ITEM 1. BUSINESS
Overview
We are a biopharmaceutical company dedicated to the discovery, development and commercialization of medicines to treat serious and/or
significant unmet medical conditions. Under an exclusive worldwide license agreement with the University of Tennessee Research Foundation, or UTRF, we are developing UTRF's proprietary selective
androgen receptor degrader, or SARD, technology, which we believe has the potential to provide compounds that can degrade or antagonize multiple forms of androgen receptor, or AR, thereby potentially
inhibiting tumor growth in patients with progressive castration-resistant prostate cancer, or CRPC, including those patients who do not respond to or are resistant to current androgen targeted
therapies. We are in the process of completing ongoing mechanistic preclinical studies in order to select the most appropriate SARD compounds to move forward into the additional preclinical studies
required to submit an investigational new drug application, or IND, and potentially advance one of our SARD compounds into a first-in-human clinical trial.
We
had been developing selective androgen receptor modulators, or SARMs. Our SARM product candidate, enobosarm (GTx-024), was most recently evaluated in post-menopausal women with
stress urinary incontinence, or SUI. During the third quarter of 2018, we announced that our randomized, placebo-controlled Phase 2 clinical trial, or the ASTRID trial, evaluating the change in
the mean number of daily SUI episodes following 12 weeks of enobosarm treatment failed to achieve statistical significance on the primary endpoint of the proportion of patients with a greater
than 50% reduction in incontinence episodes per day compared to placebo. We have completed the ASTRID trial, including our review of the full data sets from the clinical trial, and have determined
that there is not a sufficient path forward to warrant additional clinical development of enobosarm to treat SUI. We have therefore discontinued further development of enobosarm to treat SUI,
including discontinuing the related durability and open-label safety extension studies we initiated before we received topline data from the ASTRID trial. We have also discontinued any further
development of our SARM program generally.
Following
the announcement of the ASTRID trial results, our board of directors commenced a process of evaluating strategic alternatives to maximize stockholder value. To assist with this
process, our board of directors engaged a financial advisory firm to help explore our available strategic alternatives, including possible mergers and business combinations, a sale of part or all of
our assets, and collaboration and licensing arrangements. On March 6, 2019, we and Oncternal announced the signing of the Merger Agreement. Upon the terms and subject to the satisfaction of the
conditions described in the Merger Agreement, including approval of the transaction by our stockholders and Oncternal's stockholders, a wholly-owned subsidiary of GTx will be merged with and into
Oncternal, with Oncternal surviving the Merger as a wholly-owned subsidiary of GTx.
The
proposed Merger is structured as a stock-for-stock transaction whereby all of Oncternal's outstanding shares of common stock and securities convertible into or exercisable for
Oncternal's common stock will be converted into the right to receive GTx common stock and securities convertible into or exercisable for GTx common stock. Under the exchange ratio formula in the
Merger Agreement, the former Oncternal stockholders immediately before the Merger are expected to own approximately 75% of the outstanding capital stock of GTx, and the stockholders of GTx immediately
before the Merger are expected to own approximately 25% of the outstanding capital stock of GTx, subject to certain assumptions. The exchange ratio formula excludes Oncternal's outstanding stock
options and warrants and GTx's outstanding stock options and warrants. To the extent Oncternal's outstanding stock options or warrants are exercised in the future, it will result in further dilution
to
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GTx's
stockholders. Under certain circumstances as set forth in the Merger Agreement, the ownership percentages may be adjusted upward or downward based on cash levels of the respective companies at
the closing of the Merger. We anticipate that the Merger will close in the second quarter of 2019. Following the closing of the Merger, James Breitmeyer will serve as GTx's Chief Executive Officer,
Richard Vincent will serve as GTx's Chief Financial Officer, and Lauren Otsuki will serve as GTx's Chief Operating Officer. Additionally, following the closing of the Merger, our board of directors
will consist of nine directors, including two current GTx board members. This transaction, which has been
approved by our board of directors and the board of directors of Oncternal, is subject to the satisfaction or waiver of certain conditions, including the required approvals by the parties'
stockholders (including stockholder approval from one of Oncternal's significant stockholders, Shanghai Pharmaceutical (USA) Inc., which holds all of the outstanding shares of one series of
Oncternal's preferred stock that must approve the transactions contemplated by the Merger Agreement) and other customary closing conditions. Certain affiliates of ours who hold approximately 45% of
our common stock as of date of the Merger Agreement have agreed to vote in favor of the Merger and certain affiliates of Oncternal, excluding Shanghai Pharmaceutical (USA) Inc., who hold
approximately 42% of the outstanding capital stock of Oncternal as of date of the Merger Agreement have agreed to vote in favor of the Merger. However, Oncternal currently expects that it will receive
stockholder approval from Shanghai Pharmaceutical (USA) Inc. approximately two months after the date of the Merger Agreement based on the internal approval process required for such approval at
Shanghai Pharmaceutical (USA) Inc.
In
addition, at the effective time of the Merger, GTx and certain other parties will enter into a Contingent Value Rights Agreement, or the CVR Agreement. Pursuant to the CVR Agreement,
for each share of GTx common stock held, GTx stockholders of record as of immediately prior to the effective time of the Merger will receive one contingent value right, or CVR, entitling such holders
to receive in the aggregate 50% of any net proceeds received during the 15-year period after the closing of the Merger from the grant, sale or transfer of rights to our SARD or SARM technology that
occurs during the 10-year period after the closing of the Merger (or in the 11
th
year if based on a term sheet approved during the initial 10-year period) and, if applicable, to
receive royalties on the sale of any SARD products by the combined company during the 15-year period after the closing of the Merger. Under the CVR Agreement, Oncternal (as successor in interest to
GTx) agreed to use commercially reasonable efforts to develop SARD products and to divest our SARM technology, subject to certain limitations. The CVRs will not be transferable, except in certain
limited circumstances, will not be certificated or evidenced by any instrument and will not be registered with the SEC or listed for trading on any exchange.
Although
we have entered into the Merger Agreement and intend to consummate the proposed Merger, there is no assurance that we will be able to successfully consummate the proposed Merger
on a timely basis, or at all. If, for any reason, the proposed Merger is not completed, we will reconsider our strategic alternatives and could pursue one or more of the following courses of
action:
-
-
Continue development of our SARD
program.
As set forth above, we are in the process of completing ongoing mechanistic preclinical studies in order to select the most appropriate
SARD compounds to move forward into the additional preclinical studies required to submit an IND and potentially advance one of our SARD compounds into a first-in-human clinical trial. Accordingly,
if, for any reason, the proposed Merger is not consummated, we may determine to move forward with our planned IND-enabling studies of our SARD compounds. However, while we believe that our existing
capital resources will be adequate to enable us to conduct and complete planned IND-enabling preclinical studies of our SARD compounds, we will require significant additional financial resources in
order to initiate and complete initial human clinical trials of a SARD compound and to otherwise further the development of our SARD program.
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As
a result, we may also resume our efforts to seek additional funds through potential collaborative, partnering or other strategic arrangements to provide us with the necessary resources for the
development of our SARD program.
-
-
Pursue potential collaborative, partnering or other strategic arrangements for our SARM
assets, including a sale or other divestiture of our SARM assets.
We have discontinued further development of our SARM program, including
enobosarm, and do not currently have any plans to resume development of our SARM program. We continue our efforts to seek potential collaborative, partnering or other strategic arrangements for our
SARM assets, including a sale or other divestiture of our SARM assets.
-
-
Pursue another strategic transaction like the proposed
Merger.
Our board of directors may elect to pursue an alternative strategy, one of which may be a strategic transaction similar to the proposed
Merger.
-
-
Dissolve and liquidate our
assets.
If, for any reason, the proposed Merger is not consummated and we are unable to identify and complete an alternative strategic
transaction like the Merger or potential collaborative, partnering or other strategic arrangements for our SARM assets, or to continue to operate our business due to our inability to raise additional
funding for the development of our SARD program or otherwise, we may be required to dissolve and liquidate our assets. In such case, we would be required to pay all of our debts and contractual
obligations, and to set aside certain reserves for potential future claims, and there can be no assurances as to the amount or timing of available cash left to distribute to our stockholders after
paying our debts and other obligations and setting aside funds for reserves.
Our SARD Program
SARDs for the Potential Treatment of Castration Resistant Prostate Cancer
Scientific Overview.
SARDs are a novel class of drugs. The AR is a major driver of prostate tumor cell proliferation, and
blocking its activity is a
therapeutic target. Despite the use of therapies designed to inhibit the AR pathway in men with advanced prostate cancer, a significant number of men have tumors that do not respond to such
therapeutic approaches and/or become resistant to them. This lack of response may be due to the presence of forms of the AR (splice variants and mutated) for which these therapies are not effective.
SARDs are designed to not only bind to androgen receptors, but also induce androgen receptor degradation and ultimately inhibit tumor cell growth. Selective AR degradation which targets the N-terminus
may be an effective therapeutic strategy where a variant or mutated AR can be degraded by the SARD. This ability to circumvent common drug resistance in prostate cancer patients may provide an
important tool for effective new treatments.
We
believe SARDs have the potential to treat prostate cancer, as well as other diseases such as benign prostatic hyperplasia and Kennedy's disease. We envision initially developing SARDs
as a potentially novel treatment for men with CRPC, including those who do not respond or are resistant to currently approved therapies. Although current therapies have improved overall survival in
men with CRPC, approximately one-third of the CRPC patients do not respond to these therapies, due in part to the presence of splice variants, including AR-V7, as well as mutations in the androgen
receptor. Splice variants of the androgen receptor have been identified in which the ligand binding domain, the binding site for androgens and necessary for the action of many of the current
therapies, is lost. In addition, most patients who initially respond to available treatments eventually progress due to the emergence of resistance to these therapies. It is believed that CRPC growth
remains highly dependent on androgen receptor activity, although the mechanisms which underlie this resistance are not fully understood. We
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believe
a therapeutic agent that would safely degrade multiple forms of the androgen receptor, including those without the ligand binding domain, would be uniquely positioned to address this patient
population.
Potential Market.
In the United States alone, we believe there are approximately 80,000 men who have developed resistance to
luteinizing
hormone-releasing hormone, or LHRH, therapies and therefore have CRPC but who have not received chemotherapy. We believe there are approximately 36,000 men diagnosed each year with metastatic hormone
sensitive prostate cancer. Zytiga® and XTANDI® are currently the only drugs approved for the treatment of metastatic CRPC in patients who have not yet received chemotherapy,
although several other drugs are in clinical development for this indication. We believe new hormonal therapies in development, if approved, will be used prior to chemotherapy as physicians and
patients look for treatment options capable of delaying cancer progression and possibly prolonging survival prior to chemotherapy.
Preclinical Development.
We are in the process of completing ongoing mechanistic preclinical studies in order to select the most
appropriate SARD
compounds to move forward into the additional preclinical studies required to submit an IND and potentially advance one of our SARD compounds into a first-in-human clinical trial. However, while we
believe that our existing capital resources will be adequate to enable us to conduct and complete planned IND-enabling preclinical studies of our SARD compounds, we will require significant additional
financial resources in order to initiate and complete initial human clinical trials of a SARD compound and to otherwise further the development of our SARD program. Accordingly, if, for any reason,
the proposed Merger is not consummated, we may resume our efforts to seek additional funds through potential collaborative, partnering or other strategic arrangements to provide us with the necessary
resources for the development of our SARD program.
SARMs
Evaluation of Enobosarm for the Treatment of Postmenopausal Women with SUI.
In the third quarter of 2017, we initiated the
ASTRID trial at over 60
clinical trial centers in the United States to evaluate the change in the mean number of daily SUI episodes following 12 weeks of enobosarm treatment. The ASTRID trial evaluated the safety and
efficacy of enobosarm (1 mg and 3 mg) compared with placebo in post-menopausal women who have demonstrated SUI symptoms for more than six months, with an average of 3 to 15 reported SUI episodes per
day over a three-day period, and a positive bladder stress test. The primary endpoint for the ASTRID trial was the percentage of patients with at least a 50 percent reduction in mean leaks per
day at week 12, compared to baseline. During the third quarter of 2018, we announced that the ASTRID trial failed to achieve statistical significance on the primary endpoint of the proportion of
patients with a greater than 50% reduction in incontinence episodes per day compared to placebo. The percentage of patients with a greater than 50% reduction after 12 weeks of enobosarm
treatment was 58.9% for 3 mg, 57.7% for 1 mg and 52.7% for placebo. Enobosarm was generally safe and well tolerated, and reported adverse events were minimal and similar across all
treatment groups. We have completed the ASTRID trial, including our review of the full data sets from the clinical trial, and have determined that there is not a sufficient path forward to warrant
additional clinical development of enobosarm to treat SUI. We have therefore discontinued further development of enobosarm to treat SUI, including discontinuing the related durability and open-label
safety extension studies we initiated before we received topline data from the ASTRID trial.
Evaluation of Enobosarm for the Treatment of Breast Cancer.
We have previously evaluated enobosarm in a Phase 2 clinical
trial designed to
evaluate the efficacy and safety of a 9 mg and 18 mg dose of enobosarm in patients whose advanced breast cancer is both estrogen receptor, or ER, positive and AR positive. We announced in
November 2016 that enobosarm achieved the pre-specified primary efficacy endpoint in the 9 mg dose cohort with 9 patients achieving a clinical benefit response, or CBR,
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defined
as a complete response, partial response, or stable disease, among the first 22 evaluable patients in that cohort. In November 2017, we announced that in the 9 mg cohort, a total of 14
patients achieved a CBR following 24 weeks of treatment. We also announced in November of 2017 that the 18 mg cohort achieved the pre-specified primary efficacy endpoint as 12 patients
achieved a CBR at 24 weeks. Although both the 9 mg and 18 mg cohorts met the primary efficacy endpoint in the Phase 2 clinical trial, after evaluating the breast cancer environment where
the treatment paradigms are shifting to immunotherapies and/or combination therapies, we decided in the third quarter of 2017 that the time and cost of conducting the necessary clinical trials for
potential approval in this indication does not warrant further development of enobosarm in this indication. In 2015, we also commenced enrollment in a Phase 2 proof-of-concept clinical trial
designed to evaluate the efficacy and safety of an 18 mg dose of enobosarm in patients with advanced AR positive triple-negative breast cancer, or TNBC. This clinical trial was conducted utilizing a
Simon's two-stage trial design whereby if at least 2 of the first 21 patients achieved clinical benefit, the trial was designed to enroll the second stage, which would result in enrolling 41 evaluable
patients in the clinical trial. During the third quarter of 2017, we completed our review of the data from the first stage of the clinical trial. While our review of the data did not raise any safety
concerns, it did confirm that there were insufficient patients achieving clinical benefit from enobosarm treatment to continue this clinical trial and we closed the clinical trial down.
Discontinuation of SARM Development Efforts.
Following our review of the full data sets from the ASTRID trial, we discontinued
further development of
enobosarm to treat SUI and otherwise discontinued any further development of our SARM program. We continue our efforts to seek potential collaborative, partnering or other strategic arrangements for
our SARM assets, including a sale or other divestiture of our SARM assets. If the Merger is completed, any net proceeds derived from the disposition or licensing of our SARM assets following
completion of the Merger will be made available to our stockholders in accordance with the CVR Agreement. We have for many years actively pursued, but have been unable to successfully enter into,
potential collaborative, partnering or other
strategic arrangements for our SARM assets. If we are unable to ultimately enter into any such arrangements for our SARM assets, we will not receive any return on our investment in enobosarm and our
other SARMs.
Licenses and Collaborative Relationships
We have in the past established and, if the proposed Merger is not completed, we may continue to pursue, in-licenses and partnering, and
collaborative or other strategic relationships with academic institutions and with other pharmaceutical and biotechnology companies.
In
March 2015, we and UTRF entered into a license agreement, or the SARD License Agreement, pursuant to which we were granted exclusive worldwide rights in all existing SARD technologies
owned or controlled by UTRF, including all improvements thereto. Under the SARD License Agreement, we are obligated to employ active, diligent efforts to conduct preclinical research and development
activities for the SARD program to advance one or more lead compounds into clinical development. We are also obligated to pay UTRF annual license maintenance fees, low single-digit royalties on net
sales of products and additional royalties on sublicense revenues, depending on the state of development of a clinical product candidate at the time it is sublicensed. Unless terminated earlier, the
term of the SARD License Agreement will continue, on a country-by-country basis, until the expiration of the last valid claim of any licensed patent in the particular country in which a licensed
patent is granted. UTRF may terminate the SARD License Agreement for our uncured breach or upon our bankruptcy.
In
July 2007, we and UTRF also previously entered into a consolidated, amended and restated license agreement, or the SARM License Agreement, to consolidate and replace our two
previously
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existing
SARM license agreements with UTRF and to modify and expand certain rights and obligations of each of the parties under both license agreements. Pursuant to the SARM License Agreement, we were
granted exclusive worldwide rights in all existing SARM technologies owned or controlled by UTRF, including enobosarm, and certain improvements thereto, and exclusive rights to certain future SARM
technology that may be developed by certain scientists at the University of Tennessee or subsequently licensed to UTRF under certain existing inter-institutional agreements with The Ohio State
University. Unless terminated earlier, the term of the SARM License Agreement will continue, on a country-by-country basis, for the longer of 20 years or until the expiration of the last valid
claim of
any licensed patent in the particular country in which a licensed product is being sold. UTRF may terminate the SARM License Agreement for our uncured breach or upon our bankruptcy.
Under
the SARM License Agreement, we paid UTRF a one-time, upfront fee of $290,000 as consideration for entering into the SARM License Agreement. We are also obligated to pay UTRF annual
license maintenance fees, low single-digit royalties on net sales of products and mid-single-digit royalties on sublicense revenues. We also agreed to pay all expenses to file, prosecute and maintain
the patents relating to the licensed SARM technologies, and are obligated to use commercially reasonable efforts to develop and commercialize products based on the licensed SARM technologies. While we
currently have ceased development efforts for SARMs, we continue to seek potential collaborative, partnering or other strategic arrangements for our SARM assets, including a sale or other divestiture
of our SARM assets. In December 2008, we and UTRF amended the SARM License Agreement, or the SARM License Amendment, to, among other things, clarify the treatment of certain payments that we may
receive from our current and future sublicensees for purposes of determining sublicense fees payable to UTRF, including the treatment of payments made to us in exchange for the sale of our securities
in connection with sublicensing arrangements. In consideration for the execution of the SARM License Amendment, we paid UTRF $494,000.
Manufacturing
We do not currently own or operate manufacturing facilities, and we rely, and expect to continue to rely, on third parties for the production of
clinical and commercial quantities of any product candidates.
There
are no complicated chemistries or unusual equipment required in the manufacturing process for either SARMs or SARDs. We rely and expect to continue to rely on third-party
vendors for drug substance and drug product manufacturing, including drug substance for SARDs used in our current and potential future preclinical studies.
Competition
The biotechnology and biopharmaceutical industries are characterized by rapidly advancing technologies, intense competition and a strong
emphasis on proprietary products. We face competition from many different sources, including commercial pharmaceutical and biotechnology enterprises, academic institutions, government agencies and
private and public research institutions.
