424B3
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File pursuant to Rule 424(b)(3)
Registration No. 333-230758

LOGO    LOGO

PROPOSED MERGER

YOUR VOTE IS VERY IMPORTANT

To the Stockholders of GTx, Inc. and Oncternal Therapeutics, Inc.:

GTx, Inc. (“GTx”) and Oncternal Therapeutics, Inc. (“Oncternal”) have entered into an Agreement and Plan of Merger and Reorganization as amended by Amendment No. 1 to Agreement and Plan of Merger and Reorganization dated April 30, 2019, (the “Merger Agreement”) pursuant to which a wholly-owned subsidiary of GTx will merge with and into Oncternal, with Oncternal surviving as a wholly-owned subsidiary of GTx (the “merger”). Oncternal and GTx believe that the merger will result in a clinical-stage biopharmaceutical company focused on developing first-in-class product candidates for cancers with critical unmet medical need.

At the effective time of the merger (the “Effective Time”), each share of common stock of Oncternal, $0.0001 par value (“Oncternal common stock”) will be converted into the right to receive approximately 0.5137 shares of GTx’s common stock, subject to adjustment for the reverse stock split of GTx’s common stock to be implemented prior to the consummation of the merger as discussed in this proxy statement/prospectus/information statement. This exchange ratio is an estimate only as of the date hereof and the final exchange ratio will be determined pursuant to a formula described in more detail in the Merger Agreement and in the attached proxy statement/prospectus/information statement. Prior to the Effective Time each share of preferred stock, $0.0001 par value, of Oncternal (“Oncternal preferred stock” and, together with the Oncternal common stock, “Oncternal capital stock”), will be converted into one share of Oncternal common stock in accordance with the applicable provisions of Oncternal’s certificate of incorporation. GTx will assume outstanding and unexercised warrants and options to purchase shares of Oncternal capital stock, and in connection with the merger they will be converted into warrants and options, as applicable, to purchase shares of GTx’s common stock. At the Effective Time, GTx’s stockholders will continue to own and hold their existing shares of GTx’s common stock, and all outstanding and unexercised options to purchase shares of GTx’s common stock and outstanding and unexercised warrants to purchase shares of GTx’s common stock will remain in effect pursuant to their terms, except that the vesting of such options will be accelerated in full effective as of immediately prior to the Effective Time. Immediately after the merger, assuming an exchange ratio of 0.5137, Oncternal’s stockholders as of immediately prior to the Effective Time will own approximately 77.5% of the outstanding capital stock of GTx, with GTx’s stockholders as of immediately prior to the Effective Time owning approximately 22.5% of the outstanding capital stock of GTx. The exchange ratio formula excludes Oncternal’s outstanding stock options and warrants and GTx’s outstanding stock options and warrants. These estimates are subject to adjustment prior to closing of the merger.

Shares of GTx’s common stock are currently listed on the Nasdaq Capital Market (“Nasdaq”) under the symbol “GTXI.” GTx has filed an initial listing application with Nasdaq pursuant to Nasdaq’s “reverse merger” rules. After completion of the merger, GTx will be renamed Oncternal Therapeutics, Inc. and expects to trade on Nasdaq under the symbol “ONCT.” On May 6, 2019, the last trading day before the date of this proxy statement/prospectus/information statement, the closing sale price of GTx’s common stock on Nasdaq was $1.16 per share.

GTx is holding a special meeting of its stockholders (the “GTx special meeting”) in order to obtain the stockholder approvals necessary to complete the merger and related matters. At the GTx special meeting, which will be held at 9:00 a.m., Central time, on June 5, 2019 at 17 W Pontotoc Ave., Suite 100, Memphis, Tennessee 38103, unless postponed or adjourned to a later date, GTx will ask its stockholders to, among other things:

 

  1.

approve the Merger Agreement, and the transactions contemplated thereby, including the merger, the issuance of shares of GTx’s common stock to Oncternal’s stockholders pursuant to the terms of the Merger Agreement and the change of control resulting from the merger;

 

  2.

approve a series of alternative amendments to the restated certificate of incorporation of GTx to effect a reverse stock split of GTx’s common stock, within a range, as determined by GTx’s board of directors, of one new share for every six to eight (or any number in between) shares outstanding;

 

  3.

approve an amendment to the restated certificate of incorporation of GTx to change the corporate name of GTx from “GTx, Inc.” to “Oncternal Therapeutics, Inc.”;


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  4.

approve the adoption of the GTx, Inc. 2019 Incentive Award Plan;

 

  5.

approve, on a nonbinding, advisory basis, the compensation that will be paid or may become payable to GTx’s named executive officers in connection with the merger;

 

  6.

consider and vote upon an adjournment of the GTx special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Proposal Nos. 1 or 2; and

 

  7.

transact such other business as may properly come before the GTx special meeting or any adjournment or postponement thereof.

As described in the accompanying proxy statement/prospectus/information statement, certain of Oncternal’s stockholders who in the aggregate own approximately 44% of the outstanding shares of Oncternal capital stock on an as converted to common stock basis, and certain of GTx’s stockholders who in the aggregate own approximately 45% of the outstanding shares of GTx’s common stock, are parties to voting agreements with GTx and Oncternal, whereby such stockholders have agreed to vote their shares, in favor of the adoption or approval, among other things, of the Merger Agreement and the approval of the transactions contemplated therein, including the merger, the issuance of shares of GTx’s common stock to Oncternal’s stockholders and the change of control resulting from the merger, subject to the terms of the voting agreements.

In addition, following the registration statement on Form S-4, of which this proxy statement/prospectus/information statement is a part, being declared effective by the U.S. Securities and Exchange Commission (the “SEC”) and pursuant to the conditions of the Merger Agreement and the voting agreements, Oncternal’s stockholders who are party to the voting agreements will each execute an action by written consent of Oncternal’s stockholders, referred to as the written consent, adopting the Merger Agreement, thereby approving the transactions contemplated therein, including the merger. No meeting of Oncternal’s stockholders to adopt the Merger Agreement and approve the merger and related transactions will be held; all of Oncternal’s stockholders will have the opportunity to elect to adopt the Merger Agreement, thereby approving the merger and related transactions, by signing and returning to Oncternal a written consent.

After careful consideration, GTx’s board of directors (the “GTx Board”) has (i) determined that the merger and all related transactions contemplated by the Merger Agreement are fair to, advisable and in the best interests of GTx and its stockholders, (ii) approved and declared advisable the Merger Agreement and the transactions contemplated therein and (iii) determined to recommend, upon the terms and subject to the conditions set forth in the Merger Agreement, that its stockholders vote to approve the Merger Agreement and the transactions contemplated thereby. The GTx Board recommends that GTx’s stockholders vote “FOR” Proposal Nos. 1, 2, 3, 4, 5 and 6.

After careful consideration, Oncternal’s board of directors (the “Oncternal Board”) has (i) determined that the merger and all related transactions contemplated by the Merger Agreement are fair to, advisable and in the best interests of Oncternal and its stockholders, (ii) approved and declared advisable the Merger Agreement and the transactions contemplated therein and (iii) determined to recommend, upon the terms and subject to the conditions set forth in the Merger Agreement, that its stockholders vote to approve the Merger Agreement and the transactions contemplated thereby. The Oncternal Board recommends that Oncternal’s stockholders sign and return the written consent, indicating their (i) adoption and approval of the Merger Agreement and the transactions contemplated thereby, (ii) acknowledgement that the approval given is irrevocable and that such stockholder is aware of its rights to demand appraisal for its shares pursuant to Section 262 of the General Corporation Law of the State of Delaware (“DGCL”), and that such stockholder has received and read a copy of Section 262 of the DGCL, (iii) acknowledgement that by its approval of the Merger it is not entitled to appraisal rights with respect to its shares in connection with the Merger and thereby waives any rights to receive payment of the fair value of its capital stock under the DGCL, and (iv) approval of the conversion of Oncternal’s outstanding preferred stock into Oncternal’s common stock immediately prior to the Effective Time (collectively, the “Required Oncternal Stockholder Approval”).

More information about GTx, Oncternal and the proposed transaction is contained in this proxy statement/prospectus/information statement. GTx and Oncternal urge you to read the accompanying proxy statement/prospectus/information statement carefully and in its entirety. IN PARTICULAR, YOU SHOULD CAREFULLY CONSIDER THE MATTERS DISCUSSED UNDER “RISK FACTORS” BEGINNING ON PAGE 28.


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GTx and Oncternal are excited about the opportunities the merger brings to both GTx’s and Oncternal’s stockholders, and thank you for your consideration and continued support.

 

Marc S. Hanover    James B. Breitmeyer, M.D., Ph.D.
Chief Executive Officer    President & Chief Executive Officer
GTx, Inc.    Oncternal Therapeutics, Inc.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this proxy statement/prospectus/information statement. Any representation to the contrary is a criminal offense.

The accompanying proxy statement/prospectus/information statement is dated May 7, 2019, and is first being mailed to GTx’s and Oncternal’s stockholders on or about May 10, 2019.


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GTX, INC.

17 W Pontotoc Ave., Suite 100

Memphis, Tennessee 38103

(901) 523-9700

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD ON JUNE 5, 2019

Dear Stockholders of GTx:

On behalf of the board of directors of GTx, Inc., a Delaware corporation (“GTx”), we are pleased to deliver this proxy statement/prospectus/information statement for the 2019 special meeting of stockholders of GTx and for the proposed merger between GTx and Oncternal Therapeutics, Inc., a Delaware corporation (“Oncternal”), pursuant to which Grizzly Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of GTx (“Merger Sub”), will merge with and into Oncternal, with Oncternal surviving as a wholly-owned subsidiary of GTx. The special meeting of stockholders of GTx will be held on June 5, 2019 at 9:00 a.m., Central time, at 17 W Pontotoc Ave., Suite 100, Memphis, Tennessee 38103, for the following purposes:

 

  1.

To consider and vote upon a proposal to approve the Agreement and Plan of Merger and Reorganization, dated as of March 6, 2019, by and among GTx, Merger Sub, and Oncternal, a copy of which is attached as Annex A to this proxy statement/prospectus/information statement as amended by Amendment No. 1 to Agreement and Plan of Merger and Reorganization dated April 30, 2019, (the “Merger Agreement”), and the transactions contemplated thereby, including the merger, the issuance of shares of GTx’s common stock to Oncternal’s stockholders pursuant to the terms of the Merger Agreement and the change of control resulting from the merger.

 

  2.

To approve a series of alternative amendments to the restated certificate of incorporation of GTx to effect a reverse stock split of GTx’s common stock, within a range, as determined by GTx’s board of directors, of one new share for every six to eight (or any number in between) shares outstanding, in the form attached as Annex D to this proxy statement/prospectus/information statement.

 

  3.

To approve an amendment to the restated certificate of incorporation of GTx to change the corporate name of GTx from “GTx, Inc.” to “Oncternal Therapeutics, Inc.” in the form attached as Annex E to this proxy statement/prospectus/information statement.

 

  4.

To approve the adoption of the GTx, Inc. 2019 Incentive Award Plan in the form attached as Annex F to this proxy statement/prospectus/information statement.

 

  5.

To approve, on a nonbinding, advisory basis, the compensation that will be paid or may become payable to GTx’s named executive officers in connection with the merger.

 

  6.

To consider and vote upon an adjournment of the GTx special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Proposal Nos. 1 or 2.

 

  7.

To transact such other business as may properly come before the GTx special meeting or any adjournment or postponement thereof.

The GTx Board has fixed April 15, 2019, as the record date for the determination of stockholders entitled to notice of, and to vote at, the GTx special meeting and any adjournment or postponement thereof. Only holders of record of shares of GTx’s common stock at the close of business on the record date are entitled to notice of, and to vote at, the GTx special meeting. At the close of business on the record date, GTx had 24,051,844 shares of common stock outstanding and entitled to vote.

Your vote is important. The affirmative vote of the holders of a majority of the shares of GTx’s common stock entitled to vote and present in person or represented by proxy at the GTx special meeting is required for approval of Proposal Nos. 1, 4, 5 and 6. The affirmative vote of the holders of a majority of shares of GTx’s common stock having voting power outstanding on the record date for the GTx special meeting is required for approval of Proposal Nos. 2 and 3. Each of Proposal Nos. 1 and 2 are conditioned upon each other. Therefore, the merger cannot be consummated without the approval of Proposal Nos. 1 and 2.


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Proposal Nos. 3 and 4 are conditioned upon the consummation of the merger. If the merger is not completed or the stockholders do not approve Proposal No. 3, GTx will not change its name to “Oncternal Therapeutics, Inc.” If the merger is not completed or the stockholders do not approve Proposal No. 4, the GTx, Inc. 2019 Incentive Award Plan will not become effective. Proposal Nos. 1 and 2 are not conditioned on Proposal No. 3 or Proposal No. 4 being approved.

Even if you plan to attend the GTx special meeting in person, GTx requests that you sign and return the enclosed proxy to ensure that your shares will be represented at the GTx special meeting if you are unable to attend.

THE GTX BOARD HAS DETERMINED AND BELIEVES THAT EACH OF THE PROPOSALS OUTLINED ABOVE IS ADVISABLE TO, AND IN THE BEST INTERESTS OF, GTX AND ITS STOCKHOLDERS AND HAS APPROVED EACH SUCH PROPOSAL. THE GTX BOARD RECOMMENDS THAT GTX’S STOCKHOLDERS VOTE “FOR” EACH SUCH PROPOSAL.

By Order of the GTx Board of Directors,

Marc S. Hanover

Chief Executive Officer

Memphis, Tennessee

May 7, 2019


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REFERENCES TO ADDITIONAL INFORMATION

This proxy statement/prospectus/information statement incorporates important business and financial information about GTx that is not included in or delivered with this document. You may obtain this information without charge upon your written or oral request by contacting the Chief Legal Officer of GTx, Inc., 17 W Pontotoc Ave., Suite 100, Memphis, Tennessee 38103 or by calling (901) 523-9700.

To ensure timely delivery of these documents, any request should be made no later than May 20, 2019 to receive them before the special meeting.

For additional details about where you can find information about GTx, please see the section entitled “Where You Can Find More Information” in this proxy statement/prospectus/information statement.

 

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QUESTIONS AND ANSWERS ABOUT THE MERGER

     1  

PROSPECTUS SUMMARY

     10  

SELECTED HISTORICAL AND UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA

     24  

RISK FACTORS

     28  

FORWARD-LOOKING STATEMENTS

     118  

THE SPECIAL MEETING OF GTX’S STOCKHOLDERS

     120  

THE MERGER

     124  

THE MERGER AGREEMENT

     185  

AGREEMENTS RELATED TO THE MERGER

     200  

MATTERS BEING SUBMITTED TO A VOTE OF GTX’S STOCKHOLDERS

     206  

GTX BUSINESS

     223  

ONCTERNAL BUSINESS

     239  

GTX MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     276  

ONCTERNAL MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     288  

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

     301  

MANAGEMENT PRIOR TO AND FOLLOWING THE MERGER

     302  

OUTSTANDING EQUITY AWARDS AT 2018 FISCAL-YEAR END

     322  

RELATED PARTY TRANSACTIONS OF DIRECTORS AND EXECUTIVE OFFICERS OF THE COMBINED ORGANIZATION

     343  

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

     347  

DESCRIPTION OF GTX’S CAPITAL STOCK

     355  

COMPARISON OF RIGHTS OF HOLDERS OF GTX STOCK AND ONCTERNAL STOCK

     358  

PRINCIPAL STOCKHOLDERS OF GTX

     370  

PRINCIPAL STOCKHOLDERS OF ONCTERNAL

     372  

PRINCIPAL STOCKHOLDERS OF COMBINED ORGANIZATION

     374  

LEGAL MATTERS

     377  

EXPERTS

     377  

WHERE YOU CAN FIND MORE INFORMATION

     377  

TRADEMARK NOTICE

     378  

OTHER MATTERS

     379  

GTX, INC. INDEX TO FINANCIAL STATEMENTS

     F-A-1  

ONCTERNAL THERAPEUTICS, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

     F-B-1  

ANNEX A – AGREEMENT AND PLAN OF MERGER

     A-1  

ANNEX B-1  – OPINION OF GTX FINANCIAL ADVISOR, DATED MARCH 6, 2019

     B-1-1  

ANNEX B-2  – OPINION OF GTX FINANCIAL ADVISOR, DATED APRIL 29, 2019

     B-2-1  

ANNEX C  – APPRAISAL RIGHTS (SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW)

     C-1  

ANNEX D  – AMENDMENT TO RESTATED CERTIFICATE OF INCORPORATION (REVERSE STOCK SPLIT)

     D-1  

ANNEX E  – AMENDMENT TO RESTATED CERTIFICATE OF INCORPORATION (GTX NAME CHANGE)

     E-1  

ANNEX F – GTX, INC. 2019 INCENTIVE AWARD PLAN

     F-1  

 

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QUESTIONS AND ANSWERS ABOUT THE MERGER

Except where specifically noted, the following information and all other information contained in this proxy statement/prospectus/information statement does not give effect to the proposed reverse stock split within a range, as determined by GTx’s board of directors, of one new share for every six to eight (or any number in between) shares outstanding, as described in Proposal No. 2 beginning on page 206 in this proxy statement/prospectus/information statement (the “GTx Reverse Stock Split”).

The following section provides answers to frequently asked questions about the merger. This section, however, provides only summary information. For a more complete response to these questions and for additional information, please refer to the cross-referenced sections.

 

Q:

What is the merger?

 

A:

GTx, Merger Sub and Oncternal entered into the Agreement and Plan of Merger and Reorganization on March 6, 2019 (the “Original Merger Agreement”). On April 30, 2019, the parties entered into Amendment No. 1 to Agreement and Plan of Merger (the “Merger Agreement Amendment,” and together with the Original Merger Agreement, the “Merger Agreement”). The Merger Agreement contains the terms and conditions of the proposed merger of GTx and Oncternal. Under the Merger Agreement, Merger Sub will merge with and into Oncternal, with Oncternal surviving as a wholly-owned subsidiary of GTx. This transaction is referred to as “the merger.”

At the effective time of the merger (the “Effective Time”), each share of Oncternal’s common stock immediately prior to the Effective Time (excluding certain shares to be canceled pursuant to the Merger Agreement, and shares held by stockholders who have exercised and perfected appraisal rights as more fully described in the section entitled “The Merger—Appraisal Rights” below) will be converted into the right to receive approximately 0.5137 shares of GTx’s common stock, subject to adjustment for the GTx Reverse Stock Split (the “exchange ratio”). Prior to the Effective Time, all outstanding shares of Oncternal’s preferred stock will convert into shares of Oncternal’s common stock. This exchange ratio is an estimate only and the final exchange ratio will be determined pursuant to a formula described in more detail in the Merger Agreement and in the attached proxy statement/prospectus/information statement.

As a result of the merger, based on the estimated exchange ratio of 0.5137, current holders of Oncternal’s capital stock are expected to own in the aggregate approximately 77.5% of the outstanding capital stock of GTx, with GTx’s current stockholders owning approximately 22.5% of the outstanding capital stock of GTx. The ownership percentage to be held by GTx’s stockholders is subject to adjustment prior to closing of the merger, including a downward adjustment to the extent that GTx’s “Parent Cash Amount” (as defined in the Merger Agreement) at the Effective Time is less than the threshold provided in the Merger Agreement, which adjusts based on the date of closing (and as a result, GTx stockholders could own less, and Oncternal stockholders could own more, of the combined company), or an upward adjustment to the extent that Oncternal’s “Company Cash Amount” (as defined in the Merger Agreement) at the Effective Time is less than the threshold provided in the Merger Agreement (and as a result, GTx stockholders could own more, and Oncternal stockholders could own less, of the combined company). The exchange ratio formula excludes Oncternal’s outstanding stock options and warrants and GTx’s outstanding stock options and warrants. GTx will assume outstanding and unexercised warrants and options to purchase shares of Oncternal capital stock, and such securities will be converted into warrants and options, as applicable, to purchase shares of GTx’s common stock.

At the Effective Time, GTx’s stockholders will continue to own and hold their existing shares of GTx’s common stock, and all outstanding and unexercised options to purchase shares of GTx’s common stock and outstanding and unexercised warrants to purchase shares of GTx’s common stock will remain in effect pursuant to their terms, except that the vesting of such options will be accelerated in full effective as of immediately prior to the Effective Time. After the completion of the merger, GTx will change its corporate name to “Oncternal Therapeutics, Inc.” as required by the Merger Agreement (the “GTx Name Change”).

 

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Q:    What

will happen to GTx if, for any reason, the merger does not close?

 

A:

If, for any reason, the merger does not close, the GTx Board may elect to, among other things, attempt to complete another strategic transaction like the merger, attempt to sell or otherwise dispose of the various assets of GTx, resume its research and development activities and continue to operate the business of GTx or dissolve and liquidate its assets. If GTx decides to dissolve and liquidate its assets, GTx would be required to pay all of its debts and contractual obligations, and to set aside certain reserves for potential future claims. There can be no assurances as to the amount or timing of available cash left to distribute to stockholders after paying the debts and other obligations of GTx and setting aside funds for reserves.

If GTx were to continue its business, it would need to hire scientific personnel necessary to resume research and development activities. To conserve its cash resources, GTx has substantially reduced its workforce since November 2018 and has ceased its selective androgen receptor modulators (“SARM”) development activities and all other operations except for day-to-day business operations, completing ongoing mechanistic selective androgen receptor degrader (“SARD”) preclinical studies and those activities necessary to complete the merger. As of March 31, 2019, GTx had 13 full-time employees. If the merger is not completed and GTx is able to raise sufficient additional funds necessary to pursue the continued development of its SARD program, GTx will need to hire experienced personnel to continue to develop its SARD program and to develop and commercialize any potential future product candidates, and GTx will need to expand the number of its managerial, operational, financial and other employees to support that growth.

 

Q:    Why

are the two companies proposing to merge?

 

A:

Oncternal and GTx believe that the merger will result in a clinical-stage biopharmaceutical company focused on developing first-in-class product candidates for cancers with critical unmet medical need. For a discussion of GTx’s and Oncternal’s reasons for the merger, please see the section entitled “The Merger—GTx Reasons for the Merger” and “The Merger—Oncternal Reasons for the Merger” in this proxy statement/prospectus/information statement.

 

Q:    Why

am I receiving this proxy statement/prospectus/information statement?

 

A:

You are receiving this proxy statement/prospectus/information statement because you have been identified as a stockholder of GTx as of the record date, or a stockholder of Oncternal eligible to execute the Oncternal written consent. If you are a stockholder of GTx, you are entitled to vote at GTx’s annual stockholder meeting (referred to herein as the “GTx special meeting”) to approve Proposal Nos. 1, 2, 3, 4, 5 and 6. If you are a stockholder of Oncternal, you are being requested to sign and return the Oncternal written consent to adopt the Merger Agreement and approve the transactions contemplated thereby, including the merger.

This document serves as:

 

   

a proxy statement of GTx used to solicit proxies for the GTx special meeting;

 

   

a prospectus of GTx used to offer shares of GTx’s common stock in exchange for shares of Oncternal’s capital stock in the merger and issuable upon exercise of Oncternal’s warrants and options, as applicable; and

 

   

an information statement of Oncternal used to solicit the written consent of its stockholders for the adoption of the Merger Agreement and the approval of the merger and related transactions.

 

Q:    What

is required to consummate the merger?

 

A:

To consummate the merger, GTx’s stockholders must approve Proposal Nos. 1 and 2.

Proposal No. 1, the approval of the merger and the issuance of GTx’s common stock pursuant to the Merger Agreement by GTx’s stockholders and the change of control resulting from the merger, requires the

 

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affirmative vote of the holders of a majority of the shares of GTx’s outstanding common stock entitled to vote and present in person or represented by proxy at the GTx special meeting. Proposal Nos. 2 and 3, the approval of the amendments to the restated certificate of incorporation of GTx to effect the GTx Reverse Stock Split and the GTx Name Change, each requires the affirmative vote of the holders of a majority of the shares of GTx’s common stock having voting power outstanding on the record date for the GTx special meeting. Each of Proposal Nos. 1 and 2 are conditioned upon each other. Therefore, the merger cannot be consummated without the approval of Proposal Nos. 1 and 2. Proposal Nos. 3 and 4 are conditioned upon the consummation of the merger. If the merger is not completed or the stockholders do not approve Proposal No. 3, GTx will not change its name to “Oncternal Therapeutics, Inc.” If the merger is not completed or the stockholders do not approve Proposal No. 4, the GTx, Inc. 2019 Incentive Award Plan will not become effective. Proposal Nos. 1 and 2 are not conditioned on Proposal No. 3 or Proposal No. 4 being approved.

The (i) adoption and approval of the Merger Agreement and the transactions contemplated thereby, and (ii) the conversion of Oncternal’s outstanding preferred stock into Oncternal’s common stock immediately prior to the Effective Time, requires the written consent of the following, in each case, outstanding as of the record date for the written consent:

 

   

the holders of a majority of the shares of Oncternal’s common stock and Oncternal’s preferred stock, voting as a single class;

 

   

the holders of at least 60% of the shares of Oncternal’s preferred stock, voting together as a single class;

 

   

the holders of at least a majority of the outstanding shares of Oncternal’s Series A preferred stock, voting as a single class;

 

   

the holders of at least a majority of the outstanding shares of Oncternal’s Series B preferred stock and Oncternal’s Series B-2 preferred stock, voting together as a single class; and

 

   

the holders of at least 70% of the shares of Oncternal’s Series C preferred stock, voting as a single class.

Certain of Oncternal’s stockholders who in the aggregate own approximately 44% of the outstanding shares of Oncternal’s capital stock on an as converted to common stock basis, and certain of GTx’s stockholders who in the aggregate own approximately 45% of the outstanding shares of GTx’s common stock, are parties to voting agreements with GTx and Oncternal, whereby such stockholders have agreed, subject to the terms of the voting agreements, to vote their shares in favor of the adoption or approval, among other things, of the Merger Agreement and the transactions contemplated therein, including the merger and the issuance of GTx’s common stock to Oncternal’s stockholders pursuant to the Merger Agreement. In addition, following the registration statement on Form S-4, of which this proxy statement/prospectus/information statement is a part, being declared effective by the SEC and pursuant to the conditions of the Merger Agreement, Oncternal’s stockholders who are party to the voting agreements will each execute written consents approving the merger and related transactions. Stockholders of Oncternal, including those who are parties to voting agreements, are being requested to execute written consents providing such approvals. Oncternal’s largest stockholder prior to the merger, Shanghai Pharmaceutical (USA) Inc. (“SPH USA”), which holds 100% of the outstanding Series C preferred stock and which represents approximately 20.9% of the outstanding shares of Oncternal capital stock on as converted common stock basis, has not executed a voting agreement. Although Oncternal expects to receive stockholder approval from SPH USA approximately two months after the date of the Merger Agreement, there can be no assurance that all of the necessary stockholder approvals will be obtained.

In addition to the requirement of obtaining the stockholder approvals described above and appropriate regulatory approvals, each of the other closing conditions set forth in the Merger Agreement must be satisfied or waived. For a more complete description of the closing conditions under the Merger Agreement, we urge you to read the section entitled “The Merger Agreement—Conditions to the Completion of the Merger” in this proxy statement/prospectus/information statement.

 

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Q:    What

will Oncternal’s stockholders, warrant holders and option holders receive in the merger?

 

A:

As a result of the merger, assuming an estimated exchange ratio of 0.5137, Oncternal’s stockholders will become entitled to receive shares of GTx’s common stock equal to, in the aggregate, approximately 77.5% of the outstanding capital stock of GTx. The ownership percentage to be held by GTx’s stockholders is subject to adjustment prior to closing of the merger, including a downward adjustment to the extent that GTx’s “Parent Cash Amount” (as defined in the Merger Agreement) at the Effective Time is less than the threshold provided in the Merger Agreement, which adjusts based on the date of closing (and as a result, GTx stockholders could own less, and Oncternal stockholders could own more, of the combined organization), or an upward adjustment to the extent that Oncternal’s “Company Cash Amount” (as defined in the Merger Agreement) at the Effective Time is less than the threshold provided in the Merger Agreement (and as a result, GTx stockholders could own more, and Oncternal stockholders could own less, of the combined organization).

GTx will assume outstanding and unexercised warrants and options to purchase shares of Oncternal capital stock, and in connection with the merger they will be converted into warrants and options, as applicable, to purchase shares of GTx’s common stock, with the number of GTx shares subject to such warrant or option, and the exercise price, being appropriately adjusted to reflect the exchange ratio between GTx’s common stock and Oncternal capital stock determined in accordance with the Merger Agreement.

For a more complete description of what Oncternal’s stockholders, warrant holders and option holders will receive in the merger, please see the sections entitled and “The Merger Agreement—Merger Consideration” in this proxy statement/prospectus/information statement.

 

Q:    What

will GTx’s stockholders, warrant holders and option holders receive in the merger?

 

A:

At the Effective Time, GTx’s stockholders will continue to own and hold their existing shares of GTx’s common stock, and all outstanding and unexercised options to purchase shares of GTx’s common stock and outstanding and unexercised warrants to purchase shares of GTx’s common stock will remain in effect pursuant to their terms, except that the vesting of such options will be accelerated in full effective as of immediately prior to the Effective Time.

In addition, GTx stockholders as of immediately prior to the Effective Time will receive one contingent value right (“CVR”) for each share of GTx common stock held of record as of immediately prior to the Effective Time. Each CVR will represent the right to receive payments based on GTx’s SARD or SARM technology. In particular, CVR holders will be entitled to 75% of the aggregate amount of any net proceeds received by the combined company during the 15-year period after the closing of the merger 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, if applicable, to receive royalties on the sale of any SARD or SARM products by the combined company during the 15-year period after the closing. The CVRs will be issued pursuant to a Contingent Value Rights Agreement the original form of which was agreed upon on March 6, 2019 (the “Original Form of CVR Agreement”) and was subsequently revised in connection with the Merger Agreement Amendment (“Amended Form of CVR Agreement”, and together with the Original Form of CVR Agreement, the “CVR Agreement”) and Marc Hanover will act as the representative of holders of the CVRs.

As further discussed in the section titled “The Merger–Background of the Merger,” GTx recently received and evaluated new preclinical data from an independent laboratory of an academic researcher engaged by GTx, 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 castration-resistant prostate cancer (“CRPC”) would likely not be viable. This information was in conflict with other independent laboratory preclinical data previously received by GTx senior management and with internal preclinical data generated by GTx, 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

 

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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. In connection with the receipt of the new preclinical data, in addition to amending the Merger Agreement, GTx and Oncternal amended the Original Form CVR Agreement to, among other things: (i) increase from 50% to 75% the portion of the net proceeds the CVR holders will be entitled to receive under the CVR Agreement, and (ii) provide that Oncternal (as successor in interest to GTx) will be obligated to use commercially reasonable efforts to either develop or divest the SARD technology, as the Oncternal Board shall determine in its sole discretion, and to divest its SARM technology, subject to certain limitations. Accordingly, Oncternal may decide, in its sole discretion, to abandon the development of the SARD technology following the merger and would then be obligated only to use commercially reasonable efforts to divest the SARD technology, subject to certain limitations. Likewise, Oncternal is obligated only to use commercially reasonable efforts to divest the SARM technology, subject to certain limitations, and in light of the results of the ASTRID trial, Oncternal has no current intent to develop the SARM technology.

 

Q:    Who

will be the directors of GTx following the merger?

 

A:

In connection with the merger, the GTx Board will be expanded to include a total of nine directors. Pursuant to the terms of the Merger Agreement, two of such directors will be designated by GTx and two of such directors will be designated by SPH USA, Oncternal’s largest stockholder prior to the merger. Four of the remaining five directors are expected to be current directors of Oncternal, including one such director who will be the Chairman of the combined organization and one such director who will be the Chief Executive Officer of the combined organization. It is anticipated that, following the closing of the merger, the GTx Board will be constituted as follows:

 

Name

   Age     

Current Principal Affiliation

David F. Hale

     70      Oncternal Therapeutics, Inc., Chairman

James B. Breitmeyer, M.D., Ph.D.

     65      Oncternal Therapeutics, Inc., President, Chief Executive Officer and Director

Michael G. Carter, M.D., Ch.B., F.R.C.P.

     81      GTx, Inc., Director

Daniel L. Kisner, M.D.

     71      Oncternal Therapeutics, Inc., Director Designee

William R. LaRue

     68      Oncternal Therapeutics, Inc., Director

Yanjun Liu, Ph.D.

     54      Oncternal Therapeutics, Inc., Director

Xin Nakanishi, Ph.D.

     56      Oncternal Therapeutics, Inc., Director

Charles P. Theuer, M.D., Ph.D.

     55      Oncternal Therapeutics, Inc., Director

Robert J. Wills, Ph.D.

     65      GTx, Inc., Executive Chairman

 

Q:    Who

will be the executive officers of GTx immediately following the merger?

 

A:

Immediately following the consummation of the merger, the executive management team of GTx is expected to be composed solely of the members of the Oncternal executive management team prior to the merger:

 

Name

  

Title

James B. Breitmeyer, M.D. Ph.D.    President and Chief Executive Officer
Richard G. Vincent    Chief Financial Officer
Hazel M. Aker    General Counsel

 

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Q:    As

a stockholder of GTx, how does the GTx Board recommend that I vote?

 

A:

After careful consideration, the GTx Board recommends that GTx’s stockholders vote:

 

   

“FOR” Proposal No. 1 to approve the Merger Agreement and the transactions contemplated thereby, including the merger, the issuance of shares of GTx’s common stock to Oncternal’s stockholders in the merger and the change of control resulting from the merger;

 

   

“FOR” Proposal No. 2 to approve a series of alternative amendments to the restated certificate of incorporation of GTx to effect the GTx Reverse Stock Split;

 

   

“FOR” Proposal No. 3 to approve an amendment to the restated certificate of incorporation of GTx to effect the GTx Name Change;

 

   

“FOR” Proposal No. 4 to approve the adoption of the GTx, Inc., 2019 Incentive Award Plan;

 

   

“FOR” Proposal No. 5 to approve, on a nonbinding, advisory basis, the compensation that will be paid or may become payable to GTx’s named executive officers in connection with the merger; and

 

   

“FOR” Proposal No. 6 to adjourn the special meeting, if necessary, if a quorum is present, to solicit additional proxies if there are not sufficient votes in favor of Proposal Nos. 1 or 2.

 

Q:    As

a stockholder of Oncternal, how does the Oncternal Board recommend that I vote?

 

A:

After careful consideration, the Oncternal Board recommends that Oncternal’s stockholders execute the written consent indicating their vote in favor of the adoption of the Merger Agreement and the approval of the merger and the transactions contemplated by the Merger Agreement.

 

Q:

What risks should I consider in deciding whether to vote in favor of the merger or to execute and return the written consent, as applicable?

 

A:

You should carefully review the section of this proxy statement/prospectus/information statement entitled “Risk Factors,” which sets forth certain risks and uncertainties related to the merger, risks and uncertainties to which the combined company’s business will be subject, and risks and uncertainties to which each of GTx and Oncternal, as an independent company, is subject.

 

Q:    When

do you expect the merger to be consummated?

 

A:

We anticipate that the merger will occur during the second quarter of 2019, soon after the GTx special meeting to be held on June 5, 2019 but we cannot predict the exact timing. For more information, please see the section entitled “The Merger Agreement—Conditions to the Completion of the Merger” in this proxy statement/prospectus/information statement.

 

Q:

What are the material U.S. federal income tax consequences of the merger to U.S. Holders of Oncternal shares?

 

A:

It is a condition to GTx’s obligation to consummate the merger that GTx receive an opinion from Cooley LLP, dated as of the closing date, to the effect that the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”). It is a condition to Oncternal’s obligation to consummate the merger that Oncternal receive an opinion from Latham & Watkins LLP, dated as of the closing date, to the effect that the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code. Subject to the tax opinion representations and assumptions (as defined on page 178), in the opinions of Cooley LLP and Latham & Watkins LLP, the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code. Accordingly, a U.S. Holder (as defined on page 177) of Oncternal’s common stock will not recognize any gain or loss for

 

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  U.S. federal income tax purposes on the exchange of shares of Oncternal common stock for shares of GTx common stock in the merger, except with respect to cash received by a U.S. Holder of Oncternal common stock in lieu of a fractional share of GTx common stock. If any of the tax opinion representations and assumptions is incorrect, incomplete or inaccurate or is violated, the accuracy of the opinions described above may be affected and the U.S. federal income tax consequences of the merger could differ from those described in this proxy statement/prospectus/information statement.

Please review the information in the section entitled “The Merger—Material U.S. Federal Income Tax Consequences of the Merger” for a more complete description of the material U.S. federal income tax consequences of the merger to U.S. Holders of Oncternal common stock. The tax consequences to you of the merger will depend on your particular facts and circumstances. Please consult your tax advisors as to the specific tax consequences to you of the merger.

 

Q:

What are the material U.S. federal income tax consequences of the receipt of CVRs and the GTx Reverse Stock Split to GTx U.S. Holders?

 

A:

GTx intends to report the issuance of the CVRs, to be received by GTx stockholders pursuant to the Merger Agreement, to GTx U.S. Holders (as defined on page 202) as a distribution of property with respect to its stock. Please review the information in the section entitled “Agreements Related to the Merger—CVR Agreement—Material U.S. Federal Income Tax Consequences of the Receipt of CVRs” for a more complete description of the material U.S. federal income tax consequences of the receipt of CVRs to GTx U.S. Holders, including possible alternative treatments. A GTx U.S. Holder generally should not recognize gain or loss upon the GTx Reverse Stock Split, except to the extent a GTx U.S. Holder receives cash in lieu of a fractional share of GTx common stock. Please review the information in the section entitled “Proposal No. 2: Approval of the GTx Reverse Stock Split—Material U.S. Federal Income Tax Consequences of the GTx Reverse Stock Split” for a more complete description of the material U.S. federal income tax consequences of the GTx Reverse Stock Split to GTx U.S. Holders.

The tax consequences to you of the receipt of CVRs and the GTx Reverse Stock Split will depend on your particular facts and circumstances. Please consult your tax advisors as to the specific tax consequences to you.

 

Q:

What do I need to do now?

 

A:

GTx and Oncternal urge you to read this proxy statement/prospectus/information statement carefully, including its annexes, and to consider how the merger affects you.

If you are a stockholder of GTx, you may provide your proxy instructions in one of four different ways. First, you can mail your signed proxy card in the enclosed return envelope. Second, you may provide your proxy instructions via phone by following the instructions on your proxy card or voting instruction form. Third, you may provide your proxy instructions via the Internet by following the instructions on your proxy card or voting instruction form. Finally, you may vote in person at the GTx special meeting, as described below. Please provide your proxy instructions only once, unless you are revoking a previously delivered proxy instruction, and as soon as possible so that your shares can be voted at the GTx special meeting.

If you are a stockholder of Oncternal, you may execute and return your written consent to Oncternal in accordance with the instructions provided by Oncternal.

 

Q:    What

happens if I do not return a proxy card or otherwise provide proxy instructions, as applicable?

 

A:

If you are a stockholder of GTx, the failure to return your proxy card or otherwise provide proxy instructions (a) will reduce the aggregate number of votes required to approve Proposal Nos. 1, 4, 5 and 6, (b) will have the same effect as voting against Proposal Nos. 2 and 3 and (c) your shares will not be counted for purposes of determining whether a quorum is present at the GTx special meeting.

 

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Q:    May

I vote in person at the special meeting of stockholders of GTx?

 

A:

If your shares of GTx’s common stock are registered directly in your name with GTx’s transfer agent, you are considered to be the stockholder of record with respect to those shares, and the proxy materials and proxy card are being sent directly to you by GTx. If you are a stockholder of GTx of record, you may attend the GTx special meeting and vote your shares in person. Even if you plan to attend the GTx special meeting in person, GTx requests that you sign and return the enclosed proxy to ensure that your shares will be represented at the GTx special meeting if you become unable to attend. If your shares of GTx’s common stock are held in a brokerage account or by another nominee, you are considered the beneficial owner of shares held in “street name,” and the proxy materials are being forwarded to you by your broker or other nominee together with a voting instruction card. As the beneficial owner, you are also invited to attend the GTx special meeting. Because a beneficial owner is not the stockholder of record, you may not vote these shares in person at the GTx special meeting unless you obtain a proxy from the broker, trustee or nominee that holds your shares, giving you the right to vote the shares at the GTx special meeting.

 

Q:    When

and where is the special meeting of GTx’s stockholders?

