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Executives

McDavid Stilwell – Director, Corporate Communications

Mitchell Steiner – Vice Chairman and CEO

Marc Hanover – President and COO

Analysts

Joel Sendek – Lazard Capital Markets

Meg Malloy

Aaron Reames – Wachovia Capital Markets

Eric Schmidt – Cowen and Co.

Mike King – Rodman & Renshaw

Lucy Lu – Citi

Howard Liang – Leerink Swann

GTx, Inc. (GTXI) Q2 2008 Earnings Call Transcript August 5, 2008 9:00 AM ET

Operator

Good day, ladies and gentlemen, and welcome to the second quarter 2008 GTx, Inc. earnings conference call. My name is Karen and I will be your coordinator for today. At this time all participants are in listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. (Operator instructions) As a reminder, this conference is being recorded for replay purposes.

I'll now like to turn the presentation over to your host for today's call Mr. McDavid Stilwell, Director of Corporate Communications. Please proceed.

McDavid Stilwell

Thank you, and good morning. On behalf of GTx, I would like to welcome you to our second quarter 2008 conference call. We released our results earlier this morning through the newswire. If you do not have a copy of the release and want one you will find it on our Web site at gtxinc.com. You will have a replay of this call available on our Web site until August 19, 2008.

With me today are Dr. Mitchell Steiner, Vice Chairman and Chief Executive Officer, Marc Hanover, President and Chief Operating Officer and Mark Mosteller, Chief Financial Officer.

Following this introduction, Dr. Steiner will highlight second quarter 2008 clinical and corporate development. Next, Mr. Hanover will briefly detail our financial performance. Dr. Steiner will then make closing remarks and open the call for questions.

Before we begin, I'd remind you that information discussed on this call may include forward-looking statements and such statements are subject to the risks and uncertainties we discuss in detail in our report filed with the Securities and Exchange Commission, including in our quarterly report on Form 10-Q which we're filing later today with the SEC. We expressly disclaim any obligation to release publicly any updates to forward-looking statements made during this call.

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

Mitchell Steiner

Thank you, McDavid. Good morning and thank you for joining us. In the second quarter we continue to make good progress towards the filing of the new drug application and planning the commercialization for toremifene 80 mg for the prevention of fractures and treatment of other key estrogen related side effects of ADT in men with advanced prostate cancer.

We are on track to submit the NDA for toremifene 80 mg this fall following a pre-NDA meeting with the FDA scheduled in October. We plan to request priority review of the NDA, because we believe toremifene 80 mg by preventing fractures will address a serious unmet medical need for men on ADT.

Our European partner, Ipsen, is planning to file for marketing approval with the EMEA this fall as well. We continue to be in discussions for toremifene partnership with the rest of the world. We now have our key experience commercial management team in place and plan to market toremifene 80 mg if it's approved by the FDA in the second half of next year.

We are looking forward with anticipation to the commercial prospects of toremifene 80 mg. We are confident that we are well differentiated for this indication in the marketplace. In a two-year Phase III ADT clinical trial toremifene 80 mg reduced new morphometric vertebral fractures by 54% with a P-value of 0.032.

Interestingly, approximately, 23.8% or one in four patients in the placebo group had either a non-traumatic fracture or greater than 7% bone loss within this two-year period. In the subset analysis toremifene 80 mg reduced by 56% the first of either a non-traumatic fracture or greater than 7% bone loss versus placebo.

The P-value is less than 0.0001. Bone loss leading to fracture is only one of the estrogen related side effects of ADT. The estrogen deficiency caused by ADT may also result in hot flashes, adverse lipid changes and gynecomastia.

Toremifene 80 mg is a SERM, which by binding to the estrogen receptor has demonstrated in our clinical studies, the ability to prevent bone loss and fractures. Unlike drugs that treat only bone loss, toremifene has the potential to treat additional estrogen related side effects of ADT, including hot flashes, experience by up to 80% of these men, breast tenderness and pain experienced by up to 66% and adverse lipid changes which may put these men at higher risk for cardiovascular disease and mortality.

Toremifene also has been shown to inhibit prostate growth in preclinical models and to prevent prostate cancer in men with high grade PIN in our Phase IIb clinical trial. We have conducted several key opinion leader meetings and extensive market research on ADT and its side effects.

In the United States, about 90% of the advanced prostate cancer patients on ADT are under the care of urologists. Urologists prefer to be the primary caregiver for these patients. Urologists also serve as the gatekeeper for these patients but ultimately determining when their prostate cancer patients should be referred to a medical oncologist.

What we have learned is that urologists would welcome a drug with a target product profile that treats multiple side effects of ADT to reduce the need for patients to be on multiple drugs which in aggregate can be expensive and have their own side effects. Urologists have expressed a strong preference for prescribing oral drugs as Medicare reimbursement for injection therapies makes holding drugs in inventory and administering them more expensive than writing a prescription for an oral drug.

The National Comprehensive Cancer Network and NCCN which is made up of physician leaders of the NCI-designated comprehensive cancer centers issued in its updated Clinical Practice Guidelines in Oncology for Prostate Cancer in late May 2008. The guidelines recommended that men with advanced prostate cancer and ADT should be assessed for bone loss.

