Oncternal Therapeutics Inc (ONCT) 2008 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Second Quarter 2008 GTx Inc. Earnings Conference Call. (OPERATOR INSTRUCTIONS) I would now like to turn the presentation over to your host for today's call, Mr. McDavid Stilwell, Director of Corporate Communications. Please proceed.

Thank you and good morning. On behalf of GTx, I'd like to welcome you to our second quarter 2008 conference call. We released our results earlier this morning through the news wires. If you do not have a copy of the release and want one, you'll find it on our website at gtxinc.com. We will have a replay of this call available on our website until August 18, 2008.

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 highlight second quarter 2008 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'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 report filed with the Securities and Exchange Commission, including, in our quarterly report on Form 10-Q, which we are filing later today with the SEC. We expressly disclaim any obligation to release publicly any updates to forward-looking statements made during this call.

Now I'll turn the call over to Dr. Steiner.

Thank you, McDavid. Good morning and thank you for joining us.

In the second quarter, we continued to make good progress towards the filing of the new drug application and planning the commercialization for toremifene 80 mg for the prevention of fractures and treatment of other key estrogen-related side effects of ADT in men with advanced prostate cancer.

We are on track to submit the NDA for toremifene 80 mg this fall, following a pre-NDA meeting with the FDA scheduled in October. We plan to request priority review of the NDA, because we believe toremifene 80 mg, by preventing fractures, will address a serious unmet medical need for men on ADT. Our European partner, Ipsen, is planning to file for marketing approval with the EMEA this fall as well. We continue to be in the discussions for toremifene partnerships for the rest of the world.

We now have our key experienced commercial management team in place and plan to market toremifene 80 mg, if it's approved by the FDA, in the second half of next year. We are looking forward with anticipation to the commercial prospects of toremifene 80 mg.

We are confident that we are well differentiated for this indication in the marketplace. In a two-year Phase III ADT clinical trial, toremifene 80 mg reduced new morphometric vertebral fractures by 54%, with a P-value of 0.032. Interestingly, approximately 23.8%, or one in four patients, in the placebo group, had either a non-traumatic fracture or greater than 7.0% bone loss within this two-year period. In the subset analysis, toremifene 80 mg reduced by 56% the first of either a non-traumatic fracture, or greater than 7.0% bone loss versus placebo, with a P-value less than 0.0001.

Bone loss leading to fractures is only one of the estrogen-related side effects of ADT. The estrogen deficiency caused by ADT may also result in hot flashes, adverse lipid changes and gynecomastia. Toremifene 80 mg is a SERM, which by binding to the estrogen receptor, has demonstrated in our clinical studies the ability to prevent bone loss and fractures.

Unlike drugs that treat only bone loss, toremifene has the potential to treat additional estrogen-related side effects of ADT, including hot flashes experienced by up to 80% of these men, breast tenderness and pain experienced by up to 66%. And adverse lipid changes, which may put these men at higher risk for cardiovascular disease and mortality. Toremifene also has been shown to inhibit prostate growth in preclinical models and to prevent prostate cancer in men with high grade PIN in our Phase IIb clinical trial.

We have conducted several key opinion leader meetings and extensive market research on ADT and its side effects. In the United States, about 90% of advanced prostate cancer patients on ADT are under the care of urologists. Urologists prefer to be the primary care giver for these patients. Urologists also serve as the gatekeeper for these patients by ultimately determining when their prostate cancer patients should be referred to a medical oncologist.

What we have learned is that urologists would welcome a drug with a target product profile that treats multiple side effects of ADT to reduce the need for patients to be on multiple drugs, which, in aggregate, can be expensive and have their own side effects. Urologists have expressed a strong preference for prescribing oral drugs, as Medicare reimbursement for injection therapies makes holding drugs in inventory and administering them more expensive than writing a prescription for an oral drug.

The National Comprehensive Cancer Network, NCCN, which is made up of physician leaders from the NCI-designated comprehensive cancer centers, issued in its updated Clinical Practice Guidelines in Oncology for Prostate Cancer in late May 2008. The guidelines recommended that men with advanced prostate cancer and ADT should be assessed for bone loss. If they're diagnosed with either osteoporosis or osteopenia they should be treated with a bone agent.

The list of bone agents provided in the guidelines include toremifene. This means that toremifene will be included in the NCCN Drug Compendium, which CMS, United Health and other payors recognize as a mandated reference for cancer care coverage decisions. Many state formularies rely on the NCCN Compendium as a mandated reference, too.

GTx is in the process of preparing its NDA for submission to seek FDA approval for toremifene 80 mg to include the treatment of ADT-associated bone loss. We're continuing to evaluate the data and safety from the Phase III ADT clinical trial. We look forward to presenting at medical meetings later this year new important clinical findings, which will demonstrate additional therapeutic benefit and distinguish toremifene 80 mg from potential competitors.

