Oncternal Therapeutics Inc (ONCT) 2007 Q4 法說會逐字稿

Good day ladies and welcome to the Fourth Quarter and Year-End 2007 Thompson's Conference Call. My name is Katie and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question and answer session towards the end of this conference.

(OPERATOR INSTRUCTIONS)

I would like to now turn the presentation over to your host for today, Mr. McDavid Stilwell, Director of Corporate Communications for GTx. Sir, you may proceed.

Thank you and good morning. On behalf of GTx, I would like to welcome you to our fourth quarter and year-end 2007 conference call. We released our financial results earlier this morning through the newswires. If you do not have a copy of the release, you will find it on our website at gtxinc.com. We will have a replay of this call available on our website until March 4, 2008.

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

Following this introduction, Dr. Steiner will highlight fourth quarter and full year 2007 clinical and corporate developments. Next, Mr. Hanover will briefly review our financial performance. Dr. Steiner will then discuss our plans for 2008 and make some closing remarks. We will then open the call for questions.

Before we begin, I'll 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 the Securities and Exchange Commission, including in our quarterly report on Form 10-Q filed November 9, 2007 and in our registration statement on Form S3 filed September 26, 2007. We expressly disclaim any obligation to release publicly any update to forward-looking statements made during this call.

As we have stated previously, we anticipate releasing top line results of our ACAPODENE 80 milligram Phase III ADT clinical trial and conducting the efficacy interim analysis of the ACAPODENE 20 milligram Phase III high-grade PIN Clinical Trial by the end of this quarter. Until we publicly release information about these clinical trials, we are in a self imposed quiet period regarding ACAPODENE.

Therefore during the questions and answers period following our prepared remarks this morning, we will not be able to respond to any questions about ACAPODENE. And now, I will turn the call over to Dr. Steiner.

Thank you, McDavid. GTx had a very exciting 2007. We successfully achieved several important strategic goals last year. We completed the ACAPODENE 80 milligram Phase III ADT clinical trial in November. We forged a unique collaboration with Merck on our SARM programs, we selected two new preclinical hormone receptor modulators from our pipeline, GTx 758 and GTx 878, for clinical development in two new indications and we have recruited several key senior managers to strengthen our anticipated transition to commercialization. Here are some more specifics about some of these 2007 accomplishments.

In November of 2007, GTx and Merck joined together to create a unique collaboration for the discovery, development and commercialization of selective androgen receptor modulators. This collaboration has not only brought together the two leading SARM programs, but it also takes advantage of the depth of scientific knowledge and the shared understanding of the commercial potential of SARMs. This collaboration has strengthened our financial position with an immediate cash infusion of $70 million and essentially eliminates our financial burden for the development and commercialization of SARMs.

SARMs are an exciting new class of drug, which selectively modulate the androgen receptor depending on the tissue type. By designing molecules to maximize the wanted clinical effect of anabolic agents for example to build muscle and bone while minimizing the unwanted clinical side effects such as stimulating prostate growth in men and unwanted hair growth in women, SARMs has the potential to treat a myriad of muscle wasting and bone loss diseases, including frailty or sarcopenia, cancer cachexia, muscle loss related to chronic diseases and injury, osteoporosis and other musculoskeletal loss conditions. GTx and Merck have combined their SARM programs and pooled their SARM candidates.

We have also agreed to work closely together to discover, develop and commercialize current as well as future SARM compounds. The emphasis for development has been appropriately placed on the scientific merit, safety and the commercial opportunity of each SARM product candidate, as GTx will receive for Merck the same economics regardless of whether it is a GTx, Merck, or collaboration product candidate. We have had several meetings with Merck since we executed the collaboration agreement in December and we are now even more convinced that Merck is the right partner and that they share the same urgency to develop and commercialize this important class of molecules.