Many
of our competitors have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials,
obtaining regulatory approvals and marketing approved products than we do. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative
arrangements with large and established companies. Our commercial opportunities will be reduced or eliminated if our competitors
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develop
and commercialize similar products that are safer, more effective, have fewer side effects or are less expensive than any products that we and/or our collaborators may develop.
SARDs for the Potential Treatment of CRPC
We have entered into an exclusive worldwide license agreement with UTRF to develop its proprietary SARD technology which we believe has the
potential to provide compounds that can degrade or antagonize multiple forms of the AR thereby inhibiting tumor growth in patients with CRPC, including those patients who do not respond or are
resistant to current therapies. Drugs in development having potentially similar approaches to removing the AR by degradation include Arvinas Inc.'s ARV-110, which is a chimera with an AR
binding moiety on one end and an E3 ligase recruiting element on the other that has recently entered Phase 1 development for the treatment of advanced prostate cancer, and Androscience
Corporation's androgen receptor degrader enhancer, ASC-J9, which is currently in development for acne and alopecia with the potential for development as a treatment for prostate cancer. Additionally,
Essa Pharma Inc. recently completed a Phase 1 study with EPI-506, an AR antagonist that targets the N-terminal domain of the AR, and has plans to develop a second generation agent. C4
Therapeutics, Inc. is developing degronimids as means to degrade the AR through the ligand binding domain associated degradation. CellCentric is developing therapies that target the histone
methyltransferase enzyme to lower AR levels, and recently initiated a clinical trial with CCS1477 in prostate cancer. Oric Pharmaceuticals is targeting the glucocorticoid receptor as a means to impact
men that have CRPC, and has a lead candidate ORIC-101 in preclinical testing. In addition to this specific potential mechanistic competition, there are various products approved or under clinical
development in the broader space of treating men with advanced prostate cancer who have metastatic CRPC which may compete with our proposed initial clinical objective for our SARD compounds. Pfizer
and Astellas Pharma market XTANDI® (enzalutamide), an oral androgen receptor antagonist, for the treatment of metastatic CRPC in men previously treated with docetaxel as well as those that
have not yet received chemotherapy. XTANDI® received FDA approval in July 2018 for the treatment of men with non-metastatic CRPC. Zytiga®, sold by Johnson & Johnson, has
been approved for the treatment of metastatic CRPC and metastatic high-risk castration-sensitive prostate cancer. Johnson & Johnson also received FDA approval for a second generation
anti-androgen ERLEADA (apalutamide) for the treatment of men with non-metastatic castrate-resistant prostate cancer. Bayer HealthCare and Orion Corporation recently announced that the primary endpoint
of increased metastatic free survival was met in a Phase 3 study of darolutamide (ODM-201) in men with CRPC without metastases and with a rising PSA.
Another target in prostate cancer that is being pursued by several companies is bromodomain inhibition. Zenith Epigenetics, Gilead Sciences Inc., CellCentric, Incyte Corporation and
GlaxoSmithKline are among the companies that are evaluating BET inhibitors in Phase 1-2 trials.
SARMs
With respect to SARMs, there are other SARM product candidates in development that may compete with enobosarm and any future SARM product
candidates, if approved for commercial sale. For example, Viking Therapeutic's VK5211 recently reported positive results from a Phase 2 study for patients recovering from non-elective hip
fracture surgery. Radius Health Inc.'s RAD140 is currently being evaluated in a Phase 1 study in postmenopausal women with hormone-receptor positive locally advanced or metastatic breast
cancer. GlaxoSmithKline is conducting a Phase 1 study to assess the effect of GSK2881078 on physical strength and function after 13 weeks of treatment in patients with chronic
obstructive pulmonary disease, or COPD, and muscle weakness. OPKO Health's OPK88004 is enrolling in a dose ranging study to improve symptoms of benign prostatic hyperplasia (BPH) by
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reducing
prostate size and, on the basis of data from a previous trial in 350 men, increase muscle mass and bone strength and decrease body fat.
Intellectual Property
We will be able to protect our technology from unauthorized use by third parties only to the extent it is covered by valid and enforceable
patents or is effectively maintained as trade secrets. Patents and other proprietary rights are an essential element of our business.
For
our SARD compounds and methods of use thereof, we have filed certain patent applications in the United States, Canada, Mexico, Australia, Japan, China, and other countries in Asia
and before the European Patent Office and are the exclusive licensee of worldwide rights for the SARD technology under a license agreement with UTRF executed in 2015. Thus far we have six issued
patents and one is allowed, all in the United States. The patents and patent applications (if are issued) will expire between 2036 and 2039.
For
enobosarm and our other SARM compounds, we have an exclusive license from UTRF under its issued patents and pending patent applications in the United States, Canada, Australia,
Japan, China and other countries in Asia, before the European Patent Office designating Germany, Great Britain, Spain, France, Italy, and other European Union countries, as well as in certain other
countries outside those regions, covering the composition of matter of the active pharmaceutical ingredient for pharmaceutical products, pharmaceutical compositions and methods of synthesizing the
active pharmaceutical ingredients. We have also exclusively licensed from UTRF issued and pending patent applications in the United States, Canada, Australia, Japan, China and other countries in Asia,
before the European Patent Office designating Germany, Great Britain, Spain, France, Italy and other European Union countries, as well as in certain other countries outside those regions, related to
methods for treating muscle wasting disorders, including Duchenne Muscular Dystrophy, or DMD, and cancer cachexia, and for treating conditions such as SUI and fecal incontinence, as well as
sarcopenia, and increasing muscle performance, muscle size and muscle strength and increasing the strength of or mass of a bone and for treating bone related disorders, including bone frailty and
osteoporosis. Issued patents for enobosarm composition of matter that we licensed from UTRF and issued in the United States expire in 2024. Issued patents for composition of matter for our other SARM
compounds in the United States will expire from 2021-2029, depending on the specific SARM compound. The issued patents outside of the United States for enobosarm expire in 2025, and with respect to
other SARM compounds, expire in 2023 and 2027, depending on the specific SARM compound. We have pending patent applications directed to composition of matter and methods of use for our other SARM
compounds that, if issued, would expire in the United States and in countries outside the United States in 2027. We have issued patents in the United States, and issued patents and pending
applications in countries outside the United States for enobosarm and certain other SARM compounds as a feed composition for animals. The patents in the United States will expire in 2025. Issued
patents outside the United States, and patent applications, if issued, which are pending outside the United States, will expire in 2027 or 2031 depending on the country. Patent applications which are
pending in the United States and outside the United States using SARMs for SUI and pelvic floor disorders will expire in 2035, if the patents are issued. Our issued patent in the United States
using enobosarm for DMD will expire in 2021. Our issued patent in the United States using other SARMs for DMD will expire in 2024. Patent applications, if issued, which are pending in the
United States, using other SARMs for DMD will expire in 2024 or 2027 depending on the SARM.
We
have our own issued patents and pending patent applications in the United States, Canada, Australia, Europe, Japan, China and other countries in Asia, as well as in certain other
countries outside those regions, related to solid forms of enobosarm. Issued patents covering solid forms of
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enobosarm
in the United States will expire in 2029. Issued patents and pending patent applications, if issued, in countries outside of the United States will expire in 2028. We have our own pending
patent applications and issued patents in the United States and in Europe, Canada, Australia, Japan, China and other countries in Asia related to methods of treating breast cancer using our SARM
compounds. Such patents and patent applications, if issued, would expire in 2033 in the United States and outside of the United States. We have issued patents in the United States directed to androgen
receptor
positive breast cancer in general, various categories of estrogen receptor and androgen receptor positive breast cancer, as well as triple negative breast cancer.
We
cannot be certain that any of our pending patent applications, or those of UTRF, will result in issued patents. In addition, because the patent positions of biopharmaceutical
companies are highly uncertain and involve complex legal and factual questions, the patents we own and license, or any further patents we may own or license, may not prevent other companies from
developing similar or therapeutically equivalent products. Patents also will not protect our product candidates if competitors devise ways of making or using these product candidates without legally
infringing our patents. In recent years, several companies have been extremely aggressive in challenging patents covering pharmaceutical products, and the challenges have often been successful. We
cannot be assured that our patents will not be challenged by third parties or that we will be successful in any defense we undertake. Failure to successfully defend a patent challenge could materially
and adversely affect our business.
In
addition, changes in patent laws, rules or regulations or in their interpretations in the United States and other countries by the courts may materially diminish the value of our
intellectual property or narrow the scope of our patent protection, which could have a material adverse effect on our business and financial condition.
We
also rely on trade secrets, technical know-how and continuing innovation to develop and maintain our competitive position. We seek to protect our proprietary information by requiring
our employees, consultants, contractors, outside scientific collaborators and other advisors to execute non-disclosure and confidentiality agreements and our employees to execute assignment of
invention agreements to us on commencement of their employment. Agreements with our employees also prevent them from bringing any proprietary rights of third parties to us. We also require
confidentiality or material transfer agreements from third parties that receive our confidential data or materials.
Government Regulation
New Drug Development and Approval Process
Numerous governmental authorities in the United States and other countries extensively regulate the testing, clinical development, manufacturing
and marketing of pharmaceutical products and ongoing research and development activities. In the United States, the FDA rigorously
reviews pharmaceutical products under the Federal Food, Drug, and Cosmetic Act and applicable regulations. Non-compliance with FDA regulations can result in administrative and judicial sanctions,
including warning or untitled letters, clinical holds, fines, recall or seizure of products, injunctions, total or partial suspension of production, refusal of the government to approve marketing
applications or allow entry into supply contracts, refusal to permit import or export of products, civil penalties, criminal prosecution and other actions affecting a company and its products. The FDA
also has the authority to revoke previously granted marketing authorizations.
To
secure FDA approval, an applicant must submit extensive preclinical and clinical data, as well as information about product manufacturing processes and facilities and other supporting
information
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to
the FDA for each indication to establish a product candidate's safety and efficacy. The development and approval process takes many years, requires the expenditure of substantial resources and may
be subject to delays or limitations of approval or rejection of an applicant's new drug application, or NDA. Even if the FDA approves a product, the approval is subject to post-marketing surveillance,
adverse drug experience and other recordkeeping and reporting obligations, and may involve ongoing requirements for post-marketing studies. The FDA also has authority to place conditions on any
approvals that could restrict the commercial applications, advertising, promotion or distribution of these products. Product approvals may be withdrawn if compliance with regulatory standards is not
maintained or if problems occur following initial marketing.
Preclinical and Clinical Testing
Preclinical studies involve laboratory evaluation of product characteristics and animal studies to assess the biological activity and safety of
the product. In some cases, long-term preclinical studies are conducted while clinical studies are ongoing. The FDA, under its Good Laboratory Practices regulations, regulates preclinical studies.
Violations of these regulations can, in some cases, lead to invalidation of the studies, requiring these studies to be replicated. When the preclinical testing is considered adequate by the sponsor to
demonstrate the safety and scientific rationale for initial human studies, the results of the preclinical tests, together with manufacturing information and analytical data, are submitted to the FDA
as part of an IND submission. The IND becomes effective, if not rejected by the FDA, within 30 days after the FDA receives the IND. The FDA may, either during the 30-day period after filing of
an IND or at any future time, impose a clinical hold on proposed or ongoing clinical trials on various grounds, including that the study subjects are or would be exposed to an unreasonable and
significant health risk. If the FDA imposes a clinical hold, clinical trials cannot commence or recommence without FDA authorization and then only under terms authorized by the FDA.
Clinical
trials involve the administration of the investigational product candidates to humans under the supervision of a qualified principal investigator. Clinical trials must be
conducted in accordance with Good Clinical Practices under protocols submitted to the FDA as part of the IND. In addition, each clinical trial must be approved and conducted under the auspices of an
Investigational Review Board, or IRB, and with patient informed consent. The IRB typically considers, among other things, ethical factors and the safety of human subjects.
Clinical
trials are conducted in three sequential phases, but the phases may overlap. Phase 1 clinical trials usually involve healthy human subjects. The goal of a Phase I
clinical trial is to establish initial data about the safety, tolerability and pharmacokinetic properties of the product candidates in humans. In Phase 2 clinical trials, controlled studies are
conducted on an expanded population of patients with the targeted disease. The primary purpose of these tests is to evaluate the initial effectiveness of the drug candidate on the intended target and
to determine if there are any side effects or other risks associated with the drug and to determine the optimal dose of the drug from the safety and efficacy profile developed from the clinical study.
Phase 3 trials involve even larger patient populations, often with several hundred or even several thousand patients, depending on the use for which the drug is being studied. Phase 3
trials are intended to establish the overall risk-benefit ratio of the drug and provide, if appropriate, an adequate basis for product labeling. During all clinical trials, physicians monitor the
patients to determine effectiveness and to observe and report any reactions or other safety risks that may result from use of the drug candidate.
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Product Formulation and Manufacture
Concurrent with clinical trials and preclinical studies, companies must develop information about the chemistry and physical characteristics of
the drug and finalize a process for manufacturing the product. In addition, manufacturers, including contract manufacturers, are required to comply with current applicable FDA Good Manufacturing
Practice, or cGMP, regulations. The cGMP regulations include requirements relating to quality control and quality assurance, as well as the corresponding maintenance of records and documentation. The
manufacturing process must be capable of consistently producing quality batches of the product and the manufacturer must develop methods for testing the quality, purity and potency of the final drugs.
Additionally, appropriate packaging must be selected and tested and chemistry stability studies must be conducted to demonstrate that the product does not undergo unacceptable deterioration over its
shelf-life.
Compliance
with cGMP regulations also is a condition of new drug application approval. The FDA must approve manufacturing facilities before they can be used in the commercial manufacture
of drug
products. In addition, manufacturing establishments are subject to pre-approval inspections and unannounced periodic inspections.
New Drug Application Process
After the completion of the clinical trial phases of development, if the sponsor concludes that there is substantial evidence that the drug
candidate is safe and effective for its intended use, the sponsor may submit a NDA to the FDA. The application must contain all of the information on the drug candidate gathered to that date,
including data from the clinical trials, and be accompanied by a user fee.
Under
the Prescription Drug User Fee Act, or PDUFA, submission of a NDA with clinical data requires payment of a fee, with some exceptions. In return, the FDA assigns a goal of six or
ten months from filing of the application to return of a first "complete response," in which the FDA may approve the product or request additional information. There can be no assurance that an
application will be approved within the performance goal timeframe established under PDUFA. The FDA initially determines whether a NDA as submitted is acceptable for filing. The FDA may refuse to file
an application, in which case the FDA retains one-half of the user fees. If the submission is accepted for filing, the FDA begins an in-depth review of the application. As part of this review, the FDA
may refer the application to an appropriate advisory committee, typically a panel of clinicians, for review, evaluation and a recommendation. The FDA is not bound by the recommendation of an advisory
committee.
If
the FDA evaluations of the NDA and the manufacturing facilities are favorable, the FDA may issue an approval letter authorizing commercial marketing of the drug candidate for
specified indications. The FDA could also issue a "complete response" letter at the end of the review period. A "complete response" letter will be issued to let a company know that the review period
for a drug is complete and that the application is not yet ready for approval. The letter will describe specific deficiencies and, when possible, will outline recommended actions the applicant might
take to get the application ready for approval, including calling for additional clinical trial data.
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Marketing Approval and Post-Marketing Obligations
If the FDA approves an application, the drug becomes available for physicians to prescribe. Periodic reports must be submitted to the FDA,
including descriptions of any adverse reactions reported. The FDA may require post-marketing studies, also known as Phase IV studies, as a condition of approval. In addition to studies required
by the FDA after approval, trials and studies are often conducted to explore new indications for the drug. The purpose of these trials and studies and related publications is to develop data to
support additional indications for the drug, which must be approved by the FDA, and to increase its acceptance in the medical community. In addition, some post-marketing studies are done at the
request of the FDA to develop additional information regarding the safety of a product.
The
FDA may impose risk evaluation mitigation strategies, or REMS, on a product if the FDA believes there is a reason to monitor the safety of the drug in the marketplace. REMS could add
training requirements for healthcare professionals, safety communications efforts, and limits on channels of
distribution, among other things. The sponsor would be required to evaluate and monitor the various REMS activities and adjust them if need be. Whether a REMS would be imposed on a product and any
resulting financial impact is uncertain at this time.
Any
products manufactured or distributed pursuant to FDA approvals are subject to continuing regulation by the FDA, including record keeping requirements, reporting of adverse
experiences with the drug, drug sampling and distribution requirements, notifying the FDA and gaining its approval of certain manufacturing or labeling changes, complying with certain electronic
records and signature requirements, and complying with FDA promotion and advertising requirements. Drug manufacturers and their subcontractors are required to register their establishments and are
subject to periodic unannounced inspections for compliance with cGMP requirements. Also, newly discovered or developed safety or effectiveness data may require changes to a product's approved
labeling, including the addition of new warnings and contraindications, or even in some instances revocation or withdrawal of the product's approval.
Approval Outside of the United States
In order to market any product outside of the United States, we must comply with numerous and varying regulatory requirements of other countries
regarding safety and efficacy and governing, among other things, clinical trials and commercial sales and distribution of our products, which broadly reflect the issues addressed by the FDA above.
Approval procedures vary among countries and can involve additional product testing and additional administrative review periods. The time required to obtain approval in other countries might differ
from and be longer than that required to obtain FDA approval. Marketing approval in one country does not ensure marketing approval in another, but a failure or delay in obtaining marketing approval in
one country may negatively impact the regulatory process in other countries.
As
in the United States, the marketing approval process in Europe and in other countries is a lengthy, challenging and inherently uncertain process. If we fail to comply with applicable
foreign regulatory requirements, we may be subject to fines, suspension or withdrawal of marketing approvals, product recalls, seizure of products, operating restrictions and criminal prosecution.
Generally the development and approval procedures are harmonized throughout the European Union: however, there is limited harmonization in relation to national pricing and reimbursement practices.
Under
European Union regulatory systems, a company may not market a medicinal product without marketing authorization. There are three procedures for submitting a MAA in the EU:
(1) the
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mutual
recognition procedure (MRP); (2) the decentralized procedure (DCP) and (3) the centralized procedure (CP). The submission strategy for a given product will depend on the nature of
the product, the target indication(s), the history of the product, and the marketing plan. The centralized procedure is compulsory for medicinal products which are produced by biotechnology processes,
advanced therapy medicinal products and orphan drugs. Besides the products falling under the mandatory scope, the centralized procedure is also open for other innovative products that are new active
substances or other medicinal products that constitute a significant therapeutic, scientific or technical innovation.
The
centralized procedure leads to approval of the product in all 27 EU member states and in Norway, Iceland and Liechtenstein. Submission of one MAA thus leads to one assessment process
and one authorization that allows access to all applicable markets within the entire EU. The process of the centralized procedure is triggered when the applicant sends the letter announcing the intent
to submit a MAA (letter of intent). The letter of intent also initiates the assignment of the Rapporteur and Co-Rapporteur, who are the two appointed members of the Committee for Human Medicinal
Products, or CHMP, representing two EU member states. However, in light of the United Kingdom's vote in 2016 to leave the European Union, the so-called Brexit vote, there may be changes forthcoming in
the scope of the centralized approval procedure as the terms of that exit are negotiated between the UK and the European Union.
