Oncternal Therapeutics Inc (ONCT) 2007 Q3 法說會逐字稿

Good day ladies and gentlemen and welcome to the Third Quarter 2007 GTx Incorporated Earnings and GTx-Merck Collaboration Conference Call. My name is Tawanda and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will conduct a question and answer session towards the end of the conference.

(OPERATOR INSTRUCTIONS)

I would now like to turn the call over to Mr. McDavid Stilwell, Director of Corporate Communications for GTx. Please proceed, sir.

Thank you and good morning. On behalf of GTx, I would like to welcome you to our conference call announcing our worldwide strategic SARMs collaboration with Merck and reviewing our third quarter financial results. We released two press releases earlier this morning. If you do not have a copy of the releases and want one, you'll find them on our website at gtxinc.com. We will have a replay of this call available on our website until November 20, 2007.

With me today are Dr. Mitchell Steiner, Vice Chairman and Chief Executive Officer; Marc Hanover, President and Chief Operating Officer; and Mark Mosteller, Chief Financial Officer. Following this introduction, Dr. Steiner will discuss the Merck collaboration and highlight third quarter 2007 clinical and corporate developments. Next, Mr. Hanover will briefly detail our financial performance. Dr. Steiner will then make closing remarks and open the call for questions.

Before we begin, I will remind you that information discussed on this call may include forward-looking statements, and such statements are subject to the risks and uncertainties we discuss in detail in our reports filed with Securities and Exchange Commission, including in our quarterly report on Form 10Q, filed August 1, 2007. We expressly disclaim any obligation to release publicly any updates to forward-looking statements made during this call. And now, I'll turn the call over to Dr. Steiner.

Thank you, McDavid. Welcome to our conference call. GTx issued two news items this morning. First, we reported our financial and operational results of the third quarter, which was another successful quarter for our clinical development programs. Second, Merck and GTx announced a global strategic collaboration with Merck, a combined selective androgen receptor modulator program.

Last December, GTx established itself as a leader in SARMs. Ostarine, our first in class SARM, demonstrated the ability to build lean body mass, muscle, and improve physical performance in a proof of concept Phase II clinical trial in 120 subjects. SARMs are a new class of drugs, which selectively modulate the androgen receptor depending on the tissue type.

The clinical objective of SARMs is to maximize the wanted clinical effects of an anabolic agent, like building muscle and bone, while minimizing the unwanted clinical side effects. SARMs has the potential to treat a myriad of muscle wasting and bone loss diseases, such as frailty, also known as sarcopenia, cancer cachexia, chronic and end-stage kidney disease, chronic obstructive pulmonary disease, also known as COPD, rehabilitation and trauma, osteoporosis, and other musculoskeletal diseases.

Following the successful proof of concept Phase II Ostarine clinical trial, multiple pharmaceutical and biotech companies expressed strong interest in both GTx and our SARM program. After very careful consideration of the multiple potential opportunities offered to GTx, GTx is delighted to announce that it has partnered with Merck & Co. The GTx-Merck agreement has many of the key elements that GTx was looking for in a collaboration that would increase the likelihood of success of the GTx SARM program and greatly enhance shareholder value.

First, the GTx-Merck collaboration is a unique one. This collaboration -- strategic collaboration, not only includes Ostarine, GTx's lead SARM, but also establishes a broad SARM collaboration under which GTx and Merck will join SARM programs, pool GTx and Merck's SARM candidates, and GTx and Merck will partner to discover, develop and commercialize current as well as future SARMs that emerge from the collaboration.

Second, we have similar scientific core competency. Although this agreement is an affirmation of both GTx's core scientific competency and leadership in hormone nuclear -- hormone nuclear receptors in SARMs, it should be noted that one of the major reasons for GTx to team up with Merck was because of their impressive scientific and clinical team, who have already actively engaged in SARM research and development.

The collaboration has been set up to maximize the expertise of both sides to develop SARMs based on scientific merit alone, as Merck will pay GTx the same milestones and royalties regardless of which company discovered the particular drug candidate. This transaction creates a true strategic collaboration, not a plain vanilla out-licensing deal.