 

A:

The GTx special meeting will be held at 9:00 a.m., Central time, on June 5, 2019 at 17 W Pontotoc Ave., Suite 100, Memphis, Tennessee 38103, unless postponed or adjourned to a later date. Subject to space availability, all of GTx’s stockholders as of the record date, or their duly appointed proxies, may attend the GTx special meeting.

 

Q:    If

my GTx shares are held in “street name” by my broker, will my broker vote my shares for me?

 

A:

Unless your broker has discretionary authority to vote on certain matters, your broker will not be able to vote your shares of GTx’s common stock without instructions from you. Brokers are not expected to have discretionary authority to vote for any of the Proposals. To make sure that your vote is counted, you should instruct your broker to vote your shares, following the procedures provided by your broker.

 

Q:    May

I change my vote after I have submitted a proxy or provided proxy instructions?

 

A:

GTx’s stockholders of record, other than those of GTx’s stockholders who are parties to voting agreements, may change their vote at any time before their proxy is voted at the GTx special meeting in one of three ways. First, a stockholder of record of GTx can send a written notice to the Secretary of GTx stating that it would like to revoke its proxy. Second, a stockholder of record of GTx can submit new proxy instructions either on a new proxy card or via the Internet. Third, a stockholder of record of GTx can attend the GTx special meeting and vote in person. Attendance alone will not revoke a proxy. If a stockholder of GTx of record or a stockholder who owns GTx shares in “street name” has instructed a broker to vote its shares of GTx’s common stock, the stockholder must follow directions received from its broker to change those instructions.

 

Q:    Who

is paying for this proxy solicitation?

 

A:

GTx and Oncternal will share equally the cost of printing and filing of this proxy statement/prospectus/information statement and the proxy card. Arrangements will also be made with brokerage firms and other custodians, nominees and fiduciaries who are record holders of GTx’s common stock for the forwarding of solicitation materials to the beneficial owners of GTx’s common stock. GTx will reimburse these brokers, custodians, nominees and fiduciaries for the reasonable out-of-pocket expenses they incur in connection with the forwarding of solicitation materials.

 

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Q:    Who

can help answer my questions?

 

A:

If you are a stockholder of GTx and would like additional copies, without charge, of this proxy statement/prospectus/information statement or if you have questions about the merger, including the procedures for voting your shares, you should contact:

GTx, Inc.

17 W Pontotoc Ave., Suite 100

Memphis, TN 38103

Tel: (901) 523-9700

Attn: Henry Doggrell

If you are a stockholder of Oncternal, and would like additional copies, without charge, of this proxy statement/prospectus/information statement or if you have questions about the merger, including the procedures for voting your shares, you should contact:

Oncternal Therapeutics, Inc.

12230 El Camino Real, Ste 300

San Diego, California 92130

Tel: (858) 434-1113

Attn: Richard G. Vincent

Email: info@oncternal.com

 

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PROSPECTUS SUMMARY

This summary highlights selected information from this proxy statement/prospectus/information statement and may not contain all of the information that is important to you. To better understand the merger, the proposals being considered at the GTx special meeting and Oncternal’s stockholder actions that are the subject of the written consent, you should read this entire proxy statement/prospectus/information statement carefully, including the Merger Agreement attached as Annex A, the opinion of Aquilo Partners, L.P. attached as Annex B-2 and the other annexes to which you are referred herein. For more information, please see the section entitled “Where You Can Find More Information” in this proxy statement/prospectus/information statement.

The Companies

GTx, Inc.

17 W Pontotoc Ave., Suite 100

Memphis, Tennessee 38103

(901) 523-9700

Attn: Marc S. Hanover

GTx is a biopharmaceutical company dedicated to the discovery, development and commercialization of medicines to treat serious and/or significant unmet medical conditions. Under an exclusive worldwide license agreement with the University of Tennessee Research Foundation (“UTRF”), GTx is developing UTRF’s proprietary selective androgen receptor degrader (“SARD”) technology, which GTx believes may have the potential to provide compounds that can degrade or antagonize multiple forms of androgen receptor thereby potentially inhibiting tumor growth in patients with progressive CRPC, including those patients who do not respond to or are resistant to current androgen targeted therapies. GTx 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, GTx recently received and evaluated new preclinical data from an independent laboratory of an academic researcher engaged by GTx, 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 was in conflict with other independent laboratory preclinical data previously received by GTx senior management and with internal preclinical data generated by GTx, 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.

Oncternal Therapeutics, Inc.

12230 El Camino Real, Ste 300

San Diego, California 92130

Tel: (858) 434-1113

Attn: James B. Breitmeyer, M.D., Ph.D.



 

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Oncternal is a clinical-stage biopharmaceutical company focused on developing potential first-in-class therapies for cancers in which there is critical unmet medical need. The company’s drug development efforts are focused on promising, yet untreated biological pathways implicated in cancer genesis and progression. Oncternal’s pipeline includes several key programs.

 

   

Cirmtuzumab, Oncternal’s lead product candidate, is an investigational, potentially first-in-class humanized monoclonal antibody that is designed to bind with high affinity to Receptor-tyrosine kinase-like Orphan Receptor 1 (“ROR1”), a protein that is selectively expressed in many forms of cancer including hematological malignancies as well as many solid tumors. Cirmtuzumab is being developed in collaboration with the University of California San Diego (“UC San Diego”) and in collaboration and with funding support from the California Institute for Regenerative Medicine, (“CIRM”). Early preclinical and clinical results suggest that ROR1 is a target with broad potential in oncology. Cirmtuzumab is being studied in a Phase 1/2 clinical trial in combination with ibrutinib in patients with chronic lymphocytic leukemia (“CLL”) and mantle cell lymphoma (“MCL”), and in combination with paclitaxel for the treatment of women with metastatic breast cancer.

 

   

TK216 is an investigational, potentially first-in-class small molecule that is designed to inhibit the biological activity of E26 transformation-specific (“ETS”), transcription factor oncoproteins including fusion proteins. TK216 is being evaluated alone and in combination with vincristine in a Phase 1 clinical trial in patients with relapsed or refractory Ewing sarcoma, a rare pediatric cancer that has historically been very challenging to treat effectively.

 

   

ROR1 CAR-T—Oncternal is also developing a CAR-T program targeting ROR1 in collaboration with UC San Diego, who has received funding support directly from CIRM. This program is currently in preclinical development as a potential treatment for both hematologic malignancies and solid tumors.

Grizzly Merger Sub, Inc.

Merger Sub is a wholly-owned subsidiary of GTx, and was formed solely for the purposes of carrying out the merger.

The Merger (see page 124)

If the merger is completed, Merger Sub will merge with and into Oncternal, with Oncternal surviving as a wholly-owned subsidiary of GTx.

Prior to the Effective Time, each share of Oncternal preferred stock will be converted into one share of Oncternal common stock. At the Effective Time, each share of Oncternal common stock outstanding immediately prior to the Effective Time (excluding certain shares to be canceled pursuant to the Merger Agreement, and shares held by stockholders who have exercised and perfected appraisal rights as more fully described in the section entitled “The Merger—Appraisal Rights” below) will be converted into the right to receive approximately 0.5137 shares of GTx’s common stock, subject to adjustment for the GTx Reverse Stock Split. This exchange ratio is an estimate only and the final exchange ratio will be determined pursuant to a formula described in more detail in the Merger Agreement and in this proxy statement/prospectus/information statement. Immediately after the merger, assuming an exchange ratio of 0.5137, Oncternal’s stockholders as of immediately prior to the Effective Time will own approximately 77.5% of the outstanding capital stock of GTx, and GTx’s stockholders as of immediately prior to the Effective Time will own approximately 22.5% of the outstanding capital stock of GTx. The ownership percentage to be held by GTx’s stockholders is subject to adjustment prior to closing of the merger, including a downward adjustment to the extent that GTx’s “Parent Cash Amount” (as defined in the Merger Agreement) at the Effective Time is less than the threshold provided in the Merger Agreement, which adjusts based on the date of closing (and as a result, GTx stockholders could own less, and Oncternal stockholders could own more, of the combined company), or an upward adjustment to the extent that Oncternal’s



 

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“Company Cash Amount” (as defined in the Merger Agreement) at the Effective Time is less than the threshold provided in the Merger Agreement (and as a result, GTx stockholders could own more, and Oncternal stockholders could own less, of the combined company). The exchange ratio formula excludes Oncternal’s outstanding stock options and warrants and GTx’s outstanding stock options and warrants. GTx will assume outstanding and unexercised options and warrants to purchase Oncternal capital stock, and each such option or warrant will be converted into options or warrants, as applicable, to purchase GTx’s common stock.

For a more complete description of the merger exchange ratio please see the section entitled “The Merger Agreement” in this proxy statement/prospectus/information statement.

The closing of the merger will occur no later than the second business day after the last of the conditions to the merger has been satisfied or waived (other than those conditions that by their nature are to be satisfied at the closing, but subject to the satisfaction or waiver of each such conditions), or at such other time as GTx and Oncternal agree. GTx and Oncternal anticipate that the consummation of the merger will occur in the second quarter of the fiscal year. However, because the merger is subject to a number of conditions, neither GTx nor Oncternal can predict exactly when the closing will occur or if it will occur at all. After completion of the merger, assuming that GTx receives the required stockholder approval of Proposal No. 3, GTx will be renamed “Oncternal Therapeutics, Inc.”

Reasons for the Merger (see page 140)

The merger will produce a clinical-stage biopharmaceutical company focused on developing first-in-class product candidates for cancers with critical unmet medical need. GTx and Oncternal believe that the combined company will have the following characteristics found in successful biotech companies:

 

   

Diverse Clinical Stage Pipeline. The combined company will focus on developing potentially first-in-class product candidates for cancers with critical unmet medical need and will have two clinical stage product candidates, cirmtuzumab and TK216, in clinical trials for CLL, MCL and Ewing sarcoma. Additional indications are under consideration for future clinical trials.

 

   

Novel Preclinical Programs: The combined company will develop a CAR-T program targeting ROR1 as a potential treatment for both hematologic malignancies and solid tumors, and a selective androgen receptor degrader, or SARD, as a potential treatment for patients with castration-resistant prostate cancer.

 

   

Management Team. The combined company will be led by the experienced senior management from Oncternal and a board of directors with representation from each of Oncternal and GTx.

 

   

Cash Resources. The combined company is expected to have approximately $26.0 million in cash and cash equivalents at the closing of the merger, which GTx and Oncternal believe is sufficient to enable Oncternal to implement its near-term business plans.

Each of GTx’s and Oncternal’s respective board of directors also considered other reasons for the merger, as described herein. For example, the GTx Board considered, among other things:

 

   

the strategic alternatives of GTx to the merger, including the discussions that GTx senior management and the GTx Board previously conducted with other potential merger partners;

 

   

the failure to demonstrate the effectiveness of enobosarm as a potential treatment for stress urinary incontinence (“SUI”), and the unlikelihood that such circumstances would change for the benefit of GTx’s stockholders in the foreseeable future;

 

   

the risks of developing a product candidate out of the SARD program, including the costs of contracting with third parties to complete the necessary preclinical development work to select a lead compound, submitting an IND, and developing a product candidate through further preclinical studies and potentially clinical trials;



 

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the risk associated with, and uncertain value and costs to stockholders of, winding down operations of GTx;

 

   

the risks of continuing to operate GTx on a stand-alone basis, including developing its SARD program and the need to raise additional funding and expend significant resources to advance this portfolio and to rebuild its infrastructure and management to continue its operations; and

 

   

the opportunity as a result of the merger for GTx’s stockholders to participate in the potential value of the Oncternal product candidate portfolio as well as the potential value derived from the sale or licensing of its SARD or SARM programs pursuant to the CVR Agreement.

In addition, the Oncternal Board approved the merger based on a number of factors, including the:

 

   

potential increased access to sources of capital and a broader range of investors to support the clinical development of its products than it could otherwise obtain if it continued to operate as a privately held company;

 

   

potential to provide its current stockholders with greater liquidity by owning stock in a public company;

 

   

Oncternal Board’s belief that no alternatives to the merger were reasonably likely to create greater value for Oncternal’s stockholders, or enable accelerated investment in Oncternal’s portfolio, after reviewing the various strategic options to enhance stockholder value that were considered by the Oncternal Board;

 

   

cash resources of the combined organization expected to be available at the closing of the merger; and

 

   

expectation that the merger will be treated as a reorganization for U.S. federal income tax purposes.

Opinion of the GTx Financial Advisor (see page 146)

The GTx Board engaged Aquilo Partners, L.P. (“Aquilo”) to provide financial advisory services and to consider and evaluate potential strategic transactions on its behalf. GTx ultimately requested that Aquilo deliver a fairness opinion with respect to the merger with Oncternal. On March 6, 2019, Aquilo delivered its oral opinion, subsequently confirmed in writing, to the GTx Board to the effect that, as of the date of its opinion and based upon and subject to the qualifications, limitations and assumptions set forth therein, the consideration is fair, from a financial point of view, to GTx’s stockholders. On April 29, 2019, at the request of the GTx Board and in light of the Merger Agreement Amendment, Aquilo subsequently rendered a revised oral opinion, subsequently confirmed in writing to the GTx Board, to the GTx Board to the effect that, as of the date of its opinion and based upon and subject to the qualifications, limitations and assumptions set forth therein, the consideration is fair, from a financial point of view, to GTx’s stockholders.

The full text of Aquilo’s written opinions, which set forth the procedures followed, assumptions made, matters considered, and limitations and qualifications of the review undertaken in connection with the opinions, are attached as Annexes B-1 and B-2 and are incorporated by reference in their entirety. You are urged to, and should, read the most recent written opinions of Aquilo carefully and in its entirety. Aquilo’s opinions were intended for the use and benefit of the GTx Board (in its capacity as such) in connection with its evaluation of the merger. Aquilo’s opinions were not intended to be used for any other purpose without Aquilo’s prior written consent in each instance, except as GTx’s counsel advises is required by law. Aquilo has consented to the inclusion of Aquilo’s opinions in this proxy statement. Aquilo’s opinions do not address GTx’s underlying business decision to enter into the Merger Agreement or CVR Agreement, the relative merits of the merger compared to any alternative transactions or strategies that were or may be available to GTx. Aquilo’s opinions did not constitute a recommendation to the GTx Board as to how to act or to any GTx stockholder or any other person as to how to vote with respect to the merger with Oncternal or any other matter.



 

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Material U.S. Federal Income Tax Consequences of the Merger (see page 219)

It is a condition to GTx’s obligation to consummate the merger that GTx receive an opinion from Cooley LLP, dated as of the closing date, to the effect that the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code. It is a condition to Oncternal’s obligation to consummate the merger that Oncternal receive an opinion from Latham & Watkins LLP, dated as of the closing date, to the effect that the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code. Subject to the tax opinion representations and assumptions (as defined on page 178), in the opinions of Cooley LLP and Latham & Watkins LLP, the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code. Accordingly, a U.S. Holder (as defined on page 177) of Oncternal common stock will not recognize any gain or loss for U.S. federal income tax purposes on the exchange of shares of Oncternal common stock for shares of GTx common stock in the merger, except with respect to cash received by a U.S. Holder of Oncternal common stock in lieu of a fractional share of GTx common stock. If any of the tax opinion representations and assumptions is incorrect, incomplete or inaccurate or is violated, the accuracy of the opinions described above may be affected and the U.S. federal income tax consequences of the merger could differ from those described in this proxy statement/prospectus/information statement.

Please review the information in the section entitled “The Merger—Material U.S. Federal Income Tax Consequences of the Merger” for a more complete description of the material U.S. federal income tax consequences of the merger to U.S. Holders of Oncternal common stock. The tax consequences to you of the merger will depend on your particular facts and circumstances. Please consult your tax advisors as to the specific tax consequences to you of the merger.

Material U.S. Federal Income Tax Consequences of the Receipt of CVRs and the GTx Reverse Stock Split (see pages 200 and 209)

GTx intends to report the issuance of CVRs to GTx U.S. Holders (as defined on page 184) as a distribution of property with respect to its stock. Please review the information in the section entitled “Agreements Related to the Merger—CVR Agreement—Material U.S. Federal Income Tax Consequences of the Receipt of CVRs” for a more complete description of the material U.S. federal income tax consequences of the receipt of CVRs to GTx U.S. Holders, including possible alternative treatments.

A GTx U.S. Holder generally should not recognize gain or loss upon the GTx Reverse Stock Split, except to the extent a GTx U.S. Holder receives cash in lieu of a fractional share of GTx common stock. Please review the information in the section entitled “Proposal No. 2: Approval of the GTx Reverse Stock Split—Material U.S. Federal Income Tax Consequences of the GTx Reverse Stock Split” for a more complete description of the material U.S. federal income tax consequences of the GTx Reverse Stock Split to GTx U.S. Holders.

The tax consequences to you of the receipt of CVRs and the GTx Reverse Stock Split will depend on your particular facts and circumstances. Please consult your tax advisors as to the specific tax consequences to you.

Overview of the Merger Agreement

Merger Consideration (see page 185)

Prior to the Effective Time, each share of outstanding Oncternal preferred stock will be converted into one share of Oncternal common stock. At the Effective Time, each share of Oncternal’s common stock outstanding immediately prior to the Effective Time (excluding shares of Oncternal’s common stock held as treasury stock or held by Oncternal, Merger Sub or any subsidiary of Oncternal) will automatically be converted into the right to receive a number of shares of GTx’s common stock equal to approximately 0.5137. This exchange ratio is an estimate only and the final exchange ratio will be determined pursuant to a formula described in more detail in the Merger Agreement and in this proxy statement/prospectus/information statement.



 

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Immediately after the merger, assuming an exchange ratio of 0.5137, Oncternal’s stockholders as of immediately prior to the Effective Time will own approximately 77.5% of the outstanding capital stock of GTx and GTx stockholders as of immediately prior to the Effective Time will own approximately 22.5% of the outstanding capital stock of GTx. The ownership percentage to be held by GTx’s stockholders is subject to adjustment prior to closing of the merger, including a downward adjustment to the extent that GTx’s “Parent Cash Amount” (as defined in the Merger Agreement) at the Effective Time is less than the threshold provided in the Merger Agreement, which adjusts based on the date of closing (and as a result, GTx stockholders could own less, and Oncternal stockholders could own more, of the combined organization), or an upward adjustment to the extent that Oncternal’s “Company Cash Amount” (as defined in the Merger Agreement) at the Effective Time is less than the threshold provided in the Merger Agreement (and as a result, GTx stockholders could own more, and Oncternal stockholders could own less, of the combined organization). The exchange ratio formula excludes Oncternal’s outstanding stock options and warrants and GTx’s outstanding stock options and warrants.

The Merger Agreement does not include a price-based termination right, and there will be no adjustment to the total number of shares of GTx’s common stock that Oncternal’s stockholders will be entitled to receive for changes in the market price of GTx’s common stock after the date the Merger Agreement was signed. Accordingly, the market value of the shares of GTx’s common stock issued pursuant to the merger will depend on the market value of the shares of GTx’s common stock at the time the merger closes, and could vary significantly from the market value on the date of this proxy statement/prospectus/information statement.

Treatment of GTx’s Stock Awards and Warrants (see page 186)

Prior to the closing of the merger, the GTx Board will adopt appropriate resolutions and take all other actions necessary and appropriate to provide that the vesting of each unexpired and unexercised option to purchase GTx’s common stock will be accelerated in full effective as of immediately prior to the Effective Time. The number of shares of common stock underlying each option and warrant and the exercise price for such options and warrants will be adjusted to account for the GTx Reverse Stock Split. The terms governing options and warrants to purchase GTx’s common stock will otherwise remain in full force and effect following the closing of the merger.

Under the Merger Agreement, as of immediately prior to the closing of the merger (but in no event more than 30 days prior to the Effective Time), GTx shall take all actions necessary to cause the termination and liquidation of the GTx 2018 Amended and Restated Directors’ Deferred Compensation Plan (the “GTx Director Deferred Compensation Plan”), and all deferred stock rights thereunder, effective immediately prior to the closing of the merger, subject to the consummation of the merger (the “GTx Deferred Stock Rights”). GTx shall also ensure that any deferrals under the GTx Director Deferred Compensation Plan on or after January 3, 2019, shall be settled only in cash and that the maximum number of shares of common stock of GTx issuable upon settlement of the GTx Deferred Stock Rights shall be limited to the number of GTx Deferred Stock Rights outstanding as of the date of the Merger Agreement.

Treatment of Oncternal’s Stock Awards and Warrants (see page 187)

Pursuant to the Merger Agreement, at the Effective Time:

 

   

each option to purchase shares of Oncternal’s capital stock that is outstanding and unexercised immediately prior to the Effective Time granted under the Oncternal Therapeutics 2015 Equity Incentive Plan, whether or not vested, will be assumed by GTx and will become an option to purchase that number of shares of GTx’s common stock equal to the product obtained by multiplying (i) the number of shares of Oncternal’s common stock that were subject to such option immediately prior to the Effective Time by (ii) the exchange ratio, rounded down to the nearest whole share. The per share



 

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exercise price for shares of GTx’s common stock issuable upon exercise of each Oncternal option assumed by GTx shall be determined by dividing (a) the per share exercise price of Oncternal’s common stock subject to such Oncternal option, as in effect immediately prior to the Effective Time, by (b) the exchange ratio, rounded up to the nearest whole cent. Any restriction on the exercise of any Oncternal option assumed by GTx will continue in full force and effect and the term, exercisability, vesting schedule and other provisions of such Oncternal option shall otherwise remain unchanged; and

 

   

each warrant to purchase shares of Oncternal capital stock outstanding and unexercised immediately prior to the Effective Time will be assumed by GTx and will become a warrant to purchase that number of shares of GTx’s common stock equal to the product obtained by multiplying (i) the number of shares of Oncternal’s common stock, or the number of shares of Oncternal’s common stock issuable upon conversion of the shares of Oncternal’s preferred stock issuable upon exercise of the Oncternal warrant, as applicable, that were subject to such warrant immediately prior to the Effective Time by (ii) the exchange ratio, rounded down to the nearest whole share. The per share exercise price for shares of GTx’s common stock issuable upon exercise of each Oncternal warrant assumed by GTx shall be determined by dividing (a) the per share exercise price of Oncternal’s capital stock subject to such Oncternal warrant, as in effect immediately prior to the Effective Time, by (b) the exchange ratio rounded up to the nearest whole cent. Any restriction on any Oncternal warrant assumed by GTx shall continue in full force and effect and the terms and other provisions of such Oncternal warrant shall otherwise remain unchanged.

In addition, pursuant to the Merger Agreement, at the Effective Time, each restricted share of Oncternal common stock that is outstanding will be converted into a share of GTx on the same basis as other shares of Oncternal common stock. Any restrictions on such restricted shares will continue in full force and effect and the vesting schedule and other provisions of such Oncternal restricted shares shall otherwise remain unchanged.

Conditions to the Completion of the Merger (see page 188)

To consummate the merger, GTx’s stockholders must approve Proposal Nos. 1 and 2. Additionally, Oncternal’s stockholders must (i) adopt and approve the Merger Agreement and the transactions contemplated thereby, (ii) acknowledge that the approval given is irrevocable and that such stockholders are aware of their rights to demand appraisal for its shares pursuant to Section 262 of the DGCL, and that such stockholders have received and read a copy of Section 262 of the DGCL, which is included as Annex C in this proxy statement/prospectus/information statement, (iii) acknowledge that by their approval of the merger the approving stockholders are not entitled to appraisal rights with respect to their shares in connection with the merger and thereby waive any rights to receive payment of the fair value of their capital stock under the DGCL, and (iv) approve the conversion of Oncternal’s outstanding preferred stock into Oncternal’s common stock immediately prior to the Effective Time.

In addition to obtaining such stockholder approvals and appropriate regulatory approvals, each of the other closing conditions set forth in the Merger Agreement, as described under the section entitled “The Merger Agreement—Conditions to the Completion of the Merger” in this proxy statement/prospectus/information statement must be satisfied or waived.

No Solicitation (see page 192)

Each of GTx and Oncternal agreed that, except as described below, from the date of the Merger Agreement until the earlier of the consummation of the merger or the termination of the Merger Agreement in accordance with its terms, GTx and Oncternal and any of their respective subsidiaries will not, nor will either party or any of its subsidiaries authorize any of the directors, officers, employees, agents, attorneys, accountants, investment bankers, advisors or representatives retained by it or any of its subsidiaries to, directly or indirectly:

 

   

solicit, initiate or knowingly encourage, induce or facilitate the communication, making, submission or announcement of, any “acquisition proposal” (as defined in the section entitled “The Merger



 

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Agreement—No Solicitation” below), or “acquisition inquiry” (as defined in the section entitled “The Merger Agreement—No Solicitation” below);

 

   

furnish any non-public information with respect to it to any person in connection with or in response to an acquisition proposal or acquisition inquiry;

 

   

engage in discussions or negotiations with any person with respect to any acquisition proposal or acquisition inquiry;

 

   

approve, endorse or recommend an acquisition proposal;

 

   

execute or enter into any letter of intent or similar document or any contract contemplating or otherwise relating to an acquisition transaction (other than a confidentiality agreement as permitted by the Merger Agreement) (as defined in the section entitled “The Merger Agreement—No Solicitation” below); or

 

   

publicly propose to do any of the above.

Termination of the Merger Agreement (see page 197)

Either GTx or Oncternal can terminate the Merger Agreement under certain circumstances, which would prevent the merger from being consummated.

Termination Fee (see page 199)

If the Merger Agreement is terminated under certain circumstances, GTx or Oncternal will be required to pay the other party a termination fee of up to $2.0 million.

CVR Agreement (see page 200)

At the closing of the merger, GTx, Marc Hanover, as representative of holders of the CVRs, and a rights agent will enter into the CVR Agreement. Pursuant to the CVR Agreement, GTx stockholders will receive one CVR for each share of GTx common stock held as of immediately prior to the Effective Time. Each CVR will represent the right to receive payments based on net proceeds derived from GTx’s SARD or SARM technology during the term of the CVR. In particular, CVR holders will be entitled to 75% of the aggregate amount of any net proceeds received by the combined company during the 15-year period after the closing of the merger 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, if applicable, to receive royalties on the sale of any SARD or SARM products by the combined company during the 15-year period after the closing. As further discussed in the section titled “The Merger—Background of the Merger,” GTx recently received and evaluated new preclinical data from an independent laboratory of an academic researcher engaged by GTx, 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 was in conflict with other independent laboratory preclinical data previously received by GTx senior management and with internal preclinical data generated by GTx, 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



 

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and in vivo findings. In connection with the receipt of the new preclinical data, in addition to amending the Merger Agreement, GTx and Oncternal amended the form of CVR Agreement to, among other things: (i) increase from 50% to 75% the portion of the net proceeds the CVR holders will be entitled to under the CVR Agreement, and (ii) provide that Oncternal (as successor in interest to GTx) will be obligated to use commercially reasonable efforts to either develop or divest GTx’s SARD technology, as the Oncternal Board shall determine in its sole discretion, and to divest its SARM technology, subject to certain limitations. Accordingly, Oncternal may decide, in its sole discretion, to abandon the development of GTx’s SARD technology following the merger and would then be obligated only to use commercially reasonable efforts to divest the SARD technology, subject to certain limitations. Likewise, Oncternal is obligated only to use commercially reasonable efforts to divest the SARM technology, subject to certain limitations, and in light of the results of the ASTRID trial, Oncternal has no current intent to develop the SARM technology.

Voting Agreements and Written Consents (see page 204)

In order to induce GTx to enter into the Merger Agreement, certain stockholders of Oncternal are parties to a voting agreement with Oncternal and GTx pursuant to which, among other things, each stockholder has agreed, solely in its capacity as a stockholder of Oncternal, to vote all of its shares of Oncternal’s capital stock in favor of (i) the adoption and approval of the Merger Agreement and the transactions contemplated thereby, (ii) acknowledgement that the approval given for the Merger Agreement is irrevocable and that the stockholder is aware of its appraisal rights under the DGCL, (iii) acknowledgement that the stockholder is not entitled to appraisal rights by voting in favor of the transaction and waiving appraisal rights under the DGCL, and (iv) the conversion of each share of Oncternal preferred stock into Oncternal common stock. Additionally, each stockholder has agreed, solely in its capacity as a stockholder of Oncternal, to vote against any competing acquisition proposal and any action, proposal or transaction that would reasonably be expected to result in a material breach of the voting agreement. These stockholders of Oncternal have also granted an irrevocable proxy to Oncternal and its designee to vote their respective Oncternal’s capital stock in accordance with the voting agreements. Oncternal’s stockholders may vote their shares of Oncternal capital stock on all other matters not referred to in such proxy.

The Oncternal stockholders who are parties to these voting agreements include all directors, executive officers and certain stockholders, including entities related to MagnaSci Ventures, which represents approximately 10.4% of the outstanding shares of Oncternal capital stock on as converted common stock basis. SPH USA, which holds 100% of the outstanding Series C preferred stock and which represents approximately 20.9% of the outstanding shares of Oncternal capital stock on as converted common stock basis, has not executed a voting agreement. Although Oncternal expects to receive stockholder approval from SPH USA approximately two months after the date of the Merger Agreement, there can be no assurance that all of the necessary stockholder approvals will be obtained.

The Oncternal stockholders who are party to a voting agreement held, as of March 31, 2019:

 

   

an aggregate of 32,059,203 shares of Oncternal’s common stock and 38,883,369 shares of Oncternal preferred stock, representing approximately 44% of the outstanding shares of Oncternal capital stock on an as converted to common stock basis;

 

   

an aggregate of 38,883,369 shares of Oncternal’s preferred stock, representing approximately 35.0% of the outstanding Oncternal preferred stock, considered as a single class;

 

   

an aggregate of 5,960,000 shares of Oncternal’s Series A preferred stock, representing approximately 44.0% of the outstanding Series A preferred stock; and

 

   

an aggregate of 32,923,369 shares of Oncternal’s Series B preferred stock and Series B-2 preferred stock, representing approximately 51.9% of the outstanding Series B preferred stock and Series B-2 preferred stock, considered as a single class.



 

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Following the effectiveness of the registration statement of which this proxy statement/prospectus/information statement is a part and pursuant to the Merger Agreement, these stockholders will execute a written consent providing for such adoption and approval.

Under these voting agreements, subject to certain exceptions, such stockholders have also agreed not to sell or transfer shares of Oncternal’s capital stock and securities held by them, or any voting rights with respect thereto, until the earlier of the termination of the Merger Agreement or the completion of the merger. To the extent that any such sale or transfer is permitted pursuant to the exceptions included in the voting agreement, each person to which any shares of Oncternal’s capital stock or securities are so sold or transferred must agree in writing to be bound by the terms and provisions of the voting agreement, subject to certain further exceptions.

In addition, in order to induce Oncternal to enter into the Merger Agreement, certain of GTx’s stockholders have entered into voting agreements with GTx and Oncternal pursuant to which, among other things, each such stockholder has agreed, solely in his, her or its capacity as a stockholder of GTx, to vote all of his, her or its shares of GTx’s common stock in favor of Proposal Nos. 1, 2, 3, 4 and 5. Additionally, each such stockholder has agreed, solely in his, her or its capacity as a stockholder of GTx, to vote against any competing acquisition proposal and any action, proposal or transaction that would reasonably be expected to result in a material breach of the voting agreement. These stockholders of GTx have also granted GTx and its designee an irrevocable proxy to vote their respective shares in accordance with the voting agreements. GTx’s stockholders may vote their shares of GTx’s common stock on all other matters not referred to in such proxy.

The GTx stockholders who are parties to these voting agreements are:

 

   

Robert J. Wills, Ph.D.

 

   

Marc S. Hanover

 

   

J.R. Hyde, III

 

   

Michael G. Carter, M.D., Ch.B., F.R.C.P.

 

   

J. Kenneth Glass

 

   

Garry A. Neil, M.D.

 

   

Kenneth S. Robinson, M.D., M.Div.

 

   

Henry P. Doggrell

 

   

Jason Shackelford

 

   

Pyramid Peak Foundation

As of March 31, 2019, the stockholders of GTx who are party to a voting agreement (including any affiliated entities) owned an aggregate of 10,938,824 shares of GTx’s common stock representing approximately 45% of the outstanding shares of GTx’s common stock.

Under these voting agreements, subject to certain exceptions, such stockholders also have agreed not to sell or transfer their shares of GTx’s common stock and securities held by them until the earlier of the termination of the Merger Agreement or the completion of the merger. To the extent that any such sale or transfer is permitted pursuant to the exceptions included in the voting agreements, each person to whom any shares of GTx’s common stock or securities are so sold or transferred must agree in writing to be bound by the terms and provisions of the voting agreement, subject to certain further exceptions.



 

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Lock-up Agreements (see page 205)

As a condition to the closing of the merger, certain stockholders of each of GTx and Oncternal and their affiliates, have entered into lock-up agreements, pursuant to which such parties have agreed not to, except in limited circumstances, offer, pledge, sell, contract to sell, transfer or dispose of, directly or indirectly, engage in swap or similar transactions with respect to, or make any demand for or exercise any right with respect to, any shares of GTx’s common stock or any security convertible into or exercisable or exchangeable for GTx’s common stock, including, as applicable, shares received in the merger and issuable upon exercise of certain warrants and options, during the period commencing at the Effective Time and continuing until the date that is 180 days from the Effective Time.

Each of the stockholders who is party to a GTx voting agreement is a party to a lock-up agreement. As of March 31, 2019, GTx’s stockholders who have executed lock-up agreements owned in the aggregate approximately 45% of the outstanding common stock of GTx.

Each of the stockholders who is party to an Oncternal voting agreement is a party to a lock-up agreement. Oncternal’s stockholders who have executed lock-up agreements, as of March 31, 2019, beneficially owned in the aggregate approximately 44% of the outstanding shares of Oncternal’s capital stock on an as converted to common stock basis. SPH USA, which holds 100% of the outstanding Series C preferred stock and which represents approximately 20.9% of the outstanding shares of Oncternal capital stock on as converted common stock basis, but Oncternal expects it to execute a lock-up agreement prior to the closing of the merger, which is a condition to closing.

Management Following the Merger (see page 334)

Effective as of the closing of the merger, GTx’s executive officers are expected to include:

 

Name

  

Title

James B. Breitmeyer, M.D., Ph.D.    President and Chief Executive Officer
Richard G. Vincent    Chief Financial Officer
Hazel M. Aker    General Counsel

Interests of Certain Directors, Officers and Affiliates of GTx and Oncternal (see pages 370 and 372)

In considering the recommendation of the GTx Board with respect to the issuance of common stock of GTx pursuant to the Merger Agreement and the other matters to be acted upon by GTx’s stockholders at the GTx special meeting, GTx’s stockholders should be aware that certain members of the GTx Board and executive officers of GTx have interests in the merger that may be different from, or in addition to, interests they have as GTx’s stockholders. For example, GTx has entered into employment agreements with its executive officers that may result in the receipt by such executive officers of cash severance payments and other benefits upon an eligible termination of employment of each executive officer’s employment.

As of March 31, 2019, GTx’s directors and executive officers beneficially owned, in the aggregate approximately 39.2% of the outstanding shares of common stock of GTx. As of March 31, 2019, GTx’s directors and officers beneficially owned, in the aggregate, 1,035,549 options to purchase GTx common stock, all of which will become vested immediately prior to the closing of the merger and will be entitled to an extension of the post-termination exercise period of stock options upon an eligible termination of service following the merger or upon their retirement in accordance with the applicable equity plan.

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the GTx Deferred Stock Rights. GTx shall also ensure that any deferrals under the GTx Director Deferred Compensation Plan on or after January 3, 2019 shall be settled only in cash and that the maximum number of shares of common stock of GTx issuable upon settlement of the GTx Deferred Stock Rights shall be limited to the number of GTx Deferred Stock Rights outstanding as of the date of the Merger Agreement. As of March 31, 2019, five of GTx’s directors held Deferred Stock Rights and an aggregate of 155,426 shares of GTx common stock were issuable pursuant to the GTx Deferred Stock Rights.

In addition, Dr. Carter and Dr. Wills, each of whom is currently a director of GTx, are expected to continue as directors of the combined organization after the Effective Time.

The compensation arrangements with GTx’s officers and directors are discussed in greater detail in the section entitled “The Merger—Interests of GTx Directors and Executive Officers in the Merger” in this proxy statement/prospectus/information statement.

In considering the recommendation of the Oncternal Board with respect to approving the merger and related transactions by written consent, Oncternal’s stockholders should be aware that employees of Oncternal, including Oncternal’s executive officers, are expected to become employees and/or executive officers of GTx upon the closing of the Merger. David F. Hale is expected to be appointed to the board as Chairman of the board of directors and James B. Breitmeyer, M.D., Ph.D. is expected to be appointed to the board pursuant to his role as Chief Executive Officer. It is anticipated that Yanjun Liu, Ph.D. and Xin Nakanishi, Ph.D. will be appointed as the designees of SPH USA and that Charles P. Theuer, M.D., Ph.D., William R. LaRue and Daniel L. Kisner, M.D. will be appointed to the remaining three director positions. It is anticipated that GTx’s executive officers upon the closing of the merger will be Dr. Breitmeyer, President and Chief Executive Officer, Richard G. Vincent, Chief Financial Officer and Hazel M. Aker, General Counsel. In addition, Oncternal’s directors and executive officers and will be entitled to certain indemnification and liability insurance coverage pursuant to the terms of the Merger Agreement. Following completion of the merger, it is expected that the combined organization will provide compensation to non-employee directors. GTx’s current director compensation program will be suspended at the time of the closing of the merger and the director compensation policies for the combined organization following the merger will be re-evaluated by the compensation committee and board of directors of the combined organization following completion of the merger and may be subject to change. Non-employee directors of the combined organization are, however, expected to receive annual cash retainers and equity compensation, although the amount of such compensation has not yet been determined.

As of March 31, 2019, Oncternal’s directors and executive officers beneficially owned: (i) approximately 43% of the outstanding shares of common stock of Oncternal, (ii) approximately 19% of the outstanding shares of preferred stock of Oncternal, (iii) warrants to purchase 1,910,604 shares of Oncternal Series B-2 preferred stock, all of which will be converted into warrants to purchase GTx common stock in connection with the closing of the merger pursuant to the merger agreement, and (iv) options to purchase 4,920,000 shares of Oncternal common stock, all of which will be converted into options to purchase GTx common stock in connection with the closing of the merger pursuant to the Merger Agreement.

The compensation arrangements with Oncternal’s officers and directors are discussed in greater detail in the section entitled “Agreements Related to the Merger—Interests of Oncternal Directors and Executive Officers in the Merger” in this proxy statement/prospectus/information statement.

Certain of Oncternal’s and GTx’s executive officers and directors have also entered into voting agreements, pursuant to which certain directors, officers and stockholders of Oncternal and GTx, respectively, have agreed, solely in their capacity as stockholders of Oncternal and GTx, respectively, to vote all of their shares of Oncternal capital stock or GTx’s common stock in favor of the adoption or approval, respectively, of the Merger Agreement and the transactions contemplated therein in connection with the merger. The voting agreements are



 

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discussed in greater detail in the section entitled “Agreements Related to the Merger—Voting Agreements and Written Consent” in this proxy statement/prospectus/information statement.

Risk Factors (see page 28)

Both GTx and Oncternal are subject to various risks associated with their businesses and respective assets. In addition, the merger poses a number of risks to each company and its respective stockholders, including the possibility that the merger may not be completed and the following risks:

 

   

the exchange ratio is not adjustable based on the market price of GTx’s common stock, so the merger consideration at the closing may have a greater or lesser value than at the time the Merger Agreement was signed;

 

   

failure to complete the merger may result in either GTx or Oncternal paying a termination fee or expenses to the other and could harm the price of GTx’s common stock and the future business and operations of each company;

 

   

the merger is subject to approval by the GTx stockholders and Oncternal stockholders, including Oncternal’s largest stockholder, SPH USA, which has not delivered a voting agreement;

 

   

the merger may be completed even though material adverse changes may result solely from the announcement of the merger, changes in the operations of GTx and Oncternal operate that apply to all companies generally and other causes;

 

   

some of GTx’s and Oncternal’s respective officers and directors have interests that are different from or in addition to those considered by other stockholders of Oncternal and GTx and which may influence them to support or approve the merger;

 

   

the market price of the combined organization’s common stock may decline as a result of the merger;

 

   

GTx’s and Oncternal’s stockholders may not realize a benefit from the merger commensurate with the ownership dilution they will experience in connection with the merger;

 

   

during the pendency of the merger, GTx and Oncternal may not be able to enter into a business combination with another party under certain circumstances because of restrictions in the Merger Agreement, which could adversely affect their respective businesses;

 

   

certain provisions of the Merger Agreement may discourage third parties from submitting alternative takeover proposals, including proposals that may be superior to the arrangements contemplated by the Merger Agreement;

 

   

because the lack of a public market for shares of Oncternal’s capital stock makes it difficult to evaluate the fairness of the merger, Oncternal’s stockholders may receive consideration in the merger that is less than the fair market value of the shares of Oncternal’s capital stock and/or GTx may pay more than the fair market value of the shares of Oncternal’s capital stock; and

 

   

if the conditions to the merger are not met, the merger will not occur.

