GTx: A Compelling Biotech

S&P says the company's lead drug candidate, Acapodene, represents a "significant opportunity" in the treatment of prostate cancer

by Steven Silver From Standard & Poor's Equity Research

GTx (GTXI; recent price, $12) is an emerging biotech with potentially significant near-term catalysts for its stock price, in Standard & Poor's view. The company expects data from two phase III studies for its lead drug candidate, Acapodene, during the first quarter of 2008. The first study, for the treatment of side effects in prostate cancer patients undergoing androgen-deprivation therapy (ADT), has produced positive interim data in secondary endpoints of improved bone mineral density and lipid control, lowering serum low-density lipoproteins, or LDLs, ("bad" cholesterol) and triglycerides. The second study, expecting interim data, is exploring Acapodene's ability to prevent prostate cancer in patients with precancerous lesions called high-grade PIN (prostatic intraepithelial neoplasia). We believe both target markets represent population opportunities of more than 1 million patients.

The company also has emerged as the leader in a new class of drugs called SARMs (selective androgen-receptor modulators). Compelling phase II data for lead candidate Ostarine in treating cancer cachexia (muscle wasting) led to a November, 2007, partnership with Merck (MRK), under which the companies will pool drug candidates and scientific expertise to pursue broad indications such as sarcopenia, or frailty in the elderly, which GTx estimates afflicts 13 million people in the U.S., 25% of the population over 60. We believe the collaboration provides significant milestone and royalty potential for GTx while Merck covers all development expenses.

Acapodene represents a significant opportunity in the treatment and prevention of prostate cancer, and we believe GTx's shares have been too heavily discounted during the recent downturn in the global equity markets. (The stock is trading well below its 52-week high of 23.64 in April, 2007, and the 23.34 at which Merck purchased $30 million of GTx stock in the 2007 collaboration.) We see Acapodene's two lead indications each having greater than $500 million in annual revenue opportunities.

Further, we hold a positive view of GTx's collaboration with Merck, as it should provide significant potential for milestone and royalty payments, and afford the company the opportunity to pursue lucrative indications for its SARM candidates, which we think the company wouldn't have the resources to pursue alone. At recent prices, the stock offers substantial upside to our 12-month target price of $27, and we have placed a 5 STARS (strong buy) recommendation on the shares.

Company Profile

GTx is developing treatments for men's health conditions, focusing on small-molecule biopharmaceuticals that selectively modulate the effects of estrogens and androgens, two important classes of hormones that regulate the reproductive system, but have important effects on the muscular, skeletal, cardiovascular, and central nervous systems.

Estrogen levels gradually rise, leading to unwanted clinical effects in aging men, including enlargement of the prostate, gynecomastia (male breast enlargement), or promoting prostate cancer. Testosterone levels decrease in aging men. Testosterone is the predominant androgen in men, important for mental well-being and such masculine characteristics as muscle size and strength, bone strength, sexual interest, potency, fertility, and hair loss.

Selective estrogen-receptor modulators (SERMs) and SARMs differ from synthetic hormones, or steroids, which are typically used to stimulate hormone receptors, but are active in all tissue types in a nonselective manner. SERMs and SARMs bind to and selectively stimulate or block receptors, depending on the type of tissue in which the receptor is found. As a result, GTx believes its drugs can maximize wanted clinical effects of a steroidal hormone, while minimizing unwanted clinical side effects.

Company Outlook

According to the Prostate Cancer Foundation, prostate cancer is the most common nonskin cancer in America, affecting 1 in 6 men, and an estimated more than 2 million American men are currently living with prostate cancer. However, when detected early, treatment success rates are high.

GTx's lead product candidate, Acapodene, is a SERM taken orally once daily. Its initial indication, in phase III study (dosed at 80 mg), is for the treatment of the adverse side effects of ADT in men with prostate cancer.

ADT is the standard treatment for advanced prostate cancer. It reduces blood levels of testosterone either surgically by removing the testes or chemically. Notable side effects include osteoporosis, muscle weakness, hot flashes, gynecomastia, depression, loss of libido, and erectile dysfunction. GTx estimates that there will be 1 million U.S. prostate cancer patients receiving ADT in 2008. Final patient treatment of GTx's phase III study was completed in late 2007, and data are expected in the first quarter of 2008. If successful for reducing bone fracture risk, we see GTx filing a new drug application (NDA) for FDA approval during 2008. GTx also plans to conduct label-expansion-enabling studies for additional therapy side effects.