Now let's turn to our Phase III clinical trial for high grade PIN. In May we announced that, following and interim efficacy analysis, an external data group recommended that the Phase III PIN clinical trial should continue as planned. Even though toremifene 20 mg did not meet the high statistical hurdle established for the interim analysis, we remain confident that toremifene 20 mg should demonstrate its ability to prevent prostate cancer when we conduct the efficacy analysis next year.

What we do know is that we conducted a large 514-patient Phase IIb clinical trial in men who have high grade PIN, evaluating the ability of toremifene to reduce prostate cancer, the same primary endpoint in the 1600-patient Phase III PIN clinical trial. In our Phase IIb clinical trial, when you include all biopsy-proven prostate cancers, the aggregate prostate cancer rates in the Phase IIb and the Phase III clinical studies appear to be similar, suggesting that the confirmatory Phase III clinical trial is progressing as expected.

If the Phase III PIN clinical trial is like our Phase IIb clinical study, then toremifene 20 mg treatment will have at least a 22% reduction in prostate cancer versus placebo. Although a 22% reduction in prostate cancer in the Phase III PIN clinical trial would not have been sufficient to demonstrate efficacy in the interim analysis, it should meet the pre-specified statistical threshold for the efficacy analysis to be performed next year.

An independent Data Monitoring Board reviews for protocol unblinded safety data from toremifene clinical trials every six months. Following the most recent review conducted in late July 2007, the DSMB recommended that the toremifene 20 mg Phase III PIN clinical trial should continue as planned.

The DSMB has now reviewed safety date for more than 3,000 patients from both the ADT and PIN Phase III clinical trials, with some patients on drug as long as three years. These clinical data, along with more than 450,000 patient years used and a 17-year pharmacovigilance database for Fareston, will be important for supporting safety for the new drug applications for toremifene 80 mg and toremifene 20 mg.

GTx has continued to make progress with Ostarine and other SARMs. We are very impressed with the status of our partnership with Merck. Like GTx, Merck is a science-oriented company and consequently, the chemistry between our companies is strong. Our two companies have formed multiple joint oversight and working committees responsible for everything from R&D and product development to commercialization.

A week does not go by without active communication between several committees, pushing the SARM collaboration forward. Our collective strengths compliment on another and is leading to a faster, and we believe better, clinical development program for this exciting new drug class. The focus of the SARM clinical development program is sarcopenia. We're also evaluating cancer muscle wasting, or cachexia.

There are multiple product candidates being evaluated in Phase I and Phase II clinical trials in both men and women for sarcopenia. Sarcopenia, which is the progressive muscle loss associated with aging, is an exiting opportunity, with a market potential we believe to be as large as osteoporosis. The purpose of these trials is to identify the best molecules to take forward into Phase IIb and Phase III clinical testing for sarcopenia. We look forward to updating you on the clinical development plans for sarcopenia once these clinical trials are completed.

The next available results from this collaboration will be from the Phase II Ostarine, now designated as MK-2866, cancer cachexia clinical trial. Muscle wasting occurs in about 50% of all cancer patients and loss of muscle may lead to loss of protein stores, severe weakness and fatigue, immobility, loss of independence, and an inability to tolerate and respond to cancer treatments.

Cancer-induced muscle wasting is responsible for at least 20% of cancer deaths. The ultimate goal of this program is to develop a drug that would improve quality of life and treatment outcomes for patients with cancer cachexia by increasing muscle mass and strength. There are no drugs approved for the treatment of cancer wasting.

The Phase II cancer cachexia clinical trial, more specifically, is evaluating Ostarine 1.0 mg and 3.0 mg, compared to placebo, in 159 cancer cachexia patients with lung cancer, colorectal cancer, Non-Hodgkin's Lymphoma, or breast cancer. The treatment period is four months. The primary endpoint of the clinical trial is total lean body mass measured by DEXA and we're looking for a change of at least 1.0 kilogram of total lean body mass compared to placebo.

Functionally, performance is a key secondary endpoint and we have selected three measurements to measure this functional performance -- a stair climb test, a six-meter walk test and a grip test. The study has completed enrollment and patient treatments. The database is being prepared for analysis and we expect to receive and announce topline results of the trial in late September or early October.

While cancer-induced muscle loss is not a result of aging, the condition may also concomitantly occur with age-related sarcopenia in senior patients who make up a large majority of cancer patients for whom cancer is the number one cause of death.

The NCCN Practice Guidelines for Senior Adult Oncology, revised in 2007, recommended a comprehensive assessment for frailty based on patients having three or more of five criteria -- unintentional weight loss, self-reported exhaustion, weakness for which one measure is grip strength, slow walking speed and low physical activity. This suggests that positive results of a cancer cachexia trial may provide even more insight into sarcopenia of aging.

Regarding the product candidates from our preclinical pipeline, GTx-758 and GTx-878, preclinical work continues to support the initiation of Phase I clinical trials next year. GTx-758 is an oral LH inhibitor for advanced prostate cancer, which has the potential to lower testosterone to castrate levels, but without many of the estrogen-related side effects of current LHRH agonist therapies. We expect GTx-758 to enter clinical development in the first quarter of 2009.

