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SECURITIES AND EXCHANGE COMMISSION
Amendment No. 2
GTx, Inc.
| Delaware | 2834 | 62-1715807 | ||
|
(State or other jurisdiction of
incorporation or organization) |
(Primary Standard Industrial
Classification Code Number) |
(I.R.S. Employer
Identification No.) |
GTx, Inc.
Mitchell S. Steiner, M.D., F.A.C.S.
Copies to:
|
Robert L. Jones, Esq.
Suzanne Sawochka Hooper, Esq. Cooley Godward LLP Five Palo Alto Square 3000 El Camino Real Palo Alto, CA 94306 (650) 843-5000 |
Leigh Walton, Esq.
Robert J. DelPriore, Esq. Bass, Berry & Sims PLC 100 Peabody Avenue Suite 950 Memphis, TN 38103 (901) 543-5904 |
David E. Redlick, Esq.
Peter N. Handrinos, Esq. Hale and Dorr LLP 60 State Street Boston, MA 02109 (617) 526-6000 |
Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. o
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. o
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the SEC, acting pursuant to Section 8(a), may determine.
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|
The information in this
preliminary prospectus is not complete and may be changed. These
securities may not be sold until the registration statement
filed with the Securities and Exchange Commission is effective.
This preliminary prospectus is not an offer to sell nor does it
seek an offer to buy these securities in any jurisdiction where
the offer or sale is not permitted.
|
Subject to Completion. Dated December 22, 2003.
Shares
Common Stock
This is an initial public offering of shares of common stock of GTx, Inc. All of the shares of common stock are being sold by the company.
Prior to this offering, there has been no public market for the common stock. It is currently estimated that the initial public offering price per share will be between $ and $ . Application has been made for the quotation of the common stock on the Nasdaq National Market under the symbol “GTXI”.
See “Risk Factors” on page 7 to read about factors you should consider before buying shares of the common stock.
Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.
| Per Share | Total | |||||||
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|||||||
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Initial public offering price
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$ | $ | ||||||
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Underwriting discount
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$ | $ | ||||||
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Proceeds, before expenses, to GTx
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$ | $ | ||||||
To the extent that the underwriters sell more than shares of common stock, the underwriters have the option to purchase up to an additional shares from GTx at the initial public offering price less the underwriting discount.
The underwriters expect to deliver the shares against payment in New York, New York on , 2004.
| Goldman, Sachs & Co. |
Prospectus dated , 2004.
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PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus which we consider important to investors. You should read the entire prospectus carefully before making an investment in our common stock.
Our Business
GTx is a biopharmaceutical company dedicated to the discovery, development and commercialization of therapeutics primarily related to the treatment of serious men’s health conditions. Our drug discovery and development programs are focused on small molecules that selectively modulate the effects of estrogens and androgens, two essential classes of hormones. We currently have two product candidates that are in human clinical trials. We are developing Acapodene, our most advanced product candidate, through clinical trials for two separate indications: (1) a Phase IIb clinical trial for the reduction in the incidence of prostate cancer in men with precancerous prostate lesions and (2) a pivotal Phase III clinical trial for the treatment of serious side effects of advanced prostate cancer therapy. Phase IIb clinical trials typically evaluate efficacy and safety and determine the optimal dosing regimen. Pivotal Phase III clinical trials typically further evaluate efficacy and safety in an expanded patient population. We are initially developing our second product candidate, Andarine, for the treatment of potentially life-threatening muscle wasting weight loss from various types of cancer. Andarine is the most advanced of our internally discovered portfolio of compounds designed to modulate the effects of hormones.
We plan to build a specialized sales and marketing capability to market our product candidates directly to the relatively small and concentrated community of urologists and medical oncologists in the United States and to seek collaborators to commercialize our product candidates outside the United States and to broader target physician markets.
Acapodene for the Reduction in the Incidence of Prostate Cancer in Men with Precancerous Prostate Lesions
Prostate cancer is one of the most commonly diagnosed cancers in men and the second leading cause of cancer-related deaths in the United States. We believe that treating the precancerous lesions of prostate cancer known as high grade PIN may be an effective approach to this disease. In the United States, there are over 115,000 new cases of precancerous prostate lesions diagnosed each year, and an estimated 9.4 million men unknowingly harbor precancerous prostate lesions. As there is currently no therapy for the treatment of precancerous prostate lesions, we believe this represents a significant unmet medical need.
A planned interim analysis of the first 120 patients in our Phase IIb clinical trial of Acapodene for the reduction in the incidence of prostate cancer in men with precancerous prostate lesions showed that treatment with Acapodene resulted in a 26% to 57% reduction in the incidence of prostate cancer compared to the placebo group 12 months after the diagnosis of precancerous prostate lesions. While these interim results do not necessarily predict favorable results from this trial or any future trial, we believe that the results of this interim analysis suggest that Acapodene may be effective in reducing the incidence of prostate cancer in men with precancerous prostate lesions. The last of the 515 enrolled patients is scheduled to complete this trial in May 2004, with final results expected in the third quarter of 2004. We believe that this Phase IIb clinical trial of Acapodene together with a single pivotal Phase III clinical trial will be sufficient to support an application with the FDA for marketing approval of Acapodene for this indication.
Acapodene for the Treatment of Side Effects of Advanced Prostate Cancer Therapy
The standard medical treatment for men who have advanced, recurrent or metastatic prostate cancer is androgen deprivation therapy, which reduces blood levels of testosterone, the growth factor
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We have completed two six-month Phase II clinical trials of Acapodene for the treatment of osteoporosis and hot flashes in men receiving advanced prostate cancer therapy. Phase II clinical trials are typically conducted in a limited population to evaluate dosage, safety and, preliminarily, efficacy for a specific indication. The first Phase II clinical trial evaluated the use of Acapodene shortly after initiation of therapy, and the second Phase II clinical trial evaluated Acapodene in patients who had been receiving therapy for more than 12 months. The analysis of the second trial showed that Acapodene at the highest tested dose produced an increase in bone mineral density, an indicator of bone strength, and a reduction in the frequency of hot flashes. Our pivotal Phase III clinical trial for this indication, which we commenced in November 2003, is principally based on the results of the second Phase II clinical trial. The Phase III trial will evaluate the effect of Acapodene on the incidence of skeletal fractures as well as on bone loss and the incidence of hot flashes and breast pain and enlargement. The increase in bone mineral density and reduction in the frequency of hot flashes observed in the second Phase II clinical trial are not necessarily indicative of the results that will be demonstrated in our pivotal Phase III trial.
Andarine for the Treatment of Muscle Wasting Weight Loss from Cancer
We believe that Andarine has the potential to treat a variety of men’s health conditions, including testosterone deficiency in aging men and related diseases, including osteoporosis and muscle wasting. Our strategy is to develop Andarine initially for the treatment of muscle wasting weight loss from various types of cancer, which is known as cancer cachexia. We selected this indication because it represents a potentially large market and, we believe, has a relatively well-defined clinical and regulatory process. There are approximately 1.3 million patients diagnosed with cancer each year in the United States. Muscle wasting weight loss afflicts approximately one-third of newly-diagnosed cancer patients. There are no drugs that have been approved by the FDA for the treatment of muscle wasting weight loss from cancer.
We have completed three Phase I clinical trials of Andarine in which Andarine was well-tolerated by all participants with no serious adverse events. Phase I clinical trials are designed to confirm safety and tolerance. In one of these Phase I clinical trials, we measured increased levels of a growth factor in the blood of some men who received Andarine, which suggests that Andarine may promote growth activity and thus may be an effective treatment for muscle wasting weight loss from cancer. However, these early observations are not necessarily indicative of the results that will be demonstrated in future clinical trials. We plan to commence a placebo-controlled, dose-finding Phase II clinical trial of Andarine for the treatment of muscle wasting weight loss from non-small cell lung cancer in the first half of 2004.
Pipeline
We have multiple product candidates that we are evaluating in preclinical and toxicology studies to support the possible commencement of clinical trials. We are developing our current preclinical product candidates for the treatment of major indications in men’s health, including:
| • | Prostarine for the treatment of a benign prostate enlargement that results in obstruction of the urinary tract; | |
| • | Ostarine for the treatment of osteoporosis and testosterone deficiency in aging men; and | |
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| • | Andromustine for the treatment of prostate cancer that is not responsive to androgen deprivation therapy. |
We believe that our drug discovery capabilities position us well to sustain our clinical pipeline through the design and development of nonsteroidal small molecule drugs that modulate the effects of hormones.
Early Stage Company
All of our product candidates are undergoing clinical trials or are in early stages of development, and failure is common and can occur at any stage of development. To date, we have not obtained regulatory approval for the commercial sale of any products, and we have not received any revenues from the commercial sale of products. For the nine months ended September 30, 2003, our net loss was $9.6 million, and as of that date, we had a deficit accumulated during the development stage of $144.9 million, of which $110.6 million related to non-cash dividends and adjustments to the preferred stock redemption value. We do not expect any of our product candidates, if successfully developed, to receive regulatory approval for commercial sale for at least several years. Any products that we sell may not become commercially successful.
Company Information
We were originally incorporated under the name Genotherapeutics, Inc. in Tennessee in September 1997. We changed our name to GTx, Inc. in 2001, and we reincorporated in Delaware in 2003. Our principal executive office is located at 3 N. Dunlap Street, 3rd Floor, Van Vleet Building, Memphis, Tennessee, and our telephone number is (901) 523-9700. Our website address is www.gtxinc.com. The information contained in our website is not a part of this prospectus.
Service marks, trademarks and trade names referred to in this prospectus are the property of their respective owners.
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The Offering
The number of shares of common stock to be
outstanding after this offering is based on the number of shares
outstanding as of September 30, 2003 and excludes:
Except as otherwise noted, all information in
this prospectus:
4
Common stock offered by GTx
shares
Common stock to be outstanding after the offering
shares
Proposed Nasdaq National Market symbol
GTXI
Use of proceeds
We expect to use the net proceeds from this
offering to fund our clinical trials and other research and
development activities and for general corporate purposes.
•
94,000 shares of common stock issuable upon
exercise of options issued under our current stock option plans,
at a weighted average exercise price of $50.77 per share; and
•
56,900 shares of common stock reserved for future
issuance under our current stock option plans
and shares
of common stock reserved for future issuance under our 2003
Equity Incentive Plan and 2003 Non-Employee Directors’
Stock Option Plan, which we plan to adopt before the completion
of this offering.
•
assumes no exercise of the underwriters’
over-allotment option;
•
gives effect to the conversion into common stock
of all outstanding shares of preferred stock and dividends
accrued thereon through September 30, 2003; and
•
gives effect to our reincorporation in Delaware,
which will occur before the closing of this offering.
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Summary Financial Information
You should read the summary financial information
below in conjunction with “Management’s Discussion and
Analysis of Financial Condition and Results of Operations”
and the financial statements, notes thereto and other financial
information included elsewhere in this prospectus. We derived
the information presented for the nine-month periods ended
September 30, 2002 and September 30, 2003 from
unaudited financial statements which include, in the opinion of
management, all adjustments, consisting only of normal recurring
accruals, necessary to present fairly the information for such
periods. The results for the nine-month period ended
September 30, 2003 are not necessarily indicative of the
results to be expected for the full fiscal year.
We computed pro forma net loss per share for the
year ended December 31, 2002 and the nine months ended
September 30, 2003 by using the weighted average number of
shares of common stock outstanding, including the pro forma
effects of the automatic conversion of our preferred stock and
dividends accrued thereon into shares of common stock effective
upon the closing of the offering as if such conversion occurred
on January 1, 2002 and January 1, 2003 or at the date
of the original issuance, if later. The calculation of pro forma
net loss per share attributable to common stockholders excludes
incremental common stock issuable upon exercise of options, as
its effect would be antidilutive.
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The following table presents a summary of our
balance sheet as of September 30, 2003:
6
Nine Months Ended
Year Ended December 31,
September 30,
2000
2001
2002
2002
2003
(unaudited)
(in thousands, except share and per share data)
$
2,679
$
5,744
$
9,285
$
6,408
$
7,123
1,203
2,187
2,405
1,830
2,339
80
215
332
240
264
3,962
8,146
12,022
8,478
9,726
150
83
156
105
79
(3,812
)
(8,063
)
(11,866
)
(8,373
)
(9,647
)
(297
)
(790
)
(2,147
)
(1,466
)
(2,300
)
(21,077
)
(57
)
(7,220
)
(7,147
)
(76,666
)
$
(25,186
)
$
(8,910
)
$
(21,233
)
$
(16,986
)
$
(88,613
)
$
(27.68
)
$
(9.79
)
$
(23.33
)
$
(18.67
)
$
(97.38
)
910,000
910,000
910,000
910,000
910,000
$
(6.81
)
$
(4.98
)
1,742,563
1,935,968
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•
on an actual basis; and
•
on an as adjusted basis to reflect the conversion
into common stock of all outstanding shares of preferred stock
and dividends accrued thereon through September 30, 2003
and the sale in this offering
of shares
of common stock at an assumed initial offering price of
$ per
share, after deducting the estimated underwriting discounts and
commissions and estimated offering expenses payable by us.
As of September 30, 2003
Actual
As Adjusted
(in thousands)
$
19,788
$
18,280
21,107
162,978
(144,891
)
(143,838
)
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RISK FACTORS
Risks Related to Our Financial Results and Need for Additional Financing
We have incurred losses since inception and anticipate that we will incur continued losses for the foreseeable future.
We are a development stage company with a limited operating history. As of September 30, 2003, we had a deficit accumulated during the development stage of $144.9 million, of which $110.6 million related to non-cash dividends and adjustments to the preferred stock redemption value. We have incurred losses in each year since our inception in 1997. Net losses were $11.9 million in 2002, $8.1 million in 2001 and $3.8 million in 2000. For the nine months ended September 30, 2003, net losses were $9.6 million. We expect to continue to incur significant and increasing operating losses for the foreseeable future. These losses have had and will continue to have an adverse effect on our stockholders’ equity and working capital.
Because of the numerous risks and uncertainties associated with developing small molecule drugs, we are unable to predict the extent of any future losses or when we will become profitable, if at all. Currently, we have no products approved for commercial sale, and, to date, we have not generated any product revenue. We have financed our operations and internal growth almost exclusively through private placements of preferred stock. We have devoted substantially all of our efforts to research and development, including clinical trials.
We expect our research and development expenses to increase in connection with the conduct of clinical trials. In addition, subject to regulatory approval of any of our product candidates, we expect to incur sales and marketing and increased manufacturing expenses.
We will need substantial additional funding and may be unable to raise capital when needed, which would force us to delay, reduce or eliminate our product development programs or commercialization efforts.
We will need to raise additional capital to:
| • | fund our operations and clinical trials; | |
| • | continue our research and development; and | |
| • | commercialize our product candidates, if any such product candidates receive regulatory approval for commercial sale. |
We believe that the net proceeds from this offering, our existing cash resources and interest on these funds will be sufficient to meet our projected operating requirements through the end of 2005. Our future funding requirements will depend on many factors, including:
| • | the scope, rate of progress and cost of our clinical trials and other research and development activities; | |
| • | future clinical trial results; | |
| • | the terms and timing of any collaborative, licensing and other arrangements that we may establish; | |
| • | the cost and timing of regulatory approvals; | |
| • | the cost and timing of establishing sales, marketing and distribution capabilities; | |
| • | the cost of establishing clinical and commercial supplies of our product candidates and any products that we may develop; | |
| • | the effect of competing technological and market developments; |
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| • | the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights; and | |
| • | the extent to which we acquire or invest in businesses, products and technologies, although we currently have no commitments or agreements relating to any of these types of transactions. |
Until we can generate a sufficient amount of product revenue, if ever, we expect to finance future cash needs through public or private equity offerings, debt financings or corporate collaboration and licensing arrangements, as well as through interest income earned on cash balances.
If we raise additional funds by issuing equity securities, our stockholders may experience dilution. Debt financing, if available, may involve restrictive covenants. Any debt financing or additional equity that we raise may contain terms that are not favorable to us or our stockholders. If we raise additional funds through collaboration and licensing arrangements with third parties, it will be necessary to relinquish some rights to our technologies or our product candidates, or grant licenses on terms that are not favorable to us.
Risks Related to Development of Product Candidates
We will not be able to commercialize our product candidates if our preclinical studies do not produce successful results or our clinical trials do not demonstrate safety and efficacy in humans.
Preclinical and clinical testing is expensive, can take many years and has an uncertain outcome. Success in preclinical testing and early clinical trials does not ensure that later clinical trials will be successful, and interim results of a clinical trial do not necessarily predict final results. We may experience numerous unforeseen events during, or as a result of, preclinical testing and the clinical trial process that could delay or prevent our ability to commercialize our product candidates, including:
| • | regulators or institutional review boards may not authorize us to commence a clinical trial or conduct a clinical trial at a prospective trial site; | |
| • | our preclinical or clinical trials may produce negative or inconclusive results, which may require us to conduct additional preclinical or clinical testing or to abandon projects that we expect to be promising; | |
| • | registration or enrollment in our clinical trials may be slower than we currently anticipate, resulting in significant delays; | |
| • | we might have to suspend or terminate our clinical trials if the participating patients are being exposed to unacceptable health risks; | |
| • | regulators or institutional review boards may suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements; and | |
| • | the effects of our product candidates may not be the desired effects or may include undesirable side effects. |
If any of these events were to occur and, as a result, we have significant delays in or termination of clinical trials, our costs would increase and our ability to generate revenue could be impaired, which would adversely impact our financial results.
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Risks Related to Our Dependence on Third Parties
If third parties do not manufacture our product candidates in sufficient quantities and at an acceptable cost, clinical development and commercialization of our product candidates would be delayed.
We do not currently own or operate manufacturing facilities and rely and expect to continue to rely on third parties for the production of clinical and commercial quantities of our product candidates. Our current and anticipated future dependence upon others for the manufacture of our product candidates may adversely affect our future profit margins and our ability to develop product candidates and commercialize any product candidates on a timely and competitive basis.
We have agreed to purchase from Orion our worldwide requirements of Acapodene in finished tablet form at specified transfer prices under a license and supply agreement. We rely on Orion as a single source supplier for Acapodene. In the event that Orion terminates the agreement under specified circumstances, we would not be able to manufacture Acapodene until Orion’s patents with respect to the composition of matter of toremifene, the active pharmaceutical ingredient in Acapodene, expire. This could delay the development of and impair our ability to commercialize this product candidate. In addition, Orion may terminate its obligation to supply us with toremifene under specified circumstances. Under some of these circumstances, we will have the right to manufacture Acapodene, but we would be required to make arrangements with a qualified alternative supplier to do so.
In addition, we currently rely on ChemSyn Laboratories, a department of EaglePicher Technologies, LLC, as our single supplier of Andarine. We do not have a contract with ChemSyn for the supply of Andarine for full-scale commercialization.
We may not be able to maintain or renew our existing or any other third-party manufacturing arrangements on acceptable terms, if at all. If we are unable to continue relationships with Orion for Acapodene and ChemSyn for Andarine, or to do so at an acceptable cost, or if these suppliers fail to meet our requirements for these product candidates for any reason, we would be required to obtain alternate suppliers, which we may not be permitted to do for Acapodene under our license agreement with Orion in some circumstances. Any inability to obtain alternate suppliers, including an inability to obtain approval of an alternate supplier from the Food and Drug Administration, or FDA, would delay or prevent the clinical development and commercialization of these product candidates.
Use of third-party manufacturers may increase the risk that we will not have adequate supplies of our product candidates.
Reliance on third-party manufacturers entails risks to which we would not be subject if we manufactured product candidates or products ourselves, including:
| • | reliance on the third party for regulatory compliance and quality assurance; | |
| • | the possible breach of the manufacturing agreement by the third party because of factors beyond our control; and | |
| • | the possible termination or nonrenewal of the agreement by the third party, based on its own business priorities, at a time that is costly or inconvenient for us. |
If we are not able to obtain adequate supplies of our product candidates, it will be more difficult for us to develop our product candidates and compete effectively. Our product candidates and any products that we may develop may compete with other product candidates and products for access to manufacturing facilities. For example, the active pharmaceutical ingredient in Acapodene is also the active pharmaceutical ingredient in Fareston. Orion also manufactures Fareston for Shire Pharmaceuticals Group, which markets it in the United States for the treatment of advanced breast cancer in post-menopausal women.
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We cannot be certain that our present or future manufacturing partners will be able to comply with FDA mandated current Good Manufacturing Practice regulations and other FDA regulatory requirements or similar regulatory requirements outside the United States. Failure of our third-party manufacturers or us to comply with applicable regulations could result in sanctions being imposed on us, including fines, injunctions, civil penalties, failure of regulatory authorities to grant marketing approval of our product candidates, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of product candidates or products, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect supplies of our product candidates.
If third parties on whom we rely do not perform as contractually required or expected, we may not be able to obtain regulatory approval for or commercialize our product candidates.
We do not have the ability to independently conduct clinical trials for our product candidates, and we must rely on third parties, such as contract research organizations, medical institutions, clinical investigators and contract laboratories to conduct our clinical trials. In addition, we rely on third parties to assist with our preclinical development of product candidates. If these third parties do not successfully carry out their contractual duties or regulatory obligations or meet expected deadlines, if the third parties need to be replaced, or if the quality or accuracy of the data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements or for other reasons, our preclinical development activities or clinical trials may be extended, delayed, suspended or terminated, and we may not be able to obtain regulatory approval for or successfully commercialize our product candidates.
We expect to be dependent upon collaborative arrangements to complete the development and commercialization of some of our product candidates. These collaborative arrangements may place the development of our product candidates outside our control, may require us to relinquish important rights or may otherwise be on terms unfavorable to us.
We may not be successful in entering into collaborative arrangements with third parties. If we fail to enter into additional collaborative arrangements on favorable terms, it could delay or impair our ability to develop and commercialize our product candidates and could increase our costs of development and commercialization. Dependence on collaborative arrangements will subject us to a number of risks, including:
| • | we may not be able to control the amount and timing of resources that our collaborators may devote to the product candidates; | |
| • | our collaborators may experience financial difficulties; | |
| • | we may be required to relinquish important rights such as marketing and distribution rights; | |
| • | should a collaborator fail to develop or commercialize one of our compounds or product candidates, we may not receive any future milestone payments and will not receive any royalties for this compound or product candidate; | |
| • | business combinations or significant changes in a collaborator’s business strategy may also adversely affect a collaborator’s willingness or ability to complete its obligations under any arrangement; | |
| • | a collaborator could independently move forward with a competing product candidate developed either independently or in collaboration with others, including our competitors; and | |
| • | the collaborative arrangements are often terminated or allowed to expire, which would delay the development and may increase the cost of developing our product candidates. | |
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Risks Related to Our Intellectual Property
If our licenses from Orion Corporation and the University of Tennessee Research Foundation terminate, we may not be able to develop and commercialize Acapodene, Andarine and two of our preclinical product candidates.
Our ability to commercialize Acapodene is highly dependent on a license from Orion Corporation and licenses from the University of Tennessee Research Foundation, and our ability to commercialize Andarine, Ostarine and Prostarine is highly dependent on licenses from the University of Tennessee Research Foundation. Without these licenses, we would not have the right to commercialize these product candidates for any indication prior to the expiration of the licensed patents, which could delay our development efforts and our ability to generate revenue.
The term of our license from Orion continues on a country-by-country basis until the date of expiration or invalidation of the last to expire or be invalidated of patents and patent applications relating to Acapodene that we license. The term of each of our licenses from the University of Tennessee Research Foundation is the longer of 20 years or the term of any licensed patent having a valid claim covering the licensed technology. However, each of Orion and the University of Tennessee Research Foundation has the right to terminate the license it granted to us under specified circumstances, although we do not believe that the occurrence of any of these circumstances is likely. For example, Orion has the right to terminate the license as a result of a material breach of the license agreement by us that is not cured, our bankruptcy or the acquisition of us by a direct competitor of Orion with respect to toremifene. The University of Tennessee Research Foundation has the right to terminate each of the licenses it granted to us under specified circumstances, including in the event that we breach the license agreement and do not cure the breach or in the case of our bankruptcy.
Our license agreement with Orion Corporation is limited to specific fields of use of toremifene and will limit our ability to market Acapodene.
Our license from Orion is limited to the use of toremifene for the prevention and treatment of prostate cancer and the prevention and treatment of osteoporosis, hot flashes and breast pain and enlargement as side effects of advanced prostate cancer therapy. The license is exclusive in North America and Japan in these fields. Orion has licensed Shire Pharmaceuticals Group in the United States and other parties elsewhere in the world to market, sell and distribute toremifene for the treatment of advanced breast cancer and could license other parties to market, sell and distribute toremifene for other indications in the United States and elsewhere.
Under the terms of our license agreement with Orion, Orion may require us to modify our final Acapodene development plans for specified major markets if such development plans could adversely affect toremifene outside the fields that Orion has licensed to us. Although we do not believe that our development plans adversely affect toremifene outside the licensed fields, any future modifications to our plans may limit our ability to maximize the commercial potential of Acapodene.
Furthermore, we and our affiliates are prohibited from selling a product that competes with toremifene in the licensed field in major countries located outside the European Union during the term of the agreement and in major countries in the European Union through October 2006. While we are not currently developing any product candidate that would compete with toremifene in the licensed field, this noncompetition provision may limit our ability to commercialize any other compounds in the licensed field even if we believe that other compounds have more commercial potential than Acapodene. The binding effect of this noncompetition provision on our affiliates, as well as Orion’s right to terminate the agreement if we are acquired by a direct competitor of Orion with respect to toremifene, may make it more difficult for us to be acquired by some potential buyers even if we determine that a sale of the company would be in the best interests of our stockholders.
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If some or all of our patents expire or are invalidated or are unenforceable, or if some or all of our or our patent applications do not yield issued patents or yield patents with narrow claims, we may be subject to competition from third parties with products with the same active pharmaceutical ingredients as our product candidates.
Our commercial success will depend in part on obtaining and maintaining patent and trade secret protection for our product candidates, the methods used to manufacture these product candidates and the methods for treating patients using these product candidates. We will be able to protect our product candidates and our technologies from unauthorized use by third parties only to the extent that valid and enforceable patents or trade secrets cover them.
Even if our product candidates and technologies are covered by valid and enforceable patents, the patents will provide protection only for a limited amount of time. For example, the patents that we have licensed from Orion covering the composition of matter of toremifene expire in the United States in 2009 and are likely to expire in countries outside the United States before we commercialize Acapodene. As a result, outside the United States and in the United States after 2009, we will need to rely primarily on the protection afforded by method of use patents that have issued or may issue in respect of our owned or licensed patent applications relating to the use of Acapodene for the relevant indications. To date, most of these pending method of use patent applications have not yielded issued patents.
Our and our collaborators’ ability to obtain patents is highly uncertain because, to date, some legal principles remain unresolved and there has not been a consistent policy regarding the breadth or interpretation of claims allowed in patents in the United States, and the specific content of patents and patent applications that are necessary to support and interpret patent claims is highly uncertain due to the complex nature of the relevant legal, scientific and factual issues. Furthermore, the policies governing biotechnology patents outside the United States are even more uncertain. Changes in either patent laws or in interpretations of patent laws in the United States and other countries may diminish the value of our intellectual property or narrow the scope of our patent protection.
Even if patents are issued regarding our product candidates or methods of using them, those patents can be challenged by our competitors who can argue such patents are invalid. Patents also will not protect our product candidates if competitors devise ways of making these product candidates without legally infringing our patents. Generic drug laws provide incentives to manufacturers to challenge patent validity, make generic versions of a drug or submit abbreviated new drug applications.
We also rely on trade secrets to protect our technology, especially where we do not believe that patent protection is appropriate or obtainable. However, trade secrets are difficult to protect. Our employees, consultants, contractors, outside scientific collaborators and other advisors may unintentionally or willfully disclose our confidential information to competitors, and confidentiality agreements may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. Enforcing a claim that a third party illegally obtained and is using our trade secrets is expensive and time-consuming, and the outcome is unpredictable. Moreover, our competitors may independently develop equivalent knowledge, methods and know-how. Failure to obtain or maintain trade secret protection could adversely affect our competitive business position.
Off-label sale or use of generic toremifene products could decrease sales of Acapodene and could lead to pricing pressure if such products become available at competitive prices and in dosages that are appropriate for the indications for which we are developing Acapodene.
In all countries in which we hold or have licensed rights to patents or patent applications related to Acapodene, the composition of matter patents will expire before the method of use patents. Method of use patents may not protect Acapodene from the risk of off-label sale or use of the subject compounds. Physicians are permitted to prescribe legally available drugs for uses that
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In the event that patents issue in respect of our pending method of use patent applications, after the expiration of the patent covering the composition of matter of toremifene in a particular country, competitors could market and sell generic versions of toremifene at doses and in formulations that are equivalent to Acapodene for uses other than the indications for Acapodene covered by these pending method of use patent applications, and physicians would be permitted to prescribe these generic versions of toremifene for indications that are protected by these method of use patents and pending patent applications. Moreover, because Orion has licensed and could further license other parties to market, sell and distribute toremifene for other indications in the United States and elsewhere, physicians could prescribe these products sold pursuant to another Orion license off-label. This further increases the risk of off-label competition developing for Acapodene for the indications for which we are developing this product candidate. In addition, if no patents issue in respect of our pending method of use patent applications related to the use of Acapodene, after the expiration of the patent covering the composition of matter of toremifene in a particular country, competitors could market and sell generic versions of toremifene at doses and in formulations equivalent to Acapodene for the indications covered by our pending method of use patent applications.
If we infringe intellectual property rights of third parties, it will adversely affect our business.
There is a risk that we are infringing the proprietary rights of third parties because numerous United States and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields that are the focus of our drug discovery and development efforts. Others might have been the first to make the inventions covered by each of our or our licensors’ pending patent applications and issued patents and might have been the first to file patent applications for these inventions. In addition, because patent applications can take many years to issue, there may be currently pending applications, unknown to us, which may later result in issued patents that cover the production, manufacture, commercialization or use of our product candidates. In addition, the production, manufacture, commercialization or use of our product candidates may infringe existing patents of which we are not aware. Defending ourselves against third-party claims, including litigation in particular, would be costly and time consuming and would divert management’s attention from our business, which could lead to delays in our development or commercialization efforts. If third parties are successful in their claims, we might have to pay substantial damages or take other actions that are adverse to our business.
As a result of intellectual property infringement claims, or to avoid potential claims, we might:
| • | be prohibited from selling or licensing any product that we may develop unless the patent holder licenses the patent to us, which it is not required to do; | |
| • | be required to pay substantial royalties or grant a cross license to our patents to another patent holder; or | |
| • | be required to redesign the formulation of a product candidate so it does not infringe, which may not be possible or could require substantial funds and time. |
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Risk Related to Regulatory Approval of Our Product Candidates
If we are not able to obtain required regulatory approvals, we will not be able to commercialize our product candidates, and our ability to generate revenue will be materially impaired.
Our product candidates and the activities associated with their development and commercialization are subject to comprehensive regulation by the FDA, and other regulatory agencies in the United States and by comparable authorities in other countries. Failure to obtain regulatory approval for a product candidate will prevent us from commercializing the product candidate. We have not received regulatory approval to market any of our product candidates in any jurisdiction and have only limited experience in preparing and filing the applications necessary to gain regulatory approvals. The process of obtaining regulatory approvals is expensive, often takes many years, if approval is obtained at all, and can vary substantially based upon the type, complexity and novelty of the product candidates involved. According to the FDA, a Phase I clinical trial typically takes several months to complete, a Phase II clinical trial typically takes several months to two years to complete and a Phase III clinical trial typically takes one to four years to complete. Industry sources report that the preparation and submission of new drug applications, or NDAs, which are required for regulatory approval, generally take six months to one year to complete after completion of a pivotal clinical trial. Industry sources also report that approximately 10 to 15% of all NDAs accepted for filing by the FDA are rejected and that FDA approval, if granted, usually takes approximately one year after submission of an NDA, although it make take longer if additional information is required by the FDA. In addition, an industry source reports that only one out of five product candidates that enter clinical trials will ultimately be approved by the FDA for commercial sale.
Changes in the regulatory approval policy during the development period, changes in or the enactment of additional regulations or statutes, or changes in regulatory review for each submitted product application, may cause delays in the approval or rejection of an application. Even if the FDA approves a product candidate, the approval may impose significant restrictions on the indicated uses, conditions for use, labeling, advertising, promotion, marketing and/or production of such product, and may impose ongoing requirements for post-approval studies, including additional research and development and clinical trials. The FDA also may impose various civil or criminal sanctions for failure to comply with regulatory requirements, including withdrawal of product approval.
Furthermore, the approval procedure and the time required to obtain approval varies among countries and can involve additional testing beyond that required by the FDA. Approval by one regulatory authority does not ensure approval by regulatory authorities in other jurisdictions.