If they're diagnosed with either osteoporosis or osteopenia they should be treated with a bone agent. The list of bone agents provided in the guidelines include toremifene. This means that toremifene will be included in the NCCN drug compendium, which CMS, United Health and other players recognize as a mandated reference for cancer care coverage decisions.

Many state formularies rely on the NCCN compendium as a mandated reference too. GTx is in the process of preparing its NDA for submission to seek FDA approval for toremifene 80 mg to include the treatment of ADT associated bone loss. We're continuing to evaluate the data and safety from the Phase III ADT clinical trial.

We look forward to presenting at medical meetings later this year. A new, important clinical findings which will demonstrate additional therapeutic benefit and distinguish toremifene 80 mg for potential competitors.

Now, let's turn to our Phase III clinical trial for high grade PIN. In May, we announced that following an interim efficacy analysis, an external data group recommended that the phase III PIN clinical trial should continue as planned. Even though toremifene 20 mg did not make the high statistical hurdle established with the interim analysis we remain confident that toremifene 20 mg should demonstrate its ability to prevent prostate cancer when we conduct the efficacy analysis next year.

What we do know is that we conducted a large 514 patient Phase IIb clinical trial in men who have high grade PIN, evaluating the ability of toremifene to reduce prostate cancer, the same primary end point in the 1600 patient Phase III in clinical trial.

In our Phase IIb clinical trial when you include all biopsy proven prostate cancers, the aggregate prostate cancer rates in the Phase IIb and the Phase III clinical study appear to be similar, suggesting that the confirmatory phase III clinical trials progressing is expected.

If the Phase III PIN clinical trials like our Phase IIb clinical study, then toremifene 20 mg treatment will have at least a 22% reduction in prostate cancer versus placebo, although a 22% reduction in prostate cancer in the Phase III PIN clinical trial would not have been sufficient to demonstrate efficacy in the interim analysis it should meet the prespecified statistical threshold for the efficacy analysis to be performed next year.

An independent data monitoring board reviews for protocol unblinded safety data from toremifene clinical trials every six months. Following the most recent review conducted in late July 2008, the DSMB recommended that the toremifene 20 mg Phase III PIN clinical trial should continue as planned.

The DSMB had now reviewed safety data to more than 3,000 patients from both the ADT and PIN Phase III clinical trial with some patients are on drug as long as three years. These clinical data along with more than 450,000 patient years used and a 17-year pharmacovigilance database for Fareston will be important for supporting safety for the new drug applications for toremifene 80 mg and toremifene 20 mg.

GTx has continued to make progress with Ostarine and other SARMs. We're very impressed with the status of our partnership with Merck. Like GTx, Merck is a science-oriented company and consequently, the chemistry between our companies is strong.

Our two companies have formed multiple joint oversight and working committees responsible for everything from R&D and product development to commercialization. (inaudible) does not go by without active communication between several committees pushing the SARM collaboration forward.

Our collective strengths compliment one another, and is leading to a faster and we believe better clinical development program with this exciting new drug class.

The focus of the SARM clinical development program is sarcopenia. We're also evaluating cancer muscle wasting, or cachexia. There are multiple product candidates being evaluated in Phase I and Phase II clinical trials in both men and women for sarcopenia. Sarcopenia which is the progressive muscle loss associated with aging is an exciting opportunity with a market potential we believe to be as large as osteoporosis.

The purpose of these trials is to identify the best molecules to take forward into Phase IIb and Phase III clinical testing for sarcopenia. We look forward to updating you on the clinical development plans for sarcopenia once these clinical trials are completed.

The next available results of this collaboration will be from the Phase II Ostarine, now designated as MK2866 cancer cachexia clinical trial. Muscle wasting occurs in about 50% of all cancer patients and loss of muscle may lead to loss of protein stores, severe weakness of fatigue, immobility, loss of independence and an inability to tolerate and respond to cancer treatments.

Cancer induced muscle wasting is responsible for at least 20% of cancer deaths. The ultimate goal of this program is to develop a drug that would improve quality of life and treatment outcomes for patients with cancer cachexia by increasing muscle mass at strength. There are no drugs approved for the treatment of cancer wasting.

The Phase II cancer cachexia clinical trial more specifically is evaluating Ostarine 1 mg and 3 mg compared to placebo in 159 cancer cachexia patients with lung cancer, colorectal cancer, non-hodgkins lymphoma or breast cancer. Treatment period is four months. The primary endpoint of the clinical trial is total lean body mass measured by DEXA.

And we're looking for a change of at least 1 kg of total lean body mass compared to placebo. Functionally, performance is a key secondary endpoint. And we have selected three measurements to measure functional performance. A stair climb test, a 6-meter walk test and a grip test.

The study has completed enrollment and patient treatments. The database is being prepared for analysis and we expect to receive an announced top-line results of the trial in late September or early October.

While cancer induced muscle loss is not a result of aging, the condition may also concomitantly occur with age related sarcopenia in senior patients who make up a large majority of cancer patients for whom cancer is the number one cause of death.

The NCCN practice guidelines for senior adult oncology revised in 2007 recommended a comprehensive assessment for frailty based on patients having three or more of five criteria. Unintentional weight loss, self-reported exhaustion, weakness, which one measure is grip strength, slow walking speed, and low visible activity. This suggests positive results of the cancer cachaxia trial and provide even more insight into sarcopenia of aging.

