| Business and Basis of Presentation | 1. Business and Basis of Presentation
Business
GTx, Inc. (“GTx” or the “Company”), a Delaware corporation incorporated on September 24, 1997 and headquartered in Memphis, Tennessee, is a biopharmaceutical company dedicated to the discovery, development and commercialization of small molecules for the treatment of cancer, including treatments for breast and prostate cancer, and other serious medical conditions.
The Company is developing selective androgen receptor modulators (“SARMs”), including its lead product candidate, enobosarm (GTx-024). SARMs are a class of drugs that the Company believes has the potential to be used as a novel hormonal therapy for the treatment of advanced breast cancer, as well as the potential to treat other serious medical conditions. The Company announced during the second quarter of 2014 positive results from a Phase 2 proof-of-concept, open-label clinical trial evaluating a 9 mg oral daily dose of enobosarm for the treatment of patients with estrogen receptor (“ER”) positive and androgen receptor (“AR”) positive metastatic breast cancer who have previously responded to hormonal therapy. Based on these results, the Company commenced enrollment in 2015 in a Phase 2 clinical trial designed to evaluate the efficacy and safety of enobosarm in patients whose advanced breast cancer is both ER positive and AR positive. During 2015, the Company also commenced enrollment in a Phase 2 proof-of-concept clinical trial designed to evaluate the efficacy and safety of enobosarm in patients with advanced AR positive triple-negative breast cancer (“TNBC”).
The Company is also evaluating enobosarm and other compounds in its SARM portfolio for indications outside of oncology where unmet medical needs in muscle-related diseases may benefit from increasing muscle mass. In the first quarter of 2016, the Company initiated a Phase 2 proof-of-concept clinical trial of enobosarm to treat postmenopausal women with Stress Urinary Incontinence (“SUI”). The Company is also currently evaluating several SARM compounds, including enobosarm, in preclinical models of Duchenne Muscular Dystrophy (“DMD”) where a SARM’s ability to increase muscle mass may prove beneficial to patients suffering from DMD. The Company’s evaluation of SARMs as a potential treatment for DMD is at an early stage, and the Company’s ability to meaningfully advance development of SARMs as a potential treatment for DMD is subject to the Company’s ability to obtain additional funding.
In March 2015, the Company entered into an exclusive license agreement with the University of Tennessee Research Foundation (“UTRF”) to develop UTRF’s proprietary selective androgen receptor degrader (“SARD”) technology which may have the potential to provide compounds that can degrade multiple forms of AR for those patients who do not respond or are resistant to current therapies to inhibit tumor growth in patients with progressive castration-resistant prostate cancer (“CRPC”). The Company is currently implementing an appropriate development program for SARDs and has selected lead SARD compounds that are undergoing further preclinical development, including formulation and pharmacokinetic studies, required to support initial human clinical trials. While the Company plans to initiate first in human clinical trials in 2017, the Company will require additional funding to initiate and complete any such clinical trials.