The FDA has substantial discretion in the approval process and may refuse to accept any application or may decide that our data is insufficient for approval and require additional preclinical, clinical or other studies. For example, while we believe that our ongoing Phase IIb clinical trial of Acapodene for the reduction in the incidence of prostate cancer in men with high grade PIN will support a single pivotal Phase III clinical trial for this indication, the FDA may require more than one pivotal Phase III clinical trial in order to grant marketing approval of Acapodene for this indication which could delay the approval process. In addition, varying interpretations of the data obtained from preclinical and clinical testing could delay, limit or prevent regulatory approval of a product candidate.
We do not expect to receive regulatory approval for the commercial sale of any of our product candidates for a number of years. The inability to obtain FDA approval or approval from comparable authorities in other countries would prevent us from commercializing our product candidates in the United States or other countries. See “Government Regulation” beginning on page 53 for additional information.
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Risks Related to Commercialization
The commercial success of any products that we may develop will depend upon the degree of market acceptance among physicians, patients, health care payors and the medical community.
Any products that we may develop may not gain market acceptance among physicians, patients, health care payors and the medical community. If these products do not achieve an adequate level of acceptance, we may not generate material product revenues and we may not become profitable. The degree of market acceptance of our product candidates, if approved for commercial sale, will depend on a number of factors, including:
| • | the prevalence and severity of any side effects; | |
| • | potential advantages over alternative treatments; | |
| • | the ability to offer our product candidates for sale at competitive prices; | |
| • | relative convenience and ease of administration; | |
| • | the strength of marketing and distribution support; and | |
| • | sufficient third-party coverage or reimbursement. |
If we are unable to establish sales and marketing capabilities or enter into agreements with third parties to market and sell our product candidates, we may be unable to generate product revenue.
We do not have a sales organization and have no experience as a company in the sales, marketing and distribution of pharmaceutical products. There are risks involved with establishing our own sales and marketing capabilities, as well as entering into arrangements with third parties to perform these services. For example, developing a sales force is expensive and time-consuming and could delay any product launch. In addition, to the extent that we enter into arrangements with third parties to perform sales, marketing and distribution services, our product revenues are likely to be lower than if we market and sell any products that we develop ourselves.
If we are unable to obtain adequate coverage and reimbursement from third-party payors for any products that we may develop or acceptable prices, our revenues and prospects for profitability will suffer.
Many patients will not be capable of paying for any products that we may develop themselves and will rely on Medicare and Medicaid, private health insurers and other third-party payors to pay for their medical needs. If third-party payors do not provide coverage or reimbursement for any products that we may develop, our revenues and prospects for profitability will suffer. Currently, Medicare does not have a broad-based outpatient prescription drug benefit that covers products self-administered by patients. State Medicaid programs generally have outpatient prescription drug coverage, subject to state regulatory restrictions, for the population eligible for Medicaid. The availability of coverage or reimbursement for prescription drugs under private health insurance and managed care plans varies based on the type of contract or plan purchased.
A primary trend in the United States health care industry is toward cost containment. In addition, in some foreign countries, particularly the countries of the European Union, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take six to 12 months or longer after the receipt of regulatory marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost effectiveness of our product candidates or products to other available therapies. The conduct of such a clinical trial could be expensive and result in delays in our commercialization. Third-party payors are challenging the
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Another development that may affect the pricing of drugs is proposed Congressional action regarding drug reimportation into the United States. Proposed legislation would allow the reimportation of approved drugs originally manufactured in the United States back into the United States from other countries where the drugs are sold at a lower price. If legislation or regulations were passed allowing the reimportation of drugs, they could decrease the price we receive for any products that we may develop, negatively affecting our revenues and prospects for profitability.
If product liability lawsuits are brought against us, we will incur substantial liabilities and may be required to limit commercialization of any products that we may develop.
We face an inherent risk of product liability exposure related to the testing of our product candidates in human clinical trials and will face an even greater risk if we commercially sell any products that we may develop. If we cannot successfully defend ourselves against claims that our product candidates caused injuries, we will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:
| • | decreased demand for any product candidates or products that we may develop; | |
| • | injury to our reputation; | |
| • | withdrawal of clinical trial participants; | |
| • | costs to defend the related litigation; | |
| • | substantial monetary awards to trial participants or patients; | |
| • | loss of revenue; and | |
| • | the inability to commercialize any products that we may develop. |
We have product liability insurance that covers our clinical trials up to a $5 million annual aggregate limit. We intend to expand our insurance coverage to include the sale of commercial products if marketing approval is obtained for any products that we may develop. Insurance coverage is increasingly expensive. We may not be able to maintain insurance coverage at a reasonable cost and we may not be able to obtain insurance coverage that will be adequate to satisfy any liability that may arise.
If our competitors are better able to develop and market products that are more effective than any products that we may develop, our commercial opportunity will be reduced or eliminated.
We face competition from established pharmaceutical and biotechnology companies, as well as from academic institutions, government agencies and private and public research institutions. Our commercial opportunity will be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer side effects or are less expensive than any products that we may develop. In addition, significant delays in the development of our product candidates could allow our competitors to bring products to market before us and impair our ability to commercialize our product candidates.
Various products are currently marketed or sold and used off-label for some of the diseases and conditions that we are targeting, and a number of companies are or may be developing new treatments. The occurrence of such off-label uses could significantly reduce our ability to market and sell any products that we may develop. For example, although there are no products that have been approved by the FDA to treat multiple side effects of advanced prostate cancer therapy, we are
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Many of our competitors have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These third parties compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies and technology licenses complementary to our programs or advantageous to our business.
Risks Related to Employees and Growth
If we fail to attract and keep senior management and key scientific personnel, we may be unable to successfully develop or commercialize our product candidates.
Our success depends on our continued ability to attract, retain and motivate highly qualified management, clinical and scientific personnel and on our ability to develop and maintain important relationships with leading academic institutions, clinicians and scientists. If we are not able to attract and keep senior management and key scientific personnel, particularly Dr. Mitchell S. Steiner, we may not be able to successfully develop or commercialize our product candidates. All of our employees are at-will employees and can terminate their employment at any time. We do not carry “key person” insurance covering members of senior management, other than $15 million of insurance covering Dr. Steiner.
We will need to hire additional employees in order to continue our clinical trials and commercialize our product candidates. Any inability to manage future growth could harm our ability to commercialize our product candidates, increase our costs and adversely impact our ability to compete effectively.
In order to continue our clinical trials and commercialize our product candidates, we will need to expand the number of our managerial, operational, financial and other employees. We currently anticipate that we will need between 150 and 250 additional employees by the time that Acapodene or Andarine is initially commercialized, including 50 to 80 sales representatives. While to date we have not experienced difficulties in recruiting and hiring qualified individuals, the competition for qualified personnel in the biotechnology field is intense.
Future growth will impose significant added responsibilities on members of management, including the need to identify, recruit, maintain and integrate additional employees. Our future financial performance and our ability to commercialize our product candidates and to compete effectively will depend, in part, on our ability to manage any future growth effectively.
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Risks Related to the Offering
If you purchase our common stock in this offering, you will incur immediate and substantial dilution in the book value of your shares.
The assumed initial public offering price is substantially higher than the net tangible book value per share of our common stock. Investors purchasing common stock in this offering will pay a price per share that substantially exceeds the book value of our tangible assets after subtracting our liabilities. As a result, investors purchasing common stock in this offering will incur immediate dilution of $ per share. Further, investors purchasing common stock in this offering will contribute approximately % of the total amount invested by stockholders since our inception, but will own only approximately % of the shares of common stock outstanding.
This dilution is due to our investors who purchased shares prior to this offering having paid substantially less than the price offered to the public in this offering when they purchased their shares and the exercise of stock options granted to our employees. As a result of this dilution, investors purchasing stock in this offering may receive significantly less than the purchase price paid in this offering in the event of a liquidation.
Market volatility may cause our stock price and the value of your investment to decline.
Our stock price is likely to be volatile. Investors purchasing common stock in this offering may not be able to resell their shares at or above the initial public offering price. The market prices for securities of biopharmaceutical companies in general have been highly volatile and may continue to be highly volatile in the future. The following factors, in addition to other risk factors described in this section, may have a significant impact on the market price of our common stock:
| • | adverse results or delays in our clinical trials; | |
| • | the timing of achievement of our clinical, regulatory and other milestones, such as the commencement of clinical development, the completion of a clinical trial or the receipt of regulatory approval; | |
| • | announcement of FDA approval or non-approval of our product candidates or delays in the FDA review process; | |
| • | actions taken by regulatory agencies with respect to our product candidates, our clinical trials or our sales and marketing activities; | |
| • | the commercial success of any product approved by the FDA or its foreign counterparts; | |
| • | regulatory developments in the United States and foreign countries; | |
| • | changes in the structure of health care payment systems; | |
| • | any intellectual property infringement lawsuit involving us; | |
| • | announcements of technological innovations or new products by us or our competitors; | |
| • | market conditions for the biotechnology or pharmaceutical industries in general; | |
| • | actual or anticipated fluctuations in our results of operation; | |
| • | changes in financial estimates or recommendations by securities analysts; | |
| • | sales of large blocks of our common stock; | |
| • | sales of our common stock by our executive officers, directors and significant stockholders; | |
| • | changes in accounting principles; and | |
| • | the loss of any of our key scientific or management personnel. |
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The stock markets in general, and the markets for biotechnology stocks in particular, have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common stock. In the past, class action litigation has often been instituted against companies whose securities have experienced periods of volatility in market price. Any such litigation brought against us could result in substantial costs, which would hurt our financial condition and results of operations and divert management’s attention and resources, which could result in delays of our clinical trials or commercialization efforts.
After this offering, our officers, directors and largest stockholders will maintain the ability to control all matters submitted to stockholders for approval.
Based on our outstanding shares as of September 30, 2003, after this offering, our officers, directors and holders of 5% or more of our outstanding common stock will beneficially own approximately % of our common stock, after giving effect to the conversion into common stock of all outstanding shares of our preferred stock and dividends accrued thereon through September 30, 2003, but assuming no exercise of the underwriters’ over-allotment option and no exercise of outstanding options. As a result, these stockholders, acting together, will be able to control all matters requiring approval by our stockholders, including the election of directors and the approval of mergers or other business combination transactions. The interests of this group of stockholders may not always coincide with our interests or the interests of other stockholders.
Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of us, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management.
Provisions in our certificate of incorporation and our bylaws that will become effective upon the completion of this offering may delay or prevent an acquisition of us or a change in our management. In addition, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our Board of Directors. Because our Board of Directors is responsible for appointing the members of our management team, these provisions could in turn affect any attempt by our stockholders to replace current members of our management team. These provisions include:
| • | a classified Board of Directors; | |
| • | a prohibition on actions by our stockholders by written consent; | |
| • | the ability of our Board of Directors to issue preferred stock without stockholder approval, which could be used to institute a “poison pill” that would work to dilute the stock ownership of a potential hostile acquirer, effectively preventing acquisitions that have not been approved by our Board of Directors; and | |
| • | limitations on the removal of directors. |
Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which prohibits a person who owns in excess of 15% of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner. Finally, these provisions establish advance notice requirements for nominations for election to our Board of Directors or for proposing matters that can be acted upon at stockholder meetings. These provisions would apply even if the offer may be considered beneficial by some stockholders.
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We have broad discretion in the use of the net proceeds from this offering and may not use them effectively.
Our management will have broad discretion in the application of the net proceeds from this offering and could spend the proceeds in ways that do not necessarily improve our results of operations or enhance the value of our common stock. The failure by our management to apply these funds effectively could result in financial losses that could have a material adverse effect on our business, cause the price of our common stock to decline and delay the development of our product candidates.
A significant portion of our total outstanding shares are restricted from immediate resale but may be sold into the market in the near future. This could cause the market price of our common stock to drop significantly, even if our business is doing well.
Sales of a substantial number of shares of our common stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock. After this offering, we will have outstanding shares of common stock based on the number of shares outstanding as of September 30, 2003. This includes the shares that we are selling in this offering, which may be resold in the public market immediately. The remaining 2,239,033 shares, or % of our outstanding shares after this offering, are currently restricted as a result of securities laws or lock-up agreements but will be able to be sold in the near future as set forth below.
| Number of Shares and | ||
| % of Total Outstanding | Date Available for Sale Into Public Market | |
|
|
|
|
|
1,905,618 shares,
or %
|
180 days after the date of this prospectus due to lock-up agreements between the holders of these shares and the underwriters. However, the underwriters can waive the provisions of these lock-up agreements and allow these stockholders to sell their shares at any time. | |
|
333,415 shares, or %
|
Between 180 and 365 days after the date of this prospectus, depending on the requirements of the federal securities laws. |
Moreover, after this offering, J.R. Hyde, III, Oracle Partners, L.P. and Memphis Biomed Ventures I, L.P., three of our largest stockholders, and their affiliates, who held in the aggregate 1,316,081 shares of common stock as of September 30, 2003, will have rights, subject to some conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders. We also intend to register all shares of common stock that we may issue under our employee benefit plans. Once we register these shares, they can be freely sold in the public market upon issuance, subject to the lock-up agreements described in “Underwriting.” For additional information, see “Shares Eligible for Future Sale” on page 79.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. The forward-looking statements are contained principally in the sections entitled “Prospectus Summary,” “Risk Factors,” “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” These statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. Forward-looking statements include statements about:
| • | the anticipated progress of our research, development and clinical programs; | |
| • | our ability to market, commercialize and achieve market acceptance for our product candidates or products that we may develop; | |
| • | our ability to generate additional product candidates for clinical testing; | |
| • | our ability to protect our intellectual property and operate our business without infringing upon the intellectual property rights of others; and | |
| • | our estimates regarding the sufficiency of our cash resources. |
In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would,” and similar expressions intended to identify forward-looking statements. Forward-looking statements reflect our current views with respect to future events, are based on assumptions and subject to risks and uncertainties. We discuss many of these risks in this prospectus in greater detail under the heading “Risk Factors.” Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our estimates and assumptions only as of the date of this prospectus. You should read this prospectus and the documents that we reference in this prospectus and have filed as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from what we expect.
Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, even if new information becomes available in the future.
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USE OF PROCEEDS
We estimate that our net proceeds from the sale of shares of common stock in this offering will be approximately $ million and $ million if the underwriters exercise their over-allotment option in full, based upon an assumed initial public offering price of $ per share and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. The principal purposes of this offering are to obtain additional capital and to create a public market for our common stock.
We expect to use approximately $ million of the net proceeds from this offering to fund our clinical trials and other research and development activities and approximately $ million for general corporate purposes. In addition, we may use a portion of the net proceeds from this offering to acquire equipment, products, technologies or businesses, although we currently have no commitments or agreements relating to any of these types of transactions. We believe that the net proceeds from this offering, our existing cash resources and interest on these funds will be sufficient to meet our projected operating requirements through the end of 2005.
While we have estimated the particular uses for the net proceeds to be received upon the completion of this offering, we cannot specify these uses with certainty. Accordingly, our management will have broad discretion in the application of the net proceeds, and investors will be relying on the judgment of our management regarding the application of the proceeds of this offering. Pending these uses, we plan to invest the net proceeds in short-term, interest bearing obligations, investment grade instruments, certificates of deposit or direct or guaranteed obligations of the United States. The goal with respect to the investment of these net proceeds is capital preservation and liquidity so that such funds are readily available to fund our research and development operations.
DIVIDEND POLICY
The payment of accrued dividends on our outstanding preferred stock will result in the issuance of additional shares of our common stock upon completion of this offering. As of September 30, 2003, approximately $5.6 million of dividends had accrued on our preferred stock. If our preferred stock had been converted into common stock on September 30, 2003, we would have issued 94,897 shares of our common stock in satisfaction of our accrued dividend obligations.
We have never declared or paid any cash dividends on our capital stock. We currently intend to retain any future earnings to fund the development and expansion of our business, and therefore we do not anticipate paying cash dividends on our common stock in the foreseeable future. Any future determination to pay dividends will be at the discretion of our Board of Directors.
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CAPITALIZATION
The following table sets forth our capitalization as of September 30, 2003:
| • | on an actual basis; and | |
| • | on an as adjusted basis to reflect the conversion into common stock of all outstanding shares of preferred stock and dividends accrued thereon through September 30, 2003 and the sale in this offering of shares of common stock at an assumed initial public offering price of $ per share, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. |
The information in this table is based on shares outstanding as of September 30, 2003 and excludes:
| • | 94,000 shares of common stock issuable upon exercise of options issued under our current stock option plans, at a weighted average exercise price of $50.77 per share; and | |
| • | 56,900 shares of common stock reserved for future issuance under our current stock option plans and shares of common stock reserved for future issuance under our 2003 Equity Incentive Plan and 2003 Non-Employee Directors’ Stock Option Plan, which we plan to adopt before the completion of this offering. |
You should read the information below in
conjunction with the financial statements and the related notes
thereto and “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” included
elsewhere in this prospectus.
As of September 30, 2003
Actual
As Adjusted
(unaudited)
(in thousands, except
share data)
$
19,788
$
1,677,500 shares authorized and 1,231,955 shares
issued and outstanding, actual; and no shares authorized, issued
or outstanding, as adjusted
162,978
10,000,000 shares authorized, actual and as
adjusted; 910,000 shares issued and outstanding,
actual; shares
issued and outstanding, as adjusted
970
(3,408
)
3,491
(144,891
)
(143,838
)
$
19,140
$
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DILUTION
The historical net tangible book value of our common stock as of September 30, 2003 was ($143.9) million, or ($158.06) per share, based on the number of shares of common stock outstanding as of September 30, 2003. Historical net tangible book value per share is determined by dividing our total tangible assets less total liabilities by the actual number of outstanding shares of our common stock.
After giving effect to the sale of common stock offered in this offering at the assumed public offering price of $ per share, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, our as adjusted net tangible book value as of September 30, 2003 would have been approximately $ million, or $ per share of common stock. This represents an immediate increase in net tangible book value of $ per share to existing stockholders and an immediate dilution of $ per share to new investors purchasing our common stock in this offering. The following table illustrates this per share dilution to the new investors:
|
Assumed initial public offering price
|
$ | ||||||||
|
Historical net tangible book value per share as
of September 30, 2003
|
$ | (158.06 | ) | ||||||
|
Increase in net tangible book value per share
attributable to this offering
|
|||||||||
|
|
|||||||||
|
As adjusted net tangible book value per share
after this offering
|
|||||||||
|
|
|||||||||
|
Dilution per share to new investors in this
offering
|
$ | ||||||||
|
|
|||||||||
The following table summarizes, on an as adjusted
basis as of September 30, 2003, the differences between the
number of shares of common stock purchased from us, the total
consideration and the average price per share paid by existing
stockholders and by the new investors, before deducting
estimated underwriting discounts and commissions and estimated
offering expenses payable by us, at an assumed initial public
offering price of
$ per
share:
Shares Purchased
Total Consideration
Average Price
Number
Percent
Amount
Percent
Per Share
%
$
%
$
100.0
%
$
100.0
%
If the underwriters exercise their option to purchase additional shares of our common stock in full in this offering, the as adjusted net tangible book value per share after the offering would be $ per share, the increase in net tangible book value per share to existing stockholders would be $ per share and the dilution to new investors purchasing shares in this offering would be $ per share.
If the underwriters exercise their over-allotment option in full, the number of shares held by new investors will increase to , or approximately % of the total number of shares of our common stock outstanding after this offering.
The existing stockholders amounts in the table above have been calculated based on shares outstanding as of September 30, 2003 and excludes:
| • | 94,000 shares of common stock issuable upon exercise of options issued under our current stock option plans, at a weighted average exercise price of $50.77 per share; and | |
| • | 56,900 shares of common stock reserved for future issuance under our current stock option plans and shares of common stock reserved for future issuance under our 2003 Equity Incentive Plan and 2003 Non-Employee Directors’ Stock Option Plan, which we plan to adopt before the completion of this offering. |
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Table of Contents
After this offering and assuming the exercise in full of all of the foregoing options, our as adjusted net tangible book value per share as of September 30, 2003 would be $ per share, representing an immediate increase in net tangible book value of $ per share to existing stockholders and an immediate dilution in net tangible book value of $ per share to new investors.
25
Table of Contents
SELECTED FINANCIAL DATA
You should read the selected financial data below in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements, notes thereto and other financial information included elsewhere in this prospectus. We derived the selected financial data for each of the five fiscal years in the period ended December 31, 2002 from our financial statements which have been examined and reported upon by Ernst & Young LLP, independent public accountants. See “Experts.” We derived the data presented for the nine-month periods ended September 30, 2002 and September 30, 2003 from unaudited financial statements which include, in the opinion of management, all adjustments, consisting only of normal recurring accruals, necessary to present fairly the data for such periods. The results for the nine-month period ended September 30, 2003 are not necessarily indicative of the results to be expected for the full fiscal year.
We computed pro forma net loss per share for the
year ended December 31, 2002 and the nine months ended
September 30, 2003 using the weighted average number of
shares of common stock outstanding, including the pro forma
effects of the automatic conversion of our preferred stock and
dividends accrued thereon into shares of common stock effective
upon the closing of the offering as if such conversion occurred
on January 1, 2002 and January 1, 2003 or at the date
of the original issuance, if later. The calculation of pro forma
net loss per share attributable to common stockholders excludes
incremental common stock issuable upon exercise of options, as
its effect would be antidilutive.
Nine Months Ended
Year Ended December 31,
September 30,
1998
1999
2000
2001
2002
2002
2003
(unaudited)
(in thousands, except share and per share data)
$
185
$
518
$
2,679
$
5,744
$
9,285
$
6,408
$
7,123
179
256
1,203
2,187
2,405
1,830
2,339
19
45
80
215
332
240
264
383
819
3,962
8,146
12,022
8,478
9,726
225
—
—
—
—
—
—
42
69
150
83
156
105
79
267
69
150
83
156
105
79
(116
)
(750
)
(3,812
)
(8,063
)
(11,866
)
(8,373
)
(9,647
)
—
(83
)
(297
)
(790
)
(2,147
)
(1,466
)
(2,300
)
—
—
(21,077
)
(57
)
(7,220
)
(7,147
)
(76,666
)
$
(116
)
$
(833
)
$
(25,186
)
$
(8,910
)
$
(21,233
)
$
(16,986
)
$
(88,613
)
$
(.13
)
$
(.92
)
$
(27.68
)
$
(9.79
)
$
(23.33
)
$
(18.67
)
$
(97.38
)
910,000
910,000
910,000
910,000
910,000
910,000
910,000
$
(6.81
)
$
(4.98
)
1,742,563
1,935,968
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Table of Contents
As of December 31,
As of
September
1998
1999
2000
2001
2002
30, 2003
(unaudited)
(in thousands)
$
748
$
1,542
$
2,667
$
8,834
$
8,925
$
19,788
743
1,435
2,241
8,544
7,654
18,280
870
1,678
3,201
10,117
10,030
21,107
—
1,538
27,912
43,702
64,026
162,978
(116
)
(949
)
(26,135
)
(35,045
)
(56,278
)
(144,891
)
854
21
(25,165
)
(34,075
)
(55,308
)
(143,838
)
27
Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
The following discussion and analysis should be read in conjunction with our financial statements and related notes included elsewhere in this prospectus. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those set forth under “Risk Factors” and elsewhere in this prospectus.
GTx is a biopharmaceutical company dedicated to the discovery, development and commercialization of therapeutics primarily related to the treatment of serious men’s health conditions. Our drug discovery and development programs are focused on small molecules that selectively modulate the effects of estrogens and androgens, two essential classes of hormones. We currently have two product candidates that are in human clinical trials. We are developing Acapodene, our most advanced product candidate, through clinical trials for two separate indications: (1) a Phase IIb clinical trial for the reduction in the incidence of prostate cancer in men with precancerous prostate lesions known as high grade prostatic intraepithelial neoplasia, or high grade PIN, and (2) a pivotal Phase III clinical trial for the treatment of serious side effects of advanced prostate cancer therapy known as androgen deprivation therapy. We are initially developing our second product candidate, Andarine, for the treatment of cachexia from various types of cancer. Cancer cachexia is a muscle wasting condition that is a potentially life-threatening complication of many cancers. Andarine is the most advanced of our internally discovered portfolio of compounds designed to modulate the effects of hormones. We plan to build a specialized sales and marketing capability to market our product candidates directly to the relatively small and concentrated community of urologists and medical oncologists in the United States and seek collaborators to commercialize our product candidates where the target physician market is broader than urologists and medical oncologists and outside the United States.
To date, we have not generated any product revenue, and we have financed our operations and internal growth almost exclusively through private placements of preferred stock. We are a development stage company and have incurred significant losses since our inception in 1997 as we have devoted substantially all of our resources to research and development, including our clinical trials. As of September 30, 2003, we had a deficit accumulated during the development stage of $144.9 million. Our accumulated deficit resulted primarily from:
| • | our research and development activities associated with Acapodene for the reduction in the incidence of prostate cancer in men with high grade PIN, including our Phase IIb clinical trial; Acapodene for the treatment of side effects of androgen deprivation therapy, including two Phase II clinical trials; Andarine for the treatment of cachexia from various forms of cancer, including three Phase I clinical trials; and other product candidates; | |
| • | general and administrative expenses; and | |
| • | non-cash dividends and adjustments to the preferred stock redemption value of $110.6 million related to our cumulative redeemable convertible preferred stock. See “Critical Accounting Policies — Adjustment to Preferred Stock Redemption Value.” |
We expect to continue to incur net losses over the next several years as we continue our clinical development and research and development activities, apply for regulatory approvals, establish sales and marketing capabilities and expand our operations.
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Table of Contents
Research and Development
Since our inception, we have been focused on drug discovery and development programs. Research and development expenses represented approximately 73% of our total operating expenses for the nine-month period ended September 30, 2003 and 76% of our total operating expenses for the nine-month period ended September 30, 2002. Research and development expenses include our expenses for:
| • | personnel associated with our research activities; | |
| • | screening and identification of product candidates; | |
| • | formulation and synthesis activities; | |
| • | manufacturing; | |
| • | preclinical studies, including toxicology studies; | |
| • | clinical trials; | |
| • | regulatory affairs; and | |
| • | quality assurance activities. |
The following table identifies for each of our
major drug discovery and development programs our lead product
candidates, the development phase of each lead product
candidate, the status of each lead product candidate and
research and development spending for each lead product
candidate for each of the periods presented. Research and
development spending for past periods is not indicative of
spending in future periods.
Research & Development Spending
Nine Months
Program/
Year Ended
Ended
Inception
Product
December 31,
September 30,
Through
Candidate/
Development
September 30,
Indication
Phase
Status
2000
2001
2002
2002
2003
2003
(in thousands)
Phase IIb clinical trial
Enrollment complete; last patient scheduled to
complete trial in May 2004; final results expected in the third
quarter of 2004
$
1,984
$
2,436
$
3,168
$
2,015
$
2,271
$
10,562
Pivotal Phase III clinical trial
Pivotal Phase III clinical trial initiated
in November 2003
$
—
$
—
$
807
$
606
$
661
$
1,468
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Table of Contents
| Nine Months | |||||||||||||||||||||||||||||
| Program/ | Year Ended | Ended | Inception | ||||||||||||||||||||||||||
| Product | December 31, | September 30, | Through | ||||||||||||||||||||||||||
| Candidate/ | Development |
|
|
September 30, | |||||||||||||||||||||||||
| Indication | Phase | Status | 2000 | 2001 | 2002 | 2002 | 2003 | 2003 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||
|
Andarine
|
|||||||||||||||||||||||||||||
| Cachexia from various types of cancer | Three Phase I clinical trials completed | Phase II clinical trials for treatment of cachexia from non-small cell lung cancer scheduled to begin in the first half of 2004 | $ | 141 | $ | 2,430 | $ | 4,134 | $ | 2,811 | $ | 3,489 | $ | 10,194 | |||||||||||||||
|
Other product candidates
|
Preclinical | $ | 554 | $ | 878 | $ | 1,176 | $ | 976 | $ | 702 | $ | 3,310 | ||||||||||||||||
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Total research and development
spending
|
$ | 2,679 | $ | 5,744 | $ | 9,285 | $ | 6,408 | $ | 7,123 | $ | 25,534 | |||||||||||||||||
|
|
|
|
|
|
|
||||||||||||||||||||||||
There is a risk that any drug discovery and development program may not produce revenue. Moreover, because of uncertainties inherent in drug discovery and development, including those factors described in the “Risk Factors” section of this prospectus, we may not be able to successfully develop and commercialize any of the product candidates included in the table above.
Drug development in the United States is a process that includes several steps defined by the FDA. The FDA approval process for a new drug involves completion of preclinical studies and the submission of the results of these studies to the FDA, together with proposed clinical protocols, manufacturing information, analytical data and other information in an Investigational New Drug application, or IND, which must become effective before human clinical trials may begin. Clinical development typically involves three phases of study: Phase I, II and III. The most significant costs associated with clinical development are the Phase III clinical trials as they tend to be the longest and largest studies conducted during the drug development process. After completion of clinical trials, a New Drug application, or NDA, may be submitted to the FDA. In responding to an NDA, the FDA may refuse to file the application, or if accepted for filing, the FDA may grant marketing approval, request additional information or deny the application if it determines that the application does not provide an adequate basis for approval.
The successful development of our product candidates is highly uncertain. We cannot reasonably estimate or know the nature, timing and estimated costs of the efforts necessary to complete the development of, or the period in which material net cash inflows are expected to commence from, any of our product candidates due to the numerous risks and uncertainties associated with developing drugs, including the uncertainty of:
| • | the scope, rate of progress and cost of our clinical trials and other research and development activities; | |
| • | future clinical trial results; | |
| • | the terms and timing of any collaborative, licensing and other arrangements that we may establish; | |
| • | the cost and timing of regulatory approvals; | |
| • | the cost and timing of establishing sales, marketing and distribution capabilities; |
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Table of Contents
| • | the cost of establishing clinical and commercial supplies of our product candidates and any products that we may develop; | |
| • | the effect of competing technological and market developments; and | |
| • | the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights. |
Any failure to complete the development of our product candidates in a timely manner could have a material adverse effect on our operations, financial position and liquidity. A discussion of the risks and uncertainties associated with completing our projects on schedule, or at all, and some consequences of failing to do so, are set forth in the “Risk Factors” section of this prospectus.
Results of Operations
Comparison of Nine Months Ended September 30, 2003 and September 30, 2002
Research and Development. Research and development expenses increased 11.2% to $7.1 million for the nine months ended September 30, 2003 from $6.4 million for the nine months ended September 30, 2002. The increase was due primarily to an increase in research and development expenses for Andarine of approximately $677,000 of Phase I clinical trial expenses. Research and development expenses also increased due to an increase in clinical trial expenses for the Phase IIb clinical trial of Acapodene for the reduction in the incidence of prostate cancer in men with high grade PIN of approximately $256,000, as enrollment in the clinical trial was completed in May 2003. These increases were offset in part by a reduction in research and development spending on other product candidates of approximately $274,000.
We expect that research and development expenditures will continue to increase substantially during 2003 and subsequent years due to (1) the commencement in November 2003 of a pivotal Phase III clinical trial of Acapodene for the treatment of side effects of androgen deprivation therapy, (2) the completion of the current Phase IIb clinical trial in 2004 and planned commencement of a pivotal Phase III clinical trial of Acapodene for the reduction in the incidence of prostate cancer in men with high grade PIN and (3) the continued development of Andarine, including a Phase II clinical trial scheduled to begin in the first half of 2004. We expect to expand the scope of our drug discovery and development programs in future periods, which may result in substantial increases in research and development expenses.
General and Administrative. General and administrative expenses consist primarily of the costs of administrative personnel and related facilities and legal, accounting, human resources, information technology, public relations and other professional services. In the future, general and administrative expenses will also include the costs of sales and marketing. General and administrative costs increased 27.8% to $2.3 million for the nine months ended September 30, 2003 from $1.8 million for the nine months ended September 30, 2002. The increase was primarily due to an increase in salary and benefits expense of approximately $241,000 resulting from increases in staffing levels, annual salary increases and increased health insurance costs and an approximate $98,000 increase in professional fees. The increase in general and administrative expenses for the nine months ended September 30, 2003 included amortization of stock-based compensation expense of $83,000. In September 2003, in anticipation of our proposed initial public offering, we recorded deferred stock-based compensation expense of $3.5 million. The expense will be amortized over the service period, which is generally five years.
We expect that general and administrative expenditures will increase during 2003 and subsequent years due to increasing payroll, public company expenses, our initial commercialization expenses, business development costs and expanded operational infrastructure.
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Table of Contents
Interest Income. Interest income for the nine months ended September 30, 2003 was $79,000 and decreased from the corresponding period in 2002 as a result of a decrease in the average cash and cash equivalents balance and overall interest rates.
Adjustment to Preferred Stock Redemption Value. The adjustment to preferred stock redemption value consists of the amount of the change in the redemption value, which is the greater of the liquidation value or fair value, of the preferred stock. The adjustment for the nine months ended September 30, 2003 was an increase of $76.7 million, $56.07 per share, as compared to an increase of $7.1 million, $9.10 per share, for the nine months ended September 30, 2002. The per share redemption value was $57.66 as of December 31, 2001, $66.76 as of September 30, 2002, $66.76 as of December 31, 2002 and $122.83 as of September 30, 2003. The increases in the redemption value for the nine months ended September 30, 2003 and 2002 were the result of the achievement of significant milestones in clinical trials and general market conditions and, for the nine months ended September 30, 2003, was made in connection with our anticipated initial public offering. See “Critical Accounting Policies Adjustment to Preferred stock Redemption Value.”