Our other preclinical candidate, GTx-878, an estrogen receptor beta agonist, potentially represents a new approach to treating BPH. Existing BPH treatments either shrink the prostate size or relax prostate smooth muscle. In animal models GTx-878 has shown a triple mechanism of action. It shrinks the prostate size, relaxes prostate smooth muscle and is antiinflammatory. We expect GTx-878 to enter Phase I clinical testing in 2009.

Now I would like to turn the call over to Marc Hanover.

Good morning. The details of our financial results for the second quarter of 2008 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 was $13.2 million, compared with a net loss of $9.2 million in the quarter a year ago.

Revenue for the second quarter of 2008 was $3.0 million, compared to $1.8 million for the same period last year. Revenues for 2008 included $274,000 of net sales of Fareston and $2.7 million of collaboration income from our partners Ipsen and Merck.

Research and development expenses were $10.4 million and general and administrative expenses were $6.4 million for the three months ended June 30, 2008, compared with $8.6 million and $3.6 million for the second quarter of 2007, respectively.

At June 30, GTx had $118.0 million in cash, cash equivalents and short-term investments. GTx has the potential to add to this cash balance through the realization of near-term collaboration milestones, which the Company may receive from our partners Ipsen and Merck. GTx has no debt and no warrants.

I will now turn the call back to Mitch.

Thank you, Marc. We have a busy calendar of events ahead of us. Let me share some specifics in the order in which we expect them to take place.

We plan to release our results on the Phase II cancer cachexia study in late September, early October. We anticipate filing our new drug application for toremifene 80 mg with the FDA in the fall, following our pre-NDA meeting with the FDA in October. We expect to hear from the FDA, 45 days after filing, whether toremifene 80 NDA will receive priority or standard review.

Our efficacy analysis of the toremifene 20 mg Phase III PIN clinical trial should occur in the second quarter of 2009.

We are excited about the many opportunities we have to generate revenue and we look forward to updating you on our progress.

Operator, we're now ready to take questions.

(OPERATOR INSTRUCTIONS) Joel Sendek, Lazard Capital Markets

Hi. Thanks a lot. So I have two questions, the first is on the filing. I was expecting the filing a little bit earlier, but is the issue that you have to meet with the FDA and you couldn't get a meeting and my other, related question is have you had a meeting already with them?

Okay, are those your two questions?

I guess I have another one after that, but --.

Okay. Well, I'll answer that question and we'll take the second question.

Okay.

The answer is we're ready to go, but it would be foolish to have a -- to file your NDA without a pre-NDA meeting and as you know, the FDA has been kind of busy and we've been working aggressively to get on their schedule.

So we are officially scheduled for an FDA meeting, pre-NDA meeting with the FDA in October. And as you know, that meeting is primary a box-checking meeting in the sense that you meet with the FDA to make sure that you have all the studies and all the components of those studies that are going to be required for the review.

And so we do plan to file electronically and we've been working on it for the last 18 months and as you know, we own the NDA for Fareston 60 mg. We've been able to heavily cross-reference that. So, really, it's sort of an FDA scheduling thing and being prudent about making sure we meet with the FDA before we file.

Okay, great. The second question has to do with the sarcopenia. You indicated that it's maybe the same size as one marketed as osteoporosis, which is quite a bold statement, I think. I'm wondering does Merck share that view and what's the served market as far as revenues? I'm assuming that you're talking about incidence of disease, but do you know what the served market is, as far as product sales or what people use for that right now?

Yes, Joel, let me answer the first question and the first part of that for sure. Merck definitely sees this as very opportunistic. We purposefully are not stating market size right now, because we don't think it's appropriate at this point but we are linking it.

In order to kind of work our own, do our own diligence here and the diligence that has been conducted on market research through the relationship with Merck and GTx, its very clear to us that it is the size of the osteoporosis market, perhaps maybe even a little bit bigger. But we're purposefully not going into numbers, at this point, until we get a little bit further along.

Just to give you more clarity on how we view, how it's viewed, sarcopenia sometimes is called frailty and frailty is the muscle loss that occurs with aging. And interestingly, the muscle loss that occurs with aging can also lead to not only loss of independence and mobility and that kind of stuff, but also to falls.

And the thought here is that, as we age, there is going to be a subgroup of patients just like in osteoporosis, just like in bone loss, where you have to say, well, is bone loss a disease. No, bone loss is not a disease. We all lose bone as we get older. When it becomes a disease is when you lose enough bone to become osteopenic, which is about one standard deviation away, or osteoporotic, which is about two standard deviations away. And if you're osteoporotic you're more likely, with a standing fall, to break a bone.

Same thing here. One standard deviation away of muscle loss, does that cause functional impairment? Two standard deviations away of muscle loss, does that lead to increase in morbidity and mortality, hospitalizations, loss of independence, physical limitations? That's kind of what's being explored.

As you can see with a baby-booming population that wants to be more active and more of us living into our 80's, 90's and beyond, this could be a potentially large market.

