GTx Q4 2007 Earnings Call Transcript

Feb.19.08 | About: GTx, Inc. (GTXI)

GTx, Inc. (NASDAQ:GTXI)

Q4 2007 Earnings Call

February 19, 2008 9:00 am ET

Executives

McDavid Stilwell – Director of Corporation Communications

Mitchell S. Steiner, M.D. – Vice Chairman of the Board & Chief Executive Officer

Marc S. Hanover – President, Chief Operating Officer & Director

Mark E. Mosteller – Chief Financial Officer, Vice President & Treasurer

Analysts

Eric Schmidt – Cowen & Company

Meg Malloy – Goldman Sachs

Howard Liang – Leerink Swann

[Christiana Garthy] – Rodman & Renshaw

Analyst for Lucy Lu – Citigroup

Operator

Good day ladies and gentlemen and welcome to the fourth quarter and year end 2007 GTx conference call. (Operator Instructions) I would like to now turn the presentation over to your host for today, Mr. McDavid Stilwell, Director of Corporate Communications for GTx. Sir, you may proceed.

McDavid Stilwell

Good morning. On behalf of GTx, I’d like to welcome you to our fourth quarter and year end 2007 conference call. We released our financial results earlier this morning through the news wires. If you do not have a copy of the release you’ll find it on our website at www.GTXInc.com. We’ll have a replay of this call available on our website until March 4, 2008. With me today are Dr. Mitchell Steiner, Vice Chairman and Chief Executive Officer; Mark Hanover, President & Chief Operating Officer; and Mark Mosteller our Chief Financial Officer. Following this introduction Dr. Steiner will highlight fourth quarter and full year 2007 clinical and corporate development. Next, Mr. Hanover will briefly review our financial performance. Dr. Steiner will then discuss our plans for 2008 and make some closing remarks. We’ll then open the call for questions.

Before we begin I’ll remind you that information discussed on this call may include forward-looking statements and such statements are subject to the risk and uncertainties discussed in detail in our reports filed with the Securities & Exchange Commission including our quarterly report on Form 10Q filed November 9, 2007 and in our registration statement on Form S3 filed December 26, 2007. We expressly disclaim any obligation to release publically any updates to forward-looking statements made during this call.

As we have stated previously, we anticipate releasing top line results of our ACAPODENE 80mg Phase III ADT clinical trial and conducting the efficacy interim analysis of the ACAPODENE 20mg Phase III high grade PIN clinical trial by the end of this quarter. Until we publically release information about these clinical trials we are in a self imposed quiet period regarding ACAPODENE. Therefore, during the questions and answer period following our prepared remarks this morning we will not be able to respond to any questions about ACAPODENE.

Now, I’ll turn the call over to Dr. Steiner.

Mitchell S. Steiner, M.D.

GTx has a very exciting 2007. We successfully achieved several important strategic goals last year. We completed the ACAPODENE 80mg Phase III ADT clinical trial in November, we formed a unique collaboration with Merck on our SARM programs, we selected two new pre-clinical hormone receptor modulators from our pipeline GTx-758 and GTx-878 for clinical development in two new indications and we have recruited several key senior managers to strengthen our anticipated transition to commercialization.

Here are some more specifics about some of these 2007 accomplishments. In November, 2007 GTx and Merck joined together to create a unique collaboration for the discovery, development and commercialization of selected androgen receptor modulators. This collaboration has not only brought together the two leading SARM programs but it also takes advantage of the depth of scientific knowledge and the shared understanding of the commercial potential of SARMs. This collaboration has strengthened our financial position with an immediate cash infusion of $70 million and essentially eliminates our financial burden for the development and commercialization of SARMs. SARMs are an exciting new class of drugs which selectively modulate the androgen receptor depending on the tissue type. By designing molecules to maximize the wanted clinical effects of anabolic agents, for example to build muscle and bone while minimizing the unwanted clinical side effects such as stimulating prostate growth in men and unwanted hair growth in women, SARMs have the potential to treat a myriad of muscle wasting and bone loss diseases including frailty or sarcopenia, cancer cachexia, muscle loss related to chronic diseases or injury, osteoporosis and other musculoskeletal loss conditions. GTx and Merck have combined their SARM programs and pooled their SARM candidates.