Comparison of Years Ended December 31, 2002 and December 31, 2001
Research and Development. Research and development expenses increased 61.6% to $9.3 million for the year ended December 31, 2002 from $5.7 million for the year ended December 31, 2001. This increase was primarily due to an increase in clinical trial expenses for the Phase IIb clinical trial of Acapodene for the reduction in the incidence of prostate cancer in men with high grade PIN of approximately $732,000 and an increase in clinical trial expenses for two Phase II clinical trials of Acapodene for the treatment of side effects of androgen deprivation therapy of approximately $807,000. In addition, preclinical toxicology studies, formulation and synthesis activities, manufacturing activities and clinical development activities for Andarine increased research and development expenses by approximately $1.7 million. Research and development expenses related to other product candidates increased by approximately $297,000 for the year ended December 31, 2002 as compared to the prior year.
General and Administrative. General and administrative expenses increased 10% to $2.4 million for the year ended December 31, 2002 from $2.2 million for the year ended December 31, 2001. This increase was primarily due to an increase in salary and benefits expense by approximately $419,000 associated with increases in staffing levels, offset by a reduction in legal fees of approximately $72,000 and travel expenses of approximately $40,000. In addition, general and administrative expenses for the year ended December 31, 2001 included interest expense on notes payable of approximately $71,000. There were no notes outstanding in the year ended December 31, 2002.
Interest Income. Interest income increased 88% to approximately $156,000 for the year ended December 31, 2002 from approximately $83,000 for the year ended December 31, 2001. The increase was principally attributable to higher average cash and cash equivalents balances during the year ended December 31, 2002 as compared to the prior year.
Adjustment to Preferred Stock Redemption Value. The adjustment for the year ended December 31, 2002 was an increase of $7.2 million, or $9.10 per share, as compared to an increase of $57,000 for the year ended December 31, 2001. The per share redemption value was $57.66 as of December 31, 2000, $57.66 as of December 31, 2001 and $66.76 as of December 31, 2002. The increase in the redemption value for the year ended December 31, 2002 was the result of the achievement of significant milestones in clinical trials and general market conditions.
Comparison of Years Ended December 31, 2001 and December 31, 2000
Research and Development. Research and development expenses increased 114.4% to $5.7 million for the year ended December 31, 2001 from $2.7 million for the year ended December 31, 2000. This increase was primarily due to an increase in research and development
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Table of Contents
General and Administrative. General and administrative expenses increased 81.8% to $2.2 million for the year ended December 31, 2001 from $1.2 million for the year ended December 31, 2000. This increase was primarily due to an increase in salary and benefits expense by approximately $460,000 associated with increases in staffing levels, an increase of occupancy expense of approximately $105,000, an increase in legal fees of approximately $112,000, as well as increases in other general and administrative expenses. In addition, general and administrative expenses for the year ended December 31, 2001 included interest expense on notes payable of approximately $71,000. There were no notes outstanding in the year ended December 31, 2000.
Interest Income. Interest income decreased 44.7% to $83,000 for the year ended December 31, 2001 from $150,000 for the year ended December 31, 2000. The decrease was principally attributable to lower average cash and cash equivalents balances during the year ended December 31, 2001 as compared to the prior year.
Adjustment to Preferred Stock Redemption
Value.
The adjustment for the year
ended December 31, 2001 was an increase of $57,000, as
compared to an increase of $21.1 million, or $50.38 per
share, for the year ended December 31, 2000. The per share
redemption value was $7.28 as of December 31, 1999, $57.66
as of December 31, 2000 and $57.66 as of December 31,
2001. The increase in the redemption value for the year ended
December 31, 2000 was the result of the achievement of
significant milestones in clinical trials and general market
conditions.
Liquidity and Capital Resources
We have not generated any product revenue, and we
have financed our operations and internal growth almost
exclusively through private placements of preferred stock. We
have incurred significant losses since our inception in 1997. As
of September 30, 2003, we had a deficit accumulated during
the development stage of $144.9 million, of which $110.6
million related to non-cash dividends and adjustments to the
preferred stock redemption value.
The following table summarizes our issuances of
preferred stock through September 30, 2003.
At September 30, 2003, we had cash and cash
equivalents of $19.8 million, compared to $8.9 million
at December 31, 2002, $8.8 million at
December 31, 2001 and $2.7 million at
December 31, 2000.
Net cash used in operating activities was
$10.6 million for the year ended December 31, 2002 and
$9.1 million for the nine months ended September 30,
2003. The use of cash in both periods resulted primarily from
funding our net losses.
Net cash used in investing activities was
$313,000 for the year ended December 31, 2002 and $60,000
for the nine months ended September 30, 2003, primarily for
the purchase of research and development equipment.
33
Net cash provided by financing activities, which
resulted from the sale of preferred stock, was
$11.0 million for the year ended December 31, 2002 and
$20.0 million for the nine months ended September 30,
2003.
We believe that the net proceeds from this
offering, our current cash resources and interest on these funds
will be sufficient to meet our projected operating requirements
through the end of 2005. In addition to the net proceeds of this
offering, we estimate that we will need to raise additional
funds in the amount of approximately $70 million, assuming
that we do not enter into collaborative arrangements for any of
our product candidates, in order to complete development of
Acapodene and Andarine for the indications currently being
tested.
Our forecast of the period of time through which
our financial resources will be adequate to support our
projected operating requirements is a forward-looking statement
and involves risks and uncertainties, and actual results could
vary as a result of a number of factors, including the factors
discussed in the “Risk Factors” section of this
prospectus. We have based this estimate on assumptions that may
prove to be wrong, and we could utilize our available capital
resources sooner than we currently expect. Because of the
numerous risks and uncertainties associated with the development
of our product candidates and other research and development
activities, including risks and uncertainties that could impact
the rate of progress of our development activities, we are
unable to estimate with certainty the amounts of increased
capital outlays and operating expenditures associated with our
current and anticipated clinical trials and other research and
development activities. Our future funding requirements will
depend on many factors, including:
We do not anticipate that we will generate
product revenue for a number of years. Until we can generate a
sufficient amount of product revenue, if ever, we expect to
finance future cash needs through public or private equity
offerings, debt financings or corporate collaboration and
licensing arrangements, as well as through interest income
earned on cash balances. We do not currently have any
commitments for future external funding. We cannot be certain
that additional funding will be available on acceptable terms,
or at all. To the extent that we raise additional funds by
issuing equity securities, our stockholders may experience
dilution, and debt financing, if available, may involve
restrictive covenants. To the extent that we raise additional
funds through collaboration and licensing arrangements, it may
be necessary to relinquish some rights to our technologies or
product candidates, or grant licenses on terms that are not
favorable to us. If adequate funds are not available, we may be
required to delay, reduce the scope of or eliminate one or more
of our research or development programs or to obtain funds
through collaborations with others that are on
34
We have no long-term debt, and, as of
September 30, 2003, we had contractual obligations related
to a facilities lease as follows:
Our long-term commitments under the operating
lease shown above consist of payments relating to a lease for
laboratory and office space at 3 North Dunlap Street,
Memphis, Tennessee. This lease expires on September 30,
2005. This lease is terminable by either party on
90 days’ notice. The table above excludes contingent
payments under the license agreements to which we are a party.
Critical Accounting Policies
The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States requires management to make estimates and
assumptions that affect the reported amounts of assets,
liabilities, revenues, expenses and related disclosures. Actual
results could differ from those estimates. We believe that the
following critical accounting policies affect the more
significant judgments and estimates used in the preparation of
our financial statements.
Accounting for Income Taxes
Our income tax policy records the estimated
future tax effects of temporary differences between the tax
basis of assets and liabilities and amounts reported in the
accompanying balance sheets, as well as operating loss and tax
credit carryforwards. We have recorded a full valuation
allowance to reduce our deferred tax assets as, based on
available objective evidence, it is more likely than not that
the deferred tax asset will not be realized. In the event that
we determine that we will be able to realize our deferred tax
assets in the future, an adjustment to the valuation allowance
would increase net income in the period such determination is
made.
Stock-Based Compensation
In accordance with Accounting Principles Board
Opinion No. 25 and related interpretations, we do not
recognize compensation expense when we issue stock options to
employees and non-employee directors, unless the exercise price
is below the fair market value of the stock on the date of
grant. In anticipation of this offering, we determined that, for
financial reporting purposes, the estimated value of our common
stock was in excess of the exercise price for stock options
issued to employees subsequent to June 30, 2003.
Accordingly, we recorded deferred stock-based compensation and
are amortizing the related expense over the service period,
which is generally five years. Our compensation expense would
have been approximately $115,000 higher and our diluted net
loss per share attributable to common stockholders would have
been approximately $0.13 higher in 2002 had we recognized
an expense equal to the estimated fair market value of employee
stock options granted through December 31, 2002 amortized
over the vesting period of the options. For more information on
this subject, you should refer to Note 11 to our financial
statements included elsewhere in this prospectus.
Adjustment to Preferred Stock Redemption
Value
We recognize changes in the redemption value of
our preferred stock immediately as they occur and adjust the
carrying value of the preferred stock to equal the redemption
value at the end
35
Quantitative and Qualitative Disclosures about
Market Risk
Our exposure to market risk for changes in
interest rates relates to our cash equivalents on deposit in
highly liquid money market funds. The primary objective of our
cash investment activities is to preserve principal while at the
same time maximizing the income we receive from our invested
cash without significantly increasing risk of loss. We do not
use derivative financial instruments in our investment
portfolio. Our cash and investments policy emphasizes liquidity
and preservation of principal over other portfolio
considerations.
We have operated primarily in the United States.
Accordingly, we do not have any material exposure to foreign
currency rate fluctuations. However, if we are successful in our
efforts to commercialize Acapodene, our exposure to foreign
currency rate fluctuations may increase because we are obligated
to pay Orion in Euros.
Recent Accounting Pronouncements
In December 2002, the Financial Accounting
Standards Board, or FASB, issued SFAS No. 148
“Accounting for Stock-Based
Compensation — Transition and Disclosure,”
which provides alternative methods of transition for a voluntary
change to the fair value based method of accounting for
stock-based employee compensation. SFAS No. 148 also
requires that disclosures of the pro forma effect of using the
fair value method of accounting for stock-based employee
compensation be displayed more prominently and in a tabular
format. Additionally, SFAS No. 148 requires disclosure of
the pro forma effect in interim financial statements. The
transition and annual disclosure requirements of SFAS
No. 148 are effective for fiscal years ended after
December 15, 2002. The interim disclosure requirements are
effective for interim periods beginning after December 15,
2002. The adoption of this standard did not have a material
impact on our financial statements.
In January 2003, the FASB issued FASB
Interpretation No. 46, “Consolidation of Variable
Interest Entities, an Interpretation of ARB No. 51.”
FIN 46 requires certain variable interest entities to be
consolidated by the primary beneficiary of the entity if the
equity investors in the entity do not have the characteristics
of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties.
FIN 46 is effective immediately for all new variable interest
entities created or acquired after January 31, 2003. For
variable interest entities created or acquired prior to
February 1, 2003, the provisions of FIN 46 must be
applied for the first interim or annual period ending after
December 15, 2003. We did not have any ownership in any
variable interest entities as of December 31, 2002. We will
apply the consolidation requirement of FIN 46 in future
periods if we own any interest in any variable interest entity.
In May 2003, the FASB issued SFAS No. 150,
“Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity.” SFAS
No. 150 requires that certain financial instruments, which
under previous guidance could be accounted for as equity, be
classified as liabilities in the statement of financial
position. SFAS No. 150 is effective for financial
instruments entered into or modified after May 31, 2003. We
do not expect the adoption of SFAS No. 150 to have a
significant impact on our financial statements.
36
Series
Date
Number of Shares
Approximate Gross Proceeds
(in thousands)
May 1999
200,000
$
1,455
July 2000
277,500
5,000
October 2001
260,154
15,000
July 2002
164,765
11,000
August 2003
329,536
20,000
Table of Contents
•
the scope, rate of progress and cost of our
clinical trials and other research and development activities;
•
future clinical trial results;
•
the terms and timing of any collaborative,
licensing and other arrangements that we may establish;
•
the cost and timing of regulatory approvals;
•
the cost and timing of establishing sales,
marketing and distribution capabilities;
•
the cost of establishing clinical and commercial
supplies of our product candidates and any products that we may
develop;
•
the effect of competing technological and market
developments;
•
the cost of filing, prosecuting, defending and
enforcing any patent claims and other intellectual property
rights; and
•
the extent to which we acquire or invest in
businesses, products and technologies, although we currently
have no commitments or agreements relating to any of these types
of transactions.
Table of Contents
Payments Due by Period
(in thousands)
Less than
After 5
Total
1 year
1-3 years
4-5 years
years
$
404
$
202
$
202
$
—
$
—
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Table of Contents
BUSINESS
Overview
GTx is a biopharmaceutical company dedicated to the discovery, development and commercialization of therapeutics primarily related to the treatment of serious men’s health conditions. Our drug discovery and development programs are focused on small molecules that selectively modulate the effects of estrogens and androgens, two essential classes of hormones. We currently have two product candidates that are in human clinical trials. We are developing Acapodene, our most advanced product candidate, through clinical trials for two separate indications: (1) a Phase IIb clinical trial for the reduction in the incidence of prostate cancer in men with precancerous prostate lesions and (2) a pivotal Phase III clinical trial for the treatment of serious side effects of advanced prostate cancer therapy. We are initially developing our second product candidate, Andarine, for the treatment of cachexia from various types of cancer. Cancer cachexia is a muscle wasting condition that is a potentially life-threatening complication of many cancers. Andarine is the most advanced of our internally discovered portfolio of compounds designed to modulate the effects of hormones.
Our most advanced product candidate is Acapodene, which we are developing to reduce the incidence of prostate cancer in men with precancerous prostate lesions known as high grade prostatic intraepithelial neoplasia, or high grade PIN. We have licensed from Orion Corporation the right to develop, market and distribute toremifene, the active pharmaceutical ingredient in Acapodene, worldwide in the field of the prevention and treatment of prostate cancer and the treatment of the principal side effects of prostate cancer therapies. Scientific evidence has established that men who have high grade PIN are at high risk of developing prostate cancer. Currently, there is no therapy for the treatment of high grade PIN. We are conducting a Phase IIb clinical trial in which we have enrolled 515 patients to determine the efficacy and safety of Acapodene in reducing the incidence of prostate cancer in men with high grade PIN. The last patient is scheduled to complete this trial in May 2004, with final results expected in the third quarter of 2004.
We are also developing Acapodene for the treatment of side effects of androgen deprivation therapy, which reduces blood levels of testosterone, the growth factor for prostate cancer. Androgen deprivation therapy is the standard medical treatment for men who have advanced, recurrent or metastatic prostate cancer. Androgen deprivation therapy has serious side effects, including: severe bone loss, or osteoporosis, leading to skeletal fractures; hot flashes; and breast pain and enlargement, or gynecomastia. There are no drugs approved by the FDA for the treatment of these side effects of androgen deprivation therapy. We commenced a pivotal Phase III clinical trial of Acapodene for this indication in November 2003.
Our second product candidate is Andarine, which we are initially developing for the treatment of cachexia from various types of cancer, a potentially life-threatening complication of many cancers. There are no drugs that have been approved by the FDA for the treatment of cancer cachexia. We plan to commence a placebo-controlled, dose-finding Phase II clinical trial for the treatment of cachexia from non-small cell lung cancer in the first half of 2004.
We have multiple product candidates that we are evaluating in preclinical and toxicology studies to support the possible commencement of clinical trials. Our current preclinical product candidates focus on the treatment of major indications in men’s health, including benign prostatic hyperplasia, or BPH, a benign prostate enlargement that results in obstruction of the urinary tract; osteoporosis; testosterone deficiency in aging men, or andropause; and prostate cancer.
We believe that our drug discovery capabilities position us well to sustain our clinical pipeline through the design and development of nonsteroidal small molecule drugs that modulate the effects of hormones.
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Scientific Background on Estrogens and Androgens
Both estrogens and androgens are hormones that play critical roles in men’s health, regulating not only the reproductive system, but also having important effects on the muscular, skeletal, cardiovascular and central nervous systems. In order for the body to function properly, a balance must exist between estrogens and androgens.
Estrogens prevent bone loss and osteoporosis and reduce the risk of skeletal fractures. In aging men, there is a gradual increase in estrogen levels in the blood, which may promote BPH, initiate prostate cancer and cause gynecomastia.
Testosterone is the predominant androgen in men. Testosterone is important for mental well-being and for masculine physical characteristics, such as muscle size and strength, bone strength and male pattern hair growth and loss. Testosterone also stimulates sebaceous glands, which can cause acne. Male reproductive health is also dependent on testosterone to maintain sexual interest, fertility, erectile function and normal prostate growth. In aging men, there is a gradual decrease in testosterone levels, leading to loss of muscle mass and strength, reduced bone mineralization resulting in osteoporosis and bone fractures, erectile dysfunction, decreased sexual interest, depression and mood changes.
In order for estrogens and androgens to perform their physiologic functions, they must interact with and activate their hormone receptors. Hormone receptors are sites located in tissues where hormones bind. Once a hormone binds with its receptor, a series of cellular events is activated, resulting in estrogenic or androgenic tissue effects.
Pharmaceuticals that target hormone receptors for estrogens or androgens have been prescribed for over 50 years. The drugs that have been used to stimulate androgen receptors are natural or synthetic hormones, known as steroids. Steroids activate hormone receptors in all tissue types in a non-selective manner. The absence of selectivity may result in unwanted side effects, such as the potential stimulation of latent prostate cancer, aggravation of existing BPH, acne, hair growth and gynecomastia. Testosterone products also have many pharmacologic limitations, such as an inability to administer them orally. Instead, they must be given by intramuscular injections, patches or gels. The delivery methods of testosterone products are inconvenient for patients and in some cases result in inconsistent levels of testosterone in the blood.
There are also classes of small molecules that are not steroids, but which bind to hormone receptors. These small molecules may either stimulate or block hormone receptors depending on the type of tissue in which the receptor is found. A drug that can either block or stimulate the same hormone receptor is called a receptor modulator. A drug that can either block or stimulate a receptor in a tissue-selective manner may be able to mimic the beneficial, and at the same time minimize the unwanted, effects of natural or synthetic hormones.
A selective estrogen receptor modulator, or SERM, is a small molecule that binds to and selectively modulates estrogen receptors. SERMs have the ability to either stimulate or block estrogen’s activity in different tissue types. SERMs have been shown to stimulate estrogen’s beneficial action in bone and block estrogen’s harmful activity in the breast. In addition, we believe that SERMs have the potential to block estrogen’s harmful activity in the prostate. Examples of SERMs currently on the market include tamoxifen, which has been prescribed to treat female and male breast cancer, and raloxifene, which is used to prevent and treat female post-menopausal osteoporosis.
Similarly, a selective androgen receptor modulator, or SARM, is a small molecule that binds to and selectively modulates androgen receptors. In men, we believe that SARMs will be able to stimulate testosterone’s beneficial action in bone, muscle and brain, while blocking testosterone’s harmful action in the prostate and skin. We further believe that SARMs will have the ability to either cross or not cross into the central nervous system and to selectively modulate receptors depending on tissue type. As a result, although no SARMs have been commercialized to date, we believe that
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Product Candidates
The following table summarizes key information about our product candidates:
| Development | ||||||||||
| Program | Product Candidate/Indication | Phase | Status | |||||||
|
|
|
|
|
|||||||
| SERM |
Acapodene
- Reduction in the incidence of prostate cancer in men with high grade PIN |
Phase IIb clinical trial | Enrollment complete; last patient scheduled to complete trial in May 2004; final results expected in the third quarter of 2004 | |||||||
| - Side effects of androgen deprivation therapy | Pivotal Phase III clinical trial | Pivotal Phase III clinical trial initiated in November 2003 | ||||||||
| SARM |
Andarine
- Cachexia from various types of cancer |
Three Phase I clinical trials completed |
Phase II clinical trials for treatment of cachexia from non- small cell lung cancer scheduled to begin in the first half of 2004 |
|||||||
|
Prostarine
- BPH |
Preclinical |
Preclinical studies to support IND in progress |
||||||||
|
Ostarine
- Male osteoporosis and andropause |
Preclinical |
Preclinical studies to support IND in progress |
||||||||
| Anticancer |
Andromustine
- Prostate cancer that is not responsive to androgen deprivation therapy |
Preclinical |
Preclinical studies to support IND in progress |
|||||||
Acapodene
Our most advanced product candidate, Acapodene, is a selective estrogen receptor modulator, or SERM. Acapodene is taken orally and is being developed for a once-a-day dosing schedule. We have licensed from Orion the right to develop, market and distribute toremifene, the active pharmaceutical ingredient in Acapodene, worldwide in the field of the prevention and treatment of prostate cancer and the prevention and treatment of osteoporosis, hot flashes and gynecomastia as side effects of androgen deprivation therapy for prostate cancer. Our license rights are exclusive in North America and Japan. Toremifene is an FDA-approved SERM product for the treatment of advanced breast cancer in post-menopausal women that has been marketed in the United States as Fareston by Shire Pharmaceuticals Group since 1999 and by other companies in other countries for over 10 years. We licensed rights to toremifene based on our belief that a SERM potentially could reduce the incidence of prostate cancer in men with high grade PIN and the established safety and
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The two indications for which we are developing Acapodene target different patient populations: (1) patients who have been diagnosed with high grade PIN, but do not yet have prostate cancer; and (2) patients who have been diagnosed with advanced, recurrent or metastatic prostate cancer and are being treated with androgen deprivation therapy.
Acapodene for the Reduction in the Incidence of Prostate Cancer in Men with High Grade PIN
Scientific Overview. Patients who have an abnormal result from a serum PSA test, a prostate cancer blood test that is commonly administered to men as part of physical examinations, or an abnormal digital rectal examination undergo a prostate biopsy to determine whether they have prostate cancer. Precancerous prostate lesions known as high grade prostatic intraepithelial neoplasia, or high grade PIN, rather than prostate cancer, is detected in approximately 10% of the patients who undergo prostate biopsies. Over the last 17 years, scientific evidence has established that men who have high grade PIN are at high risk of developing prostate cancer. Scientific studies have shown that prostate cancer is found in approximately 30% to 71% of high grade PIN patients within one year of a high grade PIN diagnosis and in 45% to 80% of high grade PIN patients within five years of a high grade PIN diagnosis. Because of this correlation between high grade PIN and prostate cancer, we believe that treating high grade PIN may reduce the incidence of prostate cancer.
Estrogens play an important role in the initiation of prostate cancer. One way estrogens may influence the initiation of prostate cancer is by stimulating high grade PIN and causing it to progress into prostate cancer. Estrogen receptors are found in the prostate and in high grade PIN lesions. In animal models of prostate cancer, blocking estrogens’ action has been shown to regress high grade PIN and reduce the incidence of prostate cancer. Because Acapodene is designed to directly block estrogen receptors, we believe that it has the potential to reduce the incidence of prostate cancer in men with high grade PIN.
Potential Market. Prostate cancer is one of the most commonly diagnosed cancers in men and the second leading cause of cancer-related deaths in the United States. There are 400,000 new cases of prostate cancer diagnosed and 239,000 prostate cancer deaths annually worldwide. In the United States, there are over 115,000 new cases of high grade PIN diagnosed each year, and an estimated 9.4 million men unknowingly harbor high grade PIN.
Because there is currently no therapy for the treatment of high grade PIN, patients who are diagnosed with high grade PIN are subjected to repeat biopsies immediately after diagnosis and then every three to six months in order to detect the progression of high grade PIN into prostate cancer. Prostate biopsies are performed through an ultrasound probe placed in the rectum. Hollow needles are then inserted into the prostate to obtain a core of tissue. Complications from this procedure include bleeding, pain, prostate infection and life-threatening blood infection. Because the prostate biopsy technique randomly samples the prostate gland with a relatively thin needle, both prostate cancer and high grade PIN may be missed by the biopsy. Patients with high grade PIN are exposed to the potential complications and the discomfort of invasive, repeat prostate biopsies and suffer the mental anguish of fearing that a diagnosis of prostate cancer may be imminent.
Clinical Trials. In 2000, we completed a Phase IIa clinical trial of Acapodene in 21 patients with high grade PIN. The trial was conducted at the University of Tennessee. Phase IIa clinical trials typically evaluate efficacy and safety and determine the optimal dosing regimen. The primary endpoint of the trial was the presence of high grade PIN. Each participant in the trial received a daily oral dose of Acapodene for four months. The trial was open label and not placebo-controlled, and we did not perform long-term follow-up on the patients in the trial. Each patient underwent a prostate biopsy to detect high grade PIN at the beginning and end of the four-month trial period. Results
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Based on the results from our Phase IIa clinical trial, in 2001, we began a placebo-controlled, randomized Phase IIb clinical trial in men with recently diagnosed high grade PIN to determine the efficacy and safety of a daily dose of Acapodene at three dose levels for 12 months. The principal indication of efficacy that we are seeking to verify, or primary endpoint, of the trial is the incidence of prostate cancer, and the ancillary indication of efficacy that we are seeking to verify, or secondary endpoint, of the trial is the presence of high grade PIN. Study patients undergo a series of eight core prostate biopsies at six months and again at 12 months. In order to minimize the inclusion of patients who have, at the time of their enrollment in the trial, prostate cancer that was missed in their initial biopsy, patients in whom prostate cancer is detected six months after enrollment are removed from the trial. Therefore, the prostate cancer incidence will be determined based only on patients who receive Acapodene or the placebo for the entire 12 months. The trial is being conducted at 64 clinical sites across the United States and is fully enrolled with approximately 515 patients.
A planned interim analysis of the first 120 patients in this clinical trial who underwent prostate biopsies at six and again at 12 months was conducted in April 2003. Results of the interim analysis showed that patients who received Acapodene had a 10% to 17% incidence of prostate cancer 12 months after being diagnosed with high grade PIN, depending on the dose of Acapodene, compared to a 23% incidence in the placebo group. This represents an approximately 26% to 57% reduction in prostate cancer incidence in those patients who received Acapodene compared to the placebo group.
To date, three serious adverse events have been reported in the 515 patients participating in this Phase IIb clinical trial. Because the safety results are blinded, we do not know whether these events were experienced by participants receiving Acapodene or the placebo. However, we have not observed any trend relating these three serious adverse events to Acapodene.
The last patient is scheduled to complete this Phase IIb clinical trial in May 2004, with final results expected in the third quarter of 2004. We believe that this Phase IIb clinical trial of Acapodene together with a single pivotal Phase III clinical trial will be sufficient to support an application with the FDA for marketing approval of Acapodene for this indication. We are evaluating the protocol of this pivotal Phase III trial and anticipate initiating the trial in the second half of 2004.
Acapodene for the Treatment of Side Effects of Androgen Deprivation Therapy
Scientific Overview. The standard medical treatment for patients who have advanced, recurrent or metastatic prostate cancer is androgen deprivation therapy, which reduces blood levels of testosterone, the growth factor for prostate cancer. Androgen deprivation therapy is accomplished either surgically by removal of the testes, or chemically by treatment with luteinizing hormone releasing hormone agonists, known as LHRH agonists. LHRH agonists work by shutting off luteinizing hormone secretion by the pituitary gland, which stops testosterone production by the testes. Examples of commercially marketed LHRH agonists are Lupron and Zoladex.
Side effects associated with LHRH agonists include bone loss leading to osteoporosis and skeletal fractures, muscle weakness, hot flashes, gynecomastia, depression, loss of libido and erectile dysfunction. In particular, of the patients treated with LHRH agonists, approximately 60% experience osteoporosis, 22% develop bone fractures, 55% to 80% experience hot flashes and 25% experience gynecomastia. Bone loss leading to osteoporosis and skeletal fractures is a significant clinical problem because prostate cancer patients who develop skeletal fractures have shorter survival rates compared to patients who do not develop skeletal fractures, with the median survival time shortened by 39 months. Hot flashes occur because of the lack of testosterone in the brain. Hot
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Based on the results of our Phase II clinical trials and our preclinical testing of Acapodene, as well as known information about toremifene, we believe that Acapodene has estrogenic activity both in bone, which may prevent osteoporosis, and in the brain, which may reduce hot flashes. In addition, based on the same data and information, we believe that Acapodene can block estrogen’s action in the male breast, which may prevent and treat gynecomastia. As a consequence, we believe that Acapodene has the potential to treat three serious side effects of LHRH agonists: osteoporosis, hot flashes and gynecomastia.
Potential Market. In the United States, more than 675,000 men are currently being treated with androgen deprivation therapy for advanced, recurrent or metastatic prostate cancer, with over 120,000 new patients started on this therapy each year. An increasing number of prostate cancer patients are being treated by androgen deprivation with LHRH agonists earlier than in the past because of two main factors. First, medical studies have shown that early androgen deprivation therapy prolongs the survival of prostate cancer patients. Second, the serum PSA test is detecting disease earlier than in the past. However, the effect of this trend is that the side effects of androgen deprivation therapy now contribute significantly to the morbidity, and in some cases the mortality, of men with prostate cancer. Physicians are prescribing some drugs on an off-label basis to help ameliorate some of the individual side effects of androgen deprivation therapy. These drugs include bisphosphonates for osteoporosis, Megace and antidepressants for hot flashes and tamoxifen for gynecomastia. Radiation is also used to treat gynecomastia. However, no single therapy is available to treat multiple side effects of androgen deprivation therapy.
Clinical Trials. We have completed two Phase II clinical trials of Acapodene for the treatment of osteoporosis and hot flashes in patients with advanced, recurrent or metastatic prostate cancer. The first Phase II trial was conducted at five clinical sites across the United States and treated 43 patients with advanced, recurrent or metastatic prostate cancer shortly after initiation of treatment with LHRH agonists. The second of these trials was conducted at three clinical sites across the United States and treated 46 patients with advanced, recurrent or metastatic prostate cancer who had been receiving LHRH agonists for more than 12 months. In each trial, participants were randomized to either a daily oral dose of Acapodene or a placebo for six months. The primary endpoint of both trials was bone mineral density. The secondary endpoint of both trials was the incidence of hot flashes. We measured bone mineral density and hot flash symptoms at entry into each of the clinical trials and at six months. We did not evaluate the effects of Acapodene on gynecomastia in either of these trials. There were no serious adverse events attributable to Acapodene in either of our Phase II clinical trials.
In our first Phase II clinical trial, which evaluated 43 patients shortly after initiation of treatment with LHRH agonists, patients who received Acapodene at the highest tested dose on average experienced an approximately 2% decrease in lumbar vertebral spine bone mineral density at six months, while the patients who received the placebo on average experienced an approximately 4% decrease in lumbar vertebral spine bone mineral density at six months. At the lower tested doses, Acapodene, as compared to the placebo, did not have a meaningfully different effect on lumbar vertebral spine bone mineral density. There was no significant difference between Acapodene and the placebo in the incidence of hot flashes at any tested dose.
In our second Phase II clinical trial, which evaluated 46 patients who had been receiving LHRH agonists for more than 12 months, patients who received Acapodene at the highest tested dose on average experienced a 3.5% increase in lumbar vertebral spine bone mineral density, while the patients who received the placebo on average experienced a 0.5% decrease in lumbar vertebral spine bone mineral density. Only 12.5% of the patients in this trial who received Acapodene at the highest tested dose, compared to 50% of the patients who received the placebo, reported experiencing an increase in the frequency of hot flashes during the clinical trial. The magnitude of
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In November 2003, we initiated a pivotal Phase III clinical trial of Acapodene in patients undergoing androgen deprivation therapy for advanced, recurrent or metastatic prostate cancer. We designed this pivotal Phase III clinical trial principally based on the results of our Phase II clinical trial that evaluated patients who had been receiving LHRH agonists for more than 12 months. The primary endpoint of the trial is the incidence of skeletal fractures. The secondary endpoints of the trial include the measurement of bone loss and the incidence of hot flashes and gynecomastia. We expect that over 60 clinical sites across the United States will participate in this study. Approximately 1,200 patients with advanced, recurrent or metastatic prostate cancer who have been receiving androgen deprivation therapy for at least 24 months and who have significant existing bone loss, or osteopenia, will be randomized to receive either a placebo or a daily dose of Acapodene for 24 months.
Andarine
Our second product candidate, Andarine, a selective androgen receptor modulator, or SARM, is the most advanced of our internally discovered portfolio of compounds designed to target hormone receptors. Andarine is taken orally and is being developed for a once-a-day dosing schedule. We believe that Andarine has the potential to treat testosterone deficiency in aging men, or andropause, and related diseases, including male osteoporosis and muscle wasting. Our strategy is to develop Andarine initially for the treatment of a cachexia from various types of cancer. We selected this indication because it represents a potentially large market and, we believe, has a relatively well-defined clinical and regulatory process. Depending on the results of our initial development efforts, we may also develop Andarine for other andropause-related conditions. For cachexia from various types of cancer, we are developing Andarine for the treatment of both men and women.