Okay, thank you very much.

Thank you, Joel.

Meg Malloy, Goldman Sachs

Meg?

Can you hear me?

Yes we can hear you, go ahead.

Sorry about that. Yes, thanks, two questions. First is could you elaborate on what specifically you're seeking in the label for ADT? Is it simply bone fracture or are you planning to include the secondary measures in the label? Second, could you talk about your activities or planned activities concerning commercial preparedness, particularly if you are successful getting a priority review? Thanks.

Very good. Thank you, Meg. So the first part of the question is what do we envision the label for ADT looking like. Let me tell you what I think we know and then I'll go through what we don't know.

What we do know is that the primary endpoint of the study was prevention of fractures in patients with ADT. We hit that primary endpoint and that's going to be the indication. Other things will be bone loss, which was pre-specified and things that are not as clear are going to be things like gynecomastia, hot flashes and lipid changes.

We do believe that lipid changes, the beneficial effects of lipid changes will be in the safety component of the label. We do believe that the gynecomastia will be in the safety component of the label. Hot flashes will appear in the AE table. And there are going to be other things that we'll be reporting on as we move towards the fall and some of the scientific meetings that we hope will give some additional safety information that could be differentiating us from other products.

So the way we look at it is this is a first good step, because the way we would grow this commercial opportunity is take advantage of the proof of concept data that we got in this Phase III study and expand it into a separate Phase III gynecomastia study. A separate Phase III hot flash study, and potentially, a next Phase III that may be involved with what happens with bone loss less than six months on ADT.

The reason that's important is that the markets for those are not necessarily ADT only. So, for example, if you're looking at hormonally-induced gynecomastia, you'll be dealing with LH-RH agonist patients, but you potentially can also be dealing with patients that are on Casodex monotherapy, which is an anti-androgen, and about 80% of those patients develop gynecomastia.

So we see these Phase III as not only confirming these secondary endpoints that were met in our Phase III ADT trial, but we also see as expanding and generating, essentially, an expanded label, expand indications for the label as we going forward.

For the second question, which is how do we stand, from a standpoint of commercialization, are we ready to go, I'm going to turn it over to Marc Hanover.

Yes, so, Meg, just -- and I'm glad you asked the question, because we've been very, very fortunate secure several key members of our commercialization team. And in fact, we now have, as you know, and as most of our investors know, that we have had a gentleman by the name of Greg Deener, who is involved in the -- who's been with our Company for over four-and-a-half years, almost now five years, who heads up our sales and marketing efforts.

But, specifically, we've now added a gentleman from GSK who was involved in Boniva, who has years of experience in the areas of our interest, who's heading up our marketing and managed care effort. We've secured a director-level position for managed care from an individual who's been with Organon for 27 years.

We also hired a gentleman who most recently was at Warren Chilcott running their -- the head of sales for the derm division. Before that, GSK, working in the areas of our interest, to head up our sales effort. And we just most recently secured a key member of the team to head up our sales operations who was working for about, I think, 12 to 13 years at Schwarz Pharma, who really knows that the guts of the sales operations effort.

And we're continuing to really see some excellent talent come our way and be interested in working with GTx and we're actually, a couple hires, quite frankly, we weren't anticipating looking to hire until October or November. But we've had the opportunity to secure several very key managed care field people and we're looking to do that, to go ahead and bring them in sooner rather than later, just because we don't want to miss out on the talent.

In addition to all that, we recently hired a 16-year Pfizer veteran in the area of medical affairs. And also, with inside the -- who has had experience in the urology field. So we are extremely excited about our talent that we're putting together and we're looking forward to our commercialization efforts.

And could I just follow-up on that , Marc, just in terms of the size of the actual field force to address medical oncologists -- the urologists,

Right.

And what the timing would be for that bigger expansion?

Yes, good question. I'm glad you prompted me to say that. Like I said, I'm excited about the key members that we've put into place. We will not be putting together our salesforce, which we anticipate having to be the size of roughly 50 to 70 reps, we will not be putting that in place until after we get our action letter from the FDA.

But we continue to see some really good talent. In certain spots we may hire when we feel like we have the opportunity to do so, but in terms of the real ramp, we won't see that till next year.

The other thing to add is that our market research has made it very clear that the gatekeeper is the urologist. And that's kind of changed a little bit, in some ways, our strategy, because originally we wanted to make sure we hit the urologists and some of the key medical oncologists.

But it may be more strategic and taking advantage of the fact that 90 to 95% of these patients are still under the care of the urologist and that's probably where we need to focus and then move in further.

Yes and frankly, I think that's a good thing, Meg, because the target population of urologists are roughly 5,000 docs. And just over the last nine years, we've had the opportunity to work with probably, I don't know, 1,500 docs just by virtue of the fact that they've been running our Phase II's, our Phase III and PIN and ADT, respectively. So I really feel good about the opportunity in the space that we're going after, especially with this team.

Thanks very much.

Thank you, Meg.

