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| GTXI > SEC Filings for GTXI > Form 10-K on 3-Mar-2009 | All Recent SEC Filings |
3-Mar-2009
Annual Report
We and Merck are evaluating multiple SARM product candidates, including
Ostarine™ and MK-0773, for a variety of indications including sarcopenia and
cancer cachexia. In October 2008, we announced topline results of a Phase II
clinical trial evaluating Ostarine™ in patients with cancer cachexia. In this
analysis, the study met its primary endpoint of absolute change in total lean
body mass (muscle) compared to placebo and the secondary endpoint of muscle
function (performance) after 16 weeks of treatment in 159 cancer patients with
reported weight loss. In 2009, we and Merck expect to complete an ongoing Phase
II clinical trial evaluating MK-0773 in sarcopenia and expect to initiate a
clinical trial evaluating Ostarine™ in cancer cachexia. We and Merck are
evaluating additional muscle loss indications for potential SARM clinical
development.
We are developing GTx-758, an oral luteinizing hormone, or LH, inhibitor for
the treatment of advanced prostate cancer. In preclinical in vitro and in vivo
models, GTx-758 has demonstrated the potential to reduce testosterone to
castrate levels without causing certain estrogen deficiency side effects such as
bone loss and hot flashes. We have initiated a Phase I clinical trial evaluating
GTx-758 in healthy volunteers in the first quarter of 2009. We further expect to
establish proof of concept for GTx-758 with a Phase I multiple ascending dose
clinical trial that we are planning to initiate in the second quarter of 2009
and conclude in the fourth quarter of 2009. We also have an extensive
preclinical pipeline generated from our own discovery program, including
GTx-878, an estrogen receptor beta agonist.
We currently market FARESTON® (toremifene citrate) 60 mg tablets, approved
for the treatment of metastatic breast cancer in postmenopausal women in the
United States. The active pharmaceutical ingredient in FARESTON® is the same as
in our toremifene 80 mg and toremifene 20 mg product candidates.
Our net loss for the year ended December 31, 2008 was $51.8 million. Our net
loss included FARESTON® net product sales of $1.1 million and the recognition of
collaboration revenue of $12.4 million. We have financed our operations and
internal growth primarily through public offerings and private placements of our
common stock and preferred stock, as well as proceeds from our collaborations.
We expect to continue to incur net losses as we continue our clinical
development and research and development activities, apply for regulatory
approvals, expand our sales and marketing capabilities and grow our operations.
• the continuation of the pivotal Phase III clinical trial of toremifene 20 mg for the prevention of prostate cancer in high risk men with high grade PIN;
• our ongoing SARM research and development efforts with Merck as a part of our collaboration;
• the continued preclinical and clinical development of other product candidates, including GTx-758; and
• increases in research and development personnel.
There is a risk that any drug discovery and development program may not
produce revenue. Moreover, because of uncertainties inherent in drug discovery
and development, including those factors described in Part I, Item 1A "Risk
Factors" of this Annual Report on Form 10-K, we may not be able to successfully
develop and commercialize any of our product candidates.
Drug development in the United States is a process that includes several
steps defined by the FDA. The FDA approval process for a new drug involves
completion of preclinical studies and the submission of the results of these
studies to the FDA, together with proposed clinical protocols, manufacturing
information, analytical data and other information in an Investigational New
Drug application which must become effective before human clinical trials may
begin. Clinical development typically involves three phases of study: Phase I,
II and III. The most significant costs associated with clinical development are
the Phase III clinical trials as they tend to be the longest and largest studies
conducted during the drug development process. After completion of clinical
trials, a NDA may be submitted to the FDA. In responding to a NDA, the FDA may
refuse to file the application, or if accepted for filing, the FDA may not grant
marketing approval, request additional information or deny the application if it
determines that the application does not provide an adequate basis for approval.
Even if the FDA grants marketing approval, the FDA may impose restrictions,
limitations and/or warnings in the label of an approved product candidate, which
may adversely affect the marketability of the product or limit the patients to
whom the product is prescribed.
The successful development and commercialization of our product candidates is
highly uncertain. We cannot reasonably estimate or know the nature, timing and
estimated costs of the efforts necessary to complete the development and
commercialization of, or the period in which material net cash inflows are
expected to commence from, any of our product candidates, including the product
candidates developed and/or commercialized through our collaborations with Merck
and Ipsen, due to the numerous risks and uncertainties associated with
developing and commercializing drugs, including the uncertainty of:
• the scope, rate of progress and cost of our and/or our collaborators'
clinical trials and other research and development activities;
• future clinical trial results;
• the achievement of certain milestone events under, and other matters related to, our collaborative arrangements with Merck and Ipsen;
• the terms and timing of any future collaborative, licensing and other arrangements that we may establish;
• the cost and timing of regulatory filings and/or approvals, and any related restrictions, limitations, and/or warnings;
• potential future licensing fees, milestone payments and royalty payments, including any milestone payments or royalty payments that we may receive under our collaborative arrangements with Merck and Ipsen;
• the cost and timing of establishing sales, marketing and distribution capabilities;
• the cost of establishing clinical and commercial supplies of our product candidates and any products that we and/or our collaborators may develop;
• 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.