Andarine for the Treatment of Cancer Cachexia
Scientific Overview. Cachexia is defined as the loss of over 5% of a patient’s original body weight. Most of the weight loss attributable to cachexia comes from the loss of lean body weight, resulting from muscle wasting. Cancer causes the body to go into a starvation-like state that causes cachexia. Muscle wasting weight loss from cancer, or cancer cachexia, is diagnosed in approximately one-third of newly-diagnosed cancer patients and accounts for approximately 20% of cancer deaths. Weight loss is one of the most important indicators of how long a cancer patient will live since the survival of a patient with cancer is greatly impacted by the degree and rate of muscle wasting. A cancer patient’s response to cancer chemotherapy is diminished by weight loss. Cachexia results in weakness, fatigue and immobility. A greater lean body weight may increase activity levels, quality of life, response to chemotherapy and, ultimately, survival time.
Testosterone increases lean body weight in both men and women. One of the causes of cancer cachexia may be reduced levels of testosterone. Testosterone therapy, however, is not used for the treatment of cancer cachexia for two reasons. First, the delivery methods for testosterone are inconvenient for patients and in some cases result in inconsistent levels of testosterone in the blood. Testosterone cannot be given orally, but rather is given only by intramuscular injections, patches or gels. Second, testosterone has a number of undesirable side effects, such as the potential stimulation of latent prostate cancer, aggravation of existing BPH and gynecomastia in men and masculinizing effects in women such as acne and facial hair.
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We believe that Andarine is similar to testosterone in activating androgen receptors in muscle, thereby promoting lean body weight, but that it does not stimulate sebaceous glands, the cause of hair growth and acne, or the prostate, which exacerbates BPH. In addition, Andarine is taken orally, which makes it convenient to administer.
Potential Market. There are approximately 1.3 million patients diagnosed with cancer each year in the United States. Cancer cachexia afflicts approximately one-third of newly-diagnosed cancer patients. Over 30 clinical trials of supplemental nutritional support alone have reported little or no benefit in counteracting cachexia in cancer patients receiving chemotherapy or radiation. There are no drugs that have been approved by the FDA for the treatment of cancer cachexia. Although there are two commercially available drugs, both steroids, that are being prescribed off-label for the treatment of some types of cancer cachexia, chronic use of these drugs may result in bleeding liver cysts and liver cell tumors.
Clinical Trials. We have completed three Phase I clinical trials of Andarine in a total of 86 healthy male and female volunteers. We tested Andarine for safety and tolerance in single and multiple doses. Results from our Phase I trials support once-a-day oral dosing, and no serious adverse events were observed at any single or multiple dose tested. We observed early indications in the multiple-dose Phase I clinical trial in men that Andarine promoted growth activity, as measured by levels of a growth factor in the blood known as IGF-1, without affecting the sebaceous glands. We believe that these observations support the potential ability of Andarine to selectively modulate androgen receptors in a tissue-specific manner.
We plan to commence a placebo-controlled dose-finding Phase II clinical trial of Andarine in the first half of 2004 for the treatment of cachexia from non-small cell lung cancer. Cancer cachexia occurs frequently with lung cancer, and the ensuing loss of lean body weight cannot be attributed solely to reduced dietary intake. There are a large number of patients, both male and female, with advanced lung cancer and cancer cachexia, and lung cancer is representative of several other types of cancer. As a result, we selected this patient population to determine the safety and efficacy of Andarine in the treatment of cachexia from non-small cell lung cancer. In our planned Phase II clinical trial, we anticipate that approximately 150 patients who have non-small cell lung cancer and cancer cachexia will be randomized to receive either a daily oral dose of Andarine or a placebo for 12 weeks. The primary endpoint of the trial will be muscle performance, and the secondary endpoints will be lean body weight and other body composition measurements.
Prostarine and Ostarine
We are also developing other SARM product candidates, including:
| • | Prostarine for the treatment of benign prostatic hyperplasia, or BPH, a benign prostate enlargement that results in obstruction of the urinary tract; and | |
| • | Ostarine for the treatment of osteoporosis and andropause. |
In animal models, Prostarine shrinks the prostate gland, and Ostarine prevents bone loss and builds bone and muscle. We are conducting preclinical and toxicology studies to support the commencement of clinical trials.
Andromustine
Patients who have advanced, recurrent or metastatic prostate cancer are initially treated with androgen deprivation therapy. Since prostate cancer is dependent on androgens, including testosterone, to grow, the reduction in testosterone forces prostate cancer into remission. Unfortunately, with time, prostate cancer circumvents the need for testosterone and comes out of remission. Once prostate cancer no longer responds to androgen deprivation, it is referred to as hormone refractory.
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Building on the technology of our selective androgen receptor modulator, or SARM, discovery program, we have designed and are developing a small molecule, Andromustine, that is designed to specifically target androgen receptors and kill cancer cells. The Andromustine molecule has two components: (1) the SARM part of the molecule, which is designed to bind to the androgen receptor located on prostate cancer cells; and (2) the chemotherapeutic part of the molecule, which is designed to damage the DNA of prostate cancer cells. In cell culture, Andromustine selectively kills human metastatic prostate cancer cells. Because advanced prostate cancers, including hormone refractory prostate cancer, have more androgen receptors than the normal prostate, Andromustine is designed to bind to and selectively kill advanced prostate cancer cells.
There are over 675,000 men in the United States being treated with LHRH agonists and other hormonal therapies for prostate cancer. Hormone refractory prostate cancer will eventually occur in a majority of these patients. There is currently no effective chemotherapy for hormone refractory prostate cancer. Once a patient develops hormone refractory prostate cancer, his prognosis is poor.
We are in the process of conducting preclinical and animal toxicology studies to support the commencement of clinical trials of Andromustine.
Drug Discovery
Steroid hormone therapies, which include estrogen and testosterone therapies, have been used to treat humans for many years. Steroid hormones cannot, by their nature, have selective effects in various tissues. As a result, they have unintended side effects, which limit their clinical value.
SERM drugs, such as tamoxifen and raloxifene, have achieved commercial success in treating women as nonsteroidal small molecules that modulate hormone receptors in a tissue selective way and minimize some of the side effects of natural hormones. We believe that the success of SERMs indicates that it is possible to design and develop classes of nonsteroidal small molecule drugs to modulate hormone receptors in addition to estrogen receptors.
We believe that our drug discovery expertise positions us well to sustain our clinical pipeline through the design and development of nonsteroidal small molecule drugs that modulate hormone receptors. Our 19 in-house medicinal chemists and scientists provide us with significant discovery and development expertise. Using our capabilities in hormone receptor biology and medicinal chemistry, we are able to target many hormone receptors and generate compounds that are designed to address the shortcomings of natural hormone therapies. We augment our internal drug discovery capabilities through agreements with two universities that provide for our close collaboration with an additional 15 scientists, whose research is largely dedicated to our drug discovery program.
We design and synthesize new compounds based on computer, or in silico, models of a hormone receptor’s binding sites. We continually modify and improve these in silico models to reflect our study of the activity of new compounds in the laboratory, in which we determine the link between chemical structures and biological activity, or structure-activity relationships.
We also have significant medicinal scale-up capabilities, which facilitate our rapid synthesis and evaluation of new compounds. Throughout our discovery process, we build diversity into our chemistry structures in order to improve our likelihood of success in developing novel compounds that have the potential to treat multiple indications. Through this approach, we have generated a clinical product candidate for the androgen receptor, Andarine, as well as additional preclinical compounds of the SARM class and other structurally diverse classes.
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Our Strategy
Our objective is to develop and commercialize small molecule drugs to target serious men’s health conditions. Key elements of our strategy to achieve this objective are to:
Maximize Commercial Potential of Acapodene
Obtain Regulatory Approval of Acapodene. We are focused on completing clinical trials, obtaining regulatory approval and preparing for the potential commercial launch of Acapodene.
Retain Commercial Rights to Acapodene and Establish Sales and Marketing Infrastructure. We intend to retain all commercial rights to Acapodene in the United States. We believe that we can effectively market Acapodene to the target physician audience of urologists and medical oncologists, principally urological oncologists, in the United States through a small, specialty sales force that we plan to build. We plan to collaborate with pharmaceutical companies to commercialize, market and sell Acapodene in Europe and Asia.
Extend Life Cycle of Acapodene. We intend to reformulate Acapodene with the goals of seeking longer intellectual property protection in the European and Asian markets and extending its life cycle in the United States.
Develop Noninvasive Diagnostic Test for High Grade PIN. We plan to collaborate with a large diagnostics company to develop a noninvasive, accurate blood test to detect high grade PIN. We believe that men would be more willing to be tested for high grade PIN if the diagnostic test were less invasive than a prostate biopsy. Given the large number of patients with undiagnosed high grade PIN, we believe that the development of a noninvasive test will increase the detection of high grade PIN and thereby expand the already large potential market for Acapodene.
Maximize Commercial Potential of Andarine
Pursue Clinical Development of Andarine. We intend to continue to aggressively pursue the clinical development of Andarine for the treatment of cachexia from various types of cancer. In addition, we may develop Andarine for the treatment of other causes of cachexia, including ESRD, which represents a large potential market with unmet medical needs. Andarine could also potentially be developed and commercialized for other men’s health indications.
Strategically Seek Collaborators. Because it would require a large sales force to address the cancer cachexia market and because of the risks and costs of developing Andarine for cachexia from various types of cancer, we plan to seek one or more collaborators for the development and commercialization of Andarine for cancer cachexia resulting from all types of cancer other than urological cancers. We also plan to seek a collaborator for potential Andarine indications requiring a large sales force. For Andarine indications for which the target physician market is likely to overlap with that of Acapodene, including cancer cachexia resulting from urological cancers and indications related to andropause, our plan is to market and sell Andarine ourselves or to co-promote it with a collaborator in the United States, and, in the rest of the world, to seek a collaborator.
Build upon Our SARM and other Drug Discovery Capabilities to Sustain Our Small Molecule Product Candidate Pipeline
We intend to develop additional SARMs and other small molecule products to treat diseases that affect large numbers of patients and that are underserved by available alternatives. While our drug discovery efforts to date have focused on SERM and SARM technologies, we believe that we have the capability to discover additional drug candidates that target other hormone receptors. We plan to further strengthen our drug discovery, medicinal chemistry and preclinical pharmacology groups to sustain our pipeline of nonsteroidal small molecules designed to modulate a range of hormone receptors.
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Licenses and Collaborative Relationships
We have established and intend to continue to pursue licenses from and collaborative relationships with pharmaceutical companies and academic institutions.
Orion Corporation
Under a license and supply agreement with Orion, we have a license from Orion to develop, use, market and distribute toremifene, the active pharmaceutical ingredient of Acapodene, under Orion’s patents covering the composition of matter of toremifene. This license is limited to the fields of the prevention and treatment of prostate cancer and the prevention and treatment of osteoporosis, hot flashes and gynecomastia as side effects of androgen deprivation therapy in the treatment of prostate cancer. Our license rights are exclusive in North America and Japan. We have a right of first negotiation on a country-by-country basis to negotiate further agreements with Orion for the development, sale and distribution of specified products containing toremifene that are therapeutic equivalents of Acapodene for other indications excluding breast cancer.
Under the terms of the agreement, we paid Orion an initial license fee and have agreed to pay Orion a royalty based on net sales of Acapodene and a share of any consideration we receive for sublicensing our rights under the agreement. We also are required to pay Orion up to $1.0 million if we are acquired before we receive marketing approval for the use of Acapodene in the licensed field.
The agreement requires us to achieve specified minimum sales requirements of Acapodene in the United States or pay Orion royalties on the shortfall amount. Orion may require us to modify our final Acapodene development plans for specified major markets if such plans could adversely affect Fareston or toremifene outside of the licensed field. We have granted Orion a right of first negotiation for Scandinavian marketing rights to Acapodene and to European rights if we do not have a sublicensee in the United States to whom we have granted European marketing rights. We have also agreed to negotiate with Orion for a limited period of time the terms of an agreement granting Orion the exclusive right to distribute Acapodene in Japan, South Korea, China and Taiwan for use in the licensed field. We and our affiliates are prohibited from selling a product that competes with toremifene in the licensed field in major countries located outside the European Union during the term of the agreement and in major countries in the European Union through October 2006.
The term of our license from Orion continues on a country-by-country basis until the date of expiration or invalidation of the last to expire or be invalidated of patents and patent applications relating to Acapodene that we control. Each party has the right to terminate the license under specified circumstances, including in the event of a material breach by the other party that is not cured, bankruptcy of the other party or if the other party is acquired by a direct competitor with respect to toremifene. We also have the right to terminate the agreement in any country if we decide to discontinue the applications or withdraw the applications for regulatory approval of Acapodene due to adverse reactions or safety issues.
The license includes a right for us to use toremifene for research required to obtain regulatory approval. The results of such research are jointly owned by us and Orion, and may be exploited by Orion outside our licensed field.
University of Tennessee Research Foundation
We have exclusive, worldwide licenses from the University of Tennessee Research Foundation under its method of use patents relating to toremifene for the reduction in the incidence of prostate cancer in men with high grade PIN and its composition of matter and method of use patents and patent applications relating to Andarine to market, distribute and sell licensed products. We also have exclusive, worldwide licenses from the University of Tennessee Research Foundation under its composition of matter and method of use patent applications relating to Prostarine and Ostarine to market, distribute and sell licensed products.
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Under the terms of these license agreements, we have agreed to pay the University of Tennessee Research Foundation a royalty based on net sales of licensed products and sublicense income. We are also obligated to pay the University of Tennessee Research Foundation an annual license maintenance fee under each license agreement. The term of each of the license agreements is the longer of 20 years or the term of any licensed patent having a valid claim covering the licensed technology. After the term of each license agreement expires, we will have a perpetual, royalty-free license to the technology licensed under that agreement. The University of Tennessee Research Foundation has the right to terminate each of the agreements under specified circumstances, including in the event that we breach the agreement and do not cure the breach or in the case of our bankruptcy. We are obligated to use commercially reasonable efforts to develop and commercialize products based on the licensed patents and patent applications.
Pursuant to the license agreements, we assign to the University of Tennessee Research Foundation specified patentable inventions arising out of or related to the licensed patents. Upon our request, the University of Tennessee Research Foundation will amend the license agreements to confirm our exclusive licenses to such inventions assigned by us to the University of Tennessee Research Foundation.
National Cancer Institute
We are providing the National Cancer Institute with Acapodene for their use in an independent Phase II clinical trial of Acapodene at the University of Pittsburgh. The objective of the trial is to assess the biological effects of Acapodene on the prostate gland. In this trial, 80 patients who have been diagnosed with prostate cancer will be given a single oral daily dose of Acapodene for 12 weeks prior to surgical removal of their cancerous prostate.
Manufacturing
We do not currently own or operate manufacturing facilities for the production of clinical or commercial quantities of Acapodene or Andarine. We currently rely and expect to continue to rely on third parties for the manufacture of our product candidates or products that we may develop.
We purchase Acapodene from Orion under a license and supply agreement providing for clinical and commercial supply of Acapodene. Orion has agreed to supply us with, and we have agreed to purchase from Orion, our worldwide requirements of Acapodene in finished tablet form at specified transfer prices. Orion’s manufacturing facility also produces commercial quantities of toremifene tablets for Fareston and complies with the FDA’s current Good Manufacturing Practice regulations. The methods used to manufacture Acapodene are similar to those used to produce the 60 mg toremifene tablet that has been approved by the FDA for the treatment of advanced breast cancer and is marketed in the United States as Fareston. The raw materials necessary to manufacture toremifene are readily available, but Orion is our only supplier of toremifene tablets.
Orion may terminate its obligation to supply us with toremifene if:
| • | marketing approval for Acapodene for use in the licensed field is not granted in the United States by December 31, 2007 or upon the expiration or invalidation of the last valid claim of the licensed Orion patent rights in the United States; or | |
| • | subject to a prior notice requirement, if Orion permanently ceases the manufacture of toremifene. |
Our license and supply agreement with Orion does not provide us with the current right to manufacture toremifene. In addition, under the terms of our agreement with Orion, we have agreed to purchase our requirements of toremifene tablets from Orion during the term of the agreement, which extends beyond the term of Orion’s patents with respect to the composition of matter of toremifene. There are a number of circumstances in which Orion is required to grant manufacturing
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We have entered into an agreement with ChemSyn
Laboratories, a department of EaglePicher Technologies, LLC,
under which ChemSyn has agreed to manufacture Andarine for us in
a quantity that we believe is sufficient to supply clinical
trials of Andarine for the treatment of cachexia from various
types of cancer and initial commercialization of Andarine for
this indication. We do not have a contract with ChemSyn for the
supply of Andarine for full-scale commercialization. The active
ingredient in Andarine is manufactured using a four-step
synthetic process that uses commercially available starting
materials and raw materials for each step. There are no
complicated chemistries or unusual equipment required in the
manufacturing process.
Competition
The biotechnology and biopharmaceutical
industries are characterized by rapidly advancing technologies,
intense competition and a strong emphasis on proprietary
products. We face competition from many different sources,
including commercial pharmaceutical and biotechnology
enterprises, academic institutions, government agencies and
private and public research institutions.
Many of our competitors have significantly
greater financial resources and expertise in research and
development, manufacturing, preclinical testing, clinical
trials, regulatory approvals and marketing approved products
than we do. Smaller or early-stage companies may also prove to
be significant competitors, particularly through collaborative
arrangements with large and established companies. Our
commercial opportunity will be reduced or eliminated if our
competitors develop and commercialize products that are safer,
more effective, have fewer side effects or are less expensive
than any products that we may develop. These third parties
compete with us in recruiting and retaining qualified scientific
and management personnel, establishing clinical trial sites and
patient registration for clinical trials, as well as in
acquiring technologies and technology licenses complementary to
our programs or advantageous to our business.
Acapodene for the Reduction in the
Incidence of Prostate Cancer in Men with High Grade
PIN
Currently, there are no products that would
compete with Acapodene for the treatment of high grade PIN to
reduce the incidence of prostate cancer.
Acapodene for the Treatment of Side Effects
of Androgen Deprivation Therapy
Currently, there are no products that have been
approved by the FDA to treat multiple side effects of androgen
deprivation therapy. We are aware of a number of marketed drugs
that are prescribed off-label for the treatment of single side
effects. For example, Evista, Eli Lilly’s trade name for
raloxifene, Fosamax, a bisphosphonate marketed by Merck, and
Actonel, a bisphosphonate marketed by Aventis and Proctor &
Gamble, are each prescribed off-label for the treatment of
osteoporosis. Effexor, marketed by Wyeth Pharmaceuticals,
Catapres, marketed by Boehringer Ingelheim, and Megace, marketed
by Bristol Myers Squibb, are prescribed off-label to treat hot
flashes caused by androgen deprivation therapy. External beam
radiation is used to treat gynecomastia. There are significant
side effects associated with the off-label use of these drugs
and radiation treatment. Most patients would need to take
several different drugs and potentially receive radiation
treatments to treat multiple side effects of androgen
deprivation therapy. In contrast, we believe that Acapodene, as
a single product candidate, has the potential to treat multiple
side effects.
49
Andarine for the Treatment of Cancer
Cachexia
There are no drugs that have been approved by the
FDA for the treatment of cancer cachexia. Although there are two
commercially available drugs, Nandrolone and Oxandrin, that are
being prescribed off-label for the treatment of some types of
cancer cachexia, chronic use of these drugs may result in
bleeding liver cysts and liver cell tumors. Nandrolone is an
oral steroid that is available from Steris Laboratories, a
subsidiary of Watson Pharmaceuticals. Oxandrin, marketed by
Savient Pharmaceuticals, is prescribed for the treatment of
involuntary weight loss associated with severe trauma, chronic
infection or intensive surgery, as well as off-label for cancer
cachexia. Oxandrin is a tissue non-selective steroid that has
the potential to stimulate latent prostate cancer and breast
cancer and cause virilization in women. Both Nandrolone and
Oxandrin, as steroid drugs, have the potential to cause severe
liver toxicities. Andarine is not a steroid, and we believe that
it will be tissue-selective.
In addition, as to both Acapodene and Andarine,
there may be product candidates of which we are not aware at an
earlier stage of development. If any are successfully developed
and approved, they could compete directly with our product
candidates, if approved for commercial sale.
Sales and Marketing
We do not currently have any sales and marketing
capabilities. In order to commercialize any products that are
approved for commercial sale, we must either develop a sales and
marketing infrastructure or collaborate with third parties with
sales and marketing experience. We plan to build a small,
highly-focused, specialty sales and marketing infrastructure,
which we expect to include 50 to 80 sales representatives, to
market Acapodene to the relatively small and concentrated
community of urologists and medical oncologists, principally
urological oncologists, in the United States. We believe that
the urology and medical oncology market in the United States is
readily accessible by a limited sales and marketing presence due
to the concentration of prescribing physicians. We plan to
establish collaborations with pharmaceutical companies to
commercialize Acapodene in Europe and Asia for prostate
cancer-related conditions.
Because it would require a large sales force to
address the cancer cachexia market and because of the risks and
costs of developing Andarine for cachexia from various types of
cancer, we plan to seek one or more collaborators for the
development and commercialization of Andarine for cancer
cachexia resulting from all types of cancer other than
urological cancers. We also plan to seek a collaborator for
potential Andarine indications requiring a large sales force.
For Andarine indications for which the target physician market
is likely to overlap with that of Acapodene, including cancer
cachexia resulting from urological cancers and indications
related to andropause, our plan is to market and sell Andarine
ourselves or to co-promote it with a collaborator in the United
States, and, in the rest of the world, to seek a collaborator.
Intellectual Property
We will be able to protect our technology from
unauthorized use by third parties only to the extent it is
covered by valid and enforceable patents or is effectively
maintained as trade secrets. Accordingly, patents and other
proprietary rights are an essential element of our business.
For Acapodene, in the United States and
internationally we have a license from Orion under its patent
covering the composition of matter of toremifene, the active
pharmaceutical ingredient in Acapodene. Our license rights are
exclusive in North America and Japan. The patent will expire in
the United States in 2009, in Europe in 2003 or 2008, depending
on the country, and in Japan in 2005. This patent is likely to
expire in countries outside the United States before we
commercialize Acapodene. As a result, outside of the United
States and in the United States after 2009, we will need to rely
primarily on the protection afforded by method of use patents
that may issue in respect
50
We have licensed from the University of Tennessee
Research Foundation method of use patents in the United States
and pending patent applications internationally related to the
use of Acapodene for the reduction in the incidence of prostate
cancer in men with high grade PIN. The method of use patents
issued in the United States related to the use of Acapodene for
this indication will expire in 2019.
We have our own pending method of use patent
applications in the United States and internationally related to
the use of Acapodene for the treatment of osteoporosis,
gynecomastia and hot flashes as side effects of androgen
deprivation therapy.
In all countries in which we hold or have
licensed rights to patents or patent applications related to
Acapodene, the composition of matter patents will expire before
the method of use patents. Furthermore, with respect to the
method of use of Acapodene for the treatment of osteoporosis,
hot flashes and gynecomastia as side effects of androgen
deprivation therapy worldwide and the method of use of Acapodene
for the reduction in the incidence of prostate cancer in men
with high grade PIN outside the United States, we have only
pending patent applications. Method of use patents are more
difficult to enforce than composition of matter patents because
of the risk of off-label sale or use of the subject compounds.
In the event that patents issue in respect of our
pending method of use patent applications, after the expiration
of the patent covering the composition of matter of toremifene
in a particular country, competitors could market and sell
generic versions of toremifene at doses and in formulations that
are bioequivalent to Acapodene for uses other than the
indications for Acapodene covered by these pending method of use
patent applications, and physicians would be permitted to
prescribe generic versions of toremifene for indications that
are protected by our or our licensors’ method of use
patents and pending patent applications. After the expiration of
the patent covering the composition of matter of toremifene in a
particular country, if patents do not issue in respect of our
pending method of use patent applications related to the use of
Acapodene for the treatment of osteoporosis, hot flashes and
gynecomastia as side effects of androgen deprivation therapy
worldwide and the method of use of Acapodene for the reduction
in the incidence of prostate cancer in men with high grade PIN
outside the United States, competitors could market and sell
generic versions of toremifene at doses and in formulations that
are bioequivalent to Acapodene for these indications.
Our license from Orion is limited to the use of
toremifene for the prevention and treatment of prostate cancer
and the prevention and treatment of osteoporosis, hot flashes
and gynecomastia as side effects of androgen deprivation therapy
in the treatment of prostate cancer. Orion has licensed Shire
Pharmaceuticals Group in the United States and other parties
elsewhere in the world to market, sell and distribute toremifene
for the treatment of advanced breast cancer and could license
other parties to market, sell and distribute toremifene for
other indications in the United States and elsewhere.
Shire’s product is marketed as Fareston and is currently
available only in a 60 mg dose. While we believe that the doses
of Acapodene for the indications for which we are developing
Acapodene will be different from the dose currently approved by
the FDA for Fareston, there may be off-label use of Fareston in
place of Acapodene for the indications for which we intend to
seek regulatory approval of Acapodene. Additionally, after the
expiration of the patent covering the composition of matter of
toremifene in some countries, competitors could market and sell
generic versions of Fareston in a 60 mg dose. Therefore, if
Fareston becomes available at competitive prices and in doses
that are appropriate for the indications for which we are
developing Acapodene, off-label sales of Fareston or generic
versions of Fareston could reduce sales of Acapodene.
For Andarine, in the United States we have a
license from the University of Tennessee Research Foundation
under its patents related to the composition of matter and
formulations of, and methods of using, the active pharmaceutical
ingredient in Andarine. In the United States, the patents
51
For Prostarine, we have a license from the
University of Tennessee Research Foundation under its pending
patent applications in the United States and internationally
covering the composition of matter of the active pharmaceutical
ingredient in Prostarine, pharmaceutical compositions and
formulations of Prostarine and methods of synthesizing the
active pharmaceutical ingredient in Prostarine. We also have our
own pending patent applications in the United States and
internationally related to methods for treating BPH using
Prostarine.
For Ostarine, we have a license from the
University of Tennessee Research Foundation under its pending
patent applications in the United States and internationally
covering the composition of matter of the active pharmaceutical
ingredient in Ostarine, pharmaceutical compositions and
formulations of Ostarine and methods of synthesizing the active
pharmaceutical ingredient in Ostarine. We also have our own
pending patent applications in the United States and
internationally related to methods for treating male
osteoporosis and andropause using Ostarine.
For Andromustine, we have pending patent
applications of our own in the United States and rights to file
internationally covering the composition of matter of the active
pharmaceutical ingredient in Andromustine, pharmaceutical
compositions of Andromustine, methods of synthesizing the active
pharmaceutical ingredient in Andromustine and methods for
treating prostate cancer that is not responsive to androgen
deprivation therapy using Andromustine.
We also rely on trade secrets, technical know-how
and continuing innovation to develop and maintain our
competitive position. We seek to protect our proprietary
information by requiring our employees, consultants,
contractors, outside scientific collaborators and other advisors
to execute non-disclosure and assignment of invention agreements
on commencement of their employment or engagement, through which
we seek to protect our intellectual property. Agreements with
our employees also prevent them from bringing the proprietary
rights of third parties to us. We also require confidentiality
or material transfer agreements from third parties that receive
our confidential data or materials.
52
Government Regulation
New Drug Development and Approval
Process
Numerous governmental authorities in the United
States and other countries extensively regulate the testing,
clinical development, manufacturing and marketing of
pharmaceutical products and ongoing research and development
activities. In the United States, the FDA rigorously reviews
pharmaceutical products under the Federal Food, Drug, and
Cosmetic Act and regulations. Non-compliance with applicable
requirements can result in administrative and judicial
sanctions, including warning letters, clinical holds, fines,
recall or seizure of products, injunctions, total or partial
suspension of production, refusal of the government to approve
marketing applications or allow entry into supply contracts,
refusal to permit import or export of products, civil penalties,
criminal prosecution and other actions affecting a company and
its products. The FDA also has the authority to revoke
previously granted marketing authorizations.
To secure FDA approval, an applicant must submit
extensive preclinical and clinical data, as well as information
about product manufacturing processes and facilities and other
supporting information to the FDA for each indication to
establish a product candidate’s safety and effectiveness.
The development and approval process takes many years, requires
the expenditure of substantial resources and may be subject to
delays or limitations of approval or rejection of the
application. Even if the FDA approves a product, the approval is
subject to post-marketing surveillance, adverse drug experience
and other recordkeeping and reporting obligations, and may
involve ongoing requirements for post-marketing studies. The FDA
also may place conditions on any approvals that could restrict
the commercial applications, advertising, promotion or
distribution of these products. Product approvals may be
withdrawn if compliance with regulatory standards is not
maintained or if problems occur following initial marketing.
Preclinical and Clinical
Testing
Preclinical studies involve laboratory evaluation
of product characteristics and animal studies to assess the
biological activity and safety of the product. In some cases,
long-term preclinical studies are conducted while clinical
studies are ongoing. The FDA, under its Good Laboratory
Practices regulations, regulates preclinical studies. Violations
of these regulations can, in some cases, lead to invalidation of
the studies, requiring these studies to be replicated. When the
preclinical testing is considered adequate by the sponsor to
demonstrate the safety and scientific rationale for initial
human studies, the results of the preclinical tests, together
with manufacturing information and analytical data, are
submitted to the FDA as part of an Investigational New Drug
application, or IND. The IND becomes effective, if not rejected
by the FDA, within 30 days after FDA receives the IND. The
FDA may, at any time during the 30-day period after filing of an
IND or at any future time, impose a clinical hold on proposed or
ongoing clinical trials, on various grounds, including that the
study subjects are or would be exposed to an unreasonable and
significant health risk. If the FDA imposes a clinical hold,
clinical trials cannot commence or recommence without FDA
authorization and then only under terms authorized by the FDA.
Clinical trials involve the administration of the
investigational product candidates to humans under the
supervision of a qualified principal investigator. Clinical
trials must be conducted in accordance with Good Clinical
Practice, or GCP, under protocols submitted to the FDA as part
of the IND. In addition, each clinical trial must be approved
and conducted under the auspices of an Investigational Review
Board, or IRB, and with patient informed consent. The IRB will
consider, among other things, ethical factors and the safety of
human subjects.
Clinical trials are conducted in three sequential
phases, but the phases may overlap. Phase I clinical trials
usually involve between 20 and 80 healthy human subjects or
more, depending on the disease. The goal of the Phase I
clinical trial is to establish initial data about the safety and
tolerance of the product candidates in humans. In Phase II
clinical trials, controlled studies are
53
Product Formulation and
Manufacture
Concurrent with clinical trials and preclinical
studies, companies must develop information about the chemistry
and physical characteristics of the drug and finalize a process
for manufacturing the product. In addition, manufacturers,
including contract manufacturers, are required to comply with
the applicable FDA current Good Manufacturing Practice
regulations. The current Good Manufacturing Practice regulations
include requirements relating to quality control and quality
assurance, as well as the corresponding maintenance of records
and documentation. The manufacturing process must be capable of
consistently producing quality batches of the product and the
manufacturer must develop methods for testing the quality,
purity and potency of the final drugs. Additionally, appropriate
packaging must be selected and tested and chemistry stability
studies must be conducted to demonstrate that the product does
not undergo unacceptable deterioration over its shelf-life.
Compliance with current Good Manufacturing
Practice regulations also is a condition of new drug application
approval. The FDA must approve manufacturing facilities before
they can be used in the commercial manufacture of drug products.
In addition, manufacturing establishments are subject to
preapproval inspections and unannounced periodic inspections.
New Drug Application Process
After the completion of the clinical trial phases
of development, if the sponsor concludes that there is
substantial evidence that the drug candidate is safe and
effective for its intended use, the sponsor may submit a new
drug application, or NDA, to the FDA. The application must
contain all of the information on the drug candidate gathered to
that date, including data from the clinical trials, and be
accompanied by a user fee.
The FDA determines whether an NDA as submitted is
acceptable for filing. The FDA may refuse to file an
application, in which case the FDA retains one-half of the user
fee. If the submission is accepted for filing, the FDA begins an
in-depth review of the application. As part of this review, the
FDA may refer the application to an appropriate advisory
committee, typically a panel of clinicians, for review,
evaluation and a recommendation. The FDA is not bound by the
recommendation of an advisory committee. Under the Prescription
Drug User Fee Act, or PDUFA, submission of an NDA with clinical
data requires payment of a fee, with some exceptions. In return,
FDA assigns a goal of six or 12 months from filing of the
application to return of a first “complete response,”
in which the FDA may approve the product or request additional
information. There can be no assurance that an application will
be approved within the performance goal timeframe established
under PDUFA.
If the FDA evaluations of the NDA and the
manufacturing facilities are favorable, the FDA may issue an
approval letter authorizing commercial marketing of the drug
candidate for specified indications. The FDA could also issue an
approvable letter, which usually contains a number of conditions
that must be met in order to secure final approval of the new
drug application. When and if those conditions have been met to
the FDA’s satisfaction, the FDA will issue an approval
letter. On the other hand, if the FDA’s evaluation of the
NDA submission or manufacturing facilities is not favorable, the
FDA may refuse to approve the NDA or issue a non-approvable
letter.