When
using the MRP or DCP, the applicant must select which and how many EU member states in which to seek approval. In the case of an MRP, the applicant must initially receive national
approval in one EU member state. This will be the so-called reference member state (RMS) for the MRP. Then, the applicant seeks approval for the product in other EU member states, the so-called
concerned member states (CMS) in a second step: the mutual recognition process. For the DCP, the applicant will approach all chosen member states at the same time. To do so, the applicant will
identify the RMS that will assess the submitted MAA and provide the other selected member states with the conclusions and results of the assessment.
When
the application for marketing authorization is made, the competent authority responsible for granting a marketing authorization must verify whether the application complies with the
relevant requirements, including compliance with the agreed pediatric investigational plan, or PIP. Assuming it does, the marketing authorization may be granted and the relevant results are included
in the summary of product characteristics (SmPC) for the product, along with a statement indicating compliance with the agreed PIP. It is not necessary for the product actually to be indicated for use
in the pediatric population (for example, if the results show that that would not be appropriate).
Drug Price Competition and Patent Term Restoration Act of 1984
Under the Drug Price Competition and Patent Term Restoration Act of 1984, known as the Hatch-Waxman Act, a portion of a product's patent term
that was lost during clinical development and application review by the FDA may be restored. The Hatch-Waxman Act also provides for a statutory protection, known as exclusivity, against the FDA's
acceptance or approval of certain competitor applications. The Hatch-Waxman Act also provides the legal basis for the approval of abbreviated new drug applications, or ANDAs.
Patent
term extension can compensate for time lost during product development and the regulatory review process by returning up to five years of patent life for a patent that covers a
new product or its use. This period is generally one-half the time between the effective date of an IND and the submission date of a NDA, plus the time between the submission date of a NDA and the
approval of that application. Patent term extensions, however, are subject to a maximum extension of five years, and the patent term extension cannot extend the remaining term of a patent beyond a
total of 14 years.
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The
application for patent term extension is subject to approval by the United States Patent and Trademark Office in conjunction with the FDA. It generally takes at least six months to obtain approval
of the application for patent term extension.
The
Hatch-Waxman Act also provides for a period of statutory protection for new drugs that receive NDA approval from the FDA. If a new drug receives NDA approval as a new chemical
entity, meaning that the FDA has not previously approved any other new drug containing the same active entity, then the Hatch-Waxman Act prohibits an ANDA or a NDA submitted pursuant to
section 505(b)(2) of the Federal Food, Drug, and Cosmetics Act, where the applicant does not own or have a legal right of reference to all of the data required for approval to be submitted by
another company for a generic version of such drug (505(b)(2) NDA), with some exceptions, for a period of five years from the date of approval of the NDA. The statutory protection provided pursuant to
the Hatch-Waxman Act will not prevent the filing or approval of a full NDA, as opposed to an ANDA or 505(b)(2) NDA, for any drug, including, for example, a drug with the same active ingredient, dosage
form, route of administration, strength and conditions of use. In order to obtain a NDA, however, a competitor would be required to conduct its own clinical trials, and any use of the drug for which
marketing approval is sought could not violate another NDA holder's patent claims.
If
NDA approval is received for a new drug containing an active ingredient that was previously approved by the FDA but the NDA is for a drug that includes an innovation over the
previously approved drug, for example, a NDA approval for a new indication or formulation of the drug with the same active ingredient, and if such NDA approval was dependent upon the submission to the
FDA of new clinical investigations, other than bioavailability studies, then the Hatch-Waxman Act prohibits the FDA from making effective the approval of an ANDA or 505(b)(2) NDA for a generic version
of such drug for a period of three years from the date of the NDA approval. This three year exclusivity, however, only covers the innovation associated with the NDA to which it attaches. Thus, the
three year exclusivity does not prohibit the FDA, with limited exceptions, from approving ANDAs or 505(b)(2) NDAs for drugs containing the same active ingredient but without the new innovation.
While
the Hatch-Waxman Act provides certain patent restoration and exclusivity protections to innovator drug manufacturers, it also permits the FDA to approve ANDAs for generic versions
of their drugs assuming the approval would not violate another NDA holder's patent claims. The ANDA process permits competitor companies to obtain marketing approval for a drug with the same active
ingredient for the same uses but does not require the conduct and submission of clinical studies demonstrating safety and effectiveness for that product. Instead of safety and effectiveness data, an
ANDA applicant needs only to submit data demonstrating that its product is bioequivalent to the innovator product as well as relevant chemistry, manufacturing and product data. The Hatch-Waxman Act
also instituted a third type of drug application that requires the same information as a NDA, including full reports of clinical and preclinical studies, except that some of the information from the
reports required for marketing approval comes from studies which the applicant does not own or have a legal right of reference. This type of application, a 505(b)(2) NDA, permits a manufacturer to
obtain marketing approval for a drug without needing to conduct or obtain a right of reference for all of the required studies.
If
a competitor submits an ANDA or 505(b)(2) NDA for a compound or use of any compound covered by another NDA holder's patent claims, the Hatch-Waxman Act requires, in some
circumstances, the applicant to notify the patent owner and the holder of the approved NDA of the factual and legal basis of the applicant's opinion that the patent is not valid or will not be
infringed. Upon receipt of this notice, the patent owner and the NDA holder have 45 days to bring a patent infringement suit in federal district court and obtain a 30-month stay against the
company seeking to reference the NDA. The NDA holder could still file a patent suit after the 45 days, but if they miss the
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45-day
deadline, they would not have the benefit of the 30-month stay. Alternatively, after this 45-day period, the applicant may file a declaratory judgment action, seeking a determination
that the patent is invalid or will not be infringed. Depending on the circumstances, however, the applicant may not be able to demonstrate a controversy sufficient to confer jurisdiction on the court.
The discovery, trial and appeals process in such suits can take several years. If such a suit is commenced, the Hatch-Waxman Act provides a 30-month stay on the approval of the competitor's ANDA or
505(b)(2) NDA. If the litigation is resolved in favor of the competitor or the challenged patent expires during the 30-month period, unless otherwise extended by court order, the stay is lifted and
the FDA may approve the
application. Under regulations issued by the FDA, and essentially codified under the Medicare prescription drug legislation, the patent owner and the NDA holder have the opportunity to trigger only a
single 30-month stay per ANDA or 505(b)(2) NDA. Once the applicant of the ANDA or 505(b)(2) NDA has notified the patent owner and the NDA holder of the infringement, the applicant cannot be subjected
to another 30-month stay, even if the applicant becomes aware of additional patents that may be infringed by its product.
Pharmaceutical Pricing and Reimbursement
We currently have no marketed products. In both domestic and foreign markets, sales of any products for which we receive regulatory approval for
commercial sale will depend in part on the availability of reimbursement from third-party payors. Third-party payors include government authorities or programs, managed care providers, private health
insurers and other organizations. These third-party payors are increasingly challenging the price and examining the cost-effectiveness of medical products and services. In addition, significant
uncertainty exists as to the reimbursement status of newly approved healthcare products. We may need to conduct expensive pharmacoeconomic studies in order to demonstrate the cost-effectiveness of our
products. Our product candidates may not be considered cost-effective. Adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize an
appropriate return on our investment in product development. Third-party payors may also control access to, or manage utilization of, our products with various utilization management techniques, such
as requiring prior authorization for coverage of our products.
Within
the United States, if we obtain appropriate approval in the future to market any of our oral drug product candidates, those products could potentially be covered by various
government health benefit programs as well as purchased by government agencies. The participation in such programs or the sale of products to such agencies is subject to regulation. The marketability
of any products for which we receive regulatory approval for commercial sale may suffer if the government and third-party payors fail to provide adequate coverage and reimbursement.
Medicaid
is a joint federal and state program that is administered by the states for low income and disabled beneficiaries. Under the Medicaid Drug Rebate Program, participating
manufacturers are required to pay a rebate for each unit of product reimbursed by the state Medicaid programs. The amount of the rebate for each product is set by law and may be subject to an
additional discount if certain pricing increases more than inflation.
Medicare
is a federal program that is administered by the federal government that covers individuals age 65 and over as well as those with certain disabilities. Oral drugs may be covered
under Medicare Part D. Medicare Part D provides coverage to enrolled Medicare patients for self-administered drugs (
i.e
., drugs that do
not need to be injected or otherwise administered by a physician). Medicare Part D is administered by private prescription drug plans approved by the U.S. government and each drug plan
establishes its own Medicare Part D formulary for prescription drug coverage and pricing, which the
drug plan may modify from time-to-time. The prescription drug plans negotiate pricing with manufacturers and may condition formulary placement on the availability of
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manufacturer
discounts. Since 2011, manufacturers with marketed brand name drugs have been required to provide a 50% discount the negotiated price for on brand name prescription drugs utilized by
Medicare Part D beneficiaries when those beneficiaries reach the coverage gap in their drug benefits, and, beginning in 2019, that discount increased to 70%.
Drug
products are subject to discounted pricing when purchased by federal agencies via the Federal Supply Schedule (FSS). FSS participation is required for a drug product to be covered
and reimbursed by certain federal agencies and for coverage under Medicaid, Medicare Part B and the Public Health Service (PHS) pharmaceutical pricing program. FSS pricing is negotiated
periodically with the Department of Veterans Affairs. FSS pricing is intended not to exceed the price that a manufacturer charges its most-favored non-federal customer for its product. In addition,
prices for drugs purchased by the Veterans Administration, Department of Defense (including drugs purchased by military personnel and dependents through the TRICARE retail pharmacy program), Coast
Guard, and PHS are subject to a cap on pricing (known as the "federal ceiling price") and may be subject to an additional discount if pricing increases more than the rate of inflation.
To
maintain coverage of drugs under the Medicaid Drug Rebate Program, manufacturers are required to extend discounts to certain purchasers under the PHS pharmaceutical pricing program.
Purchasers eligible for discounts include hospitals that serve a disproportionate share of financially needy patients, community health clinics and other entities that receive health services grants
from the PHS.
The
United States and state governments continue to propose and pass legislation designed to reform delivery of, or payment for, health care, which include initiatives to reduce the cost
of healthcare. For example, in March 2010, the United States Congress enacted the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act ("Healthcare Reform
Act") which includes changes to the coverage and reimbursement of drug products under government health care programs. Under the Trump administration, there have been ongoing efforts to modify or
repeal all or certain provisions of the Healthcare Reform Act. For example, tax reform legislation was enacted at the end of 2017 that eliminates the tax penalty for individuals who do not maintain
sufficient health insurance coverage beginning in 2019 (the so-called "individual mandate"). In a May 2018 report, the Congressional Budget Office estimated that, compared to 2018, the number of
uninsured will increase by 3 million in 2019 and 6 million in 2028, in part due to the elimination of the individual mandate. The Healthcare Reform Act has also been subject to judicial
challenge. In December 2018, a federal district court judge, in a challenge brought by a number of state attorneys general, found the Healthcare Reform Act unconstitutional in its entirety because,
once Congress repealed the individual mandate provision, there was no longer a basis to rely on Congressional taxing authority to support enactment of
the law. Pending appeals, which could take some time, the Healthcare Reform Act is still operational in all respects.
There
have also been other reform initiatives under the Trump Administration, including initiatives focused on drug pricing. For example, in May of 2018, President Trump and the
Secretary of the Department of Health and Human Services released a "blueprint" to lower prescription drug prices and out-of-pocket costs. Certain proposals in the blueprint, and related drug pricing
measures proposed since the blueprint, could cause significant operational and reimbursement changes for the pharmaceutical industry. As another example, in November of 2018, CMS issued an advance
notice of proposed rulemaking that proposed revisions to Medicare Part D to support health plans' negotiation of lower drug prices with manufacturers and reduce health plan members'
out-of-pocket costs. The HHS Office of Inspector General also issued a proposed rule in February of 2019 that would revise the federal anti-kickback statute to limit protection for discounts offered
by pharmaceutical manufacturers to pharmacy benefit managers ("PBMs"), Medicare Part D plans, and Medicaid managed care plans
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that
are not reflected in the price charged to the patient at the pharmacy counter and to provide protection only for certain types of service fees paid by pharmaceutical manufacturers to PBMs.
Recently,
there has been considerable public and government scrutiny in the U.S. of pharmaceutical pricing and proposals to address the perceived high cost of pharmaceuticals. There have
also been several recent state legislative efforts to address drug costs, which generally have focused on increasing transparency around drug costs or limiting drug prices or price increases. Adoption
of new legislation at the federal or state level could affect demand for, or pricing of, our product candidates if approved for sale.
We
cannot predict the ultimate content, timing or effect of any changes to the Healthcare Reform Act or other federal and state reform efforts. There is no assurance that federal or
state health care reform will not adversely affect our future business and financial results.
Although
we currently have no products approved for commercial sale, we marketed FARESTON® through September 30, 2012 and the product was covered under various
government health benefit programs as well as purchased by federal agencies. We could be subject to liability under federal laws regulating our participation in such programs or the sale of our
product to such agencies if we failed to comply with applicable requirements, including reporting prices for our products or offering products for sale at certain prices.
Regulations Pertaining to Sales and Marketing
Although we currently have no products approved for commercial sale, we may be subject to various federal and state laws pertaining to health
care "fraud and abuse," including anti-kickback laws and false claims laws for activities related to our previous sales of FARESTON®, which we sold to a third party in 2012, or to future
sales of any of our product candidates that may in the future receive regulatory and marketing approval. Anti-kickback laws generally prohibit a prescription drug manufacturer from soliciting,
offering, receiving, or paying any remuneration to generate business, including the purchase or prescription of a particular drug. Although the specific provisions of these laws vary, their scope is
generally broad and there may not be regulations, guidance or court decisions that apply the laws to particular industry practices. There is therefore a possibility that our practices might be
challenged under such anti-kickback laws. False claims laws prohibit anyone from knowingly and willingly presenting, or causing to be presented, any claims for payment for reimbursed drugs or services
to third party payors (including Medicare and Medicaid) that are false or fraudulent. Violations of fraud and abuse laws may be punishable by criminal or civil sanctions, including fines and civil
monetary penalties, and/or exclusion from federal health care programs (including Medicare and Medicaid).
Laws
and regulations have been enacted by the federal government and various states to regulate the sales and marketing practices of pharmaceutical manufacturers with marketed products.
The laws and regulations generally limit financial interactions between manufacturers and health care providers and/or require disclosure to the government and public of such interactions. Many of
these laws and regulations contain ambiguous requirements or require administrative guidance for implementation. Given the lack of clarity in laws and their implementation, our prior activities (when
we marketed FARESTON®) or any future activities (if we obtain approval and/or reimbursement from federal healthcare programs for our product candidates) could be subject to the penalty
provisions of the pertinent laws and regulations.
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Employees
As of December 31, 2018, we had 21 employees, 6 of whom were M.D.s, Pharm.D.s and/or Ph.D.s. None of our employees are subject to a
collective bargaining agreement. We believe that we have good relations with our employees.
Available Information
We were originally incorporated under the name Genotherapeutics, Inc. in Tennessee in September 1997. We changed our name to
GTx, Inc. in 2001, and we reincorporated in Delaware in 2003. Our principal executive office is located at 175 Toyota Plaza, 7th Floor, Memphis, TN 38103, and our telephone number is
(901) 523-9700.
We
file electronically with the U.S. Securities and Exchange Commission, or SEC, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. We make available on our Web site at
www.gtxinc.com, free of charge, copies of these reports as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The information provided on our
Web site is not part of this report, and is therefore not incorporated by reference unless such information is otherwise specifically referenced elsewhere in this report.
Executive Officers of the Registrant
The following table sets forth information about our executive officers as of March 12, 2019:
|
|
|
|
|
Name
|
|
Age
|
|
Position(s)
|
Executive Officers
|
|
|
|
|
Marc S. Hanover
|
|
56
|
|
Chief Executive Officer
|
Robert J. Wills, Ph.D
|
|
65
|
|
Executive Chairman
|
Henry P. Doggrell
|
|
70
|
|
Vice President, Chief Legal Officer and Secretary
|
Jason T. Shackelford
|
|
43
|
|
Vice President, Finance and Accounting, and Principal Financial and Accounting Officer
|
Marc S. Hanover
,
a co-founder of GTx, served as our President and Chief Operating Officer from our inception in
September 1997 until his appointment as our permanent Chief Executive Officer in February 2015, and served as our acting Principal Financial Officer from December 31, 2013 until his appointment
as our interim Chief Executive Officer on April 3, 2014. He also previously served as a member of our Board of Directors from September 1997 to August 2011. Prior to joining GTx,
Mr. Hanover was a founder of Equity Partners International, Inc., a private equity firm in Memphis, Tennessee, and participated as a founder and investor in three healthcare companies.
From 1985 to 1997, Mr. Hanover was a Senior Vice President and a member of the Executive Management Committee of National Bank of Commerce in Memphis, Tennessee. Mr. Hanover holds a B.S.
in Biology from the University of Memphis and an MBA in Finance from the University of Memphis.
Robert J. Wills, Ph.D.
, joined GTx as Executive Chairman of the Board of Directors and as the Chairman of the Board's Scientific and
Development Committee on March 2, 2015. Prior to joining GTx, Dr. Wills served as Vice President, Alliance Manager for Johnson & Johnson (J&J) and was responsible for managing
strategic alliances for J&J's Pharmaceutical Group worldwide since 2002. Prior to this, Dr. Wills spent 22 years in pharmaceutical drug development, 12 of which were at J&J and 10 of
which were at Hoffmann-La Roche Inc. Before assuming his alliance management role at
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J&J,
Dr. Wills served as Senior Vice President Global Development at J&J where he was responsible for its late stage development pipeline and was a member of several internal commercial and
research and development operating boards. Since 2015, Dr. Wills has served as the chairman of the board of Cymabay Therapeutics Inc. (Nasdaq: CBAY). Dr. Wills holds a B.S. in
Biochemistry and a M.S. in Pharmaceutics from the University of Wisconsin and a Ph.D. in Pharmaceutics from the University of Texas.
Henry P. Doggrell
currently serves as our Vice President, Chief Legal Officer and Secretary, after joining GTx in October 2001 as General
Counsel and Secretary. From April 1998 to August 2001, Mr. Doggrell was Senior Vice President, Corporate Affairs at Buckeye Technologies, Inc., a specialty cellulose company, where he
was responsible for matters including corporate finance, investor relations, mergers and acquisitions, intellectual property and licensing and strategic development. From 1996 to 1998,
Mr. Doggrell served as General Counsel and Secretary of Buckeye Technologies. Prior to joining Buckeye Technologies, Mr. Doggrell was a partner of the Baker, Donelson, Bearman, Caldwell
and Berkowitz law firm from 1988 to 1996, where he served as a member of the law firm management committee and Chair of the firm's Corporate Securities department. Mr. Doggrell holds a B.S. in
Commerce from the University of Virginia and a JD from Vanderbilt University.
Jason T. Shackelford
currently serves as our Vice President, Finance and Accounting, after joining GTx in July 2007 as Director,
Accounting and Corporate Controller, and has served as our principal accounting officer since December 31, 2013 and as our principal financial and accounting officer since April 3, 2014.
Prior to joining GTx, Mr. Shackelford was a Senior Audit Manager at KPMG LLP. Mr. Shackelford is a Certified Public Accountant and holds a Bachelor of Business Administration and
Master of Accountancy from the University of Mississippi.