These risks and other risks are discussed in greater detail under the section entitled “Risk Factors” in this proxy statement/prospectus/information statement. GTx and Oncternal both encourage you to read and consider all of these risks carefully.

Regulatory Approvals (see page 176)

In the United States, GTx must comply with applicable federal and state securities laws and the rules and regulations of the Nasdaq Capital Market (“Nasdaq”) in connection with the issuance of shares of GTx’s



 

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common stock and the filing of this proxy statement/prospectus/information statement with the SEC. As of the date hereof, the registration statement of which this proxy statement/prospectus/information statement is a part has not become effective.

Nasdaq Stock Market Listing (see page 180)

GTx has filed an initial listing application with Nasdaq pursuant to Nasdaq Stock Market LLC “reverse merger” rules. If such application is accepted, GTx anticipates that GTx’s common stock will be listed on Nasdaq following the closing of the merger under the trading symbol “ONCT.”

Anticipated Accounting Treatment (see page 180)

The merger will be recorded by GTx using the reverse asset acquisition method of accounting. For accounting purposes, Oncternal is considered to be acquiring GTx in the merger.

Appraisal Rights (see page 180)

Holders of GTx’s common stock are not entitled to appraisal rights in connection with the merger. Oncternal’s stockholders are entitled to appraisal rights in connection with the merger under Delaware law. For more information about such rights, see the provisions of Section 262 of the DGCL attached hereto as Annex C, and the section entitled “The Merger—Appraisal Rights” in this proxy statement/prospectus/information statement.

Litigation Related to the Merger (see page 183)

Between April 10, 2019 and May 1, 2019, five purported stockholder class action lawsuits were filed, naming as defendants GTx, the GTx Board and, in certain cases, Oncternal and Merger Sub. 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 GTx’s filing of the registration statement of which this proxy statement/prospectus/information statement is a part with the U.S. Securities and Exchange Commission. 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. GTx and the GTx Board believe that the above-described claims are without merit and intend to vigorously defend these actions. GTx cannot predict the outcome of or estimate the possible loss or range of loss from any of these matters. It is possible that additional, similar complaints may be filed or the complaints described above will be amended. If this occurs GTx does not intend to announce the filing of each additional, similar complaint or any amended complaint unless it contains allegations that are substantially distinct from those made in the pending actions described above.

Comparison of Stockholder Rights (see page 358)

Both GTx and Oncternal are incorporated under the laws of the State of Delaware and, accordingly, the rights of the stockholders of each are currently, and will continue to be, governed by the DGCL. If the merger is completed, Oncternal’s stockholders will become stockholders of GTx, and their rights will be governed by the DGCL, GTx’s amended and restated bylaws and, GTx’s restated certificate of incorporation, as amended by the amendments set forth in Annex D and Annex E, assuming Proposal Nos. 2 and 3 are approved. The rights of GTx’s stockholders contained in GTx’s restated certificate of incorporation and GTx’s amended and restated bylaws differ from the rights of Oncternal’s stockholders under Oncternal’s amended and restated certificate of incorporation and Oncternal’s bylaws, as more fully described under the section entitled “Comparison of Rights of Holders of GTx Stock and Oncternal Stock” in this proxy statement/prospectus/information statement.



 

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SELECTED HISTORICAL AND UNAUDITED PRO FORMA CONDENSED

COMBINED FINANCIAL DATA

The following tables present summary historical financial data for GTx and Oncternal, summary unaudited pro forma condensed financial data for GTx and Oncternal, and comparative historical and unaudited pro forma per share data for GTx and Oncternal.

Selected Historical Financial Data of GTx

The selected financial data as of December 31, 2018 and 2017 and for the years ended December 31, 2018 and 2017 are derived from the GTx audited financial statements prepared using accounting principles generally accepted in the United States (“U.S. GAAP”), which are included in this proxy statement/prospectus/information statement. The financial data should be read in conjunction with “GTx Management’s Discussion and Analysis of Financial Condition and Results of Operations” and GTx’s financial statements and related notes appearing elsewhere in this proxy statement/prospectus/information statement. GTx’s historical results are not necessarily indicative of results to be expected in any future period.

 

     Years Ended December 31,  
     2018     2017  

Statements of Operations Data (in thousands, except per share  data):

    

Operating expenses:

    

Research and development

   $ 29,669     $ 21,467  

General and administrative

     9,390       9,188  
  

 

 

   

 

 

 

Total operating expenses

     39,059       30,655  
  

 

 

   

 

 

 

Loss from operations

     (39,059     (30,655

Other income, net

     641       216  
  

 

 

   

 

 

 

Net loss

   $ (38,418   $ (30,439
  

 

 

   

 

 

 

Net loss per share, basic and diluted

   $ (1.65   $ (1.75
  

 

 

   

 

 

 

Weighted-average shares of common stock outstanding, basic and diluted

     23,346,231       17,441,280  
  

 

 

   

 

 

 

 

     December 31,  
     2018      2017  

Balance Sheet Data (in thousands):

     

Cash, cash equivalents and short-term investments (a)

   $ 28,458      $ 43,899  

Working capital (b)

     25,998        38,102  

Total assets

     31,321        46,236  

Accumulated deficit

     (600,055      (561,637

Total stockholders’ equity

     26,111        38,261  

 

  (a)

Cash, cash equivalents and short-term investments for the year ended December 31, 2018 includes the net proceeds of $24.5 million received from the sale of common stock under our At-the-Market Equity Offering SM Sales Agreement with Stifel, Nicolaus & Company, Incorporated, in May 2018. Cash, cash equivalents and short-term investments for the year ended December 31, 2017 includes the net proceeds of $45.6 million received from the private placement of common stock and warrants completed in September 2017.

  (b)

Working capital is defined as current assets less current liabilities.

Selected Historical Consolidated Financial Data of Oncternal

The selected consolidated financial data as of December 31, 2018 and 2017 and for the years ended December 31, 2018 and 2017 are derived from Oncternal’s audited consolidated financial statements prepared



 

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using U.S. GAAP, which are included in this proxy statement/prospectus/information statement. These historical results are not necessarily indicative of results to be expected in any future period. The selected consolidated financial data should be read in conjunction with Oncternal’s consolidated financial statements and the related notes to those statements included in this proxy statement/prospectus/information statement and “Oncternal Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

     Years Ended December 31,  
     2018     2017  

Selected Consolidated Statements of Operations Data (in thousands, except per share data):

    

Grant revenue

   $ 2,521     $ 1,674  

Operating expenses:

    

Research and development

     8,287       9,363  

General and administrative

     1,820       2,871  
  

 

 

   

 

 

 

Total operating expenses

     10,107       12,234  
  

 

 

   

 

 

 

Loss from operations

     (7,586     (10,560

Other income (expense):

    

Change in fair value of warrant liability

     713       124  

Other income

     216       —    

Interest income

     79       10  

Interest expense

     (1     (10
  

 

 

   

 

 

 

Total other income (expense)

     1,007       124  
  

 

 

   

 

 

 

Net loss

   $ (6,579   $ (10,436
  

 

 

   

 

 

 

Net loss per share, basic and diluted

   $ (0.13   $ (0.23
  

 

 

   

 

 

 

Weighted average shares of common stock outstanding, basic and diluted

     48,930,354       45,914,263  
  

 

 

   

 

 

 

 

     December 31,  
     2018      2017  

Selected Consolidated Balance Sheet Data (in thousands):

     

Cash and cash equivalents

   $ 20,645      $ 10,188  

Working capital (a)

     16,879        6,558  

Total assets

     21,962        11,069  

Warrant liability

     674        1,387  

Convertible preferred stock

     46,588        28,715  

Total stockholders’ deficit

     (29,631      (23,278

 

  (a)

Working capital is defined as current assets less current liabilities.

Selected Unaudited Pro Forma Condensed Combined Financial Data of GTx and Oncternal

The following information does not give effect to the GTx Reverse Stock Split described in Proposal No. 2 discussed in this proxy statement/prospectus/information statement.

The following selected unaudited pro forma condensed combined financial data was prepared using the reverse asset acquisition method of accounting under U.S. GAAP. For accounting purposes, Oncternal is considered to be acquiring GTx and the merger is expected to be accounted for as an asset acquisition as the fair value of the acquired preclinical assets is deemed to be substantially concentrated in a group of similar assets that do not meet the definition of a business. The GTx and Oncternal unaudited pro forma combined balance sheet data assume



 

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that the merger took place on December 31, 2018, and combines the GTx and Oncternal historical balance sheets at December 31, 2018. The GTx and Oncternal unaudited pro forma condensed combined statements of operations data assume that the merger took place as of January 1, 2018, and combines the historical results of GTx and Oncternal for the year ended December 31, 2018.

The selected unaudited pro forma condensed combined financial data are presented for illustrative purposes only and are not necessarily indicative of the combined financial position or results of operations of future periods or the results that actually would have been realized had the entities been a single entity during these periods. The selected unaudited pro forma condensed combined financial data as of and for the year ended December 31, 2018 are derived from the unaudited pro forma condensed combined financial information and should be read in conjunction with that information. For more information, please see the section entitled “Unaudited Pro Forma Condensed Combined Financial Information” in this proxy statement/prospectus/information statement.

The unaudited pro forma condensed combined financial information assumes that, at the Effective Time, each share of Oncternal common stock will be converted into the right to receive shares of GTx common stock such that, immediately following the Effective Time, GTx’s stockholders as of immediately prior to the Effective Time are expected to own approximately 22.5% of the outstanding common stock of GTx, and Oncternal’s stockholders as of immediately prior to the Effective Time are expected to own approximately 77.5% of the outstanding common stock of GTx, and is subject to adjustment to account for the occurrence of certain events discussed elsewhere in this proxy statement/prospectus/information statement. The ownership percentage to be held by GTx’s stockholders is subject to adjustment prior to closing of the merger, including a downward adjustment to the extent that GTx’s “Parent Cash Amount” (as defined in the Merger Agreement) at the Effective Time is less than the threshold provided in the Merger Agreement, which adjusts based on the date of closing (and as a result, GTx stockholders could own less, and Oncternal stockholders could own more, of the combined organization), or an upward adjustment to the extent that Oncternal’s “Company Cash Amount” (as defined in the Merger Agreement) at the Effective Time is less than the threshold provided in the Merger Agreement (and as a result, GTx stockholders could own more, and Oncternal stockholders could own less, of the combined organization). The exchange ratio formula excludes Oncternal’s outstanding stock options and warrants and GTx’s outstanding stock options and warrants.

 

     Year Ended
December 31,
2018
 

Selected Unaudited Pro Forma Condensed Combined Statement of Operations (in thousands, except per share data)

  

Grant revenue

   $ 2,521  

Total operating expenses

     48,948  

Net loss

     (45,492

Net loss per share, basic and diluted

     (0.51

 

     As of
December 31,
2018
 

Selected Unaudited Pro Forma Condensed Combined Balance Sheet Data (in thousands)

  

Cash, cash equivalents and short-term investments

   $ 39,320  

Total assets

     43,500  

Total liabilities

     9,323  

Stockholders’ equity

     34,177  


 

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Comparative Historical and Unaudited Pro Forma Per Share Data

The information below reflects the historical net loss and book value per share of GTx common stock and the historical net loss and book value per share of Oncternal common stock in comparison with the unaudited pro forma net loss and book value per share after giving effect to the proposed merger of GTx with Oncternal on a pro forma basis. The unaudited pro forma net loss and book value per share does not give effect to the GTx Reverse Stock Split.

You should read the tables below in conjunction with the audited financial statements of GTx included in this proxy statement/prospectus/information statement and the audited financial statements of Oncternal included in this proxy statement/prospectus/information statement and the related notes and the unaudited pro forma condensed combined financial information and notes related to such financial statements included elsewhere in this proxy statement/prospectus/information statement.

 

     Year Ended
December 31, 2018
 

GTx Historical Per Share Data

  

Net loss per share, basic and diluted

   $ (1.65

Book value per share

   $ 1.12  

Oncternal Historical Per Share Data

  

Net loss per share, basic and diluted

   $ (0.13

Book value per share

   $ (0.61

Combined Organization Per Share Data

  

Net loss per share, basic and diluted

   $ (0.51

Book value per share

   $ 0.38  


 

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RISK FACTORS

The combined organization will be faced with a market environment that cannot be predicted and that involves significant risks, many of which will be beyond its control. In addition to the other information contained in this proxy statement/prospectus/information statement, you should carefully consider the material risks described below before deciding how to vote your shares of stock. In addition, you should read and consider the risks associated with GTx’s business because these risks may also affect the combined organization — these risks can be found under the heading “Risk Factors—Risks Related to GTx” in this proxy statement/prospectus/information statement and in GTx’s Annual Report on Form 10-K, as updated by subsequent Quarterly Reports on Form 10-Q, and other documents GTx has filed with the SEC and incorporated by reference into this proxy statement/prospectus/information statement. You should also read and consider the other information in this proxy statement/prospectus/information statement and the other documents incorporated by reference into this proxy statement/prospectus/information statement. Please see the section entitled “Where You Can Find More Information” in this proxy statement/prospectus/information statement.

Risks Related to the Merger

The exchange ratio set forth in the Merger Agreement is not adjustable based on the market price of GTx common stock, so the merger consideration at the closing of the merger may have a greater or lesser value than at the time the Merger Agreement was signed.

The Merger Agreement has set the exchange ratio for the Oncternal capital stock, and the exchange ratio is based on the outstanding capital stock of Oncternal and the outstanding common stock of GTx, in each case immediately prior to the closing of the merger as described under the heading “The Merger—Merger Consideration.” Applying the exchange ratio formula in the Merger Agreement, the former Oncternal stockholders immediately before the merger are expected to own approximately 77.5% of the outstanding capital stock of GTx immediately following the merger, and the stockholders of GTx immediately before the merger are expected to own approximately 22.5% of the outstanding capital stock of GTx immediately following the merger, subject to certain assumptions. Under certain circumstances further described in the Merger Agreement, however, these ownership percentages may be adjusted upward or downward based on cash levels of the respective companies at the closing of the merger, and as a result, either GTx’s stockholders or the Oncternal stockholders could own less of the combined company than expected.

Any changes in the market price of GTx’s common stock before the completion of the merger will not affect the number of shares of GTx’s common stock issuable to Oncternal’s stockholders pursuant to the Merger Agreement. Therefore, if before the completion of the merger the market price of GTx’s common stock declines from the market price on the date of the Merger Agreement, then Oncternal’s stockholders could receive merger consideration with substantially lower value than the value of such merger consideration on the date of the Merger Agreement. Similarly, if before the completion of the merger the market price of GTx’s common stock increases from the market price of GTx’s common stock on the date of the Merger Agreement, then Oncternal’s stockholders could receive merger consideration with substantially greater value than the value of such merger consideration on the date of the Merger Agreement. The Merger Agreement does not include a price-based termination right. Because the exchange ratio does not adjust as a result of changes in the market price of GTx’s common stock, for each one percentage point change in the market price of GTx’s common stock, there is a corresponding one percentage point rise or decline, respectively, in the value of the total merger consideration payable to Oncternal’s stockholders pursuant to the Merger Agreement.

Failure to complete the merger may result in either GTx or Oncternal paying a termination fee to the other party and could significantly harm the market price of GTx’s common stock and negatively affect the future business and operations of each company.

If the merger is not completed and the Merger Agreement is terminated under certain circumstances, GTx or Oncternal may be required to pay the other party a termination fee of up to $2.0 million. Even if a termination fee

 

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is not payable in connection with a termination of the Merger Agreement, each of GTx and Oncternal will have incurred significant fees and expenses, which must be paid whether or not the merger is completed. Further, if the merger is not completed, it could significantly harm the market price of GTx’s common stock.

In addition, if the Merger Agreement is terminated and the board of directors of GTx or Oncternal determines to seek another business combination, there can be no assurance that either GTx or Oncternal will be able to find a partner and close an alternative transaction on terms that are as favorable or more favorable than the terms set forth in the Merger Agreement.

The merger is subject to approval of the Merger Agreement by GTx’s stockholders and the Oncternal stockholders. Failure to obtain these approvals would prevent the closing of the merger.

Before the merger can be completed, the stockholders of each of GTx and Oncternal must approve the Merger Agreement. Additionally, the Merger Agreement must be approved by multiple classes of Oncternal preferred stockholders, one class of which is held by a sole stockholder, SPH USA, which has not executed a voting agreement and has not otherwise agreed to vote in favor of the Merger Agreement. Although Oncternal expects to receive stockholder approval from SPH USA approximately two months after the date of the Merger Agreement, there can be no assurance that all of the necessary stockholder approvals will be obtained. Failure to obtain the required stockholder approvals, including as a result of SPH USA refusing to approve the transactions contemplated by the Merger Agreement, may result in a material delay in, or the abandonment of, the merger. Any delay in completing the merger may materially adversely affect the timing and benefits that are expected to be achieved from the merger.

The merger may be completed even though certain events occur prior to the closing that materially and adversely affect GTx or Oncternal.

The Merger Agreement provides that either GTx or Oncternal can refuse to complete the merger if there is a material adverse change affecting the other party between March 6, 2019, the date of the Original Merger Agreement, and the closing of the merger. However, certain types of changes do not permit either party to refuse to complete the merger, even if such change could be said to have a material adverse effect on GTx or Oncternal, including:

 

   

general business, economic or political conditions or conditions generally affecting the industries in which Oncternal or GTx, as applicable, operates;

 

   

any natural disaster or any acts of war, armed hostilities or terrorism;

 

   

any changes in financial, banking or securities markets;

 

   

with respect to GTx, any change in the stock price or trading volume of GTx excluding any underlying effect that may have caused such change;

 

   

with respect to GTx, failure to meet internal or analysts’ expectations or projects or the results of operations;

 

   

any clinical trial programs or studies, including any adverse data, event or outcome arising out of or related to any such programs or studies;

 

   

any change in accounting requirements or principles or any change in applicable laws, rules, or regulations or the interpretation thereof;

 

   

any effect resulting from the announcement or pendency of the merger or any related transactions; and

 

   

the taking of any action, or the failure to take any action, by either GTx or Oncternal required to comply with the terms of the Merger Agreement.

If adverse changes occur and GTx and Oncternal still complete the merger, the market price of the combined organization’s common stock may suffer. This in turn may reduce the value of the merger to the stockholders of GTx, Oncternal or both.

 

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Some GTx and Oncternal officers and directors have interests in the merger that are different from the respective stockholders of GTx and Oncternal and that may influence them to support or approve the merger without regard to the interests of the respective stockholders of GTx and Oncternal.

Certain officers and directors of GTx and Oncternal participate in arrangements that provide them with interests in the merger that are different from the interests of the respective stockholders of GTx and Oncternal, including, among others, the continued service as an officer or director of the combined organization, severance benefits, the acceleration of stock option vesting, continued indemnification and the potential ability to sell an increased number of shares of common stock of the combined organization in accordance with Rule 144 under the Securities Act of 1933, as amended.

For example, GTx has entered into employment agreements with its executive officers that may result in the receipt by such executive officers of cash severance payments and other benefits in the event of a covered termination of employment of each executive officer’s employment. For more information concerning the treatment of GTx’s stock options in connection with the merger, see the section entitled “The Merger Agreement—Treatment of GTx’s Stock Awards and Warrants” in this proxy statement/prospectus/information statement. The closing of the merger will also result in the acceleration of vesting of options to purchase shares of GTx’s common stock held by GTx’s executive officers and directors, whether or not there is a covered termination of such officer’s employment. In addition, and for example, certain of Oncternal’s directors and executive officers have options, subject to vesting, to purchase shares of Oncternal’s common stock which, at the closing of the merger, shall be converted into and become options to purchase shares of GTx’s common stock, certain of Oncternal’s directors and executive officers are expected to become directors and executive officers of GTx upon the closing of the merger, and all of Oncternal’s directors and executive officers are entitled to certain indemnification and liability insurance coverage pursuant to the terms of the Merger Agreement. These interests, among others, may influence the officers and directors of GTx and Oncternal to support or approve the merger. For more information concerning the interests of GTx’s and Oncternal’s executive officers and directors, see the sections entitled “The Merger— Interests of GTx Directors and Executive Officers in the Merger” and “The Merger—Interests of Oncternal Directors and Executive Officers in the Merger.”

The market price of GTx’s common stock following the merger may decline as a result of the merger.

The market price of GTx’s common stock may decline as a result of the merger for a number of reasons including if:

 

   

investors react negatively to the prospects of the combined organization’s product candidates, business and financial condition following the merger;

 

   

the effect of the merger on the combined organization’s business and prospects is not consistent with the expectations of financial or industry analysts; or

 

   

the combined organization does not achieve the perceived benefits of the merger as rapidly or to the extent anticipated by financial or industry analysts.

GTx and Oncternal securityholders will have a reduced ownership and voting interest in, and will exercise less influence over the management of, the combined organization following the closing of the merger as compared to their current ownership and voting interest in the respective companies.

After the completion of the merger, the current securityholders of GTx and Oncternal will own a smaller percentage of the combined organization than their ownership in their respective companies prior to the merger. Immediately after the merger, it is currently estimated that Oncternal securityholders will own approximately 77.5% of the common stock of the combined organization, and GTx securityholders, whose shares of GTx common stock will remain outstanding after the merger, will own approximately 22.5% of the common stock of the combined organization. These estimates are based on the anticipated exchange ratio and are subject to adjustment as provided in the Merger Agreement. See also the risk factor above titled, “The exchange ratio set

 

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forth in the Merger Agreement is not adjustable based on the market price of GTx common stock, so the merger consideration at the closing of the merger may have a greater or lesser value than at the time the Merger Agreement was signed.

In addition, the nine member board of directors of the company will initially include six individuals with prior affiliations with Oncternal and two individuals with prior affiliations with GTx. Consequently, securityholders of GTx and Oncternal will be able to exercise less influence over the management and policies of the combined organization following the closing of the merger than they currently exercise over the management and policies of their respective companies.

GTx and Oncternal stockholders may not realize a benefit from the merger commensurate with the ownership dilution they will experience in connection with the merger.

If the combined organization is unable to realize the strategic and financial benefits currently anticipated from the merger, GTx’s and Oncternal’s stockholders will have experienced substantial dilution of their ownership interests in their respective companies without receiving the expected commensurate benefit, or only receiving part of the commensurate benefit to the extent the combined organization is able to realize only part of the expected strategic and financial benefits currently anticipated from the merger.

The combined company will need to raise additional capital by issuing securities or debt or through licensing or other strategic arrangements, which may cause dilution to the combined company’s stockholders or restrict the combined company’s operations or impact its proprietary rights.

The combined company may be required to raise additional funds sooner than currently planned. In this regard, while the exchange ratio may be impacted by cash levels of the respective companies at the closing of the Merger, the Merger Agreement does not condition the completion of the merger upon either company holding a minimum amount of cash at the Effective Time. If either or both of GTx or Oncternal hold less cash at the time of the closing merger than the parties currently expect, the combined company will need to raise additional capital sooner than expected. Additional financing may not be available to the combined company when it needs it or may not be available on favorable terms. To the extent that the combined company raises additional capital by issuing equity securities, such an issuance may cause significant dilution to the combined company’s stockholders’ ownership and the terms of any new equity securities may have preferences over the combined company’s common stock. Any debt financing the combined company enters into may involve covenants that restrict its operations. These restrictive covenants may include limitations on additional borrowing and specific restrictions on the use of the combined company’s assets, as well as prohibitions on its ability to create liens, pay dividends, redeem its stock or make investments. In addition, if the combined company raises additional funds through licensing, partnering or other strategic arrangements, it may be necessary to relinquish rights to some of the combined company’s technologies or product candidates and proprietary rights, or grant licenses on terms that are not favorable to the combined company.

During the pendency of the merger, GTx and Oncternal may not be able to enter into a business combination with another party at a favorable price because of restrictions in the Merger Agreement, which could adversely affect their respective businesses.

Covenants in the Merger Agreement impede the ability of GTx and Oncternal to make acquisitions, subject to certain exceptions relating to fiduciary duties, as set forth below, or to complete other transactions that are not in the ordinary course of business pending completion of the merger. As a result, if the merger is not completed, the parties may be at a disadvantage to their competitors during such period. In addition, while the Merger Agreement is in effect, each party is generally prohibited from soliciting, initiating, encouraging or entering into certain extraordinary transactions, such as a merger, sale of assets, or other business combination outside the ordinary course of business with any third-party, subject to certain exceptions relating to fiduciary duties. Any such transactions could be favorable to such party’s stockholders.

 

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Certain provisions of the Merger Agreement may discourage third parties from submitting alternative takeover proposals, including proposals that may be superior to the arrangements contemplated by the Merger Agreement.

The terms of the Merger Agreement prohibit each of GTx and Oncternal from soliciting alternative takeover proposals or cooperating with persons making unsolicited takeover proposals, except in limited circumstances when such party’s board of directors determines in good faith that an unsolicited alternative takeover proposal is or is reasonably likely to lead to a superior takeover proposal and that failure to cooperate with the proponent of the proposal would be reasonably likely to be inconsistent with the applicable board’s fiduciary duties.

Because the lack of a public market for Oncternal’s capital stock makes it difficult to evaluate the value of Oncternal’s capital stock, the stockholders of Oncternal may receive shares of GTx’s common stock in the merger that have a value that is less than, or greater than, the fair market value of Oncternal’s capital stock.

The outstanding capital stock of Oncternal is privately held and is not traded in any public market. The lack of a public market makes it extremely difficult to determine the fair market value of Oncternal. Because the percentage of GTx’s common stock to be issued to Oncternal’s stockholders was determined based on negotiations between the parties, it is possible that the value of GTx’s common stock to be received by Oncternal’s stockholders will be less than the fair market value of Oncternal, or GTx may pay more than the aggregate fair market value for Oncternal.

If the conditions to the merger are not met, the merger will not occur.

Even if the merger is approved by the stockholders of GTx and Oncternal, specified conditions must be satisfied or waived to complete the merger. These conditions are set forth in the Merger Agreement and described in the section entitled “The Merger Agreement—Conditions to the Completion of the Merger” in this proxy statement/prospectus/information statement. GTx cannot assure you that all of the conditions will be satisfied or waived. If the conditions are not satisfied or waived, the merger will not occur or will be delayed, and GTx and Oncternal each may lose some or all of the intended benefits of the merger.

Five class action lawsuits have been filed and additional lawsuits may be filed against GTx, the GTx Board, Oncternal, and/or Merger Sub relating to the merger. An adverse ruling in any such lawsuit may prevent the merger from being consummated.

Between April 10, 2019 and May 1, 2019, five purported stockholder class action lawsuits were filed, naming as defendants GTx, the GTx Board and, in certain cases, Oncternal and Merger Sub. 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 GTx’s filing of the registration statement of which this proxy statement/prospectus/information statement is a part with the U.S. Securities and Exchange Commission. 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. GTx and the GTx Board believe that the above-described claims are without merit and intend to vigorously defend these actions. GTx cannot predict the outcome of or estimate the possible loss or range of loss from any of these matters. It is possible that additional, similar complaints may be filed or the complaints described above will be amended. If this occurs GTx does not intend to announce the filing of each additional, similar complaint or any amended complaint unless it contains allegations that are substantially distinct from those made in the pending actions described above. It is possible that these complaints will be further amended to make additional claims and/or that additional lawsuits making similar or additional claims relating to the merger will be brought.

One of the conditions to completion of the merger is the absence of any order being in effect that prohibits the consummation of the merger. Accordingly, if any of these plaintiffs or any future plaintiff is successful in obtaining an order enjoining consummation of the merger, then such order may prevent the merger from being completed, or from being completed within the expected time frame. See “The Merger—Litigation Related to the Merger” for more information about the lawsuits related to the merger that have been filed.

 

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Risks Related to GTx

Risks Related to GTx’s Financial Condition and GTx’s Need for Additional Financing, and Additional Risks Related to the Merger

There is no assurance that the merger will be completed in a timely manner or at all. If the merger is not consummated, GTx’s business could suffer materially and GTx’s stock price could decline.

The closing of the merger is subject to the satisfaction or waiver of a number of closing conditions, as described above, including the required approvals by GTx and Oncternal stockholders (including stockholder approval from one of Oncternal’s significant stockholders, SPH USA, which holds all of the outstanding shares of one series of Oncternal’s preferred stock that must approve the transactions contemplated by the Merger Agreement) and other customary closing conditions. See the risk factors above titled, “The merger is subject to approval of the Merger Agreement by GTx’s stockholders and the Oncternal stockholders. Failure to obtain these approvals would prevent the closing of the merger” and “If the conditions to the merger are not met, the merger will not occur.” If the conditions are not satisfied or waived, including as a result of SPH USA refusing to approve the transactions contemplated by the Merger Agreement, the merger may be materially delayed or abandoned. If the merger is not consummated, GTx’s ongoing business may be adversely affected and, without realizing any of the benefits of having consummated the merger, GTx will be subject to a number of risks, including the following:

 

   

GTx has incurred and expects to continue to incur significant expenses related to the merger even if the merger is not consummated;

 

   

GTx could be obligated to pay Oncternal a termination fee of up to $2.0 million under certain circumstances set forth in the Merger Agreement;

 

   

the market price of GTx’s common stock may decline to the extent that the current market price reflects a market assumption that the merger will be completed; and

 

   

matters relating to the merger have required and will continue to require substantial commitments of time and resources by GTx’s remaining management and employees, which could otherwise have been devoted to other opportunities that may have been beneficial to us.

GTx also could be subject to further litigation related to any failure to consummate the merger or to perform its obligations under the Merger Agreement. If the merger is not consummated, these risks may materialize and may adversely affect its business, financial condition and the market price of GTx’s common stock.

If the merger is not completed, GTx may be unsuccessful in completing an alternative transaction on terms that are as favorable as the terms of the merger with Oncternal, or at all, and GTx may otherwise be unable to continue to operate its business. The GTx Board may decide to pursue a dissolution and liquidation of GTx. In such an event, the amount of cash available for distribution to its stockholders will depend heavily on the timing of such liquidation as well as the amount of cash that will need to be reserved for commitments and contingent liabilities.

GTx’s assets currently consist primarily of cash, cash equivalents and short-term investments, GTx’s SARD and SARM assets, the remaining value, if any, of GTx’s deferred tax assets, GTx’s listing on the Nasdaq Capital Market and the Merger Agreement with Oncternal. While GTx has entered into the Merger Agreement with Oncternal, the closing of the merger may be delayed or may not occur at all and there can be no assurance that the merger will deliver the anticipated benefits GTx expects or enhance stockholder value. If GTx is unable to consummate the merger, the GTx Board may elect to pursue an alternative strategy, one of which may be a strategic transaction similar to the merger. Attempting to complete an alternative transaction like the merger will be costly and time consuming, and GTx can make no assurances that such an alternative transaction would occur at all. Alternatively, the GTx Board may elect to continue its operations to determine if it can identify an appropriate SARD compound to move forward into additional preclinical studies required for the potential submission of an IND to enable the initiation of a first-in-human clinical trial, if any. However, GTx’s existing

 

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capital resources may not be adequate to enable it to conduct and complete any IND-enabling studies of a SARD compound, particularly in light of the conflicting preclinical SARD data it has received to date and the additional preclinical research that will be required to determine whether an appropriate SARD compound can potentially be advanced into any IND-enabling preclinical studies in a timely manner, if at all. Even if it is able to successfully complete such additional preclinical research and to conduct and complete any IND-enabling studies of a SARD compound, which it may not be able to do with its existing capital resources, GTx will in any event require significant additional financial resources in order to initiate and complete initial human clinical trials of a SARD compound and to otherwise further the development of its SARD program. The GTx Board may also resume its efforts to seek potential collaborative, partnering or other strategic arrangements for GTx’s SARM or SARD assets, including a sale or other divestiture of one or both of these assets. The GTx Board could instead decide to abandon these efforts, including any further SARD development, and pursue a dissolution and liquidation of GTx’s company. In such an event, the amount of cash available for distribution to GTx’s stockholders will depend heavily on the timing of such decision, as with the passage of time the amount of cash available for distribution will be reduced as GTx continues to fund GTx’s operations, including its SARD preclinical development efforts. In addition, if the GTx Board were to approve and recommend, and GTx’s stockholders were to approve, a dissolution and liquidation of GTx’s company, GTx would be required under Delaware corporate law to pay GTx’s outstanding obligations, as well as to make reasonable provision for contingent and unknown obligations, prior to making any distributions in liquidation to GTx’s stockholders. GTx’s commitments and contingent liabilities may include severance obligations, regulatory and preclinical obligations, and fees and expenses related to the merger. As a result of this requirement, a portion of GTx’s assets may need to be reserved pending the resolution of such obligations. In addition, GTx may be subject to litigation or other claims related to a dissolution and liquidation. If a dissolution and liquidation were pursued, the GTx Board, in consultation with its advisors, would need to evaluate these matters and make a determination about a reasonable amount to reserve. Accordingly, holders of GTx’s common stock could lose all or a significant portion of their investment in the event of a liquidation, dissolution or winding up of the company.

The issuance of shares of GTx’s common stock to Oncternal stockholders in the merger will substantially dilute the voting power of GTx’s current stockholders.

If the merger is completed, each outstanding share of Oncternal common stock will be converted into the right to receive a number of shares of GTx’s common stock equal to the exchange ratio determined pursuant to the Merger Agreement. Immediately following the merger, the former Oncternal stockholders immediately before the merger are expected to own approximately 77.5% of GTx’s outstanding capital stock, and GTx’s stockholders immediately before the merger are expected to own approximately 22.5% of GTx’s outstanding capital stock, subject to certain assumptions. Accordingly, the issuance of shares of GTx’s common stock to Oncternal stockholders in the merger will reduce significantly the relative voting power of each share of GTx common stock held by GTx’s current stockholders. Consequently, GTx’s stockholders as a group will have significantly less influence over the management and policies of the combined company after the merger than prior to the merger. These estimates are based on the anticipated exchange ratio and are subject to adjustment as provided in the Merger Agreement. See also the risk factor above titled, “The exchange ratio set forth in the Merger Agreement is not adjustable based on the market price of GTx common stock, so the merger consideration at the closing of the merger may have a greater or lesser value than at the time the Merger Agreement was signed.

GTx stockholders may not receive any payment on the CVRs and the CVRs may otherwise expire valueless.

If the merger is completed, GTx and certain other parties will enter into the CVR Agreement pursuant to which, for each share of GTx common stock held, GTx stockholders of record as of immediately prior to the Effective Time will receive one CVR entitling such holders to receive in the aggregate 75% of any net proceeds received during the 15-year period after the closing of the merger 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 of the merger (or in the 11th year if based on a term sheet approved during the initial 10-year period) and, if applicable, to receive royalties on the

 

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sale of any SARD products or SARM products by the combined company during the 15-year period after the closing of the merger. As further discussed in the section titled “The Merger–Background of the Merger,” GTx recently received and evaluated new preclinical data from an independent laboratory of an academic researcher engaged by GTx, 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 was in conflict with other independent laboratory preclinical data previously received by GTx senior management and with internal preclinical data generated by GTx, 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. In connection with the receipt of the new preclinical data, and the Merger Agreement Amendment, GTx and Oncternal agreed upon the Amended Form of CVR Agreement to, among other things: (i) increase from 50% to 75% the portion of the net proceeds the CVR holders will be entitled to under the CVR Agreement, and (ii) provide that Oncternal (as successor in interest to GTx) will be obligated to use commercially reasonable efforts to either develop or divest GTx’s SARD technology, as the Oncternal Board shall determine in its sole discretion, and to divest its SARM technology, subject to certain limitations. Accordingly, Oncternal may decide, in its sole discretion, to abandon the development of GTx’s SARD technology following the merger and would then be obligated only to use commercially reasonable efforts to divest the SARD technology, subject to certain limitations. Likewise, Oncternal is obligated only to use commercially reasonable efforts to divest the SARM technology, subject to certain limitations, and in light of the results of the ASTRID trial, Oncternal has no current intent to develop the SARM technology. In addition, the CVRs will not be transferable, will not have any voting or dividend rights, and interest will not accrue on any amounts potentially payable on the CVRs. Accordingly, the right of any GTx stockholder to receive any future payment on or derive any value form the CVRs will be contingent solely upon the achievement of the foregoing events within the time periods specified in the CVR Agreement and if these events are not achieved for any reason within the time periods specified in the CVR Agreement, no payments will be made under the CVRs, and the CVRs will expire valueless. In addition, as set forth above, Oncternal (as successor in interest to GTx) has agreed only to use commercially reasonable efforts to either develop or divest the SARD technology, as the Oncternal Board shall determine in its sole discretion, and to divest its SARM technology, subject to certain limitations, which allows for the consideration of a variety of factors in determining the efforts that the combined company is required to use to develop or divest (in Oncternal’s sole discretion) GTx’s SARD technology and to divest GTx’s SARM technology, and it does not require the combined company to take all possible actions to continue efforts to develop or divest the SARD technology and to divest the SARM technology. Accordingly, under certain circumstances, the combined company may not be required to continue efforts to develop or divest the SARD technology or to divest the SARM technology, which would have an adverse effect on the value, if any, of the CVRs. Furthermore, the CVRs will be unsecured obligations of the combined company and all payments under the CVRs, all other obligations under the CVR Agreement and the CVRs and any rights or claims relating thereto will be subordinated in right of payment to the prior payment in full of all current or future senior obligations of the combined company. Finally, the U.S. federal income tax treatment of the CVRs is unclear. There is no legal authority directly addressing the U.S. federal income tax treatment of the receipt of, and payments on, the CVRs, and there can be no assurance that the Internal Revenue Service (the “IRS”), would not assert, or that a court would not sustain, a position that could result in adverse U.S. federal income tax consequences to holders of the CVRs.

 

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GTx has incurred losses since inception, and GTx anticipates that it will incur continued losses for the foreseeable future.

As of December 31, 2018, GTx had an accumulated deficit of $600.1 million. GTx’s net loss for the year ended December 31, 2018 was $38.4 million and it expects to incur significant operating losses for the foreseeable future depending on the extent of its preclinical and any clinical development activities and, if any such development activities are successful, potentially seeking regulatory approval of any potential future product candidates. These losses, among other things, have had and will continue to have an adverse effect on GTx’s stockholders’ equity and working capital.

A substantial portion of GTx’s recent efforts and expenditures have been devoted to, and its prospects were substantially dependent upon, the development of enobosarm for the treatment of postmenopausal women with SUI. However, in September 2018, GTx announced that its placebo-controlled Phase 2 clinical trial of enobosarm to evaluate the change in frequency of daily SUI episodes following 12 weeks of treatment (the “ASTRID trial”), failed to achieve statistical significance on the primary endpoint of the proportion of patients with a greater than 50% reduction in incontinence episodes per day compared to placebo. The failure of the ASTRID trial to achieve its primary endpoint has significantly depressed GTx’s stock price and has severely harmed GTx’s ability to raise additional capital and to secure potential collaborative, partnering or other strategic arrangements for its SARM assets, and consequently, GTx’s prospects to continue as a going concern have been severely diminished. Following GTx’s review of the full data sets from the ASTRID trial, it determined to discontinue further development of enobosarm to treat SUI and to otherwise discontinue any further development of its SARM technology generally. GTx continues its efforts to seek potential collaborative, partnering or other strategic arrangements for its SARM assets, including a sale or other divestiture of its SARM assets. GTx has for many years actively pursued, but has been unable to successfully enter into, potential collaborative, partnering or other strategic arrangements for its SARM assets. If GTx is unable to ultimately enter into any such arrangements for its SARM assets, it will not receive any return on its investment in enobosarm and its other SARMs.