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Marketing Approval and Post-marketing
Obligations
If the FDA approves an application, the drug
becomes available for physicians to prescribe. Periodic reports
must be submitted to the FDA, including descriptions of any
adverse reactions reported. The FDA may require post-marketing
studies, also known as Phase IV studies, as a condition of
approval. In addition to studies required by the FDA after
approval, trials and studies are often conducted to explore new
indications. The purpose of these trials and studies and related
publications is to develop data to support additional
indications for the drug, which must be approved by the FDA, and
to increase its acceptance in the medical community. In
addition, some post-marketing studies are done at the request of
the FDA to develop additional information regarding the safety
of a product.
Any products manufactured or distributed pursuant
to FDA approvals are subject to continuing regulation by the
FDA, including recordkeeping requirements, reporting of adverse
experiences with the drug, drug sampling and distribution
requirements, notifying the FDA and gaining its approval of
certain manufacturing or labeling changes, complying with
certain electronic records and signature requirements, and
complying with FDA promotion and advertising requirements. Drug
manufacturers and their subcontractors are required to register
their establishments and are subject to periodic unannounced
inspections for compliance with good manufacturing practice
requirements. Also, newly discovered or developed safety or
effectiveness data may require changes to a product’s
approved labeling, including the addition of new warnings and
contraindications, or even in some instances revocation or
withdrawal of the approval.
Drug Price Competition and Patent Term
Restoration Act of 1984
Under the Drug Price Competition and Patent Term
Restoration Act of 1984, known as the Hatch-Waxman Act, a
portion of a product’s patent term that was lost during
clinical development and application review by the FDA may be
restored. The Hatch-Waxman Act also provides for a statutory
protection, known as exclusivity, against the FDA’s
acceptance or approval of certain competitor applications. The
Hatch-Waxman Act also provides the legal basis for the approval
of abbreviated new drug applications.
Patent term restoration can compensate for time
lost during product development and the regulatory review
process by returning up to five years of patent life for a
patent that covers a new product or its use. This period is
generally one-half the time between the effective date of an IND
and the submission date of an NDA, plus the time between the
submission date of an NDA and the approval of that application.
Patent term restorations, however, are subject to a maximum
extension of five years, and the patent term restoration cannot
extend the remaining term of a patent beyond a total of
14 years. The application for patent term extension is
subject to approval by the United States Patent and Trademark
Office in conjunction with the FDA. It takes at least six months
to obtain approval of the application for patent term extension.
The Hatch-Waxman Act also provides for a period
of statutory protection for new drugs that receive NDA approval
from the FDA. If a new drug receives NDA approval as a new
chemical entity, meaning that the FDA has not previously
approved any other new drug containing the same active entity,
then the Hatch-Waxman Act prohibits an abbreviated new drug
application or an NDA where the applicant does not own or have a
legal right of reference to all of the data required for
approval to be submitted by another company for a generic
version of such drug, with some exceptions, for a period of five
years from the date of approval of the NDA. The statutory
protection provided pursuant to the Hatch-Waxman Act will not
prevent the filing or approval of a full NDA, as opposed to an
abbreviated new drug application or a new drug application in
which the applicant does not own or have a legal right of
reference to all of the data required for approval, for any
drug, including, for example, a drug with the same active
ingredient, dosage form, route of administration, strength and
conditions of use. In order to obtain an NDA, however, a
competitor would be required to conduct its own clinical trials.
If NDA approval is received for a new drug containing an active
ingredient that
55
While the Hatch-Waxman Act provides certain
patent restoration and exclusivity protections to innovator drug
manufacturers, it also permits the FDA to approve abbreviated
new drug applications for generic versions of their drugs. The
abbreviated new drug application process permits competitor
companies to obtain marketing approval for a drug with the same
active ingredient for the same uses but does not require the
conduct and submission of clinical studies demonstrating safety
and effectiveness for that product. Instead of safety and
effectiveness data, an abbreviated new drug application
applicant needs only to submit data demonstrating that its
product is bioequivalent to the innovator product as well as
relevant chemistry, manufacturing and product data.
Finally, the Hatch-Waxman Act requires, in some
circumstances, an abbreviated new drug application or a new drug
application in which the applicant does not own or have a legal
right of reference to all of the data required for approval
applicant to notify the patent owner and the holder of the
approved NDA of the factual and legal basis of the
applicant’s opinion that the patent is not valid or will
not be infringed. Upon receipt of this notice, the patent owner
and the NDA holder have 45 days to bring a patent
infringement suit in federal district court and obtain a
30 month stay against the company seeking to reference the
NDA. The NDA holder could still file a patent suit after the
45 days, but if they did, they would not have the benefit
of the 30 month stay. Alternatively, after this 45-day period,
the applicant may file a declaratory judgment action, seeking a
determination that the patent is invalid or will not be
infringed. Depending on the circumstances, however, the
applicant may not be able to demonstrate a controversy
sufficient to confer jurisdiction on the court. The discovery,
trial and appeals process in such suits can take several years.
If such a suit is commenced, the Hatch-Waxman Act provides a
30-month stay on the approval of the competitor’s
abbreviated new drug application or a new drug application in
which the applicant does not own or have a legal right of
reference to all of the data required for approval. If the
litigation is resolved in favor of the competitor or the
challenged patent expires during the 30-month period, unless
otherwise extended by court order, the stay is lifted and the
FDA may approve the application. Under regulations recently
issued by the FDA, and essentially codified under the recent
Medicare prescription drug legislation, the patent owner and the
NDA holder have the opportunity to trigger only a single
30-month stay per abbreviated new drug application or a new drug
application in which the applicant does not own or have a legal
right of reference to all of the data required for approval.
Once the abbreviated new drug application or a new drug
application in which the applicant does not own or have a legal
right of reference to all of the data required for approval
applicant has notified the patent owner and the NDA holder of
the infringement, the applicant cannot be subjected to another
30-month stay, even if the applicant becomes aware of additional
patents that may be infringed by its product.
Pharmaceutical Pricing and
Reimbursement
In both domestic and foreign markets, sales of
any products for which we receive regulatory approval for
commercial sale will depend in part on the availability of
reimbursement from third-party payors. Third-party payors
include government health administrative authorities, managed
care
56
The marketability of any products for which we
receive regulatory approval for commercial sale may suffer if
the government and third-party payors fail to provide adequate
coverage and reimbursement. In addition, an increasing emphasis
on managed care in the United States has and will continue to
increase the pressure on pharmaceutical pricing.
Facilities
We sublease approximately 18,500 square feet
of laboratory and office space in Memphis, Tennessee, under an
operating lease through September 2005. This lease is terminable
by either party on 90 days’ notice. We believe that
our existing facilities will be sufficient to meet our
requirements through 2005.
Employees
As of September 30, 2003, we had
43 employees, of whom 11 were Ph.D.s and 3 were M.D.s.
None of our employees is subject to a collective bargaining
agreement. We believe that we have good relations with our
employees.
Legal Proceedings
We are not currently involved in any material
legal proceedings.
57
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MANAGEMENT
Directors, Executive Officers and Other Key
Employees
The following table sets forth information about
our directors, executive officers and other key employees as of
October 31, 2003.
J.R. Hyde, III
has served as the Chairman of our
Board of Directors since November 2000. Since 1989,
Mr. Hyde has been the sole stockholder and President of
Pittco Holdings, Inc., a private, institutional investment
company. Since 1996, when Mr. Hyde made a substantial
contribution to support Dr. Steiner’s research,
Mr. Hyde has been instrumental in forming and financing GTx
and is our largest stockholder. Mr. Hyde was the Chairman
of the Board of Directors of AutoZone, Inc. from 1986 to 1997
and the Chief Executive Officer of AutoZone from 1986 to 1996.
He was also Chairman and Chief Executive Officer of
Malone & Hyde, AutoZone’s former parent company,
from 1972 until 1988. Mr. Hyde is a director of AutoZone,
Inc. and FedEx Corporation.
Mitchell S. Steiner, M.D., F.A.C.S.,
a co-founder of GTx, has served as
our Chief Executive Officer and Vice-Chairman of our Board of
Directors since our inception in September 1997. Prior to
founding GTx, Dr. Steiner held numerous academic
appointments, including Chairman and Professor of Urology,
Director of Urologic Oncology and Research and the Chair of
Excellence in Urologic Oncology at the University of Tennessee.
Dr. Steiner holds a B.A. in Molecular Biology from
Vanderbilt University and an M.D. from the University of
Tennessee, and performed his surgery and urologic training at
The Johns Hopkins Hospital.
Marc S.
Hanover,
a co-founder of GTx, has
served as our President and Chief Operating Officer and a
director since our inception in September 1997. Prior to joining
GTx, Mr. Hanover was a founder of Equity Partners
International, Inc., a private equity firm in Memphis,
Tennessee, and participated as a founder and investor in three
healthcare companies. From 1985 to 1997, Mr. Hanover was a
Senior Vice President and a member of the Executive Management
Committee of National Bank of Commerce, now National Commerce
Financial Corporation, in Memphis,
58
Henry P. Doggrell
has served as our General Counsel
and Secretary since October 2001. From April 1998 to August
2001, Mr. Doggrell was Senior Vice President, Corporate
Affairs at Buckeye Technologies, Inc., a specialty cellulose
company, where he was responsible for matters including
corporate finance, investor relations, mergers and acquisitions,
intellectual property and licensing and strategic development.
From 1996 to 1998, Mr. Doggrell served as General Counsel
and Secretary of Buckeye Technologies. Prior to joining Buckeye
Technologies, Mr. Doggrell was a partner of the Baker,
Donelson, Bearman, Caldwell and Berkowitz law firm from 1988 to
1996, where he served as a member of the law firm management
committee and Chair of the firm’s Corporate Securities
department. Mr. Doggrell holds a B.S. in Commerce from the
University of Virginia and a J.D. from Vanderbilt University.
Mark E. Mosteller
has served as our Chief Financial
Officer since August 2001. From April 1997 to August 2001,
Mr. Mosteller was an Executive Vice President of Union
Planters Bank National Association, a subsidiary of Union
Planters Corporation, a bank holding company, and Chief
Operating Officer of Union Planters Mortgage, the mortgage
division of Union Planters Bank National Association. From 1994
to 1997, Mr. Mosteller was the Chief Financial Officer of
Boatmen’s National Mortgage, Inc., the mortgage subsidiary
of Boatmen’s Bancshares, Inc. From 1984 to 1994,
Mr. Mosteller was employed as an audit senior manager with
Ernst & Young LLP. Mr. Mosteller is a certified
public accountant and holds a B.S. in Accounting from the
University of Tennessee.
Rosemary Mazanet, M.D., Ph.D.
has served as a director since
October 2001. Dr. Mazanet has served as Chief Scientific
Officer and a General Partner of Oracle Partners, L.P., a
private equity fund, since 1998. Prior to joining Oracle
Partners, Dr. Mazanet served as the Director of Clinical
Research at Amgen, Inc., a pharmaceutical company.
Dr. Mazanet is a member of the Board of Directors of the
University of Pennsylvania School of Medicine. She trained in
internal medicine at the Brigham and Women’s Hospital and
in oncology at the Dana Farber Cancer Institute, both part of
the Harvard Medical system, where she was a staff physician
prior to joining Amgen. Dr. Mazanet holds a B.A. in Biology
from the University of Virginia and an M.D. and a Ph.D. in
Anatomy from the University of Pennsylvania.
John H. Pontius
has served as a director since
April 1999. Mr. Pontius has been the President of Pittco
Management, LLC, since 1991. From 1986 to 1991,
Mr. Pontius served as the chief financial officer of the
City of Memphis, Tennessee. Mr. Pontius is a certified
public accountant and holds a B.S. in Accounting from the
University of Tennessee. Mr. Pontius has served as a member
of the Board of Trustees of the University of Tennessee since
2002.
K. Gary Barnette, Ph.D.
has served as our Director of
Regulatory Affairs since December 2001. From May 1998 to
December 2001, Dr. Barnette was Assistant Director and then
Director, Regulatory Affairs at Solvay Pharmaceuticals, Inc., a
specialty pharmaceutical company. From March 1995 to May 1998,
Dr. Barnette was a Clinical Pharmacology and
Biopharmaceutics Reviewer at the FDA, where he reviewed in the
Divisions of Reproductive and Urologic Drug Products, Metabolic
and Endocrine Drug Products and Gastrointestinal and Coagulation
Drug Products. Dr. Barnette holds a B.S. in Biology from
Salem College, and a Ph.D. in Basic Pharmaceutical Sciences from
West Virginia University.
T. Gary Bird, Ph.D.
has served as our Director of
Manufacturing since October 2003. From 1995 to October 2003,
Dr. Bird was a Senior Regulatory Scientist, Senior Quality
Consultant and Quality Technical Advisor for Biotechnology in
Corporate Quality Assurance at Eli Lilly and Company.
Dr. Bird provided regulatory and quality direction to the
biotechnology component of Eli Lilly with respect to facility
construction and operation. From 1992 to 1995, Dr. Bird was
the Assistant to the Deputy Director, Center for Biologics
Evaluation and Research at the FDA. Dr. Bird holds a B.S.
from the University of Memphis in Invertebrate
Zoology/Chemistry, an M.S. from the University of
59
Robert S. Boger, M.D.
has served as our Director of
Clinical Development since May 2003. From January 2002 until he
joined GTx, Dr. Boger was a private consultant specializing
in medicine, pharmacology and clinical research. From 1997 to
January 2002, Dr. Boger was Director of Clinical Research
for Transplantation and Immunology for Novartis Pharmaceuticals.
From 1996 to 1997, Dr. Boger served as Director of Medical
Research and Clinical Science Leader of Roche’s
CellCeptTransplant program. Prior to joining Roche, Dr. Boger
served as both Associate Director, Clinical Research and Medical
Director, Renin Inhibitor Venture for Abbott Laboratories.
Dr. Boger holds a B.A. in Biophysics from Amherst College
and an M.D. from Harvard Medical School. Dr. Boger is board
certified in internal medicine, nephrology and clinical
pharmacology.
Karen A. Veverka, Ph.D.
has served as our Director of
Preclinical Development since August 2000. Dr. Veverka is a
co-inventor of several patents held by GTx in the area of
medical applications of SARMs. From 1996 to September 2000,
Dr. Veverka was a post-doctoral research fellow at
St. Jude Children’s Research Hospital.
Dr. Veverka holds a B.S. in Biochemistry from Kansas State
University and a Ph.D. from Mayo Graduate School/The Mayo
Foundation.
Michael A. Whitt, Ph.D.
has served as our Director of
Molecular Biology since April 2001. Dr. Whitt is the
co-inventor of several patents licensed to GTx. Dr. Whitt
has been on the faculty in the Department of Molecular Sciences
at the University of Tennessee Health Sciences since 1991.
Dr. Whitt holds a B.A. in Microbiology from the University
of Kansas and a Ph.D. in Microbiology from the University of
California, Davis. Dr. Whitt received his post-doctoral
training at the Yale University School of Medicine.
Board Composition
Upon the completion of this offering, we will
have an authorized Board of Directors consisting of five
members. In accordance with the terms of our certificate of
incorporation and bylaws, which will become effective upon
completion of this offering, the Board of Directors will be
divided into three classes, Class I, Class II and
Class III, with each class serving staggered three-year
terms. Upon the completion of this offering, the members of the
classes will be divided as follows:
Our certificate of incorporation that will become
effective upon the completion of this offering provides that the
authorized number of directors may be changed only by resolution
of the Board of Directors. Any additional directorships
resulting from an increase in the number of directors will be
distributed between the three classes so that, as nearly as
possible, each class will consist of one-third of the directors.
This classification of the Board of Directors may have the
effect of delaying or preventing changes in the control or
management of GTx.
Our directors may be removed only for cause by
the affirmative vote of the holders of a majority of our voting
stock.
Board Committees
Our Board of Directors has an audit committee, a
compensation committee and a nominating and corporate governance
committee.
60
Audit Committee
Our audit committee consists of Mr. Hyde,
Dr. Mazanet and Mr. Pontius. The functions of the
audit committee include:
Both our independent auditors and internal
financial personnel will regularly meet privately with our audit
committee and have unrestricted access to this committee.
Compensation Committee
Our compensation committee consists of
Mr. Hyde, Dr. Mazanet and Mr. Pontius. The functions
of the compensation committee include:
Nominating and Corporate Governance
Committee
Our nominating and corporate governance committee
consists of Mr. Hyde, Dr. Mazanet and
Mr. Pontius. The functions of the nominating and corporate
governance committee include:
Compensation Committee Interlocks and Insider
Participation
During 2002, Mr. Pontius, Dr. Steiner,
our Chief Executive Officer, and Mr. Hanover, our President
and Chief Operating Officer, served as the members of our
Compensation Committee. In October 2003, Mr. Hyde and
Dr. Mazanet replaced Dr. Steiner and Mr. Hanover
as members of our Compensation Committee. None of our executive
officers currently serves, or in the past year has served, as a
member of the Board of Directors or compensation committee of
any entity that has one or more executive officers serving on
our Board of Directors or compensation committee.
61
Name
Age
Position(s)
60
Chairman of the Board of Directors
43
Chief Executive Officer and Vice-Chairman of the
Board of Directors
40
President, Chief Operating Officer and Director
55
General Counsel and Secretary
41
Chief Financial Officer
48
Director
48
Director
36
Director of Regulatory Affairs
51
Director of Manufacturing
56
Director of Clinical Development
35
Director of Preclinical Development
44
Director of Molecular Biology
(1)
Member of the Compensation Committee
(2)
Member of the Audit Committee
(3)
Member of the Nominating and Corporate Governance
Committee
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•
the class I director will be
Dr. Mazanet, and her term will expire at the annual meeting
of stockholders to be held in 2004;
•
the class II directors will be
Mr. Hanover and Mr. Pontius, and their term will
expire at the annual meeting of stockholders to be held in 2005;
and
•
the class III directors will be
Dr. Steiner and Mr. Hyde, and their term will expire
at the annual meeting of stockholders to be held in 2006.
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•
meeting with our management periodically to
consider the adequacy and effectiveness of our internal
controls, the objectivity of our financial reporting and our
accounting policies and practices;
•
meeting with our independent auditors and with
internal financial personnel regarding these matters;
•
selecting, overseeing, compensating and engaging
our independent auditors;
•
reviewing our financial statements and reports
and discussing the statements and reports with our management
and our independent auditor, including any significant
adjustments, management judgments and estimates, new accounting
policies and disagreements with management; and
•
reviewing our financial plans and reporting
recommendations to our full board for approval and to authorize
action.
•
reviewing and, as it deems appropriate,
recommending to our Board of Directors, policies, practices and
procedures relating to the compensation of our directors and
executive officers and the establishment and administration of
our employee benefit plans;
•
exercising administrative authority under our
stock plans and employee benefit plans; and
•
advising and consulting with our officers
regarding managerial personnel and development.
•
reviewing and recommending nominees for election
as directors;
•
assessing the performance of the Board of
Directors;
•
developing guidelines for board composition; and
•
reviewing and administering our corporate
governance guidelines and considering other issues relating to
corporate governance.
Table of Contents
Director Compensation
We have not provided cash compensation to any
director for his or her service as a director. However,
following the completion of this offering, we intend to provide
cash compensation at a rate of
$ per
regular meeting of the Board of Directors and
$ per
committee meeting to all non-employee directors. In addition, we
will reimburse directors for their reasonable expenses incurred
in attending meetings of the Board of Directors.
Our 2003 Non-Employee Directors’ Stock
Option Plan, which will become effective upon completion of this
offering, provides for the automatic grant of options to
purchase shares of common stock to our non-employee directors
except for Mr. Hyde and any other non-employee director who
owns ten percent or more of the combined voting power of our
outstanding securities. Prior to adoption of our 2003
Non-Employee Directors’ Stock Option Plan, we did not make
option grants to our non-employee directors. Upon completion of
this offering, each of our non-employee directors except for
Mr. Hyde and any other non-employee director who owns ten
percent or more of the voting power of our outstanding
securities will receive an initial option to
purchase shares
of common stock and annual option grants to
purchase shares
of common stock starting at the annual stockholders meeting to
be held in 2004. Please refer to the section entitled
“Benefit Plans — 2003 Non-Employee
Directors’ Stock Option Plan” for a more detailed
explanation of the terms of these stock options.
Executive Compensation
The following table shows the compensation
awarded or paid to, or earned by, our chief executive officer
and our three other most highly compensated executive officers
for the fiscal year ended December 31, 2002 whose total
annual salary and bonus exceeded $100,000. We refer to these
executive officers in this prospectus as our “named
executive officers.”
Summary Compensation Table
Stock Option Grants in Last Fiscal
Year
We have granted and will continue to grant
options to our executive officers and employees under our
benefit plans. In 2002, we granted options to purchase a total
of 5,500 shares of our common stock to our employees, including
a grant to one of our named executive officers. The exercise
price per share of each option granted during 2002 was equal to
the fair market value of our common stock as determined by our
Board of Directors on the date of grant.
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The following table shows information regarding
grants of stock options to our named executive officers during
the fiscal year ended December 31, 2002. We have never
granted any stock appreciation rights.
Fiscal Year End Option Values
The following table sets forth the number of
shares of common stock subject to vested and unvested stock
options held as of December 31, 2002 by each of our named
executive officers. Because there was no public market for our
common stock as of December 31, 2002, amounts described in
the following table under the heading “Value of Unexercised
In-the-Money Options at December 31, 2002” are
determined by multiplying the number of shares underlying the
options by the difference between an assumed initial public
offering price of
$ per
share and the per share option exercise price. None of our named
executive officers exercised any stock options during 2002.
Change in Control Arrangements
Our 1999 Stock Option Plan, 2000 Stock Option
Plan, 2001 Stock Option Plan and 2002 Stock Option Plan provide
that in the event of a change in control of us, all shares
subject to option awards under the plans will immediately vest
and be converted into cash, options or stock of equivalent value
in the surviving organization under terms and conditions that
substantially preserve the economic status of plan participants.
For this purpose, a change in control includes (1) a sale
or disposition of more than 50% of our issued and outstanding
voting stock; (2) a merger or consolidation in which our
stockholders immediately before the transaction own less than
50% of the
63
Our employment agreements with our executive
officers and other key employees contain provisions triggered by
a change of control. See “Employment Agreements.”
Our 2003 Equity Incentive Plan provides that in
the event of specified corporate transactions, all outstanding
options and stock appreciation rights under the incentive plan
will be assumed, continued or substituted for by any surviving
or acquiring entity. If the surviving or acquiring entity elects
not to assume, continue or substitute for such awards, such
equity awards will become fully vested, and, if applicable,
exercisable and such equity awards will be terminated if not
exercised prior to the effective date of the corporate
transaction. Other forms of equity awards, such as restricted
stock awards, may have their repurchase or forfeiture rights
assigned to the surviving or acquiring entity. If such
repurchase or forfeiture rights are not assigned, then such
equity awards will become fully vested. Following specified
change in control transactions, the vesting and exercisability
of specified equity awards generally will be accelerated only if
the awardee’s award agreement so specifies. The standard
form of stock option agreement provides for the option to become
fully vested and exercisable if the option holder’s service
with the company or its successor terminates within
12 months after a change of control and the termination of
service is a result of an involuntary termination without cause
or a constructive termination.
Our 2003 Non-Employee Directors’ Stock
Option Plan provides that in the event of specified corporate
transactions, all outstanding options under the plan will be
either assumed, continued or substituted for by any surviving
entity. If the surviving or acquiring entity elects not to
assume, continue or substitute for such options, the vesting and
exercisability of such options will be accelerated in full and
such options will be terminated if not exercised prior to the
effective date of such corporate transaction. In the event of
specified changes in control, the outstanding options under the
Plan granted to non-employee directors will become fully vested
and exercisable as of such change in control. In addition, such
non-employee director’s options shall become fully vested
and exercisable if such director must resign as a condition of
the change in control.
Employment Agreements
Each of our named executive officers has entered
into an employment agreement with us. These employment
agreements provide for salary as well as other customary
benefits and terms. Pursuant to their employment agreements,
Dr. Steiner, Mr. Hanover, Mr. Doggrell and
Mr. Mosteller are entitled to receive an annual salary of
$240,000, $180,000, $202,000 and $160,000. In addition, our
Board of Directors has the discretion to award bonus
compensation to our named executive officers. Each employment
agreement is terminable by either us or the named executive
officer at any time. If we experience a change of control and
the named executive officer’s employment is terminated
without cause, or if the named executive officer terminates his
employment for good reason, at any time within six months after
the change in control, then such named executive officer will
receive continued payment of his then base salary for a period
of one year after the termination date. Dr. Steiner and
Mr. Hanover have each agreed not to compete with us during
the term of their employment and for a period of two years after
their employment ends. If we undergo a change in control, the
two year period will be shortened to one year.
Benefit Plans
1999 Stock Option Plan and 2000 Stock
Option Plan
We adopted the 1999 Stock Option Plan in August
1999 and the 2000 Stock Option Plan in November 2000. Neither
the 1999 Stock Option Plan nor the 2000 Stock Option Plan has a
stated termination date. However, the committee of the Board of
Directors that administers the 1999 Stock
64
Share Reserve.
An aggregate of 3,000 shares of
common stock are reserved for issuance under the 1999 Stock
Option Plan. Options to purchase an aggregate of 3,000 shares of
common stock were outstanding under the 1999 Stock Option Plan
as of September 30, 2003. An aggregate of 12,750 shares of
common stock are reserved for issuance under the 2000 Stock
Option Plan. Options to purchase an aggregate of 9,750 shares of
common stock were outstanding under the 2000 Stock Option Plan
as of September 30, 2003.
Shares subject to stock options that have expired
or otherwise terminated under the 1999 Stock Option Plan or 2000
Stock Option Plan without having been exercised in full and
grants that are settled in cash rather than stock again become
available for the grant of awards under the 1999 Stock Option
Plan or 2000 Stock Option Plan. Shares issued under the 1999
Stock Option Plan or 2000 Stock Option Plan may be previously
unissued shares or reacquired shares bought on the market or
otherwise.
Administration.
The 1999 Stock Option Plan and
2000 Stock Option Plan are administered by a committee of our
Board of Directors. Subject to the terms of the 1999 Stock
Option Plan and 2000 Stock Option Plan, the committee determines
the recipients, the number of stock options to be granted and
the terms and conditions of the stock options. Subject to the
limitations set forth below, the committee also determines the
exercise price of options granted.
Stock Options.
Stock options under the 1999 Stock
Option Plan and 2000 Stock Option Plan are granted pursuant to
stock option agreements. The exercise price for a stock option
cannot be less than the fair market value of the common stock on
the date of grant. Options granted under the 1999 Stock Option
Plan and 2000 Stock Option Plan vest one-third on the third
anniversary of the date of grant, one-third on the fourth
anniversary of the date of grant, and one-third on the fifth
anniversary of the date of grant. If the 1999 Stock Option Plan
or the 2000 Stock Option Plan is terminated, all outstanding
options will become fully vested and exercisable.
The term of stock options granted under the 1999
Stock Option Plan and 2000 Stock Option Plan may not exceed
10 years. If an optionee’s service relationship with
us ceases due to voluntary retirement, at or after age 65 or
after age 55 with no fewer than 10 years of service, death,
disability or involuntary termination, other than a termination
for cause, but including any involuntary termination as a result
of a change of control, any vested shares may be exercised at
any time within 10 years following the date of grant of the
option. If an optionee’s relationship with us ceases for
any other reason, any unvested option shall be forfeited
immediately and the date of such termination will be the last
date on which a vested option can be exercised. Any vested but
unexercised options will terminate upon the optionee competing
with us.
Acceptable consideration for the purchase of
common stock issued under the 1999 Stock Option Plan and 2000
Stock Option Plan include cash or, at the discretion of the
committee, common stock, a deferred payment arrangement or other
legal consideration approved by the committee. Generally, an
optionee may not transfer a stock option granted under the 1999
Stock Option Plan and 2000 Stock Option Plan, other than by will
or the laws of descent and distribution unless the optionee
holds a nonstatutory stock option that provides otherwise.
Changes in
Control.
The 1999 Stock
Option Plan and 2000 Stock Option Plan provide that in the event
of a change in control of us, all shares subject to option
awards under the plans shall immediately vest and be converted
into cash, options or stock of equivalent value in the surviving
organization under terms and conditions that substantially
preserve the economic status of plan participants. For this
purpose, a change in control includes (1) a sale or
disposition of more than 50% of our issued and outstanding
voting stock; (2) a merger or consolidation in which our
stockholders immediately before the transaction own less than
50% of the outstanding voting
65
2001 Stock Option Plan and 2002 Stock
Option Plan
In October 2001, we adopted the 2001 Stock Option
Plan. Our Board of Directors amended the 2001 Stock Option Plan
in November 2001. The 2001 Stock Option Plan will terminate in
October 2011 unless the Board of Directors terminates it
earlier. In August 2002, we adopted the 2002 Stock Option Plan.
The 2002 Stock Option Plan will terminate in August 2012 unless
the Board of Directors terminates it earlier. The 2001 Stock
Option Plan and the 2002 Stock Option Plan provide for the grant
of options that are:
Share
Reserve.
An aggregate of
35,150 shares of common stock are reserved for issuance under
the 2001 Stock Option Plan. Options to purchase an aggregate of
31,250 shares of common stock were outstanding under the 2001
Stock Option Plan as of September 30, 2003. An aggregate of
100,000 shares of common stock are reserved for issuance under
the 2002 Stock Option Plan. Options to purchase an aggregate of
50,000 shares of common stock were outstanding under the 2002
Stock Option Plan as of September 30, 2003.
Shares subject to stock options that have expired
or otherwise terminated under the 2001 Stock Option Plan or 2002
Stock Option Plan without having been exercised in full again
become available for the grant of awards under the 2001 Stock
Option Plan or 2002 Stock Option Plan. Shares issued under the
2001 Stock Option Plan or 2002 Stock Option Plan may be
previously unissued shares or reacquired shares bought on the
market or otherwise.
Administration.
The 2001 Stock Option Plan and 2002 Stock Option Plan are
administered by a committee of our Board of Directors. Subject
to the terms of the 2001 Stock Option Plan and 2002 Stock Option
Plan, the committee determines the recipients, the number and
type of stock options to be granted and the terms and conditions
of the stock options. Subject to the limitations set forth
below, the committee also determines the exercise price of
options granted.
Stock
Options.
Stock options are
granted under the 2001 Stock Option Plan and 2002 Stock Option
Plan pursuant to stock option agreements. The exercise price for
an incentive stock option cannot be less than the fair market
value of the common stock on the date of grant. There is no
restriction on the exercise price for a nonstatutory stock
option. Unless otherwise specified in an option agreement,
options granted under the 2001 Stock Option Plan or 2002 Stock
Option Plan vest one-third on the third anniversary of the date
of grant, one-third on the fourth anniversary of the date of
grant, and one-third on the fifth anniversary of the date of
grant.
The term of stock options granted under the 2001
Stock Option Plan or 2002 Stock Option Plan may not exceed
10 years. Unless otherwise provided for in the stock option
agreement, options granted under the 2001 Stock Option Plan or
2002 Stock Option Plan terminate three months after termination
of the optionee’s employment or service as a director of
GTx or an affiliate unless (1) the termination is due to
the optionee’s disability, in which case the option may
provide that it may be exercised at any time within one year
following termination of employment or relationship;
(2) the termination is due to the death of optionee or
death occurs within three months after the termination of the
optionee, in which case the option may provide that it may be
exercised at any time within 18 months following the death
of optionee; or (3) the termination is due to voluntary
retirement, subject to some conditions, in which case the option
may be exercised at any time within five years of the date of
retirement subject to the express term of the option. Any vested
but unexercised options will terminate upon the optionee
competing with us.
66
Acceptable consideration for the purchase of
common stock issued under the 2001 Stock Option Plan or 2002
Stock Option Plan include cash or, at the discretion of the
committee, common stock, a deferred payment arrangement or other
legal consideration approved by the committee. Generally, an
optionee may not transfer a stock option granted under the 2001
Stock Option Plan or 2002 Stock Option Plan, other than by will
or the laws of descent and distribution unless the optionee
holds a nonstatutory stock option that provides otherwise.
Tax Limitations on Stock Option
Grants.
Incentive stock options
may be granted only to our employees. The aggregate fair market
value, determined at the time of grant, of shares of our common
stock with respect to incentive stock options that are
exercisable for the first time by an optionee during any
calendar year under all of our stock plans may not exceed
$100,000. The options or portions of options that exceed this
limit are treated as nonstatutory stock options. No incentive
stock option, and before our stock is publicly traded, no
nonstatutory stock option, may be granted to any person who, at
the time of the grant, owns or is deemed to own stock possessing
more than 10% of our total combined voting power or any
affiliate unless the following conditions are satisfied:
Changes in
Control.