Third, together we can pursue more and larger indications by combining our drug candidates, resources, and talents, we can now pursue development, not only in more focused markets like cancer cachexia, but, even more importantly, we can initiate clinical development in large unmet indications, such as sarcopenia.

Just to take a moment to talk about sarcopenia. Sarcopenia is the significant loss of muscle mass and strength that occurs in the elderly. An estimated 13 million Americans, or 25% of the population aged 60 or older, are sarcopenic. With aging, the average adult losses about half a pound of muscle every year and this leads to severe muscle wasting or sarcopenia. While the cause of sarcopenia is multifactorial, the age-related loss of anabolic hormones plays a significant role. And, conditions such as physical inactivity, hospitalization and chronic illnesses, such as chronic kidney disease, have been shown to increase the risk of developing sarcopenia.

Sarcopenia leads to a four-fold increase in disability and higher rates of hospitalization and loss of independence. Sarcopenic patients also have a higher risk of Type II diabetes, which may further impair their ability to carry out activities of daily living. There are no current treatments or approved drugs to prevent sarcopenia or to increase muscle mass in sarcopenic patients.

This can only been done with the right partner. Merck has proven to us that they are committed to and understand the magnitude of the opportunity of developing SARMs for the treatment of sarcopenia and other large indications in the area of muscle-wasting disorders. GTx believes that Merck has the world-class scientific, clinical development and commercial expertise to catch the full opportunity of the SARM class.

Fourth, the agreement offers very attractive financial terms. Merck will assume all costs associated with development and commercialization of Ostarine and all other SARMs. The specific financial terms of the deal call for Merck to pay GTx $40 million in upfront license fees, $15 million in guaranteed pre-clinical expense reimbursements over three years, and for Merck to make a significant investment in GTx, the Company, through the purchase of $30 million in newly-issued shares of GTx common stock at a 40% premium to the 30-day average trading price or $23.34 per share.

The agreement also provides for milestones up to $422 million for the development and approval of a lead pod of candidates, which may include Ostarine. And, the potential for additional milestone payments for other collaboration drug candidates. All milestones are based on clinical and approval events prior to launch. Merck will also pay GTx a royalty commensurate with a program that has the potential as ours. All milestone payments and royalties are paid to GTx independent of whether the drug candidate came initially from GTx or Merck or were developed from the collaboration.

Lastly, GTx will play a role in commercialization. Merck will take the lead on all commercialization activities and GTx will have the opportunity to participate in medical affairs and in sales promotional activities. This collaboration brings together two companies which understand the science and the commercial potential of SARMs and are dedicated to winning.

And, an update on the status of GTx's current SARM program. GTx initiated a Phase IIb clinical trial evaluating Ostarine for the treatment of cancer cachexia in the third quarter. The Phase IIb cancer cachexia clinical trial is a randomized double-blind placebo controlled study of muscle wasting in 150 patients with non-small cell lung cancer, colorectal cancer, or non-Hodgkins lymphoma. The clinical trial is being conducted at approximately 35 clinical sites in the United States and Argentina. Study participants are being randomized to receive placebo, Ostarine 1 mg, or Ostarine 3 mg for three months.

The primary endpoint of the trial -- excuse me, for four months. The primary endpoint of the trial is the change in total lean body mass at 16 weeks. Secondary endpoints include functional performance and safety. Enrollment in the trial is ongoing and we anticipate results of the trial in the Summer of 2008.

Prior to announcing the Merck transaction, GTx had planned to initiate a second Phase IIb clinical trial evaluating Ostarine for the treatment of muscle wasting associated with chronic kidney disease. We believe that this is an attractive opportunity for SARMs. Following the closing of the agreement, GTx and Merck will meet to analyze the best way to more efficiently advance our combined SARM candidates in our SARM collaboration. We plan to update you further in the near future.

And now, I would like to update you on ACAPODENE. Our two ACAPODENE programs are continuing to make steady progress. The first program is Phase III ADT clinical trial, which is a randomized double-blind, placebo controlled study evaluating ACAPODENE 80 mg for the treatment of multiple serious side effects of androgen deprivation therapy, ADT, for prostate cancer.