As a result of GTx’s decision to discontinue its SARM development efforts, GTx’s development activities have been focused solely on 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 IND to enable the initiation of a first-in-human clinical trial, if any. However, as a result of GTx’s recent receipt of new preclinical data from an independent laboratory that showed that at higher dose concentrations the tested SARD compounds demonstrated partial androgen receptor agonist activity, along with the resultant uncertainty with respect to the overall preclinical data for SARDs to date, additional preclinical research will be required in order to determine whether an appropriate SARD compound can potentially be advanced into any IND-enabling preclinical studies. GTx’s existing capital resources, however, may not be adequate to enable it to conduct and complete any IND-enabling studies of a SARD compound, particularly in light of the additional preclinical research that would be required in order to reconcile the conflicting preclinical SARD data GTx has received to date and to determine whether an appropriate SARD compound can potentially be advanced into any IND-enabling preclinical studies in a timely manner, if at all. Even if it is able to successfully complete such additional preclinical research and to conduct and complete any IND-enabling studies of a SARD compound, which it may not be able to do with its existing capital resources, GTx will in any event require significant additional financial resources in order to initiate and complete initial human clinical trials of a SARD compound and to otherwise further the development of its SARD program. Accordingly, if, for any reason, the merger is not consummated, GTx may resume its efforts to seek additional funds through potential collaborative, partnering or other strategic arrangements to provide it with the necessary resources for the development of its SARD program. In addition, the preclinical evaluation of GTx’s SARD technology is at a very early stage and is subject to the substantial risk and probability of failure inherent in the development of early-stage programs.

Because of the numerous risks and uncertainties associated with developing and commercializing small molecule drugs, GTx is unable to predict the extent of any future losses or when GTx will become profitable, if at all. GTx has funded its operations primarily through public offerings and private placements of its securities, as well as

 

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payments from its former collaborators. GTx also previously recognized product revenue from the sale of FARESTON, the rights to which it sold to a third-party in the third quarter of 2012. Currently, GTx has no ongoing collaborations for the development and commercialization of its product candidates, and as a result of the sale of its rights and certain assets related to FARESTON, GTx also currently has no sources of revenue.

If the merger is not completed and GTx is unable to raise sufficient additional funds for the development of its SARD program, whether through potential collaborative, partnering or other strategic arrangements or otherwise, or if GTx otherwise determines to discontinue the development of its SARD program, whether as a result of GTx’s recent receipt of new preclinical data from an independent laboratory that showed that at higher dose concentrations the tested SARD compounds demonstrated partial androgen receptor agonist activity or otherwise, GTx will likely determine to cease operations. Even if GTx is able to successfully complete additional preclinical research to determine whether an appropriate SARD compound can potentially be advanced into any IND-enabling preclinical studies and to raise additional funds to permit the continued development of its SARD program, if GTx and/or any potential collaborators are unable to develop and commercialize its SARDs or SARM technology, if development is further delayed or is eliminated, or if sales revenue from any SARD or partnered SARM products upon receiving marketing approval, if ever, is insufficient, GTx may never become profitable and it will not be successful.

If GTx does not successfully complete the merger, it will need to raise substantial additional capital and may be unable to raise the capital necessary to permit the continued development of its SARD program, which would force GTx to delay, reduce or eliminate its SARD program and would likely cause it to cease operations.

At December 31, 2018, GTx had cash, cash equivalents and short-term investments of $28.5 million. If the merger is not completed, based on GTx’s current business plan and spending assumptions as a standalone company, GTx estimates that its current cash, cash equivalents and short-term investments, together with interest thereon, will be sufficient to meet its projected operating requirements for at least the next 12 months. GTx has based its cash sufficiency estimates on its current business plan and its assumptions that may prove to be wrong. GTx could utilize its available capital resources sooner than it currently expects, and it could need additional funding sooner than currently anticipated.

GTx’s existing capital resources may not be adequate to enable it to conduct and complete any IND-enabling studies of a SARD compound, particularly in light of the additional preclinical research that would be required in order to reconcile the conflicting preclinical SARD data GTx has received to date and to determine whether an appropriate SARD compound can potentially be advanced into any IND-enabling preclinical studies in a timely manner, if at all. Even if it is able to successfully complete such additional preclinical research and to conduct and complete any IND-enabling studies of a SARD compound, which it may not be able to do with its existing capital resources, GTx will in any event require significant additional financial resources in order to initiate and complete initial human clinical trials of a SARD compound and to otherwise further the development of its SARD program. If GTx is unable to raise sufficient additional funds for the development of its SARD program, whether through potential collaborative, partnering or other strategic arrangements or otherwise, or if GTx otherwise determines to discontinue the development of its SARD program, whether as a result of GTx’s recent receipt of new preclinical data from an independent laboratory that showed that at higher dose concentrations the tested SARD compounds demonstrated partial androgen receptor agonist activity or otherwise, GTx will likely determine to cease operations.

GTx’s future funding requirements will depend on many factors, including:

 

   

its ability to successfully complete the merger;

 

   

the scope, rate of progress and cost of its preclinical and potential future clinical development programs;

 

   

the terms and timing of any potential collaborative, partnering and other strategic arrangements that GTx may establish;

 

   

the amount and timing of any licensing fees, milestone payments and royalty payments from potential collaborators, if any;

 

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potential future preclinical studies and clinical trial results;

 

   

the cost and timing of regulatory filings and/or approvals to commercialize any potential future product candidates and any related restrictions, limitations, and/or warnings in the label of an approved product candidate;

 

   

the effect of competing technological and market developments; and

 

   

the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights, and the cost of defending any other litigation claims.

While GTx has been able to fund its operations to date, GTx has no ongoing collaborations for the development and commercialization of any product candidates and no source of revenue, nor does it expect to generate product revenue for the foreseeable future. GTx does not have any commitments for future external funding. In addition, although GTx has entered into an At-the-Market Equity Offering SM Sales Agreement with Stifel, Nicolaus & Company, Incorporated (the “ATM Sales Agreement”), under which approximately $25.0 million of shares of its common stock remained available for sale at December 31, 2018, it is unlikely GTx could raise sufficient funds under the ATM Sales Agreement to permit it to initiate and complete any initial human clinical trials of a SARD compound, and given its currently-depressed stock price, the ATM Sales Agreement is not otherwise expected to be a practical source of liquidity for GTx at this time. Further, given GTx’s currently-depressed stock price, it is significantly limited in its ability to sell shares of common stock under the ATM Sales Agreement since the issuance and sale of GTx’s common stock under the ATM Sales Agreement, if it occurs, would be effected under a registration statement on Form S-3 that it filed with the Securities and Exchange Commission, and in accordance with the rules governing those registration statements, GTx generally can only sell shares of its common stock under that registration statement in an amount not to exceed one-third of its public float, which limitation for all practical purposes precludes its ability to obtain any meaningful funding through the ATM Sales Agreement at this time.

Until GTx can generate a sufficient amount of product revenue, which it may never do, it will need to finance future cash needs through potential collaborative, partnering or other strategic arrangements, as well as through public or private equity offerings or debt financings or a combination of the foregoing. If GTx is unable to raise additional funds, it will need to continue to reduce its expenditures in order to preserve its cash. Further cost-cutting measures that GTx may take may not be sufficient to enable it to meet its cash requirements, and they may negatively affect GTx’s business and its ability to derive any value from its SARD program. In any event, in order to further the development of its SARD program, if at all, GTx will need to raise substantial additional capital. GTx’s failure to do so would likely result in it determining to cease operations.

To the extent that GTx raises additional funds through potential collaborations, partnering or other strategic arrangements, it may be necessary to relinquish rights to some of its technologies or product candidates and intellectual property rights thereof, or grant licenses on terms that are not favorable to it, any of which could result in GTx’s stockholders having little or no continuing interest in its SARD program and/or SARM assets as stockholders or otherwise. To the extent GTx raises additional funds by issuing equity securities, GTx’s stockholders may experience significant dilution, particularly given its currently-depressed stock price, and debt financing, if available, may involve restrictive covenants. For example, GTx completed substantially dilutive private placements of its common stock and warrants in March 2014, November 2014 and September 2017, in addition to a registered direct offering of its common stock that it completed in October 2016 and the sale of GTx’s common stock pursuant to the ATM Sales Agreement. GTx’s stockholders will experience additional, perhaps substantial, dilution should GTx again raise additional funds by issuing equity securities. Any additional debt or equity financing that GTx raises may contain terms that are not favorable to it or its stockholders. GTx’s ability to raise additional funds and the terms upon which it is able to raise such funds have been severely harmed by the failure of the ASTRID trial to meet its primary endpoint and the resulting significant uncertainty regarding GTx’s prospects to continue as a going concern. If GTx is unable to complete the merger, its ability to raise additional funds and the terms upon which it is able to raise such funds may also be adversely affected by the

 

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uncertainties regarding its financial condition, uncertainties with respect to the prospects for its early-stage SARD program as an effective treatment of men with CRPC, particularly in light of GTx’s recent receipt of new preclinical data that showed that at higher dose concentrations the tested SARD compounds demonstrated partial androgen receptor agonist activity, the sufficiency of its capital resources, potential future management turnover, and volatility and instability in the global financial markets. As a result of these and other factors, there is no guarantee that sufficient additional funding will be available to GTx on acceptable terms, or at all.

GTx is substantially dependent on its remaining employees to facilitate the consummation of the merger.

GTx has substantially reduced its workforce since November 2018 and as of March 31, 2019, it had only 13 full-time employees. GTx’s ability to successfully complete the merger depends in large part on its ability to retain its remaining personnel. Despite GTx’s efforts to retain these employees, one or more may terminate their employment with GTx on short notice. The loss of the services of any of these employees could potentially harm GTx’s ability to consummate the merger, to run its day-to-day business operations, as well as to fulfill its reporting obligations as a public company.

The pendency of the merger could have an adverse effect on the trading price of GTx’s common stock and its business, financial condition and prospects.

While there have been no significant adverse effects to date, the pendency of the merger could disrupt GTx’s business in many ways, including:

 

   

the attention of its remaining management and employees may be directed toward the completion of the merger and related matters and may be diverted from GTx’s day-to-day business operations; and

 

   

third parties may seek to terminate or renegotiate their relationships with GTx as a result of the merger, whether pursuant to the terms of their existing agreements with GTx or otherwise.

Should they occur, any of these matters could adversely affect the trading price of GTx’s common stock or harm its business, financial condition and prospects.

Risks Related to GTx’s Development Activities

GTx was substantially dependent on the success of enobosarm, and the recent failure of the ASTRID trial to meet its primary endpoint has severely diminished enobosarm’s prospects and GTx’s prospects to continue as a going concern. As GTx is now focused solely on its SARD program, its failure to obtain funding for and to advance the development of its SARD program would likely require it to cease operations.

A substantial portion of GTx’s recent efforts and expenditures has been devoted to, and its prospects were substantially dependent upon, the development of enobosarm for the treatment of postmenopausal women with SUI. However, in September 2018, GTx announced that the ASTRID trial failed to achieve statistical significance on the primary endpoint of a greater than 50% reduction in incontinence episodes per day compared to placebo. The failure of the ASTRID trial to achieve its primary endpoint has significantly depressed GTx’s stock price and has severely harmed its ability to raise additional capital and to secure potential collaborative, partnering or other strategic arrangements for its SARM assets, and consequently, GTx’s prospects to continue as a going concern have been severely diminished. Following GTx’s review of the full data sets from the ASTRID trial, GTx determined to discontinue further development of enobosarm to treat SUI and to otherwise discontinue any further development of its SARM technology generally. GTx continues its efforts to seek potential collaborative, partnering or other strategic arrangements for its SARM assets, including a sale or other divestiture of its SARM assets. GTx has for many years actively pursued, but has been unable to successfully enter into, potential collaborative, partnering or other strategic arrangements for its SARM assets. If GTx is unable to ultimately enter into any such arrangements for its SARM assets, it will not receive any return on its investment in enobosarm and its other SARMs.

 

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As a result of GTx’s decision to discontinue its SARM development efforts, GTx’s development activities have been focused solely on 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 IND to enable the initiation of a first-in-human clinical trial, if any. However, GTx recently received new preclinical data from an independent laboratory of an academic researcher engaged by GTx, 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 was in conflict with other independent laboratory preclinical data previously received by GTx senior management and with internal preclinical data generated by GTx, 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. GTx’s existing capital resources, however, may not be adequate to enable it to conduct and complete any IND-enabling studies of a SARD compound, particularly in light of the additional preclinical research that would be required in order to reconcile the conflicting preclinical SARD data GTx has received to date and to determine whether an appropriate SARD compound can potentially be advanced into any IND-enabling preclinical studies in a timely manner, if at all. Even if it is able to successfully complete such additional preclinical research and to conduct and complete any IND-enabling studies of a SARD compound, which it may not be able to do with its existing capital resources, GTx will in any event require significant additional financial resources in order to initiate and complete initial human clinical trials of a SARD compound and to otherwise further the development of its SARD program. In addition, the preclinical evaluation of GTx’s SARD technology is at a very early stage and is subject to the substantial risk and probability of failure inherent in the development of early-stage programs.

In any event, if the merger is not completed and GTx is unable to raise sufficient additional funds for the development of its SARD program, whether through potential collaborative, partnering or other strategic arrangements or otherwise, or if GTx otherwise determines to discontinue the development of its SARD program, whether as a result of GTx’s recent receipt of new preclinical data from an independent laboratory that showed that at higher dose concentrations the tested SARD compounds demonstrated partial androgen receptor agonist activity or otherwise, GTx will likely determine to cease operations.

GTx and any potential collaborators will not be able to commercialize any SARD or SARM product candidates if its preclinical studies do not produce successful results or if GTx or its SARD or SARM clinical trials do not adequately demonstrate safety and efficacy in humans.

Significant additional clinical development, financial resources and personnel would be required to obtain necessary regulatory approvals for any potential future SARD or SARM product candidates and to develop them into commercially viable products. Preclinical and clinical testing is expensive, can take many years to complete and has an uncertain outcome. Success in preclinical testing and early clinical trials does not ensure that later clinical trials will be successful, and top-line or interim results of a clinical trial do not necessarily predict final results. In this regard, from time to time, GTx has and may in the future publish or report top-line, interim or other preliminary data from its clinical trials, which data is based on a preliminary analysis of then-available efficacy and safety data, and the results and related findings and conclusions are subject to change following a more comprehensive review of the data related to the particular study or trial. GTx also makes assumptions, estimations, calculations and conclusions as part of its analyses of data, and it may not have received or had the opportunity to fully and carefully evaluate all data from the applicable trial. As a result, the top-line results that GTx reports may differ from future results of the same studies, or different conclusions or considerations may

 

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qualify such results, once additional data have been received and fully evaluated. Similarly, interim or other preliminary data from clinical trials that GTx may conduct may not be indicative of the final results of the trial and are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available. Top-line, interim and other preliminary data also remain subject to audit and verification procedures that may result in the final data being materially different from such top-line, interim or other preliminary data GTx previously published. As a result, top-line, interim or preliminary data should be viewed with caution until the final data are available.

Typically, the failure rate for development candidates is high. If a product candidate fails at any stage of development, GTx will not have the anticipated revenues from that product candidate to fund its operations, and GTx will not receive any return on its investment in that product candidate. For example, in September 2018, GTx announced that the ASTRID trial failed to achieve statistical significance on the primary endpoint of the proportion of patients with a greater than 50% reduction in incontinence episodes per day compared to placebo. The failure of the ASTRID trial to achieve its primary endpoint has significantly depressed its stock price and has severely harmed GTx’s ability to raise additional capital and to secure potential collaborative, partnering or other strategic arrangements for its SARM assets, and consequently, GTx’s prospects to continue as a going concern have been severely diminished. Likewise, during the third quarter of 2017, GTx determined that there were insufficient patients achieving clinical benefit from enobosarm treatment to continue its Phase 2 proof-of-concept clinical trial evaluating enobosarm in patients with advanced AR positive triple-negative breast cancer. Additionally, in the third quarter of 2017, GTx decided not to pursue additional clinical development of enobosarm to treat women with ER positive, AR positive advanced breast cancer after evaluating the breast cancer environment where the treatment paradigms are shifting to immunotherapies and/or combination therapies, along with the time and cost of conducting the necessary clinical trials for potential approval, even though GTx announced that its Phase 2 clinical trial of enobosarm in this indication achieved its primary endpoint in both the 9 mg and 18 mg cohorts of the clinical trial. Following GTx’s review of the full data sets from the ASTRID trial, GTx determined to discontinue further development of enobosarm to treat SUI and to otherwise discontinue any further development of its SARM technology generally. GTx continues its efforts to seek potential collaborative, partnering or other strategic arrangements for its SARM assets, including a sale or other divestiture of its SARM assets. GTx has for many years actively pursued, but has been unable to successfully enter into, potential collaborative, partnering or other strategic arrangements for its SARM assets. If GTx is unable to ultimately enter into any such arrangements for its SARM assets, GTx will not receive any return on its investment in enobosarm and its other SARMs.

In the first quarter of 2015, GTx entered into an exclusive worldwide license agreement with UTRF to develop its proprietary SARD technology and GTx is currently focused solely on the further development of its SARD program. GTx’s preclinical evaluation of its SARD technology is at an early stage and is subject to the substantial risk and probability of failure inherent in the development of early-stage programs. GTx will in any event require significant additional financial resources in order to initiate and complete initial human clinical trials of a SARD compound and to otherwise further the development of its SARD program. If GTx’s research and preclinical development of its SARD program is unsuccessful, is discontinued and/or GTx is not able to obtain sufficient funding to advance the development of its SARD program, GTx will likely cease operations.

Significant delays in preclinical studies and clinical testing could materially impact GTx’s product development costs. For example, as a result of GTx’s recent receipt of new preclinical data from an independent laboratory that showed that at higher dose concentrations the tested SARD compounds demonstrated partial androgen receptor agonist activity along with the resultant uncertainty with respect to the overall preclinical data for SARDs to date, 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. Such additional preclinical research will increase GTx’s costs, and GTx cannot be certain that its existing capital resources will be adequate to enable it to conduct and complete any IND-enabling studies of a SARD compound. In any event, GTx does not know whether its potential future preclinical studies and clinical trials will need to be modified or will be completed on schedule, if at all. GTx or any potential collaborators may experience numerous unforeseen

 

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and/or adverse events during, or as a result of, preclinical testing and the clinical trial process that could delay or prevent GTx or its potential collaborators’ ability to commercialize any product candidates, including:

 

   

regulators or institutional review boards may not authorize GTx or any potential collaborators to commence a clinical trial or conduct a clinical trial at a prospective trial site, or GTx or any potential collaborators may experience substantial delays in obtaining these authorizations;

 

   

GTx or any potential collaborators may be delayed in reaching, or may fail to reach, agreement on acceptable terms with prospective clinical research organizations, or CROs, and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;

 

   

additional preclinical studies or clinical trials may produce negative, inconclusive or further conflicting results, which may require GTx or any potential collaborators to conduct additional preclinical or clinical testing, such as the additional preclinical research that will be required to determine whether an appropriate SARD compound can potentially be advanced into any IND-enabling preclinical studies, or to abandon projects that GTx expected to be promising;

 

   

even if preclinical or clinical trial results are positive, the United States Food and Drug Administration (the “FDA”), or foreign regulatory authorities could nonetheless require GTx to conduct unanticipated additional preclinical development or clinical trials;

 

   

patient registration or enrollment in clinical trials may be slower than GTx anticipates resulting in significant delays, additional costs and/or study terminations;

 

   

GTx or any potential collaborators may suspend or terminate clinical trials if the participating patients are being exposed to unacceptable health risks;

 

   

regulators or institutional review boards may suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements;

 

   

GTx’s product candidates may not have the desired effects or may include undesirable side effects; and

 

   

changes in regulatory requirements, policies and guidelines.

If any of these events were to continue to occur in the future and, as a result, GTx or any potential collaborators have significant delays in or termination of potential future clinical trials, GTx’s costs could increase and its ability to generate revenue could be impaired, which would materially and adversely impact its business, financial condition and growth prospects.

If GTx or any potential collaborators observe serious or other adverse events during the time any potential future product candidates are in development or after GTx’s products are approved and on the market, GTx or any potential collaborators may be required to perform lengthy additional clinical trials, may be required to cease further development of such product candidates, may be denied regulatory approval of such products, may be forced to change the labeling of such products or may be required to withdraw any such products from the market, any of which would hinder or preclude GTx’s ability to generate revenues.

In GTx’s Phase 2 clinical trials for enobosarm for the treatment of muscle wasting in patients with cancer and healthy older males and postmenopausal females, GTx observed mild elevations of hepatic enzymes, which in certain circumstances may lead to liver failure, in a few patients in both the placebo and enobosarm treated groups. Reductions in high-density lipoproteins (“HDL”), have also been observed in subjects treated with enobosarm. Lower levels of HDL could lead to increased risk of adverse cardiovascular events. Mild transient elevations in liver enzymes that were within normal limits were observed in GTx’s Phase 2 proof-of-concept clinical trial of enobosarm to treat postmenopausal women with SUI, except for one patient with levels greater than 1.5 times the upper limit of normal which returned to normal following her 12-week treatment period. Reductions in total cholesterol, low-density lipoproteins (“LDL”), HDL and triglycerides were also observed.

 

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Results of the ASTRID trial in postmenopausal women with SUI indicated that enobosarm was generally safe and well tolerated, and reported adverse events were generally mild to moderate in intensity and similar across all treatment groups. Mild transient elevations in hepatic enzymes and changes in lipid profile were dose dependent, and consistent with results seen in previous trials. In addition, in GTx’s Phase 2 proof-of-concept clinical trial evaluating enobosarm in a 9 mg daily dose for the treatment of patients with ER positive and AR positive metastatic breast cancer, bone pain of the chest cage, a serious adverse event (“SAE”), was assessed as possibly related to enobosarm. Although doses up to 30 mg have been evaluated in short duration studies, the 3 mg dose that was the subject of the ASTRID trial and higher enobosarm doses that may potentially be tested by potential future collaborators in later stage longer duration trials, if any, may increase the risk or incidence of known potential side effects of SARMs, including elevations in hepatic enzymes and further reductions in HDL, in addition to the emergence of side effects that have not been seen to date.

If the incidence of serious or other adverse events related to enobosarm or any other SARD or SARM product candidates increases in number or severity, if a regulatory authority believes that these or other events constitute an adverse effect caused by the drug, or if other effects are identified during clinical trials that GTx or any potential collaborators may conduct in the future or after any potential future product candidates are approved and marketed:

 

   

GTx or any potential collaborators may be required to conduct additional preclinical or clinical trials, make changes in the labeling of any such approved products, reformulate any such products, or implement changes to or obtain new approvals of its contractors’ manufacturing facilities;

 

   

regulatory authorities may be unwilling to approve GTx’s product candidates or may withdraw approval of its products;

 

   

GTx may experience a significant drop in the sales of the affected products;

 

   

GTx’s reputation in the marketplace may suffer; and

 

   

GTx may become the target of lawsuits, including class action suits.

Any of these events could prevent approval or harm adoption and sales of the affected product candidates or products, or could substantially increase the costs and expenses of commercializing and marketing any such products.

Risks Related to GTx’s Dependence on Third Parties

If the merger is not completed and GTx does not establish collaborative, partnering or other strategic arrangements for its SARD program and SARM assets or otherwise raise substantial additional capital, GTx will likely determine to cease operations.

GTx’s current strategy is dependent on its ability to secure potential collaborative, partnering or other strategic arrangements with other pharmaceutical and biotechnology companies to assist GTx in furthering development and potential commercialization of any SARD and SARM product candidates, and to otherwise obtain funding for such activities. For example, GTx is currently focused solely on the further development of its SARD program; however, GTx’s existing capital resources may not be adequate to enable it to conduct and complete any IND-enabling studies of a SARD compound, particularly in light of the additional preclinical research that would be required in order to reconcile the conflicting preclinical SARD data GTx has received to date and to determine whether an appropriate SARD compound can potentially be advanced into any IND-enabling preclinical studies in a timely manner, if at all. Even if it is able to successfully complete such additional preclinical research and to conduct and complete any IND-enabling studies of a SARD compound, which it may not be able to do with its existing capital resources, GTx will in any event require significant additional financial resources in order to initiate and complete initial human clinical trials of a SARD compound and to otherwise further the development of its SARD program. Accordingly, if, for any reason, the merger is not consummated, GTx may resume its efforts to seek additional funds through potential collaborative, partnering or other strategic

 

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arrangements to provide it with the necessary resources for the development of its SARD program. GTx faces significant competition in seeking such arrangements, and such arrangements are complex and time consuming to negotiate and document. In any event, GTx may not be successful in entering into new collaborative, partnering or other strategic arrangements with third parties for the further development of its SARD program (or GTx’s SARD assets) on acceptable terms, or at all. In this regard, GTx has for many years actively pursued, but has been unable to successfully enter into, potential collaborative, partnering or other strategic arrangements for its SARM assets and GTx likewise has not been successful to date in entering into potential collaborative, partnering or other strategic arrangements for its SARD program. Moreover, as a result of GTx’s recent receipt of new preclinical data from an independent laboratory that showed that at higher dose concentrations the tested SARD compounds demonstrated partial androgen receptor agonist activity, which data conflicts with certain other preclinical data previously received by GTx, this new preclinical data along with the resultant uncertainty with respect to the overall preclinical data for SARDs to date may negatively impact or preclude altogether GTx’s prospects for entering into potential collaborative, partnering or other strategic arrangements for its SARD program. In addition, GTx is unable to predict when, if ever, it will enter into any potential collaborative, partnering or other such strategic arrangements because of the numerous risks and uncertainties associated with establishing such arrangements, and GTx has otherwise been unsuccessful, for many years, in its efforts to establish such arrangements. In any event, if the merger is not completed and GTx is unable to raise sufficient additional funds for the development of its SARD program, whether through potential collaborative, partnering or other strategic arrangements or otherwise, or if GTx otherwise determines to discontinue the development of GTx’s SARD program, it will likely determine to cease operations. In addition, because GTx has discontinued its SARM development efforts, if it is unable to ultimately enter into any potential collaborative, partnering or other such strategic arrangements for its SARM assets, GTx will not receive any return on its investment in enobosarm and its other SARMs.

Any collaborative arrangements that GTx establishes in the future may not be successful or GTx may otherwise not realize the anticipated benefits from these collaborations. In addition, any future collaborative arrangements may place the development and commercialization of GTx’s product candidates outside its control, may require GTx to relinquish important rights or may otherwise be on terms unfavorable to GTx.

GTx has in the past established, and, if the merger is not completed, GTx intends to continue to seek to establish, partnering, collaborative and similar strategic arrangements with third parties to develop and commercialize any potential future product candidates, and these collaborations may not be successful or GTx may otherwise not realize the anticipated benefits from these collaborations. For example, in March 2011, GTx and Ipsen Biopharm Limited, or Ipsen, mutually agreed to terminate the collaboration for the development and commercialization of GTx’s toremifene-based product candidate. As of the date of this report, GTx has no ongoing collaborations for the development and commercialization of any product candidate. GTx may not be able to locate third-party collaborators to develop and market any product candidates, and GTx lacks the necessary financial resources to develop any product candidates alone.

Dependence on collaborative arrangements subjects GTx to a number of risks, including:

 

   

GTx may not be able to control the amount and timing of resources that its potential collaborators may devote to GTx’s product candidates;

 

   

potential collaborations may experience financial difficulties or changes in business focus;

 

   

GTx may be required to relinquish important rights such as marketing and distribution rights;

 

   

should a collaborator fail to develop or commercialize one of GTx’s compounds or product candidates, GTx may not receive any future milestone payments and will not receive any royalties for the compound or product candidate;

 

   

business combinations or significant changes in a collaborator’s business strategy may also adversely affect a collaborator’s willingness or ability to complete its obligations under any arrangement;

 

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under certain circumstances, a collaborator could move forward with a competing product candidate developed either independently or in collaboration with others, including GTx’s competitors; and

 

   

collaborative arrangements are often terminated or allowed to expire, which could delay the development and may increase the cost of developing GTx’s product candidates.

If third parties do not manufacture GTx’s clinical and commercial drug supplies in sufficient quantities, in the required timeframe, at an acceptable cost, and with appropriate quality control, clinical development and commercialization of any potential future product candidates would be delayed.

GTx does not currently own or operate manufacturing facilities, and it relies, and expects to continue to rely, on third parties for the production of clinical and commercial quantities of any product candidates. GTx’s current and anticipated future dependence upon others for the manufacture of its product candidates may adversely affect GTx’s future profit margins, if any, and GTx’s ability to develop product candidates and commercialize any product candidates on a timely and competitive basis.

GTx relies and expects to continue to rely on third-party vendors for drug substance and drug product manufacturing, including drug substance for SARDs used in its current and potential future preclinical studies. If the contract manufacturers that GTx is currently utilizing to meet its supply needs for SARD compounds or any potential future SARD product candidates prove incapable or unwilling to continue to meet its supply needs, GTx could experience a delay in conducting any additional preclinical or clinical trials of SARD compounds or any potential future SARD product candidates. GTx may not be able to maintain or renew its existing or any other third-party manufacturing arrangements on acceptable terms, if at all. If GTx’s suppliers fail to meet its requirements for its product candidates for any reason, GTx would be required to obtain alternate suppliers. Any inability to obtain alternate suppliers, including an inability to obtain approval from the FDA of an alternate supplier, would delay or prevent the clinical development and commercialization of any potential future product candidates.

Use of third-party manufacturers may increase the risk that GTx will not have adequate drug supplies for preclinical, clinical and commercial use.

Reliance on third-party manufacturers entails risks, to which GTx would not be subject if GTx manufactured its product candidates itself, including:

 

   

reliance on the third-party for regulatory compliance and quality assurance;

 

   

the possible breach of the manufacturing agreement by the third-party because of factors beyond GTx’s control;

 

   

the possible termination or non-renewal of the agreement by the third-party, based on its own business priorities, at a time that is costly or inconvenient for GTx; and

 

   

drug product supplies not meeting the requisite requirements for clinical trial use.

If GTx is not able to obtain adequate drug supplies, including SARD compounds, it will be more difficult for GTx to develop any product candidates and compete effectively. GTx’s potential future product candidates and any products that GTx and/or its potential collaborators may develop may compete with other product candidates and products for access to manufacturing facilities.

GTx’s present or future manufacturing partners may not be able to comply with FDA-mandated current Good Manufacturing Practice regulations, other FDA regulatory requirements or similar regulatory requirements outside the United States. Failure of GTx’s third-party manufacturers or GTx to comply with applicable regulations could result in sanctions being imposed on GTx, including fines, injunctions, civil penalties, failure of regulatory authorities to grant marketing approval of its product candidates, delays, suspension or withdrawal

 

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of approvals, license revocation, seizures or recalls of product candidates or products, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect supplies of GTx’s product candidates.

If third parties on whom GTx rely do not perform as contractually required or expected, GTx may not be able to obtain regulatory approval for or successfully commercialize any potential future product candidates.

GTx does not have the ability to independently conduct clinical trials for its product candidates, and GTx must rely on third parties, such as CROs, medical institutions, clinical investigators and contract laboratories to conduct its clinical trials. In addition, GTx relies on third parties to assist with its preclinical development of product candidates. If these third parties do not successfully carry out their contractual duties or regulatory obligations or meet expected deadlines, if the third parties need to be replaced, or if the quality or accuracy of the data they obtain is compromised due to the failure to adhere to GTx’s clinical protocols or regulatory requirements or for other reasons, GTx’s preclinical development activities or clinical trials may be extended, delayed, suspended or terminated, and GTx may not be able to obtain regulatory approval for or successfully commercialize any potential future product candidates.

Risks Related to GTx’s Intellectual Property

If GTx loses its licenses from UTRF, GTx may be unable to continue its business and, if the merger is completed, the CVR holders may not receive any proceeds from GTx’s SARD or SARM technology.

GTx has licensed intellectual property rights and technology from UTRF used in substantially all of its business. GTx’s license agreements with UTRF, under which GTx was granted rights to enobosarm and other SARM compounds, and to SARD compounds and, for both, to methods of use thereof, may be terminated by UTRF if GTx is in breach of its obligations under, or fails to perform any terms of, the relevant agreement and fails to cure that breach. If one or both of these agreements are terminated, then GTx may lose its rights to utilize enobosarm and other SARM compounds and/or SARD compounds and the intellectual property covered by those agreements to market, distribute and sell licensed products, which may prevent GTx from continuing its business and would likely cause GTx to cease operations altogether.

In addition, if the merger is completed and the combined company breaches its obligations under one or both license agreements, resulting in a termination of the relevant agreement, then the combined company may not be able to develop or divest the SARD technology or divest the SARM technology. As a result, the combined company may not receive proceeds from the transfer of rights to the applicable technologies or the sale of SARD or SARM technology. If the combined company does not receive any such proceeds, then the CVR holders would not receive any payments on the CVRs.

If some or all of GTx’s or GTx’s licensor’s patents expire or are invalidated or are found to be unenforceable, or if some or all of GTx’s patent applications do not result in issued patents or result in patents with narrow, overbroad, or unenforceable claims, or claims that are not supported in regard to written description or enablement by the specification, or if GTx is prevented from asserting that the claims of an issued patent cover a product of a third-party, GTx may be subject to competition from third parties with products in the same class of products as GTx’s product candidates or products with the same active pharmaceutical ingredients as GTx’s product candidates, including in those jurisdictions in which GTx has no patent protection.

GTx’s commercial success, if any, will depend in part on obtaining and maintaining patent and trade secret protection for any product candidates that it may develop, as well as the methods for treating patients in the product indications using these product candidates. GTx will be able to protect any potential future product candidates and the methods for treating patients in the product indications using these product candidates from unauthorized use by third parties only to the extent that GTx or its exclusive licensor owns or controls such valid and enforceable patents or trade secrets.

 

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Even if any potential future product candidates and/or the methods for treating patients for prescribed indications using these product candidates are covered by valid and enforceable patents and have claims with sufficient scope, disclosure and support in the specification, the patents will provide protection only for a limited amount of time. GTx’s and GTx’s licensor’s ability to obtain patents can be highly uncertain and involve complex and in some cases unsettled legal issues and factual questions. Furthermore, different countries have different procedures for obtaining patents, and patents issued in different countries provide different degrees of protection against the use of a patented invention by others. Therefore, if the issuance to GTx or GTx’s licensor, in a given country, of a patent covering an invention is not followed by the issuance, in other countries, of patents covering the same invention, or if any judicial interpretation of the validity, enforceability, or scope of the claims in, or the written description or enablement in, a patent issued in one country is not similar to the interpretation given to the corresponding patent issued in another country, GTx’s ability to protect its intellectual property in those countries may be limited. Changes in either patent laws or in interpretations of patent laws in the United States and other countries may materially diminish the value of GTx’s intellectual property or narrow the scope of its patent protection.

GTx may be subject to competition from third parties with products in the same class of products as its product candidates or products with the same active pharmaceutical ingredients as GTx’s product candidates in those jurisdictions in which GTx has no patent protection. Even if patents are issued to GTx or its licensor regarding its product candidates or methods of using them, those patents can be challenged by GTx’s competitors who can argue such patents are invalid or unenforceable, lack of utility, lack sufficient written description or enablement, or that the claims of the issued patents should be limited or narrowly construed. Patents also will not protect GTx’s product candidates if competitors devise ways of making or using these product candidates without legally infringing GTx’s patents. The Federal Food, Drug, and Cosmetic Act and FDA regulations and policies create a regulatory environment that encourages companies to challenge branded drug patents or to create non-infringing versions of a patented product in order to facilitate the approval of abbreviated new drug applications for generic substitutes. These same types of incentives encourage competitors to submit new drug applications that rely on literature and clinical data not prepared for or by the drug sponsor, providing another less burdensome pathway to approval.

GTx also relies on trade secrets to protect its technology, especially where GTx does not believe that patent protection is appropriate or obtainable. However, trade secrets are difficult to protect. GTx’s employees, consultants, contractors, outside scientific collaborators and other advisors may unintentionally or willfully disclose GTx’s confidential information to competitors, and confidentiality agreements may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. Enforcing a claim that a third-party illegally obtained and is using its trade secrets is expensive and time-consuming, and the outcome is unpredictable. Moreover, GTx’s competitors may independently develop equivalent knowledge, methods and know-how. Failure to obtain or maintain trade secret protection could adversely affect GTx’s competitive business position.

If GTx infringes intellectual property rights of third parties, it may increase GTx’s costs or prevent it from being able to commercialize its product candidates.

There is a risk that GTx is infringing the proprietary rights of third parties because numerous United States and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields that are the focus of GTx’s development and manufacturing efforts. Others might have been the first to make the inventions covered by each of GTx’s or its licensor’s pending patent applications and issued patents and/or might have been the first to file patent applications for these inventions. In addition, because patent applications take many months to publish and patent applications can take many years to issue, there may be currently pending applications, unknown to GTx or its licensor, which may later result in issued patents that cover the production, manufacture, synthesis, commercialization, formulation or use of GTx’s product candidates. In addition, the production, manufacture, synthesis, commercialization, formulation or use of GTx’s product candidates may infringe existing patents of which GTx is not aware. Defending itself against third-party claims, including

 

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litigation in particular, would be costly and time consuming and would divert management’s attention from GTx’s business, which could lead to delays in its development or commercialization efforts. If third parties are successful in their claims, GTx might have to pay substantial damages or take other actions that are adverse to its business.

As a result of intellectual property infringement claims, or to avoid potential claims, GTx might:

 

   

be prohibited from selling or licensing any product that GTx and/or any potential collaborators may develop unless the patent holder licenses the patent to GTx, which the patent holder is not required to do;

 

   

be required to pay substantial royalties or other amounts, or grant a cross license to GTx’s patents to another patent holder; or

 

   

be required to redesign the formulation of a product candidate so that it does not infringe, which may not be possible or could require substantial funds and time.

Risks Related to Regulatory Approval

If GTx or any potential collaborators are not able to obtain required regulatory approvals, GTx or such collaborators will not be able to commercialize its product candidates, and GTx’s ability to generate revenue will be materially impaired.

The activities associated with the development and commercialization of product candidates are subject to comprehensive regulation by the FDA, other regulatory agencies in the United States and by comparable authorities in other countries, including the European Medicines Agency (“EMA”). Failure to obtain regulatory approval for a product candidate will prevent GTx or any potential collaborator from commercializing the product candidate. GTx has not received regulatory approval to market any product candidate in any jurisdiction, and it does not expect to obtain FDA, EMA or any other regulatory approvals to market any potential future product candidates for the foreseeable future, if at all. The process of obtaining regulatory approvals is expensive, often takes many years, if approval is obtained at all, and can vary substantially based upon the type, complexity and novelty of the product candidates involved.

Changes in the regulatory approval policy during the development period, changes in or the enactment of additional regulations or statutes, or changes in regulatory review for each submitted product application may cause delays in the approval or rejection of an application. Even if the FDA or the EMA approves a product candidate, the approval may impose significant restrictions on the indicated uses, conditions for use, labeling, advertising, promotion, marketing and/or production of such product, and may impose ongoing requirements for post-approval studies, including additional research and development and clinical trials. Any FDA approval may also impose Risk Evaluation Mitigation Strategy, or REMS, on a product if the FDA believes there is a reason to monitor the safety of the drug in the market place. REMS may include requirements for additional training for health care professionals, safety communication efforts and limits on channels of distribution, among other things. The sponsor would be required to evaluate and monitor the various REMS activities and adjust them if need be. The FDA and EMA also may impose various civil or criminal sanctions for failure to comply with regulatory requirements, including withdrawal of product approval.

Furthermore, the approval procedure and the time required to obtain approval varies among countries and can involve additional testing beyond that required by the FDA. Approval by one regulatory authority does not ensure approval by regulatory authorities in other jurisdictions. Failure to obtain approval in one jurisdiction may negatively impact GTx’s ability to obtain approval elsewhere.

The FDA, the EMA and other foreign regulatory authorities have substantial discretion in the approval process and may refuse to accept any application or may decide that GTx’s data is insufficient for approval and require additional preclinical, clinical or other studies, including Phase 4 clinical studies. For example, in October 2009,

 

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GTx received a Complete Response Letter from the FDA regarding its new drug application, or NDA, for toremifene 80 mg to reduce fractures in men with prostate cancer on androgen deprivation therapy notifying GTx that the FDA would not approve its NDA as a result of certain clinical deficiencies identified in the Complete Response Letter. GTx has since discontinued its toremifene 80 mg development program, as well as other toremifene-based products. Although GTx evaluated the potential submission of a marketing authorization application (“MAA”), to the EMA seeking marketing approval of enobosarm 3 mg in the European Union, or EU, for the prevention and treatment of muscle wasting in patients with advanced NSCLC, based on input from the Medicines and Healthcare Products Regulatory Agency (“MHRA”), GTx determined that the data from the POWER trials was not sufficient to support the filing and approval of a MAA without confirmatory data from another Phase 3 clinical trial of enobosarm 3 mg. As a result of this input, GTx elected not to submit a MAA in the absence of such confirmatory data. In addition, since data from the two POWER trials failed to meet the primary statistical criterion pre-specified for the co-primary endpoints of lean body mass and physical function, GTx was unable to file with the FDA a NDA for enobosarm 3 mg for the prevention and treatment of muscle wasting in patients with advanced NSCLC.