Any failure to complete the development of our product candidates in a timely
manner could have a material adverse effect on our operations, financial
position and liquidity. A discussion of the risks and uncertainties associated
with completing our development and commercialization efforts on schedule, or at
all, and some consequences of failing to do so, are set forth under Part I,
Item 1A "Risk Factors" of this Annual Report on Form 10-K.
General and Administrative Expenses
Our general and administrative expenses consist primarily of salaries and
other related costs for personnel serving executive, finance, legal, human
resources, information technology, investor relations and marketing functions.
Other costs include facility costs not otherwise included in research and
development expense and professional fees for legal, accounting, public
relations, and marketing services. General and administrative expenses also
include insurance costs and FARESTON® selling and distribution expenses. We
expect that our general and administrative expenses will increase in future
periods as we add personnel, additional office space and other expenses to
support the planned growth of our business. In addition, we plan to expand our
sales and marketing efforts which will result in increased sales and marketing
expenses in future years.
Critical Accounting Policies and Significant Judgments and Estimates
Our management's discussion and analysis of our financial condition and
results of operations is based on our financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
us to make estimates and assumptions that affect the reported amounts of assets
and liabilities and the disclosure of contingent assets and liabilities at the
date of the financial statements as well as the reported revenues and expenses
during the reporting periods. On an ongoing basis, we evaluate our estimates and
judgments related to revenue recognition, income taxes, intangible assets,
long-term service contracts and other contingencies. We base our estimates on
historical experience and on various other factors that we believe are
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying value of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
While our significant accounting policies are more fully described in Note 2
to our financial statements appearing at the end of this Annual Report on Form
10-K, we believe that the following accounting policies are most critical to aid
you in fully understanding and evaluating our reported financial results.
Revenue Recognition
Our revenues consist of product sales of FARESTON® and revenues derived from
our collaboration and license agreements.
We use revenue recognition criteria outlined in Staff Accounting Bulletin
("SAB") No. 101, Revenue Recognition in Financial Statements as amended by SAB
No. 104, (together, "SAB 104"), Statement of Financial Accounting Standards
("SFAS") No. 48, Revenue Recognition When Right of Return Exists ("SFAS
No. 48"), Emerging Issues Task Force ("EITF") Issue No. 00-21, Revenue
Arrangements with Multiple Deliverables ("EITF 00-21") and EITF Issue No. 99-19,
Reporting Revenue Gross as a Principal Versus Net as an Agent ("EITF 99-19").
Accordingly, revenues from licensing agreements are recognized based on the
performance requirements of the agreement. We have analyzed our agreements with
multiple element arrangements to determine whether the deliverables under the
agreement, including license and performance obligations such as joint steering
committee participation and research and development activities, can be
separated or whether all of the deliverables must be accounted for as a single
unit of accounting in accordance with EITF 00-21. For these arrangements, we
were not able to identify evidence of fair value for the undelivered elements
and therefore recognize any consideration for a single unit of accounting in the
same manner as the revenue is recognized for the final deliverable, which is
ratable over the performance period. The performance period is estimated at the
inception of the agreement and is reevaluated at each reporting period.
Cost reimbursements for research activities are recognized as collaboration
revenue if the provisions of EITF 99-19 are met, the amounts are determinable
and collection of the related receivable is reasonably assured. Revenues from
milestone payments for which we have no continuing performance obligations are
recognized upon achievement of the performance milestone, as defined in the
related agreement, provided the milestone is substantive and a culmination of
the earnings process has occurred. Performance obligations typically consist of
significant milestones in the development life cycle of the related product
candidates and technology, such as initiation of clinical trials, achievement of
specified clinical trial endpoints, filing for approval with regulatory agencies
and approvals by regulatory agencies.
We estimate the performance obligation period to be ten years for our
collaboration agreement with Merck and five years for the development of
toremifene for both the high grade PIN and ADT indications in the European
Territory under our collaboration agreement with Ipsen. The factors that drive
the actual development period of a pharmaceutical product are inherently
uncertain and include determining the timing and expected costs to complete the
project, projecting regulatory approvals and anticipating potential delays. We
use all of these factors in initially estimating the economic useful lives of
our performance obligations, and we also continually monitor these factors for
indications of appropriate revisions
We recognize net product sales revenue from sales of FARESTON® less
deductions for estimated sales discounts and sales returns. We recognize revenue
from product sales when the goods are shipped and title and risk of loss pass to
the customer and the other criteria of SAB No. 104 and SFAS No. 48 are
satisfied. We account for rebates to certain governmental agencies as a
reduction of product sales. We allow customers to return product within a
specified time period prior to and subsequent to the product's labeled
expiration date. As a result, we estimate an accrual for product returns, which
is recorded as a reduction of product sales. We consider historical product
return trend information that we continue to update each period. We estimate the
number of months of product on hand and the amount of product which is expected
to exceed its expiration date and be returned by the customer by receiving
information from our three largest wholesale customers about the levels of
FARESTON® inventory held by these customers. These three largest wholesale
customers accounted for 96% of our product sales of FARESTON® for the year ended
December 31, 2008. Based on this information, and other factors, we estimate an
accrual for product returns. At December 31, 2008 and 2007, our accrual for
product returns was $815,000 and $324,000, respectively. In the fourth quarter
of 2008, we increased the price of FARESTON®. While we do not estimate a
material increase in the volume of product returns as a result of the price
increase, the price increase did increase the amount of the estimated product
returns accrual as certain product returns are accepted at or near the current
sales price of FARESTON®.