Aaron Reames, Wachovia Capital Markets

Thanks for taking my question. I was wondering if you could just talk about the patient stratification in the Ostarine cachexia study, just giving the different stages of patients that are allowed in and then the heterogeneity of the cancers?

Yes. Thank you. So the question, basically, is a little bit more about the composition of the patients in the trial. We try to, in the beginning, make sure that we had a balanced randomization and so, basically, what that means is you didn't want to have unbalanced cancers represented in the placebo or the treatment arm.

The patients all had to have at least a six-month or more life expectancy. Their ECOG score had to be zero or one. They had to have demonstrable weight loss and on average, the weight loss was 5.0% or greater.

We made sure that the lung cancer patient population represents approximately 25%, 28%. Colorectal is about 25%, 28%. And Non-Hodgkin's Lymphoma and CLL was about in that same range or maybe a little less and then breast cancer was even really a small minority of patients. So, but they are balanced, from the standpoint of randomization for lung cancer and colorectal cancer and Non-Hodgkin's Lymphoma.

The stratification -- well, take a step back. The trials, the endpoint is for all patients and looking for an increase of at least 1.0 kilogram for all patients, totaling body mass. There will be additional stratifications done by -- there's a whole series of different stratifications, but the most obvious ones are going to be gender and also cancer type.

Okay, thank you.

Mike King, Rodman & Renshaw

Eric Schmidt, SG Cowen & Co.

Good morning, guys. Mitch, do you have meeting in mind, a medical meeting in mind for the full presentation of the ADT data that are this year?

Yes. So the first question is -- well, there's two kinds of -- there's two sets of data that we have to deal with. The first one would be the full data set, which we'll be presenting at one of the major scientific meetings. As you know, this fall is when you submit your abstracts for review and then it'll be early part of next year that you'll be able to actually present those data set.

There is another meeting that will occur this fall. I believe it's a Cancer Supportive Care meeting in which we're going to announce some very interesting that data that will further differentiate GTx from our competitors. And so that's under review now and hopefully, we'll be able to -- we'll put a press release out after, as we get closer to that meeting and actually present the data then.

So what we have in mind is a subset of data that I think is going to be very interesting and consistent with the mechanism of toremifene this fall and then second half of next year will be the usual scientific meetings.

Second half of next year or first half?

Sorry, first half, first half.

That's ASCO Prostate that you're shooting for or ASCO-ASCO?

We're going to shoot for ASCO Prostate. Obviously that would make sense. Because that's now called ASCO Genitourinary Cancers, we'll do that one and that would be sort of the main focus right now and other things. We're right now in -- right now medical affairs is working through sort of the publication and abstract strategy. So all I can say is that we do plan to have data to present first half of next year, but more importantly is look for the data that's going to be coming out this fall.

Okay and Marc, you mentioned a couple of potential milestones in the near-term from either Merck or Ipsen. Could you just review what the next earnable milestones would be from GTx's standpoint?

Right. So, Eric, I mentioned that because, as you know from the Ipsen relationship, we've already received a small amount, but nevertheless it was a scheduled milestone payment earlier in this year, as a result of having the positive Phase III ADT data.

We, along the way, can achieve getting milestone payments. As an example or hypothetical, would be, for instance, after we receiving approval from the EMEA regarding with Ipsen. There's other options along -- other opportunities along the way as well, all of which are very important and meaningful to our balance sheet.

As it relates to Merck, clearly, as our relationship continues to advance, we have a host of trials going on, which makes the Merck/GTx relationship very, very exciting. And quite frankly, the opportunity to get milestones there really depend on initiation of additional studies as we move forward in the relationship, all of which should, in my mind, take place within, I'd classify it, as near-term. However you want to classify it, but definitely in meaningful dollars in a 12-to-18 month window.

Okay, thanks and last question is on Ostarine or I guess what you're calling MK-2866. I understand that the focus of the Merck collaboration and SARMs now is clearly on sarcopenia, but are you still planning on filing for FDA approval and then indication in cachexia, either for Ostarine or any other compound? Or is this Phase II study now just kind of a proof of concept that leads you into a greater sarcopenia trials?

It's actually the former and that is that, if this trial is successful, then there's every hope that we would move forward with additional studies to support an indication. So it's not just get this trial done and then shut it down and focus on sarcopenia.

But, now having said that, there are many other indications that we're looking at and so we just have to make sure that whatever indication we go after that the market is there, the path is there. But at this point, now, cancer wasting looks very promising.

Great. Thanks a lot.

Thank you.

Mike King, Rodman & Renshaw

Good morning, guys, thanks for taking my question. Marc, just a quick question on a housekeeping basis, can you just talk -- I assume it's a timing issue. But why was R&D down sequentially and I know SG&A up sequentially by $4.0 million and $2.0 million respectively?

Yes. So, Mike, the R&D number and G&A number obviously it is timing. Let's start from there. We still feel very comfortable about meeting our projection of being between the $52 million and $62 million number for our guidance for this year, in terms of our loss. But really there, in terms of R&D, we continue to pay for the supporting trials for and all the effort related to our NDA prep, for PIN and our pipeline and of course the additional salaries related to regulatory medical affairs.