In addition, varying interpretations of the data obtained from preclinical and clinical testing could delay, limit, or prevent regulatory approval of a product candidate. Even if GTx submits an application to the FDA, the EMA and other foreign regulatory authorities for marketing approval of a product candidate, it may not result in any marketing approvals.

GTx does not expect to receive regulatory approval for the commercial sale of any product candidates for the foreseeable future, if at all. The inability to obtain approval from the FDA, the EMA and other foreign regulatory authorities for its product candidates would prevent GTx or any potential collaborators from commercializing these product candidates in the United States, the EU, or other countries. See the section entitled “GTx Business—Government Regulation” of this proxy statement/prospectus/information statement for additional information regarding risks associated with marketing approval, as well as risks related to potential post-approval requirements.

Risks Related to Commercialization

The commercial success of any products that GTx and/or any potential collaborators may develop and for which GTx may obtain regulatory approval will depend upon the market and the degree of market acceptance among physicians, patients, health care payors and the medical community.

Any products that GTx and/or any potential collaborators may develop may not gain market acceptance for its stated indication among physicians, patients, health care payors and the medical community despite regulatory approval. If these products do not achieve an adequate level of acceptance, GTx may not generate material product revenues or receive royalties to the extent GTx currently anticipates, and GTx may not become profitable. The degree of market acceptance of its product candidates, if approved for commercial sale, will depend on a number of factors, including:

 

   

efficacy and safety results in clinical trials;

 

   

the prevalence and severity of any side effects;

 

   

potential advantages over alternative treatments;

 

   

whether the products GTx commercializes become and/or remain a preferred course of treatment;

 

   

the ability to offer GTx’s product candidates for sale at competitive prices;

 

   

relative convenience and ease of administration compared to alternative treatment;

 

   

the strength of marketing and distribution support; and

 

   

sufficient third-party coverage or reimbursement.

 

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If GTx is unable to establish sales and marketing capabilities or establish and maintain agreements with third parties to market and sell its product candidates, GTx may be unable to generate product revenue from such candidates.

GTx has limited experience as a company in the sales, marketing and distribution of pharmaceutical products. In the event one of GTx’s potential future product candidates is approved, GTx will need to establish sales and marketing capabilities or establish and maintain agreements with third parties to market and sell any such product candidates. Either of these options would be expensive and time-consuming. GTx may be unable to build its own sales and marketing capabilities, and there are risks involved with entering into arrangements with third parties to perform these services, which could delay the commercialization of any of its product candidates if approved for commercial sale. In addition, to the extent that GTx enters into arrangements with third parties to perform sales, marketing and distribution services, its product revenues are likely to be lower than if GTx markets and sells any products that it develop itself.

If GTx and/or any potential collaborators are unable to obtain reimbursement or experience a reduction in reimbursement from third-party payors for products GTx sells, its revenues and prospects for profitability will suffer.

Sales of products developed by GTx and/or any potential collaborators are dependent on the availability and extent of reimbursement from third-party payors, both governmental and private. Changes in the coverage and/or reimbursement policies of these third-party payors that reduce reimbursements for any products that GTx and/or any potential collaborators may develop and sell could negatively impact its future operating and financial results.

Medicare coverage and reimbursement of prescription drugs exists under Medicare Part D for oral drug products capable of self-administration by patients. GTx’s oral drug product candidates would likely be covered by Medicare Part D (if covered by Medicare at all). In March 2010, the United States Congress enacted the Healthcare Reform Act, which, among other initiatives, implemented cost containment and other measures that could adversely affect revenues from sales of product candidates, including an increase in the drug rebates that manufacturers must pay under Medicaid for brand name prescription drugs and extension of these rebates to Medicaid managed care and a requirement that manufacturers provide a 50% discount on the negotiated price of Medicare Part D brand name drugs utilized by Medicare Part D beneficiaries during the coverage gap (the so-called “donut hole”) (which discount has subsequently been increased to 70% in 2019).

The provisions of the Healthcare Reform Act have been subject to judicial and Congressional challenges, as well as efforts by the Trump administration to modify certain requirements of the Healthcare Reform Act by executive branch order. For example, on January 20, 2017, President Trump signed an Executive Order directing federal agencies with authorities and responsibilities under the Healthcare Reform Act to waive, defer, grant exemptions from, or delay the implementation of any provision of the Healthcare Reform Act that would impose a fiscal or regulatory burden on states, individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. On October 12, 2017, President Trump signed another Executive Order directing certain federal agencies to propose regulations or guidelines to provide small businesses with greater opportunities to form association health plans, expand the availability of short-term, limited duration insurance, and allow employees to make use of certain employer-paid health benefits, called health reimbursement arrangements, to pay for health insurance that does not meet all Healthcare Reform Act requirements. In addition, citing legal guidance from the U.S. Department of Justice, the U.S. Department of Health and Human Services (“HHS”), concluded that cost-sharing reduction, or CSR, payments to insurance companies required under the Healthcare Reform Act had not received necessary appropriations from Congress. President Trump subsequently discontinued these payments. The loss of the CSR payments is expected to increase premiums on certain policies issued by qualified health plans under the Healthcare Reform Act. Certain administrative actions have been subject to judicial challenge. In Congress, there have been a number of legislative initiatives to modify, repeal and/or replace portions of the Healthcare Reform Act. Tax reform legislation enacted at the end of

 

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2017 eliminated the tax penalty for individuals who do not maintain sufficient health insurance coverage beginning in 2019. The Bipartisan Budget Act of 2018 contained various provisions that affect coverage and reimbursement of drugs, including an increase in the discount that manufacturers of Medicare Part D brand name drugs must provide to Medicare Part D beneficiaries during the coverage gap from 50% to 70% starting in 2019. Congress may consider other legislation to modify, repeal and/or replace certain elements of the Healthcare Reform Act. In December 2018, a federal district court judge, in a challenge brought by a number of state attorneys general, found the Healthcare Reform Act unconstitutional in its entirety because, once Congress repealed the individual mandate provision, there was no longer a basis to rely on Congressional taxing authority to support enactment of the law. Pending appeals, which could take some time, the Healthcare Reform Act is still operational in all respects. GTx continues to evaluate the effect that the Healthcare Reform Act and its possible repeal, replacement or modification may have on GTx’s business. Such legislation and other healthcare reform measures that may be adopted in the future could have a material adverse effect on GTx’s industry generally and on its ability to successfully commercialize its product candidates, if approved.

Economic pressure on state budgets may result in states increasingly seeking to achieve budget savings through mechanisms that limit coverage or payment for drugs. State Medicaid programs are increasingly requesting manufacturers to pay supplemental rebates and requiring prior authorization for use of drugs where supplemental rebates are not provided. Private health insurers and managed care plans are likely to continue challenging the prices charged for medical products and services, and many of these third-party payors may limit reimbursement for newly-approved health care products. In particular, third-party payors may limit the indications for which they will reimburse patients who use any products that GTx and/or any potential collaborators may develop or sell. These cost-control initiatives could decrease the price GTx might establish for products that it or any potential collaborators may develop or sell, which would result in lower product revenues or royalties payable to GTx.

Similar cost containment initiatives exist in countries outside of the United States, particularly in the countries of the EU, where the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, pricing negotiations with governmental authorities can extend well beyond the receipt of regulatory marketing approval for a product and may require GTx or any potential collaborators to conduct a clinical trial that compares the cost effectiveness of GTx’s product candidates or products to other available therapies. The conduct of such a clinical trial could be expensive and result in delays in GTx’s or a potential collaborators’ commercialization efforts. Third-party payors are challenging the prices charged for medical products and services, and many third-party payors limit reimbursement for newly-approved health care products. Recently budgetary pressures in many EU countries are also causing governments to consider or implement various cost-containment measures, such as price freezes, increased price cuts and rebates. If budget pressures continue, governments may implement additional cost containment measures. Cost-control initiatives could decrease the price GTx might establish for products that GTx or any potential collaborators may develop or sell, which would result in lower product revenues or royalties payable to it.

Another development that could affect the pricing of drugs would be if the Secretary of HHS allowed drug reimportation into the United States. The Medicare Prescription Drug, Improvement and Modernization Act of 2003 gives discretion to the Secretary of Health and Human Services to allow drug reimportation into the United States under some circumstances from foreign countries, including from countries where the drugs are sold at a lower price than in the United States. If the circumstances were met and the Secretary exercised the discretion to allow for the direct reimportation of drugs, it could decrease the price GTx or any potential collaborators receive for any products that GTx and/or any potential collaborators may develop, negatively affecting GTx’s revenues and prospects for profitability.

Health care reform measures could hinder or prevent GTx’s product candidates’ commercial success.

Among policy makers and payors in the United States and elsewhere, there is significant interest in health care reform, as evidenced by the initial enactment of, as well as the efforts to repeal, replace and/or modify the

 

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Healthcare Reform Act in the United States. Federal and state legislatures within the United States and foreign governments will likely continue to consider other changes to existing health care legislation. These changes adopted by governments may adversely impact GTx’s business by lowering the price of health care products in the United States and elsewhere. For example, there has been increasing administrative, legislative and enforcement interest in the United States with respect to drug pricing practices. There have been several U.S. Congressional inquiries and legislative and administrative initiatives at the federal and state levels intended to, among other things, bring more transparency to drug pricing and modify government program reimbursement for drugs. GTx cannot predict what health care reform initiatives may be adopted in the future. Further federal, state and foreign legislative and regulatory developments are likely, and GTx expects ongoing initiatives to increase pressure on drug pricing, which could decrease the price it might establish for products that it or any potential collaborators may develop or sell, which would result in lower product revenues or royalties payable to GTx.

GTx operates in a highly regulated industry and new laws, regulations or judicial decisions, or new interpretations of existing laws, regulations or decisions, related to health care availability, method of delivery or payment for health care products and services, or sales, marketing and pricing practices could negatively impact its business, operations and financial condition.

If product liability lawsuits are brought against GTx, GTx may incur substantial liabilities and may be required to limit commercialization of any products that it may develop.

GTx faces an inherent risk of product liability exposure related to its prior commercial sales of FARESTON and the testing of its product candidates in human clinical trials, and GTx will face an even greater risk if GTx commercially sells any product that it may develop. If GTx cannot successfully defend itself against claims that its product candidates or products caused injuries, GTx will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:

 

   

decreased demand for any product candidates or products;

 

   

injury to GTx’s reputation;

 

   

withdrawal of clinical trial participants;

 

   

costs to defend the related litigation;

 

   

substantial monetary awards to trial participants or patients;

 

   

loss of revenue; and

 

   

the inability to commercialize any products for which GTx obtains or holds marketing approvals.

GTx has product liability insurance that covers its clinical trials and any commercial products up to a $25 million annual aggregate limit. Insurance coverage is increasingly expensive. GTx may not be able to maintain insurance coverage at a reasonable cost, and GTx may not be able to obtain insurance coverage that will be adequate to satisfy any liability that may arise.

If GTx’s competitors are better able to develop and market products than any products that GTx and/or any potential collaborators may develop, GTx’s commercial opportunity will be reduced or eliminated.

GTx faces competition from commercial pharmaceutical and biotechnology enterprises, as well as from academic institutions, government agencies and private and public research institutions. GTx’s commercial opportunities will be reduced or eliminated if its competitors develop and commercialize products that are safer, more effective, have fewer side effects or are less expensive than any products that GTx and/or any potential collaborators may develop. Competition could result in reduced sales and pricing pressure on its product candidates, if approved, which in turn would reduce GTx’s ability to generate meaningful revenue and have a negative impact on its results of operations. In addition, significant delays in the development of GTx’s product candidates could allow its competitors to bring products to market before GTx and impair any ability to commercialize any potential future product candidates.

 

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Various products are currently marketed or used off-label for some of the diseases and conditions that GTx are targeting in its pipeline, and a number of companies are or may be developing new treatments. These product uses, as well as promotional efforts by competitors and/or clinical trial results of competitive products, could significantly diminish any ability to market and sell any products that GTx and/or any potential collaborators may develop.

GTx believes SARDs may have the potential to provide compounds that can degrade or antagonize multiple forms of the AR thereby inhibiting tumor growth in patients with CRPC, including those patients who do not respond or are resistant to current therapies. Drugs in development having potentially similar approaches to removing the AR by degradation include Arvinas Inc.’s ARV-110, which is a chimera with an AR binding moiety on one end and an E3 ligase recruiting element on the other that has recently entered Phase 1 development for the treatment of advanced prostate cancer, and Androscience Corporation’s androgen receptor degrader enhancer, ASC-J9, which is currently in development for acne and alopecia with the potential for development as a treatment for prostate cancer. Additionally, Essa Pharma Inc. recently completed a Phase 1 study with EPI-506, an AR antagonist that targets the N-terminal domain of the AR, and has plans to develop a second generation agent. C4 Therapeutics, Inc. is developing degronimids as means to degrade the AR through the ligand binding domain associated degradation. CellCentric is developing therapies that target the histone methyltransferase enzyme to lower AR levels, and recently initiated a clinical trial with CCS1477 in prostate cancer. Oric Pharmaceuticals is targeting the glucocorticoid receptor as a means to impact men that have CRPC, and has a lead candidate ORIC-101 in preclinical testing. In addition to this specific potential mechanistic competition, there are various products approved or under clinical development in the broader space of treating men with advanced prostate cancer who have metastatic CRPC which may compete with GTx’s proposed initial clinical objective for its SARD compounds. Pfizer and Astellas Pharma market XTANDI® (enzalutamide), an oral androgen receptor antagonist, for the treatment of metastatic CRPC in men previously treated with docetaxel as well as those that have not yet received chemotherapy. XTANDI® received FDA approval in July 2018 for the treatment of men with non-metastatic CRPC. Zytiga®, sold by Johnson & Johnson, has been approved for the treatment of metastatic CRPC and metastatic high-risk castration-sensitive prostate cancer. Johnson & Johnson also received FDA approval for a second generation anti-androgen ERLEADA (apalutamide) for the treatment of men with non-metastatic castrate-resistant prostate cancer. Bayer HealthCare and Orion Corporation recently announced that the primary endpoint of increased metastatic free survival was met in a Phase 3 study of darolutamide (ODM-201) in men with CRPC without metastases and with a rising PSA. Another target in prostate cancer that is being pursued by several companies is bromodomain inhibition. Zenith Epigenetics, Gilead Sciences Inc., CellCentric, Incyte Corporation and GlaxoSmithKline are among the companies that are evaluating BET inhibitors in Phase 1-2 trials.

With respect to SARMs, there are other SARM product candidates in development that may compete with enobosarm and any future SARM product candidates, if approved for commercial sale. For example, Viking Therapeutic’s VK5211 recently reported positive results from a Phase 2 study for patients recovering from non-elective hip fracture surgery. Radius Health Inc.’s RAD140 is currently being evaluated in a Phase 1 study in postmenopausal women with hormone-receptor positive locally advanced or metastatic breast cancer. GlaxoSmithKline is conducting a Phase 1 study to assess the effect of GSK2881078 on physical strength and function after 13 weeks of treatment in patients with chronic obstructive pulmonary disease (“COPD”), and muscle weakness. OPKO Health’s OPK88004 is enrolling in a dose ranging study to improve symptoms of benign prostatic hyperplasia (“BPH”) by reducing prostate size and, on the basis of data from a previous trial in 350 men, increase muscle mass and bone strength and decrease body fat.

Many of GTx’s competitors have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than GTx does. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These third parties compete with GTx in recruiting and retaining qualified scientific and management personnel, establishing

 

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clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies and technology licenses complementary to GTx’s programs or advantageous to its business.

Risks Related to Employees, Growth and Other Aspects of GTx’s Operations

GTx’s internal computer and information technology systems, or those of its CROs or other contractors or consultants, may fail or suffer security breaches, or could otherwise face serious disruptions, which could result in a material disruption of GTx’s product development efforts and could result in significant financial, legal, regulatory, business and reputational harm to GTx.

Despite the implementation of security measures, GTx’s internal computer and information technology systems and those of its CROs and other contractors and consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, and telecommunication and electrical failures. Such events could cause interruptions of its operations. For instance, the loss of preclinical data or data from potential future clinical trials involving its product candidates, if any, could result in delays in GTx’s development and regulatory filing efforts and significantly increase its costs. In addition, while all information technology operations are inherently vulnerable to inadvertent or intentional security breaches, incidents, attacks and exposures, the size, complexity, accessibility and distributed nature of GTx’s information technology systems, and the large amounts of sensitive information stored on those systems, make such systems potentially vulnerable to unintentional or malicious, internal and external attacks on GTx’s technology environment. Potential vulnerabilities can be exploited from inadvertent or intentional actions of its employees, third-party vendors, business partners, or by malicious third parties. Attacks of this nature are increasing in their frequency, levels of persistence, sophistication and intensity, and are being conducted by sophisticated and organized groups and individuals with a wide range of motives (including, but not limited to, industrial espionage) and expertise, including organized criminal groups, “hacktivists,” nation states and others. To the extent that any disruption or security breach or incident were to result in a loss of, or damage to, GTx’s data, or inappropriate disclosure of confidential, proprietary or protected health information, GTx could be subject to significant legal, financial and regulatory exposure and suffer reputational harm, and the development of its product candidates could be delayed. In addition, security breaches and other inappropriate access events can be difficult to detect, and any delay in identifying them may lead to increased harm of the type described above. Moreover, the prevalent use of mobile devices to access confidential information increases the risk of security breaches. While GTx has implemented security measures to protect its information technology systems and infrastructure, there can be no assurance that such measures will prevent service interruptions or security breaches that could adversely affect its business. In addition, GTx’s information technology and other internal infrastructure systems, including corporate firewalls, servers, leased lines and connection to the Internet, face the risk of systemic failure that could disrupt its operations. A significant disruption in the availability of its information technology and other internal infrastructure systems could cause delays in its research and development work and could otherwise adversely affect GTx’s business. In addition, failure to maintain effective internal accounting controls related to security breaches and cybersecurity in general could impact GTx’s ability to produce timely and accurate financial statements and subject GTx to regulatory scrutiny.

If GTx fails to keep senior management and personnel, GTx may be unable to continue its business operations.

GTx’s success depends on its continued ability to retain and motivate highly qualified management and personnel. Significant competition exists for qualified personnel in the biotechnology field. GTx may incur greater costs than anticipated, or may not be successful, in retaining or motivating its existing personnel. If GTx is not able to keep senior management and personnel, its ability to continue its business operations could be impaired, and the value of stockholders’ investment would be adversely impacted. All of GTx’s employees are at-will employees and can terminate their employment at any time.

To conserve its cash resources, GTx 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,

 

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completing ongoing SARD preclinical studies and those activities necessary to complete the merger. As of March 31, 2019, GTx had only 13 full-time employees. Accordingly, GTx has been and is continuing operating with a shortage of resources and may not be able to effectively conduct its operations with this limited number of employees. In addition, GTx’s ability to successfully complete the merger depends in large part on its ability to retain its remaining personnel. Despite its efforts to retain these employees, one or more may terminate their employment with GTx on short notice. The loss of the services of any of these employees could potentially harm GTx’s ability to consummate the merger, to run its day-to-day business operations, as well as to fulfill its reporting obligations as a public company.

If the merger is not completed and GTx is able to raise sufficient additional funds necessary to pursue the continued development of its SARD program, GTx will need to hire a substantial number of additional employees. Any inability to manage future growth could harm GTx’s ability to develop and commercialize any potential future product candidates, increase its costs and adversely impact its ability to compete effectively.

As of March 31, 2019, GTx had only 13 full-time employees. If the merger is not completed and GTx is able to raise sufficient additional funds necessary to pursue the continued development of its SARD program, GTx will need to hire experienced personnel to continue to develop its SARD program and to develop and commercialize any potential future product candidates, and GTx will need to expand the number of its managerial, operational, financial and other employees to support that growth. Significant competition exists for qualified Future growth, if any, will impose significant added responsibilities on members of management, including the need to identify, recruit, maintain and integrate additional employees. GTx’s future financial performance and its ability to develop and commercialize any potential future product candidates and to compete effectively will depend, in part, on its ability to manage any future growth effectively.

Management transition creates uncertainties and could harm GTx’s business.

GTx has in the past, and may again in the future, experience significant changes in executive leadership. Changes to company strategy, which can often times occur with the appointment of new executives, can create uncertainty, may negatively impact GTx’s ability to execute quickly and effectively, and may ultimately be unsuccessful. In addition, executive leadership transition periods are often difficult as the new executives gain detailed knowledge of GTx’s operations, and friction can result from changes in strategy and management style. Management transition inherently causes some loss of institutional knowledge, which can negatively affect strategy and execution. Until GTx integrates new personnel, and unless they are able to succeed in their positions, GTx may be unable to successfully manage and grow its business, and its results of operations and financial condition could suffer as a result. In any event, changes in GTx’s organization as a result of executive management transition may have a disruptive impact on its ability to implement its strategy and could have a material adverse effect on its business, financial condition and results of operations.

Risks Related to GTx’s Common Stock

The market price of GTx’s common stock has been volatile and may continue to be volatile in the future. This volatility may cause GTx’s stock price and the value of stockholders’ investment to decline.

The market prices for securities of biotechnology companies, including those of GTx, have been highly volatile and may continue to be so in the future. In this regard, the market price for GTx’s common stock has varied between a high of $25.60 on September 13, 2018, and a low of $0.74 on December 24, 2018, in the 12-month period ended December 31, 2018. The market price of GTx’s common stock is likely to continue to be volatile and subject to significant price and volume fluctuations. The following factors, in addition to other risk factors described in this section, may have a significant impact on the market price of GTx’s common stock:

 

   

GTx’s ability to consummate the transactions contemplated by the Merger Agreement, including the merger;

 

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GTx’s ability to execute on its SARD development program, including its ability to conduct and complete IND-enabling studies and potentially advance one of its SARD compounds into a first-in-human clinical trial;

 

   

GTx’s ability to raise sufficient additional funds necessary for the continued development of its SARD program, whether through potential collaborative, partnering or other strategic arrangements or otherwise;

 

   

GTx’s ability to realize any value from its SARM assets, particularly in light of its decision to discontinue the development of enobosarm and its SARM technology generally;

 

   

the terms and timing of any future collaborative, licensing or other strategic arrangements that GTx may establish;

 

   

uncertainties created by GTx’s potential future management turnover;

 

   

GTx’s inability to comply with the minimum listing requirements of the Nasdaq Stock Market LLC;

 

   

the timing of achievement of, or failure to achieve, GTx’s and any potential collaborators’ clinical, regulatory and other milestones, such as the commencement of clinical development, the completion of a clinical trial or the receipt of regulatory approval;

 

   

reports of unacceptable incidences of adverse events observed in any future clinical trials of any product candidates that GTx and/or any potential collaborators may develop;

 

   

announcement of FDA approval or non-approval of any potential future product candidates or delays in or adverse events during the FDA review process;

 

   

actions taken by regulatory agencies with respect to any potential future product candidates or GTx’s potential future clinical trials, if any, including regulatory actions requiring or leading to a delay or stoppage of any clinical trials;

 

   

introductions or announcements of technological innovations or new products by GTx, its potential collaborators, or its competitors, and the timing of these introductions or announcements;

 

   

the commercial success of any product approved by the FDA or its foreign counterparts;

 

   

market conditions for equity investments in general, or the biotechnology or pharmaceutical industries in particular;

 

   

regulatory developments in the United States and foreign countries;

 

   

changes in the structure or reimbursement policies of health care payment systems;

 

   

if GTx’s patents covering its products candidates expire or are invalidated or are found to be unenforceable, or if some or all of its patent applications do not result in issued patents or result in patents with narrow, overbroad, or unenforceable claims;

 

   

competition from third parties with products in the same class of products as any potential future product candidates or products with the same active pharmaceutical ingredients as those product candidates;

 

   

any intellectual property infringement lawsuit involving GTx;

 

   

actual or anticipated fluctuations in GTx’s results of operations;

 

   

changes in financial estimates or recommendations by securities analysts;

 

   

hedging or arbitrage trading activity that may develop regarding GTx’s common stock;

 

   

sales of GTx common stock and other securities by it;

 

   

sales of GTx common stock by its executive officers, directors and significant stockholders;

 

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the low trading volume of GTx common stock;

 

   

changes in accounting principles; and

 

   

additional losses of any of GTx’s key management personnel.

In addition, the stock markets in general, and the markets for biotechnology and pharmaceutical stocks in particular, have experienced significant volatility that has often been unrelated to the operating performance of particular companies. For example, negative publicity regarding drug pricing and price increases by pharmaceutical companies has negatively impacted, and may continue to negatively impact, the markets for biotechnology and pharmaceutical stocks. Likewise, as a result of significant changes in U.S. social, political, regulatory and economic conditions or in laws and policies governing foreign trade and health care spending and delivery, including the possible repeal and/or replacement of all or portions of the Healthcare Reform Act or changes in tariffs and other restrictions on free trade stemming from the Trump Administration and foreign government policies, the financial markets could experience significant volatility that could also negatively impact the markets for biotechnology and pharmaceutical stocks. These broad market fluctuations may adversely affect the trading price of GTx’s common stock.

In the past, class action litigation has often been instituted against companies whose securities have experienced periods of volatility in market price. Any such litigation brought against GTx could result in substantial costs, which would hurt its financial condition and results of operations and divert management’s attention and resources, which could result in delays of GTx’s development efforts.

If GTx fails to meet continued listing standards of the Nasdaq Stock Market LLC, its common stock may be delisted. Delisting could adversely affect the liquidity of GTx’s common stock and the market price of its common stock could decrease, and GTx’s ability to obtain sufficient additional capital to fund its operations would be substantially impaired.

GTx’s common stock is currently listed on the Nasdaq Capital Market. The Nasdaq Stock Market LLC, or Nasdaq, has minimum requirements that a company must meet in order to remain listed on the Nasdaq Capital Market. These requirements include maintaining a minimum closing bid price of $1.00 per share (the “Bid Price Requirement”), and the closing bid price of GTx’s common stock has in the past been well below $1.00 per share. In this regard, on December 5, 2016, GTx effected one-for-ten reverse stock split of its outstanding common stock (the “2016 Reverse Stock Split”), the primary purpose of which was to enable GTx to regain compliance with the Bid Price Requirement, which compliance was regained on December 20, 2016. However, the closing bid price of GTx’s common stock has recently been well below $1.00 per share, and there can be no assurance that GTx will meet the Bid Price Requirement, or any other Nasdaq continued listing requirement, in the future. If GTx fails to meet these requirements, including the Bid Price Requirement and requirements to maintain minimum levels of stockholders’ equity or market values of its common stock, Nasdaq may notify GTx that it has failed to meet the minimum listing requirements and initiate the delisting process.

If GTx’s common stock is delisted, GTx would expect its common stock to be traded in the over-the-counter market, which could adversely affect the liquidity of its common stock. Additionally, GTx could face significant material adverse consequences, including:

 

   

a limited availability of market quotations for its common stock;

 

   

a reduced amount of news and analyst coverage for GTx;

 

   

a decreased ability to issue additional securities and a concomitant substantial impairment in GTx’s ability to obtain sufficient additional capital to fund its operations and to continue as a going concern;

 

   

reduced liquidity for its stockholders;

 

   

potential loss of confidence by employees and potential future partners or collaborators; and

 

   

loss of institutional investor interest and fewer business development opportunities.

 

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GTx’s executive officers, directors and largest stockholders have the ability to control all matters submitted to stockholders for approval.

Based solely on the most recent Schedules 13G and 13D filed with the SEC and reports filed with the SEC under Section 16 of the Exchange Act, GTx’s executive officers, directors and holders of 5% or more of its outstanding common stock, including their affiliated or associated entities, held approximately 53.5% of GTx’s outstanding common stock, and GTx’s executive officers and directors alone, including their affiliated or associated entities, held approximately 30.0% of GTx’s outstanding common stock as well as warrants to purchase up to an additional 3.2 million shares of common stock. As a result, these stockholders, acting together, have the ability to control all matters requiring approval by its stockholders, including the election of directors, the approval of the issuance of shares of GTx’s common stock pursuant to the Merger Agreement, and the approval of potential alternative mergers or other business combination transactions. The interests of this group of stockholders may not always coincide with GTx’s interests or the interests of other stockholders.

GTx’s ability to use its net operating loss carryforwards and certain other tax attributes may be limited.

GTx has a significant amount of federal and state net operating loss (“NOL”) carryforwards. In this regard, as of December 31, 2018, GTx had net federal operating loss carryforwards of approximately $472.1 million. The federal operating loss carryforwards originating prior to 2018 will expire from 2019 to 2037 if not utilized, and state operating loss carryforwards of approximately $411.4 million will expire from 2019 to 2038 if not utilized. GTx’s ability to use its federal and state NOL carryforwards to offset potential future taxable income and related income taxes that would otherwise be due is dependent upon its generation of future taxable income before the expiration dates of the NOL carryforwards, and GTx cannot predict with certainty when, or whether, it will generate sufficient taxable income to use all of its NOL carryforwards. On December 22, 2017, President Trump signed into law U.S. federal income tax legislation, informally titled the Tax Cuts and Jobs Act (the “Tax Act”). Under the Tax Act, federal NOLs incurred in taxable years ending after December 31, 2017 may be carried forward indefinitely, but the deductibility of NOLs generated in taxable years beginning after December 31, 2017 is limited. It is uncertain if and to what extent various states will conform to the Tax Act. In addition, under Sections 382 and 383 of the Code, if a corporation undergoes an “ownership change,” generally defined as a greater than 50% change (by value) in its equity ownership over a three-year period, the corporation’s ability to use its pre-change NOL carryforwards and other pre-change tax attributes (such as research tax credits) to offset its post-change taxable income or taxes may be limited. GTx completed a study through December 31, 2016 to determine whether any Section 382 limitations exist and, as a result of this study and GTx’s analysis of subsequent ownership changes, GTx does not believe that any Section 382 limitations exist through December 31, 2018, though GTx has not yet conducted an in-depth analysis since the last study. Section 382 of the Code is an extremely complex provision with respect to which there are many uncertainties, however and GTx has not established whether the IRS agrees with its determination. In any event, GTx’s 2016 and 2017 equity offerings, its past and potential future issuances of common stock pursuant to the ATM Sales Agreement, other future equity offerings and/or changes in its stock ownership, some of which are outside of its control, could in the future result in an ownership change and an accompanying Section 382 limitation. In addition, the merger, if consummated, will constitute an ownership change (within the meaning Section 382 of the Code) which could eliminate or otherwise substantially limit GTx’s federal and state NOL carryforwards. Therefore, utilization of a portion of GTx’s domestic NOL and tax credit carryforwards will likely be limited in future periods and a portion of the carryforwards could expire before being available to reduce future income tax liabilities.

Anti-takeover provisions in GTx’s charter documents and under Delaware law could make an acquisition of GTx, which may be beneficial to its stockholders, more difficult and may prevent attempts by its stockholders to replace or remove GTx’s current management.

Provisions in GTx’s certificate of incorporation and its bylaws may delay or prevent an acquisition of GTx or a change in its management. In addition, these provisions may frustrate or prevent any attempts by its stockholders

 

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to replace or remove its current management by making it more difficult for stockholders to replace members of its Board of Directors. Because the GTx Board is responsible for appointing the members of the management team, these provisions could in turn affect any attempt by GTx’s stockholders to replace current members of its management team. These provisions include:

 

   

a classified Board of Directors;

 

   

a prohibition on actions by its stockholders by written consent;

 

   

the ability of the GTx Board to issue preferred stock without stockholder approval, which could be used to institute a “poison pill” that would work to dilute the stock ownership of a potential hostile acquirer, effectively preventing acquisitions that have not been approved by the GTx Board; and

 

   

limitations on the removal of directors.

Moreover, because GTx is incorporated in Delaware, it is governed by the provisions of Section 203 of the Delaware General Corporation Law, which prohibits a person who owns 15% or more of its outstanding voting stock from merging or combining with GTx for a period of three years after the date of the transaction in which the person acquired 15% or more of GTx’s outstanding voting stock, unless the merger or combination is approved in a prescribed manner. Finally, these provisions establish advance notice requirements for nominations for election to the GTx Board or for proposing matters that can be acted upon at stockholder meetings. These provisions would apply even if the offer may be considered beneficial by some stockholders.

GTx’s amended and restated bylaws provide that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially all disputes between GTx and its stockholders, which could limit GTx’s stockholders’ ability to obtain a favorable judicial forum for disputes with GTx or its directors, officers or employees.

GTx’s amended and restated bylaws provide that the Court of Chancery of the State of Delaware is the exclusive forum for any derivative action or proceeding brought on behalf of GTx, for any action asserting a claim of breach of a fiduciary duty owed by any current or former director, officer, other employee or stockholder of GTx to GTx or to its stockholders, for any action asserting a claim arising pursuant to any provision of the DGCL, GTx’s restated certificate of incorporation or its amended and restated bylaws or as to which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware, or for any action asserting a claim governed by the internal affairs doctrine. The choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with GTx or its directors, officers or other employees, which may discourage such lawsuits against GTx and its directors, officers and other employees. If a court were to find the choice of forum provision contained in GTx’s amended and restated bylaws to be inapplicable or unenforceable in an action, GTx may incur additional costs associated with resolving such action in other jurisdictions, which could harm its financial condition.

If there are substantial sales of GTx’s common stock, the market price of its common stock could drop substantially, even if its business is doing well.

For the 12-month period ended December 31, 2018, the average daily trading volume of GTx’s common stock on the Nasdaq Capital Market was only 705,027 shares. As a result, future sales of a substantial number of shares of its common stock in the public market, or the perception that such sales may occur, could adversely affect the then-prevailing market price of GTx’s common stock. As of December 31, 2018, GTx had 24,051,844 shares of common stock outstanding. In addition, as a result of the low trading volume of its common stock, which was exacerbated by the 2016 Reverse Stock Split, the trading of relatively small quantities of shares by its stockholders may disproportionately influence the market price of its common stock in either direction. The price for GTx shares could, for example, decline significantly in the event that a large number of its common shares are sold on the market without commensurate demand, as compared to an issuer with a higher trading volume that could better absorb those sales without an adverse impact on its stock price. In addition, due to the

 

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limitations of its market, the volatility in the market price of GTx common stock and its currently-depressed stock price, stockholders may face difficulties in selling shares at attractive prices when they want to sell.

In September 2017, GTx completed a private placement of 5.5 million shares of its common stock and warrants to purchase 3.3 million shares of its common stock. In November 2014, GTx completed a private placement of 6.4 million shares of its common stock and warrants to purchase 6.4 million shares of its common stock (as adjusted to give effect to the 2016 Reverse Stock Split). Similarly, in March 2014 GTx completed a private placement of 1.2 million shares of its common stock and warrants to purchase 1.0 million shares of its common stock (as adjusted to give effect to the 2016 Reverse Stock Split). Pursuant to the terms of the registration rights or securities purchase agreements GTx entered into in connection with these private placements, GTx has filed registration statements under the Securities Act registering the resale of an aggregate of approximately 23.8 million shares of common stock that GTx issued to, or are issuable upon the exercise of warrants that GTx issued to, the investors in these private placements, which investors include its largest stockholders. Moreover, J.R. Hyde, III and certain of his affiliates, have rights under a separate registration rights agreement with GTx to require GTx to file resale registration statements covering an additional 785,000 shares of common stock held in the aggregate or to include these shares in registration statements that GTx may file for itself or other stockholders. If Mr. Hyde or his affiliates or any of GTx’s other significant stockholders, including the other investors in GTx’s private placements, were to sell large blocks of shares in a short period of time, the market price of GTx’s common stock could drop substantially.

The comprehensive U.S. tax reform bill passed in 2017 could adversely affect GTx’s business and financial condition.

On December 22, 2017, President Trump signed the Tax Act into law, which significantly revised the Code. The Tax Act, among other things, contained significant changes to corporate taxation, including reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%, limitation of the tax deduction for interest expense to 30% of adjusted taxable income (except for certain small businesses), limitation of the deduction for NOLs generated in tax years beginning after December 31, 2017 to 80% of current year taxable income and elimination of carrybacks of NOLs arising in taxable years ending after December 31, 2017, one-time taxation of offshore earnings at reduced rates regardless of whether they are repatriated, immediate deductions for certain new investments instead of deductions for depreciation expense over time, and modifying or repealing many business deductions and credits (including reducing the business tax credit for certain clinical testing expenses incurred in the testing of certain drugs for rare diseases or conditions). Notwithstanding the reduction in the corporate income tax rate, the overall impact of the Tax Act could adversely affect GTx. In addition, it is uncertain if and to what extent various states will conform to the Tax Act. The impact of the Tax Act on holders of GTx’s common stock is also uncertain and could be adverse. GTx urges its stockholders to consult with their legal and tax advisors with respect to this legislation and the potential tax consequences of investing in or holding GTx common stock.

Risks Related to Oncternal

Risks Related to Oncternal’s Limited Operating History, Financial Position and Capital Requirements

Oncternal has a limited operating history, has incurred significant operating losses since its inception and expects to incur significant losses for the foreseeable future. Oncternal may never generate any revenue or become profitable or, if Oncternal achieves profitability, it may not be able to sustain it.

Biopharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk. Oncternal is a clinical-stage biopharmaceutical company with a limited operating history upon which you can evaluate Oncternal’s business and prospects. Oncternal commenced operations in 2013, and to date, Oncternal has focused primarily on organizing and staffing its company, business planning, raising capital, identifying, acquiring and in-licensing Oncternal’s product candidates and conducting preclinical studies and early-stage clinical trials. Cirmtuzumab and TK216 are in clinical development, while Oncternal’s other

 

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development programs, including its ROR1 CAR-T program, remain in the preclinical stage. Oncternal has not yet demonstrated an ability to successfully obtain regulatory approvals, manufacture a commercial scale product, or arrange for a third-party to do so on Oncternal’s behalf, or embark on sales and marketing activities necessary for successful post regulatory approval product commercialization, and has not developed any companion diagnostic test for its product candidates. Consequently, any predictions made about Oncternal’s future success or viability may not be as accurate as they could be if Oncternal had a history of successfully developing and commercializing biopharmaceutical products.

Oncternal has incurred significant operating losses since its inception. If Oncternal’s product candidates are not successfully developed and approved, it may never generate any revenue. Oncternal’s net losses were $6.6 million and $10.4 million for the years ended December 31, 2018, and December 31, 2017, respectively. As of December 31, 2018, Oncternal had an accumulated deficit of $31.4 million. Substantially all of Oncternal’s losses have resulted from expenses incurred in connection with its research and development programs and from general and administrative costs associated with Oncternal’s operations. All of Oncternal’s product candidates will require substantial additional development time and resources before Oncternal would be able to apply for or receive regulatory approvals and begin generating revenue from product sales. Oncternal expects to continue to incur losses for the foreseeable future, and anticipates these losses will increase substantially as Oncternal continues to develop, seek regulatory approval for and potentially commercialize any of Oncternal’s product candidates, and seeks to identify, assess, acquire, in-license or develop additional product candidates.

To become and remain profitable, Oncternal must succeed in developing and eventually commercializing products that generate significant revenue. This will require Oncternal to be successful in a range of challenging activities, including completing clinical trials and preclinical studies of its product candidates, obtaining regulatory approval for these product candidates and manufacturing, marketing and selling any products for which Oncternal may obtain regulatory approval. Oncternal is only in the preliminary stages of most of these activities. Oncternal may never succeed in these activities and, even if it does, may never generate revenues that are significant enough to achieve profitability. In addition, Oncternal has not yet demonstrated an ability to successfully overcome many of the risks and uncertainties frequently encountered by companies in new and rapidly evolving fields, particularly in the biopharmaceutical industry. Because of the numerous risks and uncertainties associated with biopharmaceutical product development, Oncternal is unable to accurately predict the timing or amount of increased expenses or when, or if, Oncternal will be able to achieve profitability. Even if Oncternal does achieve profitability, it may not be able to sustain or increase profitability on a quarterly or annual basis. Oncternal’s failure to become and remain profitable would depress the value of Oncternal and could impair its ability to raise capital, expand its business, maintain its research and development efforts, diversify its product candidates or even continue its operations. A decline in the value of Oncternal could also cause stockholders to lose all or part of their investment.