The study is being conducted among 1,389 patients and 160 sites in the United States and Mexico. The primary endpoint of the clinical trial is a reduction in morphometric vertebral fractures. Secondary endpoints include hot flashes, lipid changes, gynecomastia, bone mineral density, and clinical fractures. After the last patient completes the trial in late November, the contract research and data management organizations will then verify, process, and evaluate the data from the United States and Mexico.

The randomization of patients in Mexico was heavily weighted towards the end of the enrollment period and much of the work ahead of us will involve overseeing the local Mexican CRO as it collects the final patient records and transfers them to the data management organizations in the United States in order to properly lockdown the database. As this standard process takes time from the last patient completing this study to getting the top line data, we're currently -- we currently project to release the top line results will occur during the latter part of the first quarter 2008.

Now, the second ACAPODENE program. The Phase III high grade PIN clinical trial is a randomized, double-blind, placebo controlled study evaluating ACAPODENE 20 mg for the prevention of prostate cancer in high risk men with a pre-malignant lesion known as high grade prostatic intraepithelial neoplasia or PIN. The study is being conducted among 1,590 men at 134 sites in the United States in Canada. The primary endpoint of the trial is a reduction in prostate cancer incidence.

The trial is being conducted under a Special Protocol Assessment with the United States Food and Drug Administration. The trial is designed as a 36-month study, but provides for an interim efficacy analysis after a certain number of cancer events. If the efficacy interim analysis reveals that ACAPODENE 20 mg treatment reduces the incidence of prostate cancer at the pre-specified level of statistical significance, GTx will meet with the FDA in preparation for the New Drug Application filing.

Here are some facts to consider. Our SPA with the FDA allows us to conduct the efficacy interim analysis after 281 cancer events. We believe we will hit 281 events in the fourth quarter of this year. The greater the number of cancer events at the time we conduct the efficacy interim analysis, the better the chance that we should hit the pre-specified level of statistical significance. During the enrollment of the PIN trial, a large bolus of patients were randomized at the trial in the fourth quarter of 2005.

And those patients are now undergoing their 24-month biopsy. Passing through this peak enrollment period could dramatically impact the numbers of newly-reported cancers. Based on what I just told you, we project that the most optimal time to conduct and obtain the top line data of the efficacy interim analysis should be in the latter part of the first quarter of 2008.

At this point, we are still unable to predict whether the top line results of ADT clinical trial and that data from the high grade PIN efficacy interim analysis will come first -- which will come first. We will work expeditiously to get these important top line results tabulated and announced. Right now, we can only say that we project both events will come during the latter part of the first quarter of next year.

I will now turn the call over the Marc Hanover for a review of the financial results and the impact of the Merck collaboration on our financial condition.

Good morning. The details of our financial results for the third quarter 2007 are included in this morning's financial press release and are available on our website. I will focus on the highlights.

The net loss for the quarter was $10.2 million, compared with a net loss of $10.9 million in the third quarter of 2006. Revenue for the third quarter of 2007 was $1.7 million, compared to $1.1 million for the same period last year. Revenue for the third quarter of 2007 included $268,000 of net sales of Fareston and $1.5 million of collaboration revenue from our European ACAPODENE partner, Ipsen.

Research and development expenses were $9.9 million and general and administrative expenses were $3.2 million for the three months ended September 30, 2007, compared with $9.6 million and $2.9 million for the third quarter of 2006. At September 30, GTx had $90.9 million in cash and cash equivalents. GTx has no debt and no warrants. We expect our net loss for 2007 to be at or slightly below the low end of our most recently stated range of $40 million to $46 million.

Upon the successful closing of the collaboration agreement with Merck, GTx will receive $70 million from Merck consisting of $40 million in upfront license fees and $30 million in proceeds from the sale to Merck of newly-issued shares of common stock at $23.34, which is a 40% premium to the recent GTx 30-day average closing stock price.

Additionally, Merck will pay GTx $15 million over three years in guaranteed pre-clinical research reimbursements and Merck will pay for all future costs associated with the ongoing development and commercialization of Ostarine and other SARM candidates. The collaboration with Merck will have a significant beneficial impact upon our financial condition.

This additional capital from the Merck collaboration gives us the necessary funding to continue to execute our business plan. This does not take into account near term and future milestone payments, which we may receive from our Merck collaboration as well as milestone payments from Ipsen, our European ACAPODENE partner.

