GTx Inc. (GTXI) is a Memphis, Tennessee-based microcap-biopharmaceutical company with a pipeline of hormone mimic drugs, of which the lead drug candidate is enobosarm, abbreviated from here on as 'enobo'. It was designed to provide supportive care to cancer patients with cachexia, a breakdown of muscle (sarcopenia) with associated weakness found in most advanced cancer patients. Enobosarm is a partial androgen (male hormone) mimic known as a Selective Androgen Response Modifier (SARM). Receptors for androgen (ARs) are found in many body tissues, including prostate and testes, and also in muscle and bone. Native androgens bind (attach) to all ARs, so are not selective. SARMs are selective in that they bind only to certain ARs in certain tissue types, but not others. This avoids unwanted androgen side effects, discussed below. Enobosarm has been in 8 successful clinical trials. The enobosarm Phase III (P3) POWER 1 and 2 trials were completed in May, with final results still being evaluated. Those trials looked at the strengthening effects of enobo in 650 subjects with severe sarcopenia secondary to advanced, Stages 3/4 lung cancer, a formidable challenge.
I have received many interesting questions from readers on my most recent and previous articles. I thank all of you for them. The purpose of this article is to address some of these, and various frantic rumors circulating on the internet.
* To begin, a reader brought to my attention (Pro site only) that enobosarm is already being marketed in body-building supplements. Initially, I was skeptical, since GTx never released the chemical structure. However, the structure was apparently found by a patent database search, so I stand corrected. Enobosarm has already burrowed its way into professional sports, and been banned by at least the cycling federation, noted by this June 7, 2013 headline: "Vacansoleil rider Nikita Novikov tests positive for doping." "Russian [cyclist] tested positive for banned substance Ostarine," but had "no idea how the substance got in his body. The 23-year-old will be sacked by team if he fails B [follow-up] test." The take home message here is that not only do pro-athletes use enobo as a performance enhancing drug, but professional sports leagues have started banning it.
* A reader voiced an opinion that the already-approved anabolic steroid Oxandrin (oxandrolone) worked better and was cheaper than enobo. The difference is that oxandrolone is a non-selective androgen, resulting in the unwanted androgen side effects (SE) that enobo avoids. SEs include prostate enlargement (ugh) and stimulation of subclinical cancers; gynecomastia (breast enlargement) in men; weight gain; extremity edema (fluid retention); in women, hirsuitism (facial hair), possible child birth-defects and breast milk contamination; and undesirable genital SEs in both sexes. By comparison, as worded by analyst JJ Schaible, enobo "does not turn Grandma into Grandpa, or Grandpa's prostate into a softball [size]." Although one site recommends oxandrolone for cachexia, to date, no one has been the first person to rate it. If it were effective, we probably would have heard.
* A number of questions focused on insider "sales." Since January 1, 2013, there have been 11 insider non-open market acquisitions (NOMs); 2 option exercise sales at a profit; a July 16, large NOM acquisition of 354,883 shares, immediately transferred to 2 GRATs (irrevocable trusts)-- leaving the acquirer with 9.6M shares; and a single 11,505 share-block sale at $6.98. This smacks of insider confidence. Sometimes the guys simply need the money to live on, remodel their homes, or send kids to college.
* Readers have legitimate concerns about why Merck (MRK) and GTx ended their SARM collaboration in 2009. While certainly the reason might have simply been that MRK "didn't like" the drug (see below), during the time of the GTx agreement, MRK was rather busy with other matters. In 2007, it was up to its ears in litigation: USA Vioxx settlements and ex-USA Vioxx suits; Department of Justice investigation (marketing practices); price manipulation; false claims to CMS; state consumer fraud charges; and ERISA and shareholder class action suits. MRK and Schering-Plough (SCP) also were embroiled in a 2008 Senate Finance Committee investigation for withholding negative trial data. In November 2009, MRK completed a megamerger with SCP and its strong research capacity, after extensive prior collaboration. SCP brought eight P3 and four pre-application drugs to the table, with 6 on fast track. So MRK re-focused on integration of SCP's pipeline, as well as deciding to limit future research to six key disease-area priorities, such as exorbitant cancer drugs, heart disease, and diabetes. SARMS did not fit. MRK halted internal development of SARMs and some other collaborative drugs. However, GTx re-acquired enobosarm and walked away with $55M in unamortized revenue.
