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Summary

  • GTXI has recently seen extraordinary insider buying and outside investment of $38 million.
  • Investors Pitt Hyde and Mason Hawkins have a successful track record of identifying undervalued companies poised for growth.
  • New investments in GTXI coincide with imminent catalyst of the release of Phase II trial results for metastatic cancer drug, Enobosarm.
  • Based on recent, positive Phase II trial results for other cancer drugs in sector, the average near-term gain is 109% post results release.

Pitt Hyde & Mason Hawkins Take Over 50% Stake in GTx Ahead of Phase II Results

In the recent, severe sell-off in biotech stocks, speculative investors are looking for bargains in the sector and signs of a bottom. With so many stocks suffering, it is very hard to navigate the many choices and pick which companies are buys at today's prices. The average retail investor does not have the time to do hours of research on hundreds of companies in their quest to find undervalued gems.

If you find yourself in that situation, perhaps this article will provide you with a specific, actionable investment idea. Opportunistic investors can gain insights into the right time and price to buy a stock by looking at what top investment pros and insiders ("smart money") are doing in a particular stock or sector.

For purposes of this article, I have found an attractive investment situation in a depressed stock where two key clues point to likely, near-term investment gains for those paying attention. In this case, the "smart money" is buying millions of shares and there is a positive, short-term catalyst clearly being telegraphed by management to occur very soon.

That company is GTx Inc. (NASDAQ:GTXI), a San Diego biopharmaceutical company, engaging in the discovery, development, and commercialization of small molecules for the treatment of cancer, cancer supportive care, and other serious medical conditions. The company's stock now sits at $1.32 (near the 52-week low of $1.26) after a steep drop from $7.24 over the last year due to an unsuccessful Phase III trial reported in August 2013.

Additionally, with the resignation of the CEO Michael Steiner earlier this month (replaced by president and COO Marc Hanover), many have left the stock and company for dead. But those who have written off GTx may be missing an incredible opportunity to buy when the stock has finally bottomed based on insider buying and catalysts on the horizon.

Recent Insider Buys at 25% Premium to April 28 Closing Price

On March 6, two significant investors profiled below, J.R. "Pitt" Hyde, III and O. Mason Hawkins, participated in a private placement of GTx common stock and purchased 11,976,048 shares of GTXI at $1.78/share. This purchase included warrants for each investor to purchase an additional 5,089,821 shares (10,179,642 total shares) at $1.67/share. Once the warrants are fully exercised, these two investors will have acquired 22,155,690 share of GTXI at an average price of $1.73, an investment of over $38 million.

Investor

J.R. "Pitt" Hyde, III

O. Mason Hawkins*

Price

Date

GTXI Common Stock Purchase

5,988,024 shares

5,988,024 shares

$1.78

3/6/2014

GTXI Common Stock Warrants

5,089,821 shares

5,089,821 shares

$1.67

TBD

Total

11,077,845 shares

11,077,845 shares

$1.73**

*as principal Pyramid Peak Foundation donor

**weighted average price

With these extraordinary investments in GTXI, these two investors would now own over 50% of the company broken down as follows:

Investor

GTXI Shares Owned*

% of Shares Outstanding

J.R. "Pitt" Hyde, III

29,663,340

36.9%

O. Mason Hawkins**

11,077,845

13.8%

Total

40,741,185

50.7%

*assumes the exercise of $1.67 warrants

**as principal Pyramid Peak Foundation donor

To better understand the significance of these buys, we must shed some light on the investors involved.

J.R. "Pitt" Hyde: Insider Buyer

Because of his position as the founder & chairman of GTx and his incredible record as founder of AutoZone (NYSE:AZO), Pitt Hyde's recent $19 million investment in GTx is very notable. This additional stake in GTx brings Hyde's ownership to 36.9% of the company. According to John Pontius, Hyde's money manager, Hyde's investment in GTx is "by a wide measure, the largest single investment he has made" since 1996.