We have significantly enhanced our balance sheet as we enter 2008, which will be a pivotal year at GTx as we prepare for the potential launch of two product candidates. I will now turn the call back over to Mitch.

Thank you, Marc. This is an exciting time at GTx. We will soon announce results from our two Phase III clinical trials of ACAPODENE with the potential to file New Drug Applications following the success of these trials. We at GTx are excited about announcing the right collaboration for SARMs with the right partner, Merck. With this unique deal structure, we have secured our future at GTx by joining our SARM programs and pooling our drug candidates with Merck, we have increased our chances for success in the commercialization of a first in class SARM.

The off load of the costs associated with future development and commercialization of SARMs, as well as the upfront and guaranteed reimbursement payments of $55 million, plus Merck's investment in GTx as a company of $30 million, when added to the $90.9 million we had in the bank as of September 30th, we will have a substantial beneficial -- it will have a substantial beneficial impact on our financial position.

The outlook for GTx is bright. We have the potential for near term ACAPODENE sales with the launch of ADT and PIN. A unique SARM development and commercialization collaboration with Merck and a robust pipeline with GTx-878 moving towards the clinics for BPH as well as other preclinical drug candidates being readied for clinical development. GTx is positioned well to continue to build value for our shareholders.

I want to thank the GTx team for their continued hard work and dedication that is responsible for why we're here today. Operator, we are now ready for questions.

(OPERATOR INSTRUCTIONS). Your first question comes from the line of Joel Sendek with Lazard Capital Markets. Please proceed.

Hi, good morning. A couple of questions on the partnership. Can you give us a feel for what the royalty is kind of seeing that it's double digit given the state of development of Ostarine?

Hey, Joel. This is Mitch. We can't -- because of how Merck and GTx talked about what we can and cannot say, we're not allowed to give you the exact royalty and really tell you what the amount is. Now what I can tell you is that the royalty is commensurate with a product that has the potential that our product has. And, so that gives you a sense of what the royalty rate is. So even though we can't disclose it, again, it's commensurate with a program that has the potential as ours. And if I can make another comment, I'm sorry.

Sure.

The other comment is that you know GTx well enough now. And, for us, this is a good deal. We're building our Company. And the way we build our Company is you build a company not only with what the deal brings as an upfront, but what the deal brings during the collaboration in terms of offloading cost, but the milestone package and the backend has to be such that you really build value. And so, GTx was consistent in every portion of this deal to make sure that we've achieved that.

Okay. Then, if I can move to a qualitative question. You've had some issues in the past with regard to working with partners. How can you be confident that this deal will potentially accelerate the timeline to approval for the -- your SARM compounds?

Yes. Well, this is me talking, okay. And, I'll tell you that Merck has put skin in the game. And, Merck has a very impressive internal scientific team and clinical team. It's kind of neat, cause we had a real opportunity to do deal with multiple partners, large pharmaceutical partners, some that had internal SARM programs, some did not. What impressed us the most was the commitment that we believe Merck had in this space. The priority that they placed in this space. And, their I'm gonna win attitude. And that really permeated throughout our discussions with Merck.

We did our homework and diligence on them as they did diligence on us. And, having had issues with a partnership in the past, we wanted to make sure that we had an element of involvement that would allow this to accelerate. And, so the concept here was, how do you create an environment to accelerate it, as opposed to be responsible and accountable for something that you're not responsible for. This situation's really very, very different. It's a different deal.

So, with that said, Merck is driven towards sarcopenia, the frailty. There the same ones that did FOSAMAX and got FOSAMAX into osteoporosis and created this multi-billion dollar opportunity. And, so they have a tremendous track record that we think -- Ostarine and the SARM program would be an attractive molecule to be able to fit in this same market. So, in short, we feel that that's important.

The other thing that's important here is the economics is such that whether the drug comes from GTx or the drug comes from Merck, or it comes out of the collaboration, GTx gets the same economics. What does that mean. That means that you really, truly can look at these molecules and pick them for their scientific merit and their success -- commercial success and get credit for that.

And so that, you can spend the time building and growing the program and having everybody aligned on the onset to make this happen as opposed to some of the things that would go one with your molecule, my molecule kind of thing. Or worse, they don't have -- they have an internal program that they didn't pool. And then, you're constantly looking over your shoulder that are they stealing information, are they learning know how from you. This collaboration really puts that all to bed. So this is truly very different.