We have also agreed to work closer together to discover, develop and commercialize current as well as future SARM compounds. The emphasis for development has been appropriately placed on the scientific merit, safety and the commercial opportunity of each SARM product candidate as GTx will receive from Merck the same economics regardless of whether it is a GTx, Merck or collaboration product candidate. We have had several meetings with Merck since we executed the collaboration agreement in December and we are now even more convinced that Merck is the right partner and that they share the same urgency to develop and commercialize this important class of molecules.

As for the financial impact the Merck relationship may have on GTx, we received a significant upfront license payment of $40 million in January, 2008 and Merck also purchased $30 million of GTx common stock in December, 2007 at a price of $23.34 per share because of their belief in GTx, the company. Additionally, Merck has agreed to pay GTx guaranteed pre-clinical expense reimbursements of $5 million per year for three years for a total of $15 million beginning late this year. The collaboration agreement also provides for milestone payments of up to $422 million for the development approval of lead drug candidates in multiple indications and the potential for additional milestone payments for other collaboration drug candidates. All milestone payments are based on events prior to commercial launch such as the initiation and successful completion of Phase II or Phase III clinical trials and marketing approvals. Merck will also assume all costs associated with clinical development and commercialization of all collaboration SARMs except for the cost associated with the ongoing Phase II Ostarine cancer cachexia clinical trials. Merck will pay GTx tiered royalty payments based on global net sales.

As you know, we’re currently conducting a Phase II Ostarine cancer cachexia clinical trial and we anticipate results by the summer of 2008. The Phase II cancer cachexia clinical trial is a randomized double blind placebo controlled study of cancer wasting in approximately 150 patients with non-small cell lung cancer, colon rectal cancer and non-Hodgkin’s lymphoma. The clinical trial is being conducted in approximately 50 clinical sites in the United States, Canada and Argentina. Study participants are being randomized to receive placebo, Ostarine 1mg or Ostarine 3mg for four months. The primary end point of the trial is total lean body mass at four months. Secondary end points include functional performance and safety. As for the rest of the Merck clinical program we anticipate being able to share the details of our plans with you by the summer of this year. The Merck GTx collaboration strengthens GTx’s financial position and effectively serves to enlarge and diversify our collective SARM development efforts to increase the likelihood that GTx and Merck will be successful in bringing the first SARM product to the marketplace.

In regards to other product candidates from our pipeline, we’ve selected this past year two new pre-clinical non-steroidal selective hormone receptor modulators for clinical development. Now that we have established a core competency in discovery and development of selective nuclear hormone receptor modulators we believe these new molecules discovered by GTx scientists have the potential to be future value drivers for GTx and its shareholders. The first product candidate is a LH inhibitor called GTx-758. GTx-758 has the potential to become the new standard for androgen deprivation therapy for prostate cancer. Today, the most common way to accomplish androgen deprivation therapies is by Lupron or Zolodex injections. It is estimated that about 800,000 prostate cancer patients in the United States are currently on ADT. While ADT by luteinizing hormone releasing hormones for LHRH agonist like Lupron and Zolodex are effective treatments, they may cause multiple serious side effects such as hot flashes, bone loss and adverse lipid changes and also life threatening side effects such as fractures and cardiovascular disease. GTx-758 is an oral LH inhibitor which in pre-clinical models has show the potential to achieve immediate androgen deprivation without many of the serious side effects common to current androgen deprivation therapies. GTx-758 was discovered at GTx and are a compensation of matter patents extended to 2026. We are planning to initiate Phase I clinical testing of GTx-758 by the end of this year.

Our second new product candidate GTx-878 is an estrogen receptor beta agonist being developed for the treatment of BPH and also has other potential indications. Current BPH drugs either reduce prostate size by five alpha reductation inhibitors or relax prostate smooth muscle tone like alpha blockers. In pre-clinical models, GTx-878 has demonstrated three activities that may be beneficial but a novel way to treat BPH. GTx-878 has the ability to inhibit prostate growth, to relax prostate smooth muscle tone and to reduce inflammation. GTx-878 was also discovered at GTx and the compensation matter patents extend to 2028. GTx plans to initiate Phase I clinical trials of GTx-878 in the first half of 2009.