ITEM 1A. RISK FACTORS
We have identified the following additional risks and uncertainties that may have a material adverse effect on our business, financial condition
or results of operations. Investors should carefully consider the risks described below before making an investment decision. Our business faces significant risks and the risks described below may not
be the only risks we face. Additional risks not presently known to us or that we currently believe are immaterial may also significantly impair our business operations. If any of these risks occur,
our business, results of operations or financial condition could suffer, the market price of our common stock could decline and you could lose all or part of your investment in our common stock.
Risks Related to the Proposed Merger
The exchange ratio set forth in the Merger Agreement is not adjustable based on the market price of our
common stock, so the merger consideration at the closing of the Merger may have a greater or lesser value than at the time the Merger Agreement was signed.
The Merger Agreement has set the exchange ratio for the Oncternal capital stock, and the exchange ratio is based on the outstanding capital
stock of Oncternal and the outstanding common stock of GTx, in each case immediately prior to the closing of the Merger. Applying the exchange ratio formula in the Merger Agreement, the former
Oncternal stockholders immediately before the Merger are expected to own approximately 75% of the outstanding capital stock of GTx immediately following the Merger, and the stockholders of GTx
immediately before the Merger are expected to own approximately 25% of the outstanding capital stock of GTx immediately following the Merger, subject to certain assumptions. Under certain
circumstances further described in the Merger Agreement, however, these ownership percentages may be adjusted upward or downward based on cash levels of
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the
respective companies at the closing of the Merger, and as a result, either our stockholders or the Oncternal stockholders could own less of the combined company than expected.
Any
changes in the market price of our common stock before the completion of the Merger will not affect the number of shares of our common stock issuable to Oncternal's stockholders
pursuant to the Merger Agreement. Therefore, if before the completion of the Merger the market price of our common stock declines from the market price on the date of the Merger Agreement, then
Oncternal's stockholders could receive merger consideration with substantially lower value than the value of such merger consideration on the date of the Merger Agreement. Similarly, if before the
completion of the Merger the market price of our common stock increases from the market price of our common stock on the date of the Merger Agreement, then Oncternal's stockholders could receive
merger consideration with substantially greater value than the value of such merger consideration on the date of the Merger Agreement. The Merger Agreement does not include a price-based termination
right. Because the exchange ratio does not adjust as a result of changes in the market price of our common stock, for each one percentage point change in the market price of our common stock, there is
a
corresponding one percentage point rise or decline, respectively, in the value of the total merger consideration payable to Oncternal's stockholders pursuant to the Merger Agreement.
Failure to complete the proposed Merger may result in GTx and Oncternal paying a termination fee to the other
party and could significantly harm the market price of our common stock and negatively affect the future business and operations of each company.
If the proposed Merger is not completed and the Merger Agreement is terminated under certain circumstances, we or Oncternal may be required to
pay the other party a termination fee of up to $2.0 million. Even if a termination fee is not payable in connection with a termination of the Merger Agreement, each of GTx and Oncternal will
have incurred significant fees and expenses, which must be paid whether or not the Merger is completed. Further, if the proposed Merger is not completed, it could significantly harm the market price
of our common stock.
In
addition, if the Merger Agreement is terminated and the board of directors of GTx or Oncternal determines to seek another business combination, there can be no assurance that either
we or Oncternal will be able to find a partner and close an alternative transaction on terms that are as favorable or more favorable than the terms set forth in the Merger Agreement.
The proposed Merger is subject to approval of the Merger Agreement by our stockholders and the Oncternal
stockholders. Failure to obtain these approvals would prevent the closing of the Merger.
Before the proposed Merger can be completed, the stockholders of each of GTx and Oncternal must approve the Merger Agreement. Additionally, the
Merger Agreement must be approved by multiple classes of Oncternal preferred stockholders, one class of which is held by a sole stockholder, Shanghai Pharmaceutical (USA) Inc., which has not
executed a voting agreement and has not otherwise agreed to vote in favor of the Merger Agreement. Although Oncternal expects to receive stockholder approval from Shanghai Pharmaceutical
(USA) Inc. approximately two months after the date of the Merger Agreement, there can be no assurance that all of the necessary stockholder approvals will be obtained. Failure to obtain the
required stockholder approvals, including as a result of Shanghai Pharmaceutical (USA) Inc. refusing to approve the transactions contemplated by the Merger Agreement, may result in a material
delay in, or the abandonment of, the Merger. Any delay in completing the proposed Merger may materially adversely affect the timing and benefits that are expected to be achieved from the proposed
Merger.
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The Merger may be completed even though certain events occur prior to the closing that materially and
adversely affect GTx or Oncternal.
The Merger Agreement provides that either GTx or Oncternal can refuse to complete the proposed Merger if there is a material adverse change
affecting the other party between March 6, 2019, the date of the Merger Agreement, and the closing of the Merger. However, certain types of changes do not permit either party to refuse to
complete the proposed Merger, even if such change could be said to have a material adverse effect on GTx or Oncternal, including:
-
-
general business, economic or political conditions or conditions generally affecting the industries in which Oncternal or GTx, as applicable,
operates;
-
-
any natural disaster or any acts of war, armed hostilities or terrorism;
-
-
any changes in financial, banking or securities markets;
-
-
with respect to GTx, any change in the stock price or trading volume of GTx excluding any underlying effect that may have caused such change;
-
-
with respect to GTx, failure to meet internal or analysts' expectations or projects or the results of operations;
-
-
any clinical trial programs or studies, including any adverse data, event or outcome arising out of or related to any such programs or studies;
-
-
any change in accounting requirements or principles or any change in applicable laws, rules, or regulations or the interpretation thereof;
-
-
any effect resulting from the announcement or pendency of the proposed Merger or any related transactions; and
-
-
the taking of any action, or the failure to take any action, by either GTx or Oncternal required to comply with the terms of the Merger
Agreement.
If
adverse changes occur and GTx and Oncternal still complete the Merger, the market price of the combined organization's common stock may suffer. This in turn may reduce the value of
the Merger to the stockholders of GTx, Oncternal or both.
Some GTx and Oncternal officers and directors have interests in the proposed Merger that are different from
the respective stockholders of GTx and Oncternal and that may influence them to support or approve the Merger without regard to the interests of the respective stockholders of GTx and Oncternal.
Certain officers and directors of GTx and Oncternal participate in arrangements that provide them with interests in the proposed Merger that are
different from the interests of the respective stockholders of GTx and Oncternal, including, among others, the continued service as an officer or director of the combined organization, severance
benefits, the acceleration of stock option
vesting, continued indemnification and the potential ability to sell an increased number of shares of common stock of the combined organization in accordance with Rule 144 under the Securities
Act of 1933, as amended.
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For example, we have entered into certain employment and severance benefits agreements with certain of our executive officers that may result in the receipt by
such executive officers of cash severance payments and other benefits in the event of a covered termination of employment of each executive officer's employment. The closing of the Merger will also
result in the acceleration of vesting of options to purchase shares of our common stock held by our executive officers and directors, whether or not there is a covered termination of such officer's
employment. In addition, and for example, certain of Oncternal's directors and executive officers have options, subject to vesting, to purchase shares of Oncternal's common stock which, at the closing
of the Merger, shall be converted into and become options to purchase shares of our common stock, certain of Oncternal's directors and executive officers are expected to become directors and executive
officers of GTx upon the closing of the Merger, and all of Oncternal's directors and executive officers are entitled to certain indemnification and liability insurance coverage pursuant to the terms
of the Merger Agreement. These interests, among others, may influence the officers and directors of GTx and Oncternal to support or approve the proposed Merger.
The market price of our common stock following the Merger may decline as a result of the Merger.
The market price of our common stock may decline as a result of the Merger for a number of reasons including
if:
-
-
investors react negatively to the prospects of the combined organization's product candidates, business and financial condition following the
Merger;
-
-
the effect of the Merger on the combined organization's business and prospects is not consistent with the expectations of financial or industry
analysts; or
-
-
the combined organization does not achieve the perceived benefits of the Merger as rapidly or to the extent anticipated by financial or
industry analysts.
GTx and Oncternal securityholders will have a reduced ownership and voting interest in, and will exercise
less influence over the management of, the combined organization following the closing of the Merger as compared to their current ownership and voting interest in the respective companies.
After the completion of the Merger, the current securityholders of GTx and Oncternal will own a smaller percentage of the combined organization
than their ownership in their respective companies prior to the Merger. Immediately after the Merger, it is currently estimated that Oncternal securityholders will own approximately 75% of the common
stock of the combined organization, and GTx securityholders, whose shares of GTx common stock will remain outstanding after the Merger, will own approximately 25% of the common stock of the combined
organization. These estimates are based on the anticipated exchange ratio and are subject to adjustment as provided in the Merger Agreement. See also the risk factor above titled,
"
The exchange ratio is not adjustable based on the market price of GTx common stock, so the merger consideration at the closing may have a greater or lesser value than at the
time the Merger Agreement was signed.
"
In
addition, the nine member board of directors of the company will initially include seven individuals with prior affiliations with Oncternal and two individuals with prior affiliations
with GTx. Consequently, securityholders of GTx and Oncternal will be able to exercise less influence over the management and policies of the combined organization following the closing of the Merger
than they currently exercise over the management and policies of their respective companies.
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GTx and Oncternal stockholders may not realize a benefit from the Merger commensurate with the ownership
dilution they will experience in connection with the Merger.
If the combined organization is unable to realize the strategic and financial benefits currently anticipated from the proposed Merger, GTx's and
Oncternal's stockholders will have experienced substantial dilution of their ownership interests in their respective companies without receiving the expected commensurate benefit, or only receiving
part of the commensurate benefit to the extent the combined organization is able to realize only part of the expected strategic and financial benefits currently anticipated from the proposed Merger.
The combined company will need to raise additional capital by issuing securities or debt or through licensing
or other strategic arrangements, which may cause dilution to the combined company's stockholders or restrict the combined company's operations or impact its proprietary rights.
The combined company may be required to raise additional funds sooner than currently planned. In this regard, while the exchange ratio may be
impacted by cash levels of the respective companies at the closing of the Merger, the Merger Agreement does not condition the completion of the Merger upon either company holding a minimum amount of
cash at the effective time of the Merger. If either or both of GTx or Oncternal hold less cash at the time of the closing Merger than the parties currently expect, the combined company will need to
raise additional capital sooner than expected. Additional financing may not be available to the combined company when it needs it or may not be available on favorable terms. To the extent that the
combined company raises additional capital by issuing equity securities, such an issuance may cause significant dilution to the combined company's stockholders' ownership and the terms of any new
equity securities may have preferences over the combined company's common stock. Any debt financing the combined company enters into may involve covenants that restrict its operations. These
restrictive covenants may include limitations on additional borrowing and specific restrictions on the use of the combined company's assets, as well as prohibitions on its ability to create liens, pay
dividends, redeem its stock or make
investments. In addition, if the combined company raises additional funds through licensing, partnering or other strategic arrangements, it may be necessary to relinquish rights to some of the
combined company's technologies or product candidates and proprietary rights, or grant licenses on terms that are not favorable to the combined company.
During the pendency of the proposed Merger, GTx and Oncternal may not be able to enter into a business
combination with another party at a favorable price because of restrictions in the Merger Agreement, which could adversely affect their respective businesses.
Covenants in the Merger Agreement impede the ability of GTx and Oncternal to make acquisitions, subject to certain exceptions relating to
fiduciary duties, as set forth below, or to complete other transactions that are not in the ordinary course of business pending completion of the proposed Merger. As a result, if the Merger is not
completed, the parties may be at a disadvantage to their competitors during such period. In addition, while the Merger Agreement is in effect, each party is generally prohibited from soliciting,
initiating, encouraging or entering into certain extraordinary transactions, such as a merger, sale of assets, or other business combination outside the ordinary course of business with any third
party, subject to certain exceptions relating to fiduciary duties. Any such transactions could be favorable to such party's stockholders.
Certain provisions of the Merger Agreement may discourage third parties from submitting alternative takeover
proposals, including proposals that may be superior to the arrangements contemplated by the Merger Agreement.
The terms of the Merger Agreement prohibit each of GTx and Oncternal from soliciting alternative takeover proposals or cooperating with persons
making unsolicited takeover proposals,
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except
in limited circumstances when such party's board of directors determines in good faith that an unsolicited alternative takeover proposal is or is reasonably likely to lead to a superior
takeover proposal and that failure to cooperate with the proponent of the proposal would be reasonably likely to be inconsistent with the applicable board's fiduciary duties.
Because the lack of a public market for Oncternal's capital stock makes it difficult to evaluate the value of
Oncternal's capital stock, the stockholders of Oncternal may receive shares of our common stock in the Merger that have a value that is less than, or greater than, the fair market value of Oncternal's
capital stock.
The outstanding capital stock of Oncternal is privately held and is not traded in any public market. The lack of a public market makes it
extremely difficult to determine the fair market value of Oncternal. Because the percentage of our common stock to be issued to Oncternal's stockholders was determined based on negotiations between
the parties, it is possible that the value of our common stock to be received by Oncternal's stockholders will be less than the fair market value of Oncternal, or GTx may pay more than the aggregate
fair market value for Oncternal.
If the conditions to the Merger are not met, the Merger will not occur.
Even if the Merger is approved by the stockholders of GTx and Oncternal, specified conditions must be satisfied or waived to complete the
Merger. We cannot assure you that all of the conditions will be satisfied or waived. If the conditions are not satisfied or waived, the Merger will not occur or will be delayed, and GTx and Oncternal
each may lose some or all of the intended benefits of the proposed Merger.
Litigation relating to the proposed Merger could require GTx or Oncternal to incur significant costs and
suffer management distraction, and could delay or enjoin the proposed Merger.
GTx and Oncternal could be subject to demands or litigation related to the proposed Merger, whether or not the Merger is consummated. Such
actions may create uncertainty relating to the Merger, or delay or enjoin the Merger, and responding to such demands.
Risks Related to Our Financial Condition and Our Need for Additional Financing, and Additional Risks Related to the Merger
There is no assurance that the proposed Merger will be completed in a timely manner or at all. If the
proposed Merger is not consummated, our business could suffer materially and our stock price could decline.
The closing of the proposed Merger is subject to the satisfaction or waiver of a number of closing conditions, as described above, including the
required approvals by GTx and Oncternal stockholders (including stockholder approval from one of Oncternal's significant stockholders, Shanghai Pharmaceutical (USA) Inc., which holds all of the
outstanding shares of one series of Oncternal's preferred stock that must approve the transactions contemplated by the Merger Agreement) and other customary closing conditions. See the risk factors
above titled, "
The proposed Merger is subject to approval of the Merger Agreement by our stockholders and the Oncternal stockholders. Failure to obtain these approvals would
prevent the closing of the Merger
" and "
If the conditions to the Merger are not met, the Merger will not occur.
" If the
conditions are not satisfied or waived, including as a result of Shanghai Pharmaceutical (USA) Inc. refusing to approve the transactions contemplated by the Merger Agreement, the proposed
Merger may be materially delayed or abandoned. If the proposed Merger is not consummated, our ongoing business may be adversely affected and, without realizing any of the
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benefits
of having consummated the proposed Merger, we will be subject to a number of risks, including the following:
-
-
we have incurred and expect to continue to incur significant expenses related to the proposed Merger even if the Merger is not consummated;
-
-
we could be obligated to pay Oncternal a termination fee of up to $2.0 million under certain circumstances set forth in the Merger
Agreement;
-
-
the market price of our common stock may decline to the extent that the current market price reflects a market assumption that the proposed
Merger will be completed; and
-
-
matters relating to the proposed Merger have required and will continue to require substantial commitments of time and resources by our
remaining management and employees, which could otherwise have been devoted to other opportunities that may have been beneficial to us.
We
also could be subject to litigation related to any failure to consummate the proposed Merger or to perform our obligations under the Merger Agreement. If the proposed Merger is not
consummated, these risks may materialize and may adversely affect our business, financial condition and the market price of our common stock.
If the proposed Merger is not completed, we may be unsuccessful in completing an alternative transaction on
terms that are as favorable as the terms of the proposed Merger with Oncternal, or at all, and we may otherwise be unable to continue to operate our business. Our board of directors may decide to
pursue a dissolution and liquidation of GTx. In such an event, the amount of cash available for distribution to our stockholders will depend heavily on the timing of such liquidation as well as the
amount of cash that will need to be reserved for commitments and contingent liabilities.
Our assets currently consist primarily of cash, cash equivalents and short-term investments, our SARD and SARM assets, the remaining value, if
any, of our deferred tax assets, our listing on The Nasdaq Capital Market and the Merger Agreement with Oncternal. While we have entered into the Merger Agreement with Oncternal, the closing of the
proposed Merger may be delayed or may not occur at all and there can be no assurance that the proposed Merger will deliver the anticipated benefits we expect or enhance stockholder value. If we are
unable to consummate the proposed Merger, our board of directors may elect to pursue an alternative strategy, one of which may be a strategic transaction similar to the proposed Merger. Attempting to
complete an alternative transaction like the proposed Merger will be costly and time consuming, and we can make no assurances that such an alternative transaction would occur at all. Alternatively,
our board of directors may elect to continue our operations to advance appropriate SARD compounds into the additional preclinical studies required to submit an IND and potentially advance one of our
SARD compounds into a first-in-human clinical trial, which would require that we obtain additional funding, and to resume our efforts to seek potential collaborative, partnering or other strategic
arrangements for our SARM assets, including a sale or other divestiture of our SARM assets, or our board of directors could instead decide to pursue a dissolution and liquidation of our company. In
such an event, the amount of cash available for distribution to our stockholders will depend heavily on the timing of such decision, as with the passage of time the amount of cash available for
distribution will be reduced as we continue to fund our operations. In addition, if our board of directors were to approve and recommend, and our stockholders were to approve, a dissolution and
liquidation of our company, we would be required under Delaware corporate law to pay our outstanding obligations, as well as to make reasonable provision for contingent and unknown obligations, prior
to making any distributions in liquidation to our stockholders. Our commitments and contingent liabilities may include severance obligations,
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regulatory
and preclinical obligations, and fees and expenses related to the proposed Merger. As a result of this requirement, a portion of our assets may need to be reserved pending the resolution of
such obligations. In addition, we may be subject to litigation or other claims related to a dissolution and liquidation. If a dissolution and liquidation were pursued, our board of directors, in
consultation with its advisors, would need to evaluate these matters and make a determination about a reasonable amount to reserve. Accordingly, holders of our common stock could lose all or a
significant portion of their investment in the event of a liquidation, dissolution or winding up of the company.
The issuance of shares of our common stock to Oncternal stockholders in the proposed Merger will
substantially dilute the voting power of our current stockholders.
If the proposed Merger is completed, each outstanding share of Oncternal common stock will be converted into the right to receive a number of
shares of our common stock equal to the exchange ratio determined pursuant to the Merger Agreement. Immediately following the Merger, the former Oncternal stockholders immediately before the Merger
are expected to own approximately 75% of our outstanding capital stock, and our stockholders immediately before the Merger are expected to own approximately 25% of our outstanding capital stock,
subject to certain assumptions. Accordingly, the issuance of shares of our common stock to Oncternal stockholders in the Merger will reduce significantly the relative voting power of each share of GTx
common stock held by our current stockholders. Consequently, our stockholders as a group will have significantly less influence over the management and policies of the combined company after the
Merger than prior to the Merger. These estimates are based on the anticipated exchange ratio and are subject to adjustment as provided in the Merger Agreement. See also the risk factor above titled,
"
The exchange ratio is not adjustable based on the market price of GTx common stock, so the merger consideration at the closing may have a greater or lesser value than at the
time the Merger Agreement was signed.