The 2001 Stock
Option Plan and 2002 Stock Option Plan provide that in the event
of a change in control of us, all shares subject to option
awards under the plans shall immediately vest and be converted
into cash, options or stock of equivalent value in the surviving
organization under terms and conditions that substantially
preserve the economic status of plan participants. For this
purpose, a change in control includes (1) a sale or
disposition of more than 50% of our issued and outstanding
voting stock; (2) a merger or consolidation in which our
stockholders immediately before the transaction own less than
50% of the outstanding voting securities of the surviving entity
immediately after the transaction; or (3) a sale or
disposition of all or substantially all of our assets.
2003 Equity Incentive Plan
We adopted and our stockholders approved our 2003
Equity Incentive Plan
in 2003
to become effective upon the effective date of this offering.
The 2003 Equity Incentive Plan will terminate when the Board of
Directors terminates the plan. The 2003 Equity Incentive Plan
provides for the grant of nonstatutory stock options, restricted
stock awards, stock appreciation rights, phantom stock rights
and other forms of equity compensation, which may be granted to
employees, including officers, non-employee directors and
consultants.
Share
Reserve.
An aggregate
of shares
of common stock will be reserved for issuance under the 2003
Equity Incentive Plan, which amount will be increased annually
on January 1st of each year, from 2005 until 2013, by five
percent of the number of shares of common stock outstanding on
such date. However, the Board of Directors has the authority to
designate a smaller number of shares by which the authorized
number of shares of common stock will be increased on such date.
As of the date hereof, no shares of common stock have been
issued under the 2003 Equity Incentive Plan.
The following types of shares issued under the
2003 Equity Incentive Plan may again become available for the
grant of new awards under the 2003 Equity Incentive Plan:
restricted stock that is repurchased or forfeited prior to it
becoming fully vested; shares withheld for taxes; shares used to
pay the exercise price of an option in a net exercise; and
shares tendered to the company to pay the exercise price of an
option. In addition, shares subject to stock options that have
expired or otherwise terminated without having been exercised in
full may again become available for the grant
67
Administration.
Our Board of Directors will
administer the 2003 Equity Incentive Plan. The Board of
Directors may delegate authority to administer the 2003 Equity
Incentive Plan to a committee. Subject to the terms of the 2003
Equity Incentive Plan, our Board of Directors or its authorized
committee, the plan administrator, determines recipients, grant
dates, the numbers and types of equity awards to be granted and
the terms and conditions of the equity awards, including the
period of their exercisability and vesting. Subject to the
limitations set forth below, the plan administrator will also
determine the exercise price of options granted, the purchase
price for rights to purchase restricted stock and, if
applicable, phantom stock and the strike price for stock
appreciation rights. The plan administrator may also amend the
terms of the plan and outstanding equity awards. Amendments to
the 2003 Equity Incentive Plan are subject to shareholder
approval to the extent required by law, rule or regulation. In
addition, the plan administrator may amend an option to lower
its exercise price or exchange an option for an option with a
lower exercise price, another equity award, cash or any other
valuable consideration or may take any other action that is
treated as a repricing under generally accepted accounting
principles.
Nonstatutory Stock Options.
Nonstatutory stock options will be
granted pursuant to nonstatutory stock option agreements. The
plan administrator determines the exercise price for a
nonstatutory stock option. Options granted under the 2003 Equity
Incentive Plan vest at the rate specified in the option
agreement.
Generally, the plan administrator determines the
term of nonstatutory stock options granted under the 2003 Equity
Incentive Plan. Unless the terms of an optionee’s
nonstatutory stock option agreement provide otherwise, if an
optionee’s service relationship with us, or any of our
affiliates, ceases due to disability or death, the optionee, or
his or her beneficiary, may exercise any vested options up to
12 months in the event of disability, 18 months in the
event of death and 24 months in the event of retirement,
after the date such service relationship ends. If an
optionee’s relationship with us, or any affiliate of ours,
ceases for any reason other than disability, death or retirement
the optionee may exercise any vested options up to three months
from cessation of service, unless the terms of the stock option
agreement provide for earlier or later termination.
Acceptable consideration for the purchase of
common stock issued upon the exercise of a nonstatutory stock
option will be determined by the plan administrator and may
include cash, common stock previously owned by the optionee, a
broker assisted exercise and the net exercise of the option.
Generally, an optionee may not transfer a
nonstatutory stock option other than by will or the laws of
descent and distribution unless the nonstatutory stock option
agreement provides otherwise. However, an optionee may designate
a beneficiary who may exercise the option following the
optionee’s death.
Restricted Stock Awards.
Restricted stock awards are
purchased through a restricted stock award agreement. The
purchase price for restricted stock awards must be at least the
par value of the stock. The purchase price for a restricted
stock award may be payable in cash or the recipient’s past
or future services performed or to be performed for us or any of
our affiliates. Rights to acquire shares under a restricted
stock award may not be transferred other than by will or by the
laws of descent and distribution.
Stock Appreciation Rights.
Stock appreciation rights are
granted pursuant to stock appreciation rights agreements. The
plan administrator determines the strike price for a stock
appreciation right. A stock appreciation right granted under the
2003 Equity Incentive Plan vests at the rate specified in the
stock appreciation right agreement.
The plan administrator determines the term of
stock appreciation rights granted under the 2003 Equity
Incentive Plan. If an awardee’s service relationship with
us, or any of our affiliates, ceases
68
Phantom Stock
Awards.
Phantom stock
awards are granted pursuant to phantom stock award agreements. A
phantom stock award may require the payment of at least par
value. Payment of any purchase price may be made in any form of
legal consideration acceptable to the plan administrator. Rights
to acquire shares under a phantom stock agreement may not be
transferred other than by will or by the laws of descent and
distribution.
Other Equity Awards.
The plan administrator may grant
other awards based in whole or in part by reference to our
common stock. The plan administrator will set the number of
shares under the award, the purchase price, if any, the timing
of exercise and vesting and any repurchase rights associated
with such awards. Unless otherwise specifically provided for in
the award agreement, such awards may not be transferred other
than by will or by the laws of descent and distribution.
Changes in Control.
In the event of specified
corporate transactions, all outstanding options and stock
appreciation rights under the incentive plan either will be
assumed, continued or substituted for by any surviving or
acquiring entity. If the surviving or acquiring entity elects
not to assume, continue or substitute for such awards, such
equity awards will become fully vested and exercisable and such
equity awards will be terminated if not exercised prior to the
effective date of the corporate transaction. Other forms of
equity awards such as restricted stock awards may have their
repurchase or forfeiture rights assigned to the surviving or
acquiring entity. If such repurchase or forfeiture rights are
not assigned, then such equity awards will become fully vested.
Following specified change in control transactions, the vesting
and exercisability of specified equity awards generally will be
accelerated only if the awardee’s award agreement so
specifies. The standard form of stock option agreement provides
for options to become fully vested and exercisable if an
optionee is involuntarily terminated without cause or has a
constructive termination, in either case, within twelve months
after the change in control.
2003 Non-Employee Directors’ Stock
Option Plan
We adopted and our stockholders approved our 2003
Non-Employee Directors’ Stock Option Plan
in 2003
to become effective upon the effective date of this offering.
The Non-Employee Directors’ Plan provides for the automatic
grant of nonstatutory stock options to purchase shares of common
stock to our non-employee directors who own less than ten
percent of the combined voting power of our then outstanding
securities.
Share Reserve.
The aggregate number of shares of
common stock that may be issued pursuant to options granted
under the 2003 Non-Employee Directors’ Plan
is shares,
which amount will be increased annually on January 1st of each
year, from 2005 and until 2013, by the number of shares of
common stock subject to options granted during the prior
calendar year. However, the Board of Directors has the authority
to designate a smaller number of shares by which the authorized
number of shares of common stock will be increased. As of the
date hereof, no shares of common stock have been issued under
the 2003 Non-Employee Directors’ Plan.
Administration.
Our Board of Directors will
administer the 2003 Non-Employee Directors’ Plan. The
exercise price of the options granted under the 2003
Non-Employee Directors’ Plan will be equal to the fair
market value of the common stock on the date of grant; provided,
however that initial grants made within three months after the
initial public offering will have an exercise price equal to the
offering price. No option granted under the 2003 Non-Employee
Directors’ Plan may be exercised after the expiration of
ten years from the date it was granted. Options granted under
the 2003 Non-Employee Directors’ Plan are transferable only
to the extent permitted under the rules of a Form S-8
registration statement. In addition, such options are
transferable by will or by the laws of
69
Automatic Grants.
Upon the completion of this
offering, each eligible non-employee director will automatically
be granted an option to
purchase shares
of common stock, the initial grant. Any individual who becomes
an eligible non-employee director after this offering will
automatically be granted the initial grant upon election to the
Board of Directors. Any person who is an eligible non-employee
director on the day after an annual meeting of our stockholders,
commencing with our annual meeting in 2005, automatically will
be granted an option to
purchase shares
of common stock, the annual grant, on such date;
provided,
however,
that an eligible non-employee director will not
receive an annual grant until the first annual meeting that is
at least one year after the date of his or her initial grant.
Initial grants and annual grants vest in 3 equal annual
installments.
Changes in
Control.
In the event of specified
corporate transactions, all outstanding options under the 2003
Non-Employee Directors’ Plan will be either assumed,
continued or substituted for by any surviving entity. If the
surviving or acquiring entity elects not to assume, continue or
substitute for such options, such options will become fully
vested and exercisable and such options will be terminated if
not exercised prior to the effective date of such corporate
transaction. In the event of specified changes in control,
outstanding options granted under the 2003 Non-Employee
Directors’ Plan granted to non-employee directors will
become fully vested and exercisable as of the change in control.
In addition, options held by non-employee directors will become
fully vested and exercisable if such director must resign from
our Board of Directors as a condition of a change in control.
401(k) Plan
We maintain a retirement and deferred savings
plan for our employees. The retirement and deferred savings plan
is intended to qualify as a tax-qualified plan under
Section 401 of the Code. The retirement and deferred
savings plan provides that each participant may contribute up to
15% of his or her pre-tax compensation, up to a statutory limit,
which for most employees is $12,000 in 2003. Under the plan,
each employee is fully vested in his or her deferred salary
contributions. Employee contributions are held and invested by
the plan’s trustee. The retirement and deferred savings
plan also permits us to make discretionary contributions and
matching contributions, subject to established limits and a
vesting schedule. To date, we have not made any discretionary
contributions to the retirement and deferred savings plan on
behalf of participating employees.
Limitations on Directors’ Liability and
Indemnification Agreements
As permitted by Delaware law, we have adopted
provisions in our certificate of incorporation and bylaws, both
of which will become effective upon the completion of this
offering, that limit or eliminate the personal liability of
directors for a breach of their fiduciary duty of care as a
director. The duty of care generally requires that, when acting
on behalf of the corporation, a director exercise an informed
business judgment based on all material information reasonably
available to him or her. Consequently, a director will not be
personally liable to us or our stockholders for monetary damages
or breach of fiduciary duty as a director, except for liability
for:
70
These limitations of liability do not limit or
eliminate our rights or any stockholder’s rights to seek
non-monetary relief, such as injunctive relief or rescission.
These provisions will not alter a director’s liability
under federal securities laws. Our certificate of incorporation
that will become effective upon the completion of this offering
also authorizes us to indemnify our officers, directors and
other agents to the fullest extent permitted under Delaware law.
As permitted by Delaware law, our bylaws also
provide that:
We believe that indemnification under our bylaws
covers at least negligence and gross negligence on the part of
indemnified parties. Our bylaws also permit us to secure
insurance on behalf of any officer, director, employee or other
agent for any liability arising out of his or her actions in
connection with their services to us, regardless of whether our
bylaws permit such indemnification. We have obtained such
insurance.
In addition to the indemnification provided for
in our certificate of incorporation and bylaws, we have entered,
and intend to continue to enter, into separate indemnification
agreements with each of our directors and executive officers
which may be broader than the specific indemnification
provisions contained in the Delaware General Corporation Law.
These indemnification agreements may require us, among other
things, to indemnify our directors and executive officers for
some expenses, including attorneys’ fees, judgments, fines
and settlement amounts incurred by a director or executive
officer in any action or proceeding arising out of his service
as one of our directors or executive officers, or any of our
subsidiaries or any other company or enterprise to which the
person provides services at our request. We believe that these
provisions and agreements are necessary to attract and retain
qualified individuals to serve as directors and executive
officers. There is no pending litigation or proceeding involving
any of our directors or executive officers to which
indemnification is required or permitted, and we are not aware
of any threatened litigation or proceeding that may result in a
claim for indemnification.
71
Annual Compensation
Name and Principal Position
Salary
$
175,000
$
180,000
$
178,750
$
135,417
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Potential
Option Grants in Last Fiscal Year
Realizable Value
Potential
at Assumed
Realizable
Number
Annual Rates
Value at
of
of Stock Price
Assumed
Securities
Percent of
Appreciation
Public
Underlying
Total Options
Exercise
for Option Terms(2)
Offering Price
Options
Granted to
Price Per
Expiration
Name
Granted(#)
Employees(%)(1)
Share ($)
Date
5% ($)
10% ($)
($)
2,000
36.4
%
$
57.66
April 2012
(1)
Based on aggregate of 5,500 shares subject to
options granted to our employees in 2002, including the named
executive officers.
(2)
Potential realizable values are computed by
(1) multiplying the number of shares of common stock
subject to a given option by an assumed initial public offering
price of
$ ,
(2) assuming that the aggregate stock value derived from
that calculation compounds at the annual 5% or 10% rate shown in
the table for the entire ten-year term of the option and
(3) subtracting from that result the aggregate option
exercise price. The 5% and 10% assumed annual rates of stock
price appreciation are mandated by the rules of the SEC and do
not reflect our estimate or projection of future stock prices.
Actual gains, if any, on stock option exercises will depend on
the future performance of the common stock and the date on which
the options are exercised.
Number of
Securities Underlying
Value of Unexercised
Unexercised Options at
In-the-Money Options at
December 31, 2002 (#)
December 31, 2002 ($)
Name
Exercisable
Unexercisable
Exercisable
Unexercisable
—
—
—
—
—
—
—
—
3,000
12,000
$
$
—
5,000
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•
incentive stock options, as defined under the
Internal Revenue Code of 1986, as amended, or the Code, which
may be granted solely to employees, including officers; and
•
nonstatutory stock options, which may be granted
to directors, employees, including officers, or consultants.
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•
the option exercise price must be at least 110%
of the fair market value of the stock subject to the option on
the date of grant; and
•
the term of any incentive stock option award must
not exceed five years from the date of grant.
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•
any breach of the director’s duty of loyalty
to us or our stockholders;
•
any act or omission not in good faith or that
involves intentional misconduct or a knowing violation of law;
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•
any act related to unlawful stock repurchases,
redemptions or other distributions or payments of dividends; or
•
any transaction from which the director derived
an improper personal benefit.
•
we will indemnify our directors, officers,
employees and other agents to the fullest extent permitted by
law;
•
we may advance expenses to our directors,
officers, employees and other agents in connection with a legal
proceeding to the fullest extent permitted by law; and
•
the rights provided in our bylaws are not
exclusive.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following is a description of transactions since May 1999 to which we have been a party, in which the amount involved in the transaction exceeds $60,000, and in which any of our directors, executive officers or holders of more than five percent of our capital stock had or will have a direct or indirect material interest, other than the employment agreements described elsewhere.
Preferred Stock Issuances
We sold shares of our preferred stock in private financings as follows:
| • | 200,000 shares of our Series A preferred stock at a price of $7.275 per share in May 1999; | |
| • | 277,500 shares of our Series B preferred stock at a price of $18.018 per share in July 2000; | |
| • | 260,154 shares of our Series C preferred stock at a price of $57.658 per share in October 2001; | |
| • | 164,765 shares of our Series D preferred stock at a price of $66.762 per share in July 2002; and | |
| • | 329,536 shares of our Series E preferred stock at a price of $60.692 per share in August 2003. |
The investors in these financings included the
following executive officers, directors, holders of more than
five percent of our securities and the immediate family members
and affiliated entities of each:
Series A
Series B
Series C
Series D
Series E
Preferred
Preferred
Preferred
Preferred
Preferred
Investors
Stock
Stock
Stock
Stock
Stock
200,000
277,500
77,718
74,894
283,777
—
—
—
—
1,648
—
—
—
—
824
—
—
—
—
1,236
—
—
—
—
1,648
—
—
—
—
824
—
—
—
—
412
—
—
173,436
74,894
16,478
—
—
9,000
—
—
—
—
—
14,977
16,477
—
—
—
—
6,212
| (1) | Pittco Associates, L.P. is affiliated with both Mr. Hyde and Mr. Pontius. |
| (2) | Memphis Biomed Ventures I, L.P. is affiliated with Mr. Hyde. |
| (3) | Mr. Hanover is the sole managing member of Equity Partners XII, LLC. |
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Registration Rights Agreements
We have entered into registration rights agreements with three of our preferred stockholders and their affiliates and transferees. Pursuant to the registration rights agreements, if we propose to register any of our securities under the Securities Act either for our own account or for the account of other security holders after this offering, as of September 30, 2003, the holders of registration rights will be entitled to include their 1,316,081 shares of common stock. In addition, as of September 30, 2003, the holders of approximately 1,282,755 shares of common stock and their transferees may require us, on not more than two occasions from each holder of demand registration rights at any time after the closing of this offering, to file a registration statement under the Securities Act with respect to their shares of common stock. For more information concerning the registration rights agreements, please see “Description of Capital Stock — Registration Rights Agreements.”
Indemnification Agreements
We have entered into separate indemnification agreements with our directors and executive officers, in addition to the indemnification provided for in our bylaws. See “Management — Limitations on Directors’ Liability and Indemnification Agreements.”
Transaction with Mr. Hyde
In July 2001, we borrowed $4.25 million from Mr. Hyde pursuant to the terms of a promissory note that bore interest at a rate of 9% per annum. All amounts due under the note were paid in full in October 2001. We paid Mr. Hyde $71,000 of interest in 2001.
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PRINCIPAL STOCKHOLDERS
The following table sets forth information as of September 30, 2003 regarding the beneficial ownership of our common stock by:
| • | each person, or group of affiliated persons, who is known by us to own beneficially five percent or more of our common stock; | |
| • | each of our directors; | |
| • | each of our named executive officers; and | |
| • | all our directors and executive officers as a group. |
The number of shares owned and percentage ownership in the following table is based on 910,000 shares of common stock outstanding on September 30, 2003, the conversion of all outstanding shares of our preferred stock and the dividends accrued thereon through September 30, 2003 into 1,329,033 shares of common stock and the issuance of shares in this offering. The information assumes no exercise of the underwriters’ over-allotment option.
Each individual or entity shown on the table has furnished information with respect to beneficial ownership. Except as otherwise indicated below, the address of each officer, director and five percent stockholder listed below is c/o GTx, Inc., 3 N. Dunlap Street, 3rd Floor, Van Vleet Building, Memphis, Tennessee 38163.
We have determined beneficial ownership in
accordance with the rules of the Securities and Exchange
Commission. These rules generally attribute beneficial ownership
of securities to persons who possess sole or shared voting power
or investment power with respect to those securities. In
addition, the rules include shares of common stock issuable
pursuant to the exercise of stock options that are either
immediately exercisable or exercisable within 60 days of
September 30, 2003. These shares are deemed to be
outstanding and beneficially owned by the person holding those
options for the purpose of computing the percentage ownership of
that person, but they are not treated as outstanding for the
purpose of computing the percentage ownership of any other
person. Unless otherwise indicated, the persons or entities
identified in this table have sole voting and investment power
with respect to all shares shown as beneficially owned by them.
Percentage of Shares
Outstanding
Number of Shares
Beneficial Owner (Name and Address)
Owned
Before Offering
After Offering
301,878
13.5
%
%
1,036,503
46.3
618,975
27.7
197,310
8.8
1,666
*
18,565
*
79,924
3.6
—
—
2,237,721
99.9
| * | Represents beneficial ownership of less than 1% of our outstanding common stock. |
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| (1) | Includes 79,965 shares held by Oracle Partners, L.P., 201,921 shares held by Oracle Investment Management, Inc. and 19,992 shares held by Oracle Institutional Partners, L.P. Larry N. Feinberg is the managing member of the general partner of Oracle Partners, L.P. and Oracle Institutional Partners, L.P. and the President of Oracle Investment Management, Inc. Mr. Feinberg disclaims beneficial ownership of these shares except to the extent of his pecuniary interest in the named entities. |
| (2) | Includes 10,487 shares held by Pittco Associates, L.P., an entity controlled by Mr. Hyde, 22,200 shares held by trusts of which Mr. Hyde is the trustee or co-trustee, 33,326 shares held by Memphis Biomed Ventures I, L.P., an entity controlled by Mr. Hyde, and 21,420 shares held by Mr. Hyde’s wife of which Mr. Hyde disclaims beneficial ownership. |
| (3) | Consists of shares held by LD, Jr., LLC, an entity owned by Dr. Steiner. |
| (4) | Includes 96,285 shares held by Equity Partners XII, LLC, an entity controlled by Mr. Hanover, and 59,540 shares held by trusts of which Mr. Hanover is the trustee. |
| (5) | Includes 833 shares held by Mr. Mosteller’s wife of which Mr. Mosteller disclaims beneficial ownership. |
| (6) | Includes 11,100 shares held by a trust of which Mr. Doggrell is the co-trustee with Mr. Hyde, 6,000 shares that Mr. Doggrell has the right to acquire within 60 days of September 30, 2003 through the exercise of stock options and 417 shares held by Mr. Doggrell’s wife of which Mr. Doggrell disclaims beneficial ownership. |
| (7) | Includes 66,600 shares held by trusts of which Mr. Pontius is the trustee and 7,686 shares beneficially owned by Mr. Pontius’ wife of which Mr. Pontius disclaims beneficial ownership. |
| (8) | For purposes of determining the number of shares beneficially owned by directors and executive officers as a group, any shares held in trusts to which both Mr. Doggrell and Mr. Hyde are co- trustees are counted only once. |
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DESCRIPTION OF CAPITAL STOCK
The following description of our capital stock gives effect to the amendment and restatement of our certificate of incorporation and bylaws, which will occur upon the closing of this offering, and the conversion of our preferred stock and dividends accrued thereon through September 30, 2003 into 1,329,033 shares of common stock, which will occur upon the closing of this offering, as if such conversion had occurred on September 30, 2003.
Upon the closing of this offering, our authorized capital stock will consist of shares of common stock, par value $0.001 per share, and 5,000,000 shares of preferred stock, par value $0.001 per share.
Common Stock
Outstanding Shares
As of September 30, 2003, we had 32 stockholders, 910,000 shares of common stock issued and outstanding and 1,231,955 shares of preferred stock issued and outstanding, which, together with dividends accrued thereon through September 30, 2003, are convertible into 1,329,033 shares of common stock. In addition, as of September 30, 2003, options to purchase 94,000 shares of common stock were issued and outstanding. Based on our outstanding capital stock as of September 30, 2003, upon completion of this offering, there will be shares of common stock outstanding, assuming no exercise of the underwriters’ over-allotment option or exercise of outstanding stock options.
Voting Rights
Each holder of our common stock is entitled to one vote for each share on all matters submitted to a vote of the stockholders, including the election of directors. Under our certificate of incorporation and bylaws, our stockholders will not have cumulative voting rights. Because of this, the holders of a majority of the shares of common stock entitled to vote in any election of directors can elect all of the directors standing for election, if they should so choose.
Dividends
Subject to preferences that may be applicable to any then outstanding preferred stock, holders of common stock are entitled to receive ratably those dividends, if any, as may be declared from time to time by the Board of Directors out of legally available funds.
Liquidation
In the event of our liquidation, dissolution or winding up, holders of common stock will be entitled to share ratably in the net assets legally available for distribution to stockholders after the payment of all of our debts and other liabilities and the satisfaction of any liquidation preference granted to the holders of any outstanding shares of preferred stock.
Rights and Preferences
Holders of common stock have no preemptive, conversion or subscription rights, and there are no redemption or sinking fund provisions applicable to the common stock. The rights, preferences and privileges of the holders of common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of preferred stock that we may designate in the future.
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Fully Paid and Nonassessable
All of our outstanding shares of common stock are, and the shares of common stock to be issued pursuant to this offering will be, fully paid and nonassessable.
Preferred Stock
Upon the closing of this offering, the Board of Directors will have the authority, without further action by the stockholders, to issue up to 5,000,000 shares of preferred stock in one or more series, to establish from time to time the number of shares to be included in each such series, to fix the rights, preferences and privileges of the shares of each wholly unissued series and any qualifications, limitations or restrictions thereon, and to increase or decrease the number of shares of any such series, but not below the number of shares of such series then outstanding. The Board of Directors may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of the common stock. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, have the effect of delaying, deferring or preventing a change in control of GTx and may adversely affect the market price of the common stock and the voting and other rights of the holders of common stock.
Registration Rights
Demand Registration Rights
As of September 30, 2003, at any time after the closing of this offering, the holders of 1,282,755 shares of our common stock and their transferees may require us, on not more than two occasions from each holder of demand rights, to file a registration statement under the Securities Act with respect to their shares of common stock, and we will be required to use our best efforts to effect the registration.
Piggyback Registration Rights
As of September 30, 2003, at any time after the closing of this offering, if we propose to register any of our securities under the Securities Act either for our own account or for the account of other stockholders, the holders of approximately 1,316,081 shares of common stock will be entitled to notice of the registration and will be entitled to include their shares of common stock in the registration statement. These registration rights are subject to specified conditions and limitations, including the right of the underwriters to limit the number of shares included in any such registration under some circumstances.
Expenses of Registration
We will pay all expenses relating to any demand or piggyback registration, other than underwriting discounts and commissions.
Expiration
These registration rights expire only upon the sale of all shares of common stock that have registration rights. However, we are not required to maintain the effectiveness of a registration statement if the shares of common stock included in such registration statement may be sold without restriction pursuant to Rule 144(k) under the Securities Act.
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Delaware Anti-Takeover Law and Certain Provisions of
Delaware Law
We are governed by Section 203 of the Delaware General Corporation Law. In general, Section 203 prohibits a public Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. A “business combination” includes mergers, asset sales or other transactions resulting in a financial benefit to the stockholder. An “interested stockholder” is a person who, together with affiliates and associates, owns, or within three years, did own, 15% or more of the corporation’s outstanding voting stock. These provisions may have the effect of delaying, deferring or preventing a change in our control.
Certificate of Incorporation and Bylaw Provisions
Our certificate of incorporation that will become effective upon the completion of this offering provides that our Board of Directors will be divided into three classes of directors, with each class serving a staggered three-year term. The classification system of electing directors may tend to discourage a third party from making a tender offer or otherwise attempting to obtain control of us and may maintain the composition of our current Board of Directors, as the classification of the Board of Directors generally increases the difficulty of replacing a majority of directors. In addition, our certificate of incorporation will:
| • | provide that any action required or permitted to be taken by our stockholders must be effected at a duly called annual or special meeting of stockholders and may not be effected by any consent in writing; | |
| • | provide that the authorized number of directors may be changed only by resolution of the Board of Directors; and | |
| • | eliminate cumulative voting for directors. |
In addition, our bylaws that will become effective upon completion of this offering will provide that special meetings of our stockholders may be called only by the chairman of the Board of Directors, our chief executive officer or by the Board of Directors pursuant to a resolution adopted by a majority of the total number of authorized directors. Without cumulative voting, holders of a majority of our common stock may be able to elect all of the members of our Board of Directors if they so chose.
These and other provisions contained in our certificate of incorporation and bylaws could delay or discourage some types of transactions involving an actual or potential change in our control or change in our management, including transactions in which stockholders might otherwise receive a premium for their shares over then current prices, and may limit the ability of stockholders to remove current management or approve transactions that stockholders may deem to be in their best interests and, therefore, could adversely affect the price of our common stock.
Nasdaq National Market Listing
We have applied to quote our common stock on the Nasdaq National Market under the proposed trading symbol “GTXI”.
Transfer Agent and Registrar
The Transfer Agent and Registrar for our common stock is expected to be EquiServe. The transfer agent’s address is 525 Washington Blvd., P.O. Box 2533, Suite 4691, 9th Floor, Jersey City, NJ 07310.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common stock. Market sales of shares or the availability of shares for sale may decrease the market price of our common stock prevailing from time to time. As described below, only a portion of our outstanding shares of common stock will be available for sale shortly after this offering due to contractual and legal restrictions to resale. Nevertheless, sales of substantial amounts of common stock in the public market after these restrictions lapse, or the perception that such sales could occur, could adversely affect the market price of the common stock and could impair our future ability to raise capital through the sale of our equity securities.
Future sales of our common stock and the availability of our common stock for sale may depress the market price for our common stock. Upon completion of this offering, shares of common stock will be outstanding, assuming no exercise of the underwriters’ over-allotment option and no exercise of options. All of the shares sold in this offering will be freely tradable. The remaining 2,239,033 shares of common stock, based on the number of shares outstanding as of September 30, 2003, are restricted as a result of securities laws or lock-up agreements. 1,905,618 of these shares will be available for sale in the public market 180 days after the date of this prospectus. The remaining 333,415 shares will be available for sale in the public market between 180 and 365 days after the date of this prospectus, subject to early release from lock-up agreements as described below. A portion of the restricted shares will be subject to volume limitations pursuant to Rule 144.
Rule 144
In general, under Rule 144 under the Securities Act of 1933, as currently in effect, a person who has beneficially owned shares of our common stock for at least one year would be entitled to sell within any three-month period a number of shares that does not exceed the greater of:
| • | one percent of the number of shares of our common stock then outstanding, which will equal approximately shares immediately after this offering; or | |
| • | the average weekly trading volume of our common stock on the Nasdaq National Market during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale. |
Sales under Rule 144 are also subject to manner of sale provisions and notice requirements and to the availability of current public information about us.
Rule 144(k)
Under Rule 144(k), a person who is not deemed to have been one of our affiliates at any time during the 90 days preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years, including the holding period of any prior owner other than an affiliate, is entitled to sell the shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144.
Rule 701
Rule 701, as currently in effect, permits resales of shares in reliance upon Rule 144 but without compliance with some restrictions of Rule 144, including the holding period requirement. Our employees, officers, directors or consultants who purchased shares under a written compensatory plan or contract may be entitled to rely on the resale provisions of Rule 701, but all holders of Rule 701 shares are required to wait until 90 days after the date of this prospectus before selling their shares.
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Lock-Up Agreements
Each of our officers, directors and stockholders and the holders of substantially all of our outstanding options have agreed, subject to specified exceptions, that, without the prior written consent of Goldman, Sachs & Co., they will not, directly or indirectly, sell, offer, contract to sell, transfer the economic risk of ownership in, make any short sale, pledge or otherwise dispose of any shares of our capital stock or any securities convertible into or exchangeable or exercisable for or any other rights to purchase or acquire our capital stock for a period of 180 days from the date of this prospectus. Goldman, Sachs & Co. may, in its sole discretion, permit early release of shares subject to the lock-up agreements.
Registration Rights
Upon completion of this offering, as of September 30, 2003 the holders of 1,316,081 shares of our common stock, or their transferees, will be entitled to rights with respect to the registration of their shares under the Securities Act. Registration of these shares under the Securities Act would result in the shares becoming freely tradable without restriction under the Securities Act immediately upon the effectiveness of this registration. See “Description of Capital Stock — Registration Rights.”
Stock Options
Immediately after this offering, we intend to file with the SEC a registration statement under the Securities Act covering the shares of common stock reserved for issuance under our stock option plans. The registration statement is expected to be filed and become effective as soon as practicable after the closing of this offering. Accordingly, shares registered under the registration statement will, subject to Rule 144 volume limitations applicable to affiliates and the lock-up agreements described above, be available for sale in the open market.
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UNDERWRITING
GTx and the underwriters named below have entered
into an underwriting agreement with respect to the shares being
offered. Subject to certain conditions, each underwriter has
severally agreed to purchase the number of shares indicated in
the following table. Goldman, Sachs & Co., SG Cowen
Securities Corporation and Lazard Frères & Co. LLC
are acting as the representatives of the underwriters.
Number of
Underwriters
Shares
The underwriters are committed to take and pay for all of the shares being offered, if any are taken, other than the shares covered by the option described below unless and until this option is exercised.
If the underwriters sell more shares than the total number set forth in the table above, the underwriters have an option to buy up to an additional shares from GTx to cover such sales. They may exercise that option for 30 days. If any shares are purchased pursuant to this option, the underwriters will severally purchase shares in approximately the same proportion as set forth in the table above.
The following table shows the per share and total
underwriting discounts and commissions to be paid to the
underwriters by GTx. Such amounts are shown assuming both no
exercise and full exercise of the underwriters’ option to
purchase additional
shares.
Paid By GTx
No Exercise
Full Exercise
$
$
$
$
Shares sold by the underwriters to the public will initially be offered at the initial public offering price set forth on the cover of this prospectus. Any shares sold by the underwriters to securities dealers may be sold at a discount of up to $ per share from the initial public offering price. Any such securities dealers may resell any shares purchased from the underwriters to certain other brokers or dealers at a discount of up to $ per share from the initial public offering price. If all the shares are not sold at the initial public offering price, the representatives may change the offering price and the other selling terms.