Okay. That's very helpful. Thanks, Mitch.

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

Sounds pretty. Thanks very much. Just picking up off of Joel's line of questioning. I was wondering, Mitch, could you share with us a little bit of Merck's expertise with respect to SARMs? And then also, what's specifically is included beyond Ostarine? Should we assume 838 is? And what about 878 the ERb agonist?

Yes, yes. Well, first of all. GTx-878 is a ER beta compound, so it's not included in the relationship. The only thing that's included in the relationship were the selective androgen receptor modulators. So 838 would be included. And any compound that GTx had in our Company, and as you know, we have multiple compounds, multiple structural series, and so we're pooling all of our compounds that binds the androgen receptor gene SARMs. So, everything gets pooled into it. Likewise, Merck does the same. So, there -- so that everything that's a SARM at Merck also gets pooled into the comp -- into the collaboration.

So that anything that can be classified as an androgen receptor modifier?

That's right. So anything that is considered an androgen receptor modulator is thrown into the pot. Anything that is not, is not. So in other words, GTx is in no heavy ER beta agonist, we have an ER beta and there are alpha antagonists and agonists, there are beta agonists and antagonists, and we have our SARMs. All that is outside the relationship that you check that other things in our Company that we can continue to move forward, but more importantly, we have secured a really strong partner to move this first in class SARM compound.

And can you say anything about Merck's SARM work and candidates that they have in the pipeline?

I'm sorry, you did ask that question. I cannot talk on behalf of Merck. What I can say is that there is public information on Merck's SARMs that is available. I can tell you that one of the reasons that we felt that this would be an excellent partnership is we really thought that we were -- the landscape is full. There are a lot of pharmaceutical companies working on SARMs.

And, we had the opportunity to see Merck, and we felt very encouraged that the Merck team understood scientifically and clinically what needed to be done and understood commercially what needed to be done. And, it was amazing, Meg, how the chemistry between the two companies was so close that -- this is like almost like a marriage.

You got to make sure during the courtship things kind of work out. And it really clicked very nicely. There were very specific nuances of this program that they understood extremely well that gave us comfort that there'll be almost no learning curve here. We'll be able to start -- hit the ground running with this partnership.

Great. And, if I may, just a separate question. What percentage of patients in the ADT study do you think are from Mexico?

There are about -- there's roughly 300 patients that were enrolled from Mexico. So, about 1,000 patients U.S. and about 1,300 or so in Mexico.

Thanks a lot.

300 or so in Mexico, sorry.

Thanks a lot.

Thank you, Meg.

Your next question comes from the line of Gene Mack with HSBC Securities. Please proceed.

Thanks for taking the question. I was wondering maybe, Marc, if you could just go over a little bit how the milestones and upfronts will be booked on the income statement?

Gene, good morning. First of all, what we can tell you right now is the timing of receipt of the upfront payments and the proceeds from the sale of stock are based on the condition of which of the closing, which is subject to HSR, if applicable. So that's a timing issue. But at that point, we are working with our independent auditors to determine the appropriate accounting treatment for all the payments that we're going to receive and we will update you on that as soon as we have that information.

Okay. And, in the agreement, as it stands right now, is there any event where a milestones where you would need to pay Merck any sort of milestones for one of their drugs moving forward?

No. This is why we believe this is such a unique opportunity for GTx. And like Mitch mentioned a few minutes ago, this is truly a real opportunity for both companies. It's equal milestones, equal payments, no matter where the compound, no matter where the candidate comes from, whether its exclusively the GTx team, exclusive from the Merck team, or if it's a collaboration compound. It's all equal payments, all equal milestones. The royalties are the same. So, there -- it's really an impressive opportunity for both companies.

Just to make sure I'm clear, Gene. When I said equal milestones, equal payments. It's not that Merck gets paid by us in equal milestones if there compound moves forward, and then we get a certain mile -- it really means that GTx gets --

an equal milestone, equal royalty.

Regardless.

