or may include undesirable side effects. |
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If any of these events were to occur and, as a result, we 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. For example, our belief that
ACAPODENE® has the potential to reduce hot flashes is based, in part, on our second
Phase II clinical trial in which a higher percentage of the subjects in the placebo group
experienced worsening in the frequency of hot flashes compared to the subjects treated with
ACAPODENE®. Although this observation suggests that ACAPODENE® does not cause
hot flashes or the worsening of hot flashes in men on androgen deprivation therapy, this trial was
too small to establish the potential effects of ACAPODENE® on the reduction in incidence
or severity of hot flashes. Similarly, an assessment of the potential to treat gynecomastia with
ACAPODENE® in this second Phase II clinical trial was inconclusive. We are assessing the
effect of ACAPODENE® on gynecomastia and hot flashes in our Phase III clinical trial.
Our preclinical or clinical trials may produce negative or inconclusive results that would not
support our belief regarding the potential effectiveness of our product candidates.
If we 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 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.
To date, in our two Phase III clinical trials for ACAPODENE®, some patients have
experienced venous thromboembolic events, such as deep vein thromboses and pulmonary embolisms, as
well as myocardial infarctions, one of which resulted in a patients death, which were considered
by investigators as possibly related to treatment with ACAPODENE®. Because these trials
are blinded, we cannot establish whether these patients received placebo or ACAPODENE®
in the trial. There have been no drug-related serious adverse events related to our other product
candidates. A drug safety monitoring board meets approximately every six months to review unblinded
data from the ACAPODENE® Phase III clinical trials. In July 2007, the drug safety
monitoring board reviewed safety data from approximately 3,000 patients, including the venous
thromboembolic events and myocardial infarctions referred to above, and recommended continuing both
clinical trials with no changes to the trial protocols. In addition, in our Phase II clinical trial
for OstarineTM, we observed a dose-related elevation of hepatic enzymes, and in our
preclinical studies for OstarineTM, we observed expected effects on the reproductive
organs in the male population, since our drug targets the androgen receptor which is located on
these organs.
If the incidence of these events increases in number or severity, if a regulatory authority
believes that these 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
may conduct in the future or after any of our product candidates are approved and on the market:
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we 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 or our contractors manufacturing facilities; |
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regulatory authorities may be unwilling to approve our product candidates
or may withdraw approval of our products; |
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we may experience a significant drop in the sales of the affected products; |
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our reputation in the marketplace may suffer; and |
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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.
We have agreed to purchase from Orion Corporation our worldwide requirements of toremifene,
the active pharmaceutical ingredient in ACAPODENE®, in a finished tablet form at
specified transfer prices under a license and supply agreement. Similarly, Ipsen has agreed to
purchase from Orion ACAPODENE® 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
ACAPODENE®.
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 ACAPODENE® until the
expiration of Orions patents with respect to the composition of matter of toremifene, the active
pharmaceutical ingredient in ACAPODENE®. Although Orions composition of matter patents
within the European Territory have expired, and as such, would not prevent Ipsen from manufacturing
ACAPODENE® 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 Ipsens 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
ACAPODENE® could delay the development of and impair our and Ipsens ability to
commercialize ACAPODENE®. 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 ACAPODENE® is not approved for
commercial sale in the United States by 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 ACAPODENE®, but any
arrangements we
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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
ACAPODENE®. We and Ipsen have mutually agreed to cooperate in the manufacture of
ACAPODENE® 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 ACAPODENE®. Orion may terminate its obligation to
assist us in obtaining and maintaining regulatory approval of ACAPODENE® if we do not
receive regulatory approval for ACAPODENE® in the United States by 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 ACAPODENE®.
We have relied on third party vendors for OstarineTM. We recently executed
agreements with third party contractors for the manufacture of OstarineTM drug substance
and the supply of OstarineTM drug product for our planned clinical trials for cancer
cachexia and CKD muscle wasting. We continue to assess our manufacturing needs for additional
clinical trial materials and commercial supply of OstarineTM as we execute our clinical
strategy for OstarineTM. We will evaluate whether to continue to rely on the
manufacturing capabilities of these third party contractors or whether some or all of the
manufacturing process should be transferred to other contract manufacturers as we plan our
additional clinical trials and the potential commercial launch of OstarineTM and other
SARM product candidates. If our current supply of OstarineTM becomes unusable, if our
OstarineTM supply is not sufficient to complete our clinical trials, or if we are
unsuccessful in identifying a contract manufacturer or negotiating a manufacturing agreement on a
timely basis for our clinical trials and potential commercial launch, we could experience a delay
in receiving an adequate supply of OstarineTM.