Billionaire Pitt Hyde began to amass his fortune when he opened up his first auto parts store in Forest City, Arkansas in 1979. Now with 5,210 stores and estimated annual sales (2014) of $9.5 billion, AutoZone is the nation's largest auto parts retailer.

Similar to how he built AutoZone into a powerhouse, Hyde has taken an active role in his investment and senior leadership position at GTx. As chairman of the GTx Board of Directors, he is the principal architect of the company and the primary advisor to senior management on all matters of strategic importance.

While some may have seen the recent resignation of GTx CEO Michael Steiner as a negative, I completely trust Hyde's judgment in GTx personnel decisions and have confidence in the transition to Marc Hanover as the interim CEO (and I believe permanent soon) going forward. After all, Hanover was a fellow co-founder of the company with Hyde and he has been with GTx since its inception in 1997.

O. Mason Hawkins: Guru Buyer

Because of his investment guru status, extraordinary record in the investment business and his winning investment philosophy, Mason Hawkins' over $19 million investment in GTx Inc. (via Pyramid Peak Foundation) is also extremely notable.

Billionaire Mason Hawkins is the legendary founder & chairman of Southeastern Asset Management, Inc. His firm manages about $32 billion for endowments, foundations, and public and private retirement accounts. Hawkins is legendary because he has returned positive returns to his investors for the last 36 years.

As a value investor, Hawkins has specialized in patience and waiting for extremely discounted situations before investing in a company. In his most recent 2014 letter to shareholders, he explains his strategy this way,

"A broad market pullback could provide our next qualifiers. We are not market prognosticators, but few markets around the globe can claim undervaluation, and many have pockets of overvaluation. In the event of a correction, short-term performance is likely to decline. Our long-term results, however, will benefit from a lower P/V as we are armed with a vetted wish list of businesses and ample cash to be liquidity providers when new opportunities or existing names are offered at less than 60% of our appraisals. Additionally, lower prices will allow management teams at our current holdings to use their balance sheet strength to execute repurchases at deeper discounts that build values per share more rapidly."

Additionally, Hawkins has a philanthropic wing to his empire. In 2011, Mr. Hawkins established the Alzar Foundation with an initial gift of $41,000,000. Hawkins' company, Southeastern Asset Management, added $750,000 in initial funding. This Alzar Foundation is a Memphis-based charitable foundation established according to Hawkins to help "all our children have the finest education possible and to give women resources to better manage their lives and to support their families."

In its 2011 reporting period, the Alzar Foundation made charitable gifts totaling $85,000 to the following organizations: Kings Daughters and Sons ($25,000); Birdsong Nature Center ($10,000); Playhouse on the Square ($50,000).

Shortly thereafter in February 2012, the Alzar Foundation officially changed their name to become The Pyramid Peak Foundation. The Pyramid Peak Foundation performs no direct charitable activity, although it makes grants to existing charitable organizations to achieve their missions. Its sole gift in 2012 was a grant to the Community Foundation of Greater Memphis for $24,000,000.

Pyramid Peak Foundation grew dramatically by $348,313,409 in their 2012 reporting period to an asset base of $377,315,164, a nine-fold increase from the Alzar Foundation's modest beginnings of $41,750,000. This increase was due to the 2012 gifts to Pyramid Peak by Mason Hawkins, his daughters (Sidney & Katherine), and his company (Southeastern Asset) as follows:

2012 Gifts to The Pyramid Peak Foundation

Donor

Gift

Type

O. Mason Hawkins

$160,000,000

Cash

Katherine D. Hawkins

$94,461,553

Longleaf Partners Fund Shares*

Sidney H. Gargiulo

$92,851,856

Longleaf Partners Fund Shares*

Southeastern Asset Management, Inc.

