GTx potential outweighs losses

'Underappreciated' stock just 1 drug from taking off

The Commercial Appeal
May 13, 2008
By Daniel Connolly

Memphis-based pharmaceutical firm GTx Inc. continues to rack up huge losses, but in many ways appears in good shape.

On Monday GTx reported a loss of $12.7 million, or 35 cents per share, in the first quarter, compared to a loss of $8.1 million, or 23 cents per share, in the year-ago quarter.

Revenue increased to $4.5 million, more than one-and-a-half times the revenue from the year-ago quarter. Collaboration income from partnerships with larger drug firms Ipsen and Merck made the difference.

GTx has never earned a profit since its incorporation in 1997, and executives said Monday that they expected to lose between $52 million and $62 million this year.

But investors pay more attention to details of the firm's drug development programs than its red ink.

They hope that one or more of the company's experimental drugs will win FDA approval and become a hot seller throughout the United States and abroad.

When it announces early results of a study of one of its experimental drugs within the next few days, it won't be a make-or-break moment.

Even if the data are disappointing, a later analysis might be positive. More broadly, though, the firm has numerous drugs in development in case one fails.

And its relationships with Ipsen and Merck & Co. have given it enough cash to survive big losses while it tries to bring one of its experimental treatments to market.

GTx is testing whether 20-milligram dose of the drug Acapodene prevents prostate cancer in men who have a precancerous lesion.

Within two weeks, a third-party company could release data from a study of 1,590 men in the U.S. and Canada, GTx CEO Mitchell S. Steiner said Monday.

If the early data show clear evidence that Acapodene prevents prostate cancer, the company could make a relatively quick request to the Food and Drug Administration for permission to sell the drug.

If the statistical proof isn't strong enough, the company plans to continue the trial and do another data analysis in a about a year, spokesman McDavid Stilwell said.

It's not the only plan GTx has for Acapodene.

In February, the company released data from a large-scale test of an 80-milligram dose of Acapodene and said the drug reduces serious side effects in men who are undergoing a treatment called androgen deprivation therapy to control prostate cancer.

GTx is negotiating with global pharmaceutical companies for a deal to sell the 80-milligram dose of the drug in international markets, Steiner said, and plans this summer to seek FDA clearance to sell the drug in the U.S.

It's hiring a team of pharmaceutical industry veterans to lead sales efforts, he said.

Steiner also said the firm is working with drug giant Merck & Co. to conduct multiple early-stage human trials of drugs against bone and muscle wasting.

Steiner said one trial involves patients with sarcopenia, or frailty, a common condition in the elderly. Another trial involves testing patients with a wasting condition tied to cancer.

The firm is closely watched in Memphis because of its potential to make huge sums of money and because it represents local leaders' efforts to encourage the development of science-based businesses.

Some of the firm's key discoveries were made at the University of Tennessee Health Science Center, and several local organizations are trying to turn more university discoveries into working companies.

Repeating a pattern that's occurred quarter after quarter, some Wall Street analysts ignored the losses and focused on the firm's potential.

Analyst Eric Schmidt with Cowen & Co. wrote in a note to investors that GTx stock should outperform the market and that approval of either the 20-milligram or 80-milligram dose of Acapodene would be good for the company's shares.

Analyst Joel Sendek with Lazard Capital Markets wrote to investors that GTx's drug portfolio is "underappreciated" and that the firm has good growth potential.

GTx stock closed at $16.91, down 3 percent.

Contact Daniel Connolly at 529-5296.