"
GTx stockholders may not receive any payment on the CVRs and the CVRs may otherwise expire valueless.
If the proposed Merger is completed, we and certain other parties will enter into the CVR Agreement pursuant to which, for each share of GTx
common stock held, GTx stockholders of record as of immediately prior to the effective time of the Merger will receive one CVR entitling such holders to receive in the aggregate 50% of any net
proceeds received during the 15-year period after the closing of the Merger from the grant, sale or transfer of rights to our SARD or SARM technology that occurs during the 10-year period after the
closing of the Merger (or in the 11th year if based on a term sheet approved during the initial 10-year period) and, if applicable, to receive royalties
on the sale of any SARD products by the combined company during the 15-year period after the closing of the Merger. The CVRs will not be transferable, will not have any voting or dividend rights, and
interest will not accrue on any amounts potentially payable on the CVRs. Accordingly, the right of any GTx stockholder to receive any future payment on or derive any value form the CVRs will be
contingent solely upon the achievement of the foregoing events within the time periods specified in the CVR Agreement and if these events are not achieved for any reason within the time periods
specified in the CVR Agreement, no payments will be made under the CVRs, and the CVRs will expire valueless. In addition, Oncternal (as successor in interest to GTx) has agreed only to use
commercially reasonable efforts to develop SARD products and to divest our SARM technology, subject to certain limitations, which allows for the consideration of a variety of factors in determining
the efforts that the combined company is required to use to develop SARD products and to divest our SARM technology, and it does not require the combined company to take all possible actions to
continue efforts to develop SARD products and to divest our SARM technology. Accordingly, under certain circumstances the combined company may not be required to continue efforts to develop SARD
products and to divest our SARM technology, or may allocate resources to other projects, which would have an adverse effect on the value, if any, of the CVRs. Furthermore, the CVRs will be unsecured
obligations of the
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combined
company and all payments under the CVRs, all other obligations under the CVR Agreement and the CVRs and any rights or claims relating thereto will be subordinated in right of payment to the
prior payment in full of all current or future senior obligations of the combined company. Finally, the U.S. federal income tax treatment of the CVRs is unclear. There is no legal authority directly
addressing the U.S. federal income tax treatment of the receipt of, and payments on, the CVRs, and there can be no assurance that the Internal Revenue Service, would not assert, or that a court would
not sustain, a position that could result in adverse U.S. federal income tax consequences to holders of the CVRs.
We have incurred losses since inception, and we anticipate that we will incur continued losses for the
foreseeable future.
As of December 31, 2018, we had an accumulated deficit of $600.1 million. Our net loss for the year ended December 31, 2018
was $38.4 million and we expect to incur significant operating losses for the foreseeable future depending on the extent of our preclinical and any clinical development activities and, if any
such development activities are successful, potentially seeking regulatory approval of any potential future product candidates. These losses, among other things, have had and will continue to have an
adverse effect on our stockholders' equity and working capital.
A
substantial portion of our recent efforts and expenditures have been devoted to, and our prospects were substantially dependent upon, the development of enobosarm for the treatment of
postmenopausal women with SUI. However, in September 2018, we announced that our placebo-controlled Phase 2 clinical trial of enobosarm to evaluate the change in frequency of daily SUI episodes
following 12 weeks of treatment, or the ASTRID trial, failed to achieve statistical significance on the primary endpoint of the proportion of patients with a greater than 50% reduction in
incontinence episodes per day compared to placebo. The failure of the ASTRID trial to achieve its primary endpoint has significantly depressed our stock price and has severely harmed our ability to
raise additional capital and to secure potential collaborative, partnering or other strategic arrangements for our SARM assets, and consequently, our prospects to continue as a going concern have been
severely diminished. Following our review of the full data sets from the ASTRID trial, we determined to discontinue further development of enobosarm to treat SUI and to otherwise discontinue any
further development of our SARM program generally. We continue our efforts to seek potential collaborative, partnering or other strategic arrangements for our SARM assets, including a sale or other
divestiture of our SARM assets. We have for many years actively pursued, but have been unable to successfully enter into, potential collaborative, partnering or other strategic arrangements for our
SARM assets. If we are unable to ultimately enter into any such arrangements for our SARM assets, we will not receive any return on our investment in enobosarm and our other SARMs.
As
a result of our decision to discontinue our SARM development efforts, our development activities are focused solely on completing ongoing mechanistic preclinical studies in order to
select the most appropriate SARD compounds to move forward into the additional preclinical studies required to submit an IND and potentially advance one of our SARD compounds into a first-in-human
clinical trial. However, while we believe that our existing capital resources will be adequate to enable us to conduct and complete planned IND-enabling preclinical studies of our SARD compounds, we
will require significant additional financial resources in order to initiate and complete initial human clinical trials of a SARD compound and to otherwise further the development of our SARD program.
Accordingly, if, for any reason, the proposed Merger is not consummated, we may resume our efforts to seek additional funds through potential collaborative, partnering or other strategic arrangements
to provide us with the necessary resources for the development of our SARD program. In addition, our preclinical evaluation of our SARD technology is at very early stage and is subject to the
substantial risk and probability of failure inherent in the development of early-stage programs.
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Because
of the numerous risks and uncertainties associated with developing and commercializing small molecule drugs, we are unable to predict the extent of any future losses or when we
will become profitable, if at all. We have funded our operations primarily through public offerings and private placements of our securities, as well as payments from our former collaborators. We also
previously recognized product revenue from the sale of FARESTON®, the rights to which we sold to a third party in the third quarter of 2012. Currently, we have no ongoing collaborations
for the development and commercialization of our product candidates, and as a result of the sale of our rights and certain assets related to FARESTON®, we also currently have no sources of
revenue.
If
the proposed Merger is not completed and we are unable to raise sufficient additional funds for the development of our SARD program, whether through potential collaborative,
partnering or other strategic arrangements or otherwise, or if we otherwise determine to discontinue the development of our SARD program, we will likely determine to cease operations. Even if we are
able to raise additional funds to permit the continued development of our SARD program, if we and/or any potential collaborators are unable to develop and commercialize our SARDs or SARM technology,
if development is further delayed or is eliminated, or if sales revenue from any SARD or partnered SARM products upon receiving marketing approval, if ever, is insufficient, we may never become
profitable and we will not be successful.
If we do not successfully complete the proposed Merger, we will need to raise substantial additional capital
and may be unable to raise the capital necessary to permit the continued development of our SARD program, which would force us to delay, reduce or eliminate our SARD program and would likely cause us
to cease operations.
At December 31, 2018, we had cash, cash equivalents and short-term investments of $28.5 million. If the proposed Merger is not
completed, based on our current business plan and spending assumptions as a standalone company, we estimate that our current cash, cash equivalents and short-term investments, together with interest
thereon, will be sufficient to meet our projected operating requirements for at least the next 12 months. We have based our cash sufficiency estimates on our current business plan and our
assumptions that may prove to be wrong. We could utilize our available capital resources sooner than we currently expect, and we could need additional funding sooner than currently anticipated.
While
we believe that our existing capital resources will be adequate to enable us to conduct and complete planned IND-enabling preclinical studies of SARD compounds, we will require
significant additional financial resources in order to initiate and complete initial human clinical trials of a SARD compound and to otherwise further the development of our SARD program. If we are
unable to raise sufficient additional funds for the development of our SARD program, whether through potential collaborative, partnering or other strategic arrangements or otherwise, or if we
otherwise determine to discontinue the development of our SARD program, we will likely determine to cease operations.
Our
future funding requirements will depend on many factors, including:
-
-
our ability to successfully complete the Merger;
-
-
the scope, rate of progress and cost of our preclinical and potential future clinical development programs;
-
-
the terms and timing of any potential collaborative, partnering and other strategic arrangements that we may establish;
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-
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the amount and timing of any licensing fees, milestone payments and royalty payments from potential collaborators, if any;
-
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potential future clinical trial results;
-
-
the cost and timing of regulatory filings and/or approvals to commercialize any potential future product candidates and any related
restrictions, limitations, and/or warnings in the label of an approved product candidate;
-
-
the effect of competing technological and market developments; and
-
-
the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights, and the cost of defending
any other litigation claims.
While
we have been able to fund our operations to date, we have no ongoing collaborations for the development and commercialization of any product candidates and no source of revenue,
nor do we expect to generate product revenue for the foreseeable future. We do not have any commitments for future external funding. In addition, although we have entered into an At-the-Market Equity
Offering
SM
Sales Agreement with Stifel, Nicolaus & Company, Incorporated, or the ATM Sales Agreement, under which approximately $25.0 million of shares of our common stock
remained available for sale at December 31, 2018, it is unlikely we could raise sufficient funds under the ATM Sales Agreement to permit us to initiate and complete initial human clinical
trials of a SARD compound, and given our currently-depressed stock price, the ATM Sales Agreement is not otherwise expected to be a practical source of liquidity for us at this time. Further, given
our currently-depressed stock price, we are significantly limited in our ability to sell shares of common stock under the ATM Sales Agreement since the issuance and sale of our common stock under the
ATM Sales Agreement, if it occurs, would be effected under a registration statement on Form S-3 that we filed with the Securities and Exchange Commission, and in accordance with the rules
governing those registration statements, we generally can only sell shares of our common stock under that registration statement in an amount not to exceed one-third of our public float, which
limitation for all practical purposes precludes our ability to obtain any meaningful funding through the ATM Sales Agreement at this time.
Until
we can generate a sufficient amount of product revenue, which we may never do, we will need to finance future cash needs through potential collaborative, partnering or other
strategic arrangements, as well as through public or private equity offerings or debt financings or a combination of the foregoing. If we are unable to raise additional funds, we will need to continue
to reduce our expenditures in order to preserve our cash. Further cost-cutting measures that we may take may not be sufficient to enable us to meet our cash requirements, and they may negatively
affect our business and our ability to derive any value from our SARD program. In any event, in order to further the development of our SARD program, we will need to raise substantial additional
capital. Our failure to do so would likely result in our determining to cease operations.
To
the extent that we raise additional funds through potential collaborations, partnering or other strategic arrangements, it may be necessary to relinquish rights to some of our
technologies or product candidates and intellectual property rights thereof, or grant licenses on terms that are not favorable to us, any of which could result in our stockholders having little or no
continuing interest in our SARD program and/or SARM assets as stockholders or otherwise. To the extent we raise additional funds by issuing equity securities, our stockholders may experience
significant dilution, particularly given our currently-depressed stock price, and debt financing, if available, may involve restrictive covenants. For example, we completed substantially dilutive
private placements of our common stock and warrants in March 2014, November 2014 and September 2017, in addition to a registered direct offering of our
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common
stock that we completed in October 2016 and the sale of our common stock pursuant to the ATM Sales Agreement. Our stockholders will experience additional, perhaps substantial, dilution should
we again raise additional funds by issuing equity securities. Any additional debt or equity financing that we raise may contain terms that are not favorable to us or our stockholders. Our ability to
raise additional funds and the terms upon which we are able to raise such funds have been severely harmed by the failure of the ASTRID trial to meet its primary endpoint and the resulting significant
uncertainty regarding our prospects to continue as a going concern. If we are unable to complete the proposed Merger, our ability to raise additional funds and the terms upon which we are able to
raise such funds may also be adversely affected by the uncertainties regarding our financial condition, uncertainties with respect to the prospects for our early-stage SARD program, the sufficiency of
our capital resources, potential future management turnover, and volatility and instability in the global financial markets. As a result of these and other factors, there is no guarantee that
sufficient additional funding will be available to us on acceptable terms, or at all.
We are substantially dependent on our remaining employees to facilitate the consummation of the proposed
Merger.
We have substantially reduced our workforce since November 2018 and as of March 12, 2018, we had only 13 full-time employees. Our ability
to successfully complete the proposed Merger depends in large part on our ability to retain our remaining personnel. Despite our efforts to retain these employees, one or more may terminate their
employment with us on short notice. The loss of the services of any of these employees could potentially harm our ability to consummate the proposed Merger, to run our day-to-day business operations,
as well as to fulfill our reporting obligations as a public company.
The pendency of the proposed Merger could have an adverse effect on the trading price of our common stock and
our business, financial condition and prospects.
While there have been no significant adverse effects to date, the pendency of the proposed Merger could disrupt our business in many ways,
including:
-
-
the attention of our remaining management and employees may be directed toward the completion of the proposed Merger and related matters and
may be diverted from our day-to-day business operations; and
-
-
third parties may seek to terminate or renegotiate their relationships with us as a result of the proposed Merger, whether pursuant to the
terms of their existing agreements with us otherwise.
Should
they occur, any of these matters could adversely affect the trading price of our common stock or harm our business, financial condition and prospects.
Risks Related to Our Development Activities
We were substantially dependent on the success of enobosarm, and the recent failure of the ASTRID trial to
meet its primary endpoint has severely diminished enobosarm's prospects and our prospects to continue as a going concern. As we are now focused solely on our SARD program, our failure to obtain
funding for and to advance the development of our SARD program would likely require us to cease operations.
A substantial portion of our recent efforts and expenditures have been devoted to, and our prospects were substantially dependent upon, the
development of enobosarm for the treatment of postmenopausal women with SUI. However, in September 2018, we announced that the ASTRID trial failed to achieve statistical significance on the primary
endpoint of the proportion of patients with a
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greater
than 50% reduction in incontinence episodes per day compared to placebo. The failure of the ASTRID trial to achieve its primary endpoint has significantly depressed our stock price and has
severely harmed our ability to raise additional capital and to secure potential collaborative, partnering or other strategic arrangements for our SARM assets, and consequently, our prospects to
continue as a going concern have been severely diminished. Following our review of the full data sets from the ASTRID trial, we determined to discontinue further development of enobosarm to treat SUI
and to otherwise discontinue any further development of our SARM program generally. We continue our efforts to seek potential collaborative, partnering or other strategic arrangements for our SARM
assets, including a sale or other divestiture of our SARM assets. We have for many years actively pursued, but have been unable to successfully enter into, potential collaborative, partnering or other
strategic
arrangements for our SARM assets. If we are unable to ultimately enter into any such arrangements for our SARM assets, we will not receive any return on our investment in enobosarm and our other
SARMs.
As
a result of our decision to discontinue our SARM development efforts, our development activities are focused solely on completing ongoing mechanistic preclinical studies in order to
select the most appropriate SARD compounds to move forward into the additional preclinical studies required to submit an IND and potentially advance one of our SARD compounds into a first-in-human
clinical trial. However, while we believe that our existing capital resources will be adequate to enable us to conduct and complete planned IND-enabling preclinical studies of our SARD compounds, we
will require significant additional financial resources in order to initiate and complete initial human clinical trials of a SARD compound and to otherwise further the development of our SARD program.
In addition, our preclinical evaluation of our SARD technology is at very early stage and is subject to the substantial risk and probability of failure inherent in the development of early-stage
programs.
In
any event, if the proposed Merger is not completed and we are unable to raise sufficient additional funds for the development of our SARD program, whether through potential
collaborative, partnering or other strategic arrangements or otherwise, or if we otherwise determine to discontinue the development of our SARD program, we will likely determine to cease operations.
We and any potential collaborators will not be able to commercialize any SARD product candidates if our
preclinical studies do not produce successful results or if our or their SARD or SARM clinical trials do not adequately demonstrate safety and efficacy in humans.
Significant additional clinical development, financial resources and personnel would be required to obtain necessary regulatory approvals for
any potential future product candidates and to develop them into commercially viable products. Preclinical and clinical testing is expensive, can take many years to complete and has an uncertain
outcome. Success in preclinical testing and early clinical trials does not ensure that later clinical trials will be successful, and top-line or interim results of a clinical trial do not necessarily
predict final results. In this regard, from time to time, we have and may in the future publish or report top-line, interim or other preliminary data from our clinical trials, which data is based on a
preliminary analysis of then-available efficacy and safety data, and the results and related findings and conclusions are subject to change following a more comprehensive review of the data related to
the particular study or trial. We also make assumptions, estimations, calculations and conclusions as part of our analyses of data, and we may not have received or had the opportunity to fully and
carefully evaluate all data from the applicable trial. As a result, the top-line results that we report may differ from future results of the same studies, or different conclusions or considerations
may qualify such results, once additional data have been received and fully evaluated. Similarly, interim or other preliminary data from clinical trials that we may conduct may not be indicative of
the final results of the trial and are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available.
Top-line, interim and other
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preliminary
data also remain subject to audit and verification procedures that may result in the final data being materially different from such top-line, interim or other preliminary data we
previously published. As a result, top-line, interim or preliminary data should be viewed with caution until the final data are available.
Typically,
the failure rate for development candidates is high. If a product candidate fails at any stage of development, we will not have the anticipated revenues from that product
candidate to fund our operations, and we will not receive any return on our investment in that product candidate. For example, in September 2018, we announced that the ASTRID trial failed to achieve
statistical significance on the primary endpoint of the proportion of patients with a greater than 50% reduction in incontinence episodes per day compared to placebo. The failure of the ASTRID trial
to achieve its primary endpoint has significantly depressed our stock price and has severely harmed our ability to raise additional capital and to secure potential collaborative, partnering or other
strategic arrangements for our SARM assets, and consequently, our prospects to continue as a going concern have been severely diminished. Likewise, during the third quarter of 2017, we determined that
there were insufficient patients achieving clinical benefit from enobosarm treatment to continue our Phase 2 proof-of-concept clinical trial evaluating enobosarm in patients with advanced AR
positive triple-negative breast cancer, or TNBC. Additionally, in the third quarter of 2017, we decided not to pursue additional clinical development of enobosarm to treat women with ER positive, AR
positive advanced breast cancer after evaluating the breast cancer environment where the treatment paradigms are shifting to immunotherapies and/or combination therapies, along with the time and cost
of conducting the necessary clinical trials for potential approval, even though we announced that our Phase 2 clinical trial of enobosarm in this indication achieved its primary endpoint in
both the 9 mg and 18 mg cohorts of the clinical trial. Following our review of the full data sets from the ASTRID trial, we determined to discontinue further development of enobosarm to treat SUI and
to otherwise discontinue any further development of our SARM program generally. We continue our efforts to seek potential collaborative, partnering or other strategic arrangements for our SARM assets,
including a sale or other divestiture of our SARM assets. We have for many years actively pursued, but have been unable to successfully enter into, potential collaborative, partnering or other
strategic arrangements for our SARM assets. If we are unable to ultimately enter into any such arrangements for our SARM assets, we will not receive any return on our investment in enobosarm and our
other SARMs.
In
the first quarter of 2015, we entered into an exclusive worldwide license agreement with UTRF to develop its proprietary SARD technology and we are currently focused solely on the
further development of our SARD program. Our preclinical evaluation of our SARD technology is at an early stage and is subject to the substantial risk and probability of failure inherent in the
development of early-stage programs. While we believe that our existing capital resources will be adequate to enable us to conduct and complete planned IND-enabling preclinical studies of our SARD
compounds, we will require significant additional financial resources in order to initiate and complete initial human clinical trials of a SARD compound and to otherwise further the development of our
SARD program. If our research and preclinical development of our SARD program is unsuccessful, is discontinued and/or we are not able to obtain sufficient funding to advance the development of our
SARD program, we will likely cease operations.