As for the financial impact the Merck relationship may have on GTx, we received a significant upfront licensing payment of $40 million in January 2008 and Merck also purchased $30 million of GTx common stock in December 2007 at a price of $23.34 per share because of their belief in GTx, the Company. Additionally, Merck has agreed to pay GTx guaranteed preclinical expense reimbursements of $5 million per year for three years for a total of $15 million beginning late this year.

The collaboration agreement also provides for milestone payments of up to $422 million for the development and approval of lead product candidates in multiple indications and the potential for additional milestone payments for other collaboration drug candidates.

All milestone payments are based on events prior to commercial launch such as the initiation and successful completion of Phase II or Phase III clinical trials and marketing approvals. Merck will also assume all costs associated with clinical development and commercialization of all collaboration SARMs except for the cost associated with the ongoing Phase II Ostarine cancer cachexia clinical trial. Merck will pay GTx tiered royalty payments based on global net sales.

As you know, we are currently conducting a Phase II Ostarine cancer cachexia clinical trial and we anticipate results by December of 2008. The Phase II cancer cachexia clinical trial is a randomized double blind placebo controlled study of cancer wasting in approximately 150 patients with non small-cell lung cancer, colorectal cancer or non-Hodgkin's lymphoma.

The clinical trials are being conducted in approximately 50 clinical sites in the United States, Canada and Argentina. Study participants are being randomized to receive placebo, Ostarine 1 milligram or Ostarine 3 milligrams for four months. The primary endpoint of the trial is total lean body mass at four months. Secondary endpoints include functional performance and safety. As for the rest of the Merck-GTx clinical program, we anticipate being able to share the details of our plans with you by December of this year.

The Merck-GTx collaboration strengthens GTx's financial position and effectively serves to enlarge and diversify our collective SARM development efforts to increase the likelihood that GTx and Merck will be successful in bringing the first SARM product into marketplace. In regard to other product candidates from our pipeline, we've selected this past year two new pre-clinical non-steroidal selective hormone receptor modulators for clinical development.

Now that we have established a core competency in discovery and development of selective nuclear hormone receptor modulators, we believe these new molecules discovered by GTx scientists have the potential to be future value drivers for GTx and its shareholders.

The first product candidate is an LH inhibitor called GTx 758. GTx 758 has the potential to become the new standard for androgen deprivation therapy for prostrate cancer. Today, the most common way to accomplish androgen deprivation therapy is by Lupron or Zoladex injections. It is estimated about 800,000 prostate cancer patients in the United States are currently on ADT. While ADT by luteinizing hormone releasing hormones for LHRH agonists like Lupron and Zoladex are effective treatments, they may cause multiple serious side effects such as hot flashes, bone loss, and adverse lipid changes and also life threatening side effects, such as fractures and cardiovascular disease.

GTx 758 is an oral LH inhibitor, which in preclinical models has shown the potential to achieve immediate androgen deprivation without many of the serious side effects common to current androgen deprivation therapies. GTx 758 was discovered at GTx and our composition of [matter] patents extend to 2026. We are planning to initiate Phase I clinical testing of GTx 758 by the end of this year. Our second new product candidate, GTx 878, is an estrogen receptor beta agonist being developed for the treatment of BPH and also has other potential indications.

Current BPH drugs either reduce prostate size by 5-alpha reductase inhibitors or relax prostate smooth muscle tone like alpha blockers. In preclinical models, GTx 878 has demonstrated three activities that may be beneficial for a novel way to treat BPH. GTx 878 has the ability to inhibit prostate growth, to relax prostate smooth muscle tone and to reduce inflammation. GTx 878 was also discovered at GTx and the composition of matter patents extends to 2028. GTx is planning to initiate Phase I clinical trials of GTx 878 in the first half of 2009.

These two new product candidates take advantage of our core strength in neutral hormone receptor modulator design in urology. We are developing these compounds to treat diseases, which have proven to be large market opportunities with well defined development and regulatory pathways.