Oncternal will require substantial additional financing to achieve its goals, and a failure to obtain this necessary capital when needed and on acceptable terms, or at all, could force Oncternal to delay, limit, reduce or terminate its product development programs, commercialization efforts or other operations.

The development of biopharmaceutical product candidates is capital-intensive. Oncternal expects its expenses to increase in connection with its ongoing activities, particularly as Oncternal conducts its ongoing and planned clinical trials of cirmtuzumab and TK216, continues research and development and initiates clinical trials of Oncternal’s other development programs and seeks regulatory approval for its current product candidates and any future product candidates Oncternal may develop. In addition, as Oncternal’s product candidates progress through development and toward commercialization, Oncternal will need to make milestone payments to the licensors and other third parties from whom Oncternal has in-licensed or acquired its product candidates, including cirmtuzumab, TK216 and CAR-T. If Oncternal obtains regulatory approval for any of its product candidates, Oncternal also expects to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution. Because the outcome of any clinical trial or preclinical study is highly uncertain, Oncternal cannot reasonably estimate the actual amounts necessary to successfully complete the

 

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development and commercialization of its product candidates. Furthermore, following the completion of the merger, Oncternal will incur the additional costs associated with operating as a public company. Accordingly, Oncternal will need to obtain substantial additional funding in connection with its continuing operations. If Oncternal is unable to raise capital when needed or on attractive terms, Oncternal could be forced to delay, reduce or eliminate its research and development programs or any future commercialization efforts.

Oncternal has based its estimates on assumptions that may prove to be wrong, and Oncternal could use its capital resources sooner than it currently expects. Oncternal’s operating plans and other demands on its cash resources may change as a result of many factors currently unknown to Oncternal, and Oncternal may need to seek additional funds sooner than planned, through public or private equity or debt financings or other capital sources, including potentially government funding, collaborations, licenses and other similar arrangements. In addition, Oncternal may seek additional capital due to favorable market conditions or strategic considerations even if Oncternal believes it has sufficient funds for its current or future operating plans. Attempting to secure additional financing may divert Oncternal’s management from its day-to-day activities, which may adversely affect Oncternal’s ability to develop its product candidates.

Oncternal’s future capital requirements will depend on many factors, including:

 

   

the type, number, scope, progress, expansions, results, costs and timing of, its clinical trials and preclinical studies of product candidates that Oncternal is pursuing or may choose to pursue in the future;

 

   

Oncternal’s efforts to evaluate, develop or partner the GTx product candidates, including the SARD assets;

 

   

the costs and timing of manufacturing for Oncternal’s product candidates, including commercial manufacturing if any product candidate is approved;

 

   

the costs, timing and outcome of regulatory review of Oncternal’s product candidates;

 

   

the costs of obtaining, maintaining and enforcing Oncternal’s patents and other intellectual property rights;

 

   

Oncternal’s efforts to enhance operational systems and hire additional personnel to satisfy its obligations as a public company, including enhanced internal controls over financial reporting;

 

   

the costs associated with hiring additional personnel and consultants as Oncternal’s clinical and other development activities increase;

 

   

the timing and amount of the milestone or other payments Oncternal must make to the licensors and other third parties from whom Oncternal has in-licensed or acquired its product candidates or technology;

 

   

the costs and timing of establishing or securing sales and marketing capabilities if any product candidate is approved;

 

   

Oncternal’s ability to achieve sufficient market acceptance, coverage and adequate reimbursement from third-party payors and adequate market share and revenue for any approved products;

 

   

the terms and timing of establishing and maintaining collaborations, licenses and other similar arrangements; and

 

   

costs associated with any products or technologies that Oncternal may in-license or acquire.

Conducting clinical trials and preclinical studies is a time consuming, expensive and uncertain process that takes years to complete, and Oncternal may never generate the necessary data or results required to obtain regulatory approval and achieve product sales. In addition, Oncternal’s product candidates, if approved, may not achieve commercial success. Oncternal’s commercial revenues, if any, will be derived from sales of products that Oncternal does not expect to be commercially available for many years, if at all.

 

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Accordingly, Oncternal will need to continue to rely on additional financing to achieve its business objectives. Adequate additional financing may not be available to Oncternal on acceptable terms, or at all. In addition, Oncternal may seek additional capital due to favorable market conditions or strategic considerations, even if Oncternal believes it has sufficient funds for its current or future operating plans.

Raising additional capital may cause dilution to Oncternal’s stockholders, restrict Oncternal’s operations or require Oncternal to relinquish rights to its technologies or product candidates.

Until such time, if ever, as Oncternal can generate substantial product revenues, Oncternal expects to finance its cash needs through equity offerings, debt financings or other capital sources, including potentially government funding, collaborations, licenses and other similar arrangements. To the extent that Oncternal raises additional capital through the sale of equity or convertible debt securities, existing stockholders’ ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect stockholders’ rights as a common stockholder. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting Oncternal’s ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.

If Oncternal raises funds through future collaborations, licenses and other similar arrangements, Oncternal may have to relinquish valuable rights to its future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to Oncternal and/or that may reduce the value of Oncternal’s common stock.

Risks Related to the Discovery, Development and Regulatory Approval of Oncternal’s Product Candidates

Oncternal depends heavily on the success of cirmtuzumab and TK216, which are in Phase 1 or Phase 2 clinical trials, as well as its ROR1 CAR-T program, which is in preclinical development. If Oncternal is unable to advance its product candidates in clinical development, obtain regulatory approval and ultimately commercialize its product candidates, or experiences significant delays in doing so, Oncternal’s business will be materially harmed.

Oncternal’s two clinical-stage product candidates are in Phase 1 or Phase 2 clinical development. In May 2018, Oncternal commenced a Phase 1b/2 clinical trial evaluating cirmtuzumab in combination with ibrutinib in patients with MCL and CLL. In addition, TK216 is currently being evaluated in a Phase 1 clinical trial in patients with relapsed or refractory Ewing sarcoma. Oncternal plans to initiate a Phase 1 clinical trial of TK216 in AML, and to commence IND-enabling preclinical studies for TK216 for the treatment of patients with prostate cancer. Additionally, Oncternal’s ROR1 CAR-T program will need further preclinical development and IND-enabling studies prior to commencing clinical development. None of Oncternal’s product candidates have advanced into a pivotal or registrational study for the indications for which Oncternal is studying them. Oncternal’s ability to generate product revenues, which Oncternal does not expect will occur for many years, if ever, will depend heavily on the successful development and eventual commercialization of its product candidates. The success of Oncternal’s product candidates will depend on various factors, including the following:

 

   

successful completion of preclinical and clinical studies with favorable results;

 

   

acceptance of INDs by the FDA or similar regulatory filing by comparable foreign regulatory authorities for the conduct of clinical trials of Oncternal’s product candidates and its proposed designs for future clinical trials;

 

   

demonstrating safety and efficacy of Oncternal’s product candidates to the satisfaction of applicable regulatory authorities;

 

   

receiving marketing approvals from applicable regulatory authorities, including Biologics License Applications (“BLAs”), or new drug applications (“NDAs”), from the FDA and maintaining such approvals;

 

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making arrangements with Oncternal’s third-party manufacturers for commercial manufacturing capabilities for Oncternal’s product candidates;

 

   

establishing sales, marketing and distribution capabilities and launching commercial sales of Oncternal’s product candidates, if and when approved, whether alone or in collaboration with others;

 

   

establishing and maintaining patent and trade secret protection or regulatory exclusivity for Oncternal’s product candidates;

 

   

the demonstration of an acceptable safety profile of Oncternal’s products following approval, if any;

 

   

developing, in-licensing or acquiring companion diagnostics to Oncternal’s product candidates; and

 

   

maintaining and growing an organization for people who can develop Oncternal’s product candidates and technology.

The success of Oncternal’s business, including its ability to finance the company and generate any revenue in the future, will primarily depend on the successful development, regulatory approval and commercialization of Oncternal’s product candidates, which may never occur. Oncternal has not yet succeeded and may not succeed in demonstrating efficacy and safety for any of its product candidates in clinical trials or in obtaining marketing approval thereafter. Given Oncternal’s early stage of development, it may be several years, if at all, before Oncternal has demonstrated the safety and efficacy of a product candidate sufficient to warrant approval for commercialization. If Oncternal is unable to develop, or obtain regulatory approval for, or, if approved, successfully commercialize its product candidates, Oncternal may not be able to generate sufficient revenue to continue its business.

Clinical drug development involves a lengthy and expensive process with an uncertain outcome, and the results of preclinical studies and early clinical trials are not necessarily predictive of future results. Oncternal’s product candidates may not have favorable results in clinical trials or receive regulatory approval on a timely basis, if at all.

Clinical drug development is expensive and can take many years to complete, and its outcome is inherently uncertain. Oncternal cannot guarantee that any clinical trials will be conducted as planned or completed on schedule, if at all, and failure can occur at any time during the preclinical study or clinical trial process. Despite promising preclinical or clinical results, any product candidate can unexpectedly fail at any stage of preclinical or clinical development. The historical failure rate for product candidates in Oncternal’s industry is high.

The results from preclinical studies or clinical trials of a product candidate may not predict the results of later clinical trials of the product candidate, and interim results of a clinical trial are not necessarily indicative of final results. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy characteristics despite having progressed through preclinical studies and initial clinical trials. In particular, while cirmtuzumab was well tolerated and was shown to inhibit ROR1 signaling in patients with CLL in early clinical trials, we do not know how cirmtuzumab will perform in the Phase 1b/2 clinical trial in combination with ibrutinib or any other future clinical trials, including as a result of any differences in the target population, drug interactions or other differences in our trial design. It is not uncommon to observe results in clinical trials that are unexpected based on preclinical studies and early clinical trials, and many product candidates fail in clinical trials despite very promising early results. Under the License and Development Agreement (the “SPH USA License Agreement”) by and between Oncternal and SPH USA, SPH USA has the right to manufacture, develop, market, distribute and sell Oncternal’s cirmtuzumab, ROR1 CAR-T, and TK216 product candidates in the People’s Republic of China, Hong Kong, Macau and Taiwan (“Greater China”), and the obligation to perform all preclinical and clinical development activities required to obtain regulatory approvals for such product candidates in Greater China. In the event that SPH USA’s preclinical studies or clinical trials of Oncternal’s product candidates raise new safety or efficacy concerns, the prospects for obtaining regulatory approval of Oncternal’s product candidates in the United States and other countries, and Oncternal’s business, could be adversely impacted.

 

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Moreover, this and any future preclinical and clinical data may be susceptible to varying interpretations and analyses. A number of companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in clinical development even after achieving promising results in earlier studies. Furthermore, we cannot assure you that we will be able to successfully progress our preclinical programs from candidate identification to Phase 1 clinical development.

For the foregoing reasons, Oncternal cannot be certain that its ongoing and planned clinical trials and preclinical studies will be successful. Any safety concerns observed in any one of Oncternal’s clinical trials in its targeted indications could limit the prospects for regulatory approval of Oncternal’s product candidates in those and other indications, which could have a material adverse effect on Oncternal’s business, financial condition and results of operations.

Any difficulties or delays in the commencement or completion, or termination or suspension, of Oncternal’s current or planned clinical trials could result in increased costs to Oncternal, delay or limit its ability to generate revenue, and adversely affect its commercial prospects.

Before obtaining marketing approval from regulatory authorities for the sale of Oncternal’s product candidates, Oncternal must conduct extensive clinical studies to demonstrate the safety and efficacy of the product candidates in humans. Oncternal is currently enrolling a Phase 1b/2a trial of cirmtuzumab in combination with ibrutinib in patients with CLL and MCL and conducting a dose-escalation Phase 1 trial of TK216 in patients with relapsed or refractory Ewing sarcoma. Oncternal will have to follow the same procedure for its other preclinical product candidates that Oncternal plans to advance to clinical development, and would also be required to submit regulatory filings to foreign regulatory authorities if Oncternal decides to initiate clinical trials outside of the United States.

Oncternal does not know whether its planned trials will begin on time or be completed on schedule, if at all. The commencement and completion of clinical trials can be delayed for a number of reasons, including delays related to:

 

   

subjects failing to enroll or remain in Oncternal’s trial at the rate Oncternal expects, or failing to return for post-treatment follow-up;

 

   

subjects choosing an alternative treatment for the indication for which Oncternal is developing its product candidates, or participating in competing clinical trials;

 

   

the FDA or comparable foreign regulatory authorities disagreeing as to the design or implementation of Oncternal’s clinical studies;

 

   

difficulties in obtaining regulatory authorizations to commence a trial or reaching a consensus with regulatory authorities on trial design;

 

   

difficulties in recruiting clinical trial investigators with the appropriate competencies and experience;

 

   

failure or delay in reaching an agreement with contract research organizations, or CROs, and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;

 

   

delays in obtaining approval from one or more institutional review boards, or IRBs;

 

   

IRBs refusing to approve, suspending or terminating the trial at an investigational site, precluding enrollment of additional subjects, or withdrawing their approval of the trial;

 

   

changes to clinical trial protocols;

 

   

clinical sites deviating from trial protocols or dropping out of a trial;

 

   

challenges in manufacturing sufficient quantities of product candidates or obtaining sufficient quantities of combination therapies for use in clinical trials;

 

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lack of adequate funding to continue clinical trials;

 

   

subjects experiencing severe or unexpected drug-related adverse effects;

 

   

occurrence of serious adverse events in clinical trials of the same class of agents conducted by other companies;

 

   

selection of clinical endpoints that require prolonged periods of clinical observation or analysis of the resulting data;

 

   

a facility manufacturing Oncternal’s product candidates or any of their components being ordered by the FDA or comparable foreign regulatory authorities to temporarily or permanently shut down due to violations of current Good Manufacturing Practices (“cGMP”) regulations or other applicable requirements, or infections or cross-contaminations of product candidates in the manufacturing process;

 

   

any changes to Oncternal’s manufacturing process that may be necessary or desired;

 

   

third-party clinical investigators losing the licenses or permits necessary to perform Oncternal’s clinical trials, not performing Oncternal’s clinical trials in a timely manner or consistent with applicable clinical trial protocols, good clinical practices (“GCP”), or other regulatory requirements; third-party contractors not performing data collection or analysis in a timely or accurate manner; or

 

   

third-party contractors becoming debarred or suspended or otherwise penalized by the FDA or other government or regulatory authorities for violations of regulatory requirements, in which case Oncternal may need to find a substitute contractor, and Oncternal may not be able to use some or all of the data produced by such contractors in support of Oncternal’s marketing applications.

Oncternal could also encounter delays if its clinical trials are suspended or terminated by Oncternal, by the IRBs of the institutions in which such trials are being conducted, by a Data Safety Monitoring Board for such trial, or by the FDA or comparable foreign regulatory authorities. Regulatory authorities may suspend or terminate clinical trials due to a number of factors, including failure to conduct clinical trials in accordance with regulatory requirements or the applicable clinical protocols, inspection of the clinical trial operations or trial site by the FDA or comparable foreign regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a drug, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. In addition, changes in regulatory requirements and policies may occur, and Oncternal may need to amend clinical trial protocols to comply with these changes. Amendments may require Oncternal to resubmit its clinical trial protocols to IRBs for reexamination, which may impact the costs, timing or successful completion of a clinical trial.

Further, if Oncternal decides to conduct clinical trials of its product candidates in foreign countries additional risks may arise that may delay completion of those clinical trials. These risks include the failure of enrolled patients in other countries to adhere to clinical protocol as a result of differences in healthcare practices or cultural customs, managing additional administrative burdens associated with the regulatory schemes of other countries, as well as political and economic risks relevant to other countries. Under Oncternal’s license and development agreement with SPH USA, SPH USA has the right to manufacture, develop, market, distribute and sell Oncternal’s cirmtuzumab, ROR1 CAR-T, and TK216 product candidates in the People’s Republic of China, Hong Kong, Macau and Taiwan, or Greater China, and the obligation to perform all preclinical and clinical development activities required to obtain regulatory approvals for such product candidates in Greater China. In the event that SPH USA’s preclinical studies or clinical trials of Oncternal’s product candidates raise new safety or efficacy concerns, the prospects for obtaining regulatory approval of Oncternal’s product candidates in the United States and other countries, and Oncternal’s business, could be adversely impacted.

Moreover, principal investigators for Oncternal’s clinical trials may serve as scientific advisors or consultants to Oncternal from time to time and receive compensation in connection with such services. Under certain

 

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circumstances, Oncternal may be required to report some of these relationships to the FDA or comparable foreign regulatory authorities. The FDA or comparable foreign regulatory authority may conclude that a financial relationship between Oncternal and a principal investigator has created a conflict of interest or otherwise affected interpretation of the study. The FDA or comparable foreign regulatory authority may therefore question the integrity of the data generated at the applicable clinical trial site and the utility of the clinical trial itself may be jeopardized. This could result in a delay in approval, or rejection, of Oncternal’s marketing applications by the FDA or comparable foreign regulatory authority, as the case may be, and may ultimately lead to the denial of marketing approval of one or more of Oncternal’s product candidates.

If Oncternal experiences delays in the completion of, or termination of, clinical trials of its product candidates, the commercial prospects of such product candidates may be harmed, and its ability to generate product revenues from such product candidates may be delayed. Moreover, delays in completing Oncternal’s clinical trials may increase its costs, slow down its product candidate development and approval process and jeopardize its ability to commence product sales and generate revenues.

In addition, many of the factors that cause, or lead to, the termination, suspension or delay in the commencement or completion of, clinical trials may also ultimately lead to the denial of regulatory approval of a product candidate. If Oncternal makes formulation or manufacturing changes to its product candidates, it may be required to conduct additional preclinical or clinical studies to bridge its modified product candidates to earlier versions. The need to conduct additional preclinical or clinical studies could result in delays in the approval or commercialization of Oncternal’s product candidates, which could shorten any period during which Oncternal may have the exclusive right to commercialize its product candidates and enable Oncternal’s competitors to bring products to market before Oncternal does. In such an event, the commercial viability of Oncternal’s product candidates could be significantly reduced. Any of these occurrences may harm Oncternal’s business, financial condition and prospects significantly.

Oncternal may find it difficult to enroll patients in its clinical trials. If Oncternal encounters difficulties enrolling subjects in its clinical trials, its clinical development activities could be delayed or otherwise adversely affected.

Oncternal may not be able to initiate or continue clinical trials for its product candidates if Oncternal is unable to identify and enroll a sufficient number of eligible patients to participate in these trials as required by the FDA or similar regulatory authorities outside the United States. Subject enrollment, a significant factor in the timing of clinical trials, is affected by many factors including the size and nature of the patient population, the proximity of patients to clinical sites, the eligibility and exclusion criteria for the trial, the design of the clinical trial, the availability of competing clinical trials and clinicians’ and patients’ perceptions as to the potential advantages and risks of the product candidate being studied in relation to other available therapies, including any new drugs that may be approved for the indications Oncternal is investigating as well as any drugs under development. Oncternal will be required to identify and enroll a sufficient number of subjects for each of its clinical trials. Potential subjects for any planned clinical trials may not be adequately diagnosed or identified with the diseases which Oncternal is targeting or may not meet the entry criteria for such trials. . For example, a limited number of patients are affected by CLL, MCL and particularly Ewing sarcoma, which are Oncternal’s initial target indications for cirmtuzumab and TK216. Oncternal also may encounter difficulties in identifying and enrolling subjects with a stage of disease appropriate for Oncternal’s planned clinical trials. Oncternal may not be able to initiate or continue clinical trials if Oncternal is unable to locate a sufficient number of eligible subjects to participate in the clinical trials required by the FDA or comparable foreign regulatory authorities. In addition, the process of finding and diagnosing subjects may prove costly.

The timing of Oncternal’s clinical trials depends, in part, on the speed at which Oncternal can recruit patients to participate in its trials, as well as completion of required follow-up periods. For certain of Oncternal’s product candidates, including cirmtuzumab and TK216, the conditions which Oncternal currently plans to evaluate are orphan or rare diseases with limited patient pools from which to draw for clinical trials. The eligibility criteria of

 

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Oncternal’s clinical trials will further limit the pool of available trial participants. If patients are unwilling to participate in Oncternal’s trials for any reason, including the existence of concurrent clinical trials for similar patient populations or the availability of approved therapies, or Oncternal otherwise has difficulty enrolling a sufficient number of patients, the timeline for recruiting subjects, conducting studies and obtaining regulatory approval of Oncternal’s product candidates may be delayed. Oncternal’s inability to enroll a sufficient number of subjects for any of its clinical trials would result in significant delays or may require Oncternal to abandon one or more clinical trials altogether. In addition, Oncternal expects to rely on CROs and clinical trial sites to ensure proper and timely conduct of its future clinical trials and, while Oncternal intends to enter into agreements governing their services, Oncternal will have limited influence over their actual performance.

Oncternal cannot assure stockholders that its assumptions used in determining expected clinical trial timelines are correct or that Oncternal will not experience delays in enrollment, which would result in the delay of completion of such trials beyond Oncternal’s expected timelines.

Use of Oncternal’s product candidates could be associated with side effects, adverse events or other properties or safety risks, which could delay or preclude approval, cause Oncternal to suspend or discontinue clinical trials, abandon a product candidate, limit the commercial profile of the label for an approved product candidate, or result in other significant negative consequences that could severely harm Oncternal’s business, prospects, operating results and financial condition.

As is the case with oncology drugs generally, it is likely that there may be side effects and adverse events associated with the use of Oncternal’s product candidates. Results of Oncternal’s clinical trials could reveal a high and unacceptable severity and prevalence, or unexpected characteristics of side effects. Undesirable side effects caused by Oncternal’s product candidates could cause Oncternal or regulatory authorities to interrupt, delay or halt clinical trials, result in a more restrictive label for the product candidate, or delay or cause the denial of regulatory approval of the product candidate by the FDA or comparable foreign regulatory authorities. The drug-related side effects could also affect patient recruitment for Oncternal’s clinical trials, or the ability of enrolled patients to complete the trials, or result in potential product liability claims. Any of these occurrences may harm Oncternal’s business, financial condition and prospects significantly.

Moreover, if Oncternal’s product candidates are associated with undesirable side effects in clinical trials or have characteristics that are unexpected, Oncternal may elect to abandon their development or limit their development to more narrow uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective, which may limit the commercial prospects for the product candidate if approved. Oncternal may also be required to modify its plans for future studies based on findings in Oncternal’s ongoing clinical trials. Many compounds that initially showed promise in early-stage testing have later been found to cause side effects that prevented further development of the compound. In addition, regulatory authorities may draw different conclusions or require additional testing to confirm these determinations.

It is possible that as Oncternal tests its product candidates in larger, longer and more extensive clinical trials, or as the use of these product candidates becomes more widespread if they receive regulatory approval, illnesses, injuries, discomforts and other adverse events that were observed in earlier trials, as well as conditions that did not occur or went undetected in previous trials, will be reported by subjects. If such side effects become known later in development or upon approval, if any, such findings may harm Oncternal’s business, financial condition and prospects significantly. In addition, our ongoing clinical trials of cirmtuzumab in combination with ibrutinib and TK216 in combination with vincristine, and the ongoing investigator-initiated clinical trial of cirmtuzumab in combination with paclitaxel, may reveal adverse events based on the combination therapy that may negatively impact the reported safety profile in such clinical trial.

 

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In addition, if one or more of Oncternal’s product candidates receives marketing approval, and Oncternal or others later identify undesirable side effects caused by such products, a number of potentially significant negative consequences could result, including:

 

   

regulatory authorities may withdraw, suspend or limit approvals of such product;

 

   

Oncternal may be required to recall a product or change the way such product is administered to patients;

 

   

regulatory authorities may require additional warnings on the label, such as a “black box” warning or a contraindication;

 

   

Oncternal may be required to implement a Risk Evaluation and Mitigation Strategy, or REMS, or create a medication guide outlining the risks of such side effects for distribution to patients;

 

   

Oncternal may be required to change the way a product is distributed or administered, conduct additional clinical trials or change the labeling of a product or be required to conduct additional post-marketing studies or surveillance;

 

   

Oncternal could be sued and held liable for harm caused to patients;

 

   

sales of the product may decrease significantly or the product could become less competitive; and

 

   

Oncternal’s reputation could suffer.

Any of these events could prevent Oncternal from achieving or maintaining market acceptance of the particular product candidate, if approved, and could significantly harm Oncternal’s business, results of operations and prospects.

The regulatory landscape that will apply to development of gene therapy or cell-based therapeutic product candidates by Oncternal or its collaborators is rigorous, complex, uncertain and subject to change, which could result in delays or termination of development of such product candidates or unexpected costs in obtaining regulatory approvals.

Regulatory requirements governing products involving gene therapy treatment have changed frequently and will likely continue to change in the future. Approvals by one regulatory agency may not be indicative of what any other regulatory agency may require for approval, and there is substantial, and sometimes uncoordinated, overlap in those responsible for regulation of gene therapy products, cell therapy products and other products created with genome editing technology. For example, in addition to the submission of an investigational new drug application, or IND, to the FDA, before initiation of a clinical trial in the United States, certain human clinical trials for cell therapy products and gene therapy had historically been subject to review by the Recombinant DNA Advisory Committee (the “RAC”), of the National Institutes of Health (“NIH”), Office of Biotechnology Activities (“OBA”), pursuant to the NIH Guidelines for Research Involving Recombinant DNA Molecules (“NIH Guidelines”). Following an initial review, RAC members would make a recommendation as to whether the protocol raises important scientific, safety, medical, ethical or social issues that warrant in-depth discussion at the RAC’s quarterly meetings. Even though the FDA decides whether individual cell therapy or gene therapy protocols may proceed under an IND, the RAC’s recommendations were shared with the FDA and the RAC public review process, if undertaken, could delay the initiation of a clinical trial, even if the FDA had reviewed the trial design and details and has not objected to its initiation or has notified the sponsor that the study may begin. Conversely, the FDA could have put an IND on clinical hold even if the RAC provided a favorable review or had recommended against an in-depth, public review. On August 17, 2018, the NIH issued a notice in the Federal Register and issued a public statement proposing changes to the oversight framework for gene therapy trials, including changes to the applicable NIH Guidelines to modify the roles and responsibilities of the RAC with respect to human clinical trials of gene therapy products, and requesting public comment on its proposed modifications. The NIH announced that during the public comment period, which closed October 16, 2018, it would no longer accept new human gene transfer protocols for review as part of the protocol registration process

 

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under the existing NIH Guidelines or convene the RAC to review individual clinical protocols. These trials remain subject to the FDA’s oversight and other clinical trial regulations, and oversight at the local level will continue as otherwise set forth in the NIH Guidelines. Specifically, under the NIH Guidelines, supervision of human gene transfer trials includes evaluation and assessment by an institutional biosafety committee, or IBC, a local institutional committee that reviews and oversees research utilizing recombinant or synthetic nucleic acid molecules at that institution. The IBC assesses the safety of the research and identifies any potential risk to public health or the environment, and such review may result in some delay before initiation of a clinical trial. While the NIH Guidelines are not mandatory unless the research in question is being conducted at or sponsored by institutions receiving NIH funding of recombinant or synthetic nucleic acid molecule research, many companies and other institutions not otherwise subject to the NIH Guidelines voluntarily follow them. Even though Oncternal may not be required to submit a protocol for its gene therapy product candidates such as a ROR1 targeted CAR-T through the NIH for RAC review, Oncternal will still be subject to significant regulatory oversight by the FDA, and in addition to the government regulators, the applicable IBC and institutional review board, or IRB, of each institution at which Oncternal or its collaborators conduct clinical trials of its product candidates, or a central IRB if appropriate, would need to review and approve the proposed clinical trial.

The same applies in the European Union. The European Medicines Agency (the “EMA”), has a Committee for Advanced Therapies, or CAT, that is responsible for assessing the quality, safety and efficacy of advanced therapy medicinal products. Advanced-therapy medical products include gene therapy medicine, somatic-cell therapy medicines and tissue-engineered medicines. The role of the CAT is to prepare a draft opinion on an application for marketing authorization for a gene therapy medicinal candidate that is submitted to the EMA. In the European Union, the development and evaluation of a gene therapy medicinal product must be considered in the context of the relevant European Union guidelines. The EMA may issue new guidelines concerning the development and marketing authorization for gene therapy medicinal products and require that Oncternal complies with these new guidelines. Similarly complex regulatory environments exist in other jurisdictions in which Oncternal might consider seeking regulatory approvals for Oncternal’s product candidates, further complicating the regulatory landscape. As a result, the procedures and standards applied to gene therapy products and cell therapy products may be applied to any of Oncternal’s gene therapy product candidates such as CAR-T, but that remains uncertain at this point.

The clinical trial requirements of the FDA, the EMA and other regulatory authorities and the criteria these regulators use to evaluate the safety and efficacy of a product candidate vary substantially according to the type, complexity, novelty and intended use and market of the potential products. The regulatory approval process for product candidates involving gene therapy can be more lengthy, rigorous and expensive than the process for other better known or more extensively studied product candidates and technologies. Since Oncternal is developing novel treatments for diseases in which there is little clinical experience with new endpoints and methodologies, there is heightened risk that the FDA, the EMA or comparable regulatory bodies may not consider the clinical trial endpoints to provide clinically meaningful results, and the resulting clinical data and results may be more difficult to analyze. This may be a particularly significant risk for many of the genetically defined diseases for which Oncternal may develop product candidates alone or with collaborators due to small patient populations for those diseases, and designing and executing a rigorous clinical trial with appropriate statistical power is more difficult than with diseases that have larger patient populations. Regulatory agencies administering existing or future regulations or legislation may not allow production and marketing of products utilizing gene therapy in a timely manner or under technically or commercially feasible conditions. Even if Oncternal’s product candidates obtain required regulatory approvals, such approvals may later be withdrawn as a result of changes in regulations or the interpretation of regulations by applicable regulatory agencies.

Changes in applicable regulatory guidelines may lengthen the regulatory review process for Oncternal’s product candidates, require additional studies or trials, increase development costs, lead to changes in regulatory positions and interpretations, delay or prevent approval and commercialization of such product candidates, or lead to significant post-approval limitations or restrictions. Additionally, adverse developments in clinical trials of gene therapy products conducted by others, may cause the FDA, the EMA and other regulatory bodies to

 

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revise the requirements for approval of any product candidates Oncternal may develop or limit the use of products utilizing gene therapy, either of which could materially harm Oncternal’s business. Furthermore, regulatory action or private litigation could result in increased expenses, delays or other impediments to Oncternal’s research programs or the development or commercialization of current or future product candidates.

As Oncternal advances its product candidates alone or with collaborators, Oncternal will be required to consult with these regulatory and advisory groups and comply with all applicable guidelines, rules and regulations. If Oncternal fails to do so, it or its collaborators may be required to delay or terminate development of such product candidates. Delay or failure to obtain, or unexpected costs in obtaining, the regulatory approval necessary to bring a product candidate to market could decrease Oncternal’s ability to generate sufficient product revenue to maintain its business.

As an organization, Oncternal has limited experience in the process of enrolling patients in its clinical trials, has never conducted later-stage clinical trials or submitted a BLA or an NDA, and may be unable to do so for any of Oncternal’s product candidates.

Oncternal is early in its development efforts for its product candidates, and will need to successfully complete later-stage and pivotal clinical trials in order to obtain FDA or comparable foreign regulatory approval to market cirmtuzumab, TK216, ROR1 CAR-T, or any future product candidates. Carrying out later-stage clinical trials and submitting a successful BLA or NDA is a complicated process. As an organization, Oncternal is in the process of conducting a Phase 1b/2 clinical trial for cirmtuzumab in combination with ibrutinib and a Phase 1 clinical trial for TK216, alone and in combination with vincristine. Oncternal has not yet conducted any clinical trials for its other product candidates. Oncternal has not previously conducted any later stage or pivotal clinical trials, has limited experience as a company in preparing, submitting and prosecuting regulatory filings and has not previously submitted a BLA, an NDA or other comparable foreign regulatory submission for any product candidate. In addition, Oncternal has had limited interactions with the FDA and cannot be certain how many additional clinical trials of cirmtuzumab, TK216 or any other product candidates will be required or how such trials should be designed. Oncternal may be unable to successfully and efficiently execute and complete necessary clinical trials in a way that leads to regulatory submission and approval of any of Oncternal’s product candidates. Oncternal may require more time and incur greater costs than its competitors and may not succeed in obtaining regulatory approvals of product candidates that it develops. Failure to commence or complete, or delays in Oncternal’s planned clinical trials could delay or prevent Oncternal from submitting BLAs or NDAs for, and commercializing, its product candidates.

Oncternal’s product candidates are subject to extensive regulation and compliance, which is costly and time consuming, and such regulation may cause unanticipated delays or prevent the receipt of the required approvals to commercialize Oncternal’s product candidates.

The clinical development, manufacturing, labeling, storage, record-keeping, advertising, promotion, import, export, marketing and distribution of Oncternal’s product candidates are subject to extensive regulation by the FDA in the United States and by comparable foreign regulatory authorities in foreign markets. In the United States, Oncternal is not permitted to market its product candidates until it receives regulatory approval from the FDA. The process of obtaining regulatory approval is expensive, often takes many years following the commencement of clinical trials and can vary substantially based upon the type, complexity and novelty of the product candidates involved, as well as the target indications and patient population. Approval policies or regulations may change, and the FDA has substantial discretion in the drug approval process, including the ability to delay, limit or deny approval of a product candidate for many reasons. Despite the time and expense invested in clinical development of product candidates, regulatory approval is never guaranteed. Oncternal is not permitted to market any of its product candidates in the United States until it receives approval of a BLA or an NDA from the FDA.

Prior to obtaining approval to commercialize a product candidate in the United States or abroad, Oncternal must demonstrate with substantial evidence from adequate and well-controlled clinical trials, and to the satisfaction of

 

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the FDA or comparable foreign regulatory authorities, that such product candidates are safe and effective for their intended uses, and in the case of biological products, that such product candidates are safe, pure and potent. Results from nonclinical studies and clinical trials can be interpreted in different ways. Even if Oncternal believes the nonclinical or clinical data for Oncternal’s product candidates are promising, such data may not be sufficient to support approval by the FDA and comparable foreign regulatory authorities. The FDA or comparable foreign regulatory authorities, as the case may be, may also require Oncternal to conduct additional preclinical studies or clinical trials for Oncternal’s product candidates either prior to or post-approval, or may object to elements of Oncternal’s clinical development program.

The FDA or comparable foreign regulatory authorities can delay, limit or deny approval of a product candidate for many reasons, including:

 

   

such authorities may disagree with the design or execution of Oncternal’s clinical trials;

 

   

negative or ambiguous results from Oncternal’s clinical trials or results may not meet the level of statistical significance required by the FDA or comparable foreign regulatory agencies for approval;

 

   

serious and unexpected drug-related side effects may be experienced by participants in Oncternal’s clinical trials or by individuals using drugs similar to Oncternal’s product candidates;

 

   

the population studied in the clinical trial may not be sufficiently broad or representative to assure safety in the full population for which Oncternal seeks approval;

 

   

such authorities may not accept clinical data from trials that are conducted at clinical facilities or in countries where the standard of care is potentially different from that of their own country;

 

   

Oncternal may be unable to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks;

 

   

such authorities may disagree with Oncternal’s interpretation of data from preclinical studies or clinical trials;

 

   

such authorities may not agree that the data collected from clinical trials of Oncternal’s product candidates are acceptable or sufficient to support the submission of a BLA, NDA or other submission or to obtain regulatory approval in the United States or elsewhere, and such authorities may impose requirements for additional preclinical studies or clinical trials;

 

   

such authorities may disagree with Oncternal regarding the formulation, labeling and/or the product specifications of Oncternal’s product candidates;

 

   

approval may be granted only for indications that are significantly more limited than those sought by Oncternal, and/or may include significant restrictions on distribution and use;

 

   

such authorities may find deficiencies in the manufacturing processes or facilities of the third-party manufacturers with which Oncternal contracts for clinical and commercial supplies; or

 

   

such authorities may not accept a submission due to, among other reasons, the content or formatting of the submission.

With respect to foreign markets, approval procedures vary among countries and, in addition to the foregoing risks, may involve additional product testing, administrative review periods and agreements with pricing authorities. In addition, events raising questions about the safety of certain marketed pharmaceuticals may result in increased cautiousness by the FDA and comparable foreign regulatory authorities in reviewing new drugs based on safety, efficacy or other regulatory considerations and may result in significant delays in obtaining regulatory approvals. Any delay in obtaining, or inability to obtain, applicable regulatory approvals would prevent Oncternal or any of Oncternal’s potential future collaborators from commercializing Oncternal’s product candidates.

 

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Of the large number of drugs in development, only a small percentage successfully complete the FDA or foreign regulatory approval processes and are commercialized. The lengthy approval process as well as the unpredictability of future clinical trial results may result in Oncternal’s failure to obtain regulatory approval to market its product candidates, which would significantly harm Oncternal’s business, financial condition, results of operations and prospects.

Even if Oncternal eventually completes clinical trials and receives approval of a BLA, NDA or comparable foreign marketing application for Oncternal’s product candidates, the FDA or comparable foreign regulatory authority may grant approval contingent on the performance of costly additional clinical trials, including Phase 4 clinical trials, and/or the implementation of a REMS, which may be required because the FDA believes it is necessary to ensure safe use of the drug after approval. The FDA or the comparable foreign regulatory authority also may approve a product candidate for a more limited indication or patient population than Oncternal originally requested, and the FDA or comparable foreign regulatory authority may not approve the labeling that Oncternal believes is necessary or desirable for the successful commercialization of a product. Any delay in obtaining, or inability to obtain, applicable regulatory approval would delay or prevent commercialization of that product candidate and would materially adversely impact Oncternal’s business and prospects.

Oncternal may expend its limited resources to pursue a particular product candidate and fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success.

Because Oncternal has limited financial and managerial resources, it is focused on specific product candidates, indications and development programs. As a result, Oncternal may forgo or delay the pursuit of opportunities with other indications or other product candidates that could have greater commercial potential. Oncternal’s resource allocation decisions may cause Oncternal to fail to capitalize on viable commercial products or profitable market opportunities. Oncternal’s spending on current and future research and development programs and product candidates for specific indications may not yield any commercially viable products. If Oncternal does not accurately evaluate the commercial potential for a particular product candidate, it could relinquish valuable rights to that product candidate through collaborations, licenses and other similar arrangements, when it might be more advantageous for Oncternal to retain sole development and commercialization rights to such product candidate.

Fast Track designation by the FDA for TK216 or Oncternal’s other product candidates may not actually lead to a faster development or regulatory review or approval process.

Oncternal has been granted a Fast Track designation for TK216 in the United States for the treatment of Ewing sarcoma and may seek Fast Track designation for cirmtuzumab or its other product candidates. The Fast Track program is intended to expedite or facilitate the process for reviewing new product candidates that meet certain criteria. Specifically, new drugs are eligible for Fast Track designation if they are intended, alone or in combination with one or more drugs, to treat a serious or life-threatening disease or condition and demonstrate the potential to address unmet medical needs for the disease or condition. Fast Track designation applies to the combination of the product candidate and the specific indication for which it is being studied. With a Fast Track product candidate, the FDA may consider for review sections of the NDA or BLA on a rolling basis before the complete application is submitted, if the sponsor provides a schedule for the submission of the sections of the NDA or BLA, the FDA agrees to accept sections of the NDA or BLA and determines that the schedule is acceptable, and the sponsor pays any required user fees upon submission of the first section of the NDA or BLA.

Obtaining a Fast Track designation does not change the standards for product approval, but may expedite the development or approval process. Even though the FDA has granted such designation for TK216, it may not actually result in faster clinical development or regulatory review or approval. Furthermore, such a designation does not increase the likelihood that TK216 or any other product candidate that may be granted Fast Track designation will receive marketing approval in the United States.

 

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Oncternal may not be able to obtain or maintain orphan drug designations for certain of its product candidates, and may be unable to maintain the benefits associated with orphan drug designation, including the potential for market exclusivity.