On the G&A front, we've been very fortunate with some of these key leadership hires in that we feel very lucky to have gotten these people and look forward to leveraging that to being more prepared for our launch. So I think it's timing, as it relates to the spend in terms of the ramp. I do expect G&A and excuse me, yes, R&D and G&A to increase in the second half of the year, but I still believe we will be within the guidance of $52 million to $62 million as we stated.

Okay, appreciate the clarity there. And then on the Ostarine Phase II, could you just talk a little bit more about the trial, two questions related to the primary? Why was the primary chosen as it is? What's the significance of 1.0 kilogram in lean body mass?

And second, are the secondaries powered that we'll see statistics done on those or are we going to just see sort of numerical comparisons?

Yes. So the trial is actually the total -- the primary endpoint is lean body mass and you have to kind of throw yourself back to the days of HIV wasting and the trials that were done there. Initially, weight gain was acceptable and then it became clear that weight gain could be water weight, it doesn't necessarily have to be muscle weight.

The good weight that you want to get is muscle, because muscle is where you have your protein stores. Its muscle that create the enzymes and its muscle that, quite frankly, when you get below a 60%, 65% muscle threshold, like the starvation in concentration camp people, you die. And so muscle is more of an indicator of how well you're going to do than either fat or total body weight.

So the FDA moved in the direction in the HIV patients of looking for lean body mass and then, finally, they said, you know what, we need to also add in performance of some sort. So the grip test, the bicycle test, that kind of stuff. Where we end up, then, is for muscle wasting in cancer is that lean body mass is much more significant in terms of outcomes than weight and that a performance measurement of some sort will help you understand what the clinical benefit is to the patient.

So just increasing muscle mass is good, but increasing muscle mass with a benefit in some kind of physical limitation or performance would be what the patient would experience. And it would make sense that, if you an increase in lean body mass and more muscle, that somehow, some way that's going to translate into performance benefit.

So the way to think of it is that lean body mass is about 60% of weight, so when you talk about a 1.0-kilogram increase that's a pretty significant increase, if you look. And the other reason we picked 1.0 kilogram is because that is what our key experts, key opinion leaders have told us is the clinical hurdle that we need to reach, in order for this to be considered a meaningful increase in total lean body mass.

To remind you, in our Phase II sarcopenia trial, which we did in both men and women, 120 elderly men and postmenopausal women, we achieved a 1.4 kilogram increase at three months and this is a four-month study. So hopefully we'll beat the 1.0 kilogram; so that's where that came up.

Now the statistics are all around the primary endpoint, which is lean body mass, and that's how the trial is powered. As you know, performance measures tend to be a little bit more variable and so we'll look at that as a secondary endpoint and help us power our Phase III. If we hit statistically in our secondary endpoints that'll be wonderful. But if we can get strong trends that will let us know whether our affect size should be in a Phase III or a Phase IIb, or an additional Phase II, that'll be useful.

Is there any correlation either by amount of muscle added or a time from increase in muscle mass to some kind of clinically beneficial outcome?

The studies would suggest that lean body mass does correlate with physical performance. Interestingly, if you read the literature, you'll have a -- as people gain muscle, especially with a compound like a SARMs or testosterone. There tends to be an increase in strength before you see an increase in lean body mass.

So, in other words, somehow some way the sarco mirrors in these cross fibers are starting to be built before you can actually measure lean body mass changes and so strength comes first, then muscle mass and then, hopefully, as you get muscle mass and more strength. And so it's not unusual to see strength occurring before muscle mass. What's going to happen in this patient population, no ones really studied them the way we have.

There's been some [oxangelone] studies and most recently one was reported at ASCO where they showed an increase in lean body mass in cancer patients using oxangelone. And so the proof of concept is out there that an agent that can build using the androgen receptor, such as a steroidal synthetic testosterone or testosterone. So the proof of concept is out there and what we're going to hopefully be able to do is better define what the appropriate performance measurement will be.

Okay, fair enough and then not to -- just one quick question in closing on ADT. Why is this -- is this a de novo NDA? Why is it not a supplemental?

It's a technicality. We are referencing it just as much as a supplemental. But one of the things that we wanted to make sure that we did is -- as you know, Fareston was approved in 1998 and we wanted to make sure that all of the safety and labeling requirements for 2008/2009 are in place.

And so it's a technicality, from a timing standpoint and from a practicality standpoint. This de novo NDA is basically a heavily referenced NDA. So I wouldn't even call it a de novo NDA and because all of those components, including CMC for the 60 mg are already available to the FDA.

Okay, but --.

So it's just a technicality, as opposed to it has to do more with the kinds of things that you submit to the FDA. But we're going to submit an electronic one and like I said, it's going to be heavily referenced to the original NDA and according to our regulatory people, you can call it what you like, but essentially it'll be treated the same way as a supplemental. But it'll have more information, therefore it's more like so the features are both.

