GTX Soaring On Merck Collaboration (GTXI, MRK)

GTx, Inc. (NASDAQ: GTXI) is seeing shares trade sharply higher on a collaboration pact with Merck (NYSE: MRK).  The biotech and drug giant pact is for research and development and a strategic collaboration for selective androgen receptor modulators (SARMs).  This is a new class of drugs with the potential to treat age-related muscle loss (sarcopenia) as well as other musculoskeletal conditions.

This collaboration includes GTx’s lead SARM candidate, Ostarine™, which is currently being evaluated in a Phase II clinical trial for the treatment of muscle loss in patients with cancer, and establishes a broad SARM collaboration under which GTx and Merck will pool their programs and partner to discover, develop, and commercialize current as well as future SARM molecules.  Merck will be responsible for all future costs associated with ongoing development and, if approved, commercialization of Ostarine and other investigational SARMs resulting from the collaboration.

GTx and Merck will combine their respective SARM research programs and GTx will receive an upfront payment of $40 million plus $15 million in research reimbursements to be paid over the initial three years of the collaboration. In addition, Merck will make an equity investment of $30 million in GTx common stock at a 40 percent premium to the 30 day average closing price.  But the longer-term function of the contract is the real kicker.  GTx will also be eligible to receive up to $422 million in future milestone payments associated with the development and approval of a drug candidate if multiple indications receive regulatory approval. Additional milestones may be received for the development and approval of other collaboration drug candidates. GTx will receive royalties on any resulting worldwide product revenue.

Shares of GTX Inc. are indicated up almost 20% at $17.27 pre-marklet, although it is on thin volume.  The 52-week trading range is $10.53 to $23.64, and before this pop its market cap was $504 million.  The last available short interest showed 2.77 million shares listed in the short interest, which is a whopping 23 days-to-cover ratio.

Jon C. Ogg
November 6, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.