| Business and Basis of Presentation | 1. Business and Basis of Presentation
Business and Going Concern
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 where the building of muscle mass may be important, such as stress urinary incontinence (“SUI”) and Duchenne muscular dystrophy (“DMD”).
In 2016, the Company initiated a Phase 2 open-label, non-placebo controlled, proof-of-concept clinical trial of enobosarm to treat postmenopausal women with SUI. In the second quarter of 2017, the Company announced positive preliminary data from this clinical trial and that an abstract addressing the preliminary data had been accepted for podium presentation at the annual meeting of the International Continence Society (ICS) to be held in Florence, Italy in September 2017. Based on the emerging data from this ongoing proof-of-concept clinical trial, the Company plans to initiate a placebo-controlled Phase 2 clinical trial of enobosarm to treat postmenopausal women with SUI in the second half of 2017.
The Company commenced enrollment in 2015 in a Phase 2 clinical trial designed to evaluate the efficacy and safety of a 9 mg and 18 mg dose of enobosarm in patients whose advanced breast cancer is both estrogen receptor (“ER”) positive and androgen receptor (“AR”) positive. The Company announced in November 2016 that enobosarm achieved the pre-specified primary efficacy endpoint in the 9 mg dose cohort and anticipates reporting top-line clinical results from this trial in the third quarter of 2017.
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”). During the third quarter of 2017, the Company completed its review of the data from the first stage of this clinical trial. While the review of the clinical trial data did not raise any safety concerns, it did confirm that there was insufficient efficacy demonstrated among the treated patients to proceed into the second stage of recruitment of this clinical trial.
The Company has also evaluated several SARM compounds, including enobosarm, in preclinical models of DMD where a SARM’s ability to increase muscle mass may prove beneficial to patients suffering from DMD. Based on the Company’s SARM data from these preclinical efforts, the Company has initiated discussions with potential collaboration partners to further develop a SARM for the treatment of DMD.
In 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 to treat those patients who do not respond or are resistant to current therapies by inhibiting tumor growth in patients with progressive castration-resistant prostate cancer (“CRPC”). The Company has ongoing preclinical studies to select the most appropriate compound to move into a first-in-human clinical trial.
The Company has evaluated its capital resources and current business plans in accordance with Accounting Standards Update (ASU) No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern , (“ASU 2014-15”). ASU 2014-15 requires the assessment of an entity’s ability to continue as a going concern for a period of one year after the date the entity’s financial statements are issued and to provide related footnote disclosures, if necessary. As the Company currently estimates, based on its current business plan and assumptions, that its current cash, cash equivalents and short-term investments, together with interest thereon and the advances available to the Company under its loan agreement entered into on August 10, 2017 (described more fully in Subsequent Events of this Note 1), will be sufficient to meet its projected operating requirements only into the second quarter of 2018, there is substantial doubt raised about its ability to continue as a going concern. Accordingly, the Company is actively seeking additional funds through potential collaborations, partnering or other strategic arrangements, through additional public or private equity offerings or additional debt financings, or a combination of the foregoing.
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, that the Company’s existing capital resources will be adequate to enable it to complete its ongoing Phase 2 clinical trial of enobosarm in patients with ER positive and AR positive advanced breast cancer and its ongoing open-label, non-placebo controlled, proof-of-concept Phase 2 clinical trial of enobosarm in postmenopausal women with SUI. However, the Company’s existing capital resources will not be sufficient to allow it to complete its planned placebo-controlled Phase 2 clinical trial of enobosarm to treat postmenopausal women with SUI or to otherwise continue developing enobosarm for any other indication, which it may be unable to do in a timely manner or at all. Also, the Company’s clinical trials may 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:
complete its planned placebo-controlled Phase 2 clinical trial of enobosarm to treat postmenopausal women with SUI;
undertake any further development of enobosarm in patients with ER positive and AR positive breast cancer beyond our ongoing Phase 2 clinical trial;
undertake any additional preclinical or clinical development activities related to the development of SARMs as a potential treatment for DMD;
initiate and complete human clinical studies of the Company’s SARD program; and
fund the Company’s operations and any debt repayment and service obligations, and to continue as a going concern.
If the Company is unable to raise substantial additional capital in the near term to fund its operations through and beyond the second quarter of 2018 and to continue as a going concern thereafter, and to fund any debt repayment and service obligations, the Company could be required to, among other things, make further reductions in its workforce, reevaluate its plans to conduct its planned placebo-controlled Phase 2 clinical trial of enobosarm to treat postmenopausal women with SUI, discontinue further development of enobosarm and/or SARDs, liquidate all or a portion of its assets, and/or seek protection under the provisions of the U.S. bankruptcy code, all of which would have a material adverse effect on the Company’s business and stock price.
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, 2016. Operating results for the three and six months ended June 30, 2017 are not necessarily indicative of the results that may be expected for the entire fiscal year ending December 31, 2017.
On December 5, 2016, the Company effected a one-for-ten reverse stock split of its common stock through an amendment to its restated certification of incorporation. As of the effective time of the reverse stock split, every ten shares of the Company’s issued and outstanding common stock were automatically combined and reclassified into one issued and outstanding share of common stock, without any change in par value per share. The amendment to the Company’s restated certification of incorporation also reduced the number of authorized shares of common stock from 400,000,000 to 60,000,000 shares. The reverse stock split affected all shares of the Company’s common stock outstanding immediately prior to the effective time of the reverse stock split. Additionally, as a result of the reverse stock split, proportionate adjustments were made to the per share exercise price and/or the number of shares issuable upon the exercise or vesting of all stock options, restricted stock units and warrants issued by the Company and outstanding immediately prior to the effective time, which resulted in a proportionate decrease in the number of shares of the Company’s common stock reserved for issuance upon exercise or vesting of such stock options, restricted stock units and warrants, and, in the case of stock options and warrants, a proportionate increase in the exercise price of all such stock options and warrants. In addition, the number of shares reserved for issuance under the Company’s equity compensation plans immediately prior to the effective time was reduced proportionately. No fractional shares were issued as a result of the reverse stock split. Stockholders who have otherwise been entitled to receive a fractional share received a cash payment in lieu thereof. All references to shares of common stock, all per share data, and all warrant, stock option and restricted stock unit (“RSU”) activity for all periods presented in these condensed financial statements and notes to the condensed financial statements have been adjusted to reflect the reverse stock split on a retroactive basis.
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 6,430,948 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 $1.25 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 subsequent to March 25, 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
The carrying amounts of the Company’s financial instruments (which include cash, cash equivalents, short-term investments, and accounts payable) approximate their fair values. 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
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 June 30, 2017 and December 31, 2016, 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 June 30, 2017 and December 31, 2016, 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 filed with the Securities and Exchange Commission on March 24, 2017.
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.
Subsequent Events
The Company has evaluated all events or transactions that occurred after June 30, 2017 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 August 10, 2017, the Company entered into a $15,000 loan agreement with each of The Pyramid Peak Foundation and J.R. Hyde, III, as described in more detail under Part II, Item 5 of this Quarterly Report on Form 10-Q. |