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 ACAPODENE® and third party vendors for OstarineTM, or to do so at an
acceptable cost, or if these or other suppliers fail to meet our requirements for these product
candidates 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
ACAPODENE® under our license agreement with Orion if Orion terminates its supply of
ACAPODENE® 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:
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reliance on the third party for regulatory compliance and quality assurance; |
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the possible breach of the manufacturing agreement by the third party because of factors beyond our
control; |
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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; |
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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: |
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if it permanently ceases manufacture of toremifene or if we do not obtain regulatory approval of
ACAPODENE® in the United States prior to December 31, 2009; or |
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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 may develop may compete with other product candidates and products for
access to manufacturing facilities. For example, the active pharmaceutical ingredient in
ACAPODENE® is also the active pharmaceutical ingredient in FARESTON®.
Further, Orion has agreed to supply ACAPODENE® 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 advanced 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.
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.
We are dependent on our collaborative arrangement with Ipsen to develop and commercialize
ACAPODENE® in the European Territory. 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 as a collaborator in the development or commercialization of
ACAPODENE®, any dispute over the terms of our collaboration with Ipsen, or any other
adverse development in our relationship with Ipsen 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
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the appropriate regulatory authorities in order to obtain marketing approvals of
ACAPODENE® within the European Territory. Any failure on the part of Ipsen to initiate
these studies could delay the commercialization of ACAPODENE® within the European
Territory.
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 arrangement with Ipsen for the
development and commercialization of ACAPODENE®, subjects us to a number of risks,
including:
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we are not able to control the amount and timing of resources that Ipsen devotes to ACAPODENE®; |
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we may not be able to control the amount and timing of resources that our potential future partners may
devote to our product candidates; |
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our partners may experience financial difficulties or changes in business focus; |
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under certain circumstances, Ipsen may not be required to commercialize ACAPODENE® in certain countries of the European
Territory if it is determined that it is not commercially reasonable for it to do so; |
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pricing reimbursement constraints within the European Territory may diminish the prospects of our receiving royalty payments from
Ipsen on aggregate net sales of ACAPODENE® in some or all of the countries within the European Territory; |
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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 this compound or product candidate; |
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business combinations or significant changes in a collaborators business strategy may also adversely affect a collaborators
willingness or ability to complete its obligations under any arrangement; |
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a collaborator could move forward with a competing product candidate developed either independently or in collaboration with
others, including our competitors; |
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collaborative arrangements are often terminated or allowed to expire, which would delay the development and may increase the cost
of developing our product candidates; and |
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we may be required to relinquish important rights such as marketing and distribution rights. |
Additionally, 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 ACAPODENE®
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. Furthermore, our royalty rates under our
collaboration 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 or if
Ipsen licenses patent rights from a third party that would otherwise be infringed
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by Ipsens use, manufacture, sale or import of toremifene. Ipsen has the right to terminate
the collaboration agreement 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. If the royalty rates
under our collaboration agreement are reduced or if Ipsen terminates the collaboration agreement,
the anticipated benefits to us from this agreement would be significantly reduced or eliminated. In
addition, if Ipsen terminates the collaboration agreement, the development of ACAPODENE®
in the European Territory could be delayed and our costs of development would increase.
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 ACAPODENE® for human uses of toremifene outside the United
States.
Our exclusive license and supply agreement from Orion excludes the use of toremifene for the
treatment of 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 ACAPODENE® development plans for specified major markets outside the United
States if those development plans could adversely affect Orions or Orions 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 Ipsens development
plans adversely affect these activities, any future modifications to our or Ipsens plans imposed
by Orion may limit our and Ipsens ability to maximize the commercial potential of
ACAPODENE®.
Furthermore, we and our affiliates are prohibited from marketing or selling products
containing toremifene or related SERM compounds for human use in the United States and other major
countries located outside the European Union during the term of Orions patents covering toremifene
in such countries, which 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 yield issued patents or yield patents with narrow claims, or if we are
estopped 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, Ipsens ability to successfully market
ACAPODENE® within a substantial portion of the European Territory may depend on having
marketing and data exclusivity from the appropriate regulatory authorities.
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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 UTRFs
inter-institutional agreements with The Ohio State University, or OSU, and our rights to future
related improvements in some instances are subject to UTRFs exercise of exclusive options under
its agreements with OSU for such improvements, which UTRF can exercise at no additional cost to
UTRF. In addition, under the terms of our agreements with the diagnostic companies to which we
provide clinical samples from our Phase IIb and Phase III clinical trial of ACAPODENE®,
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.