Regarding the product candidates from our preclinical pipeline, GTx758 and GTx878, preclinical work continues to support the initiation of Phase I clinical trial next year. GTx758 is an oral LH inhibitor for advanced prostate cancer which has the potential to lower testosterone to castrate levels, but without many of the estrogen related side effects of current LHRH agonist therapies.

We expect GTx758 to enter clinical development in the first quarter of 2009. Our other preclinical candidate GTx878 and estrogen receptor beta agonist, potentially (inaudible) a new approach to treating BPH. Existing BPH treatments either shrink the prostate size or relax prostate smooth muscle.

In animal models GTx878 has shown a triple mechanism of action. It shrinks the prostate size, relaxes prostate smooth muscle and is anti-inflammatory. We expect GTx878 to enter Phase I clinical testing in 2009.

Now, I would like to turn the call over to Marc Hanover.

Marc Hanover

Good morning. The details of our financial results for the second quarter 2008 are included in this morning's press release and are available on our Web site. I will focus on the highlights.

The net loss for the quarter was $13.2 million, compared with a net loss of $9.2 million in a quarter a year ago. Revenue for the second quarter of 2008 was $3 million, compared to $1.8 million for the same period last year. Revenues for 2008 included $274,000 of net sales of Fareston and $2.7 million of collaboration income from our partners Ipsen and Merck.

Research and Development expenses were $10.4 million, and general and administrative expenses were $6.4 million for the three months ended June 30, 2008 compared with $8.6 million and $3.6 million for the second quarter of 2007 respectively.

At June 30, GTx had a $118 million in cash, cash equivalents and short-term investment. GTx has the potential to add to this cash balance due to the realization of near-term collaboration milestones which the company may receive from our partners Ipsen, and Merck. GTx has no debt and no warrants.

I will now turn the call back to Mitch.

Mitchell Steiner

Thank you, Marc. We have a busy calendar events ahead of us. Let me share some specifics in the order which we expect them to take place. We plan to release our results of the Phase II cancer cachexia study in late September or early October.

We anticipate filing our new drug application for toremifene 80 mg with the FDA in the fall following our pre-NDA meeting with the FDA in October. We expect to hear from the FDA 45 days after filing whether toremifene 80 mg NDA will receive priority or standard review.

Our efficacy analysis of the toremifene 20 mg Phase III in clinical trial should occur in the second quarter of 2009. We are excited about the many opportunities we have to generate revenue and we look forward to updating you on our progress.

Operator, we are now ready to take questions.

Question-and-Answer Session

Operator

(Operator instructions) And your first question comes from the line of Joel Sendek with Lazard Capital Markets. Please proceed.

Joel Sendek – Lazard Capital Markets

Hi, thanks a lot. So – I have two questions. The first is on the filing. I was expecting filing a little bit earlier, but is the issue that you have to meet with the FDA, you couldn't get a meeting? And my other related question is have you had a meeting already with them?

Mitchell Steiner

Those are your two questions?

Joel Sendek – Lazard Capital Markets

I guess I have another one after that.

Mitchell Steiner

I will answer that question. We will take the second question. The answer is we're ready to go. But it would be foolish to have a – to file to NDA without a pre-NDA meeting. And as you know the FDA [ph] kind of busy and we have been working aggressively to get on the schedule. So we are efficiently scheduled for an FDA meeting, and a pre-NDA meeting with the FDA in October. And as you know that meeting is primarily a box-checking meeting in the sense that you meet with the FDA to make sure that you have all the studies and all the components of those studies they're going to be required for the review. And so, we do plan to file electronically. And we've been working on for the last 18months. And as you know we own the NDA for Fareston 60 mg, we've been able to heavily cross reference that. So, really, sort of an FDA scheduling thing and being prudent about making sure we meet with the FDA before we file.

Joel Sendek – Lazard Capital Markets

Okay, great. Second question has to do with the Sarcopenia. You indicated that it's maybe the same size as marketed as osteoporosis, which is quite a bold statement I think. I'm wondering does Merck share that view and what's the served market as far as revenues? I'm assuming that you're talking about incidence of disease, but do you know what the served market is, as far as product sales or what people use for that right now?

Mitchell Steiner

Yes, Joel, let me answer the first question, the first part of that for sure. Merck definitely see this as very opportunistic. We purposefully are not stating market size right now, because we don't think it's appropriate at this point, but we are linking it in order to kind of work our own – do our own diligence here and the diligence that has been conducted on market research through the relationship with Merck and GTx. It's very clear to us that it is the size of the osteoporosis market. Perhaps maybe even a little bit bigger, but we are purposefully not going into numbers at this point until we get a little bit further along. Just give you more clarity how we view – how it's viewed, sarcopenia sometimes is called frailty. The frailty is the muscle loss occurs with aging. And interestingly, the muscle loss occurs with aging can also lead to not only loss of independence and mobility and that kind of stuff, but also to falls.

And the thought here is that as we age, there is going to be a subgroup of patients just like in osteoporosis – just like in bone loss where you have to say, well, is bone loss a disease? No. Bone loss is not a disease. We all lose bone as we get older. When it becomes a disease is when you lose enough bones to become osteopenic, which is about one standard deviation away, or osteoporotic, which is about two standard deviations away. And if you're osteoporotic you're more likely, with a standing fall, to break a bone. Same thing here. One standard deviation away of muscle loss is that cause functional impairment. Two standard deviations away of muscle loss, does that lead to increase in morbidity, mortality, hospitalizations, loss of independence, physical limitations? That kind of what's being explored. As you can see with a baby-booming population that wants to be more active and more of us living into our 80s, 90s and beyond, this could be a potentially large market.