Yes. Regardless. So, it's all, I mean this is a terrible thing to say, but it's kind of a one-way street to us, so that we're incentivized to pool our SARM resources with Merck and we're not constantly fighting over is mine better than yours. What we do instead is let the science drive the molecule. And, as you know, that's kind of Merck's deal. Merck drives good science moving forward and GTx is the same way. And, that's why I think it's a good fit. So, there's no payment that go to Merck from GTx.

That's great. And then, can you just give us an idea of which division at Merck is sort of handling the collaboration?

Yes. So the division at Merck that's handling the collaboration falls under the Bone Respiratory Immunology and Endocrine Franchise.

Okay. And one final question. On the PIN study. I know you've discussed this before, but is there a stopping criteria for the look at the end of this first quarter?

The PIN?

Yes.

No. There's no stopping criteria. There is a specific statistics related to -- with the interim efficacy analysis allowed to be conducted. There's also pre-specified levels of statistical significance. And, that's certainly driven by the effects size. But, there is no stopping criteria for the trial. And if we -- so, if we're in the first quarter now and we look at the data, even if we're successful, we have to continue the trial, but we can still move to file.

Okay. Great. And I just had brain lock for a second. Did you get -- did you talk about when you expected the deal with Merck to close?

Yes. It's basically 30 days after our signing is what we expect.

Okay. Sorry. Thanks.

It's subject to HSR.

Right. Understood. Thank you.

Thank you, Gene.

Your next question comes from the line of Aaron Reames with Wachovia. Please proceed.

Thanks for taking the question and congratulations on the partnership. The first question I had, just for further clarification, I believe that Merck's most advanced SARM is MK-822. So if they indeed put that forward ahead of Ostarine, you would get the same milestones and royalty structures as if it was Ostarine that was the most advanced compound coming out of the joint venture, correct?

In that hypothetical situation, because obviously we can't comment on what Merck will do and not do. But in that hypothetical situation, let's say the lead compound is a Merck compound, and it's decided that goes ahead of Ostarine into a indication like sarcopenia, the answer is, yes. GTx will see the same milestone and royalty payments as if it was Ostarine.

Okay. And then, when it comes to the second compound and third compound or subsequent compounds going into the clinic and potentially commercialized, are the royalty structures about the same for the following compounds as well?

I can't, Aaron, I wish I could comment on that, but I can't disclose that. But again, all I can tell you is that we'll receive equal royalties and equal milestones independent of where the compound originated.

Okay. And then, just the last question. From a clinical development standpoint, are you looking to take multiple compounds into multiple indications or is it going to be kind of a -- more of a indication by indication decision so that you'll basically take the best properties forward into specific indications, or how should we think about that?

I think as a general comment, I don't think anybody really wants to limit number of compounds and number of indications. With that said, I think that what I can say is that over the past few months, we have had a pretty substantive discussions with Merck over these topics. And, GTx and Merck are actively assessing what our joint strategic goals and objectives will be. And, our goal would be to meet very shortly after closing, I mean both parties are anxious to get going here.

But we know enough about each other that we're not really losing time, but nonetheless, we have to wait until this thing officially closes. But at that point, we will sit down and lay out a strategically -- and where we want to go and how we want to do it. What I can tell you and what is exciting, is that there is enough human data and enough compounds that this is going to be a very interesting and substantial discussion.

Okay. Thank you for the questions.

Thank you, Aaron.

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

Thank you. Congratulations on the deal. Can you hear me?

Yes, Lucy.

Actually, Mitch, I have a question on the ACAPODENE program. I was wondering if you would clarify what is the statistical hurdle for the ADT osteoporosis study for the purpose of FDA approval. Is it 0.05 or 0.01?

Oh, okay. For ADT?

Yes.

For ADT, it's 0.05.

So, even though you're only doing one study --

Well, this -- what makes this a little different it's an osteoporosis study. So, if you go back and look at the osteoporosis guidance, it's different. And, under the SPA -- if you go back to the osteoporosis guidance, they even accept a trend at 0.2. That's -- this is the guidance of 1994, 1995 draft guidance.

In the SPA, they ask for a P-value of 0.05 in the single study. That is correct. And, but you need to -- you need to hit other things. You need to have a statistically significant BMD, you need to show good bone quality in your chronic animal studies. So these are other things. There's a whole list of other things that you need to hit. We've hit everything except now we're waiting for the fracture data.