GTx has also bolstered its key management team. In 2007, GTx successfully recruited a number of key employees who will help us make the transition from a research and development Company to a one with the depth and breadth to commercialize our product candidates. Dr. Ronald A. Morton, Jr. joined as the Chief Medical Officer.

Dr. Morton left his position as Professor of Surgery and Chief of Urology at the Robert Wood Johnson Medical School. He also served as Director of Urologic Oncology for the Cancer Institute of New Jersey. He received his medical degree from the John's Hopkins University School of Medicine and completed his Urology Training and Post-Doctoral Fellowship at the John's Hopkins Hospital.

Jeff Hesselberg joined GTx as Vice President of Regulatory Affairs. Jeff has over 19 years of experience in the biopharmaceutical industry, including 13 years in regulatory affairs. Prior to joining GTx, Jeff was Director of Regulatory Affairs for ICOS Corporation where he worked on Cialis. Jeff brings strong regulatory experience and leadership at a critical time for GTx as we prepare for the potential filings of new drug applications for ACAPODENE, continue the clinical development of science, and prepare to bring two new molecules into clinical development.

We also recently hired Chris West as Vice President of Sales. Chris has over 14 years of pharmaceutical sales and marketing experience. Most recently, Mr. West was Head of the Sales and Marketing for the Dermatology Division of Warner Chilcott and directed a sales force of 165 representatives to two new product launches. Mr. West also worked at GSK where he held marketing positions of increasing responsibility for Avodart, Valtrex, and Advair.

Now, I would like to turn the call over to Marc Hanover for comments on our financial performance.

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

The net loss for the quarter and year-ended December 31, 2007 was $12.8 million and $40.4 million respectively compared to a net loss of $4.7 million and $35.5 million for the same periods of the prior year. Revenue for the quarter and full year 2007 was $1.9 million and $7.1 million respectively compared to $4.6 million and $7.5 million for the same periods in 2006.

The major components for each period are as follows. Revenue for the fourth quarter of 2007 included a collaboration income of $198,000 from Merck and $1.5 million from our European ACAPODENE partner, Ipsen.

Revenue for the fourth quarter of 2006 included collaboration income from Ipsen of $1.5 million and $3.3 million from our collaboration with Ortho Biotech, which was terminated by mutual agreement in December of 2006. Revenue for the full year of 2007 included collaboration income of $198,000 and $5.9 million from Merck and Ipsen respectively and net sales of FARESTON of $1.1 million.

Revenue for the full year of 2006 includes a collaboration income of $1.8 million and $4.3 million from Ipsen and Ortho Biotech respectively, as well as net sales of FARESTON of $1.4 million.

Research and development expenses for the quarter and full year 2007 were $12 million and $38.5 million respectively compared to $7.4 million and $33.8 million for the same periods in 2006. General and administrative expenses for the quarter and full year 2007 were $3.6 million and $13.5 million respectively compared to $2.8 million and $11.4 million for the same periods of the prior year.

At December 31, 2007, GTx had cash and cash equivalents and short-term investments of $110 million. In addition, in January 2008, GTx received an additional $40 million from Merck representing the payment of the upfront license fee. Our cash position does not take into consideration possible additional payments from Merck or from Ipsen. GTx continues to have no debt and no warrants.

In the past, we have provided financial guidance for the current year during this February conference call. Because the outcomes of the two ACAPODENE clinical trials will have such a significant impact on our projected operating expenses for this calendar year, we have elected to provide financial guidance for 2008 after we have announced our data from the ACAPODENE 80 milligram Phase III ADT clinical trial and the result of the efficacy interim analysis of the ACAPODENE 20 milligram Phase III high grade PIN clinical trial. I will now turn the call back over to Dr. Steiner for some closing comments.

Thanks, Marc. We enter into this pivotal year with a strong financial position, our SARM program moving forward with our partner Merck, two new molecules advancing into clinical development targeting large well-defined indication in urology, and with a talented and experienced senior management team.