Joel Sendek – Lazard Capital Markets

Thank you very much.

Mitchell Steiner

Thank you, Joel.

Operator

And your next question comes from Meg Malloy. Please proceed.

Meg Malloy

Can you hear me?

Mitchell Steiner

Yes, we can hear you. Go ahead.

Meg Malloy

Sorry about that. Yes, thanks. Two questions. First is could you elaborate on what specifically you're seeking in the label for ADT. Is it bone fracture or are you planning to include the secondary measure in the label? Second, could you talk about your activities or planned activities concerning commercial preparedness, particularly, if you're successful in getting a priority review? Thanks.

Mitchell Steiner

Thank you, Meg. So the first part of question is what do we – what we envision to label the ADT looking like. Let me tell you what I think we know and then I'll go to what we don't know. What we do know is the primary endpoint of the study was prevention of fractures in patients with ADT we hit that primary endpoint and that's going to be the indication. Other things will be bone loss which is prespecified, and things not as clear are going to be things like gynecomastia, hot flashes and lipid changes. We do believe that lipid changes – the beneficial effects of lipid changes will be in the safety component of label.

We do believe that gynecomastia will be in the safety component of the label, hot flashes will appear in the AE table, and there are going to be other things that we will be reporting on as we move towards the fall and some of the scientific meeting we hope will give some additional safety information that could be differentiating us from other products. So, the way we look at it this is a first good step because the way we would grow this commercial opportunity is take advantage of the prudent concept data that we got in this Phase III study, and expand then to a separate Phase III gynecomastia study, a separate Phase III hot flash study, and potentially a next Phase III that maybe involved with what happens with bone loss less than six months on the ADT. The reason that's important is that the markets for those are not necessarily ADT only.

So for example, if you look at it from only induced gynecomastia you will be dealing with LHRH agonist patients, but you potentially can also be dealing with patients that are on Casodex monotherapy which is an anti-androgen, and about 80% of those patients develop gynecomastia. So we see these Phase III it not only confirming these endpoints that secondary endpoints that were met in our Phase III trial, ADT trial, but we also see it's expanding and generating, essentially, an expanded label, expand indications for the label as we go forward. But the second question which is how do we stand from the standpoint of commercialization, are we’re ready to go, I'm going to turn over to Marc Hanover.

Marc Hanover

Yes, so, Meg, just I'm glad that you asked the question, because we have been very, very fortunate to secure several key members of our commercialization team. And in fact, we now have – as you know, and as most of our investors know that we have had a gentleman by the name of Greg Deener, who was involved in the – who's been with our company for over four and a half years, almost now five years, who headed up – or say who heads up our sales and marketing efforts. But, specifically, we now had a gentleman from GSK, who was involved in Boniva, who has years of experience in the areas of our interest, who's heading up our marketing and managed care effort. We've secured a director level position for managed care from an individual who's been with Organon for 27 years.

We also hired a gentleman who most recently was at Warner Chilcott running there, head of sales for the derm division. Before that, with GSK working in the areas of our interest to head up our sales effort, and we just most recently secured a key member of the team to head up our sales operations who was working for about I think 12 to 13 years at Schwarz Pharma, who really knows that the guts of the sales operations effort and we're continuing to really see some excellent talent come our way and be interested in working with GTx.

And we're actually, couple hires, quite frankly, we weren't anticipating looking to hire until October or November, but we've had the opportunity to secure several very key managed care field people and we're looking to do that to go ahead and bring them in sooner rather than later just because we don't want to miss out on the talent. In addition to all that, we recently hired a 16-year Pfizer veteran in the area of medical affairs, and also in the – with – inside the urol who has had experience in the urology field. So we're extremely excited that our talent that we're putting together and we're looking forward to our commercialization efforts.

Meg Malloy

Can I just follow-up on that, Marc? Just in terms of the size of the actual field force, you addressed medical oncologists – the urologists, and what the timing would be for that bigger expansion?

Marc Hanover

Yes, Good question. I'm glad you prompt me to say that. Like I said I'm excited about the key members that we put into place. We will not be putting together our sales force which we anticipate having to be the size of roughly 50 reps to 70 reps. We don't – we'll not be putting that in place until after we get our actual letter from the FDA. But we continue to see some really good talent in certain spots we may hire when we feel like we have the opportunity to do so. But in terms of the real ramp we won't see that until the next year.

The other thing to add is that our market research has made it very clear is that the gatekeeper is the urologist, and that's kind of change a little bit, in some ways our strategy, because originally we wanted to make sure we hit the urologists and some of the key medical oncologists. But it may be more strategic and taking advantage of the fact that 90% to 95% of these patients are still under the care of urologists. And that's probably we need to focus and then move in further.

And frankly, I think that's the good thing, Meg, because target population of urologists are roughly five, 5,000 docs, and just over the last nine years we've had the opportunity to work with probably I don't know 1500 docs, just by virtue the fact that they've been running our Phase IIs, our Phase III and PIN and ATD respectively. So, I really feel good about the opportunity in the space that we're going after especially with this team.