Right. Okay. And then, the other question I have on the collaboration is -- by the way, that's really helpful, thank you. The other question I have on the collaboration is, in the past, I think you have said that GTx plans to have a urology sales force so that maybe you would actually take the cancer weight loss program forward and commercialize that part yourself. Is that still your intention? Or would you have Merck do all the commercialization activities?

Interestingly, the Company has matured and, as you know, we used to be the men's health biotech company. And now, we've sort of shed that off -- we shed that image off only because we really have become a nuclear hormone receptor experts. And when you deal with nuclear hormone receptors, you're dealing with males and females, and your dealing with indications, not only in urology, but outside of urology.

Instead of limiting ourselves to a particular audience of or particular physician group or a particular indication, we chose to take a different approach and that is to be able to have an opportunity to participate in promotional activities both through medical affairs and possibly through sales force and that we would have an opportunity to come back to the joint commercialization committee and request that.

So another way of saying it is, Lucy, we're not limiting ourselves to urologists and we're not limiting ourselves to medical oncologists. We're going to really see what we look like at the time we launch and see what the appetite and the abilities that GTx has going forward both in the area of medical affairs and sales. So, it's a little different than the deal that we've done in the past.

Great. Thank you.

Thank you, Lucy.

Your next question comes from the line of Eric Schmidt with Cowan & Company. Please proceed.

Oh, yes. My congratulations also on a very nice deal with Merck. Mitch, what can you say about the milestones? It appears from the release that they're all pre-commercial. Is that correct? And, when might we expect you to earn the first milestone in this arrangement?

Yes. So, I'll tell you what I'm allowed to say. And the answer is, yes, you're impression is correct. They're all pre-commercial. Pre-commercial by definition means that we'll get milestones for clinical development and for approval. There are no sales milestones built in.

The milestone package that you see there is for a lead compound such as Ostarine. Does not include additional compounds, collaboration compounds that we would see add -- for other indications, we would see additional milestones for clinical development and also for approval, again pre-commercial. When we would see the milestones is clearly dependent on how diligent we are in moving our programs.

And so, it would be our goal that that we will move it very diligently. And, one of the reasons we did the deal with Merck is because they know the space very well and we feel that we can accelerate our internal program by doing a deal with a company that already is in the space and that's already clearly made it -- made it obvious to us that they're -- that this is a priority.

Would the ongoing Ostarine study, for example, be associated with a milestone if it were concluded successfully?

Yes.

Okay. And, just a quick question on the PIN trial, a point of clarification, I guess. It wasn't quite clear to me if you -- if you do this interim analysis in the first quarter and don't get for some reason 281 events. I know you're not expecting that to be the case, But is there a requirement for at least 281 events to trigger the --?

Yes. Let me answer that. The answer is -- let me answer that two ways. One is I'm confident we're going to get 281 events. I'm not worried about that. Okay. We've said that we were going to get that in the fourth quarter, we're going to get that in the fourth quarter. Okay. The SPA says that you have to do your interim analysis after you have 281 events. So, that means that first quarter, we're going to be after 281 events. So, I'm not expecting us to slip on that.

Is there a targeted number events that you think you will get to in Q1?

There is a targeted number of events that we'll get through in Q1, but targeted just means forecasted, right.

Yes.

So. We do know that we have bolus of patients that are going through and what we're trying to do is take advantage of that bolus of patients. We had some kind of program going at -- cause usually November, December is when you have your least number of patients enrolled in a trial. And so, we were able to keep everybody focused on enrollment during November and December. And that actually turned out to be great months for us. So, our thinking is take advantage of that.

We're still clearly within our time frame that we expected to release information. And, we just want to make this -- what's important to us is not only to hit our timeline, but to be successful. And, we think we have an opportunity to do both in first quarter.

So you would forecast well over 300 at that point in time?

The answer is, it will be over 281, yes.

Okay. Thank you.

I'm sorry, Eric. Thank you.

And your next question comes from the line of David Webber with Broadpoint Capital. Please proceed.

Thanks, and congratulations, also. Couple of questions regarding the milestone structure. Mitch, to get say $422 million on a given lead compound, how many indications would be involved in that?