We are on track to announce by the end of this quarter the top line results for the Phase III ADT clinical trail evaluating ACAPODENE 80 milligrams for the treatment of multiple serious side effects of androgen deprivation therapy and to conduct an efficacy interim analysis of the Phase III high grade PIN clinical trail evaluating 20 milligrams of ACAPODENE for the prevention of prostrate cancer in high risked men. Success in either trial will be a transforming event for our Company. Now, I will turn the call back to McDavid for a few final remarks, before we take questions.

Before we turn the call back to the operator for the question period this morning, I want to reiterate that we are in a self imposed quiet period regarding ACAPODENE, and so we will be happy to respond to questions on other topics. Operator, we are now ready to take questions.

(OPERATOR INSTRUCTIONS). Your first question comes from the line of Eric Schmidt from Cowen and Company. Please proceed.

Good morning. Can I ask a question on ACAPODENE not related to either of the two pivotal trials?

Okay, let's try this one out, Eric.

Thanks, Mitch. You had mentioned possibly starting additional studies on ACAPODENE and with ADT therapy to try and look if the drugs effect on gynecomastia and hot flashes, things like that. Are those still at least in the back of your mind or where do we stand?

It is a great question, and let's see if I can frame it this way. One thing that we are trying to do with ADT is position ourselves as a multiple side effects treatments for a prostrate cancer. And to that end, we've already shown that we have an effect on bone loss, we have an effect on lipids, and clearly after we've announced our top-line results, there may be an opportunity there to take advantage of some of these sub-indications and kind of blow them out if you will. So, I will be able to comment much and more on that at the time that we report our top line results, could then will make more sense.

Okay. And just to be clear on this self-imposed quiet period, management hasn't seen any unblinded data. Just that, do you expect that data be coming shortly?

This is our position. Our position is that we have shared with everybody that we will be getting the data in the latter part in this quarter. We are on track to do that. What's awkward is that people are trying to read in to everything that we do as an indication that we know something we don't know. So the best way to handle that is management had said, you know what, to be fair and to be considerate, our position is to stay in this quiet period because the latter part of this quarter, we are getting into the latter part of this quarter.

So, as you know, we have given good guidance in the past and we are going to continue to execute as we have in the past. So to that end, it is fair to say that the quiet period was self-imposed, the quiet period was not imposed because management is sitting on data, and that we have seen something. It's being imposed because of the imminent nature of receiving the data and trying to make conclusions out of that.

Okay. And a question on SARMs then, you mentioned, Mitch, having had a few additional meetings and discussions with partner Merck. Is it too early to say what the lead indication might be for Ostarine in terms of its registrational strategy?

I think it's early to say, but I will tell you one of the reasons we did the deal with Merck is because of this whole concept of going out to frailty or sarcopenia. And as you know, that's a large indication and it will take a lot of resources and a lot of smarts. And the reason we did the deal with Merck is because we felt that they would be the best partner to go after a space like that given their past experience in blockbusters like Fosamax.

And so, that is still without "giving away too much" that is still at the top of the list in terms of a major indication of both groups we want to go after. And the other indication that I can make a comment about of course, the cancer [waisting] since the train has already left the station and the trial is ongoing at the time of the deal with Merck.

So, really what we need to do is give color by summer and all of the other indications that we may be pursuing with Merck including some clarity I hope on what the registration path would look like for sarcopenia.

Great, thanks a lot.

Thank you, Eric.

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

Thanks very much. Two questions if I may. One is for Marc, can you give us any guidance in terms of how to think about the revenue streams from Merck, specifically as related to the -- how the upfront fee would be amortized and I guess we can count on $5 million a year, but then there would also potentially be other milestone payments.

Can you give us a little color in terms of how to think about that? And then separately in order to be prepared to start clinical studies I guess later this year, could you give us an idea of what the next steps will be in terms of free clinical data needed?

Okay. Meg, it is Marc, good morning.

Good morning.

