GTx, Inc.: Is This Micro Cap Breaking Out?

| About: GTx, Inc. (GTXI)

"We're in an Excellent Position at GTx" - CEO Mitch Steiner

GTx (NASDAQ:GTXI) is a microcap biopharmaceutical company with a large pipeline of synthetic hormone- like drugs designed to treat cancer, chemotherapy side effects, or provide cancer supportive care. The GTx Phase 3 drug, Ostarine (enobosarm, GTX-024) was in 8 successful Phase 1 and 2 clinical trials, and the Phase 3 trials will end in May 2013. The European Medical Agency approved the study design, so, with positive Phase 3 results, an NDA would be filed in 2 markets; GTx just announced that the Data Safety Monitoring Board (DSMB) recommends continuation of the 2 trials as planned, i.e., no worrisome side effects were identified. A DSMB meeting so close to the study end is good news for GTx, since it is unlikely that any side effect "surprises" will crop up. Eli Lilly (NYSE:LLY); Shire Pharmaceuticals (SHPD); and Cytokinetics (NASDAQ:CYTK) have compounds with similar treatment goals, but are still in Phases 1/2, 2A, and 2B, respectively. Thus, Ostarine has a head start, and would be the first NDA for the indication of muscle loss.

Enobosarm trial goals

The primary endpoints for the enobosarm Phase 3 clinical trials, POWER 1 and POWER 2, are to stabilize or improve muscle wasting (sarcopenia) and physical function (strength) in patients with advanced, Stage 3/4 non-small cell lung cancer (NSCLC), i.e., in a rapid catabolic state. Per GTx, 88% of advanced NSCLC patients have sarcopenia. The last patients will be assessed in May, with topline results expected in third-quarter 2013. Per the FDA agreement, the approval decision will be based solely on the primary endpoints. Secondary endpoints are quality of life issues, encompassing mobility, ability to remain at home, less time in care facilities; and ideally, from a macro- and societal perspective, decreased healthcare utilization. With favorable results, the projected NDA filing would be in fourth-quarter 2013 or first-quarter 2014. The FDA granted the drug a fast track status as an unmet medical need in January 2013. As a caveat, a fast-track designation is no guarantee of drug approval, as GTx experienced in 2009, with its prior NDA for Acapodene (toremifene).

Revenue estimates

Looking forward, GTx estimates the cost of enobosarm at $1500- $3000 per month, most likely on the low end-- on par with other cancer support drugs. GTx's own peak revenue projections of $700 to $750 million are based strictly on the NSCLC indication in the US, minus possible European revenue and likely off-label use. BioTuesday's estimate is $250 million. Private payers would cover enobosarm, but with prohibitive patient out-of-pocket (OOP) costs. If the drug were seen to decrease healthcare utilization, let's say, by a couple of hospital or rehab admissions, the payers might find that beneficial to themselves-- traditionally, a strong motivator.

A Post-Approval Scenario

The GTx strategy is to partner or collaborate with a large pharmaceutical or biopharma company for future drug development and commercialization. Today, major drug manufacturers are hungry, and on the prowl for new pipeline drugs; an approved Ostarine would be a tasty morsel. My structural preference would be a licensing agreement with milestone and tiered royalty payments, similar to Depomed's (NASDAQ:DEPO) 32% royalties on Glumetza; or Astex Pharmaceuticals' (NASDAQ:ASTX) highest tier of 30% for Dacogen. A large pharma would have manufacturing capacity, ramp-up ability for potential rapid market acceptance, infrastructure to deal with any patent infringement issues, and a ready-to-go sales force.

Selective financial data

GTx's market cap is $294.4 million, with 62.89 million shares outstanding, and a 12.95% short interest dragging shares down. The Dec. 30, 2012 cash balance was $51.6 million, with no debt, and GTx believes that it can fund its operations through 2013. There was no income in 2012, due to the ending of prior collaborative revenue, and lost sales revenue from the drug Fareston, which GTx sold in September 2012 for $21.7 million cash. Projected 2013 R&D costs will exceed those of 2011 and 2012, $31.9 million, and $38.9 million, respectively. The 2012 net loss was $27.1 million, with a cumulative deficit of $413.2 million. Such are the limitations of a microcap, intellectual-property-rich, and cash-poor biopharmaceutical company. Proper caution is indicated here, with the cumulative deficit of most concern. Seventy per cent of the company is insider-owned, with 25 acquisitions and 8 sales since January 2012; institutions own 25%.

Invest in GTx?

Recent analyst recommendations are similar, and all assume a successful NDA: Stifel Nicholas initiated a Buy, PT $7; Zacks, a Buy; and 3 Strong Buys and 2 Holds from 5 unidentified analysts. The GTx 2013 first quarter financial results webcast is to be presented May 3, and should be informative. One could conceive of several run-ups: 1) following the webcast 2) surrounding the trial conclusion in May 3) preceding the topline data announcement 4) a large pop if Ostarine is approved, or vice versa. My opinion is that it will be approved. Even outside of that, the company will most certainly exceed its 12-month high of 5.41 prior to trial results. If a catalyst event drove the share price up sharply, it raises the prospect of a short squeeze, perhaps commencing already. I join the above analysts, and recommend a Buy or Accumulate for GTx. Accordingly, and with the above caveats, it might be time to consider sticking a little GTx into your portfolio, especially if shares drop back. Comment: As I edit this for publication, there was a 6.60% pop to 4.37 at market close yesterday, and another 6.42% pop to 4.64 today (Friday, April 19). There have been recent higher trading volumes, and some large block trades on the buy side.

Note: GTx has a second drug, Capesaris (GTX-758) in Phase 2 clinical trials, with no likely near term impact. It will be the topic of a separate article.

Disclosure: I am long GTXI, DEPO, ASTX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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