These two new product candidates take advantage of our core strengths in nuclear hormone receptor modulator design and urology. We are developing these compounds to treat diseases which have proven to be large market opportunities with well defined development and regulatory pathways.

GTx has also bolstered its key management team. In 2007 GTx successfully recruited a number of key employees who will help us make the transition from a research and development company to one with the depth and breadth to commercialize our product candidates. Dr. Ronald A. Morton, Jr., joined us as chief medical officer. Dr. Morton left his position as professor of surgery and chief of urology at the Robert Wood Johnson Medical School where he also served as director of urologic oncology for the Cancer Institute of New Jersey. He received his medical degree from the John Hopkins University School of Medicine and completed his urology training and post doctorial fellowship at the Johns Hopkins Hospital.

Jeff Hessleberg joined GTx as vice president of regulatory affairs. Jeff has over 19 years of experience in the biopharmaceutical industry including 13 years in regulatory affairs. Prior to joining GTx Jeff was director of regulatory affairs for ICOS Corporation where he worked on Cialis. Jeff brings strong regulatory experience and leadership at a critical time GTx as we prepare for the potential filings of new drug applications for ACAPODENE, continued clinical development of SARMs and prepare to bring two new molecules into clinical development.

We also recently hired Chris West as vice president of sales. Chris has over 14 years of pharmaceutical sales and marketing experience. Most recently Mr. West was head of sales and marketing for the dermatology division of Warner Chilcott and directed a sales force of 165 representatives and two new product launches. Mr. West also worked at GSK where he held marketing positions of increasing responsibility for Avodart, Valtrex and Advair.

Now, I’d like to turn the call over to Marc Hanover for comments on our financial performance.

Marc S. Hanover

Good morning. The details of our financial results for the fourth quarter and full year 2007 are included in this morning’s press release and are available on our website. I will focus on the highlights. The net loss for the quarter and year ended December 31, 2007 was $12.8 million and $40.4 million respectively compared to a net loss of $4.7 million and $35.5 million for the same period of the prior year. Revenue for the quarter and full year 2007 was $1.9 million and $7.1 million respectively compared to $4.6 million and $7.5 million for the same periods in 2006. The major components for each period are as follows: revenue for the fourth quarter 2007 included collaboration income of $198,000 from Merck and $1.5 million from our European ACAPODENE partner Ipsen; revenue for the fourth quarter 2006 included collaboration income from Ipsen of $1.5 million and $3.3 million from our collaboration with Ortho Biotech which was terminated by mutual agreement in December, 2006; revenue for the full year 2007 included collaboration income of $198,000 and $5.9 million from Merck and Ipsen respectively and net sales of FARESTON of $1.1 million; revenue for the full year 2006 included collaboration income of $1.8 million and $4.3 million from Ipsen and Ortho Biotech respectively as well as net sales of FARESTON of $1.4 million.

Research and development expenses for the quarter and full year 2007 were $12 million and $38.5 million respectively compared to $7.4 million and $33.8 million for the same period in 2006. General and administrative expense for the quarter and full year 2007 were $3.6 million and $13.5 million respectively compared to $2.8 million and $11.4 million for the same period of the prior year. At December 31, 2007 GTx had cash and cash equivalents and short term investments of $110 million. In addition, in January 2008 GTx received an additional $40 million from Merck representing the payment of the upfront license fee. Our cash position does not take into consideration possible additional payments from Merck or from Ipsen. GTx continues to have no debt and no warrants.

In the past, we have provided financial guidance for the current year during this February conference call. Because the outcomes of the two ACAPODENE clinical trials will have such a significant impact on our projected operating expenses for this calendar year we have elected to provide financial guidance for 2008 after we have announced our data from the ACAPODENE 80mg Phase III ADT clinical trials and the results of the efficacy interim analysis of the ACAPODENE 20mg Phase III high grade PIN clinical trials.

I will now turn the call back over to Dr. Steiner for some closing comments.

Mitchell S. Steiner, M.D.