Meg Malloy

Thanks very much.

Mitchell Steiner

Thank you, Meg.

Operator

And your next question comes from the line of Aaron Reames with Wachovia Capital Markets. Please proceed.

Aaron Reames – Wachovia Capital Markets

Thanks for taking my question. I was wondering if you could just talk about the patient stratification in the Ostarine cachexia study, just given the different stages of patients that are allowed in and then (inaudible) the cancers?

Mitchell Steiner

Yes. Thank you. So, the question basically is a little bit more about the composition that patients in the trial. We try to – in the beginning make sure that we had a balance randomization and so basically what that means is we didn't want to have an unbalanced cancers represented in the placebo or the treatment arm. The patients all had to have at least a six-month or more life expectancy. Their ECOG score had to be zero or one. They had to have demonstrable weight loss and on average the weight loss is 5% or greater. We made sure that the lung cancer patient population represent approximately 25%, 28% colorectal's about 25%, 28%, and non-hodgkins lymphoma and CLL was about – in that same range maybe a little less, and then breast cancer was even – really a small minority of patient. So they are balanced from the standpoint of randomization for lung cancer and colorectal cancer and non-hodgkins lymphoma. The stratification will take a step back. The trials, the endpoint for all patients, and looking for an increase of at least 1 kg for all patients totaling body mass. There will be additional stratification is done by – there is a whole series of different stratification, but the most obvious ones are going to be gender, and also cancer type.

Aaron Reames – Wachovia Capital Markets

Thank you.

Operator

(Operator instructions) And your next question comes from the line of Eric Schmidt with Cowen and Co. Please proceed.

Eric Schmidt – Cowen and Co.

Good morning, guys. Mitch, do you have a meeting in mind, a medical meeting in mind for the, for presentation of the ADT data that are this year?

Mitchell Steiner

Yes. The first question is there's two kinds of – there's two sets of data that we have to deal with. The first one will be the full data set which we'll be presenting in one of the major scientific meetings as you know this fall was when you submit your abstracts for review and then it will be early part of next year that you will be able to actually present those data set. There is another meeting that will occur this fall. I believe it's a Cancer Supportive Care Meeting in which we're going to announce some very interesting data that will further differentiate GTx, our competitors and – so that's under review now. And hopefully we'll be able to – we'll put a press release out after as we get closer to that meeting. And actually present the data then. So we have in mind is a subset of data that I think going to be very interesting in consistent with the mechanism of toremifene this fall, and then second half of next year will be the usual scientific meetings.

Eric Schmidt – Cowen and Co.

Second half of next year or first half?

Mitchell Steiner

Sorry, first half.

Eric Schmidt – Cowen and Co.

That's ASCO prostate you're shooting for or ASCO?

Mitchell Steiner

We're going to shoot for ASCO prostate, obviously, we'll shoot in – that would make sense because that's now called ASCO Genitourinary Cancers, we'll do that one and that would be sort of the main focus right now. And then – and other things – we're right in – right now medical affairs is working through sort of the publication and abstract strategy. So I can say is that we do plan to have data to present first half of next year, but more importantly, we look to the data that's going to be coming out this fall.

Eric Schmidt – Cowen and Co.

Okay. And, Marc, you mentioned a couple of potential milestones in the near-term for either Merck or Ipsen. Can you just review what the next earnable milestones would be from GTx's standpoint?

Marc Hanover

Right. So, Eric, I mentioned that because as you know from the Ipsen relationship we've already received a small amount but nonetheless it was a scheduled millstone payment earlier in this year as a result of having a positive Phase III ADT data. We along the way can achieve getting milestone payments as an example or hypothetical would be for instance, after we receive approval from the EMEA regarding with Ipsen. There is other options along, other opportunities along the way as well. All of which are very important and meaningful to our balance sheet. As relates to Merck, clearly, as our relationship continues to advance we have a host of trials going on which makes us Merck-GTx relationship very, very exciting. And quite frankly, the opportunity to get milestone there really depend on initiation of additional studies as we move forward in the relationship all of which should in my mind take place within I'd classify it as near-term. However you want to classify, but definitely in a meaningful dollars in a 12-18 month window.

Eric Schmidt – Cowen and Co.

Thanks. And last question is on Ostarine or I guess what you're calling MK2866. I understand that to focus of the Merck collaboration and SARMs now is clearly on sarcopenia, but are you still planning on filing for FDA approval and indication in cachaxia either for Ostarine or any other compound or is this Phase II study now just kind of a proof of concept that leads you into greater sarcopenia trials?

Mitchell Steiner

It's actually the former. And that is that if this trial is successful, then there is every hope that we would move forward with additional studies to support indication so it's not just get this trial done and then shut it down and focus on sarcopenia. All – having said that there are many indications that we're looking at. So we just have to make sure that whatever indication we go after the market is there, the path is there. But at this point now, cancer wasting looks very promising.

Eric Schmidt – Cowen and Co.

Great. Thanks a lot.

Mitchell Steiner

Thank you.

Operator

And your next question comes from the line of Mike King of Rodman & Renshaw. Please proceed.

Mike King – Rodman & Renshaw

Good morning, guys. Thanks for taking my question. Marc, just a quick question on housekeeping basis. Can you just talk – I assume it's a timing issue. But why was R&D down sequentially, I know SG&A up sequentially by $402 [ph] million respectively?