Based on its current business plan and assumptions, the Company estimates that its current cash, cash equivalents and short-term investments (which includes the net proceeds from the Company’s October 2016 registered direct offering completed on October 14, 2016, which is described further in the “Subsequent Events” section of these Notes), together with interest thereon, will be sufficient to meet its projected operating requirements into the third quarter of 2017. Accordingly, the Company will need to raise substantial additional capital in order to fund its operations through and beyond the third quarter of 2017 and to continue as a going concern thereafter. In addition, the Company has based its cash sufficiency estimates on its current business plan and its assumptions that may prove to be wrong. The Company could utilize its available capital resources sooner than it currently expects, and it could need additional funding to sustain its operations even sooner than currently anticipated. The Company believes, based on its current estimates of clinical trial expenditures and enrollment status, that the Company’s existing capital resources will be adequate to enable it to complete its ongoing open-label Phase 2 clinical trial of enobosarm in patients with ER positive, AR positive advanced breast cancer and its ongoing Phase 2 clinical trial of enobosarm in postmenopausal women with SUI. However, the Company’s existing capital resources may not be sufficient to allow it to complete its ongoing open-label Phase 2 clinical trial of enobosarm in patients with advanced AR positive TNBC and the Company will otherwise need to raise substantial additional capital in order to continue developing enobosarm for any of these indications. If the Company determines that its existing capital resources are not sufficient to enable it to complete its ongoing open-label Phase 2 clinical trial of enobosarm in patients with advanced AR positive TNBC, the Company may be unable or unwilling to enroll patients into the second stage of this trial even if the Company determines that the first stage milestone has been met. Accordingly, in order to enroll the second stage of and to complete this trial, the Company may need to obtain additional funding, which the Company may be unable to do. Also, the Company’s clinical trials may continue to encounter technical, enrollment or other difficulties that could increase its development costs beyond its current estimates or delay its development timelines, and the Company could otherwise exhaust its available financial resources sooner than the Company expects. In any event, the Company will need to raise substantial additional capital in order to:
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potentially enroll the second stage of and complete the Company’s ongoing open-label Phase 2 clinical trial of enobosarm in patients with advanced AR positive TNBC;
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undertake any further development of the Company’s SARMs beyond its ongoing Phase 2 clinical trials of enobosarm in breast cancer and SUI and its ongoing preclinical development activities related to the development of SARMs as a potential treatment for DMD;
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initiate and complete human clinical studies of the Company’s licensed SARD program; and
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fund the Company’s operations and to continue as a going concern.
In addition, these condensed financial statements do not include any adjustments or charges that might be necessary should the Company be unable to continue as a going concern, such as charges related to impairment of its assets, the recoverability and classification of assets or the amounts and classification of liabilities or other similar adjustments.
Basis of Presentation
The accompanying unaudited condensed financial statements reflect, in the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of GTx’s financial position, results of operations and cash flows for each period presented in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted from the accompanying condensed financial statements. These interim condensed financial statements should be read in conjunction with the audited financial statements and related notes thereto, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. Operating results for the three and nine months ended September 30, 2016 are not necessarily indicative of the results that may be expected for the entire fiscal year ending December 31, 2016.
Use of Estimates
The preparation of condensed 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 condensed financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual amounts and results could differ from those estimates.
Warrant Liability
In November 2014, the Company issued warrants to purchase 64,311,112 shares of its common stock. The Company classified these warrants as a liability on its balance sheet since the warrants contained certain terms that could have required the Company (or its successor) to purchase the warrants for cash in an amount equal to the value (as calculated utilizing a contractually-agreed Black-Scholes-Merton option pricing valuation model (“Black-Scholes Model”)) of the unexercised portion of the warrants in connection with certain change of control transactions occurring on or prior to December 31, 2016, with such cash payment capped at an amount equal to $0.125 per unexercised share underlying each warrant. As a result of the provision of the warrants requiring cash settlement upon certain change of control transactions, the Company was required to account for these warrants as a liability at fair value and the estimated warrant liability was required to be revalued at each balance sheet date until the earlier of the exercise of the warrants, the modification to remove the provision that could require cash settlement upon certain change of control transactions or the expiration of such provision on December 31, 2016. Effective March 25, 2016, each of the warrants was amended by agreement of the warrant holders to remove the provision that could require cash settlement upon certain change of control transactions. These warrants were no longer accounted for as a liability as of March 31, 2016. The Company recorded a non-cash reclassification of the warrant fair value to stockholders’ equity based on the warrants’ fair value as of the March 25, 2016 modification date, with no further adjustments to the fair value of these warrants being required.
Fair Value of Financial Instruments and Warrant Liability
The carrying amounts of the Company’s financial instruments (which include cash, cash equivalents, short-term investments, and accounts payable) and its prior warrant liability approximate their fair values. The fair value of the warrant liability was estimated using the Black-Scholes-Merton Model. See Note 4, Stockholders’ Equity , for additional disclosure on the valuation methodology and significant assumptions. The Company’s financial assets and liabilities are classified within a three-level fair value hierarchy that prioritizes the inputs used to measure fair value, which is defined as follows:
Level 1 — Quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date
Level 2 — Inputs other than quoted prices in active markets that are observable for the asset or liability, either directly or indirectly
Level 3 — Inputs that are unobservable for the asset or liability
There were no assets or liabilities measured at fair value on a recurring basis as of September 30, 2016. Liabilities measured at fair value on a recurring basis as of December 31, 2015 included only the Company’s warrant liability of $27,349, which was classified within Level 3 of the hierarchy. A non-cash gain of $8,163 related to the change in the fair value of the warrant liability was recognized during the nine months ended September 30, 2016 in the Company’s condensed statement of operations.