We enter into this pivotal year with a strong financial position, our SARM program moving forward with our partner Merck, two new molecules advancing into clinical development targeting large well defined indications in urology and with a talented and experienced senior management team. We are on track to announce by the end of this quarter the top line results for the Phase III ADT clinical trial evaluating the ACAPODENE 80mg for the treatment of multiple serious side effects of androgen deprivation therapy and to conduct and efficacy interim analysis of the Phase III high grade PIN clinical trial evaluating 20mg of ACAPODENE for the prevention of prostate cancer in high risk men. Success in either trial will be a transforming event for our company.

Now, I’ll turn the call back to McDavid for a few final remarks before we take questions.

McDavid Stilwell

Before we turn the call back to the operator for the question period this morning, I want to reiterate that we’re in a self imposed quite period regarding ACAPODENE and so we will be happy to respond to questions on other topics. Operator, we’re now ready to take questions.

Question-and-Answer Session

Operator

(Operator Instructions) Please hold while we compile a list of questions. Your first question comes from the line of Eric Schmidt from Cowen & Company. Please proceed.

Eric Schmidt – Cowen & Company

Can I ask a question on ACAPODENE not related to either of the two clinical trials? You had mentioned possibly starting additional studies on ACAPODENE and ADT therapy to try and look at the drug’s affect on gynecomastia and hot flashes, things like that. Are those still at least in the back of your mind or where do we stand?

Mitchell S. Steiner, M.D.

That’s a great question and let’s see if I can frame it this way, one of the things that we’re trying to do with ADT is position ourselves as a multiple side effects treatment for prostate cancer. To that end, we’ve already shown that we have an effect on bone loss, we have an effect on lipid and clearly, after we announce our top line results there may be an opportunity there to take advantage of some of these sub indications and kind of blow them out if you will. So, I’ll be able to comment much more on that at the time we report our top line results because then it will make more sense.

Eric Schmidt – Cowen & Company

And just to be clear, on this self imposed quite period, management hasn’t seen any unblinded data, it’s just that you expect that data to be coming shortly?

Mitchell S. Steiner, M.D.

This is our position; our position is that we have shared with everybody that we’re going to be getting the data in a later part of this quarter. We’re on track to do that. What’s awkward is that people are trying to read into everything we do as an indication that we know something that we don’t know. So, the best way to handle that is that management has said, “You know what, to be fair and to be considerate, our position is to stay in this quite period because the latter part of this quarter, we’re getting into the latter part of this quarter.” So, as you know we’ve given good guidance in the past and we’re going to continue to execute as we have in the past. So, to that end it’s fair to say that the quite period is self imposed. The quite period was not imposed because management is sitting on data and that we’ve seen something. It’s being imposed because of the imminent nature of receiving the data and trying to make conclusions out of that.

Eric Schmidt – Cowen & Company

A question on SARMs then, you mentioned Mitch having had a few additional meetings and discussions with partner Merck. Is it too early to say what the lead indication might be for Ostarine in terms of its registrational strategy?

Mitchell S. Steiner, M.D.

I think it’s early to say but I will tell you one of the reasons we did the deal with Merck is because of this whole concept going after frailty or sarcopenia. As you know, that’s a large indication and it will take a lot of resources and a lot of smarts and the reason we did the deal with Merck is because we felt they would be the best partner to go after a space like that given their past experience in blockbusters like Fosamax. So, without “giving away” too much, that’s still top of the list in terms of a major indication that both groups want to go after. The other indication I can make a comment about, of course, cancer wasting since the trains already left the station and the trial is ongoing at the time of the deal with Merck. So, really what we need to do is give color by summer on all the other indications that we may be pursuing with Merck including some clarity, I hope, on what the registration path would look like for sarcopenia.

Operator

Your next question comes from the line of Meg Malloy from Goldman Sachs. Please proceed.

Meg Malloy – Goldman Sachs

Two questions if I may, one is for Marc, can you give us any guidance in terms of how to think about the revenue streams from Merck specifically as related to how the upfront fee would be amortized? And, I guess we can count on $5 million a year but then there would also potentially be other milestone payments. Can you give us some color in terms of how to think about that? Then, separately in order to be prepared to start clinical studies again later this year, could you give us an idea what the next steps would be in terms of pre-clinical data needed?

Marc S. Hanover

I didn’t catch the last few words of your second question. Can you repeat that again?