Marc Hanover

Yes, so, Mike, the R&D number and G&A number obviously it is timing. Let's start from there. We still feel very comfortable about meeting our projection of being between the $52 million and $62 million number for our guidance for this year in terms of loss. But really there, in terms of R&D, we continue to pay for the supporting trials for in all the effort related to our NDA prep for PIN and our pipeline and of course the additional salaries related to med regulatory medical affairs.

On the G&A front, we've been very fortunate with some of these key leadership hires and that we feel very lucky to have gotten these people, and look forward to leveraging that to being more prepared for our launch. So I think it's timing as relates to the spend in terms of the ramp, I do expect R&D and G&A to increase in the second half of the year, but I still believe we will be within the guidance of $52 million to $62 million as we stated.

Mike King – Rodman & Renshaw

Okay. Appreciate the clarity there. And then on the Ostarine Phase II can you just talk a little bit more about the trial? Two questions related to the primary, why was the primary chosen at it is, what's the significance of 1 kg in lean body mass? And second, are the secondary is powered that we'll see statistics done on those or are we going to see sort of numerical comparisons?

Mitchell Steiner

The trial – actually the totally the primary endpoint lean body mass you have to kind of throw yourself back to the days of HIV wasting and the trials that were done there. Initially, weight, weight gain was acceptable and then it became clear that weight gain could be water weight, it doesn't necessarily have to be muscle weight. The good weight that you want to get is muscle, because muscles we have the protein stores, it's muscle that creates the enzymes and it's muscle, that quite frankly, when you get below 60%, 65% muscle threshold like the starvation in concentration camp patient, people die. And so muscle is more of an indicator how well you're going to do than either fat or total body weight.

So the FDA moved in a direction in the HIV patients are looking for lean body mass and then finally they said what we need to also add in performance of some sort. So the grip test, the bicycle test, that kind of stuff. Where we end up then is for muscle wasting in cancer is that lean body mass is much more significant in terms of outcomes in weight. And that a performance measurement of some store will help you understand what the clinical benefit is to the patient. So just increasing muscle mass is good, but increasing muscle mass with a benefit in some kind of physical limitation or performance will be – what the patient would experience. And it would make sense that if you have an increase in lean body mass and more muscle, that somehow, some way that's going to translate into performance benefit.

So the way to think of it is that lean body mass is about 60% of weight. So when you talk about a 1 kg increase, that's a pretty significant increase if you kind of. And the other reason we picked 1 kg is because that is what our key experts have – key opinion leaders have told us is the clinical hurdle that we need to reach in order for this to be considered a meaningful increase in total lean body mass. To remind you, in our Phase II sarcopenia trial which we did in both men and women (inaudible) elderly men and postmenopausal women, we achieved a 1.4 kg increase in three months, and this is a four-month study. So hopefully we will beat the 1 kg. That's what they came up.

Now, the statistics all around the primary endpoint which is lean body mass, and that's how the trial is powered. As you know performance measures tend to be a little bit more variable and so, we look at that as a secondary endpoint and help us power our Phase III. If we hit statistically in our secondary endpoints that'll be wonderful. But if we can get strong trend that will let us know whether our effect size should be in a Phase III or Phase IIb when additional Phase II that will be useful.

Mike King – Rodman & Renshaw

Is there any correlation either by amount of muscle added or time from increase in muscle mass to some kind of clinically beneficial outcome?

Mitchell Steiner

The studies we suggest that lean body mass does correlate with physical performance. Interestingly, if you read the literature, you'll have a – as people gain muscle, especially with a compound like SARM or testosterone, there tends to be an increase in strength before you see an increase in lean body mass. So in other words, somehow some way the (inaudible) in these cross fibers are starting to be built before you can actually measure lean body mass changes, and so strength comes first, then muscle mass, and then hopefully, as you get muscle mass and more strength. So it's not unusual to see strength occurring before muscle mass.

What's going to happen in this patient population, no ones really studied them the way we have. There has been some oxangelone [ph] studies and most recently, one was reported at ASCO where they showed an increase in lean body mass in cancer patients used in oxangelone. And so the proof of concept is out there that an agent that can build using the androgen receptor such as a steroidal synthetic testosterone. So the proof of concept is out there. We're going to hopefully be able to do is better define with the appropriate performance measurement will be.

Mike King – Rodman & Renshaw

Fair enough. And then just one quick question in closing. On ADT, why is this de novo – is this de novo NDA? Why is it not a supplemental?

Mitchell Steiner

It's a technicality. We're referencing it just as much as supplemental. But one of the things that we want to make sure that we did is as you know Fareston was approved in 1998. And we want to make sure that all the safety and labeling requirements for 2008, 2009 are in place. And so it's a technicality. From a timing standpoint and from a practicality standpoint, this de novo NDA is basically heavily referenced NDA. So we need to call it de novo NDA. And because all of those components, including CMC for the 60 mg or any available to the FDA. So technicality as opposed to had to do more with the kinds of things that you submit to the FDA, but we're going to submit electronic one and like I said, it's going to be heavily referenced to the FDA – to the original NDA. And according to our regulatory people, you can call it what you like, but essentially, it will be treated the same way as a supplemental, but we'll have more information, therefore, it's more like so the features are both.