Yes. I'm -- Dave, I'm not able to comment on that. I'm not able to comment on that, because we're not allowed to disclose exactly how the milestones are given out. But, the answer is that to see that probably would involve multiple indications.

Okay. And, can you say, on an indication by indication basis how many milestones you can potentially receive. And is it two or three or four?

I can't say that. But what I may be able to say is that the value of the milestones is commensurate with the market size. And so, for example, sarcopenia, we'd see more milestones than cancer wasting for example.

Okay. And, finally, can you give us any sense of how much money you expect to save by not having to pay for the Ostarine clinical trials?

Marc.

Sure. David, of course, we only give out sort of what our budget is on a current year basis, so we can't really comment beyond 2007. But, suffice it to say that the SARM program is getting more and more expensive as we proceed to Phase -- we had plans for two Phase IIbs and ultimately, hopefully, two Phase IIIs.

Four Phase IIIs.

Four Phase IIIs, right. So, basically, our ramp in expenses was going to be significant. And, right now a good portion of our expenses are associated primarily with the fact that we have two large Phase III ACAPODENE trials. But, the SARM program is growing in expenses and growing as a percent of our overall expenses.

Okay. Thanks very much.

Thank you, David.

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

Thanks very much and congratulations. If I could ask a couple of questions regarding the PIN trial. Mitch, you've a -- when you have more events at the interim analysis should the statistical hurdle be the same or should it be higher in terms of P-value?

The statistical events will be -- the P-value will be the same. The reason why more events works is that the original 281 was based on a denominator of 1,260 patients. As you know, the SPA took about 15 months to negotiate and during that period of time, the FDA came back and said, you know what, we'd like to have a bone study, BMD study, and we also would like you to expand your ocular study.

And so, when we did that, we ended up instead of a 1,260 patients, we ended up with about 1,600 patients. And so that additional patient is the reason why we want to move back to the original assumptions that we had with the original 1,260, which means that you'll need more events to get to the same magnitude of change. Does that make sense?

Um --

You're not taking a statistical hit, because you're relationship between your denominator and the number of events or cancer events is the same. Where you get into trouble is if you ask -- if you push and get more information with time. Then you can imagine in that situation you would take the higher statistical hit.

What would -- but what was specified in the protocol with the FDA regarding one unique interim analysis and what is the hurdle?

Right. What is specified in it is anytime after 281, P-value of 0.001. And, we believe that an effect size between 28% and 30% reduction will achieve a P-value of 0.001 with a power in the range of about 86%.

Have you discussed this change of interim analysis with the FDA?

Yes. This inter-analysis has been the final SAP, statistical analysis plan, I don't think it's gone into the FDA yet. And, you can turn it in at any point. But the SPA does state that, yes.

Okay. If the interim analysis in the first quarter, if the outcome is that you continue that study. What will you find out? I guess, do we -- will you tell us the P-value and the percent reduction, for example?

So make sure I understand. So, if it's -- do you mean if it's successful or not successful?

If it's -- if it's the outcome is to continue to the study --

Yes, yeah, I've got you. If the outcome is to continue the study, not even the company will know what the P-value is.

Okay.

What we'll tell you with the DSMB is going to tell you is that you hit or didn't hit. And, if you hit, it will tell you your statistics and all that nice stuff. If you didn't hit, all they can say is continue. And, but we'll take a statistical hit, an alpha hit of 0.001, leaving us with 0.009. So all we're going to know, the Company -- and we'll tell the investors is that we were just told to continue.

Okay. Great. Just last question. Did Merck get to look at any of the confidential ACAPODENE data as part of their -- as part of making the equity investment?

That's a good question. The answer is -- they saw all the public information that's available. They did not do diligence on -- due diligence on ACAPODENE. They made investment in GTx as a company based on what they've learned about us and that's all I really can say.

Okay. Thank you very much.

Thank you.

At this time, there are no additional questions. I would now like to turn the call over to Dr. Steiner for the closing remarks.

Thank you, operator. I would like to thank you all for your interest in GTx and I look forward to providing you with updates on our future progress. Thank you again for joining us on today's call.

Ladies and gentlemen that concludes your presentation. You may now disconnect and have a wonderful day.