Research and Development Expenses
Research and development expenses include, but are not limited to, expenses
for personnel and facilities associated with research activities, screening and
identification of product candidates, formulation and synthesis activities,
manufacturing, preclinical studies, toxicology studies, clinical trials,
regulatory affairs, quality assurance activities and license and royalty fees.
We expense these costs in the period in which they are incurred. We estimate our
liabilities for research and development expenses in order to match the
recognition of expenses to the period in which the actual services are received.
As such, accrued liabilities related to third party research and development
activities are recognized based upon our estimate of services received and
degree of completion of the services in accordance with the specific third party
contract.
Share-Based Compensation
We have stock option plans that provide for the purchase of our common stock
by certain of our employees and directors. Effective January 1, 2006, we adopted
SFAS 123(R), Share-Based Payment, and began recognizing compensation expense for
our share-based payments based on the fair value of the awards.
The determination of the fair value of share-based payment awards on the date
of grant include the expected life of the award, the expected stock price
volatility over the expected life of the awards, expected dividend yield, and
risk-free interest rate. We estimate the expected life of options by calculating
the average of the vesting term and contractual term of the options, as allowed
by SAB 110. We estimate the expected stock price volatility based on the
historical volatility of our common stock. The risk-free interest rate is
determined using U.S. Treasury rates where the term is consistent with the
expected life of the stock options. Expected dividend yield is not considered as
we have not made any dividend payments and have no plans of doing so in the
foreseeable future. Forfeitures are estimated at the time of valuation and
reduce expense ratably over the vesting period. This estimate is adjusted
periodically based on the extent to which actual forfeitures differ, or are
expected to differ, from the previous estimate.
Total share-based compensation expense for the year ended December 31, 2008
was $3.7 million, of which $1.7 million and $2.0 million were recorded in the
statements of operations as research and development expenses and general and
administrative expenses, respectively. Total share-based compensation expense
for the years ended December 31, 2007 and 2006 was $2.2 million and $1.4
million, respectively. Included in share-based compensation expense for all
periods presented is share-based compensation expense related to deferred
compensation arrangements for our directors, which was $178,000, $183,000 and
$140,000 for the years ended December 31, 2008, 2007 and 2006, respectively. On
the date of adoption of SFAS 123R, the unamortized balance of deferred stock
compensation of $1.7 million was reduced to zero with an offsetting adjustment
to additional paid-in capital. At December 31, 2008, the total compensation cost
related to non-vested awards not yet recognized was approximately $8.8 million
with a weighted average expense recognition period of 2.42 years.
Income Taxes
We account for deferred taxes by recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this method, deferred
tax assets and liabilities are determined based on the difference between the
financial statement and tax basis of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse.
Realization of deferred tax assets is dependent on future earnings, if any, the
timing and amount of which is uncertain. A valuation allowance is provided when
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. At December 31, 2008 and 2007, net of the valuation
allowance, the net deferred tax assets were reduced to zero as we have incurred
losses since inception and anticipate that we will incur continued losses for
the foreseeable future.
Intangible Assets
We account for our intangible assets in accordance with SFAS No. 142,
Goodwill and Other Intangible Assets, which requires that purchased intangible
assets with finite lives be amortized over their estimated economic lives. Our
purchased intangible assets, license fees, represent license fees paid to Orion
in connection with entering into an amended and restated license and supply
agreement and to UTRF in connection with entering into amended and restated
license agreements. The Orion license fee is being amortized on a straight-line
basis over the term of the agreement which we estimate to be 16 years. The UTRF
license fees are being amortized on a straight-line basis over the term of the
agreements which we estimate to be approximately 14 years and 11.5 years. In
accordance with SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets and for Long-Lived Assets to be Disposed of, we review
long-lived assets for impairment whenever events or changes in facts and
circumstances, both internally and externally, may indicate that an impairment
of long-lived assets held for use are present. An impairment loss would be
recognized when estimated future cash flows is less than the carrying amount.
The cash flow estimates would be based on management's best estimates, using
appropriate and customary assumptions and projections at the time.
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