| Business and Basis of Presentation | 2. Business and Basis of Presentation
GTx, 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 medicines to treat serious and/or significant unmet medical conditions.
In 2015, the Company entered into an exclusive license agreement with the University of Tennessee Research Foundation (“UTRF”) to develop UTRF’s proprietary SARD technology which the Company believes may have the potential to provide compounds that can degrade or antagonize multiple forms of androgen receptor to treat those patients who do not respond or are resistant to current androgen targeted therapies by inhibiting tumor growth in patients with progressive castration-resistant prostate cancer (“CRPC”). The Company has been conducting preclinical studies to determine if it can identify an appropriate SARD compound to move forward into additional preclinical studies required for the potential submission of an investigational new drug application (“IND”) to enable the initiation of a first-in-human clinical trial, if any. However, the Company recently received and evaluated new preclinical data from an independent laboratory of an academic researcher engaged by the Company, which, among other things, showed that at higher dose concentrations, the SARD compounds tested by the independent laboratory demonstrated partial androgen receptor agonist activity. The academic researcher pointed out that if these results translate to the clinical setting where there is little or no dose separation between antagonist activity and agonist activity, the future of the SARD program as an effective treatment of men with CRPC would likely not be viable. This information (the “Recent SARD Information”) was in conflict with other independent laboratory preclinical data previously received by GTx senior management and with internal preclinical data generated by the Company, that included: (1) conflicting in vitro data showing either partial agonist activity or no partial agonist activity, (2) in vivo data showing no evidence of agonist activity, and (3) data from another independent laboratory showing the dose-dependent suppression of enzalutamide-resistant prostate cancer tumors in a rat xenograft model. Considering this conflicting information, it was concluded that additional preclinical studies were required to better understand SARDs and their mechanism of action, and to reconcile the conflicting in vitro and in vivo findings. Accordingly, additional preclinical research would be required in order to determine whether an appropriate SARD compound can potentially be advanced into any IND-enabling preclinical studies.
The Company had been developing SARMs, including enobosarm (GTx-024). Most recently, enobosarm was evaluated in post-menopausal women with stress urinary incontinence (“SUI”) compared to placebo. During the third quarter of 2018, the Company announced that the Phase 2 double-blind, placebo-controlled clinical trial of orally-administered enobosarm (3 mg or 1 mg) in post-menopausal women with SUI (the “ASTRID trial”) did not achieve statistical significance on the primary endpoint for the trial. The Company has completed the ASTRID trial, including its review of the full data sets from the clinical trial, and has determined that there is not a sufficient path forward to warrant additional clinical development of enobosarm to treat SUI. The Company has therefore discontinued further development of enobosarm to treat SUI, including discontinuing the related durability and open-label safety extension studies the Company initiated before it received topline data from the ASTRID trial. The Company has also discontinued any further development of its SARM technology generally.
Following the announcement of the ASTRID trial results, the Company’s board of directors commenced a process of evaluating strategic alternatives to maximize stockholder value. To assist with this process, the Company’s board of directors engaged a financial advisory firm to help explore the Company’s available strategic alternatives, including possible mergers and business combinations, a sale of part or all of the Company’s assets, and collaboration and licensing arrangements. On March 6, 2019, the Company and Oncternal announced the signing of the Agreement and Plan of Merger and Reorganization, dated March 6, 2019, by and among the Company, Merger Sub and Oncternal (the “Original Merger Agreement”). See Note 1, Pending Merger with Oncternal Therapeutics, Inc., for further discussion regarding the Merger. On April 30, 2019, the Company entered into an Amendment No. 1 to the Original Merger Agreement (the “Merger Agreement Amendment”) with Oncternal and Merger Sub, as described in more detail in Note 2, Business and Basis of Presentation – Subsequent Events.
At March 31, 2019, the Company had cash, cash equivalents and short-term investments of $21,187 compared to $28,458 at December 31, 2018. To conserve its cash resources, the Company has substantially reduced its workforce since November 2018 and has ceased its SARM development activities and all other operations except for day-to-day business operations, completing ongoing SARD preclinical studies and those activities necessary to complete the Merger.
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 filed with the Securities and Exchange Commission on March 18, 2019. Operating results for the three months ended March 31, 2019 are not necessarily indicative of the results that may be expected for the entire fiscal year ending December 31, 2019.
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.
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 March 31, 2019 and December 31, 2018, 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 March 31, 2019 and December 31, 2018, 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 18, 2019.