Regulatory authorities in some jurisdictions, including the United States and Europe, may designate drugs for relatively small patient populations as orphan drugs. Under the Orphan Drug Act of 1983, the FDA may designate a product as an orphan product if it is intended to treat a rare disease or condition, which is generally defined as a patient population of fewer than 200,000 individuals in the United States, or a patient population of greater than 200,000 individuals in the United States, but for which there is no reasonable expectation that the cost of developing the drug will be recovered from sales in the United States. In the European Union, the EMA’s, Committee for Orphan Medicinal Products grants orphan drug designation to promote the development of products that are intended for the diagnosis, prevention or treatment of a life-threatening or chronically debilitating condition affecting not more than five in 10,000 persons in the European Union. Oncternal has received orphan drug designation in the United Statements for TK216 for patients with Ewing sarcoma and it may seek orphan drug designation in the European Union for TK216 for patients with Ewing sarcoma, as well as seek orphan drug designation for certain of our other product candidates. There can be no assurance that the FDA or the EMA’s Committee for Orphan Medicinal Products will grant orphan designation for any indication for which Oncternal applies, or that Oncternal will be able to maintain such designation.

In the United States, orphan designation entitles a party to financial incentives such as opportunities for grant funding for clinical trial costs, tax advantages and user-fee waivers. In addition, if a product candidate that has orphan designation subsequently receives the first FDA approval for the disease for which it has such designation, the product is entitled to orphan drug exclusivity, which means that the FDA may not approve any other applications, including an NDA or BLA, to market the same drug for the same indication for seven years, except in limited circumstances, such as a showing of clinical superiority to the product with orphan drug exclusivity or where the manufacturer is unable to assure sufficient product quantity. The applicable exclusivity period is ten years in Europe, but such exclusivity period can be reduced to six years if a product no longer meets the criteria for orphan designation or if the product is sufficiently profitable so that market exclusivity is no longer justified.

Even if Oncternal obtains orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because different drugs can be approved for the same condition. Even after an orphan drug is approved, the FDA or comparable foreign regulatory authority can subsequently approve the same drug for the same condition if such regulatory authority concludes that the later drug is clinically superior if it is shown to be safer, more effective or makes a major contribution to patient care. Orphan drug designation neither shortens the development time or regulatory review time of a drug nor gives the drug any advantage in the regulatory review or approval process.

Oncternal may conduct certain of or portions of its clinical trials for its product candidates outside of the United States and the FDA may not accept data from such trials, in which case Oncternal’s development plans will be delayed, which could materially harm its business.

Oncternal may in the future choose to conduct one or more of its clinical trials or a portion of its clinical trials for its product candidates outside the United States. Although the FDA may accept data from clinical trials conducted outside the United States, acceptance of this data is subject to certain conditions imposed by the FDA. For example, the clinical trial must be well designed and conducted and performed by qualified investigators in accordance with GCP requirements, and, and FDA must be able to validate the data from the study through an onsite inspection, if required. In general, the patient population for any clinical studies conducted outside of the United States must be representative of the population for whom Oncternal intends to label the product in the United States. In addition, while these clinical trials are subject to the applicable local laws, FDA acceptance of the data will be dependent upon its determination that the studies also complied with all applicable U.S. laws and regulations. There can be no assurance the FDA will accept data from trial conducted outside of the United

 

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States. If the FDA does not accept the data from Oncternal’s clinical trials of its product candidates, it would likely result in the need for additional trials, which would be costly and time consuming and delay or permanently halt Oncternal’s development of its product candidates.

Interim, topline and preliminary data from Oncternal’s clinical trials that Oncternal announces or publishes from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data.

From time to time, Oncternal may publicly disclose preliminary or topline data from Oncternal’s clinical studies, which are based on preliminary analyses of then-available data. Such preliminary results and related findings and conclusions are subject to change following more comprehensive reviews of the data related to the particular study or trial. Oncternal also makes assumptions, estimations, calculations and conclusions as part of its analyses of data, and Oncternal may not have received or had the opportunity to fully and carefully evaluate all data. As a result, the topline results that Oncternal reports may differ from future results of the same studies, or different conclusions or considerations may qualify such results once additional data have been received and fully evaluated. Topline data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data Oncternal previously published. As a result, topline data should be viewed with caution until the final data are available. From time to time, Oncternal may also disclose interim data from its clinical studies. Interim data from clinical trials that Oncternal may complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues, following more comprehensive reviews of the data, and as more patient data become available. Adverse differences between preliminary or interim data and final data could significantly harm Oncternal’s business prospects.

Further, others, including regulatory agencies, may not accept or agree with Oncternal’s assumptions, estimates, calculations, conclusions or analyses of data from preclinical studies or clinical trials of its product candidates, or may interpret or weigh the importance of data differently, which could impact the value of the particular product candidate, the approvability or prospects for commercialization of the product candidate, or Oncternal, as a company, in general. In addition, the information Oncternal chooses to publicly disclose regarding a particular study or clinical trial is based on what is typically extensive information, and stockholders and others may not agree with what Oncternal determines is the material or otherwise appropriate information to include in its disclosure. Information that Oncternal decides not to disclose may ultimately be deemed significant with respect to future decisions, conclusions, views, activities or otherwise regarding a particular product, product candidate or Oncternal’s business. If the interim, topline or preliminary data that Oncternal discloses differ from actual results, or if others, including regulatory authorities, disagree with the conclusions reached by Oncternal based on its analyses of such data, Oncternal’s ability to obtain approval for, and commercialize its product candidates may be harmed, which could harm Oncternal’s business, operating results, prospects or financial condition.

Any breakthrough therapy designation that Oncternal may receive from the FDA for its product candidates may not lead to a faster development or regulatory review or approval process, and it does not increase the likelihood that its product candidates will receive marketing approval.

Oncternal may seek breakthrough therapy designation for some of its product candidates, including cirmtuzumab and TK216. A breakthrough therapy is defined as a drug that is intended, alone or in combination with one or more other drugs, to treat a serious or life-threatening disease or condition, and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints. For drugs that have been designated as breakthrough therapies, interaction and communication between the FDA and the sponsor of the trial can help to identify the most efficient path for clinical development while minimizing the number of patients placed in ineffective control regimens. Drugs designated as breakthrough therapies by the FDA are also eligible for accelerated approval. Designation as a breakthrough therapy is within the discretion of the FDA. Accordingly, even if Oncternal believes one of its product candidates meets the criteria for designation as a breakthrough therapy, the FDA may disagree and

 

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instead determine not to make such designation. The availability of breakthrough therapy designation was established with the passage of the Food and Drug Administration Safety and Innovation Act of 2012. Oncternal cannot be sure that any evaluation it may make of its product candidates as qualifying for breakthrough therapy designation will meet the FDA’s expectations. In any event, the receipt of a breakthrough therapy designation for a product candidate may not result in a faster development process, review or approval compared to drugs considered for approval under conventional FDA procedures and does not assure ultimate approval by the FDA. In addition, even if one or more of Oncternal’s product candidates qualify as breakthrough therapies, the FDA may later decide that such product candidates no longer meet the conditions for qualification or decide that the time period for FDA review or approval will not be shortened.

Risks Related to Oncternal’s Reliance on Third Parties

Oncternal relies on third parties to conduct many of its preclinical studies and clinical trials. Any failure by a third-party to conduct the clinical trials according to GLPs, GCPs and other requirements and in a timely manner may delay or prevent Oncternal’s ability to seek or obtain regulatory approval for or commercialize its product candidates.

Oncternal is dependent on third parties to conduct its clinical trials and preclinical studies, including Oncternal’s ongoing clinical trials for cirmtuzumab and TK216 and preclinical studies for ROR1 CAR-T and Oncternal’s other development programs. Specifically, Oncternal has used and relied on, and intends to continue to use and rely on, medical institutions, clinical investigators, CROs and consultants to conduct Oncternal’s clinical trials in accordance with Oncternal’s clinical protocols and applicable regulatory requirements. These CROs, investigators and other third parties play a significant role in the conduct and timing of these trials and subsequent collection and analysis of data. While Oncternal has agreements governing the activities of its third-party contractors, Oncternal has limited influence over their actual performance. Nevertheless, Oncternal is responsible for ensuring that each of its clinical trials is conducted in accordance with the applicable protocol and legal, regulatory and scientific standards, and Oncternal’s reliance on the CROs and other third parties does not relieve Oncternal of its regulatory responsibilities. Oncternal and its CROs are required to comply with GCP requirements, which are regulations and guidelines enforced by the FDA and comparable foreign regulatory authorities for all of Oncternal’s product candidates in clinical development. Regulatory authorities enforce these GCPs through periodic inspections of trial sponsors, principal investigators and trial sites. If Oncternal or any of its CROs or trial sites fail to comply with applicable GCPs, the clinical data generated in Oncternal’s clinical trials may be deemed unreliable, and the FDA or comparable foreign regulatory authorities may require Oncternal to perform additional clinical trials before approving Oncternal’s marketing applications. In addition, Oncternal’s clinical trials must be conducted with product produced under cGMP regulations. Oncternal’s failure to comply with these regulations may require Oncternal to repeat clinical trials, which would delay the regulatory approval process.

There is no guarantee that any such CROs, investigators or other third parties will devote adequate time and resources to such trials or perform as contractually required. If any of these third parties fail to meet expected deadlines, adhere to Oncternal’s clinical protocols or meet regulatory requirements, or otherwise performs in a substandard manner, Oncternal’s clinical trials may be extended, delayed or terminated. In addition, many of the third parties with whom Oncternal contracts may also have relationships with other commercial entities, including Oncternal’s competitors, for whom they may also be conducting clinical trials or other drug development activities that could harm Oncternal’s competitive position. In addition, principal investigators for Oncternal’s clinical trials may serve as scientific advisors or consultants to Oncternal from time to time and may receive cash or equity compensation in connection with such services. If these relationships and any related compensation result in perceived or actual conflicts of interest, or the FDA concludes that the financial relationship may have affected the interpretation of the study, the integrity of the data generated at the applicable clinical trial site may be questioned and the utility of the clinical trial itself may be jeopardized, which could result in the delay or rejection of any BLA or NDA Oncternal submits to the FDA. Any such delay or rejection could prevent Oncternal from commercializing its product candidates.

 

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If any of Oncternal’s relationships with these third parties terminate, Oncternal may not be able to enter into arrangements with alternative third parties or do so on commercially reasonable terms. Switching or adding additional CROs, investigators and other third parties involves additional cost and requires management time and focus. In addition, there is a natural transition period when a new CRO commences work. As a result, delays may occur, which can materially impact Oncternal’s ability to meet its desired clinical development timelines. Though Oncternal carefully manages its relationships with its CROs, investigators and other third parties, there can be no assurance that Oncternal will not encounter challenges or delays in the future or that these delays or challenges will not have a material adverse impact on Oncternal’s business, financial condition and prospects.

Oncternal relies on third parties for the manufacture of its product candidates for clinical and preclinical development and expects to continue to do so for the foreseeable future. This reliance on third parties increases the risk that Oncternal will not have sufficient quantities of its product candidates or products or such quantities at an acceptable cost, which could delay, prevent or impair Oncternal’s development or commercialization efforts.

Oncternal does not own or operate manufacturing facilities and has no plans to build its own clinical or commercial scale manufacturing capabilities. Oncternal relies, and expects to continue to rely, on third parties for the manufacture of its product candidates and related raw materials for clinical and preclinical development, as well as for commercial manufacture if any of Oncternal’s product candidates receive marketing approval. The facilities used by third-party manufacturers to manufacture Oncternal’s product candidates must be approved by the FDA or other regulatory agencies pursuant to inspections that will be conducted after Oncternal submits a BLA or an NDA to the FDA or their equivalent to other regulatory agencies. Oncternal does not control the manufacturing process of, and is completely dependent on, third-party manufacturers for compliance with cGMP requirements for manufacture of its drug products. If these third-party manufacturers cannot successfully manufacture material that conforms to Oncternal’s specifications and the strict regulatory requirements of the FDA or others, including requirements related to the manufacturing of high potency and pure compounds or other products, they will not be able to secure and/or maintain regulatory approval for their manufacturing facilities. In addition, Oncternal has no control over the ability of third-party manufacturers to maintain adequate quality control, quality assurance and qualified personnel. If the FDA or a comparable foreign regulatory authority does not approve these facilities for the manufacture of Oncternal’s product candidates, or if regulatory authorities withdraw any such approval in the future, Oncternal may need to find alternative manufacturing facilities, which would significantly impact Oncternal’s ability to develop, obtain regulatory approval for or market its product candidates, if approved. Oncternal’s failure, or the failure of its third-party manufacturers, to comply with applicable regulations could result in sanctions being imposed on Oncternal, including clinical holds, fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, seizures or recalls of product candidates or products, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect supplies of Oncternal’s products.

Oncternal’s or a third-party’s failure to execute on Oncternal’s manufacturing requirements, to do so on commercially reasonable terms, or to comply with cGMP could adversely affect Oncternal’s business in a number of ways, including:

 

   

an inability to initiate or continue clinical trials of cirmtuzumab, TK216 or any future product candidates under development;

 

   

delay in submitting regulatory applications, or receiving marketing approvals, for Oncternal’s product candidates;

 

   

subjecting third-party manufacturing facilities to additional inspections by regulatory authorities;

 

   

requirements to cease development or to recall batches of Oncternal’s product candidates; and

 

   

in the event of approval to market and commercialize Oncternal’s product candidates, an inability to meet commercial demands for Oncternal’s product candidates.

 

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In addition, Oncternal may be unable to establish any agreements with third-party manufacturers or to do so on acceptable terms. Even if Oncternal is able to establish agreements with third-party manufacturers, reliance on third-party manufacturers entails additional risks, including:

 

   

failure of third-party manufacturers to comply with regulatory requirements and maintain quality assurance;

 

   

breach of the manufacturing agreement by the third-party;

 

   

failure to manufacture Oncternal’s product according to Oncternal’s specifications;

 

   

failure to manufacture Oncternal’s product according to Oncternal’s schedule, or at all;

 

   

misappropriation of Oncternal’s proprietary information, including Oncternal’s trade secrets and know-how; and

 

   

termination or nonrenewal of the agreement by the third-party at a time that is costly or inconvenient for Oncternal.

Oncternal’s product candidates and any products that Oncternal may develop may compete with other product candidates and products for access to manufacturing facilities. There are a limited number of manufacturers that operate under cGMP regulations and that might be capable of manufacturing for Oncternal.

Any performance failure on the part of Oncternal’s existing or future manufacturers could delay clinical development or marketing approval, and any related remedial measures may be costly or time consuming to implement. Oncternal does not currently have arrangements in place for redundant supply or a second source for all required raw materials used in the manufacture of Oncternal’s product candidates. If Oncternal’s current third-party manufacturers cannot perform as agreed, Oncternal may be required to replace such manufacturers and Oncternal may be unable to replace them on a timely basis or at all.

Oncternal’s current and anticipated future dependence upon others for the manufacture of Oncternal’s product candidates or products may adversely affect Oncternal’s future profit margins and Oncternal’s ability to commercialize any products that receive marketing approval on a timely and competitive basis.

Oncternal relies on a third party for the supply of ibrutinib in connection with its ongoing Phase 1b/2 clinical trial. If there are any delays in obtaining sufficient quantities of ibrutinib or if the costs of supplying ibrutinib materially increase, Oncternal’s Phase 1b/2 clinical trial could be delayed.

Oncternal relies on a third party for the supply of ibrutinib in connection with its ongoing Phase 1b/2 clinical trial. In April 2018, Oncternal entered into a clinical trial and supply agreement in support of a clinical trial to evaluate the combination of cirmtuzumab with ibrutinib, an inhibitor of Bruton’s tyrosine kinase (“BTK”), a key component of cell signaling in B-cells. Oncternal initiated a Phase 1b/2 clinical trial in May 2018 to assess cirmtuzumab in combination with ibrutinib in patients with CLL and MCL. Pursuant to the agreement, the third party has supplied ibrutinib up to a maximum aggregate amount for part 1 (a dose-finding arm) and part 2 (dose expansion arm) of the ongoing Phase 1b/2 clinical trial evaluating cirmtuzumab in combination with ibrutinib. Under the clinical trial and supply agreement, Oncternal is required to provide periodic reports, including safety data reports, and collaborate with the clinical supplier in relation to any interactions with regulatory authorities regarding ibrutinib, but the agreement includes no upfront costs, milestone or royalty payment commitments. In the event the agreement is terminated, Oncternal would likely incur substantial additional costs in order to obtain and purchase ibrutinib from a source other than Oncertnal’s current supplier and the Phase 1b/2 clinical trial may be delayed.

Oncternal’s reliance on third parties requires Oncternal to share its trade secrets, which increases the possibility that Oncternal’s trade secrets will be misappropriated or disclosed.

Because Oncternal currently relies on third parties to manufacture its product candidates and to perform quality testing, Oncternal must, at times, share its proprietary technology and confidential information, including trade

 

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secrets, with them. Oncternal seeks to protect its proprietary technology, in part, by entering into confidentiality agreements, consulting agreements or other similar agreements with its advisors, employees, consultants and contractors prior to beginning research or disclosing proprietary information. These agreements typically limit the rights of the third parties to use or disclose Oncternal’s confidential information. Despite the contractual provisions employed when working with third parties, the need to share trade secrets and other confidential information increases the risk that such trade secrets become known by Oncternal’s competitors, are intentionally or inadvertently incorporated into the technology of others or are disclosed or used in violation of these agreements. Given that Oncternal’s proprietary position is based, in part, on Oncternal’s know-how and trade secrets and despite Oncternal’s efforts to protect its trade secrets, a competitor’s discovery of Oncternal’s proprietary technology and confidential information or other unauthorized use or disclosure would impair Oncternal’s competitive position and may have a material adverse effect on Oncternal’s business, financial condition, results of operations and prospects.

Oncternal may seek to enter into collaborations, licenses and other similar arrangements and may not be successful in doing so, and even if Oncternal is, it may not realize the benefits of such relationships.

Oncternal may seek to enter into collaborations, joint ventures, licenses and other similar arrangements for the development or commercialization of Oncternal’s product candidates, due to capital costs required to develop or commercialize the product candidate or manufacturing constraints, in addition to our collaboration with SPH and SPH USA. Oncternal may not be successful in its efforts to establish such collaborations for Oncternal’s product candidates because its research and development pipeline may be insufficient, its product candidates may be deemed to be at too early of a stage of development for collaborative effort or third parties may not view Oncternal’s product candidates as having the requisite potential to demonstrate safety and efficacy or significant commercial opportunity. In addition, Oncternal faces significant competition in seeking appropriate strategic partners, and the negotiation process can be time consuming and complex. Further, any future collaboration agreements may restrict Oncternal from entering into additional agreements with potential collaborators. Oncternal cannot be certain that, following a strategic transaction or license, Oncternal will achieve an economic benefit that justifies such transaction.

Even if Oncternal is successful in its efforts to establish such collaborations, the terms that Oncternal agrees upon may not be favorable to Oncternal, and Oncternal may not be able to maintain such collaborations if, for example, development or approval of a product candidate is delayed, the safety of a product candidate is questioned or sales of an approved product candidate are unsatisfactory.

In addition, any potential future collaborations may be terminable by Oncternal’s strategic partners, and Oncternal may not be able to adequately protect its rights under these agreements. Furthermore, strategic partners may negotiate for certain rights to control decisions regarding the development and commercialization of Oncternal’s product candidates, if approved, and may not conduct those activities in the same manner as Oncternal would. Any termination of collaborations Oncternal enters into in the future, or any delay in entering into collaborations related to Oncternal’s product candidates, could delay the development and commercialization of Oncternal’s product candidates and reduce their competitiveness if they reach the market, which could have a material adverse effect on Oncternal’s business, financial condition and results of operations.

Risks Related to Commercialization of Oncternal’s Product Candidates

Even if Oncternal receives regulatory approval for any product candidate, Oncternal will be subject to ongoing regulatory obligations and continued regulatory review, which may result in significant additional expense. Additionally, Oncternal’s product candidates, if approved, could be subject to labeling and other restrictions on marketing or withdrawal from the market, and Oncternal may be subject to penalties if Oncternal fails to comply with regulatory requirements or if Oncternal experiences unanticipated problems with its product candidates, when and if any of them are approved.

Following potential approval of any of Oncternal’s product candidates, the FDA may impose significant restrictions on a product’s indicated uses or marketing or impose ongoing requirements for potentially costly and

 

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time consuming post-approval studies, post-market surveillance or clinical trials to monitor the safety and efficacy of the product. The FDA may also require a REMS as a condition of approval of Oncternal’s product candidates, which could include requirements for a medication guide, physician communication plans or additional elements to ensure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. In addition, if the FDA or a comparable foreign regulatory authority approves Oncternal’s product candidates, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion, import, export and recordkeeping for Oncternal’s products will be subject to extensive and ongoing regulatory requirements. These requirements include submissions of safety and other post-marketing information and reports, registration, as well as continued compliance with cGMPs and GCP requirements for any clinical trials that Oncternal conducts post-approval. Later discovery of previously unknown problems with Oncternal’s products, including adverse events of unanticipated type, severity or frequency, or with Oncternal’s third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in, among other things:

 

   

restrictions on the marketing or manufacturing of Oncternal’s products, withdrawal of the product from the market or voluntary or mandatory product recalls;

 

   

restrictions on product distribution or use, or requirements to conduct post-marketing studies or clinical trials;

 

   

fines, restitutions, disgorgement of profits or revenues, warning letters, untitled letters or holds on clinical trials;

 

   

refusal by the FDA to approve pending applications or supplements to approved applications filed by Oncternal or suspension or revocation of approvals;

 

   

product seizure or detention, or refusal to permit the import or export of Oncternal’s products; and

 

   

injunctions or the imposition of civil or criminal penalties.

The occurrence of any event or penalty described above may inhibit Oncternal’s ability to commercialize its product candidates and generate revenue and could require Oncternal to expend significant time and resources in response and could generate negative publicity.

In addition, if any of Oncternal’s product candidates is approved, Oncternal’s product labeling, advertising and promotion will be subject to regulatory requirements and continuing regulatory review. The FDA strictly regulates the promotional claims that may be made about drug products. In particular, a product may not be promoted for uses that are not approved by the FDA as reflected in the product’s approved labeling. If Oncternal receives marketing approval for a product candidate, physicians may nevertheless prescribe it to their patients in a manner that is inconsistent with the approved label. If Oncternal is found to have promoted such off-label uses, Oncternal may become subject to significant liability. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant sanctions. The federal government has levied large civil and criminal fines against companies for alleged improper promotion and has enjoined several companies from engaging in off-label promotion. The FDA has also requested that companies enter into consent decrees or permanent injunctions under which specified promotional conduct is changed or curtailed.

The FDA and other regulatory authorities’ policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of Oncternal’s product candidates. If Oncternal is slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if Oncternal is not able to maintain regulatory compliance, Oncternal may lose any marketing approval that Oncternal may have obtained and Oncternal may not achieve or sustain profitability.

Oncternal also cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative or executive action, either in the United States or abroad. For example, certain

 

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policies of the current U.S. administration may impact Oncternal’s business and industry. Namely, the current U.S. administration has taken several executive actions, including the issuance of a number of Executive Orders, that could impose significant burdens on, or otherwise materially delay, the FDA’s ability to engage in routine regulatory and oversight activities such as implementing statutes through rulemaking, issuance of guidance, and review and approval of marketing applications. It is difficult to predict how these executive actions, including any Executive Orders, will be implemented, and the extent to which they will impact the FDA’s ability to exercise its regulatory authority. If these executive actions impose constraints on the FDA’s ability to engage in oversight and implementation activities in the normal course, Oncternal’s business may be negatively impacted.

If Oncternal is slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if Oncternal is not able to maintain regulatory compliance, Oncternal may lose any marketing approval that Oncternal may have obtained and Oncternal may not achieve or sustain profitability, which would adversely affect Oncternal’s business, prospects, financial condition and results of operations.

Changes in funding for the FDA and other government agencies could hinder their ability to hire and retain key leadership and other personnel, or otherwise prevent new products and services from being developed or commercialized in a timely manner, which could negatively impact Oncternal’s business.

The ability of the FDA and other regulatory agencies to review and approve new products can be affected by a variety of factors, including government budget and funding levels, ability to hire and retain key personnel and accept the payment of user fees, and statutory, regulatory, and policy changes. Average review times at the agency have fluctuated in recent years as a result. In addition, government funding of other government agencies that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable.

Disruptions at the FDA and other agencies may also slow the time necessary for new drugs and biologics to be reviewed and/or approved by necessary government agencies, which would adversely affect Oncternal’s business. For example, over the last several years, including for 35 days beginning on December 22, 2018, the U.S. government has shut down several times and certain regulatory agencies, such as the FDA, have had to furlough critical FDA employees and stop critical activities. If a prolonged government shutdown occurs, it could significantly impact the ability of the FDA to timely review and process Oncternal’s regulatory submissions, which could have a material adverse effect on its business.

The commercial success of Oncternal’s product candidates will depend upon the degree of market acceptance of such product candidates by physicians, patients, healthcare payors and others in the medical community.

Oncternal’s product candidates may not be commercially successful. Even if any of Oncternal’s product candidates receive regulatory approval, they may not gain market acceptance among physicians, patients, healthcare payors or the medical community. The commercial success of any of Oncternal’s current or future product candidates will depend significantly on the broad adoption and use of the resulting product by physicians and patients for approved indications. The degree of market acceptance of Oncternal’s products will depend on a number of factors, including:

 

   

demonstration of clinical efficacy and safety compared to other more-established products;

 

   

the indications for which Oncternal’s product candidates are approved;

 

   

the limitation of Oncternal’s targeted patient population and other limitations or warnings contained in any FDA-approved labeling;

 

   

acceptance of a new drug for the relevant indication by healthcare providers and their patients;

 

   

the pricing and cost-effectiveness of Oncternal’s products, as well as the cost of treatment with Oncternal’s products in relation to alternative treatments and therapies;

 

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Oncternal’s ability to obtain and maintain sufficient third-party coverage and adequate reimbursement from government healthcare programs, including Medicare and Medicaid, private health insurers and other third-party payors;

 

   

the willingness of patients to pay all, or a portion of, out-of-pocket costs associated with Oncternal’s products in the absence of sufficient third-party coverage and adequate reimbursement;

 

   

any restrictions on the use of Oncternal’s products, and the prevalence and severity of any adverse effects;

 

   

potential product liability claims;

 

   

the timing of market introduction of Oncternal’s products as well as competitive drugs;

 

   

the effectiveness of Oncternal’s or any of its potential future collaborators’ sales and marketing strategies; and

 

   

unfavorable publicity relating to the product.

If any product candidate is approved but does not achieve an adequate level of acceptance by physicians, hospitals, healthcare payors or patients, Oncternal may not generate sufficient revenue from that product and may not become or remain profitable. Oncternal’s efforts to educate the medical community and third-party payors regarding the benefits of Oncternal’s products may require significant resources and may never be successful.

The market opportunities for Oncternal’s product candidates may be limited to patients who are ineligible for or have failed prior treatments and may be small or different from Oncternal’s estimates.

Cancer therapies are sometimes characterized as first line, second line or third line, and the FDA often approves new therapies initially only for third line use. When cancer is detected early enough, first line therapy is sometimes adequate to cure the cancer or prolong life without a cure. Whenever first line therapy, including targeted therapy, immunotherapy, chemotherapy, hormone therapy, surgery or a combination of these, proves unsuccessful, second line therapy may be administered. Second line therapies often consist of more chemotherapy, radiation, antibody drugs, tumor targeted small molecules or a combination of these. Third line therapies can include bone marrow transplantation, antibody and small molecule targeted therapies, more invasive forms of surgery and new technologies. In markets with approved therapies, there is no guarantee that Oncternal’s product candidates, even if approved, would be approved for second line or first line therapy. This could limit Oncternal’s potential market opportunity. In addition, Oncternal may have to conduct additional clinical trials prior to gaining approval for second line or first line therapy.

Oncternal’s projections of both the number of people who have the cancers it is targeting, as well as the subset of people with these cancers in a position to receive later stage therapy and who have the potential to benefit from treatment with its product candidates, are based on Oncternal’s beliefs and estimates. These estimates have been derived from a variety of sources, including scientific literature, surveys of clinics, patient foundations or market research and may prove to be incorrect. Further, new studies may change the estimated incidence or prevalence of these cancers. The number of patients may turn out to be lower than expected. In addition, the potentially addressable patient population for Oncternal’s product candidates may be limited or may not be amenable to treatment with its product candidates. Even if Oncternal obtains significant market share for its product candidates, it may never achieve profitability without obtaining regulatory approval for additional indications, including use as a first or second line therapy.

Any product candidates for which Oncternal intends to seek approval as biologic products may face competition sooner than anticipated.

The Affordable Care Act includes a subtitle called the Biologics Price Competition and Innovation Act of 2009 (“BPCIA”), which created an abbreviated approval pathway for biological products that are biosimilar to or

 

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interchangeable with an FDA-licensed reference biological product. Under the BPCIA, an application for a biosimilar product may not be submitted to the FDA until four years following the date that the reference product was first licensed by the FDA. In addition, the approval of a biosimilar product may not be made effective by the FDA until 12 years from the date on which the reference product was first licensed. During this 12-year period of exclusivity, another company may still market a competing version of the reference product if the FDA approves a full BLA for the competing product containing the sponsor’s own preclinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity and potency of its product. The law is complex and is still being interpreted and implemented by the FDA. As a result, its ultimate impact, implementation and meaning are subject to uncertainty, and any processes adopted by the FDA to implement the BPCIA could have a material adverse effect on the future commercial prospects for Oncternal’s biological products.

Oncternal believes that any of its future product candidates approved as a biological product under a BLA should qualify for the 12-year period of exclusivity. However, there is a risk that this exclusivity could be shortened due to Congressional action or otherwise, or that the FDA will not consider Oncternal’s product candidates to be reference products for competing products, potentially creating the opportunity for generic competition sooner than anticipated. Other aspects of the BPCIA, some of which may impact the BPCIA exclusivity provisions, have also been the subject of recent litigation. Moreover, the extent to which a biosimilar, once approved, could be substituted for any one of our reference products in a way that is similar to traditional generic substitution for non-biological products will depend on a number of marketplace and regulatory factors that are still developing.

The FDA and other regulatory agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses. If Oncternal is found or alleged to have improperly promoted off-label uses, Oncternal may become subject to significant liability.

The FDA and other regulatory agencies strictly regulate the promotional claims that may be made about prescription products, as Oncternal’s product candidates would be, if approved. In particular, a product may not be promoted for uses that are not approved by the FDA or such other regulatory agencies as reflected in the product’s approved labeling. If Oncternal is found to have promoted such off-label uses, it may become subject to significant liability. The federal government has levied large civil and criminal fines against companies for alleged improper promotion and has enjoined several companies from engaging in off-label promotion. The FDA has also requested that companies enter into consent decrees or permanent injunctions under which specified promotional conduct is changed or curtailed. If Oncternal cannot successfully manage the promotion and avoid off-label promotion of its product candidates, if approved, it could become subject to significant liability, which would materially adversely affect Oncternal’s business and financial condition.

The successful commercialization of Oncternal’s product candidates, if approved, will depend in part on the extent to which governmental authorities and health insurers establish coverage, adequate reimbursement levels and favorable pricing policies. Failure to obtain or maintain coverage and adequate reimbursement for Oncternal’s products could limit its ability to market those products and decrease its ability to generate revenue.

The availability of coverage and the adequacy of reimbursement by governmental healthcare programs such as Medicare and Medicaid, private health insurers and other third-party payors are essential for most patients to be able to afford prescription medications such as Oncternal’s product candidates, if approved. Oncternal’s ability to achieve coverage and acceptable levels of reimbursement for Oncternal’s products by third-party payors will have an effect on Oncternal’s ability to successfully commercialize those products. Even if Oncternal obtains coverage for a given product by a third-party payor, the resulting reimbursement payment rates may not be adequate or may require co-payments that patients find unacceptably high. Oncternal cannot be sure that coverage and reimbursement in the United States, the European Union or elsewhere will be available for any product that Oncternal may develop, and any reimbursement that may become available may be decreased or eliminated in the future.

 

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Third-party payors increasingly are challenging prices charged for pharmaceutical products and services, and many third-party payors may refuse to provide coverage and reimbursement for particular drugs when an equivalent generic drug or a less expensive therapy is available. It is possible that a third-party payor may consider Oncternal’s products as substitutable and only offer to reimburse patients for the less expensive product. Even if Oncternal is successful in demonstrating improved efficacy or improved convenience of administration with Oncternal’s products, pricing of existing drugs may limit the amount Oncternal will be able to charge for its products. These payors may deny or revoke the reimbursement status of a given product or establish prices for new or existing marketed products at levels that are too low to enable Oncternal to realize an appropriate return on its investment in product development. If reimbursement is not available or is available only at limited levels, Oncternal may not be able to successfully commercialize its products and may not be able to obtain a satisfactory financial return on products that Oncternal may develop.

There is significant uncertainty related to third-party payor coverage and reimbursement of newly approved products. In the United States, third-party payors, including private and governmental payors, such as the Medicare and Medicaid programs, play an important role in determining the extent to which new drugs will be covered. Some third-party payors may require pre-approval of coverage for new or innovative devices or drug therapies before they will reimburse healthcare providers who use such therapies. It is difficult to predict at this time what third-party payors will decide with respect to the coverage and reimbursement for Oncternal’s products.

Obtaining and maintaining reimbursement status is time consuming, costly and uncertain. The Medicare and Medicaid programs increasingly are used as models for how private payors and other governmental payors develop their coverage and reimbursement policies for drugs. However, no uniform policy for coverage and reimbursement for products exists among third-party payors in the United States. Therefore, coverage and reimbursement for products can differ significantly from payor to payor. As a result, the coverage determination process is often a time consuming and costly process that will require Oncternal to provide scientific and clinical support for the use of Oncternal’s products to each payor separately, with no assurance that coverage and adequate reimbursement will be applied consistently or obtained in the first instance. Furthermore, rules and regulations regarding reimbursement change frequently, in some cases at short notice, and Oncternal believes that changes in these rules and regulations are likely.

Additionally, Oncternal or its collaborators may develop companion diagnostic tests for use with its product candidates as Oncternal is targeting certain defined populations for its treatments. Oncternal, or its collaborators, will be required to obtain coverage and reimbursement for these tests separate and apart from the coverage and reimbursement sought for its product candidates, once approved. While Oncternal, or its collaborators, has not yet developed any companion diagnostic test for its product candidates, if it does, there is significant uncertainty regarding Oncternal’s ability to obtain approval, coverage and adequate reimbursement for the same reasons applicable to its product candidates.

Outside the United States, international operations are generally subject to extensive governmental price controls and other market regulations, and Oncternal believes the increasing emphasis on cost-containment initiatives in Europe and other countries has and will continue to put pressure on the pricing and usage of Oncternal’s products. In many countries, the prices of medical products are subject to varying price control mechanisms as part of national health systems. Other countries allow companies to fix their own prices for medical products but monitor and control company profits. Additional foreign price controls or other changes in pricing regulation could restrict the amount that Oncternal is able to charge for its products. Accordingly, in markets outside the United States, the reimbursement for Oncternal’s products may be reduced compared with the United States and may be insufficient to generate commercially reasonable revenue and profits.

Moreover, increasing efforts by governmental and third-party payors in the United States and abroad to cap or reduce healthcare costs may cause such organizations to limit both coverage and the level of reimbursement for newly approved products and, as a result, they may not cover or provide adequate payment for Oncternal’s

 

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products. Oncternal expects to experience pricing pressures in connection with the sale of any of its products due to the trend toward managed healthcare, the increasing influence of health maintenance organizations and additional legislative changes. The downward pressure on healthcare costs in general, particularly prescription drugs and surgical procedures and other treatments, has become very intense. As a result, increasingly high barriers are being erected to the entry of new products.

Oncternal faces significant competition, and if its competitors develop technologies or product candidates more rapidly than Oncternal does or their technologies are more effective, Oncternal’s ability to develop and successfully commercialize products may be adversely affected.

The biotechnology and pharmaceutical industries are characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary and novel products and product candidates. Oncternal’s competitors have developed, are developing or may develop products, product candidates and processes competitive with Oncternal’s product candidates. Any product candidates that Oncternal successfully develops and commercializes will compete with existing therapies and new therapies that may become available in the future. Oncternal believes that a significant number of products are currently under development, and may become commercially available in the future, for the treatment of conditions for which Oncternal may attempt to develop product candidates. In particular, there is intense competition in the fields of immunology, inflammation and oncology. Oncternal’s competitors include larger and better funded pharmaceutical, biopharmaceutical, biotechnological and therapeutics companies. Moreover, Oncternal may also compete with universities and other research institutions who may be active in the indications Oncternal is targeting and could be in direct competition with Oncternal. Oncternal also competes with these organizations to recruit management, scientists and clinical development personnel, which could negatively affect its level of expertise and its ability to execute its business plan. Oncternal will also face competition in establishing clinical trial sites, enrolling subjects for clinical trials and in identifying and in-licensing new product candidates. Smaller or early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies.

If any of our product candidates are approved in oncology indications such as CLL or MCL, they will compete with small molecule therapies, biologics, cell-based therapies and vaccines, either approved or under development, that are intended to treat the same cancers that Oncternal is targeting, including through approaches that may prove to be more effective, have fewer side effects, be less costly to manufacture, be more convenient to administer or have other advantages over any product candidates Oncternal develops. In addition to competing with other therapies targeting similar indications, there are numerous other companies and academic institutions focused on similar targets as our product candidates and/or different scientific approaches to treating the same indications. Oncternal faces competition from such companies in seeking any future potential collaborations to partner our product candidates, as well as potentially competing commercially for any approved products.

CLL has traditionally been treated with standard cytotoxic agents such as fludarabine, chlorambucil, cyclophosphamide, and bendamustine. Rituximab, marketed as Rituxan by Genentech, which is a monoclonal antibody that specifically recognizes CD20, an antigen on B-cells from which the tumor cells in CLL arise, was approved for use in CLL in 2010, but was previously widely prescribed off-label. Rituximab, which is typically used to treat patients with CLL in combination with cytotoxic agents, remains a treatment option for younger patients who can tolerate the side effects of the associated chemotherapy. Regulatory authorities have also approved other monoclonal antibody products that target CD20, as well as antibodies targeting another surface protein found on CLL tumor cells known as CD52, and three classes of small molecules: ibrutinib, venetoclax, an inhibitor of the protein B-cell lymphoma-2 (“Bcl-2”), which is marketed as Venclexta and Venclyxto by AbbVie and Roche/Genentech, and idelalisib, an inhibitor of Phosphoinositide 3-kinase (“PI3K”), which is marketed as Zydelig by Gilead Sciences. These agents are approved for use as single agents, but are being investigated in combination with each other and with various monoclonal antibody products. Additionally, clinicians are investigating their potential in earlier stage disease in multiple clinical trials.

 

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There are several therapeutic options available to treat MCL. Newly diagnosed patients are typically treated with rituximab combined with a chemotherapy regimen known as CHOP, comprised of cyclophosphamide, doxorubicin, vincristine, and prednisone. Alternative chemotherapy regimens include bortezomib or bendamustine. Patients with clinical responses to chemotherapy may become candidates for another therapeutic approach, autologous stem cell transplantation, a procedure in which radiation and/or chemotherapy is used to eliminate the patient’s immune cells, including residual MCL cells. Recently, ibrutinib was granted accelerated approval by the FDA for the treatment of relapsed MCL.

The current standard therapy for patients with localized Ewing sarcoma in the U.S. is a combination of chemotherapy agents, including vincristine, doxorubicin and cyclophosphamide, with alternating cycles of ifosfamide and etoposide, which is a therapy known as VDC/IE. This may also be supplemented by local radiation therapy or systemic radiation followed by autologous hematopoietic stem cell transplant.

Many of Oncternal’s competitors have significantly greater financial, technical, manufacturing, marketing, sales and supply resources or experience than Oncternal does. If Oncternal successfully obtains approval for any product candidate, Oncternal will face competition based on many different factors, including the safety and effectiveness of Oncternal’s products, the ease with which Oncternal’s products can be administered and the extent to which patients accept relatively new routes of administration, the timing and scope of regulatory approvals for these products, the availability and cost of manufacturing, marketing and sales capabilities, price, reimbursement coverage and patent position. Competing products could present superior treatment alternatives, including by being more effective, safer, more convenient, less expensive or marketed and sold more effectively than any products Oncternal may develop. Competitive products may make any products Oncternal develops obsolete or noncompetitive before Oncternal recovers the expense of developing and commercializing Oncternal’s product candidates. If Oncternal is unable to compete effectively, Oncternal’s opportunity to generate revenue from the sale of its products it may develop, if approved, could be adversely affected.