Significant
delays in preclinical and clinical testing could materially impact our product development costs. We do not know whether our planned preclinical and potential future clinical
trials will need to be modified or will be completed on schedule, if at all. We or any potential collaborators may experience numerous unforeseen and/or adverse events during, or as a result of,
preclinical testing
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and
the clinical trial process that could delay or prevent our or our potential collaborators' ability to commercialize any product candidates, including:
-
-
regulators or institutional review boards may not authorize us or any potential collaborators to commence a clinical trial or conduct a
clinical trial at a prospective trial site, or we or any potential collaborators may experience substantial delays in obtaining these authorizations;
-
-
we or any potential collaborators may be delayed in reaching, or may fail to reach, agreement on acceptable terms with prospective clinical
research organizations, or CROs, and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;
-
-
preclinical or clinical trials may produce negative or inconclusive results, which may require us or any potential collaborators to conduct
additional preclinical or clinical testing or to abandon projects that we expect to be promising;
-
-
even if preclinical or clinical trial results are positive, the FDA or foreign regulatory authorities could nonetheless require us to conduct
unanticipated additional preclinical development or clinical trials;
-
-
patient registration or enrollment in clinical trials may be slower than we anticipate resulting in significant delays, additional costs and/or
study terminations;
-
-
we or any potential collaborators may suspend or terminate clinical trials if the participating patients are being exposed to unacceptable
health risks;
-
-
regulators or institutional review boards may suspend or terminate clinical research for various reasons, including noncompliance with
regulatory requirements;
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-
our product candidates may not have the desired effects or may include undesirable side effects; and
-
-
changes in regulatory requirements, policies and guidelines.
If
any of these events were to occur in the future and, as a result, we or any potential collaborators have significant delays in or termination of potential future clinical trials, our
costs could increase and our ability to generate revenue could be impaired, which would materially and adversely impact our business, financial condition and growth prospects.
If we or any potential collaborators observe serious or other adverse events during the time any potential
future product candidates are in development or after our products are approved and on the market, we or any potential collaborators may be required to perform lengthy additional clinical trials, may
be required to cease further development of such product candidates, may be denied regulatory approval of such products, may be forced to change the labeling of such products or may be required to
withdraw any such products from the market, any of which would hinder or preclude our ability to generate revenues.
In our Phase 2 clinical trials for enobosarm for the treatment of muscle wasting in patients with cancer and healthy older males and
postmenopausal females, we observed mild elevations of hepatic enzymes, which in certain circumstances may lead to liver failure, in a few patients in both the placebo and enobosarm treated groups.
Reductions in high-density lipoproteins, or HDL, have also been observed in subjects treated with enobosarm. Lower levels of HDL could lead to increased risk of
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adverse
cardiovascular events. Mild transient elevations in liver enzymes that were within normal limits were observed in our Phase 2 proof-of-concept clinical trial of enobosarm to treat
postmenopausal women with SUI, except for one patient with levels greater than 1.5 times the upper limit of normal which returned to normal following her 12-week treatment period. Reductions in total
cholesterol, low-density lipoproteins, or LDL, HDL and triglycerides were also observed. Results of the placebo-controlled ASTRID study in postmenopausal women with SUI indicated that enobosarm was
generally safe and well tolerated, and reported adverse events were generally mild to moderate in intensity and similar across all treatment groups. Mild transient elevations in hepatic enzymes and
changes in lipid profile were dose dependent, and consistent with results seen in previous trials. In addition, in our Phase 2 proof-of-concept clinical trial evaluating enobosarm in a 9 mg
daily dose for the treatment of patients with ER positive and AR positive metastatic breast cancer, bone pain of the chest cage, a serious adverse event, or SAE, was assessed as possibly related to
enobosarm. Although doses up to 30 mg have been evaluated in short duration studies, the 3 mg dose that was the subject of the ASTRID trial and higher enobosarm doses that may potentially be tested by
potential future collaborators in later stage longer duration trials, if any, may increase the risk or incidence of known potential side effects of SARMs, including elevations in hepatic enzymes and
further reductions in HDL, in addition to the emergence of side effects that have not been seen to date.
If
the incidence of serious or other adverse events related to enobosarm or any other SARD or SARM product candidates increases in number or severity, if a regulatory authority believes
that these or other events constitute an adverse effect caused by the drug, or if other effects are identified during clinical trials that we or any potential collaborators may conduct in the future
or after any potential future product candidates are approved and marketed:
-
-
we or any potential collaborators may be required to conduct additional preclinical or clinical trials, make changes in the labeling of any
such approved products, reformulate any such products, or implement changes to or obtain new approvals of our contractors' manufacturing facilities;
-
-
regulatory authorities may be unwilling to approve our product candidates or may withdraw approval of our products;
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-
we may experience a significant drop in the sales of the affected products;
-
-
our reputation in the marketplace may suffer; and
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-
we may become the target of lawsuits, including class action suits.
Any
of these events could prevent approval or harm adoption and sales of the affected product candidates or products, or could substantially increase the costs and expenses of
commercializing and marketing any such products.
Risks Related to Our Dependence on Third Parties
If the proposed Merger is not completed and we do not establish collaborative, partnering or other strategic
arrangements for our SARD program and SARM assets or otherwise raise substantial additional capital, we will likely determine to cease operations.
Our current strategy is dependent on our ability to secure potential collaborative, partnering or other strategic arrangements with other
pharmaceutical and biotechnology companies to assist us in furthering development and potential commercialization of any SARD and SARM product candidates,
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and
to otherwise obtain funding for such activities. For example, we are currently focused solely on the further development of our SARD program and while we believe that our existing capital
resources will be adequate to enable us to conduct and complete planned IND-enabling preclinical studies of SARD compounds, we will require significant additional financial resources in order to
initiate and complete initial human clinical trials and to otherwise further the development of our SARD program. Accordingly, if, for any reason, the proposed Merger is not consummated, we may resume
our efforts to seek additional funds through potential collaborative, partnering or other strategic arrangements to provide us with the necessary resources for the development of our SARD program. We
face significant competition in seeking such arrangements, and such arrangements are complex and time consuming to negotiate and document. In any event, we may not be successful in entering into new
collaborative, partnering or other strategic arrangements with third parties for the further development of our SARD program (or our SARD assets) on acceptable terms, or at all. In this regard, we
have for many years actively pursued, but have been unable to successfully enter into, potential collaborative, partnering or other strategic arrangements for our SARM assets and we likewise have not
been successful to date in entering into potential collaborative, partnering or other strategic arrangements for our SARD program. In addition, we are unable to predict when, if ever, we will enter
into any potential collaborative, partnering or other such strategic arrangements because of the numerous risks and uncertainties associated with establishing such arrangements, and we have otherwise
been unsuccessful, for many years, in our efforts to establish such arrangements. In any event, if the proposed Merger is not completed and we are unable to raise sufficient additional funds for the
development of our SARD program, whether through potential collaborative, partnering or other strategic arrangements or otherwise, or if we otherwise determine to discontinue the development of our
SARD program, we will likely determine to cease operations. In addition, because we have discontinued our SARM development efforts, if we are unable to ultimately enter into any potential
collaborative, partnering or other such strategic arrangements for our SARM assets, we will not receive any return on our investment in enobosarm and our other SARMs.
Any collaborative arrangements that we establish in the future may not be successful or we may otherwise not
realize the anticipated benefits from these collaborations. In addition, any future collaborative arrangements may place the development and commercialization of our product candidates outside our
control, may require us to relinquish important rights or may otherwise be on terms unfavorable to us.
We have in the past established, and, if the proposed Merger is not completed, we intend to continue to seek to establish, partnering,
collaborative and similar strategic arrangements with third parties to develop and commercialize any potential future product candidates, and these collaborations may not be successful or we may
otherwise not realize the anticipated benefits from these collaborations. For example, in March 2011, we and Ipsen Biopharm Limited, or Ipsen, mutually agreed to terminate our collaboration for the
development and commercialization of our toremifene-based product candidate. As of the date of this report, we have no ongoing collaborations for the development and commercialization of any product
candidate. We may not be able to locate third-party collaborators to develop and market any product candidates, and we lack the necessary financial resources to develop any product candidates alone.
Dependence
on collaborative arrangements subjects us to a number of risks, including:
-
-
we may not be able to control the amount and timing of resources that our potential collaborators may devote to our product candidates;
-
-
potential collaborations may experience financial difficulties or changes in business focus;
-
-
we may be required to relinquish important rights such as marketing and distribution rights;
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-
-
should a collaborator fail to develop or commercialize one of our compounds or product candidates, we may not receive any future milestone
payments and will not receive any royalties for the compound or product candidate;
-
-
business combinations or significant changes in a collaborator's business strategy may also adversely affect a collaborator's willingness or
ability to complete its obligations under any arrangement;
-
-
under certain circumstances, a collaborator could move forward with a competing product candidate developed either independently or in
collaboration with others, including our competitors; and
-
-
collaborative arrangements are often terminated or allowed to expire, which could delay the development and may increase the cost of developing
our product candidates.
If third parties do not manufacture our clinical and commercial drug supplies in sufficient quantities, in
the required timeframe, at an acceptable cost, and with appropriate quality control, clinical development and commercialization of any potential future product candidates would be delayed.
We do not currently own or operate manufacturing facilities, and we rely, and expect to continue to rely, on third parties for the production of
clinical and commercial quantities of any product candidates. Our current and anticipated future dependence upon others for the manufacture of our product candidates may adversely affect our future
profit margins, if any, and our ability to develop product candidates and commercialize any product candidates on a timely and competitive basis.
We
rely and expect to continue to rely on third-party vendors for drug substance and drug product manufacturing, including drug substance for SARDs used in our current and potential
future preclinical studies. If the contract manufacturers that we are currently utilizing to meet our supply needs for SARD compounds or any potential future SARD product candidates prove incapable or
unwilling to continue to meet our supply needs, we could experience a delay in conducting any additional preclinical or clinical trials of SARD compounds or any potential future SARD product
candidates. We may not be able to maintain or renew our existing or any other third-party manufacturing arrangements on acceptable terms, if at all. If our suppliers fail to meet our requirements for
our product candidates for any reason, we would be required to obtain alternate suppliers. Any inability to obtain alternate suppliers, including an inability to obtain approval from the FDA of an
alternate supplier, would delay or prevent the clinical development and commercialization of any potential future product candidates.
Use of third-party manufacturers may increase the risk that we will not have adequate drug supplies for
preclinical, clinical and commercial use.
Reliance on third-party manufacturers entails risks, to which we would not be subject if we manufactured our product candidates ourselves,
including:
-
-
reliance on the third party for regulatory compliance and quality assurance;
-
-
the possible breach of the manufacturing agreement by the third party because of factors beyond our control;
-
-
the possible termination or non-renewal of the agreement by the third party, based on its own business priorities, at a time that is costly or
inconvenient for us; and
-
-
drug product supplies not meeting the requisite requirements for clinical trial use.
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If
we are not able to obtain adequate drug supplies, including SARD compounds, it will be more difficult for us to develop any product candidates and compete effectively. Our potential
future product candidates and any products that we and/or our potential collaborators may develop may compete with other product candidates and products for access to manufacturing facilities.
Our
present or future manufacturing partners may not be able to comply with FDA-mandated current Good Manufacturing Practice regulations, other FDA regulatory requirements or similar
regulatory requirements outside the United States. Failure of our third-party manufacturers or us to comply with applicable regulations could result in sanctions being imposed on us, including fines,
injunctions, civil penalties, failure of regulatory authorities to grant marketing approval of our product candidates, delays, suspension or withdrawal of approvals, license revocation, seizures or
recalls of product candidates or products, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect supplies of our product candidates.
If third parties on whom we rely do not perform as contractually required or expected, we may not be able to
obtain regulatory approval for or successfully commercialize any potential future product candidates.
We do not have the ability to independently conduct clinical trials for our product candidates, and we must rely on third parties, such as CROs,
medical institutions, clinical investigators and contract laboratories to conduct our clinical trials. In addition, we rely on third parties to assist with our preclinical development of product
candidates. If these third parties do not successfully carry out their contractual duties or regulatory obligations or meet expected deadlines, if the third parties need to be replaced, or if the
quality or accuracy of the data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements or for other reasons, our preclinical development
activities or clinical trials may be extended, delayed, suspended or terminated, and we may not be able to obtain regulatory approval for or successfully commercialize any potential future product
candidates.
Risks Related to Our Intellectual Property
If we lose our licenses from UTRF, we may be unable to continue our business.
We have licensed intellectual property rights and technology from UTRF used in substantially all of our business. Our license agreements with
UTRF, under which we were granted rights to enobosarm and other SARM compounds, and to SARD compounds and, for both, to methods of use thereof, may be terminated by UTRF if we are in breach of our
obligations under, or fail to perform any terms of, the relevant agreement and fail to cure that breach. If one or both of these agreements are terminated, then we may lose our rights to utilize
enobosarm and other SARM compounds and/or SARD compounds and the intellectual property covered by those agreements to
market, distribute and sell licensed products, which may prevent us from continuing our business and would likely cause us to cease operations altogether.
If some or all of our or our licensor's patents expire or are invalidated or are found to be unenforceable,
or if some or all of our patent applications do not result in issued patents or result in patents with narrow, overbroad, or unenforceable claims, or claims that are not supported in regard to written
description or enablement by the specification, or if we are prevented from asserting that the claims of an issued patent cover a product of a third party, we may be subject to competition from third
parties with products in the same class of products as our product candidates or products with the same active pharmaceutical ingredients as our product candidates, including in those jurisdictions in
which we have no patent protection.
Our commercial success, if any, will depend in part on obtaining and maintaining patent and trade secret protection for any product candidates
that we may develop, as well as the methods for treating
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patients
in the product indications using these product candidates. We will be able to protect any potential future product candidates and the methods for treating patients in the product indications
using these product candidates from unauthorized use by third parties only to the extent that we or our exclusive licensor owns or controls such valid and enforceable patents or trade secrets.
Even
if any potential future product candidates and/or the methods for treating patients for prescribed indications using these product candidates are covered by valid and enforceable
patents and have claims with sufficient scope, disclosure and support in the specification, the patents will provide protection only for a limited amount of time. Our and our licensor's ability to
obtain patents can be highly uncertain and involve complex and in some cases unsettled legal issues and factual questions. Furthermore, different countries have different procedures for obtaining
patents, and patents issued in different countries provide different degrees of protection against the use of a patented invention by others. Therefore, if the issuance to us or our licensor, in a
given country, of a patent covering an invention is not followed by the issuance, in other countries, of patents covering the same invention, or if any judicial interpretation of the validity,
enforceability, or scope of the claims in, or the written description or enablement in, a patent issued in one country is not similar to the interpretation given to the corresponding patent issued in
another country, our ability to protect our intellectual property in those countries may be limited. Changes in either patent laws or in interpretations of patent laws in the United States and other
countries may materially diminish the value of our intellectual property or narrow the scope of our patent protection.
We
may be subject to competition from third parties with products in the same class of products as our product candidates or products with the same active pharmaceutical ingredients as
our product candidates in those jurisdictions in which we have no patent protection. Even if patents are issued to us or our licensor regarding our product candidates or methods of using them, those
patents can be challenged by our competitors who can argue such patents are invalid or unenforceable, lack of utility, lack sufficient written description or enablement, or that the claims of the
issued patents should be limited or narrowly construed. Patents also will not protect our product candidates if competitors devise ways of making or using these product candidates without legally
infringing our patents. The Federal Food, Drug, and Cosmetic Act and FDA regulations and policies create a regulatory environment that encourages companies to challenge branded drug patents or to
create non-infringing versions of a patented product in order to facilitate the approval of abbreviated new drug applications for generic substitutes. These same types of incentives encourage
competitors to submit new drug applications that rely on literature and clinical data not prepared for or by the drug sponsor, providing another less burdensome pathway to approval.
We
also rely on trade secrets to protect our technology, especially where we do not believe that patent protection is appropriate or obtainable. However, trade secrets are difficult to
protect. Our employees, consultants, contractors, outside scientific collaborators and other advisors may unintentionally or willfully disclose our confidential information to competitors, and
confidentiality agreements may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. Enforcing a claim that a third party illegally obtained and is using
our trade secrets is expensive and time-consuming, and the outcome is unpredictable. Moreover, our competitors may independently develop equivalent knowledge, methods and know-how. Failure to obtain
or maintain trade secret protection could adversely affect our competitive business position.
If we infringe intellectual property rights of third parties, it may increase our costs or prevent us from
being able to commercialize our product candidates.
There is a risk that we are infringing the proprietary rights of third parties because numerous United States and foreign issued patents and
pending patent applications, which are owned by third
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parties,
exist in the fields that are the focus of our development and manufacturing efforts. Others might have been the first to make the inventions covered by each of our or our licensor's pending
patent applications and issued patents and/or might have been the first to file patent applications for these inventions. In addition, because patent applications take many months to publish and
patent applications can take many years to issue, there may be currently pending applications, unknown to us or our licensor, which may later result in issued patents that cover the production,
manufacture,
synthesis, commercialization, formulation or use of our product candidates. In addition, the production, manufacture, synthesis, commercialization, formulation or use of our product candidates may
infringe existing patents of which we are not aware. Defending ourselves against third-party claims, including litigation in particular, would be costly and time consuming and would divert
management's attention from our business, which could lead to delays in our development or commercialization efforts. If third parties are successful in their claims, we might have to pay substantial
damages or take other actions that are adverse to our business.
As
a result of intellectual property infringement claims, or to avoid potential claims, we might:
-
-
be prohibited from selling or licensing any product that we and/or any potential collaborators may develop unless the patent holder licenses
the patent to us, which the patent holder is not required to do;
-
-
be required to pay substantial royalties or other amounts, or grant a cross license to our patents to another patent holder; or
-
-
be required to redesign the formulation of a product candidate so that it does not infringe, which may not be possible or could require
substantial funds and time.
Risks Related to Regulatory Approval
If we or any potential collaborators are not able to obtain required regulatory approvals, we or such
collaborators will not be able to commercialize our product candidates, and our ability to generate revenue will be materially impaired.
The activities associated with the development and commercialization of drug candidates are subject to comprehensive regulation by the FDA,
other regulatory agencies in the United States and by comparable authorities in other countries, including the European Medicines Agency, or EMA. Failure to obtain regulatory approval for a product
candidate will prevent us or any potential collaborator from commercializing the product candidate. We have not received regulatory approval to market any product candidate in any jurisdiction, and we
do not expect to obtain FDA, EMA or any other regulatory approvals to market any potential future product candidates for the foreseeable future, if at all. The process of obtaining regulatory
approvals is expensive, often takes many years, if approval is obtained at all, and can vary substantially based upon the type, complexity and novelty of the product candidates involved.