Meg Malloy – Goldman Sachs

Yeah. I was just curious about what would need to happen in terms of being prepared to start clinical studies this year on 758?

Marc S. Hanover

I’ll comment on the first question. In regards to how we’re recognizing the Merck payments let me walk you through, there are a couple of bullet points here to share with you. First of all, on the $40 million which is the license fee, that is going to be amortized into income over a 10 year period. The $11 million of the equity premium which is part of the $30 million that we got, that is going to be amortized into income also over 10 years and the $15 million R&D cost reimbursement is going to be received, as Mitch commented, $5 million a year starting the end of this year so it’s also going to be received and recognized over the remaining life of the agreement so the first payment would end up being nine years, eight years, seven years kind of thing. That’s how we’re amortizing the payments from Merck as part of our financial guidance.

Meg Malloy – Goldman Sachs

And in terms of the milestones? Is it fair to assume that there are milestones post say for example, Phase II data? Or, milestones depending on the start of other studies?

Marc S. Hanover

Yeah, there are milestones that will be paid – let me say it differently, all $422 are paid prior to launch of our product. So yes, we will be receiving milestone payments for example, I’ll give you an example, initiation of a trial let’s say. So, if we do that, that will also be recorded and it will be recorded in the same time line as we’ve stated before.

Meg Malloy – Goldman Sachs

And not to get too granular but the only amortized payments should occur I presume each quarter of each year, is that correct?

Marc S. Hanover

Yeah, that’s true.

Mitchell S. Steiner, M.D.

And then to your second question Meg Malloy, to make sure everyone knows your name because it was moved a little bit there but, the second question on GTx-758, where we are with that is we’ve done the pre-clinical models show the effects that I’ve already mentioned which is the reduction of prostate size, decreasing smooth muscle tone and decreasing inflammation. We’ve done some of the early tox work, we typically do a lot of early tox work before we pick a clinical candidate and where we are now is scale up synthesis to get us into the larger tox work to support a Phase I. All that is going as scheduled and should be completed with a Phase I started by the end of this year.

Meg Malloy – Goldman Sachs

That’s very helpful. If I could ask a quick housekeeping question of Marc, can you give us the stock options that occurred during the quarter and operates out between R&D and G&A?

Marc S. Hanover

For the quarter the amount charged to R&D was $284; the amount charged to G&A was $269 for a total of $553. For the year-to-date 2007 it was $1,047,000 for R&D and the amount charged to G&A was $994,000 so it is a total of $2,041,000.

Operator

Your next question comes from the line of Howard Liang with Leerink Swann. Please proceed.

Howard Liang – Leerink Swann

Not for this question is out of bounds but, have there been any discussion with the FDA about increasing the number of events for the interim analysis of the PIN trial just so that you are comfortable and we’re comfortable with moving forward with the analysis?

Mitchell S. Steiner, M.D.

I’m sorry Howard, so the question is has there been any discussion with the FDA with regard to increasing the number of events for the PIN trial?

Howard Liang – Leerink Swann

Exactly, for the interim analysis?

Mitchell S. Steiner, M.D.

Yeah. So, what we said before is we’re not going to comment on the PIN trial, especially with the data coming out. So, I’ll be more than happy to answer that specific question at the time we release the data.

Howard Liang – Leerink Swann

Okay. Just regarding FARESTON, I know that obviously it’s not a product that you actively promote but has there been any attempt to extend the exclusivity beyond September, 2009. I’m not sure if there’s opportunity for pediatric expansion for a breast cancer drug but I just wanted to –

Mitchell S. Steiner, M.D.

So the question is has GTx done anything to increase the regulatory exclusivity of FARESTON, FARESTON being the 60mg version of Toremifene Citrate. The answer is no, we have not in that regard because we felt that if the PIN trial or the ADT trial was successful we will pick up some exclusivity based on an additional indication. Most of our focus has been to continue to file and bolster the method of use patents and dose patents that have been issued or pending around the area of ADT and around PIN. So, we’ve done a pretty good job with that both in US, Europe and internationally and that’s been pretty much our focus on the standpoint of exclusivity.

Operator

Your next question comes from the line of [Christiana Garthy] from Rodman & Renshaw, please proceed.