Understood. Thanks so much.

Thank you.

Lucy Lu, Citi

Great, thank you, good morning. It sounds like from the press release that you and Merck are picking a different SARM molecule for sarcopenia. Can you just talk about the timeline of the program? And also, can you please remind us how you share your R&D costs with Merck on the SARM program? Thanks.

Sure. So the first impression is that from the press release you gather that they're going to pick a different molecule to go forward in sarcopenia and that's incorrect. At this point now, Ostarine and some of their internal compounds are being evaluated. No compound has been selected to going forward in sarcopenia at this point. We're just evaluating all of them.

So, to say that Ostarine would not be --to say it differently, Ostarine is not the one to going forward, I couldn't say that either. So probably the best way to say that is that we'll continue to gather data, both on Ostarine and other molecules.

As you know, Merck had their own molecules that were already in clinical trials. We had our compounds that had finished clinical trials and also in other clinical trials. So, as you would imagine, we're going to look at all the data and pick the best molecule to going forward and since most of these molecules are in the Phase II range, we're pretty much where we are with Ostarine in the Phase II range.

From a standpoint of economics, of course GTx basically gets the same economics, whether it's a Merck compound or it's our compound going forward. So it really doesn't matter; from a financial standpoint we just want the best one based on science to going forward.

As it relates to R&D GTx, Merck picks up all of the R&D costs going forward, as well as commercialization costs. So GTx really doesn't have to reach into its pocket for another red cent to move these programs forward and we do get -- in addition to that, we do get some, basically a research payment of $5.0 million annually for three years. That is sort of a guaranteed payment, so that's in the valuation of funding as well.

So, again, Ostarine, as good a chance as any of the other molecules that go forward. No change there, please. I'm sorry if the press release gave you an impression that they've picked a different one. No, that's not true and then finally, R&D going forward is picked up by Merck.

And so, Mitch, when would you have basically an idea -- like how you move sarcopenia into Phase III? When would you -- what's the timeline in terms of picking a compound and actually have some kind of clinical trial and regulatory strategy for sarcopenia?

It's a great question and we're evaluating that with Merck right now. It's a little bit more complex. And as soon as we have more clarity on what the length of a Phase IIb program or Phase III program will look like and what the patient population that we go after, that will all influence timelines, number of patients and that kind of stuff.

And we're all still in the preliminary phases of that. There's a lot of work being done, so I don't want to give you the impression that no work has been done. In fact, so much work has been done that we just want to make sure we make a good decision.

One of the things beauties of having Merck as a partner is they've done a tremendous job gathering the information, key opinion leaders, market research, regulatory, complimented with our same information. And so, together, I think, if anybody is going to move this thing forward, its going to be Merck/GTx.

Okay, thank you.

Thank you, Lucy.

And your next question comes from the line of Jonathan Eckhardt with Leerink Swan. Please proceed.

Hi there. This is actually Howard Liang. I'm from Leerink Swann. Mitch, can you give us a sense of the nature of the additional data on ADT that provides clinical differentiation or do we have to wait for the medical meeting?

Is this Jonathan or Howard?

This is Howard.

Hey Howard. The answer is I really can't share with you the nature of the information, because that would not be helpful from a standpoint of getting it reviewed and accepted and that kind of stuff. Let me just say that it will definitely differentiate us from our competitors and I'm excited about the data and that's why we want to make sure its in a peer reviewed forum before we present it.

And it will enhance the portfolio. So, for example, what makes us unique right now is it's oral, it sure treats, basically prevents fractures, but more importantly, that we hit these other secondary endpoints all estrogen-related, and that we could do additional studies to support that.

So it's more than just proof of concept. It's proof of concept plus allowing us additional expanded indications, so tremendous commercial value, as we roll it out into other areas beyond ADT.

Okay, great and then if I could ask you also about the pricing assumption for Acapodene under two scenarios, either with one approved indication in ADT or two indications in ADT and PIN? I guess the reason for that, for my question, is that I'd assumed as for PIN that you would be able to have greater pricing, but it'd be lower dose. First, if that's the right understanding and how would you solve that, other than simply having to brands?

Yes, so, Howard, it's a good question. First of all, again, we've done extensive market research on the pricing and as it relates to the 20-mg elasticity, I guess if you want to call it that, from a pricing projection standpoint, clearly there's an opportunity there to have a higher price than the 80 mg.

However, having said that, we are finding that based on the data and based on what we have as -- what we hope to have, I guess I should say, is our label for ADT. We actually believe that we're going to get to the higher end of our pricing projection for ADT as well. So, after we understand what our label is, we'll have a better answer to be able to address this strategic question that you have, that you presented.

It would be very opportunistic for us to be able to price at the same price. And certainly if that price is, let's just say more than what we expected, and it would be the same for both PIN and ADT, it would certainly be significantly more than our models have reflected so far. And in fact, our models reflected a $2.50, $3.00 price on the PIN trial and $5.00 for the ADT.