* There is much academic and clinical interest in enobosarm. Results from the GTx Phase IIb enobosarm study were published in the prestigious peer-review medical journal The Lancet Oncology. Unlike most, this article was also chosen as an editorial topic covered by Dr. Kenneth A. Fearon, the world's foremost leader in the study of cachexia. Under the MRK logo, enobosarm Phase 2b results were reported as successful at the 2009 Annual Meeting of the Endocrine Society. In contrast, MRK's own compound MK0773 was ineffective, showing that "increase in LBM did not translate to improvement in strength or function vs. placebo." Then again, maybe it was because they used mean instead of median; or else that they used MK0773 instead enobo. More recently, CEO Dr. Mitchell Steiner spoke at the prestigious 2013 ASCO Industry Expert Theater Presentation about the 15-year development of enobosarm.
* The GTx price per share (PPS) has taken a pounding of late, following a July 10 online article by TheStreet.com biotech analyst and Twitterer, Mr. Adam Feuerstein. TheStreet article was highly critical of The Lancet Oncology article, questioning the integrity not only of the data, but also the authors themselves, insinuating that data was manipulated. Following that, the data was indeed truly manipulated, and by the analyst himself. It lead a forceful statement that the enobosarm P3 would fail, and thus, it was an auspicious time to short. The result was an "odd," and possibly co-ordinated, 25% drop in PPS in less than 2 hours, in a, let's say, suspicious end-of-day trading pattern. The premise of the manipulated data was refuted on a many fronts by a number of analysts, and described as unfounded, and GTx as a "battleground stock."
* On a more humorous note, the final results of an opinion survey, conducted on August 2 by the very same Mr. Feuerstein, were announced. The survey was based on "Twitter sentiment" on 3 stocks, expressed best in the following pie chart link. Now, having a "no opinion" choice works well for an unsolicited, random political poll; on the other hand, it does not serve well in a solicited, non-random, voluntary poll. Here, the analysts' stated "no opinion" group was actually a "Don't follow the stock/don't care" group that simply did not "vote" on the GTx part of the survey. As well, only 11 of the "My panel of 12 [unnamed] "professional healthcare investors" [not further described] are equally unimpressed with GTx," responded, so only 11 ought be counted. I leave the arithmetic to others.
Selected financial data
Today, the GTx MC is $283M, with 63M outstanding shares. Insiders own 68% of OS, and institutions, 26%; these numbers are identical to those of April. The change is in the number of August short shares, up 47.29% since July, and comprising 22.68% of the float. In none of its 10-Q quarterly SEC filings, has GTx failed to address the liabilities of a thin trade volume, as has been claimed. It notes that even perception of large-block sales of the float could be detrimental to the PPS, as has happened recently. To reiterate, the institutional ownership has not decreased.
The cash balance of $31.6M continues to be a tightrope and a vulnerability, and shorts continue to prey upon that fact. However, GTx believes that it can self-fund operations through 2013 or NDA via insider ownership. Its strategy, stated on a number of occasions, is to partner with a large pharma- or biopharma- company for drug development and commercialization. It believes that waiting for the P3 results will maximize shareholder value. Following TheStreet article, GTx analysts reiterated their price targets. WedBush says Outperform, PT $9, Buy on weakness; Jefferies (CRBQ) rates GTx as a Buy, PT $8, and $13- $14 on a successful P3. SeekingAlpha analyst Natty Greene has a PT of $11.
Invest in GTx?
After 8 trials showing positive data, including the two P2 studies; the academic interest; and The Lancet editorial, I believe that the P3 POWER trials will succeed. The new kicker for me is the 2009 MRK presentation of positive enobosarm P2 results, which is compelling. It was given by the author of The Lancet article and Johns Hopkins professor, Dr. Adrian Dobs. My opinion of that event is paired with MRK's recent article detailing its own SARM failure.
So, what is going to happen to all those shorts? What can we do? **puzzled** JJ Schaible's instablog came out on Friday morning (August 9), and refuted every single misconception and mathematical error in TheStreet article, which was infested. A 6.67% (+$0.28) afternoon rally ensued. Was it simply a coincidence, or a neee-dull mover on a Friday afternoon in August? Was it a momentum change? I prefer to think that, and if so, hope that this treatise will contribute to it.
Like a kid waiting for a present, I have been awaiting a short squeeze since April. With the increase in short positions, and 5.3 days to cover, I continue to believe it will happen. Some analysts hold the opinion that a large short interest is bullish. So, what are we to do? I am holding my own shares, with a PT of $8 to $9, and again, higher on successful P3 results. I am overweighted in GTx, or I would accumulate more. Again I recommend GTx as a Buy or Accumulate. But if the needle starts to move again on Monday, I would change that to a Strong Buy.