[Christiana Garthy] – Rodman & Renshaw

My question relates to Ostarine the proof of concept trials, the primary end point is the change in the total lean body mass at 16 weeks. I was just wondering did you have discussions with FDA before choosing a primary end point and the secondary end point which is more clinically relevant if you look at it, it’s an improvement of the function performance.

Mitchell S. Steiner, M.D.

To make sure I understand the question, the question is we have these end points in our clinical trial for Ostarine and so the question is has there been any discussion with the FDA around those end points?

[Christiana Garthy] – Rodman & Renshaw

Exactly.

Mitchell S. Steiner, M.D.

So the answer is, absolutely. We spoke with three divisions of the FDA about four possible indications in December of 2006 when we announced our Phase II proof of concept data for Ostarine we commented on what the FDA kind of told us. The oncology division was pretty clear, in a Phase II setting they are looking for both lean body mass changes, in particular increases or differences if you will, not changes but differences from placebo. But, more importantly, all divisions at the agency are not going to accept just a weight change or lean body mass alone, they do insist that there is some kind of functional performance. Functional performance is typically done by measuring muscle function and so we have put into our Phase II proof of concept trial we put into that a stair climb that we hit and were successful. In the Phase II B study, we have three different functional end points that we’re measuring for feasibility. One is stair climb because it worked in our Phase II, number two is grip test and number three is a six meter walk and all of those have been highly predictive for muscle function and performance and any of those would be acceptable to the oncology division. So, there has been a lot of discussion about what would be appropriate functional end points to measure.

[Christiana Garthy] – Rodman & Renshaw

So going forward for the regular day path for us and cancer cachexia, would you for the Phase III trial would you have similar end points as well?

Mitchell S. Steiner, M.D.

Absolutely. And, what we would like to do is try to stick with, in our Phase II proof of concept end points that are going to be required in our Phase III because this way when we finally get to Phase III its confirmatory versus what we had to do for example, if you take a surrogate end point and hope that it correlates. In this case, even in our PIN trials, for example we went with cancer as an end point because we felt that if were able to confirm that in a Phase III that’s a lot better than picking whether PIN goes away or not. So, I think it’s important to stick with end points in your Phase II that will be the same end points that you chose in your Phase III and that’s what we did with Ostarine.

Operator

(Operator Instructions) Your next question comes from the line of Lucy Lu with Citi. Please proceed.

Analyst for Lucy Lu – Citigroup

I just have one quick question about do you plan on seeing the Phase II B results from Ostarine before actually going forward and announcing anything in sacropenia for the summer?

Mitchell S. Steiner, M.D.

Good question. So, the question is, is there sort of a waiting period here where everybody is kind of holding their breath waiting for the Phase II B data for ostarine before any discussions or any plans are delineated by GTx and Merck in terms of the future programs including sacropenia or frailty and the answer is no. This is an independent trial, it’s in a different patient population. What we learned from the trial absolutely – but, as you know, these patients are very different from sacropenic patients and so there are independent discussions and independent planning separate from the cancer wasting trial and they are not tied together.

Analyst for Lucy Lu – Citigroup

Okay. So, as far summertime [inaudible] here is like additional indications around the same time the trial comes out though?

Mitchell S. Steiner, M.D.

Oh, I see what you’re saying. Not necessarily. We chose summer to give us plenty of time to have discussions with Merck and I can see how you can draw that parallel but no, they’re really independent. That was just to give you a sense of when we think we’ll know from Merck and GTx where we think our development plan will be. We certainly can announce it sooner, it just depends on how the discussions go which by the way are going very well, but we thought we’d have an internal goal to be able to roll out the clinical development plan with Merck at least at the detail we’re allowed to share with you by summer but, they are not linked together.

Operator

At this time I’m showing you have no further questions. I would like to now turn the call back over to Dr. Steiner for closing remarks.

Mitchell S. Steiner, M.D.

We would like to thank you all for your interest in GTx. We look forward to providing you further information on ACAPODENE by the end of this quarter. Thank you again for joining us on today’s call.

Operator

Thank you for your participation in today’s conference. This concludes the presentation and you may now disconnect. Have a wonderful day.

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