GTx’s stockholders have agreed with the underwriters not to dispose of or hedge any of their common stock or securities convertible into or exchangeable for shares of common stock during the period from the date of this prospectus continuing through the date 180 days after the date of this prospectus, except with the prior written consent of the representatives. This agreement does not apply to any existing employee benefit plans. See “Shares Eligible for Future Sale” for a discussion of certain transfer restrictions.
At the request of GTx, the underwriters are reserving for sale, at the initial public offering price, to directors, officers, employees and friends through a directed share program up to of the shares being offered. The number of shares available for sale to the general public in the offering will be reduced to the extent these persons purchase these reserved shares. Any reserved shares not so purchased will be offered to the general public on the same basis as the other shares offered under this prospectus.
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Prior to the offering, there has been no public market for the shares. The initial public offering price has been negotiated among GTx and the representatives. Among the factors to be considered in determining the initial public offering price of the shares, in addition to prevailing market conditions, will be GTx’s historical performance, estimates of the business potential and earnings prospects of GTx, an assessment of GTx’s management and the consideration of the above factors in relation to market valuation of companies in related businesses.
An application has been made to quote the common stock on the Nasdaq National Market under the symbol “GTXI”.
A prospectus in electronic format may be made available on a website maintained by one or more of the representatives of the underwriters and may also be made available on a website maintained by other underwriters. The underwriters may agree to allocate a number of shares to underwriters for sale to their online brokerage account holders. Internet distributions will be allocated by the representatives of the underwriters to underwriters that may make Internet distributions on the same basis as other allocations.
In connection with the offering, the underwriters may purchase and sell shares of common stock in the open market. These transactions may include short sales, stabilizing transactions and purchases to cover positions created by short sales. Short sales involve the sale by the underwriters of a greater number of shares than they are required to purchase in the offering. “Covered” short sales are sales made in an amount not greater than the underwriters’ option to purchase additional shares from GTx in the offering. The underwriters may close out any covered short position by either exercising their option to purchase additional shares or purchasing shares in the open market. In determining the source of shares to close out the covered short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase additional shares pursuant to the option granted to them. “Naked” short sales are any sales in excess of such option. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the common stock in the open market after pricing that could adversely affect investors who purchase in the offering. Stabilizing transactions consist of various bids for or purchases of common stock made by the underwriters in the open market prior to the completion of the offering.
The underwriters may also impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the representatives have repurchased shares sold by or for the account of such underwriter in stabilizing or short covering transactions.
Purchases to cover a short position and stabilizing transactions may have the effect of preventing or retarding a decline in the market price of our GTx’s stock, and together with the imposition of a penalty bid, may stabilize, maintain or otherwise affect the market price of the common stock. As a result, the price of the common stock may be higher than the price that otherwise might exist in the open market. If these activities are commenced, they may be discontinued at any time. These transactions may be effected on the Nasdaq National Market, in the over-the-counter market or otherwise.
Each underwriter has represented that: (1) it has not offered or sold and, prior to the expiry of a period of six months from the closing date, will not offer or sell any shares to persons in the United Kingdom except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments, as principal or agent, for the purposes of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995; (2) it has only communicated or caused to be communicated and will only communicate or cause to be communicated any invitation or inducement to engage in investment activity, within the meaning of section 21 Financial Services and Markets Act of 2000, or the FSMA, received by it in connection
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The shares may not be offered or sold, transferred or delivered, as part of their initial distribution or at any time thereafter, directly or indirectly, to any individual or legal entity in the Netherlands other than to individuals or legal entities who or which trade or invest in securities in the conduct of their profession or trade, which includes banks, securities intermediaries, insurance companies, pension funds, other institutional investors and commercial enterprises which, as an ancillary activity, regularly trade or invest in securities.
No underwriter has offered or sold, or will offer or sell, in Hong Kong, by means of any document, any shares other than to persons whose ordinary business it is to buy or sell shares or debentures, whether as principal or agent, or under circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap. 32) of Hong Kong, nor has it issued or had in its possession for the purpose of issue, nor will it issue or have in its possession for the purpose of issue, any invitation or advertisement relating to the shares in Hong Kong (except as permitted by the securities laws of Hong Kong) other than with respect to shares which are intended to be disposed of to persons outside Hong Kong or to be disposed of only to persons whose business involves the acquisition, disposal, or holding of securities (whether as principal or as agent).
This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation or subscription or purchase, of the shares may not be circulated or distributed, nor may the shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than under circumstances in which such offer, sale or invitation does not constitute an offer or sale, or invitation for subscription or purchase, of the shares to the public in Singapore.
Each underwriter has acknowledged and agreed that the shares have not been registered under the Securities and Exchange Law of Japan and are not being offered or sold and may not be offered or sold, directly or indirectly, in Japan or to or for the account of any resident of Japan, except pursuant to an exemption from the registration requirements of the Securities and Exchange Law of Japan and in compliance with any other applicable requirements of Japanese law.
The underwriters do not expect sales to discretionary accounts to exceed five percent of the total number of shares offered.
GTx estimates that its share of the total expenses of the offering, excluding underwriting discounts and commissions, will be approximately $ .
GTx has agreed to indemnify the several underwriters against certain liabilities, including liabilities under the Securities Act of 1933.
Certain of the underwriters and their respective affiliates may in the future perform various financial advising and investment banking services for GTx, for which they may receive customary fees and expenses.
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VALIDITY OF THE COMMON STOCK
The validity of the shares of common stock offered hereby and certain other legal matters will be passed upon for us by Cooley Godward LLP, Palo Alto, California. Certain legal matters will also be passed upon for us by Bass, Berry & Sims PLC, Memphis, Tennessee. Certain legal matters will be passed upon for the underwriters by Hale and Dorr LLP, Boston, Massachusetts.
EXPERTS
The financial statements of GTx, Inc. as of December 31, 2002 and 2001 and for each of the three years in the period ended December 31, 2002 appearing in this prospectus and registration statement, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report, given on the authority of such firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission, or SEC, a registration statement on Form S-1 under the Securities Act of 1933 with respect to the shares of common stock offered under this prospectus. This prospectus does not contain all of the information in the registration statement and the exhibits. For further information with respect to us and our common stock, we refer you to the registration statement and to the exhibits. Statements contained in this prospectus as to the contents of any contract or any other document referred to are not necessarily complete, and in each instance, we refer you to the copy of the contract or other document filed as an exhibit to the registration statement. Each of these statements is qualified in all respects by this reference.
You can read our SEC filings, including the registration statement, over the Internet at the SEC’s web site at www.sec.gov. You may also read and copy any document we file with the SEC at its public reference facility at 450 Fifth Street, N.W., Washington, D.C. 20549. You may also obtain copies of the document at prescribed rates by writing to the Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference facility.
Upon completion of this offering, we will be subject to the information reporting requirements of the Securities Exchange Act of 1934, as amended, and we will file reports, proxy statements and other information with the SEC. We also intend to furnish our stockholders with annual reports containing our financial statements audited by an independent public accounting firm and quarterly reports containing our unaudited financial information.
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GTx, Inc.
| Page | ||||
|
|
||||
|
Report of Ernst & Young LLP, Independent
Auditors
|
F-2 | |||
|
Balance Sheets at December 31, 2001 and 2002
and at September 30, 2003 (unaudited)
|
F-3 | |||
|
Statements of Operations for the years ended
December 31, 2000, 2001 and 2002, for the nine months ended
September 30, 2002 and 2003 (unaudited) and for the
cumulative period from inception to September 30, 2003
(unaudited)
|
F-4 | |||
|
Statements of Cumulative Redeemable Convertible
Preferred Stock and Stockholders’ Equity (Deficit) for the
period from inception to September 30, 2003 (unaudited),
for the years ended December 31, 2000, 2001, 2002 and for
the nine months ended September 30, 2003 (unaudited)
|
F-5 | |||
|
Statements of Cash Flows for the years ended
December 31, 2000, 2001 and 2002, for the nine months ended
September 30, 2002 and 2003 (unaudited) and for the
cumulative period from inception to September 30, 2003
(unaudited)
|
F-6 | |||
|
Notes to Financial Statements
|
F-7 | |||
F-1
Table of Contents
REPORT OF ERNST & YOUNG LLP, INDEPENDENT
AUDITORS
Board of Directors and Stockholders
We have audited the accompanying balance sheets
of GTx, Inc. (a development stage company) as of
December 31, 2002 and 2001, and the related statements of
operations, cumulative redeemable convertible preferred stock
and stockholders’ equity (deficit) and cash flows for each
of the three years in the period ended December 31, 2002.
These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with
auditing standards generally accepted in the United States.
Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
Since the date of completion of our audit of the
accompanying financial statements and initial issuance of our
report thereon dated May 9, 2003, which report contained an
explanatory paragraph regarding the Company’s ability to
continue as a going concern, the Company, as discussed in the
second paragraph of Note 2, has completed an issuance of
preferred stock with net proceeds of approximately
$20 million and plans, if additional funding efforts are
unsuccessful, to reduce its cash expenditures such that it will
continue its operations beyond December 31, 2004.
Therefore, the conditions that raised substantial doubt about
whether the Company will continue as a going concern no longer
exist.
In our opinion, the financial statements referred
to above present fairly, in all material respects, the financial
position of GTx, Inc. (a development stage company) at
December 31, 2002 and 2001, and the results of its
operations and its cash flows for each of the three years in the
period ended December 31, 2002, in conformity with
accounting principles generally accepted in the United States.
Memphis, Tennessee
F-2
/s/ Ernst & Young LLP
Table of Contents
GTx, Inc.
BALANCE SHEETS
Pro Forma
Stockholders’
December 31,
Equity at
September 30,
September 30,
2001
2002
2003
2003
(unaudited)
(unaudited)
$
8,834
$
8,925
$
19,788
154
—
121
46
41
338
9,034
8,966
20,247
1,083
1,064
860
$
10,117
$
10,030
$
21,107
LIABILITIES, CUMULATIVE CONVERTIBLE PREFERRED
STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)
$
261
$
601
$
747
229
711
1,220
490
1,312
1,967
Series A, $0.001 par value; 200,000 shares
authorized, issued and outstanding at all periods, liquidation
value of $1,770 at December 31, 2001, $1,889 at
December 31, 2002 and $1,983 at September 30, 2003
(unaudited)
11,847
13,855
25,691
Series B, $0.001 par value; 277,500 shares
authorized, issued and outstanding at all periods, liquidation
value of $5,581 at December 31, 2001, $5,989 at
December 31, 2002 and $6,313 at September 30, 2003
(unaudited)
16,581
19,671
36,882
Series C, $0.001 par value; 450,000 shares
authorized, 260,154 issued and outstanding at all periods,
liquidation value of $15,274 at December 31, 2001, $16,496
at December 31, 2002 and $17,468 at September 30, 2003
(unaudited)
15,274
19,102
37,213
Series D, $0.001 par value; 300,000 shares
authorized, 164,765 issued and outstanding at December 31,
2002 and September 30, 2003, liquidation value of $0 at
December 31, 2001, $11,398 at December 31, 2002 and
$12,073 at September 30, 2003 (unaudited)
—
11,398
22,238
Series E, $0.001 par value; 450,000 shares
authorized, 329,536 issued and outstanding at September 30,
2003, liquidation value of $0 at December 31, 2001 and
December 31, 2002 and $20,236 at September 30, 2003
(unaudited)
—
—
40,954
Total cumulative redeemable convertible preferred
stock
43,702
64,026
162,978
1
1
1
2
—
—
(3,408
)
(3,408
)
969
969
4,460
167,706
(35,045
)
(56,278
)
(144,891
)
(145,159
)
(34,075
)
(55,308
)
(143,838
)
$
19,141
$
10,117
$
10,030
$
21,107
The accompanying notes are an integral part of these financial statements.
F-3
Table of Contents
GTx, Inc.
STATEMENTS OF OPERATIONS
Cumulative
Period from
September 24,
Nine Months Ended
1997 (date of
Year Ended December 31,
September 30,
inception) to
September 30,
2000
2001
2002
2002
2003
2003
(unaudited)
(unaudited)
(unaudited)
$
2,679
$
5,744
$
9,285
$
6,408
$
7,123
$
25,534
1,203
2,187
2,405
1,830
2,339
8,569
80
215
332
240
264
955
3,962
8,146
12,022
8,478
9,726
35,058
—
—
—
—
—
225
150
83
156
105
79
579
150
83
156
105
79
804
(3,812
)
(8,063
)
(11,866
)
(8,373
)
(9,647
)
(34,254
)
(297
)
(790
)
(2,147
)
(1,466
)
(2,300
)
(5,617
)
(21,077
)
(57
)
(7,220
)
(7,147
)
(76,666
)
(105,020
)
$
(25,186
)
$
(8,910
)
$
(21,233
)
$
(16,986
)
$
(88,613
)
$
(144,891
)
$
(27.68
)
$
(9.79
)
$
(23.33
)
$
(18.67
)
$
(97.38
)
910,000
910,000
910,000
910,000
910,000
$
(6.81
)
$
(4.98
)
1,742,563
1,935,968
The accompanying notes are an integral part of these financial statements.
F-4
Table of Contents
GTx, Inc.
STATEMENTS OF CUMULATIVE REDEEMABLE
CONVERTIBLE PREFERRED STOCK AND
Stockholders’ Equity (Deficit)
Cumulative
Redeemable
Deficit
Convertible
Accumulated
Total
Preferred Stock
Common Stock
Deferred
Additional
During the
Stockholders’
Stock
Paid-in
Development
Equity
Shares
Amount
Shares
Amount
Compensation
Capital
Stage
(Deficit)
—
$
—
—
$
—
$
—
$
—
$
—
$
—
—
—
900,000
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
900,000
—
—
—
—
—
—
—
100,000
1
—
969
—
970
—
—
—
—
—
—
(116
)
(116
)
—
—
1,000,000
1
—
969
(116
)
854
200,000
1,455
—
—
—
—
—
—
—
83
—
—
—
—
(83
)
(83
)
—
—
—
—
—
—
(750
)
(750
)
200,000
1,538
1,000,000
1
—
969
(949
)
21
277,500
5,000
—
—
—
—
—
—
—
297
—
—
—
—
(297
)
(297
)
—
21,077
—
—
—
—
(21,077
)
(21,077
)
—
—
(90,000
)
—
—
—
—
—
—
—
—
—
—
—
(3,812
)
(3,812
)
477,500
27,912
910,000
1
—
969
(26,135
)
(25,165
)
260,154
14,943
—
—
—
—
—
—
—
790
—
—
—
—
(790
)
(790
)
—
57
—
—
—
—
(57
)
(57
)
—
—
—
—
—
—
(8,063
)
(8,063
)
737,654
43,702
910,000
1
—
969
(35,045
)
(34,075
)
164,765
10,957
—
—
—
—
—
—
—
2,147
—
—
—
—
(2,147
)
(2,147
)
—
7,220
—
—
—
—
(7,220
)
(7,220
)
—
—
—
—
—
—
(11,866
)
(11,866
)
902,419
64,026
910,000
1
—
969
(56,278
)
(55,308
)
329,536
19,986
—
—
—
—
—
—
—
2,300
—
—
—
—
(2,300
)
(2,300
)
—
76,666
—
—
—
—
(76,666
)
(76,666
)
—
—
—
—
(3,491
)
3,491
—
—
—
—
—
—
83
—
—
83
—
—
—
—
—
—
(9,647
)
(9,647
)
1,231,955
$
162,978
910,000
$
1
$
(3,408
)
$
4,460
$
(144,891
)
$
(143,838
)
The accompanying notes are an integral part of these financial statements.
F-5
Table of Contents
GTx, Inc.
STATEMENTS OF CASH FLOWS
Cumulative
Period from
September 24,
Nine Months Ended
1997 (date of
Year Ended December 31,
September 30,
inception) to
September 30,
2000
2001
2002
2002
2003
2003
(unaudited)
(unaudited)
(unaudited)
$
(3,812
)
$
(8,063
)
$
(11,866
)
$
(8,373
)
$
(9,647
)
$
(34,254
)
80
215
332
240
264
955
—
—
—
—
83
83
—
(154
)
154
—
(121
)
(121
)
(16
)
(18
)
5
8
(297
)
(338
)
(5
)
261
340
89
146
747
340
(225
)
482
537
509
1,220
(3,413
)
(7,984
)
(10,553
)
(7,499
)
(9,063
)
(31,708
)
(462
)
(792
)
(313
)
(295
)
(60
)
(1,815
)
(462
)
(792
)
(313
)
(295
)
(60
)
(1,815
)
—
4,250
—
—
—
4,250
—
(4,250
)
—
—
—
(4,250
)
—
—
—
—
—
970
5,000
14,943
10,957
10,957
19,986
52,341
5,000
14,943
10,957
10,957
19,986
53,311
1,125
6,167
91
3,163
10,863
19,788
1,542
2,667
8,834
8,834
8,925
—
$
2,667
$
8,834
$
8,925
$
11,997
$
19,788
$
19,788
$
297
$
790
$
2,147
$
1,466
$
2,300
$
5,617
$
21,077
$
57
$
7,220
$
7,147
$
76,666
$
105,020
The accompanying notes are an integral part of these financial statements.
F-6
Table of Contents
GTx, Inc.
NOTES TO FINANCIAL STATEMENTS
1. Organization
GTx, Inc. (the “Company”) is a biopharmaceutical company dedicated to the discovery, development and commercialization of therapeutics primarily related to the treatment of serious men’s health conditions. The Company’s drug discovery and development programs are focused on small molecules that selectively modulate the effects of estrogens and androgens, two essential classes of hormones. The Company currently has two product candidates that are in human clinical trials. The Company is developing Acapodene, its most advanced product candidate, through clinical trials for two separate indications: (1) a Phase IIb clinical trial for the reduction in the incidence of prostate cancer in men with precancerous prostate lesions and (2) a pivotal Phase III clinical trial for the treatment of serious side effects of advanced prostate cancer therapy. The Company is initially developing its second product candidate, Andarine, for the treatment of cachexia from various types of cancer. Andarine is the most advanced of its internally discovered portfolio of compounds designed to modulate the effects of hormones. The Company plans to build a specialized sales and marketing capability to market its product candidates directly to the relatively small and concentrated community of urologists and medical oncologists in the United States and seek collaborators to commercialize its product candidates where the target physician market is broader than urologists and medical oncologists and outside the United States.
The Company was incorporated in Tennessee on September 24, 1997. On September 4, 2003, the Company formed a wholly-owned subsidiary in the State of Delaware with 10,000,000 authorized shares of common stock with a par value of $0.001 per share and 1,975,000 shares of preferred stock with a par value of $0.001 per share. On December 1, 2003, the Company was merged into the subsidiary to effect a reincorporation in Delaware. The financial statements reflect the capital structure of the Delaware subsidiary from the Company’s inception. From its inception through the merger with the Company, the Delaware subsidiary had no assets or liabilities.
2. Significant Accounting Policies
Basis of Presentation
From September 24, 1997 (inception) through December 31, 2002, the Company has been primarily engaged in research and development, clinical development, and raising capital and is still in a development stage. The Company operates as one business segment.
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has experienced negative cash flows from operations since inception and had an accumulated deficit at December 31, 2002 and September 30, 2003 (unaudited) of approximately $56,278 and $144,891, respectively. The Company’s accumulated deficit at September 30, 2003 (unaudited) resulted primarily from funding its operating losses as well as non-cash dividends and adjustments to preferred stock redemption value of $110,637. The Company has funded its activities to date almost exclusively from debt and equity financings. In August 2003, the Company issued additional preferred stock (see Note 13) for proceeds of approximately $20,000. The Company will continue to require substantial funds to continue research and development, including preclinical studies and clinical trials of its product candidates, and to commence sales and marketing efforts, if the FDA or other regulatory approvals are obtained. Management’s plans in order to meet its operating cash flow requirements include an initial public offering of its common stock, as well as entering into research collaborations through licensing opportunities, which will provide funding for certain research projects. While the Company believes that it will be successful in
F-7
Table of Contents
NOTES TO FINANCIAL STATEMENTS — (Continued)
obtaining the necessary financing to fund its operations, there are no assurances that such additional funding will be achieved. In that event, the Company has the intent and ability to reduce its cash expenditures by delaying its initiation of certain research and development efforts such that it will continue its operations beyond December 31, 2004.
Unaudited Interim Financial Information
The interim financial statements for the nine months ended September 30, 2002 and September 30, 2003 and the cumulative period from September 24, 1997 to September 30, 2003, together with the related notes, are unaudited and have been prepared on the same basis as the annual financial statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments necessary for the fair presentation of the financial statements, have been included. The results of operations of any interim period are not necessarily indicative of the results of operations for the full year or any other interim period.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual amounts and results could differ from those estimates.
Preferred Stock Redemption Value
In connection with the public filing for an initial registration of its common stock, the Company changed its accounting policy to recognize changes in the redemption value of its preferred stock immediately as they occur and adjust the carrying value of the preferred stock to equal the redemption value at the end of each reporting period. Previously, the Company had adjusted the carrying value of its preferred stock to its liquidation value at the end of each reporting period.
The preferred stock is subject to redemption on or after August 31, 2006, at a price per share equal to the greater of the liquidation value, which includes accrued dividends, or the fair value calculated on an as-if converted to common stock basis. The Company determines redemption value (fair value) considering factors such as the share price of preferred stock issuances, achievement of significant milestones in clinical trials and general market conditions. The changes in redemption value affect the loss attributable to common stockholders.
Cash and Cash Equivalents
The Company considers highly liquid investments with initial maturities of three months or less to be cash equivalents.
Acapodene Inventory
Acapodene inventory consists of a drug that is manufactured by a third-party and delivered to the Company as a finished good. Inventories are stated at the lower of cost (first-in, first-out method) or market. The inventory is expensed by the Company at the time it is sent to clinical trial facilities.
F-8
Table of Contents
NOTES TO FINANCIAL STATEMENTS — (Continued)
Property and Equipment
Property and equipment is recorded at cost. Depreciation of equipment and furniture and fixtures is computed based on the straight-line method over estimated useful lives of three to five years. Amortization of leasehold improvements is recognized over the shorter of the lease term or the estimated useful life of the leasehold improvement.
Impairment
The Company accounts for long-lived assets in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets and for Long-Lived Assets to be Disposed of, which requires that companies consider whether events or changes in facts and circumstances, both internally and externally, may indicate that an impairment of long-lived assets held for use are present. Management periodically evaluates the carrying value of long-lived assets and has determined that there was no impairment as of December 31, 2001 and December 31, 2002. Should there be impairment in the future, the Company would recognize the amount of the impairment based on the expected future cash flows from the impaired assets. The cash flow estimates would be based on management’s best estimates, using appropriate and customary assumptions and projections at the time.
Fair Value of Financial Instruments
Financial instruments consist of cash and cash equivalents, accounts payable and preferred stock. The carrying values of cash and cash equivalents and accounts payable approximate the fair value due to the short-term nature of such instruments. Preferred stock is carried at redemption value which approximates fair value.
Concentration of Risks
Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash and cash equivalents. The Company maintains its cash and cash equivalents in accounts with several major financial institutions in the United States. Deposits in these institutions may exceed the amount of insurance provided on such deposits. The amounts in excess of FDIC insurance amounts are $8,734 and $8,625 at December 31, 2001 and December 31, 2002, respectively.
The Company faces competition from established pharmaceutical and biotechnology companies, as well as from academic institutions, government agencies and private and public research institutions. Various products are currently marketed or sold and used off-label for some of the diseases and conditions that the Company is targeting, and a number of companies are or may be developing new treatments. In addition, physicians are permitted to prescribe legally available drugs for uses that are not described in the drug’s labeling and that differ from those uses tested and approved by the FDA. Such off-label uses are common across medical specialties. The occurrence of such off-label uses could significantly reduce the Company’s ability to market and sell any products that it may develop.
Currently, the Company relies on Orion Corporation as a single source supplier for Acapodene, and the Company is currently purchasing Andarine from ChemSyn Laboratories, a department of EaglePicher Technologies, LLC, as a single supplier. Establishing additional or replacement suppliers for Acapodene or Andarine may take a substantial amount of time, and in some circumstances the Company’s agreement with Orion may prevent it from obtaining an alternate supplier with respect to
F-9
Table of Contents
NOTES TO FINANCIAL STATEMENTS — (Continued)
Acapodene. If the Company has to switch to a replacement supplier, the Company may face additional regulatory delays, and the manufacture and delivery of Acapodene or Andarine could be interrupted for an extended period of time, which may delay completion of the Company’s clinical trials or commercialization of Acapodene or Andarine. If the Company is unable to obtain an adequate supply of Acapodene or Andarine, its clinical trials will be delayed. As a result, regulatory approval of Acapodene or Andarine could be delayed, or may not be received at all.
Research and Development Costs
The Company expenses research and development costs in the period in which they are incurred. These costs consist of direct and indirect costs associated with specific projects as well as fees paid to various entities that perform research and clinical trial studies on behalf of the Company.
Patent Costs
The Company expenses patent costs, including legal expenses, in the period in which they are incurred. Patent expenses are included in general and administrative expenses in the Company’s statements of operations.
Income Taxes
The Company accounts for deferred taxes by recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.
Research and Development Income
Indigo, a Johnson & Johnson subsidiary, and Johnson & Johnson Development Corporation, (“JJDC”) entered into an option agreement with the Company on March 9, 1998. The option agreement was established to allow Indigo and JJDC to determine their level of interest in establishing an exclusive worldwide license with respect to the Company’s gene therapy products and related technology. The agreement required the Company during the period of the agreement, which ended in June 1998, to not negotiate with other third parties related to gene therapy products and related technology. Upon expiration of the option, the Company recognized research and development income of $225 for the option proceeds. The Company is no longer pursuing any research and development related to gene therapy products or technology.
Stock Compensation
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB No. 25”), and its related interpretations are applied to measure compensation expense for stock-based compensation plans. The Company complies with the disclosure provisions of Statement of Financial Accounting Standards No. 123., Accounting for Stock-Based Compensation (“SFAS No. 123”), as amended by SFAS No. 148, Accounting for Stock-Based Compensation, Transition and Disclosure. Under APB No. 25, unearned stock compensation is based on the difference, if any, on the date of grant, between the fair value of the Company’s common stock and the exercise price. See Note 11 for a description of the plans and the assumptions underlying the pro forma calculations below.
F-10
Table of Contents
NOTES TO FINANCIAL
STATEMENTS — (Continued)
If compensation cost for stock-based compensation
plans had been determined under SFAS 123, pro forma stock option
compensation expense and net loss attributable to common
stockholders, assuming all options were valued on the date of
grant using the minimum value option pricing model, would have
been as follows:
Nine Months Ended
Years Ended December 31,
September 30,
2000
2001
2002
2002
2003
(unaudited)
$
(25,186
)
$
(8,910
)
$
(21,233
)
$
(16,986
)
$
(88,613
)
—
—
—
—
83
(4
)
(37
)
(115
)
(84
)
(190
)
$
(25,190
)
$
(8,947
)
$
(21,348
)
$
(17,070
)
$
(88,720
)
$
(27.68
)
$
(9.79
)
$
(23.33
)
$
(18.67
)
$
(97.38
)
$
(27.68
)
$
(9.83
)
$
(23.46
)
$
(18.76
)
$
(97.49
)
Net Loss Per Share
Basic net loss per share attributable to common stockholders is calculated based on the weighted average number of common shares outstanding during the period. Diluted net loss per share attributable to common stockholders would give effect to the dilutive effect of potential common stock consisting of stock options and convertible preferred stock.
The 90,000 common shares that were redeemed in 2000 were excluded from the weighted average common shares outstanding because the shares were contingently returnable to the Company if the holder’s employment terminated prior to a certain date. These shares were treated as stock options in the earnings per share calculation.
F-11
Table of Contents
NOTES TO FINANCIAL
STATEMENTS — (Continued)
A reconciliation of shares used in the
calculation is as follows:
Nine Months Ended
Years Ended December 31,
September 30,
2000
2001
2002
2002
2003
(unaudited)
$
(25,186
)
$
(8,910
)
$
(21,233
)
$
(16,986
)
$
(88,613
)
910,000
910,000
910,000
910,000
910,000
$
(27.68
)
$
(9.79
)
$
(23.33
)
$
(18.67
)
$
(97.38
)
$
(11,866
)
$
(9,647
)
910,000
910,000
832,563
1,025,968
1,742,563
1,935,968
$
(6.81
)
$
(4.98
)
Pro forma net loss per share for the year ended December 31, 2002 and the nine months ended September 30, 2003 is computed using the weighted average number of shares of common stock outstanding, including the pro forma effects of the automatic conversion of the Company’s preferred stock into shares of common stock effective upon the closing of the offering as if such conversion occurred on January 1, 2002 and January 1, 2003 or at the date of the original issuance, if later. The resulting pro forma adjustments include an increase in the weighted average shares used to compute basic and diluted net loss per share attributable to common stockholders of 832,563 shares and 1,025,968 shares for the year ended December 31, 2002 and for the nine months ended September 30, 2003, respectively. The calculation of pro forma net loss per share attributable to common stockholders excludes incremental common stock issuable upon exercise of options, as their effect would be antidilutive.
F-12
Table of Contents
NOTES TO FINANCIAL
STATEMENTS — (Continued)
The following outstanding stock options and
convertible preferred stock (on an as converted to common stock
basis) were excluded from the computation of diluted net loss
per share attributable to common stockholders as they had an
antidilutive effect:
Nine Months Ended
Years Ended December 31,
September 30,
2000
2001
2002
2002
2003
(unaudited)
15,750
38,600
42,750
42,750
94,000
484,090
757,960
959,021
947,725
1,329,033
499,840
796,560
1,001,771
990,475
1,423,033
Comprehensive Loss
The Company has adopted the provisions of SFAS No. 130, Comprehensive Income . SFAS 130 establishes standards for the reporting and display of comprehensive income and its components for general purpose financial statements. For all periods presented, there were no differences between net loss and comprehensive loss.
Recent Accounting Pronouncements
In December 2002, the FASB issued SFAS No. 148, which provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. SFAS No. 148 also requires that disclosures of the pro forma effect of using the fair value method of accounting for stock-based employee compensation be displayed more prominently and in a tabular format. Additionally, SFAS No. 148 requires disclosure of the pro forma effect in interim financial statements. The transition and annual disclosure requirements of SFAS No. 148 are effective for fiscal years ended after December 15, 2002. The interim disclosure requirements are effective for interim periods beginning after December 15, 2002. The adoption of this standard did not have a material impact on the Company’s financial statements.
In January 2003, the FASB issued FASB Interpretation No. 46 (“FIN 46”), Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51 . FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective immediately for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period ending after December 15, 2003. The Company does not have any ownership in any variable interest entities as of December 31, 2002. The Company will apply the consolidation requirement of FIN 46 in future periods if it should own any interest in a variable interest entity.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity . SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liability and equity. SFAS No. 150 is effective for the Company’s financial instruments entered into or modified after May 31, 2003, and otherwise is effective on July 1, 2003. The Company has evaluated the
F-13
Table of Contents
NOTES TO FINANCIAL STATEMENTS — (Continued)
impact of SFAS No. 150 and has determined that its financial instruments (common stock and preferred stock) will not be affected unless the terms of these financial instruments are modified.
3. Property and Equipment
Property and equipment consist of the following:
December 31,
2001
2002
$
108
$
113
1,198
1,494
102
114
1,408
1,721
325
657
$
1,083
$
1,064
Depreciation expense for the years ended December 31, 2000, 2001, and 2002 was $80, $215, and $332, respectively.
4. Accrued Expenses
Accrued expenses consist of the following:
December 31,
2001
2002
$
27
$
–
109
–
71
246
14
449
8
16
$
229
$
711
5. Cumulative Redeemable Convertible Preferred Stock
In 1999, the Company authorized and issued 200,000 shares of 8% Series A Cumulative Redeemable Convertible Preferred Stock (“Series A”) to a common stockholder of the Company for $1,455. In 2000, the Company authorized and issued 277,500 shares of 8% Series B Cumulative Convertible Redeemable Preferred Stock (“Series B”) to the same common stockholder of the Company for $5,000. In 2001, the Company authorized 450,000 shares and issued 260,154 shares (86,718 shares were issued to a common and preferred stockholder of the Company) of 8% Series C Cumulative Convertible Redeemable Preferred Stock (“Series C”) for $14,943. In 2002, the Company authorized 300,000 and issued 164,765 shares (74,894 shares were issued to a common and preferred stockholder of the Company) of 8% Series D Cumulative Convertible Redeemable Preferred Stock (“Series D”) for $10,957.
The Company is authorized to issue 140,000 shares of a series of preferred stock designated as Series A-2 Convertible Preferred Stock (“Series A-2”). No shares of the Series A-2 are currently outstanding. Series A-2 will be issued only in payment of dividends accrued on Series A.
F-14
Table of Contents
NOTES TO FINANCIAL STATEMENTS — (Continued)
The Company is authorized to issue 157,500 shares of a series of preferred stock designated as Series B-2 Convertible Preferred Stock (“Series B-2”). No shares of Series B-2 are currently outstanding. Series B-2 will be issued only in payment of dividends accrued on Series B.