Mike King – Rodman & Renshaw

Understood. Thanks so much.

Mitchell Steiner

Thank you.

Operator

(Operator instructions) And your next question comes from the line of Lucy Lu with Citi. Please proceed.

Lucy Lu – Citi

Great. Thank you. Good morning. It sounds like from the press release that you and Merck are picking a different SARM molecule for sarcopenia. Can you just talk about the timeline of the program? And also, can you please remind us how you share your R&D costs with Merck on the SARM program? Thanks.

Mitchell Steiner

Sure. The first impression is that the press release you gather that they're going to pick a different molecule to go forward in sarcopenia and that's incorrect. At this point, now, Ostarine and some of their internal compounds are being evaluated. No compound has been selected to go forward to sarcopenia. At this point, we're just evaluating all them so to say that Ostarine would not be (inaudible) Ostarine is not the one to go forward. I couldn't say that either.

So probably the best way to say that is that we're continuing to gather data both on Ostarine and other molecules – as you know, Merck had their own molecules that were already in clinical trial. We had our compounds that had finished clinical trials and then also in other clinical trial. So as you would imagine we're going to look at all the data and pick the best molecule to go forward and since most of these molecules are in the Phase II range, we're pretty much where we are with Ostarine in the Phase II range. From a standpoint of economics, of course GTx can basically get the same economics whether it's a Merck compound or it's our compound going forward. So it really doesn't matter from the financial standpoint. We just want the best one based on science to go forward.

As relates to R&D, GTx – Merck picks up all of the R&D costs going forward as well as commercialization costs, and so GTx really doesn't have to reach into its pocket for another red cent to move these programs forward. And we do get – in addition to that we do get some basically research payment $5 million annually for three years, that is sort of a guarantee payments. So that's on – that's in the evaluation of funding as well. So again,

Ostarine as good a chance as any of the other molecules to go forward. No change there, please I'm sorry if the press release gave you an impression that they picked a different one. That's not true. And then finally, R&D going forward is picked up by Merck.

Lucy Lu – Citi

And so, Mitch, when would you have basically an idea, like how you move sarcopenia into Phase III? When would you – what's the timeline in terms of picking a compound, and actually have some kind of clinical trial and regulatory strategy for sarcopenia?

Mitchell Steiner

It's a great question. We're evaluating that with Merck right now. It's a little bit more complex. And as soon as we have more clarity on what the length of the Phase IIb program or Phase III program will apply to what the patient population go after, that will all influence timeline, number of patients and that kind of stuff. We're all still in the preliminary phase with that. There's a lot of work being done. So I don't want to give you the impression that no work has been done. It's in fact so much work has been done in which we want to make sure we make a good decision. One of the beauties of having Merck as a partner is they have done a tremendous job, gathering the information, key opinion leaders, market research, regulatory, complimented with our same information. And so, together, I think if anybody is going to move this thing forward, it's going to be Merck/GTx.

Lucy Lu – Citi

Thank you.

Mitchell Steiner

Thank you, Lucy.

Operator

And your next question comes from the line of Jonathan Eckhardt with Leerink Swann. Please proceed.

Howard Liang – Leerink Swann

Hi, this is actually Howard Liang from Leerink Swann. Mitch, can you give us a sense of the nature of the additional data on ADT that provides clinical differentiation or do we have to wait for the medical meeting?

Mitchell Steiner

Is this Jonathan or Howard?

Howard Liang – Leerink Swann

This is Howard.

Mitchell Steiner

Hey, Howard. The answer is I really can't share with you the nature of the information, because that would not be helpful from a standpoint of getting reviewed and accepted and that kind of stuff. Let me just say that it will definitely differentiate us from our competitors. And I'm excited about the data, and that' why we want to make sure it's in a pure review form before we present it. It will enhance portfolio. So for example, what makes us unique right now is its oral, it sure treats, basically prevents fractures. But more importantly, that we hit these other secondary endpoints, all estrogen related and that we could do additional studies to support that so it's more than just proof of concept, it's proof of concept plus allowing us additional expanded indication. So tremendous commercial value as we roll it out into other areas beyond ADT.

Howard Liang – Leerink Swann

Great. And then if I could ask you also about the pricing assumptions for Acapodene under two scenarios either with one approved indication in ADT, or two indications in ADT and PIN. I guess the reason for that for my question is that I'd assume therefore PIN that you will be able to have greater pricing, but at the lower dose. First, I could see that right understanding and how would you solve that other than simply having two brands?

Mitchell Steiner

Yes. So, Howard, it's a good question. First of all, we've done a – again, we've done an extensive market research on the pricing, and as relates to the 20 mg elasticity I guess if you want to call that from a pricing projection standpoint, clearly, there is an opportunity there to have a higher price than the 80. However, having said that, we are finding that based on the data and based on what we have has a – what we hope to have I guess I should say is our label for ADT, we actually believe that we're going to get to the higher end of our pricing projection for ADT as well.

So after we understand what our label is we'll have a better answer to be able to address this. Strategic question that you have – you presented. It would be very opportunistic for us to be able to price at the same price and certainly if that price is let's just say more than what we expected, and it would be the same for both PIN and ADT, it would certainly be significantly more than our models have reflected so far. And in fact, our models reflected a $2.5, $3 price on the PIN trial and $5 for the ADT. And again, I can't really comment on the certainty until we understand our label and we go down the road a little bit here in terms of doing our pricing diligence. But it certainly will give us the confidence to be able to have a higher price.