And again, I can't really comment on the certainly until we understand our label and we go down the road a little bit here in terms of doing our pricing diligence. But it certainly would give us the confidence to be able to have a higher price.

If I could -- just to clarify, did you say $2.00 to $3.00 for ADT or PIN?

No, $2.00 to $3.00 -- our original models were basically $2.50 to $3.50 per pill per day on the PIN trial and on the ADT it was $5.00. So that was what our orginal models were, when we were going through our commercial models in preparation and all that. I do believe that there's a great possibility that we'll be able to see a higher price. But again, I can't really go through that until we understand and analyze all the diligence on the pricing, get our label, etc, etc.

Certainly the scientific data would support that.

Absolutely.

From the standpoint of our payors and giving that we now have these key managed care individuals on staff.

Right.

They're providing us additional guidance that gives us even more confidence in our approach.

Right.

Great. Thank you very much.

Thank you, Howard.

Mike King, Rodman & Renshaw

Thanks for allowing me the follow-up. Mitch, can you comment on HG PIN? I know we've been through this before on the previous conference call, but just remind us again what higher than expected power is to detect the difference in the two arms of the trial? And is this -- if we don't see a results in the first half of next year, is this over and done with? Or will we try to track the curves out to some future point or pull it for futility?

Yes, great question. So the first part of the question is basically kind of what are we expecting going forward. As you know, the trial has a total alpha of 0.01. We spent 0.001 in our interim analysis, which leaves the alpha at 0.009.

So, when I tell you that we believe that if this is anything like our Phase IIb where we hit a 22% reduction -- and let me remind you. The 22% reduction includes the missed cancers, so we fully let just -- FDA doesn't care of you have a missed cancer or not. You've got to -- every patient that gets treated, every patient that has prostate cancer, that's how the curves have to differentiate.

If we're at a 22% reduction, our power is going to be well above 90% and we can get as low as about a 19% reduction and still hit our statistical alpha. With that said, you say well, Mitch, is that still significant? Well let's think about that. A 22% reduction in a three-year study is the average of biopsy one, biopsy two, biopsy three. You still could have, at year three, a 48% reduction and but the Caplan-Meyer curves will have time to the event as the P-value. With that said, let's say the 22% reduction is, in fact, what we get at year three. Well, the PCPT trial had a 24% reduction at year seven, so even a 22% reduction at year three is clinically significant.

To answer your question if we don't see what we need to see in the second quarter of next year will we just kind of hang the trial up and not worry about it, the answer is no. For safety reasons we want to complete the trial, get every patient through and we'll reevaluate the data and depending on the compelling nature of the data, that will determine whether we move forward with the FDA anyway.

But, at this patient now, we're confident that if this is anything like our Phase IIb, and in very few prevention studies we'll actually do a Phase IIb and do a dose-finding like we did and that's what gives us even more confidence. Especially with an endpoint like cancer, as opposed to pain and whether it goes away or not, we didn't use a surrogate endpoint. We used the exact endpoint.

So our feeling, at this point, is get the data second quarter next year and if it doesn't hit, we're not going to hang it up. We're going to let the trial complete and then reassess.

Okay and then I just wondered if the PCCP (sic - see press release) if the rereads on the biopsies has caused you to think about how they're being done in the HG PIN trial?

Yes, well, it turns out that the finasteride had affected -- remember, finasteride affects BPH and so the trouble with the PCPT trial is they had to explain away a couple of issues.

One was the fact that more cancers that were more aggressive were picked up in the finasteride arm. The explanations are everything from artifact to, well, you got rid of the normal tissue, which meant that the cancerous tissue, which doesn't respond to finasteride, was more prevalent. And therefore you're more likely to pick it up on your needle biopsy.

And then the third confounding factor was they changed the way the Gleason score was being read early on. It was sort of a modified Gleason score and then they came back and reread it. I think at the end of the day it's not what they found, because I think what they found really helps GTx.

What they basically said is that hormonal therapy of the prostate ended up in prevention of prostate cancer. And all the most effective therapies for breast cancer and for prostate cancer have been hormonally based and so it's no surprise that toremifene, which is a hormone effective in breast cancer, would have an activity in prostate cancer.

What's different is the patients that we've picked to put into this study. So in the PCPT study, they picked patients with BPH, normal prostates, normal digital rectal examinations, PSAs had to be low and so there really were at low risk. In our situation, we picked patients that most likely had elevated PSAs; that had high grade PIN, so they have a premalignant lesion. And so, really, it's your ductal carcinoma insitu of breast cancer, if you will, that we went after.

Okay.

And so we do think that it'll differentiate us, that the patients will be more motivated and that's why we're seeing more events now. And hopefully we'll be able to differentiate ourselves from a standpoint of a bigger reduction when we look again in the second quarter of next year.

Understood. Thanks very much.

Thank you, Michael.

Ladies and gentlemen, this now concludes the question and answer session for today's call.

Thank you, operator. We would like to thank you all for your interest in GTx and we look forward to updating you on our progress. 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. Good day.