Changes
in the regulatory approval policy during the development period, changes in or the enactment of additional regulations or statutes, or changes in regulatory review for each
submitted product application may cause delays in the approval or rejection of an application. Even if the FDA or the EMA approves a product candidate, the approval may impose significant restrictions
on the indicated uses, conditions for use, labeling, advertising, promotion, marketing and/or production of such product, and may impose ongoing requirements for post-approval studies, including
additional research and development and clinical trials. Any FDA approval may also impose Risk Evaluation Mitigation Strategy, or REMS, on a product if the FDA believes there is a reason to monitor
the safety of the
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drug
in the market place. REMS may include requirements for additional training for health care professionals, safety communication efforts and limits on channels of distribution, among other things.
The sponsor would be required to evaluate and monitor the various REMS activities and adjust them if need be. The FDA and EMA also may impose various civil or criminal sanctions for failure to comply
with regulatory requirements, including withdrawal of product approval.
Furthermore,
the approval procedure and the time required to obtain approval varies among countries and can involve additional testing beyond that required by the FDA. Approval by one
regulatory authority does not ensure approval by regulatory authorities in other jurisdictions. Failure to obtain approval in one jurisdiction may negatively impact our ability to obtain approval
elsewhere.
The
FDA, the EMA and other foreign regulatory authorities have substantial discretion in the approval process and may refuse to accept any application or may decide that our data is
insufficient for approval and require additional preclinical, clinical or other studies, including Phase 4 clinical studies. For example, in October 2009, we received a Complete Response Letter
from the FDA regarding our new drug application, or NDA, for toremifene 80 mg to reduce fractures in men with prostate cancer on androgen deprivation therapy notifying us that the FDA would not
approve our NDA as a result of certain clinical deficiencies identified in the Complete Response Letter. We have since discontinued our toremifene 80 mg development program, as well as other
toremifene-based products. Although we evaluated the potential submission of a marketing authorization application, or MAA, to the EMA seeking marketing approval of enobosarm 3 mg in the European
Union, or EU, for the prevention and treatment of muscle wasting in patients with advanced NSCLC, based on input from the Medicines and Healthcare Products Regulatory Agency, or MHRA, we determined
that the data from the POWER trials was not sufficient to support the filing and approval of a MAA without confirmatory data from another Phase 3 clinical trial of enobosarm 3 mg. As a result
of this input, we elected not to submit a MAA in the absence of such confirmatory data. In addition, since data from the two POWER trials failed to meet the primary statistical criterion pre-specified
for the co-primary endpoints of lean body mass and physical function, we were unable to file with the FDA a NDA for enobosarm 3 mg for the prevention and treatment of muscle wasting in patients with
advanced NSCLC.
In
addition, varying interpretations of the data obtained from preclinical and clinical testing could delay, limit, or prevent regulatory approval of a product candidate. Even if we
submit an application to the FDA, the EMA and other foreign regulatory authorities for marketing approval of a product candidate, it may not result in any marketing approvals.
We
do not expect to receive regulatory approval for the commercial sale of any product candidates for the foreseeable future, if at all. The inability to obtain approval from the FDA,
the EMA and other foreign regulatory authorities for our product candidates would prevent us or any potential collaborators from commercializing these product candidates in the United States, the EU,
or other countries. See the section entitled "Business Government Regulation" under Part 1, Item 1 of this Annual Report on Form 10-K for additional
information regarding risks associated with marketing approval, as well as risks related to potential post-approval requirements.
Risks Related to Commercialization
The commercial success of any products that we and/or any potential collaborators may develop and for which
we may obtain regulatory approval will depend upon the market and the degree of market acceptance among physicians, patients, health care payors and the medical community.
Any products that we and/or any potential collaborators may develop may not gain market acceptance for its stated indication among physicians,
patients, health care payors and the medical
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community
despite regulatory approval. If these products do not achieve an adequate level of acceptance, we may not generate material product revenues or receive royalties to the extent we currently
anticipate, and we may not become profitable. The degree of market acceptance of our product candidates, if approved for commercial sale, will depend on a number of factors,
including:
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efficacy and safety results in clinical trials;
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the prevalence and severity of any side effects;
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potential advantages over alternative treatments;
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whether the products we commercialize become and/or remain a preferred course of treatment;
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the ability to offer our product candidates for sale at competitive prices;
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relative convenience and ease of administration compared to alternative treatment;
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the strength of marketing and distribution support; and
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sufficient third-party coverage or reimbursement.
If we are unable to establish sales and marketing capabilities or establish and maintain agreements with
third parties to market and sell our product candidates, we may be unable to generate product revenue from such candidates.
We have limited experience as a company in the sales, marketing and distribution of pharmaceutical products. In the event one of our potential
future product candidates is approved, we will need to establish sales and marketing capabilities or establish and maintain agreements with third parties to market and sell any such product
candidates. Either of these options would be expensive and time-consuming. We may be unable to build our own sales and marketing capabilities, and there are risks involved with entering into
arrangements with third parties to perform these services, which could delay the commercialization of any of our product candidates if approved for commercial sale. In addition, to the extent that we
enter into arrangements with third parties to perform sales, marketing and distribution services, our product revenues are likely to be lower than if we market and sell any products that we develop
ourselves.
If we and/or any potential collaborators are unable to obtain reimbursement or experience a reduction in
reimbursement from third-party payors for products we sell, our revenues and prospects for profitability will suffer.
Sales of products developed by us and/or any potential collaborators are dependent on the availability and extent of reimbursement from
third-party payors, both governmental and private. Changes in the coverage and/or reimbursement policies of these third-party payors that reduce reimbursements for any products that we and/or any
potential collaborators may develop and sell could negatively impact our future operating and financial results.
Medicare
coverage and reimbursement of prescription drugs exists under Medicare Part D for oral drug products capable of self-administration by patients. Our oral drug product
candidates would likely be covered by Medicare Part D (if covered by Medicare at all). In March 2010, the United States Congress enacted the Healthcare Reform Act, which, among other
initiatives, implemented cost containment and other measures that could adversely affect revenues from sales of product candidates, including an increase in the drug rebates that manufacturers must
pay under Medicaid for brand name
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prescription
drugs and extension of these rebates to Medicaid managed care and a requirement that manufacturers provide a 50% discount on the negotiated price of Medicare Part D brand name
drugs utilized by Medicare Part D beneficiaries during the coverage gap (the so-called "donut hole")(which discount has subsequently been increased to 70% in 2019).
The
provisions of the Healthcare Reform Act have been subject to judicial and Congressional challenges, as well as efforts by the Trump administration to modify certain requirements of
the Healthcare Reform Act by executive branch order. For example, on January 20, 2017, President Trump signed an Executive Order directing federal agencies with authorities and responsibilities
under the Healthcare Reform Act to waive, defer, grant exemptions from, or delay the implementation of any provision of the Healthcare Reform Act that would impose a fiscal or regulatory burden on
states, individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. On October 12, 2017, President Trump signed another Executive Order directing
certain federal agencies to propose regulations or guidelines to provide small businesses with greater opportunities to form association health plans, expand the availability of short-term, limited
duration insurance, and allow employees to make use of certain employer-paid health benefits, called health reimbursement arrangements, to pay for health insurance that does not meet all Healthcare
Reform Act requirements. In addition, citing legal guidance from the U.S. Department of Justice, the U.S. Department of Health and Human Services, or HHS, concluded that cost-sharing reduction, or
CSR, payments to insurance companies required under the Healthcare Reform Act had not received necessary appropriations from Congress. President Trump subsequently discontinued these payments. The
loss of the CSR payments is
expected to increase premiums on certain policies issued by qualified health plans under the Healthcare Reform Act. Certain administrative actions have been subject to judicial challenge. In Congress,
there have been a number of legislative initiatives to modify, repeal and/or replace portions of the Healthcare Reform Act. Tax reform legislation enacted at the end of 2017 eliminated the tax penalty
for individuals who do not maintain sufficient health insurance coverage beginning in 2019. The Bipartisan Budget Act of 2018 contained various provisions that affect coverage and reimbursement of
drugs, including an increase in the discount that manufacturers of Medicare Part D brand name drugs must provide to Medicare Part D beneficiaries during the coverage gap from 50% to 70%
starting in 2019. Congress may consider other legislation to modify, repeal and/or replace certain elements of the Healthcare Reform Act. In December 2018, a federal district court judge, in a
challenge brought by a number of state attorneys general, found the Healthcare Reform Act unconstitutional in its entirety because, once Congress repealed the individual mandate provision, there was
no longer a basis to rely on Congressional taxing authority to support enactment of the law. Pending appeals, which could take some time, the Healthcare Reform Act is still operational in all
respects. We continue to evaluate the effect that the Healthcare Reform Act and its possible repeal, replacement or modification may have on our business. Such legislation and other healthcare reform
measures that may be adopted in the future could have a material adverse effect on our industry generally and on our ability to successfully commercialize our product candidates, if approved.
Economic
pressure on state budgets may result in states increasingly seeking to achieve budget savings through mechanisms that limit coverage or payment for drugs. State Medicaid
programs are increasingly requesting manufacturers to pay supplemental rebates and requiring prior authorization for use of drugs where supplemental rebates are not provided. Private health insurers
and managed care plans are likely to continue challenging the prices charged for medical products and services, and many of these third-party payors may limit reimbursement for newly-approved health
care products. In particular, third-party payors may limit the indications for which they will reimburse patients who use any products that we and/or any potential collaborators may develop or sell.
These cost-control initiatives could decrease the price we might establish for products that we or any potential collaborators may develop or sell, which would result in lower product revenues or
royalties payable to us.
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Similar
cost containment initiatives exist in countries outside of the United States, particularly in the countries of the EU, where the pricing of prescription pharmaceuticals is
subject to governmental control. In these countries, pricing negotiations with governmental authorities can extend well beyond the receipt of regulatory marketing approval for a product and may
require us or any potential collaborators to conduct a clinical trial that compares the cost effectiveness of our product candidates or products to other available therapies. The conduct of such a
clinical trial could be expensive and result in delays in our or a potential collaborators' commercialization efforts. Third-party payors are challenging the prices charged for medical products and
services, and many third-party payors limit reimbursement for newly-approved health care products. Recently budgetary pressures in many EU countries are also causing governments to consider or
implement various cost-containment measures, such as price freezes, increased price cuts and rebates. If budget pressures continue, governments may implement additional cost containment measures.
Cost-control initiatives could decrease the price we
might establish for products that we or any potential collaborators may develop or sell, which would result in lower product revenues or royalties payable to us.
Another
development that could affect the pricing of drugs would be if the Secretary of HHS allowed drug reimportation into the United States. The Medicare Prescription Drug, Improvement
and Modernization Act of 2003 gives discretion to the Secretary of Health and Human Services to allow drug reimportation into the United States under some circumstances from foreign countries,
including from countries where the drugs are sold at a lower price than in the United States. If the circumstances were met and the Secretary exercised the discretion to allow for the direct
reimportation of drugs, it could decrease the price we or any potential collaborators receive for any products that we and/or any potential collaborators may develop, negatively affecting our revenues
and prospects for profitability.
Health care reform measures could hinder or prevent our product candidates' commercial success.
Among policy makers and payors in the United States and elsewhere, there is significant interest in health care reform, as evidenced by the
initial enactment of, as well as the efforts to repeal, replace and/or modify the Healthcare Reform Act in the United States. Federal and state legislatures within the United States and foreign
governments will likely continue to consider other changes to existing health care legislation. These changes adopted by governments may adversely impact our business by lowering the price of health
care products in the United States and elsewhere. For example, there has been increasing administrative, legislative and enforcement interest in the United States with respect to drug pricing
practices. There have been several U.S. Congressional inquiries and legislative and administrative initiatives at the federal and state levels intended to, among other things, bring more transparency
to drug pricing and modify government program reimbursement for drugs. We cannot predict what health care reform initiatives may be adopted in the future. Further federal, state and foreign
legislative and regulatory developments are likely, and we expect ongoing initiatives to increase pressure on drug pricing, which could decrease the price we might establish for products that we or
any potential collaborators may develop or sell, which would result in lower product revenues or royalties payable to us.
We
operate in a highly regulated industry and new laws, regulations or judicial decisions, or new interpretations of existing laws, regulations or decisions, related to health care
availability, method of delivery or payment for health care products and services, or sales, marketing and pricing practices could negatively impact our business, operations and financial condition.
If product liability lawsuits are brought against us, we may incur substantial liabilities and may be
required to limit commercialization of any products that we may develop.
We face an inherent risk of product liability exposure related to our prior commercial sales of FARESTON® and the testing of our
product candidates in human clinical trials, and we will face an
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even
greater risk if we commercially sell any product that we may develop. If we cannot successfully defend ourselves against claims that our product candidates or products caused injuries, we will
incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:
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decreased demand for any product candidates or products;
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injury to our reputation;
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withdrawal of clinical trial participants;
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costs to defend the related litigation;
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substantial monetary awards to trial participants or patients;
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loss of revenue; and
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the inability to commercialize any products for which we obtain or hold marketing approvals.
We
have product liability insurance that covers our clinical trials and any commercial products up to a $25 million annual aggregate limit. Insurance coverage is increasingly
expensive. We may not be able to maintain insurance coverage at a reasonable cost, and we may not be able to obtain insurance coverage that will be adequate to satisfy any liability that may arise.
If our competitors are better able to develop and market products than any products that we and/or any
potential collaborators may develop, our commercial opportunity will be reduced or eliminated.
We face competition from commercial pharmaceutical and biotechnology enterprises, as well as from academic institutions, government agencies and
private and public research institutions. Our commercial opportunities will be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer
side effects or are less expensive than any products that we and/or any potential collaborators may develop. Competition could result in reduced sales and pricing pressure on our product candidates,
if approved, which in turn would reduce our ability to generate meaningful revenue and have a negative impact on our results of operations. In addition, significant delays in the development of our
product candidates could allow our competitors to bring products to market before us and impair any ability to commercialize any potential future product candidates.
Various
products are currently marketed or used off-label for some of the diseases and conditions that we are targeting in our pipeline, and a number of companies are or may be
developing new treatments. These product uses, as well as promotional efforts by competitors and/or clinical trial results of competitive products, could significantly diminish any ability to market
and sell any products that we and/or any potential collaborators may develop.
We
believe SARDs have the potential to provide compounds that can degrade or antagonize multiple forms of the AR thereby inhibiting tumor growth in patients with CRPC, including those
patients who do not respond or are resistant to current therapies. Drugs in development having potentially similar approaches to removing the AR by degradation include Arvinas Inc.'s ARV-110,
which is a chimera with an AR binding moiety on one end and an E3 ligase recruiting element on the other that has recently entered Phase 1 development for the treatment of advanced prostate
cancer, and Androscience Corporation's androgen receptor degrader enhancer, ASC-J9, which is currently in development for acne and alopecia with the potential for development as a treatment for
prostate
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cancer.
Additionally, Essa Pharma Inc. recently completed a Phase 1 study with EPI-506, an AR antagonist that targets the N-terminal domain of the AR, and has plans to develop a second
generation agent. C4 Therapeutics, Inc. is developing degronimids as means to degrade the AR through the ligand binding domain associated degradation. CellCentric is developing therapies that
target the histone methyltransferase enzyme to lower AR levels, and recently initiated a clinical trial with CCS1477 in prostate cancer. Oric Pharmaceuticals is targeting the glucocorticoid receptor
as a means to impact men that have CRPC, and has a lead candidate ORIC-101 in preclinical testing. In addition to this specific potential mechanistic competition, there are various products approved
or under clinical development in the broader space of treating men with advanced prostate cancer who have metastatic CRPC which may compete with our proposed initial clinical objective for our SARD
compounds. Pfizer and Astellas Pharma market XTANDI® (enzalutamide), an oral androgen receptor antagonist, for the treatment of metastatic CRPC in men previously treated with docetaxel as
well as those that have not yet received chemotherapy. XTANDI® received FDA approval in July 2018 for the treatment of men with non-metastatic CRPC. Zytiga®, sold by
Johnson & Johnson, has been approved for the treatment of metastatic CRPC and metastatic high-risk castration-sensitive prostate cancer. Johnson & Johnson also received FDA approval for
a second generation anti-androgen ERLEADA (apalutamide) for the treatment of men with non-metastatic castrate-resistant prostate cancer. Bayer HealthCare and Orion Corporation recently announced that
the primary endpoint of increased metastatic free survival was met in a Phase 3 study of darolutamide (ODM-201) in men with CRPC without metastases and with a rising PSA. Another target in
prostate cancer that is being pursued by several companies is bromodomain inhibition. Zenith Epigenetics, Gilead Sciences Inc., CellCentric, Incyte Corporation and GlaxoSmithKline are among the
companies that are evaluating BET inhibitors in Phase 1-2 trials.
With
respect to SARMs, there are other SARM product candidates in development that may compete with enobosarm and any future SARM product candidates, if approved for commercial sale. For
example, Viking Therapeutic's VK5211 recently reported positive results from a Phase 2 study for patients recovering from non-elective hip fracture surgery. Radius Health Inc.'s RAD140
is currently being evaluated in a Phase 1 study in postmenopausal women with hormone-receptor positive locally advanced or metastatic breast cancer. GlaxoSmithKline is conducting a
Phase 1 study to assess the effect of GSK2881078 on physical strength and function after 13 weeks of treatment in patients with chronic obstructive pulmonary disease, or COPD, and muscle
weakness. OPKO Health's OPK88004 is enrolling in a dose ranging study to improve symptoms of benign prostatic hyperplasia (BPH) by reducing prostate size and, on the basis of data from a previous
trial in 350 men, increase muscle mass and bone strength and decrease body fat.
Many
of our competitors have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials,
obtaining regulatory approvals and marketing approved products than we do. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative
arrangements with large and established companies. These third parties compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and
patient registration for clinical trials, as well as in acquiring technologies and technology licenses complementary to our programs or advantageous to our business.
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Risks Related to Employees, Growth and Other Aspects of Our Operations
Our internal computer and information technology systems, or those of our CROs or other contractors or
consultants, may fail or suffer security breaches, or could otherwise face serious disruptions, which could result in a material disruption of our product development efforts and could result in
significant financial, legal, regulatory, business and reputational harm to us.
Despite the implementation of security measures, our internal computer and information technology systems and those of our CROs and other
contractors and consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, and telecommunication and electrical failures. Such events could cause
interruptions of our operations. For instance, the loss of preclinical data or data from potential future clinical trials involving our product candidates, if any, could result in delays in our
development and regulatory filing efforts and significantly increase our costs. In addition, while all information technology operations are inherently vulnerable to inadvertent or intentional
security breaches, incidents, attacks and exposures, the size, complexity, accessibility and distributed nature of our information technology systems, and the large amounts of sensitive information
stored on those systems, make such systems potentially vulnerable to unintentional or malicious, internal and external attacks on our technology environment. Potential vulnerabilities can be exploited
from inadvertent or intentional actions of our employees, third-party vendors, business partners, or by malicious third parties. Attacks of this nature are increasing in their frequency, levels of
persistence, sophistication and intensity, and are being conducted by sophisticated and organized groups and individuals with a wide range of motives (including, but not limited to, industrial
espionage) and expertise, including organized criminal groups, "hacktivists," nation states and
others. To the extent that any disruption or security breach or incident were to result in a loss of, or damage to, our data, or inappropriate disclosure of confidential, proprietary or protected
health information, we could be subject to significant legal, financial and regulatory exposure and suffer reputational harm, and the development of our product candidates could be delayed. In
addition, security breaches and other inappropriate access events can be difficult to detect, and any delay in identifying them may lead to increased harm of the type described above. Moreover, the
prevalent use of mobile devices to access confidential information increases the risk of security breaches. While we have implemented security measures to protect our information technology systems
and infrastructure, there can be no assurance that such measures will prevent service interruptions or security breaches that could adversely affect our business. In addition, our information
technology and other internal infrastructure systems, including corporate firewalls, servers, leased lines and connection to the Internet, face the risk of systemic failure that could disrupt our
operations. A significant disruption in the availability of our information technology and other internal infrastructure systems could cause delays in our research and development work and could
otherwise adversely affect our business. In addition, failure to maintain effective internal accounting controls related to security breaches and cybersecurity in general could impact our ability to
produce timely and accurate financial statements and subject us to regulatory scrutiny.