Other Income, net
Other income, net consists of interest earned on the Company’s cash, cash equivalents and short-term investments, foreign currency transaction gains and losses, and other non-operating income or expense.
Accounting Pronouncements Recently Adopted
In February 2016, the Financial Accounting Standards Board issued Accounting Standard Update (“ASU”) 2016-02, Leases (Topic 842) (“ASU 2016-02”). This ASU requires that lessees recognize assets and liabilities on the balance sheet for the present value of the rights and obligations created by all leases with terms of more than 12 months. On January 1, 2019, the Company adopted the provisions of ASU 2016-02 under the transition method under which comparative financial information is not restated and continues to apply the provisions of the previous lease accounting standard in its financial disclosures for the comparative periods. The Company also elected the package of practical expedients permitted under the transition guidance, which among other things, allowed it to carry forward the historical lease classification. The Company leases office space under a lease that commenced on May 1, 2015 with a three year term ending on April 30, 2018, with an option to extend the lease for an additional three years, which was accounted for as an operating lease. In March 2018, the Company amended the lease to extend the term of the lease for an additional 12-month term expiring on April 30, 2019. For this operating lease, the Company recorded a right-of-use asset and corresponding lease liability of $41, which were included in other current assets and other current liabilities, respectively, in the condensed balance sheet for the three months ended March 31, 2019. The adoption of ASU 2016-02 did not affect the Company’s condensed statement of operations or condensed statement of cash flows. The Company recorded lease expense of $121 in general and administrative expenses and paid cash in the amount of $121 during the three months ended March 31, 2019.
Subsequent Events
The Company has evaluated all events or transactions that occurred after March 31, 2019 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.
Pending Merger
In connection with the Company’s receipt of the Recent SARD Information and Oncternal’s evaluation of the Recent SARD Information, on April 30, 2019, the Company entered into Merger Agreement Amendment with Oncternal and Merger Sub. The Merger Agreement Amendment amended certain of the terms of the Original Merger Agreement by, among other things: (i) amending the exchange ratio formula such that the former Oncternal stockholders immediately before the Merger are expected to own approximately 77.5% of the outstanding capital stock of GTx rather than 75% as set forth in the Original Merger Agreement; (ii) amending the exchange ratio formula such that the GTx stockholders immediately before the Merger are expected to own approximately 22.5% of the outstanding capital stock of GTx rather than 25% as set forth in the Original Merger Agreement; (iii) amending the calculation of GTx’s cash balance at the Closing such that the cash balance will not be reduced by payments of GTx’s transaction expenses or any other costs or payments by GTx triggered by the transactions contemplated by the Merger Agreement or pursuant to any of GTx’s benefit plans; and (iv) amending GTx’s and Oncternal’s target cash amount used for purposes of determining whether there will be an adjustment to the ownership of GTx’s stockholders in the calculation of the exchange ratio formula. Except as set forth above, the material terms of the Merger Agreement are substantially the same as the terms of the Original Merger Agreement.
On April 30, 2019, the form of the Contingent Value Rights Agreement to be entered into at the Effective Time was also amended in connection with the Merger Agreement Amendment (as such form has been amended, the “Amended Form CVR Agreement”). The original agreed upon form of the CVR Agreement (the “Original Form CVR Agreement”) was amended to provide, among other things: (i) that for each share of GTx common stock held, GTx’s stockholders of record as of immediately prior to the Effective Time will receive one contingent value right entitling such holders to receive in the aggregate 75% (rather than 50% as provided for in the Original Form CVR Agreement) of any net proceeds received during the 15-year period after the Closing from the grant, sale or transfer of rights to GTx’s SARD or SARM technology that occurs during the 10-year period after the Closing (or in the 11th year if based on a term sheet approved during the initial 10-year period); and (ii) that instead of using commercially reasonable efforts to develop SARD products, as provided in the Original Form of
Litigation Related to the Merger
Between April 10, 2019 and May 7, 2019, six purported stockholder class action lawsuits were filed, naming as defendants the Company and the Company’s board of directors. Collectively, these lawsuits allege, among other things, violations of Sections 14(a) and 20(a) of the Exchange Act, as well as Rule 14a-9 promulgated thereunder, in connection with the filing of the registration statement on Form S-4 that the Company filed with the SEC in connection with the Merger. As relief, these lawsuits each separately seek an order, among other things, enjoining the defendants from closing the proposed transaction or taking any steps to consummate the Merger and/or awarding rescissory damages. The Company cannot predict the outcome of or estimate the possible loss or range of loss from any of these matters. |