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 either already expired or will expire in Australia, Italy,
Sweden and Switzerland in 2008, that is, before we or Ipsen will receive regulatory approval to
commercialize ACAPODENE®. 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 ACAPODENE® 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 ACAPODENE® products to be sold within the countries comprising the
European Union. To date, most of our applications for method of use patents filed for
ACAPODENE® outside of the United States are still pending and have not yielded issued
patents. Although we intend to apply, if appropriate, for extensions of patent terms under
applicable United States laws pertaining to our method of use patents, we may not be able to secure
any such regulatory exclusivity or extension of patent term. Loss of marketing and data exclusivity
for the ACAPODENE® products to be commercialized within the European Union could
adversely affect its ability to successfully commercialize these products, and our failure to
obtain any extension of patent terms for our method of use patents could adversely affect our
prospects for protecting our ACAPODENE® products from competitive pressures in the
United States for the time periods we currently expect. 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
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drug patents or to create noninfringing 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 Orion and UTRF. 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.
Off-label sale or use of toremifene products could decrease sales of
ACAPODENE® 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 ACAPODENE®.
In all countries in which we hold or have licensed rights to patents or patent applications
related to ACAPODENE®, the composition of matter patents we license from Orion will
expire before our method of use patents, and in some countries outside the United States, the
composition of matter patents have already expired. Our method of use patents may not protect
ACAPODENE® from the risk of off-label sale or use of other toremifene products in place
of ACAPODENE®. Physicians are permitted to prescribe legally available drugs for uses
that are not described in the drugs 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 Ipsens ability to generate revenue from the sale of ACAPODENE®, 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 ACAPODENE® 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
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of use patent applications related to the use of ACAPODENE® 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 ACAPODENE® for the indications covered by our pending
method of use patent applications. Also, regulatory authorities may not recognize marketing and
data exclusivity for ACAPODENE® in the European Union for the treatment of prostate
cancer and the multiple side effects resulting from androgen deprivation therapy. If generic
versions of toremifene are able to be sold in countries within the European Territory for the
indications for which Ipsen anticipates marketing ACAPODENE®, 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 and development
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, commercialization,
formulation or use of our product candidates. In addition, the production, manufacture,
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 managements 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:
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be prohibited from selling or licensing any product that we may
develop unless the patent holder licenses the patent to us, which the
patent holder is not required to do; |
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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, Ipsen may be entitled
to offset a portion of any royalties due to us in any calendar year on account of
ACAPODENE® sales to pay for costs incurred by Ipsen to obtain a license to any dominant
intellectual property rights that are infringed by such ACAPODENE® sales.
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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, and 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 from commercializing our product candidate and
will prevent our collaborators from commercializing the product candidate in the licensed
territories. We have not received regulatory approval to market any of our product candidates in
any jurisdiction and have only limited experience in preparing and filing the applications
necessary to gain regulatory approvals. 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
ACAPODENE® within the European Territory. 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. 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 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 are conducting our Phase III clinical
trials of ACAPODENE® to treat the side effects of androgen deprivation therapy and for
the reduction in the incidence of prostate cancer in high risk men with high grade PIN under
Special Protocol Assessments, or SPAs, from the FDA. A SPA is designed to facilitate the FDAs
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 products
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. However, there are circumstances under which we may not receive the
benefits of a SPA, notably including if the FDA subsequently identifies a substantial scientific
issue essential to determining the products 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 file an application
with 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 another year, if ever. Similarly, it is not
anticipated that Ipsen will receive
38
the appropriate regulatory approvals to market ACAPODENE® within the European Territory
any sooner than we will achieve regulatory approval in the United States, and it may 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 of our Annual Report on Form 10-K for the fiscal year
ended December 31, 2006 filed with the Securities and Exchange Commission for additional
information regarding risks associated with approval, as well as risks related to post-approval
requirements.