If we fail to attract and keep senior management and key scientific personnel, we may be unable to continue
our business operations.
Our success depends on our continued ability to attract, retain and motivate highly qualified management, clinical and scientific personnel and
on our ability to develop and maintain important relationships with leading academic institutions, clinicians and scientists. Significant competition exists for qualified personnel in the
biotechnology field, particularly clinical development personnel. We may incur greater costs than anticipated, or may not be successful, in attracting new scientists or management or in retaining or
motivating our existing personnel. If we are not able to attract and keep senior management and key scientific personnel, our ability to progress the development of any product candidates and any
future growth could be impaired, and our business and the value of your investment
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would
be adversely impacted. All of our employees are at-will employees and can terminate their employment at any time.
To
conserve our cash resources, we have substantially reduced our workforce since November 2018 and have ceased our SARM development activities and all other operations except for
day-to-day business operations, completing ongoing mechanistic SARD preclinical studies and those activities necessary to complete the proposed Merger. As of March 12, 2018, we had only 13
full-time employees. Accordingly,
we have been and are continuing operating with a shortage of resources and may not be able to effectively conduct our operations with this limited number of employees. In addition, our ability to
successfully complete the proposed Merger depends in large part on our ability to retain our remaining personnel. Despite our efforts to retain these employees, one or more may terminate their
employment with us on short notice. The loss of the services of any of these employees could potentially harm our ability to consummate the Merger, to run our day-to-day business operations, as well
as to fulfill our reporting obligations as a public company.
If the proposed Merger is not completed and we are able to raise sufficient additional funds necessary to
pursue the continued development of our SARD program, we will need to hire a substantial number of additional employees. Any inability to manage future growth could harm our ability to develop and
commercialize any potential future product candidates, increase our costs and adversely impact our ability to compete effectively.
As of March 12, 2018, we had only 13 full-time employees. If the proposed Merger is not completed and we are able to raise sufficient
additional funds necessary to pursue the continued development of our SARD program, we will need to hire experienced personnel to continue to develop our SARD program and to develop and commercialize
any potential future product candidates, and we will need to expand the number of our managerial, operational, financial and other employees to support that growth. Significant competition exists for
qualified personnel in the biotechnology field, particularly clinical development personnel.
Future
growth, if any, will impose significant added responsibilities on members of management, including the need to identify, recruit, maintain and integrate additional employees. Our
future financial performance and our ability to develop and commercialize any potential future product candidates and to compete effectively will depend, in part, on our ability to manage any future
growth effectively.
Management transition creates uncertainties and could harm our business.
We have in the past, and may again in the future, experience significant changes in executive leadership. Changes to company strategy, which can
often times occur with the appointment of new executives, can create uncertainty, may negatively impact our ability to execute quickly and effectively, and may ultimately be unsuccessful. In addition,
executive leadership transition periods are often difficult as the new executives gain detailed knowledge of our operations, and friction can result from changes in strategy and management style.
Management transition inherently causes some loss of institutional knowledge, which can negatively affect strategy and execution. Until we integrate new personnel, and unless they are able to succeed
in their positions, we may be unable to successfully manage and grow our business, and our results of operations and financial condition could suffer as a result. In any event, changes in our
organization as a result of executive management
transition may have a disruptive impact on our ability to implement our strategy and could have a material adverse effect on our business, financial condition and results of operations.
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Risks Related to Our Common Stock
The market price of our common stock has been volatile and may continue to be volatile in the future. This
volatility may cause our stock price and the value of your investment to decline.
The market prices for securities of biotechnology companies, including ours, have been highly volatile and may continue to be so in the future.
In this regard, the market price for our common stock has varied between a high of $25.60 on September 13, 2018, and a low of $0.74 on December 24, 2018, in the twelve-month period ended
December 31, 2018. The market price of our common stock is likely to continue to be volatile and subject to significant price and volume fluctuations. The following factors, in addition to
other risk factors described in this section, may have a significant impact on the market price of our common stock:
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our ability to consummate the transactions contemplated by the Merger Agreement, including the proposed Merger;
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our ability to execute on our SARD development program, including our ability to conduct and complete IND-enabling studies and potentially
advance one of our SARD compounds into a first-in-human clinical trial;
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our ability to raise sufficient additional funds necessary for the continued development of our SARD program, whether through potential
collaborative, partnering or other strategic arrangements or otherwise;
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our ability to realize any value from our SARM assets, particularly in light of our decision to discontinue the development of enobosarm and
our SARM program generally;
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the terms and timing of any future collaborative, licensing or other strategic arrangements that we may establish;
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uncertainties created by our potential future management turnover;
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our inability to comply with the minimum listing requirements of The Nasdaq Stock Market LLC;
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the timing of achievement of, or failure to achieve, our and any potential collaborators' clinical, regulatory and other milestones, such as
the commencement of clinical development, the completion of a clinical trial or the receipt of regulatory approval;
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reports of unacceptable incidences of adverse events observed in any future clinical trials of any product candidates that we and/or any
potential collaborators may develop;
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announcement of FDA approval or non-approval of any potential future product candidates or delays in or adverse events during the FDA review
process;
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actions taken by regulatory agencies with respect to any potential future product candidates or our potential future clinical trials, if any,
including regulatory actions requiring or leading to a delay or stoppage of any clinical trials;
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introductions or announcements of technological innovations or new products by us, our potential collaborators, or our competitors, and the
timing of these introductions or announcements;
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the commercial success of any product approved by the FDA or its foreign counterparts;
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market conditions for equity investments in general, or the biotechnology or pharmaceutical industries in particular;
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regulatory developments in the United States and foreign countries;
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changes in the structure or reimbursement policies of health care payment systems;
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if our patents covering our products candidates expire or are invalidated or are found to be unenforceable, or if some or all of our patent
applications do not result in issued patents or result in patents with narrow, overbroad, or unenforceable claims;
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competition from third parties with products in the same class of products as any potential future product candidates or products with the same
active pharmaceutical ingredients as those product candidates;
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any intellectual property infringement lawsuit involving us;
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actual or anticipated fluctuations in our results of operations;
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changes in financial estimates or recommendations by securities analysts;
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hedging or arbitrage trading activity that may develop regarding our common stock;
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sales of our common stock and other securities by us;
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sales of our common stock by our executive officers, directors and significant stockholders;
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the low trading volume of our common stock;
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changes in accounting principles; and
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additional losses of any of our key scientific or management personnel.
In
addition, the stock markets in general, and the markets for biotechnology and pharmaceutical stocks in particular, have experienced significant volatility that has often been
unrelated to the operating performance of particular companies. For example, negative publicity regarding drug pricing and price increases by pharmaceutical companies has negatively impacted, and may
continue to negatively impact, the markets for biotechnology and pharmaceutical stocks. Likewise, as a result of significant changes in U.S. social, political, regulatory and economic conditions or in
laws and policies governing foreign trade and health care spending and delivery, including the possible repeal and/or replacement of all or portions of the Healthcare Reform Act or changes in tariffs
and other restrictions on free trade stemming from the Trump Administration and foreign government policies, the financial markets could experience significant volatility that could also negatively
impact the markets for biotechnology and pharmaceutical stocks. These broad market fluctuations may adversely affect the trading price of our common stock.
In
the past, class action litigation has often been instituted against companies whose securities have experienced periods of volatility in market price. Any such litigation brought
against us could result in substantial costs, which would hurt our financial condition and results of operations and divert
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management's
attention and resources, which could result in delays of our clinical trials or commercialization efforts.
If we fail to meet continued listing standards of The Nasdaq Stock Market LLC, our common stock may be
delisted. Delisting could adversely affect the liquidity of our common stock and the market price of our common stock could decrease, and our ability to obtain sufficient additional capital to fund
our operations would be substantially impaired.
Our common stock is currently listed on The Nasdaq Capital Market. The Nasdaq Stock Market LLC, or Nasdaq, has minimum requirements that
a company must meet in order to remain listed on The Nasdaq Capital Market. These requirements include maintaining a minimum closing bid price of $1.00 per share, or the Bid Price Requirement, and the
closing bid price of our common stock has in the past been well below $1.00 per share. In this regard, on December 5, 2016, we effected one-for-ten reverse stock split of our outstanding common
stock, or the Reverse Stock Split, the primary purpose of which was to enable us to regain compliance with the Bid Price Requirement, which compliance was regained on December 20, 2016.
However, the closing bid price of our common stock has recently been well below $1.00 per share, and there can be no assurance that we will meet the Bid Price Requirement, or any other Nasdaq
continued listing requirement, in the future. If we fail to meet these requirements, including the Bid Price Requirement and requirements to maintain minimum levels of stockholders' equity or market
values of our common stock, Nasdaq may notify us that we have failed to meet the minimum listing requirements and initiate the delisting process.
In
addition, we are required pursuant to the terms of the Merger Agreement to submit to our stockholders a proposal to approve an amendment to our restated certification of incorporate
to authorize our board of directors to effect a reverse stock split of all outstanding shares of our common stock. The approval of the reverse stock split by the stockholders is a condition to
closing, pursuant to the Merger Agreement. If this reverse stock split proposal is not approved by our stockholders, and if the parties waive this closing condition, the combined company resulting
from the proposed Merger will likely not be able to obtain compliance with the minimum bid price requirement for an initial listing on The Nasdaq Capital Market and, as a consequence, Nasdaq will
immediately provide the combined company with written notification that our common stock will be delisted.
If
our common stock is delisted, we would expect our common stock to be traded in the over-the-counter market, which could adversely affect the liquidity of our common stock.
Additionally, we could face significant material adverse consequences, including:
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a limited availability of market quotations for our common stock;
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a reduced amount of news and analyst coverage for us;
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a decreased ability to issue additional securities and a concomitant substantial impairment in our ability to obtain sufficient additional
capital to fund our operations and to continue as a going concern;
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reduced liquidity for our stockholders;
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potential loss of confidence by employees and potential future partners or collaborators; and
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loss of institutional investor interest and fewer business development opportunities.
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Our executive officers, directors and largest stockholders have the ability to control all matters submitted
to stockholders for approval.
Based solely on the most recent Schedules 13G and 13D filed with the SEC and reports filed with the SEC under Section 16 of the
Exchange Act, our executive officers, directors and holders of 5% or more of our outstanding common stock, including their affiliated or associated entities, held approximately 53.5% of our
outstanding common stock, and our executive officers and directors alone, including their affiliated or associated entities, held approximately 30.0% of our outstanding common stock as well as
warrants to purchase up to an additional 3.2 million shares of common stock. As a result, these stockholders, acting together, have the ability to control all matters requiring approval by our
stockholders, including the election of directors, the approval of the issuance of shares of our common stock pursuant to the Merger Agreement, and the approval of potential alternative mergers or
other business combination transactions. The interests of this group of stockholders may not always coincide with our interests or the interests of other stockholders.
Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.
We have a significant amount of federal and state net operating loss carryforwards. In this regard, as of December 31, 2018, we had net
federal operating loss carryforwards of approximately $472.1 million. The federal operating loss carryforwards originating prior to 2018 will expire from 2019 to 2037 if not utilized, and state
operating loss carryforwards of approximately $411.4 million, which expire from 2019 to 2038 if not utilized. Our ability to use our federal and state net operating loss carryforwards to offset
potential future taxable income and related income taxes that would otherwise be due is dependent upon our generation of future taxable income before the expiration dates of the net operating loss
carryforwards, and we cannot predict with certainty when, or whether, we will generate sufficient taxable income to use all of our net operating loss carryforwards. On December 22, 2017,
President Trump signed into law new tax legislation, or the Tax Reform Act. Under the Tax Reform Act, federal net operating losses incurred in 2018 and in future years may be carried forward
indefinitely, but the deductibility of such federal net operating losses is limited. It is uncertain if and to what extent various states will conform to the Tax Reform Act. In addition, under
Section 382 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes an "ownership change," generally defined as a greater than 50% change (by value) in its equity ownership
over a three-year period, the corporation's ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes (such as research tax credits) to offset its post-change
taxable income or taxes may be limited. We completed a study through December 31, 2016 to determine whether any Section 382 limitations exist and, as a result of this study and our
analysis of subsequent ownership changes, we do not believe that any Section 382 limitations exist through December 31, 2018, though we have not yet conducted an in-depth analysis since
the last study. Section 382 of the Internal Revenue Code is an extremely complex provision with respect to which there are many uncertainties and we have not established whether the IRS agrees
with our determination. In any event, our 2016 and 2017 equity offerings, our past and potential future issuances of common stock pursuant to the ATM Sales Agreement, other future equity offerings
and/or changes in our stock ownership, some of which are outside of our control, could in the future result in an ownership change and an accompanying Section 382 limitation. If a limitation
were to apply, utilization of a portion of our
domestic net operating loss and tax credit carryforwards could be limited in future periods and a portion of the carryforwards could expire before being available to reduce future income tax
liabilities. In this regard, the proposed Merger, if consummated, will constitute an ownership change (within the meaning Section 382 of the Internal Revenue Code) which would eliminate or
otherwise substantially limit our federal and state net operating loss carryforwards.
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Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of us,
which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management.
Provisions in our certificate of incorporation and our bylaws may delay or prevent an acquisition of us or a change in our management. In
addition, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our
Board of Directors. Because our Board of Directors is responsible for appointing the members of our management team, these provisions could in turn affect any attempt by our stockholders to replace
current members of our management team. These provisions include:
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a classified Board of Directors;
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a prohibition on actions by our stockholders by written consent;
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the ability of our Board of Directors to issue preferred stock without stockholder approval, which could be used to institute a "poison pill"
that would work to dilute the stock ownership of a potential hostile acquirer, effectively preventing acquisitions that have not been approved by our Board of Directors; and
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limitations on the removal of directors.
Moreover,
because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which prohibits a person who owns 15%
or more of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person acquired 15% or more of our outstanding
voting stock, unless the merger or combination is approved in a prescribed manner. Finally, these provisions establish advance notice requirements for nominations for election to our Board of
Directors or for proposing matters that can be acted upon at stockholder meetings. These provisions would apply even if the offer may be considered beneficial by some stockholders.
Our amended and restated bylaws provide that the Court of Chancery of the State of Delaware will be the
exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders' ability to obtain a favorable judicial forum for disputes with us or our directors,
officers or employees.
Our amended and restated bylaws provide that the Court of Chancery of the State of Delaware is the exclusive forum for any derivative action or
proceeding brought on behalf of GTx, for any action asserting a claim of breach of a fiduciary duty owed by any current or former director, officer, other employee or stockholder of GTx to GTx or to
our stockholders, for any action asserting a claim arising pursuant to any provision of the General Corporation Law of the State of Delaware, or the DGCL, our restated certificate of incorporation or
our amended and restated bylaws or as to which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware, or for any action asserting a claim governed by the internal affairs
doctrine. The choice of forum provision may limit a stockholder's ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other
employees, which may discourage such lawsuits against us and our directors, officers and other employees. If a court were to find the choice of forum provision contained in our amended and restated
bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our financial condition.
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If there are substantial sales of our common stock, the market price of our common stock could drop
substantially, even if our business is doing well.
For the 12-month period ended December 31, 2018, the average daily trading volume of our common stock on The Nasdaq Capital Market was
only 705,027 shares. As a result, future sales of a substantial number of shares of our common stock in the public market, or the perception that such sales may occur, could adversely affect the
then-prevailing market price of our common stock. As of December 31, 2018, we had 24,051,844 shares of common stock outstanding. In addition, as a result of the low trading volume of our common
stock, which was exacerbated by the one-for-ten reverse stock split of our outstanding common stock effected on December 5, 2016, or the Reverse Stock Split, the trading of relatively small
quantities of shares by our stockholders may disproportionately influence the market price of our common stock in either direction. The price for our shares could, for example, decline significantly
in the event that a large number of our common shares are sold on the market without commensurate demand, as compared to an issuer with a higher trading volume that could better absorb those sales
without an adverse impact on its stock price. In addition, due to the limitations of our market, the volatility in the market price of our common stock and our currently-depressed stock price,
stockholders may face difficulties in selling shares at attractive prices when they want to sell.
In
September 2017, we completed a private placement of 5.5 million shares of our common stock and warrants to purchase 3.3 million shares of our common stock. In November
2014, we completed a private placement of 6.4 million shares of our common stock and warrants to purchase 6.4 million shares of our common stock (as adjusted to give effect to the
Reverse Stock Split). Similarly, in March 2014 we completed a private placement of 1.2 million shares of our common stock and warrants to purchase 1.0 million shares of our common stock
(as adjusted to give effect to the Reverse Stock Split). Pursuant to the terms of the registration rights or securities purchase agreements we entered into in connection with these private placements,
we have filed registration statements under the Securities Act registering the resale of an aggregate of approximately 23.8 million shares of common stock that we issued to, or are issuable
upon the exercise of warrants that we issued to, the investors in these private placements, which investors include our largest stockholders. Moreover, J.R. Hyde, III and certain of his affiliates,
have rights under a separate registration rights agreement with us to require us to file resale registration statements covering an additional 785,000 shares of common stock held in the aggregate or
to include these shares in registration statements that we may file for ourselves or other stockholders. If Mr. Hyde or his affiliates or any of our other significant stockholders, including
the other investors in our private placements, were to sell large blocks of shares in a short period of time, the market price of our common stock could drop substantially.
The comprehensive U.S. tax reform bill passed in 2017 could adversely affect our business and financial
condition.
On December 22, 2017, President Trump signed the Tax Reform Act into law, which significantly revises the Internal Revenue Code of 1986,
as amended. The Tax Reform Act, among other things, contains significant changes to corporate taxation, including reduction of the
corporate tax rate from a top marginal rate of 35% to a flat rate of 21%, limitation of the tax deduction for interest expense to 30% of adjusted earnings (except for certain small businesses),
limitation of the deduction for net operating losses to 80% of current year taxable income and elimination of net operating loss carrybacks, one time taxation of offshore earnings at reduced rates
regardless of whether they are repatriated, immediate deductions for certain new investments instead of deductions for depreciation expense over time, and modifying or repealing many business
deductions and credits (including reducing the business tax credit for certain clinical testing expenses incurred in the testing of certain drugs for rare diseases or conditions). Notwithstanding the
reduction in the corporate income tax rate, the overall impact of the new Tax Reform Act is uncertain and our business and financial condition
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could
be adversely affected. In addition, it is uncertain if and to what extent various states will conform to the Tax Reform Act. The impact of the Tax Reform Act on holders of our common stock is
also uncertain and could be adverse. We urge our stockholders to consult with their legal and tax advisors with respect to this legislation and the potential tax consequences of investing in or
holding our common stock.