I didn't catch the second, the last few words of your second question, can you repeat that again?

Yes. I was just curious about what would need to happen in terms of being prepared to start clinical studies this year on 758?

All right. I will comment on the first question. In regard to how we are recognizing the Merck payments, let me walk you through, there is a couple of bullet points to share with you.

First of all, on the $40 million, which is the license fee, that is going to be amortized into income over a 10-year period. The $11 million of the equity premium, which is part of the $30 million that we got, that is going to be amortized into income also over 10 years, and the $15 million R&D cost reimbursement, it is going to be received as Mitch commented, $5 million a year starting -- the end of this year.

So, it is going to also be received and recognized over the remaining life of the agreement. So, the first payment would end up being nine years, eight years, seven years kind of thing. So that is how we are amortizing the payments for Merck as part of our financial guidance.

In terms of the milestones, is it fair to assume that there are milestones post, say for example, Phase II data or milestones depending on the start of other studies?

Yes, there are milestones that will be paid, let me say it differently, all 422 are paid prior to launch of our products. So and yes, we will be receiving milestone payments for example, I will give you an example of the initiation of a trial, let's just say, and so if we do that, that will also be recorded and it will recorded in the same timeline as we have stated before.

And not to get too granular, but all the amortized payments should occur, I presume, each quarter of each year. Is that fair?

Yes, that is true.

Okay, thank you.

Just to your second question, Meg Malloy, let's make sure everybody knows your name, because it was moved a little bit there, but, Meg, the second question on GTx 758, where we are is that is we have done the preclinical models that show the effects that I have already mentioned, which is the reduction in prostate size, increasing smooth muscle tone and decreasing inflammation.

We have done some of the early tox work and typically do a lot of early tox work before we pick a clinical candidate. And where we are now is scale up synthesis to get us into the larger tox work to support a Phase I. All of that is going as scheduled and should be completed with a Phase I started by the end of this year.

Okay, thanks, that is very helpful. If I could ask a quick housekeeping question, Marc, can you give us the stock option expense that occurred during the quarter and how it breaks out between R&D and SG&A?

Absolutely. For the quarter, Meg, the amount charged to R&D was $284,000, the amount charged to G&A was $269,000 for a total of $553,000 and for the year-to-date 2007, it was $1.047 million for R&D and the amount charged to G&A was $994,000, so it is a total of $2.041 million.

Thanks very much.

Thank you.

Thank you, Meg.

Your next question comes from the line of Howard Liang from Leerink Swann. Please proceed.

Thanks very much. I am not sure if this question is out of bound, but has there been any discussion with the FDA about increasing the number of events for the interim analysis of the PIN trial, just so that you are comfortable and that we are comfortable with moving forward with the analysis.

I am sorry, Howard. The question is has there been any discussion with the FDA in regard to increasing the number of events for the PIN trial?

Exactly, for the interim analysis.

The interim analysis, yes. And so what we said before that we are not going to make comment on the PIN trial and especially with the data coming out. So, I will be more than happy to answer that specific question at the time we release the data.

Okay. And just regarding FARESTON, I know that, obviously it is not a product you actively promote, but has there been any attempt to extend the exclusivity beyond September 2009? I guess I am not sure if there is opportunity for pediatric extension for a breast cancer drug, but I just wanted to --?

So, the question is has GTx done anything to increase the regulatory exclusivity of FARESTON, FARESTON being the 60 milligram version of toremifene citrate. The answer is no, we have not in that regard because we felt that if the PIN trial or the ADT trial was successful, we will pick up some exclusivity based on an additional indication. Most of our focus had been to continue to file and bolster the method of used patents and those patents that have been issued or pending around the area of ADT and around PIN.

So, we have done a pretty good job with that both in U.S., Europe and internationally, and that's been pretty much our focus from the standpoint of exclusivity.

Great, thank you.

Thank you, Howard.