As the Company has the positive intent and ability to hold its certificates of deposit classified as short-term investments until maturity, these investments have been classified as held to maturity investments and are stated at cost, which approximates fair value. The Company considers these to be Level 2 investments as the fair values of these investments are determined using third-party pricing sources, which generally utilize observable inputs, such as interest rates and maturities of similar assets.
Research and Development Expenses
Research and development expenses include, but are not limited to, the Company’s expenses for personnel, supplies, and facilities associated with research activities, screening and identification of product candidates, formulation and synthesis activities, manufacturing, preclinical studies, toxicology studies, clinical trials, regulatory and medical affairs activities, quality assurance activities and license fees. The Company expenses these costs in the period in which they are incurred. The Company estimates its liabilities for research and development expenses in order to match the recognition of expenses to the period in which the actual services are received. As such, accrued liabilities related to third party research and development activities are recognized based upon the Company’s estimate of services received and degree of completion of the services in accordance with the specific third party contract.
Cash, Cash Equivalents and Short-term Investments
The Company considers highly liquid investments with initial maturities of three months or less to be cash equivalents.
At September 30, 2016 and December 31, 2015, short-term investments consisted of Federal Deposit Insurance Corporation insured certificates of deposit with original maturities of greater than three months and less than one year.
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 basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Accordingly, at September 30, 2016 and December 31, 2015, net of the valuation allowance, the net deferred tax assets were reduced to zero. Income taxes are described more fully in Note 8 to the Company’s financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.
Other Income, net
Other income, net consists of foreign currency transaction gains and losses, interest earned on the Company’s cash, cash equivalents and short-term investments, and other non-operating income or expense.
Recent Accounting Pronouncements
In August 2014, the Financial Accounting Standards Board issued Accounting Standard Update 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern . The new guidance is intended to define management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern within one year of the date the financial statements are issued and to provide related footnote disclosure. This new guidance is effective for the first annual period ending after December 15, 2016 and interim periods thereafter.
In March 2016, the Financial Accounting Standards Board issued Accounting Standard Update 2016-09, Improvements to Employee Share-Based Payment Accounting . The new guidance will require all income tax effects of awards to be recognized in the income statement when the awards vest or are settled. It will also allow an employer to repurchase more of an employee’s shares than it can today for tax withholding purposes without triggering liability accounting and to make a policy election to account for forfeitures as they occur. This new guidance is effective for fiscal years beginning after December 15, 2016 and interim periods within those years. The Company does not expect the adoption of the standard update to have a significant impact on its financial position or results of operations.
Subsequent Events
The Company has evaluated all events or transactions that occurred after September 30, 2016 up through the date the condensed financial statements were issued. Other than as set forth below, there were no material recognizable or nonrecognizable subsequent events during the period evaluated.
On October 14, 2016, the Company completed a registered direct offering of its common stock. Under the terms of the offering, the Company sold 17,283,947 shares of its common stock at a purchase price of $0.81 per share, which was the consolidated closing bid price of the Company’s common stock on October 11, 2016, the date that the Company entered into the definitive purchase agreements with the investors in the offering. The offering resulted in net proceeds to the Company of approximately $13,600, after deducting estimated offering expenses. The investors in the offering consisted of certain existing stockholders of the Company, including J.R. Hyde, III, its largest stockholder and the Lead Director of the Company’s Board of Directors (the “Board”), Robert J. Wills, the Board’s Executive Chairman, and Marc S. Hanover, the Company’s Chief Executive Officer and a member of the Board. |