Risks Related to Commercialization
The commercial success of any products that we may develop will depend upon the
degree of market acceptance among physicians, patients, healthcare payors and
the medical community.*
Any products that we 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, 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:
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efficacy and safety results in clinical trials; |
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|
the prevalence and severity of any side effects; |
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potential advantages over alternative treatments; |
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the ability to offer our product candidates for sale at competitive prices; |
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relative convenience and ease of administration; |
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the strength of marketing and distribution support; and |
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sufficient third-party coverage or reimbursement. |
Our only marketed product generating revenue is FARESTON®. FARESTON® is
subject to a number of risks that may cause sales of FARESTON® to continue to decline.*
FARESTON® is currently our only marketed product. Sales of FARESTON® in
the United States have been declining and we anticipate that they 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. 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:
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the loss of the availability of Orions website to market
FARESTON®, which is an important source of advertising; |
39
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the loss of one or more of our three largest wholesale drug distributors,
which accounted for approximately 92% of our revenue generated from the
sale of FARESTON® for the six months ended June 30, 2007; |
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the continued success of competing products, including aromatase inhibitors; |
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the loss of coverage or reimbursement for FARESTON® from
Medicare and Medicaid, private health insurers or other third-party payors; |
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exposure to product liability claims related to the commercial sale of FARESTON®, which
may exceed our product liability insurance; |
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the failure of Orion to maintain regulatory filings or comply with applicable FDA requirements with
respect to FARESTON®; |
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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; |
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the loss of Orion, upon which we rely as a single source, as our supplier of FARESTON®; and |
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our inability to manufacture FARESTON® until Orions 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 enter into
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. Similarly, we are relying on Ipsen to market and distribute our
ACAPODENE® product candidates through Ipsens 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 ACAPODENE® 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 ACAPODENE® product candidates in the European
Territory. 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. 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 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.*
40
Many patients will not be capable of paying for any products that we 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 may develop, our revenues and prospects for profitability may suffer. In December 2003, the
President of the United States signed into law the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 (the Drug Improvement Act), legislation creating a prescription drug
benefit program for Medicare recipients. The prescription drug program established by the
legislation may have the effect of reducing the prices that we are able to charge for products we
develop and sell through the program. This prescription drug 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 may develop or to lower the amount that they pay.
Finally, members of the United States Congress have stated their desire to reduce the governments
cost for reimbursements of prescription drugs by amending the Drug Improvement Act.
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 12 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 commercialization.
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 may develop or products we sell. Cost-control initiatives could decrease the price
we might establish for products that we may develop or that we sell, which would result in lower
product revenues 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 receive for any products that we may develop, negatively
affecting our revenues and prospects for profitability.
If product liability lawsuits are brought against us, we will 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
41
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; |
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injury to our reputation; |
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withdrawal of clinical trial participants; |
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costs to defend the related litigation; |
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substantial monetary awards to trial participants or patients; |
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loss of revenue; and |
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|
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 $25.0 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 may develop, our commercial opportunity will be reduced or
eliminated.*
We face competition from established pharmaceutical and biotechnology companies, 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 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 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 ability to market and sell any
products that we may develop. For example, although there are no products that have been approved
by the FDA to treat multiple side effects of androgen deprivation therapy, 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 this therapy; that
external beam radiation and tamoxifen are used to treat breast pain and enlargement; 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.
In addition, 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 wasting 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 wasting from cancer. Testosterone and other anabolic agents
are used
42
to treat involuntary weight loss in patients who have acute muscle wasting. Also, TAP
Pharmaceuticals and Ligand Pharmaceuticals have entered into a collaboration agreement to develop a
SARM and may be initiating Phase II studies in 2007. In addition, there are other SARM product
candidates at an earlier stage of 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.
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 150 and 250 additional employees by the time that
ACAPODENE® or OstarineTM is initially commercialized, including 50 to 100
sales representatives. 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.
43
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:
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Adverse results or delays in our clinical trials; |
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|
the timing of achievement of our clinical, regulatory and other
milestones, such as the commencement of clinical development, the
completion of a clinical trial or the receipt of regulatory approval; |
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|
announcement of FDA approval or non-approval of our product candidates or delays in the FDA
review process; |
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|
actions taken by regulatory agencies with respect to our product candidates or products, our
clinical trials or our sales and marketing activities; |
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|
the commercial success of any product approved by the FDA or its foreign counterparts; |
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developments with respect to our collaboration with Ipsen; |
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the terms and timing of any collaborative, licensing or other arrangements that we may establish; |
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regulatory developments in the United States and foreign countries; |
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changes in the structure of health care payment systems; |
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any intellectual property infringement lawsuit involving us; |
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announcements of technological innovations or new products by us or our competitors; |
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market conditions for the biotechnology or pharmaceutical industries in general; |
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actual or anticipated fluctuations in our results of operation; |
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changes in financial estimates or recommendations by securities analysts; |
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sales of large blocks of our common stock; |
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sales of our common stock by our executive officers, directors and significant stockholders; |
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changes in accounting principles; and |
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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. 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
44
managements attention and resources, which could result in delays of our clinical trials or
commercialization efforts.