$1,000,000

Cash

Total

$348,313,409

*includes shares in Longleaf Partners Small-Cap, International, and Partners Fund

According to The Pyramid Peak Foundation's latest 990 form, Mason Hawkins' $160,000,000 cash gift was invested and managed for the foundation by Covey Capital Advisors in Atlanta, Georgia. One could assume that Covey Capital Advisors was chosen to manage the money because Hawkins' daughter, Sidney Hawkins Gargiulo is a partner at the wealth management firm.

Just 54 days ago on March 6, 2014, Mason Hawkins and Pyramid Peak Foundation reported a 13.8% stake (11,077,845 shares) in GTx. The common shares were purchased at $1.78, or 25% more than the April 28th closing price of $1.32.

Now to understand the timing of the Hawkins and Hyde buys, we must shed some light on what these investors expect to happen in the short term.

Near-Term Catalyst: Phase II Clinical Trial Results (Enobosarm for Treatment of Metastatic Breast Cancer)

There are surely many reasons why Hyde and Hawkins increased their positions in GTx in Q1 2014 to now own over 50% of the company. I suspect the timing of their buys has a lot to do with the release of Phase II trial results using promising drug Enobosarm for the treatment of metastatic breast cancer. If results are positive, this upcoming catalyst will likely be followed by a dramatic increase in share price according to an analysis of recent, positive Phase II cancer drug results as follows:

Company

Date of Phase II Results

Share Price/ Pre-Results

Share Price Peak/ Post Results

Peak Gain %

Cancer Indication

Agenus (NASDAQ:AGEN)

12/16/2013

$2.44

$5.27

116%

Brain Cancer

Oxigene (NASDAQ:OXGN)

3/11/2014

$2.42

$5.40

82%

Ovarian Cancer

Endocyte (NASDAQ:ECYT)

3/21/2014

$14.64

$33.70

129%

Lung Cancer

Gtx

Q2 2014*

$1.32**

TBD

TBD

Breast Cancer

Average

109%

*estimate

**4/28/14 close

GTx is currently conducting a Phase II open label study evaluating 9 milligram doses of Enobasarm for the treatment of estrogen receptor positive and androgen receptor positive metastatic breast cancer in women. The study is fully enrolled with 22 post-menopausal women with actively progressing breast cancer. The primary endpoint is a clinical benefit response after six months of Enbosarm 9 milligrams.

According to GTx's March 3, 2014, earnings conference call, the company "expects to meet the pre-specified goal of demonstrating at least three clinical benefit responses in a minimum of 14 patients." Management continued its bullish forecast by saying, "since we now anticipate that study will be successful, we also plan to meet with our key opinion leaders to determine how best to move forward in the clinical development of Enobasarm."

The data is expected late in second quarter of 2014. If the results are positive and GTx's share price reacts similarly to other Phase II trials listed above, the share price could rise as much as 109% to $2.75/share in very short order.

Conclusion

At a time when the biotech sector is out of favor and being sold off indiscriminately, GTx presents an interesting investment opportunity to buy shares alongside and at a 25% discount to a founding insider (Pitt Hyde) and one of the most highly respected value investors (Mason Hawkins) in the country.

If GTx gets the positive Phase II results for Enobosarm for the indication of breast cancer as management is publicly forecasting, the short-term increase in share price could match those seen in the sector for other cancer drugs bringing shareholders a healthy gain of over 100%.

The risk in this investment idea and in any speculative biotech is that the trial results will not be successful. GTx has experienced this scenario before as recently as last August contributing to the near 52-week low current price of $1.32. Investors should consider this with eyes wide open to the risk involved and segment this investment into their highly speculative, high risk, high reward basket in their portfolio.

GTx Financial Information

As of the December 31, 2013, GTx reported $14.7 million in cash. This does not include the recent $20 million private placement discussed above. According to management, these funds should be sufficient to carry GTx until Q1 2015 and until 2016 if all warrants in recent financing are fully exercised.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

Source: Pitt Hyde & Mason Hawkins Buy >50% Stake In GTx Ahead Of Phase II Results