Significant terms of the Series A, Series A-2, Series B, Series B-2, Series C and Series D are as follows:
| • | Shares of Series A, Series A-2, Series B, Series B-2, Series C and Series D shall be redeemed at the election of the respective holders at any time on or after August 31, 2006 at a price per share equal to the greater of the liquidation value, which includes accrued dividends, or the fair value calculated on an if converted to common stock basis. The per share liquidation value of Series A and Series A-2 is $7.28, Series B and Series B-2 is $18.02, Series C is $57.66 and Series D is $66.76, in each case, plus accrued dividends. The preferred stock per share redemption value was $57.66, $57.66, $66.76, $66.76 and $122.83 as of December 31, 2000, 2001 and 2002 and as of September 30, 2002 and 2003 (unaudited), respectively. If for any reason, the Company defaults on its obligation to pay all or any of the redemption price, then the unpaid principal portion will bear interest at a rate of 14% per year. The default provisions were amended upon the issuance of the Series E Cumulative Convertible Redeemable Preferred Stock (“Series E”) (see Note 13). | |
| • | Shares of Series A, Series A-2, Series B, Series B-2, Series C and Series D shall be converted into shares of common stock at the election of the respective holders at any time or automatically upon the closing of a Qualified Public Offering. As defined in the Company’s Certificate of Incorporation, a Qualified Public Offering is an offering to the public of common stock or convertible securities in which (i) the net proceeds to the Company are not less than $25,000 and (ii) the price per share of common stock, or common stock equivalent in the case of convertible securities, is not less than $115.32 (adjusted for stock splits, stock dividends and other similar changes to the common stock). The number of shares issuable upon conversion will be determined by dividing the applicable aggregate liquidation value by the applicable conversion price. The per share conversion price for shares of Series A, Series B, Series C and Series D is equal to their initial per share liquidation value. As a result of the issuance of Series E in August 2003, the conversion price of the Series D was reduced to $65.89 per share (see Note 13). The per share conversion price for Series A-2 and Series B-2 is equal to the per share liquidation value of Series C, or $57.66. | |
| • | Shares of Series A, Series B, Series C and Series D have voting rights equivalent to the number of shares of common stock into which they are convertible. | |
| • | Dividends on shares of Series A, Series B, Series C and Series D accrue, compound annually after the date of issuance of Series C, which was October 5, 2001, are cumulative at the annual rate of 8% of the respective liquidation value and are payable at such time as such shares are converted or redeemed (including liquidation). Each such dividend will be payable solely in shares of Series A-2 for Series A, Series B-2 for Series B, Series C for Series C and Series D for Series D at the time of conversion or redemption with the number of shares determined by dividing the amount of accrued dividends by the per share liquidation value of the applicable preferred stock. | |
| • | In the event of a liquidation, dissolution, or winding up of the Company, prior to the holders of common stock, the holders of Series A, Series A-2, Series B, Series B-2, Series C and Series D shall receive an amount equal to the aggregate liquidation value including all accrued dividends. If the funds available for distribution to the holders of Series A, |
F-15
Table of Contents
NOTES TO FINANCIAL STATEMENTS — (Continued)
| Series A-2, Series B, Series B-2, Series C or Series D are insufficient, then the assets to be distributed shall be distributed ratably among the preferred stockholders based upon the aggregate liquidation value. | ||
| • | In accordance with the Company’s certificate of incorporation, on or after the Series C or the Series D issuance dates, as applicable, if the Company issues or sells, or is deemed to have issued or sold any shares of its common stock for a consideration per share less than the conversion price with respect to Series C or Series D, then immediately upon such issue or sale, or deemed issue or sale, the conversion price shall be reduced to the conversion price determined by multiplying the conversion price in effect immediately prior to such issuance or sale by a price adjustment factor. The price adjustment factor causes the holders of the Series C and/or Series D stock to hold an adjusted number of shares equal to their total ownership before such issuance. If such a transaction occurs, the increase in preferred shares for the Series C and/or Series D holders will be accounted for as a deemed dividend by the Company. As a result of the issuance of Series E in August 2003, the conversion price of the Series D was reduced to $65.89 per share (see Note 13). |
6. Common Stock
The Company’s certificate of incorporation authorizes the Company to issue 10,000,000 shares of common stock with no par value as of December 31, 2002. The Company’s certificate of incorporation authorizes no other classes of common stock. The Company is prohibited from declaring dividends on common stock while any shares of preferred stock are outstanding.
The Company had reserved shares of its authorized
common stock for future issuance as summarized in the table
below:
December 31,
September 30,
2002
2003
(Unaudited)
207,525
209,160
294,647
300,266
286,116
302,965
170,733
183,227
—
333,415
42,750
94,000
107,650
56,900
1,109,421
1,479,933
7. Notes Payable-Related Party
Demand notes of $4,250 were issued in 2001 to a holder of common stock of the Company to fund working capital needs. In October 2001, a portion of the proceeds from the issuance of Series C was used to repay all outstanding principal and accrued interest on the notes payable-related party. Interest expense incurred on the notes payable-related party based on an annual interest rate of 9% was $71 in 2001, which was included in general and administrative expenses in the Company’s Statement of Operations.
F-16
Table of Contents
NOTES TO FINANCIAL STATEMENTS — (Continued)
8. License, Research and Development Agreements
License Agreements
In August 2002, the Company executed an Amended and Restated Exclusive License Agreement with The University of Tennessee Research Foundation (“UTRF”) granting the Company a worldwide exclusive license under its method of use patents relating to Acapodene to market, distribute and sell licensed products, licensed processes or generic products. Under the terms of the agreement, the Company is required (i) to make annual maintenance fee payments and (ii) to make future royalty payments.
The amended license agreement with UTRF superseded a 1998 license agreement related to chemoprevention of prostate cancer between the Company and UTRF. Under the 1998 license agreement, the Company reimbursed UTRF for certain patent expenses incurred by UTRF and agreed to make sublicense fee payments and future royalty payments.
In June 2002, the Company executed two Amended and Restated Exclusive License Agreements with UTRF granting the Company worldwide exclusive licenses under its method of use patents relating to Andarine to market, distribute and sell licensed products, licensed processes or generic products. Under the terms of the agreements, the Company is required (i) to make annual maintenance fee payments and (ii) to make future royalty payments.
The amended license agreement with UTRF superseded a 2000 license agreement related to ARTA between the Company and UTRF. Under the 2000 license agreement, the Company reimbursed UTRF for certain patent expenses incurred by UTRF and agreed to make sublicense fee payments and future royalty payments.
Sponsored Research Agreement
The Company entered into a series of sponsored research agreements with the research foundation of a major university for one of the Company’s programs. Under the terms of the agreements, the Company will reimburse the research foundation for the cost of research performed on the Company’s behalf, in accordance with the terms of the agreements. The estimated cost of the research to be performed over a four-year period is approximately $4,000. The Company incurred expenses of $1,638, $956, $682, and 3,276 under these agreements for the years ended December 31, 2000, December 31, 2001, December 31, 2002, and from inception to December 31, 2002, respectively, which were included in research and development costs in the Company’s Statements of Operations. The Company has the right to terminate the sponsored research agreement at any time. Upon termination, the Company will reimburse the research foundation for all research costs incurred on the Company’s behalf not yet reimbursed by the Company.
Contract Research Organization (“CRO”)
In 2000, the Company began a Phase IIb clinical trial for Acapodene for the reduction in the incidence of prostate cancer in men with high grade PIN. The last patient is scheduled to complete the trial in May 2004. The Company incurred expenses related to the Phase IIb clinical trial for the years ended December 31, 2000, 2001 and 2002 of approximately $1,290, $2,299 and $2,802, respectively, and approximately $6,391 from inception to December 31, 2002. The Company has specified rights to terminate the clinical trial and pay the CROs for fees incurred for the clinical trial not yet reimbursed by the Company.
F-17
Table of Contents
NOTES TO FINANCIAL STATEMENTS — (Continued)
In 2002, the Company began two additional Phase II clinical trials for Acapodene. These Phase II clinical trials are expected to be completed in 2003. The Company incurred expenses related to the Phase II clinical trials for the year ended December 31, 2002 of approximately $680, which was included in research and development costs in the Company’s Statements of Operations. The Company estimates the total cost of these clinical trials to be approximately $936.
In 2002, the Company completed a Phase I clinical trial for Andarine. The Company incurred expenses related to the clinical trial for the year ended December 31, 2002 of approximately $370, which was included in research and development costs in the Company’s Statements of Operations.
License and Supply Agreement
In 2000, the Company entered into a license and supply agreement with Orion Corporation for one of the Company’s products. Under the terms of the agreement, the Company paid an initial license fee of $400 and is required to make future sublicense fee payments in the event the Company grants a sublicense under the licensed patents and future royalty payments in the event the Company sells products developed from the licensed patents.
9. Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
The principal components of the Company’s
net deferred income taxes consist of the following:
December 31,
2002
2001
$
9,134
$
4,906
783
390
496
84
10,413
5,380
50
31
50
31
10,363
5,349
(10,363
)
(5,349
)
$
—
$
—
At December 31, 2002, the Company has net operating loss carryforwards of approximately $23,420, which expire for federal purposes from 2020 through 2022 and for state purposes from 2015 to 2017, and research credits, which expire from 2013 through 2022. Utilization of the net operating loss carryforwards and credits may be subject to a substantial annual limitation due to an ownership change as provided by the Internal Revenue Code of 1986, as amended, and similar state provisions. The annual limitation may result in the expiration of net operating losses and credits before utilization.
F-18
Table of Contents
NOTES TO FINANCIAL STATEMENTS — (Continued)
10. Operating Leases
The Company leases laboratory facilities and office space pursuant to leases accounted for as operating leases. Rent expense was approximately $34, $155, $170 and $401 for the years ended December 31, 2000, December 31, 2001, December 31, 2002, and from inception to December 31, 2002, respectively.
11. Stock Option Plans
In 1999, 2000, 2001 and 2002, the Company adopted the Genotherapeutics, Inc. Stock Option Plan (“1999 Plan”), the GTx, Inc. 2000 Stock Option Plan (“2000 Plan”), the GTx, Inc. 2001 Stock Option Plan (“2001 Plan”) and the GTx, Inc. 2002 Stock Option Plan (“2002 Plan”), respectively (collectively, the “Plans”). The Plans provide for the Company to issue options to directors, officers and employees of the Company. The options are granted with an exercise price per share as determined by the Board of Directors. The exercise price per share will not be less than the fair market value of the stock on the date of grant. The Board of Directors cannot issue more than 3,000 options under the 1999 Plan, 12,750 options under the 2000 Plan, 35,150 options under the 2001 Plan and 100,000 options under the 2002 Plan in the aggregate at any time. The options generally vest one-third on the third anniversary, one-third on the fourth anniversary, and one-third on the fifth anniversary of the grant date. However, 15,000 of the 2001 options vest one-fifth per year beginning on the first anniversary of the date the options were granted. All options expire no later than the tenth anniversary of the grant date. In the event of a change in control of the Company, all stock options will become fully vested and be converted to cash, options or stock of equivalent value. None of the Company’s stock options were exercisable at December 31, 2001 or 2000. At December 31, 2002, 4,000 of the Company’s stock options were exercisable.
The following is a summary of option transactions:
Weighted
Average
Exercise Price
Options
Per Share
—
3,000
$
8.00
3,000
8.00
12,750
19.00
15,750
16.90
27,950
57.66
(5,100
)
19.76
38,600
46.04
5,500
60.97
(1,350
)
29.02
42,750
48.50
53,000
53.00
(1,750
)
62.86
94,000
$
50.77
F-19
Table of Contents
NOTES TO FINANCIAL
STATEMENTS — (Continued)
The following table summarizes information about
stock options outstanding at December 31, 2002:
Weighted
Average
Remaining
Weighted
Options
Contractual Life
Average
Options
Exercise Price
Outstanding
(years)
Exercise Price
Exercisable
3,000
6.58
$
8.00
1,000
6,750
7.92
19.00
—
31,000
8.81
57.66
3,000
2,000
9.75
66.76
—
42,750
8.55
$
48.50
4,000
The Company accounts for its Plans in accordance with APB Opinion No. 25. Prior to June 30, 2003, the Company did not recognize compensation expense for stock options because the exercise price of the stock options equaled or exceeded the market price of the underlying stock on the date of grant, which is the measurement date. In anticipation of the Company’s initial public offering, the Company has determined that, for financial reporting purposes, the estimated value of its common stock was in excess of the exercise price for stock options issued to employees subsequent to June 30, 2003. Accordingly, the Company has recorded deferred stock-based compensation and is amortizing the related expense over the service period, which is generally five years. If the alternative method of accounting for stock incentive plans prescribed by SFAS No. 123 had been followed, the Company’s net loss would have increased by approximately, $4, $37, and $115 for the years ended December 31, 2000, 2001, and 2002, respectively. The pro forma disclosures may not be representative of that to be expected in future years. The weighted average fair value of options granted was determined using the minimum value option pricing model assuming no expected dividends, a risk-free interest rate of 6.32% and a weighted average expected life of 10 years for the 1999, a risk-free interest rate of 5.47% and a weighted average expected life of 10 years for the 2000 grants, a risk-free interest rate of 4.24% and a weighted average expected life of 8 years for the 2001 grants, and a weighted average risk-free interest rate of 4.76% and a weighted average expected life of 8 years for the 2002 grants. The weighted average grant date fair value of options granted were $7.03, $14.06, and $14.85 for the years ended December 31, 2000, December 31, 2001, and December 31, 2002, respectively.
12. Employee Benefit Plan
In 2000, the Company established a 401(k) retirement savings plan that is available to all regular employees who have reached age 21. The plan is intended to qualify under Section 401(k) of the Internal Revenue Code of 1986, as amended. The plan provides that each participant may contribute up to 15% of their pre-tax compensation (up to a statutory limit, which was $11 in calendar year 2002). Employee contributions are held in the employees’ name and invested by the plan’s trustee. The plan also permits the Company to make matching contributions, subject to established limits. To date, the Company has not made any matching contributions to the plan on behalf of participating employees.
F-20
Table of Contents
NOTES TO FINANCIAL STATEMENTS — (Continued)
13. Subsequent Events
Issuance of Series E
On August 7, 2003, the Company authorized 450,000 shares and issued 329,536 shares of Series E at a purchase price of $60.69 per share resulting in gross cash proceeds of $20,000. The Company incurred issuance costs of $14 related to this series. Upon the issuance of Series E, the default provisions of all outstanding preferred stock were amended. If for any reason the Company defaults on its obligation to pay all or any portion of the redemption price, then the unpaid principal portion will bear interest at the greater of the prime rate plus 4% or 8%. Series E has similar terms to the other series of preferred stock. As a result of the issuance of Series E, the conversion price of the Series D was reduced to $65.89 per share as a result of the anti-dilution provisions of the Company’s certificate of incorporation.
Initial Public Offering
In October 2003, the Board of Directors authorized the Company to file a Registration Statement with the Securities and Exchange Commission (“SEC”) permitting the Company to sell shares of common stock in an initial public offering (“IPO”). If the IPO is consummated as presently anticipated, all shares of the Series A, Series A-2, Series B, Series B-2, Series C and Series E preferred stock will automatically convert into shares of common stock at a 1-for-1 conversion ratio and all shares of the Series D preferred stock will automatically convert into shares of common stock at a 1.013-for-1 conversion ratio.
Based on the Company’s outstanding shares as of September 30, 2003, if the initial public offering is closed under the terms presently anticipated, all of the cumulative redeemable convertible preferred stock outstanding will automatically convert into approximately 1,329,033 shares of common stock on September 30, 2003.
Issuance of Stock Options
On May 21, 2003, the Company issued 3,000 stock options under the 2001 stock option plan. The shares were issued at an exercise price of $53.00 a share. The shares vest one-third on the third anniversary, one-third on the fourth anniversary and one-third on the fifth anniversary of the grant date. The weighted average fair value of the options granted was $11.81. The weighted average fair value was determined using the minimum value option pricing model assuming no expected dividends, a risk-free interest rate of 3.15% and a weighted average expected life of 8 years.
On August 1, 2003, the Company issued 22,000 stock options under the 2002 stock option plan. The shares were issued at an exercise price of $53.00 a share. The shares vest one-third on the third anniversary, one-third on the fourth anniversary and one-third on the fifth anniversary of the grant date. The weighted average fair value of options granted was $15.61. The weighted average fair value was determined using the minimum value option pricing model assuming no expected dividends, a risk-free interest rate of 4.36% and a weighted average expected life of 8 years.
On September 1, 2003, the Company issued 28,000 stock options under the 2002 stock option plan. The shares were issued at an exercise price of $53.00 a share. The shares vest one-third on the third anniversary, one-third on the fourth anniversary and one-third on the fifth anniversary of the grant date. The weighted average fair value of options granted was $15.61. The weighted average fair value was determined using the minimum value option pricing model assuming no expected dividends, a risk-free interest rate of 4.36% and a weighted average expected life of 8 years.
F-21
Table of Contents
No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus. You must not rely on any unauthorized information or representations. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.
TABLE OF CONTENTS
| Page | ||||
|
|
||||
|
Prospectus Summary
|
1 | |||
|
Risk Factors
|
7 | |||
|
Special Note Regarding Forward-Looking Statements
|
21 | |||
|
Use of Proceeds
|
22 | |||
|
Dividend Policy
|
22 | |||
|
Capitalization
|
23 | |||
|
Dilution
|
24 | |||
|
Selected Financial Data
|
26 | |||
|
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
|
28 | |||
|
Business
|
37 | |||
|
Management
|
58 | |||
|
Certain Relationships and Related Transactions
|
72 | |||
|
Principal Stockholders
|
74 | |||
|
Description of Capital Stock
|
76 | |||
|
Shares Eligible For Future Sale
|
79 | |||
|
Underwriting
|
81 | |||
|
Validity of the Common Stock
|
84 | |||
|
Experts
|
84 | |||
|
Where You Can Find More Information
|
84 | |||
|
Index to Financial Statements
|
F-1 | |||
Through and including , 2004 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.
Shares
Goldman, Sachs & Co.
Representatives of the Underwriters
Table of Contents
PART II
INFORMATION NOT REQUIRED IN
PROSPECTUS
Item 13.
Other
Expenses of Issuance and Distribution
The following table sets forth the costs and
expenses to be paid by us in connection with the sale of the
shares of common stock being registered hereby. All amounts are
estimates except for the SEC registration fee, the NASD filing
fee and the Nasdaq National Market filing fee.
Item 14.
Indemnification
of Directors and Officers
Our certificate of incorporation, which will
become effective upon the completion of this offering, contains
provisions permitted under Delaware law relating to the
liability of directors. These provisions eliminate a
director’s personal liability for monetary damages
resulting from a breach of fiduciary duty, except in
circumstances involving wrongful acts, such as:
These provisions do not limit or eliminate our
rights or any stockholder’s rights to seek non-monetary
relief, such as an injunction or rescission, in the event of a
breach of director’s fiduciary duty. These provisions will
not alter a director’s liability under federal securities
laws.
As permitted by Section 145 of the Delaware
General Corporation Law, our bylaws, which will become effective
upon the closing of this offering, require us to indemnify our
directors and executive officers to the fullest extent not
prohibited by the Delaware law. We may limit the extent of such
indemnification by individual contracts with our directors and
executive officers. Further, we may decline to indemnify any
director or executive officer in connection with any proceeding
initiated by such person or any proceeding by such person
against us or our directors, officers, employees or other
agents, unless such indemnification is expressly required to be
made by law or the proceeding was authorized by our Board of
Directors.
We have entered into indemnity agreements with
each of our current directors and certain of our executive
officers to give such directors and officers additional
contractual assurances regarding the scope of the
indemnification set forth in our certificate of incorporation
and bylaws and to provide additional procedural protections. At
present, there is no pending litigation or proceeding involving
II-1
We have the power to indemnify our other
officers, employees and other agents, as permitted by Delaware
law, but we are not required to do so.
The Registrant maintains a directors’ and
officers’ insurance and registrant reimbursement policy.
The policy insures directors and officers against unindemnified
losses arising from certain wrongful acts in their capacities as
directors and officers and reimburses the registrant for those
losses for which the registrant has lawfully indemnified the
directors and officers. The policy contains various exclusions,
none of which apply to this offering.
Reference is made to the following documents
filed as exhibits to this registration statement regarding
relevant indemnification provisions described above and
elsewhere herein:
Item 15.
Recent
Sales of Unregistered Securities
1. In July 2000, we issued and sold an
aggregate of 277,500 shares of our 8% Series B Cumulative
Convertible Preferred Stock to one accredited investor at
$18.018 per share, for an aggregate offering price of $4,999,995.
2. In October 2001, we issued and sold an
aggregate of 260,154 shares of our 8% Series C Cumulative
Convertible Preferred Stock to three accredited investors at
$57.658 per share, for an aggregate offering price of
$14,999,959.
3. In July 2002, we issued and sold an
aggregate of 164,765 shares of our 8% Series D Cumulative
Convertible Preferred Stock to four accredited investors at
$66.762 per share for an aggregate offering price of $11,000,041.
4. In August 2003, we issued and sold an
aggregate of 329,536 shares of our 8% Series E Cumulative
Convertible Preferred Stock to 11 accredited investors at
$60.692 per share for an aggregate offering price of $20,000,199.
We claimed exemption from registration under the
Securities Act for the sales and issuances of securities in the
transactions described in paragraphs (1) through (3)
above by virtue of Section 4(2) of the Securities Act in
that such sales and issuances did not involve a public offering.
The recipients of securities in each of these transactions
represented their intention to acquire the securities for
investment only and not with view to or for sale in connection
with any distribution thereof and appropriate legends were
affixed to the share certificates and instruments issued in such
transactions. All recipients had adequate access, through their
relationships with us, to information about us.
We claimed exemption from registration under the
Securities Act for the sales and issuances of securities in the
transactions described in paragraph (4) by virtue of
Section 4(2) of the Securities Act and Rule 506 of
Regulation D. Such sales and issuances did not involve any
public offering, were made without general solicitation or
advertising and each purchaser was a sophisticated investor with
access to all relevant information necessary to evaluate the
investment and represented to us that the shares were being
acquired for investment.
II-2
II-3
Item 17.
Undertakings
The undersigned Registrant hereby undertakes to
provide to the underwriters at the closing specified in the
Underwriting Agreement, certificates in such denominations and
registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities
arising under the Securities Act may be permitted to directors,
officers and controlling persons of the Registrant pursuant to
the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer
or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and
will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
II-4
Amount to be Paid
$
6,977
9,125
100,000
230,000
5,000
600,000
1,160,000
7,500
181,398
$
2,300,000
•
any breach of the director’s duty of loyalty
to us or our stockholders;
•
any act or omission not in good faith or that
involves intentional misconduct or a knowing violation of the
law;
•
any act related to unlawful stock repurchases,
redemptions or other distribution or payments of dividends; or
•
any transaction from which the director derived
an improper personal benefit.
Table of Contents
Exhibit Document
Number
1.1
3.3
3.4
4.3
4.4
4.5
10.12
(1)
Previously filed.
(2)
Filed herewith.
Table of Contents
Item 16.
Exhibits and Financial Statement
Schedules
(a)
Exhibits
Number
Description
1
.1*
Underwriting Agreement
3
.1
Certificate of Incorporation of GTx, Inc.(1)
3
.2
Bylaws of GTx, Inc.(1)
3
.3
Form of Amended and Restated Certificate of
Incorporation of GTx, Inc. to be effective upon completion of
this offering(2)
3
.4
Form of Amended and Restated Bylaws of GTx, Inc.
to become effective upon completion of this offering(2)
3
.5
Second Amended and Restated Voting and
Shareholder Agreement dated August 7, 2003 (1)
4
.1
Reference is made to Exhibits 3.1, 3.2, 3.3
and 3.4
4
.2
Specimen of Common Stock Certificate(2)
4
.3
Amended and Restated Registration Rights
Agreement between Registrant and Oracle Partners, L.P. dated
August 7, 2003(1)
4
.4
Amended and Restated Registration Rights
Agreement between Registrant and J. R. Hyde, III
dated August 7, 2003(1)
4
.5
Amended and Restated Registration Rights
Agreement between Registrant and Memphis Biomed Ventures dated
August 7, 2003(1)
5
.1*
Opinion of Cooley Godward LLP
10
.1
Genotherapeutics, Inc. 1999 Stock Option Plan(1)
10
.2
GTx, Inc. 2000 Stock Option Plan(1)
10
.3
GTx, Inc. 2001 Stock Option Plan(1)
10
.4
GTx, Inc. 2002 Stock Option Plan(1)
10
.5*
2003 Equity Incentive Plan and Form of Stock
Option Agreement
10
.6*
2003 Non-Employee Directors’ Stock Option
Plan and Form of Stock Option Agreement
10
.7
Reserved
10
.8
Employment Agreement dated October 1, 2003,
between Registrant and Mitchell S. Steiner, M.D.(1)
10
.9
Employment Agreement dated October 1, 2003,
between Registrant and Marc S. Hanover(1)
10
.10
Employment Agreement dated October 1, 2003,
between Registrant and Mark E. Mosteller(1)
10
.11
Employment Agreement dated October 1, 2003,
between Registrant and Henry P. Doggrell(1)
10
.12
Form of Indemnification Agreement(2)
10
.13
Lease Agreement, dated March 7, 2001,
between The University of Tennessee and TriStar Enterprises,
Inc.(1)
10
.14
Sublease Agreement dated October 1, 2000, as
amended, between Registrant and TriStar Enterprises, Inc.(1)
10
.15†
Amended and Restated License and Supply Agreement
dated October 22, 2001, between Registrant and Orion
Corporation(1)
10
.16†
Amendment No. 1 to the License and Supply
Agreement dated March 5, 2003, between Registrant and Orion
Corporation(1)
10
.17†
Production and Manufacturing Agreement dated
September 9, 2002, between Registrant and ChemSyn
Laboratories (Department of EaglePicher Technologies, LLC)(1)
Table of Contents
Number
Description
10
.18†
Amendment No. 1 to the Production and
Manufacturing Agreement dated September 30, 2003, between
Registrant and ChemSyn Laboratories (Department of EaglePicher
Technologies, LLC)(1)
10
.19†
Quotation Agreement dated August 8, 2003
between Registrant and EaglePicher Pharmaceutical Services(1)
10
.20†
Amended and Restated Exclusive License Agreement
dated June 3, 2002, between Registrant and University of
Tennessee Research Foundation(1)
10
.21†
Amended and Restated Exclusive License Agreement
dated June 14, 2002, between Registrant and University of
Tennessee Research Foundation(1)
10
.22†
Amended and Restated Exclusive License Agreement
dated August 30, 2002, between Registrant and University of
Tennessee Research Foundation(1)
23
.1
Consent of Ernst & Young LLP(2)
23
.2*
Consent of Cooley Godward LLP (included in
Exhibit 5.1)
*
To be filed by amendment.
†
Confidential treatment requested. The redacted
portions have been filed separately with the SEC as required by
Rule 406 of Regulation C.
(1)
Previously filed.
(2)
Filed herewith.
(1) For purposes of determining any
liability under the Securities Act, the information omitted from
the form of prospectus filed as part of this registration
statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this registration statement as of
the time it was declared effective.
(2) For the purpose of determining any
liability under the Securities Act, each post-effective
amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities
offered therein, and the offering of such securities at that
time shall be deemed to be the initial
bona fide
offering
thereof.
Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, GTx, Inc. has duly caused this Amendment No. 2 to the Registration Statement on Form S-1 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Memphis, State of Tennessee, on the 22nd day of December, 2003.
| GTX, INC. |
| By: | /s/ MITCHELL S. STEINER |
|
|
|
| Mitchell S. Steiner, M.D., F.A.C.S. | |
| Chief Executive Officer |
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
| Signature | Title | Date | ||||
|
|
|
|
||||
|
/s/ MITCHELL S. STEINER
Mitchell S. Steiner, M.D., F.A.C.S. |
Chief Executive Officer, Vice- Chairman and Director | December 22, 2003 | ||||
|
/s/ MARK E. MOSTELLER
Mark E. Mosteller |
Chief Financial Officer | December 22, 2003 | ||||
|
*
J.R. Hyde, III |
Chairman of the Board of Directors | December 22, 2003 | ||||
|
*
Marc S. Hanover |
Director | December 22, 2003 | ||||
|
*
John H. Pontius |
Director | December 22, 2003 | ||||
|
*
Rosemary Mazanet, M.D., Ph.D. |
Director | December 22, 2003 | ||||
| * Pursuant to Power of Attorney | ||||||
|
/s/ MITCHELL S. STEINER
Attorney-in-fact |
||||||
II-5
Table of Contents
EXHIBIT INDEX
| Number | Description | |||||
|
|
|
|||||
| 1.1* | Underwriting Agreement | |||||
| 3.1 | Certificate of Incorporation of GTx, Inc.(1) | |||||
| 3.2 | Bylaws of GTx, Inc.(1) | |||||
| 3.3 | Form of Amended and Restated Certificate of Incorporation of GTx, Inc. to be effective upon completion of this offering(2) | |||||
| 3.4 | Form of Amended and Restated Bylaws of GTx, Inc. to become effective upon completion of this offering(2) | |||||
| 3.5 | Second Amended and Restated Voting and Shareholder Agreement dated August 7, 2003(1) | |||||
| 4.1 | Reference is made to Exhibits 3.1, 3.2, 3.3 and 3.4 | |||||
| 4.2 | Specimen of Common Stock Certificate(2) | |||||
| 4.3 | Amended and Restated Registration Rights Agreement between Registrant and Oracle Partners, L.P. dated August 7, 2003(1) | |||||
| 4.4 | Amended and Restated Registration Rights Agreement between Registrant and J. R. Hyde, III dated August 7, 2003(1) | |||||
| 4.5 | Amended and Restated Registration Rights Agreement between Registrant and Memphis Biomed Ventures dated August 7, 2003(1) | |||||
| 5.1* | Opinion of Cooley Godward LLP | |||||
| 10.1 | Genotherapeutics, Inc. 1999 Stock Option Plan(1) | |||||
| 10.2 | GTx, Inc. 2000 Stock Option Plan(1) | |||||
| 10.3 | GTx, Inc. 2001 Stock Option Plan(1) | |||||
| 10.4 | GTx, Inc. 2002 Stock Option Plan(1) | |||||
| 10.5* | 2003 Equity Incentive Plan and Form of Stock Option Agreement | |||||
| 10.6* | 2003 Non-Employee Directors’ Stock Option Plan and Form of Stock Option Agreement | |||||
| 10.7 | Reserved | |||||
| 10.8 | Employment Agreement dated October 1, 2003, between Registrant and Mitchell S. Steiner, M.D.(1) | |||||
| 10.9 | Employment Agreement dated October 1, 2003, between Registrant and Marc S. Hanover(1) | |||||
| 10.10 | Employment Agreement dated October 1, 2003, between Registrant and Mark E. Mosteller(1) | |||||
| 10.11 | Employment Agreement dated October 1, 2003, between Registrant and Henry P. Doggrell(1) | |||||
| 10.12 | Form of Indemnification Agreement(2) | |||||
| 10.13 | Lease Agreement, dated March 7, 2001, between The University of Tennessee and TriStar Enterprises, Inc.(1) | |||||
| 10.14 | Sublease Agreement dated October 1, 2000, as amended, between Registrant and TriStar Enterprises, Inc.(1) | |||||
| 10.15† | Amended and Restated License and Supply Agreement dated October 22, 2001, between Registrant and Orion Corporation(1) | |||||
| 10.16† | Amendment No. 1 to the License and Supply Agreement dated March 5, 2003, between Registrant and Orion Corporation(1) | |||||
| 10.17† | Production and Manufacturing Agreement dated September 9, 2002, between Registrant and ChemSyn Laboratories (Department of EaglePicher Technologies, LLC)(1) | |||||
Table of Contents
| Number | Description | |||||
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| 10.18† | Amendment No. 1 to the Production and Manufacturing Agreement dated September 30, 2003, between Registrant and ChemSyn Laboratories (Department of EaglePicher Technologies, LLC)(1) | |||||
| 10.19† | Quotation Agreement dated August 8, 2003 between Registrant and EaglePicher Pharmaceutical Services(1) | |||||
| 10.20† | Amended and Restated Exclusive License Agreement dated June 3, 2002, between Registrant and University of Tennessee Research Foundation(1) | |||||
| 10.21† | Amended and Restated Exclusive License Agreement dated June 14, 2002, between Registrant and University of Tennessee Research Foundation(1) | |||||
| 10.22† | Amended and Restated Exclusive License Agreement dated August 30, 2002, between Registrant and University of Tennessee Research Foundation(1) | |||||
| 23.1 | Consent of Ernst & Young LLP(2) | |||||
| 23.2* | Consent of Cooley Godward LLP (included in Exhibit 5.1) | |||||
| * | To be filed by amendment. |
| † | Confidential treatment requested. The redacted portions have been filed separately with the SEC as required by Rule 406 of Regulation C. |
| (1) | Previously filed. |
| (2) | Filed herewith. |