Our officers, directors and largest stockholders have the ability to control
all matters submitted to stockholders for approval.*
As of June 30, 2007, our officers, directors and holders of 5% or more of our outstanding
common stock (based upon public filings) beneficially owned approximately 83.4% of our outstanding
common stock and our officers and directors alone owned approximately 49.6% 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:
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a classified Board of Directors; |
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a prohibition on actions by our stockholders by written consent; |
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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 |
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limitations on the removal of directors. |
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.
A significant portion of our total outstanding shares are restricted from
immediate resale but may be sold into the market in the near future. This could
cause the market price of our common stock to drop significantly, even if our
business is doing well.*
45
For the 12 month period ended June 30, 2007, the average daily trading volume of
our common stock on the NASDAQ Global Market was approximately 125,926 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 June 30, 2007, we had 34,890,371 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. Additionally, all shares of common
stock that we may issue under our employee benefit plans can be freely sold in the public market
upon issuance.
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ITEM 4. |
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SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
On May 2, 2007, our 2007 Annual Meeting of Stockholders was held at our corporate offices in
Memphis, Tennessee. During this meeting, our stockholders voted on the following two proposals:
(a) Proposal to elect four Class III directors to serve until the 2010 Annual Meeting of
Stockholders or until their successors have been duly elected and qualified or until their earlier
death, resignation or removal:
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Votes |
Nominee |
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For |
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Authority Withheld |
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Michael G. Carter, M.D., CH.B., F.R.C.P. |
|
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33,373,577 |
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52,306 |
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J. R. Hyde, III |
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|
32,282,456 |
|
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1,143,427 |
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Timothy R.G. Sear |
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33,377,277 |
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48,606 |
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Mitchell S. Steiner, M.D., F.A.C.S. |
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33,375,240 |
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50,643 |
|
Our Class I directors, Andrew M. Clarkson, Robert W. Karr, M.D., and Rosemary Mazanet, M.D.,
Ph.D., will each continue to serve on our Board of Directors until our 2008 Annual Meeting of
Stockholders and until his or her successor is elected and has qualified, or until his or her
earlier death, resignation or removal. Our Class II directors, J. Kenneth Glass, Marc S. Hanover,
and John H. Pontius will each continue to serve on our Board of Directors until our 2009 Annual
Meeting of Stockholders and until his successor is elected and has qualified, or until his earlier
death, resignation or removal.
(b) Proposal to ratify the appointment of Ernst & Young LLP as our independent registered
public accounting firm for the fiscal year ending December 31, 2007.
|
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|
|
|
|
|
|
|
For |
|
Withheld |
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Against |
|
Abstain |
|
Broker Non-Vote |
33,409,206 |
|
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0 |
|
|
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14,477 |
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|
|
2,200 |
|
|
|
0 |
|
46
The exhibits listed on the accompanying Exhibit Index are filed or incorporated by reference
(as stated therein) as part of this Quarterly Report on Form 10-Q.
47
SIGNATURES
Pursuant to the requirements 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.
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GTx, Inc.
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Date: August 1, 2007 |
By: |
/s/ Mitchell S. Steiner
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Mitchell S. Steiner, Chief Executive Officer |
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and Vice-Chairman of the Board of Directors |
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Date: August 1, 2007 |
By: |
/s/ Mark E. Mosteller
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Mark E. Mosteller, Vice President |
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and Chief Financial Officer |
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48
EXHIBIT INDEX
|
|
|
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
|
|
Amended and Restated Registration Rights Agreement between
Registrant and Memphis Biomed Ventures dated August 7,
2003(3) |
10.27*
|
|
Employment Agreement dated April 12, 2007, between Registrant and
James T. Dalton |
10.38*
|
|
Employment Agreement dated April 12, 2007, between Registrant and
Ronald A. Morton, Jr., M.D. |
10.39*
|
|
Employment Agreement dated May 15, 2007, between Registrant and
Jeff G. Hesselberg |
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) (4) |
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) (4) |
|
|
|
* |
|
Filed herewith. |
|
(1) |
|
Filed as Exhibit 4.1 to the Registrants 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 Exhibit 3.2 to the Registrants 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 Registrants 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) |
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This certification accompanies the Form 10-Q 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-Q), irrespective of any general incorporation language contained in such filing. |