Howard Liang – Leerink Swann

In fact, just to clarify, did you say $2 to $3 for ADT or – ?

Mitchell Steiner

No, $2 to $3 – our original models are basically $2.5 to $3.5 per pill per day on the PIN trial and on the ADT was $5. So that was what our original models were when we were going through the – our commercial models and preparation all that. I do believe that there is a great possibility that we will be able to see a higher price, but again, I can't really go through that until we understand and analyze all the diligence on the pricing, get our label et cetera, et cetera.

Marc Hanover

Yes, the scientific data would support that.

Mitchell Steiner

Absolutely.

Marc Hanover

(inaudible) of our payors and given that (inaudible) now have these key managed care individuals on staff, they're providing us additional guidance that gives us even more confidence in our approach.

Howard Liang – Leerink Swann

Great. Thanks very much.

Mitchell Steiner

Thank you, Howard.

Operator

And your next question is a follow-up from the line of Mike King with Rodman & Renshaw. Please proceed.

Mike King – Rodman & Renshaw

Thanks for allowing me to follow-up that. Mitch, can you comment on HG PIN? I know we went through this before on the previous conference call, but just remind us again, what the power is to detect the difference in the two arms of the trial? And is this – if we don't see result in the first half of next year, is this over and done with? Or will we try to track the curves out to some future point or pull it for futility?

Marc Hanover

Yes, great question. So the first part of the question is basically kind of what do we expect in going forward. As you know the trial is a total alpha of 0.01. We spent 0.001 in our interim analysis, which leaves the alpha 0.009. So when I tell you that we believe that this is anything like our Phase IIb where we hit a 22% reduction and let me remind you the 22% reduction includes the missed cancers. So we fully led just – FDA doesn't care do we have a missed cancer or not. You got to every patient that gets treated, every patient has prostate cancer, that's how the curves have to differentiate. We're at 22% reduction, our power is going to be well above 90% and we couldn't get as low as about 19% reduction and still hit our statistical alpha.

With that said, Mitch, is that still significant? Well, let's think about that. A 22% reduction in a three-year study is the average of biopsy one, biopsy two, biopsy three. You still could have at year three a 48% reduction, and but the Caplan-Meyer curves will have time to the event as the P-value. With that said, let's say the 22% reduction is in fact what we get in year three. Well, the PCPT trial had a 24% reduction at year seven. So even a 22% reduction at year three is clinically significant. To answer your question if we don't see what we need to see in the second quarter of next year, we just kind of hang the trial up and not worry about it. The answer is no. For safety reasons, we want to complete the trial, get every patient through and we will reevaluate the data and depending on the compelling nature of the data, that will determine whether we move forward with the FDA anyway. But, at this point now, we're confident that this anything like our Phase IIb, amid in a very few prevention studies we'll actually do a Phase IIb and do a dose finding like we did, that's what gives us the more confidence especially with an endpoint like cancer is opposed to pain whether it goes away or not, we didn't use a surrogate endpoint. We use the exact endpoint. So our feeling at this point is get the data second quarter next year, and if it doesn't hit, we're not going to hang it up. We're going to let the trial complete and then reassess.

Mike King – Rodman & Renshaw

And then I just wondered if the PCPT if the rereads on the biopsies has caused you to think about how they're being done in HG PIN trial?

Mitchell Steiner

Yes. Well, it turns out that the finasteride had affected – remember, finasteride affects BPH. And so the trouble with the PCPT trial is they had to explain away couple of issues. One was the fact that more cancers that were more aggressive were picked up in the finasteride arm. Explanations are everything from artifact to, well, you got rid of the normal tissue which meant that the cancerous tissue which doesn't respond to finasteride was more prevalent. Therefore, you're more likely to pick it up and you need biopsy. And then the third confounding factor was they change the way that Gleason score was being read early on, sort of a modified Gleason score and then they came back and regret it. I think at the end of the day it's not what they found, because I think what they found really helps GTx where they basically said is that hormonal therapy of the prostate ended up in prevention of prostate cancer. And all the most effective therapies for breast cancer and for prostate cancer have been hormonally-based and so there's no surprise that toremifene which is a hormone effective of breast cancer would have an activity in prostate cancer. What's different is the patients that we pick to put into the study.

So in the PCPT study, they pick patients with BPH, normal prostate, normal digital rectal examinations, PSAs had to be low and so there really were at low risk. In our situation, we pick patients that most likely had elevated PSA that had high grade PIN so they have a premalignant lesion. And so, really, it's your ductal carcinoma insitu of breast cancer, if you will, that we went after and so we do think that it will differentiate us that the patients will be more motivated, and that's why we're seeing more events now and hopefully we'll be able to differentiate ourselves from the standpoint of bigger reduction when we look again in the second quarter next year.

Mike King – Rodman & Renshaw

Understood. Thanks very much.

Mitchell Steiner

Thank you, Michael.

Operator

Ladies and gentlemen, this now concludes the question-and-answer session for today's call.

Mitchell Steiner

Thank you, operator. We would like to thank you all for your interest in GTx and we look forward to updating you on our progress. 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. Good day.

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Source: GTx, Inc. Q2 2008 Earnings Call Transcript
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