Your next question comes from the line of Goutham Gorti from Rodman & Renshaw. Please proceed.

Which was my question? My question relates to Ostarine the proof-of-concept trail. The primary endpoint is change in the total lean body mass at 16 weeks. I was just wondering, do you have the presence of FDA before choosing a primary endpoint and the secondary endpoint which is more clinically relevant if you look at it. It's the improvement of the functional performance.

Okay. To make sure I understand the question, the question is, have -- we had these endpoints in our clinical trial for Ostarine and so the question is have there been any discussion with the FDA around those endpoints?

Yes, exactly.

Yes. The answer is absolutely, we spoke with three divisions of the FDA about four possible indications in December of 2006, when we announced our Phase II proof-of-concept data for Ostarine, we commented on what the FDA kind of told us. The Oncology division was pretty clear, in a Phase II setting they are looking for both lean body mass changes and particularly increases or differences if you will, not changes but differences from placebo.

But more importantly, all divisions at the agency are not going to accept just a weight change or lean body mass alone, they do insist that there is some kind of functional performance. Functional performance is typically done by measuring muscle function and so, we have a put in to our Phase II proof-of-concept trial, we put into that our stair climb, which we hit and we are successful. In the Phase IIb study, we have three different functional endpoints that we are measuring for feasibility; one is a stair climb because it worked in our Phase II.

Number two is grip test and number three is a six-meter walk. And all of those have been highly predictive for muscle and performance and any of those would be acceptable to the oncology division. So there has been a larger discussion about what would be appropriate functional endpoints to measure.

Okay. So going forward for the regulatory path for Ostarine cancer cachexia, would you -- for the Phase III trial, would you have the similar endpoints as well?

Absolutely. And what we like to do is try to stick with in our Phase II proof-of-concept, endpoints are going to be required in our Phase III because this way when we finally get the Phase III, it's confirmatory versus what we have to do for example, if you take a surrogate endpoint and hope that it correlates.

On this case, even in our PIN trial for example, we went with cancer as an endpoint because we felt that if we were able to confirm that in a Phase III, that's a lot better than picking whether a PIN goes away or not. So, I think it is important to stick with endpoints in your Phase II that will be the same endpoints you chose in your Phase III, and that's what we did with Ostarine.

All right, thanks.

Thank you

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

Hi this is Steve filling in for Lucy. I just had one quick question about -- do you plan on seeing the Phase IIb results from Ostarine before actually going forward and announcing anything in sarcopenia for the summer?

Good question. So the question is that, is there sort of a waiting period here where everybody is kind of holding their breath waiting for the Phase IIb data for Ostarine before any discussions or any plans are delineated by GTx and Merck in terms of the future programs including sarcopenia or frailty.

And the answer is no, this is an independent trial, it's in a different patient population. Will we learn from the trial? Absolutely, but as you know, these patients are very different than sarcopenic patients and so there are independent discussions and independent planning, separate from the cancer wasting trial and they are not tied together.

Okay but -- as far as the summer timeline though, well, here is like additional indications around the same time the trial comes out though?

I see what you're saying. Not necessarily, we chose summer is to give us plenty of time to have discussions with Merck. And I can see how you can draw that parallel, but no they are really independent. So that was just to give you a sense of when we think we will know from Merck and GTx, where we think our development plan will be, and we certainly can announce it sooner. It just depends on how the discussions go, which by the way are going very well.

But we thought that we have an internal goal to be able to roll out the clinical development plan with Merck, at least at the detail that we are allowed to share with you by summer, but they are not linked together.

Okay, thanks.

Thank you.

At this time, I am showing you have no further questions. I would like to now turn the call back over to Dr. Steiner for closing remarks.

Thank you. We would like to thank you all for your interest in GTx. We look forward to providing you further information on ACAPODENE by the end of this quarter. Thank you again for joining us on today's call.

Thank you for your participation in today's conference. This concludes the presentation and you may now disconnect. Have a wonderful day.