If the market opportunities for Oncternal’s products are smaller than Oncternal believes they are, Oncternal’s revenue may be adversely affected, and its business may suffer.

The precise incidence and prevalence for all the conditions Oncternal aims to address with its product candidates are unknown. Oncternal’s projections of both the number of people who have these diseases, the number who have the specific indicated stage or treatment history Oncternal believes will be the approved indication, as well as the subset of people with these diseases who have the potential to benefit from treatment with Oncternal’s product candidates, are based on Oncternal’s beliefs and estimates. These estimates have been derived from a variety of sources, including the scientific literature, surveys of clinics, patient foundations or market research, and may prove to be incorrect. Further, new trials may change the estimated incidence or prevalence of these diseases. The total addressable market across all of Oncternal’s product candidates will ultimately depend upon, among other things, the indication approved by regulatory agencies and the diagnostic criteria included in the final label for each of Oncternal’s product candidates approved for sale for these indications, the availability of alternative treatments and the safety, convenience, cost and efficacy of Oncternal’s product candidates relative to such alternative treatments, acceptance by the medical community and patient access, drug pricing and reimbursement. The number of patients in the United States and other major markets and elsewhere may turn out to be lower than expected, patients may not be otherwise amenable to treatment with Oncternal’s products or new patients may become increasingly difficult to identify or gain access to, all of which would adversely affect Oncternal’s results of operations and its business. Further, even if Oncternal obtains significant market share for its product candidates, because some of Oncternal’s potential target populations are very small, Oncternal may never achieve profitability despite obtaining such significant market share.

 

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Oncternal currently has no marketing and sales organization and has no experience as a company in commercializing products, and Oncternal may have to invest significant resources to develop these capabilities. If Oncternal is unable to establish marketing and sales capabilities or enter into agreements with third parties to market and sell its products, Oncternal may not be able to generate product revenue.

Oncternal has no internal sales, marketing or distribution capabilities, nor has it commercialized a product. If any of Oncternal’s product candidates ultimately receives regulatory approval, Oncternal must build a marketing and sales organization with technical expertise and supporting distribution capabilities to commercialize each such product in major markets, which will be expensive and time consuming, or collaborate with third parties that have sales forces and established distribution systems, either to augment Oncternal’s own sales force and distribution systems or in lieu of Oncternal’s own sales force and distribution systems. Oncternal has no prior experience as a company in the marketing, sale and distribution of biopharmaceutical products and there are significant risks involved in building and managing a sales organization, including Oncternal’s ability to hire, retain and incentivize qualified individuals, generate sufficient sales leads, provide adequate training to sales and marketing personnel and effectively manage a geographically dispersed sales and marketing team. Any failure or delay in the development of Oncternal’s internal sales, marketing and distribution capabilities would adversely impact the commercialization of these products. Oncternal may not be able to enter into collaborations or hire consultants or external service providers to assist Oncternal in sales, marketing and distribution functions on acceptable financial terms, or at all. In addition, Oncternal’s product revenues and its profitability, if any, may be lower if Oncternal relies on third parties for these functions than if Oncternal were to market, sell and distribute any products that Oncternal develops itself. Oncternal likely will have little control over such third parties, and any of them may fail to devote the necessary resources and attention to sell and market Oncternal’s products effectively. If Oncternal is not successful in commercializing its products, either on its own or through arrangements with one or more third parties, Oncternal may not be able to generate any future product revenue and Oncternal would incur significant additional losses.

Oncternal’s future growth may depend, in part, on its ability to operate in foreign markets, where Oncternal would be subject to additional regulatory burdens and other risks and uncertainties.

Oncternal’s future growth may depend, in part, on its ability to develop and commercialize its product candidates in foreign markets. Oncternal is not permitted to market or promote any of its product candidates before it receives regulatory approval from applicable regulatory authorities in foreign markets, and Oncternal may never receive such regulatory approvals for any of its product candidates. To obtain separate regulatory approval in most other countries Oncternal must comply with numerous and varying regulatory requirements regarding safety and efficacy and governing, among other things, clinical trials, commercial sales, manufacturing, pricing and distribution of Oncternal’s product candidates. If Oncternal receives regulatory approval of its product candidates and ultimately commercialize its products in foreign markets, Oncternal would be subject to additional risks and uncertainties, including:

 

   

different regulatory requirements for approval of drugs in foreign countries;

 

   

reduced protection for intellectual property rights;

 

   

the existence of additional third-party patent rights of potential relevance to Oncternal’s business;

 

   

unexpected changes in tariffs, trade barriers and regulatory requirements;

 

   

economic weakness, including inflation, or political instability in particular foreign economies and markets; compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;

 

   

foreign currency fluctuations, which could result in increased operating expenses and reduced revenues, and other obligations incident to doing business in another country;

 

   

foreign reimbursement, pricing and insurance regimes;

 

   

workforce uncertainty in countries where labor unrest is common;

 

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production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and

 

   

business interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters including earthquakes, typhoons, floods and fires.

Risks Related to Oncternal’s Business Operations and Industry

Oncternal’s operating results may fluctuate significantly, which makes Oncternal’s future operating results difficult to predict and could cause Oncternal’s operating results to fall below expectations or any guidance it may provide.

Oncternal’s quarterly and annual operating results may fluctuate significantly, which makes it difficult for Oncternal to predict its future operating results. These fluctuations may occur due to a variety of factors, many of which are outside of Oncternal’s control, including, but not limited to:

 

   

the timing and cost of, and level of investment in, research, development, regulatory approval and commercialization activities relating to Oncternal’s product candidates, which may change from time to time;

 

   

coverage and reimbursement policies with respect to Oncternal’s product candidates, if approved, and potential future drugs that compete with Oncternal’s products;

 

   

the cost of manufacturing Oncternal’s product candidates, which may vary depending on the quantity of production and any manufacturing issues or challenges requiring additional manufacturing activities, and the terms of Oncternal’s agreements with third-party manufacturers;

 

   

the timing and amount of any milestone or other payments Oncternal must make to the licensors and other third parties from whom Oncternal has in-licensed or acquired its product candidates;

 

   

expenditures that Oncternal may incur to acquire, develop or commercialize additional product candidates and technologies;

 

   

the level of demand for any approved products, which may vary significantly;

 

   

future accounting pronouncements or changes in Oncternal’s accounting policies; and

 

   

the timing and success or failure of preclinical studies or clinical trials for Oncternal’s product candidates or competing product candidates, or any other change in the competitive landscape of Oncternal’s industry, including consolidation among Oncternal’s competitors or partners.

The cumulative effects of these factors could result in large fluctuations and unpredictability in Oncternal’s quarterly and annual operating results. As a result, comparing Oncternal’s operating results on a period-to-period basis may not be meaningful. Investors should not rely on Oncternal’s past results as an indication of its future performance.

This variability and unpredictability could also result in Oncternal’s failing to meet the expectations of industry or financial analysts or investors for any period. If Oncternal’s revenue or operating results fall below the expectations of analysts or investors or below any forecasts Oncternal may provide to the market, or if the forecasts Oncternal provides to the market are below the expectations of analysts or investors, the price of Oncternal’s common stock could decline substantially. Such a stock price decline could occur even when Oncternal has met any previously publicly stated revenue or earnings guidance Oncternal may provide.

Oncternal is dependent on the services of its management and if it is not able to retain these individuals or recruit additional management or other key personnel, Oncternal’s business will suffer.

Oncternal’s success depends in part on its continued ability to attract, retain and motivate highly qualified management, clinical and scientific personnel. Oncternal is highly dependent upon its senior management,

 

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particularly its Chief Executive Officer, as well as other members of its senior management team. The loss of services of any of these individuals could delay or prevent the successful development of Oncternal’s product pipeline, initiation or completion of Oncternal’s planned operations, planned clinical trials or the commercialization of Oncternal’s product candidates. Although Oncternal has executed employment agreements or offer letters with each member of its senior management team, these agreements are terminable at will with or without notice and, therefore, Oncternal may not be able to retain their services as expected. Oncternal does not currently maintain “key person” life insurance on the lives of any of its employees. This lack of insurance means that Oncternal may not have adequate compensation for the loss of the services of these individuals.

Oncternal will need to expand and effectively manage its managerial, operational, financial and other resources in order to successfully pursue its clinical development and commercialization efforts. Oncternal may not be successful in maintaining its unique company culture and continuing to attract or retain qualified management and scientific and clinical personnel in the future due to the intense competition for qualified personnel among pharmaceutical, biotechnology and other businesses, particularly in the San Diego area. Oncternal’s industry has experienced a high rate of turnover of management personnel in recent years. If Oncternal is not able to attract, integrate, retain and motivate necessary personnel to accomplish its business objectives, Oncternal may experience constraints that will significantly impede the achievement of its development objectives, its ability to raise additional capital and its ability to implement its business strategy.

Oncternal may encounter difficulties in managing its growth and expanding its operations successfully.

As of March 31, 2019, Oncternal had five full-time employees and three part-time employees. As Oncternal continues research and development activities and pursues the potential commercialization of its product candidates, as well as function as a public company, Oncternal will need to expand its financial, research, development, regulatory, manufacturing, marketing and sales capabilities or contract with third parties to provide these capabilities for the company. As Oncternal’s operations expand, it expects that it will need to manage additional relationships with various strategic partners, suppliers and other third parties. Oncternal’s future financial performance and its ability to develop and commercialize its product candidates and to compete effectively will depend, in part, on its ability to manage any future growth effectively.

Oncternal is subject to various foreign, federal, and state healthcare and privacy laws and regulations, and Oncternal’s failure to comply with these laws and regulations could harm its results of operations and financial condition.

Oncternal’s business operations and current and future arrangements with investigators, healthcare professionals, consultants, third-party payors and customers expose Oncternal to broadly applicable foreign, federal and state fraud and abuse and other healthcare and privacy laws and regulations. These laws may constrain the business or financial arrangements and relationships through which Oncternal conducts its operations, including how Oncternal researches, markets, sells and distributes any products for which it obtains marketing approval. Such laws include:

 

   

the federal Anti-Kickback Statute, which prohibits, among other things, persons or entities from knowingly and willfully soliciting, offering, receiving or providing any remuneration (including any kickback, bribe or certain rebates), directly or indirectly, overtly or covertly, in cash or in kind, in return for, either the referral of an individual or the purchase, lease, or order, or arranging for or recommending the purchase, lease, or order of any good, facility, item or service, for which payment may be made, in whole or in part, under a federal healthcare program such as Medicare and Medicaid. A person or entity does not need to have actual knowledge of the federal Anti- Kickback Statute or specific intent to violate it in order to have committed a violation. In addition, the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act;

 

   

the federal false claims and civil monetary penalties laws, including the civil False Claims Act, which prohibits, among other things, individuals or entities from knowingly presenting, or causing to be

 

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presented, to the federal government, claims for payment or approval that are false or fraudulent, knowingly making, using or causing to be made or used, a false record or statement material to a false or fraudulent claim, or from knowingly making or causing to be made a false statement to avoid, decrease or conceal an obligation to pay money to the federal government;

 

   

the federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), which imposes criminal and civil liability for, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, or knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement, in connection with the delivery of, or payment for, healthcare benefits, items or services. Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation;

 

   

HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009 (“HITECH”), and their implementing regulations, also impose obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information without appropriate authorization by covered entities subject to the rule, such as health plans, healthcare clearinghouses and certain healthcare providers as well as their business associates that perform certain services for or on their behalf involving the use or disclosure of individually identifiable health information;

 

   

the federal Physician Payments Sunshine Act, which requires certain manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually to the Centers for Medicare and Medicaid Services (“CMS”), information related to payments and other “transfers of value” made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, as well as ownership and investment interests held by the physicians described above and their immediate family members;

 

   

federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm consumers; and

 

   

analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, which may apply to Oncternal’s business practices, including but not limited to, research, distribution, sales and marketing arrangements and claims involving healthcare items or services reimbursed by non- governmental third-party payors, including private insurers, or by the patients themselves; state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government, or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; state laws and regulations that require drug manufacturers to file reports relating to pricing and marketing information or which require tracking gifts and other remuneration and items of value provided to physicians, other healthcare providers and entities; state and local laws that require the registration of pharmaceutical sales representatives; state and foreign laws governing the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA; state and foreign governments that have enacted or proposed requirements regarding the collection, distribution, use, security, and storage of personally identifiable information and other data relating to individuals (including the EU General Data Protection Regulation 2016/679 (“GDPR”), and the California Consumer Protection Act (“CCPA”)), and federal and state consumer protection laws are being applied to enforce regulations related to the online collection, use, and dissemination of data, thus complicating compliance efforts.

As of May 25, 2018, the GDPR replaced the Data Protection Directive with respect to the processing of personal data in the European Union. The GDPR imposes many requirements for controllers and processors of personal data, including, for example, higher standards for obtaining consent from individuals to process their personal

 

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data, more robust disclosures to individuals and a strengthened individual data rights regime, shortened timelines for data breach notifications, limitations on retention and secondary use of information, increased requirements pertaining to health data and pseudonymised (i.e., key-coded) data and additional obligations when Oncternal contracts third-party processors in connection with the processing of the personal data. The GDPR allows EU member states to make additional laws and regulations further limiting the processing of genetic, biometric or health data. Failure to comply with the requirements of GDPR and the applicable national data protection laws of the EU member states may result in fines of up to €20 million or up to 4% of the total worldwide annual turnover of the preceding financial year, whichever is higher, and other administrative penalties.

Ensuring that Oncternal’s internal operations and business arrangements with third parties comply with applicable healthcare laws and regulations could involve substantial costs. It is possible that governmental authorities will conclude that Oncternal’s business practices, including its consulting arrangements with physicians and other healthcare providers, some of whom received stock options as compensation for services provided, do not comply with current or future statutes, regulations, agency guidance or case law involving applicable fraud and abuse or other healthcare laws and regulations. If Oncternal’s operations are found to be in violation of any of the laws described above or any other governmental laws and regulations that may apply to Oncternal, Oncternal may be subject to significant penalties, including civil, criminal and administrative penalties, damages, fines, exclusion from U.S. government funded healthcare programs, such as Medicare and Medicaid, or similar programs in other countries or jurisdictions, disgorgement, individual imprisonment, contractual damages, reputational harm, additional reporting requirements and oversight if Oncternal becomes subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, diminished profits and the curtailment or restructuring of Oncternal’s operations. Further, defending against any such actions can be costly, time consuming and may require significant financial and personnel resources. Therefore, even if Oncternal is successful in defending against any such actions that may be brought against Oncternal, its business may be impaired. If any of the physicians or other providers or entities with whom Oncternal expects to do business are found to not be in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusion from government funded healthcare programs and imprisonment. If any of the above occur, it could adversely affect Oncternal’s ability to operate its business and its results of operations.

Recently enacted legislation, future legislation and healthcare reform measures may increase the difficulty and cost for Oncternal to obtain marketing approval for and commercialize its product candidates and may affect the prices Oncternal may set.

In the United States and some foreign jurisdictions, there have been, and Oncternal expects there will continue to be, a number of legislative and regulatory changes to the healthcare system, including cost-containment measures that may reduce or limit coverage and reimbursement for newly approved drugs and affect Oncternal’s ability to profitably sell any product candidates for which Oncternal obtains marketing approval. In particular, there have been and continue to be a number of initiatives at the U.S. federal and state levels that seek to reduce healthcare costs and improve the quality of healthcare.

For example, in March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, collectively the Affordable Care Act, was enacted in the United States. Among the provisions of the Affordable Care Act of importance to Oncternal’s potential product candidates, the Affordable Care Act: establishes an annual, nondeductible fee on any entity that manufactures or imports specified branded prescription drugs and biologic agents; extends manufacturers’ Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations; expands eligibility criteria for Medicaid programs; expands the entities eligible for discounts under the Public Health program; increases the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program; creates a new Medicare Part D coverage gap discount program; establishes a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in and conduct comparative clinical effectiveness research, along with funding for such research; and establishes a Center for Medicare Innovation at CMS to test innovative payment and service delivery models to lower Medicare and Medicaid spending.

 

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At this time, Oncternal is unsure of the full impact that the Affordable Care Act will have on its business. There have been judicial and political challenges to certain aspects of the Affordable Care Act. For example, since January 2017, President Trump has signed two executive orders and other directives designed to delay, circumvent, or loosen certain requirements of the Affordable Care Act. Concurrently, Congress has considered legislation that would repeal or repeal and replace all or part of the Affordable Care Act. While Congress has not passed comprehensive repeal legislation, two bills affecting the implementation of certain taxes under the Affordable Care Act have been signed into law. The Tax Act includes a provision repealing, effective January 1, 2019, the tax-based shared responsibility payment imposed by the Affordable Care Act on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate.” On January 22, 2018, President Trump signed a continuing resolution on appropriations for fiscal year 2018 that delayed the implementation of certain Affordable Care Act-mandated fees, including the so-called ”Cadillac” tax on certain high cost employer-sponsored insurance plans, the annual fee imposed on certain health insurance providers based on market share. The Bipartisan Budget Act of 2018 (the “BBA”), among other things, amends the Affordable Care Act, effective January 1, 2019, to close the coverage gap in most Medicare drug plans, commonly referred to as the “donut hole,” by increasing from 50 percent to 70 percent the point-of-sale discount that is owed by pharmaceutical manufacturers who participate in Medicare Part D. In July 2018, CMS published a final rule permitting further collections and payments to and from certain Affordable Care Act qualified health plans and health insurance issuers under the Affordable Care Act risk adjustment program in response to the outcome of federal district court litigation regarding the method CMS uses to determine this risk adjustment. On December 14, 2018, a U.S. District Court Judge in the Northern District of Texas, or Texas District Court Judge, ruled that the individual mandate is a critical and inseverable feature of the ACA, and therefore, because it was repealed as part of the Tax Act, the remaining provisions of the ACA are invalid as well. While the Texas District Court Judge, as well as the Trump Administration and CMS, have stated that the ruling will have no immediate effect, it is unclear how this decision, subsequent appeals, and other efforts to repeal and replace the ACA will impact the ACA and Oncternal’s business.

In addition, other legislative changes have been proposed and adopted since the Affordable Care Act was enacted. On August 2, 2011, the Budget Control Act of 2011 was signed into law, which, among other things, resulted in reductions to Medicare payments to providers of 2% per fiscal year, which went into effect on April 1, 2013 and, due to subsequent legislative amendments to the statute, including the BBA, will remain in effect through 2027 unless additional Congressional action is taken. On January 2, 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, reduced Medicare payments to several providers, including hospitals, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.

Further, there has been heightened governmental scrutiny in the United States of pharmaceutical pricing practices in light of the rising cost of prescription drugs. Such scrutiny has resulted in several recent congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for products.

At the federal level, the Trump administration’s budget proposal for fiscal year 2019 contains further drug price control measures that could be enacted during the 2019 budget process or in other future legislation, including, for example, measures to permit Medicare Part D plans to negotiate the price of certain drugs under Medicare Part B, to allow some states to negotiate drug prices under Medicaid and to eliminate cost sharing for generic drugs for low-income patients. Additionally, the Trump administration released a “Blueprint” to lower drug prices through proposals to increase manufacturer competition, increase the negotiating power of certain federal healthcare programs, incentivize manufacturers to lower the list price of their products and reduce the out of pocket costs of drug products paid by consumers. The U.S. Department of Health and Human Services has begun the process of soliciting feedback on some of these measures and, at the same time, is implementing others under its existing authority. Although some of these, and other, proposals will require authorization through additional

 

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legislation to become effective, Congress and the Trump administration have each indicated that it will continue to seek new legislative and/or administrative measures to control drug costs.

At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. Legally mandated price controls on payment amounts by third-party payors or other restrictions could harm Oncternal’s business, results of operations, financial condition and prospects. In addition, regional healthcare authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescription drug and other healthcare programs. This could reduce the ultimate demand for Oncternal’s product candidates, if approved, or put pressure on Oncternal’s product pricing, which could negatively affect its business, results of operations, financial condition and prospects.

Additionally, on May 30, 2018, the Trickett Wendler, Frank Mongiello, Jordan McLinn, and Matthew Bellina Right to Try Act of 2017 (“Right to Try Act”), was signed into law. The law, among other things, provides a federal framework for certain patients with life-threatening diseases or conditions to access certain investigational new drug products that have completed a Phase 1 clinical trial. Under certain circumstances, eligible patients can seek treatment without enrolling in clinical trials and without obtaining FDA approval under the FDA expanded access program. There is no obligation for a drug manufacturer to make its drug products available to eligible patients as a result of the Right to Try Act.

Oncternal expects that the Affordable Care Act, these new laws and other healthcare reform measures that may be adopted in the future may result in additional reductions in Medicare and other healthcare funding, more rigorous coverage criteria, new payment methodologies and additional downward pressure on the price that Oncternal receives for any approved product. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent Oncternal from being able to generate revenue, attain profitability or commercialize its product candidates, if approved.

Oncternal and any of its third-party manufacturers or suppliers may use potent chemical agents and hazardous materials, and any claims relating to improper handling, storage or disposal of these materials could be time consuming or costly.

Oncternal and any of its third-party manufacturers or suppliers will use biological materials, potent chemical agents and may use hazardous materials, including chemicals and biological agents and compounds that could be dangerous to human health and safety of the environment. Oncternal’s historical operations and the operations of its third-party manufacturers and suppliers also produce hazardous waste products. Federal, state and local laws and regulations govern the use, generation, manufacture, storage, handling and disposal of these materials and wastes. Compliance with applicable environmental laws and regulations may be expensive, and current or future environmental laws and regulations may impair Oncternal’s product development efforts. In addition, Oncternal cannot eliminate the risk of accidental injury or contamination from these materials or wastes. Oncternal does not carry specific biological or hazardous waste insurance coverage, and Oncternal’s property, casualty and general liability insurance policies specifically exclude coverage for damages and fines arising from biological or hazardous waste exposure or contamination. In the event of contamination or injury, Oncternal could be held liable for damages or be penalized with fines in an amount exceeding its resources, and its clinical trials or regulatory approvals could be suspended.

Although Oncternal maintains workers’ compensation insurance for certain costs and expenses it may incur due to injuries to Oncternal’s employees resulting from the use of hazardous materials or other work-related injuries, this insurance may not provide adequate coverage against potential liabilities. Oncternal does not maintain insurance for toxic tort claims that may be asserted against Oncternal in connection with its storage or disposal of biologic, hazardous or radioactive materials.

 

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In addition, Oncternal may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations, which have tended to become more stringent over time. These current or future laws and regulations may impair Oncternal’s research, development or production efforts. Failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions or liabilities, which could materially adversely affect Oncternal’s business, financial condition, results of operations and prospects.

If product liability lawsuits are brought against Oncternal, Oncternal may incur substantial liabilities and may be required to limit commercialization of its products.

Oncternal faces an inherent risk of product liability as a result of the clinical trials of Oncternal’s product candidates and will face an even greater risk if Oncternal commercializes its product candidates. For example, Oncternal may be sued if its product candidates allegedly cause injury or are found to be otherwise unsuitable during product testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product candidate, negligence, strict liability and a breach of warranties. Claims may be brought against Oncternal by clinical trial participants, patients or others using, administering or selling products that may be approved in the future. Claims could also be asserted under state consumer protection acts.

If Oncternal cannot successfully defend itself against product liability claims, Oncternal may incur substantial liabilities or be required to limit or cease the commercialization of its products. Even a successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in:

 

   

decreased demand for Oncternal’s products;

 

   

injury to Oncternal’s reputation and significant negative media attention;

 

   

withdrawal of clinical trial participants;

 

   

costs to defend the related litigation;

 

   

a diversion of management’s time and Oncternal’s resources;

 

   

substantial monetary awards to trial participants or patients;

 

   

product recalls, withdrawals or labeling, marketing or promotional restrictions;

 

   

significant negative financial impact;

 

   

the inability to commercialize Oncternal’s product candidates; and

 

   

a decline in Oncternal’s stock price.

Oncternal currently holds approximately $10.0 million in product liability insurance coverage in the aggregate. Oncternal may need to increase its insurance coverage as it expands its clinical trials or if it commences commercialization of its product candidates. Insurance coverage is increasingly expensive. Oncternal’s inability to obtain and retain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the commercialization of Oncternal’s product candidates. Although Oncternal maintains such insurance, any claim that may be brought against it could result in a court judgment or settlement in an amount that is not covered, in whole or in part, by Oncternal’s insurance or that is in excess of the limits of its insurance coverage. Oncternal’s insurance policies will also have various exclusions, and Oncternal may be subject to a product liability claim for which it has no coverage. Oncternal may have to pay any amounts awarded by a court or negotiated in a settlement that exceed its coverage limitations or that are not covered by its insurance, and Oncternal may not have, or be able to obtain, sufficient capital to pay such amounts.

 

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Oncternal and any of its potential future collaborators will be required to report to regulatory authorities if any of Oncternal’s approved products cause or contribute to adverse medical events, and any failure to do so would result in sanctions that would materially harm Oncternal’s business.

If Oncternal and any of its potential future collaborators are successful in commercializing Oncternal’s products, the FDA and foreign regulatory authorities would require that Oncternal and any of its potential future collaborators report certain information about adverse medical events if those products may have caused or contributed to those adverse events. The timing of Oncternal’s obligation to report would be triggered by the date Oncternal becomes aware of the adverse event as well as the nature of the event. Oncternal and any of its potential future collaborators or CROs may fail to report adverse events within the prescribed timeframe. If Oncternal or any of its potential future collaborators or CROs fail to comply with such reporting obligations, the FDA or a foreign regulatory authority could take action, including criminal prosecution, the imposition of civil monetary penalties, seizure of Oncternal’s products or delay in approval or clearance of future products.

Oncternal’s internal computer systems, or those of any of its CROs, manufacturers, other contractors or consultants or potential future collaborators, may fail or suffer security breaches, which could result in a material disruption of Oncternal’s product development programs.

The United States federal and various state and foreign governments have adopted or proposed requirements regarding the collection, distribution, use, security, and storage of personally identifiable information and other data relating to individuals, and federal and state consumer protection laws are being applied to enforce regulations related to the online collection, use, and dissemination of data. Despite the implementation of security measures, Oncternal’s internal computer systems and those of its current and any future CROs and other contractors, consultants and collaborators are vulnerable to damage from computer viruses, cybersecurity threats, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. If such an event were to occur and cause interruptions in Oncternal’s operations or result in the unauthorized disclosure of or access to personally identifiable information or individually identifiable health information (violating certain privacy laws such as GDPR), it could result in a material disruption of Oncternal’s development programs and its business operations, whether due to a loss of Oncternal’s trade secrets or other similar disruptions. Some of the federal, state and foreign government requirements include obligations of companies to notify individuals of security breaches involving particular personally identifiable information, which could result from breaches experienced by Oncternal or by its vendors, contractors, or organizations with which Oncternal has formed strategic relationships. Even though Oncternal may have contractual protections with such vendors, contractors, or other organizations, notifications and follow-up actions related to a security breach could impact Oncternal’s reputation, cause Oncternal to incur significant costs, including legal expenses, harm customer confidence, hurt Oncternal’s expansion into new markets, cause Oncternal to incur remediation costs, or cause Oncternal to lose existing customers. For example, the loss of clinical trial data from completed or future clinical trials could result in delays in Oncternal’s regulatory approval efforts and significantly increase Oncternal’s costs to recover or reproduce the data. Oncternal also relies on third parties to manufacture its product candidates, and similar events relating to their computer systems could also have a material adverse effect on Oncternal’s business. To the extent that any disruption or security breach were to result in a loss of, or damage to, Oncternal’s data or applications, or inappropriate disclosure of confidential or proprietary information, Oncternal could incur liability, the further development and commercialization of Oncternal’s product candidates could be delayed, and Oncternal could be subject to significant fines, penalties or liabilities for any noncompliance to certain privacy and security laws.

Business disruptions could seriously harm Oncternal’s future revenue and financial condition and increase its costs and expenses.

Oncternal’s operations could be subject to earthquakes, power shortages, telecommunications failures, water shortages, floods, hurricanes, typhoons, fires, extreme weather conditions, medical epidemics and other natural or manmade disasters or business interruptions, for which Oncternal is predominantly self-insured. Oncternal

 

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relies on third- party manufacturers to produce Oncternal’s product candidates. Oncternal’s ability to obtain clinical supplies of its product candidates could be disrupted if the operations of these suppliers were affected by a man-made or natural disaster or other business interruption. In addition, Oncternal’s corporate headquarters is located in San Diego, California near major earthquake faults and fire zones, and the ultimate impact on Oncternal of being located near major earthquake faults and fire zones and being consolidated in a certain geographical area is unknown. The occurrence of any of these business disruptions could seriously harm Oncternal’s operations and financial condition and increase its costs and expenses.

Oncternal’s employees and independent contractors, including principal investigators, CROs, consultants and vendors, may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements.

Oncternal is exposed to the risk that its employees and independent contractors, including principal investigators, CROs, consultants and vendors may engage in misconduct or other illegal activity. Misconduct by these parties could include intentional, reckless and/or negligent conduct or disclosure of unauthorized activities to Oncternal that violate: (1) the laws and regulations of the FDA and other similar regulatory requirements, including those laws that require the reporting of true, complete and accurate information to such authorities, (2) manufacturing standards, including cGMP requirements, (3) federal and state data privacy, security, fraud and abuse and other healthcare laws and regulations in the United States and abroad or (4) laws that require the true, complete and accurate reporting of financial information or data. Activities subject to these laws also involve the improper use or misrepresentation of information obtained in the course of clinical trials, the creation of fraudulent data in Oncternal’s preclinical studies or clinical trials, or illegal misappropriation of drug product, which could result in regulatory sanctions and cause serious harm to Oncternal’s reputation. It is not always possible to identify and deter misconduct by employees and other third parties, and the precautions Oncternal takes to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting Oncternal from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. In addition, Oncternal is subject to the risk that a person or government could allege such fraud or other misconduct, even if none occurred. If any such actions are instituted against Oncternal, and Oncternal is not successful in defending itself or asserting its rights, those actions could have a significant impact on Oncternal’s business and financial results, including, without limitation, the imposition of significant civil, criminal and administrative penalties, damages, monetary fines, disgorgements, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, individual imprisonment, contractual damages, reputational harm, diminished profits and future earnings, additional reporting requirements and oversight if Oncternal becomes subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, and curtailment of Oncternal’s operations, any of which could adversely affect Oncternal’s ability to operate its business and its results of operations.

Oncternal is subject to U.S. and certain foreign export and import controls, sanctions, embargoes, anti-corruption laws and anti-money laundering laws and regulations. Compliance with these legal standards could impair Oncternal’s ability to compete in domestic and international markets. Oncternal could face criminal liability and other serious consequences for violations, which could harm its business.

Oncternal is subject to export control and import laws and regulations, including the U.S. Export Administration Regulations, U.S. Customs regulations, and various economic and trade sanctions regulations administered by the U.S. Treasury Department’s Office of Foreign Assets Controls, and anti-corruption and anti-money laundering laws and regulations, including the U.S. Foreign Corrupt Practices Act of 1977, as amended, the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, the USA PATRIOT Act, and other state and national anti-bribery and anti-money laundering laws in the countries in which Oncternal conducts activities. Anti-corruption laws are interpreted broadly and prohibit companies and their employees, agents, clinical research organizations, contractors and other collaborators and partners from authorizing, promising, offering, providing, soliciting or receiving, directly or indirectly, improper payments or anything else of value to recipients in the public or private sector. Oncternal may engage third parties for clinical trials outside of the United States,

 

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to sell its products abroad once Oncternal enters a commercialization phase, and/or to obtain necessary permits, licenses, patent registrations and other regulatory approvals. Oncternal has direct or indirect interactions with officials and employees of government agencies or government-affiliated hospitals, universities and other organizations. Oncternal can be held liable for the corrupt or other illegal activities of its employees, agents, clinical research organizations, contractors and other collaborators and partners, even if Oncternal does not explicitly authorize or have actual knowledge of such activities. Any violations of the laws and regulations described above may result in substantial civil and criminal fines and penalties, imprisonment, the loss of export or import privileges, debarment, tax reassessments, breach of contract and fraud litigation, reputational harm and other consequences.

Oncternal may engage in strategic transactions that could impact its liquidity, increase its expenses and present significant distractions to Oncternal’s management.

From time to time, Oncternal may consider strategic transactions, such as acquisitions of companies, asset purchases and out-licensing or in-licensing of intellectual property, products or technologies, similar to Oncternal’s approach in in-licensing and acquiring its current product candidates. Any future transactions could increase Oncternal’s near and long-term expenditures, result in potentially dilutive issuances of Oncternal’s equity securities, including its common stock, or the incurrence of debt, contingent liabilities, amortization expenses or acquired in-process research and development expenses, any of which could affect Oncternal’s financial condition, liquidity and results of operations. Additional potential transactions that Oncternal may consider in the future include a variety of business arrangements, including spin-offs, strategic partnerships, joint ventures, restructurings, divestitures, business combinations and investments. Future acquisitions may also require Oncternal to obtain additional financing, which may not be available on favorable terms or at all. These transactions may never be successful and may require significant time and attention of management. In addition, the integration of any business that Oncternal may acquire in the future may disrupt Oncternal’s existing business and may be a complex, risky and costly endeavor for which Oncternal may never realize the full benefits of the acquisition. Accordingly, although there can be no assurance that Oncternal will undertake or successfully complete any additional transactions of the nature described above, any additional transactions that Oncternal does complete could have a material adverse effect on Oncternal’s business, results of operations, financial condition and prospects.

Risks Related to Oncternal’s Intellectual Property

Oncternal’s success depends on its ability to protect its intellectual property and its proprietary technologies.

Oncternal’s commercial success depends in part on its ability to obtain and maintain patent protection and trade secret protection for its product candidates, proprietary technologies and their uses as well as its ability to operate without infringing upon the proprietary rights of others. If Oncternal is unable to protect its intellectual property rights or if its intellectual property rights are inadequate for its technology or its product candidates, Oncternal’s competitive position could be harmed. Oncternal generally seeks to protect its proprietary position by licensing or filing patent applications in the United States and abroad related to its product candidates, proprietary technologies and their uses that are important to Oncternal’s business. Oncternal’s or its licensor’s patent applications cannot be enforced against third parties practicing the technology claimed in such applications unless, and until, patents issue from such applications, and then only to the extent the issued claims cover the technology. There can be no assurance that Oncternal’s or its licensor’s patent applications will result in patents being issued or that issued patents will afford sufficient protection against competitors with similar technology, nor can there be any assurance that the patents if issued will not be infringed, designed around or invalidated by third parties. Even issued patents may later be found invalid or unenforceable or may be modified or revoked in proceedings instituted by third parties before various patent offices or in courts. The degree of future protection for Oncternal’s proprietary rights is uncertain. Only limited protection may be available and may not adequately protect Oncternal’s rights or permit it to gain or keep any competitive advantage. These uncertainties and/or limitations in Oncternal’s ability to properly protect the intellectual property rights relating to Oncternal’s

 

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product candidates could have a material adverse effect on Oncternal’s financial condition and results of operations.

Although Oncternal owns and licenses issued patents in the United States and foreign countries, Oncternal cannot be certain that the claims in Oncternal’s or its licensor’s other U.S. pending patent applications, corresponding international patent applications and patent applications in certain foreign countries will be considered patentable by the United States Patent and Trademark Office (“USPTO”), courts in the United States or by the patent offices and courts in foreign countries, nor can Oncternal be certain that the claims in its or its licensor’s issued patents will not be found invalid or unenforceable if challenged.

The patent application process is subject to numerous risks and uncertainties, and there can be no assurance that Oncternal, its licensors or any of its potential future collaborators will be successful in protecting Oncternal’s product candidates by obtaining and defending patents. These risks and uncertainties include the following:

 

   

the USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other provisions during the patent process, the noncompliance with which can result in abandonment or lapse of a patent or patent application, and partial or complete loss of patent rights in the relevant jurisdiction;

 

   

patent applications may not result in any patents being issued;

 

   

patents may be challenged, invalidated, modified, revoked, circumvented, found to be unenforceable or otherwise may not provide any competitive advantage;

 

   

Oncternal’s competitors, many of whom have substantially greater resources than Oncternal does and many of whom have made significant investments in competing technologies, may seek or may have already obtained patents that will limit, interfere with or block Oncternal’s ability to make, use and sell Oncternal’s product candidates;

 

   

there may be significant pressure on the U.S. government and international governmental bodies to limit the scope of patent protection both inside and outside the United States for disease treatments that prove successful, as a matter of public policy regarding worldwide health concerns; and

 

   

countries other than the United States may have patent laws less favorable to patentees than those upheld by U.S. courts, allowing foreign competitors a better opportunity to create, develop and market competing products.

The patent prosecution process is also expensive and time consuming, and Oncternal and its licensors may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner or in all jurisdictions where protection may be commercially advantageous. It is also possible that Oncternal or its licensors will fail to identify patentable aspects of its research and development output before it is too late to obtain patent protection. Moreover, in some circumstances, Oncternal does not have the right to control the preparation, filing and prosecution of patent applications, or to maintain the patents, directed to technology that Oncternal licenses from third parties. Oncternal may also require the cooperation of its licensor in order to enforce the licensed patent rights, and such cooperation may not be provided. Therefore, these patents and applications may not be prosecuted and enforced in a manner consistent with the best interests of Oncternal’s business. Oncternal cannot be certain that patent prosecution and maintenance activities by its licensors have been or will be conducted in compliance with applicable laws and regulations, which may affect the validity and enforceability of such patents or any patents that may issue from such applications. If they fail to do so, this could cause Oncternal to lose rights in any applicable intellectual property that it in-licenses, and as a result Oncternal’s ability to develop and commercialize products or product candidates may be adversely affected and it may be unable to prevent competitors from making, using and selling competing products.

In addition, although Oncternal enters into non-disclosure and confidentiality agreements with parties who have access to patentable aspects of its research and development output, such as Oncternal’s employees, outside

 

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scientific collaborators, CROs, third-party manufacturers, consultants, advisors, licensees, collaboration partners, and other third parties, any of these parties may breach such agreements and disclose such output before a patent application is filed, thereby jeopardizing Oncternal’s ability to seek patent protection.

If Oncternal fails to comply with its obligations in the agreements under which it licenses intellectual property rights from third parties, including with respect to cirmtuzumab and TK216, or otherwise experiences disruptions in its business relationships with its licensors, Oncternal could lose license rights that are important to its business.

Oncternal is a party to several license agreements under which it is granted rights to intellectual property that are important to its business and Oncternal may enter into additional license agreements in the future. For example, in March 2014, Oncternal entered into an exclusive license agreement with Georgetown University, or Georgetown, to obtain an exclusive license to certain intellectual property rights to develop and commercialize compounds targeting EWS-FLI1. In March 2016, Oncternal entered into an exclusive license agreement with the Regents of the University of California (the “Regents”), to obtain an exclusive license to certain intellectual property rights to develop and commercialize cirmtuzumab and other ROR1 related naked antibodies.

These license agreements impose, and Oncternal expects that any future license agreements where Oncternal in-licenses intellectual property, will impose on Oncternal, various development, regulatory and/or commercial diligence obligations, payment of milestones and/or royalties and other obligations. If Oncternal fails to comply with its obligations under these agreements, or Oncternal is subject to bankruptcy-related proceedings, the licensor may have the right to terminate the license, in which event Oncternal would not be able to market products covered by the license.

Oncternal may need to obtain licenses from third parties to advance its research or allow commercialization of its product candidates, and Oncternal cannot provide any assurances that third-party patents do not exist which might be enforced against Oncternal’s product candidates in the absence of such a license. Oncternal may fail to obtain any of these licenses on commercially reasonable terms, if at all. Even if Oncternal is able to obtain a license, it may be non-exclusive, thereby giving Oncternal’s competitors access to the same technologies licensed to Oncternal. In that event, Oncternal may be required to expend significant time and resources to develop or license replacement technology. If Oncternal is unable to do so, Oncternal may be unable to develop or commercialize the affected product candidates, which could materially harm Oncternal’s business and the third parties owning such intellectual property rights could seek either an injunction prohibiting Oncternal’s sales, or, with respect to Oncternal’s sales, an obligation on Oncternal’s part to pay royalties and/or other forms of compensation. Licensing of intellectual property is of critical importance to Oncternal’s business and involves complex legal, business and scientific issues. Disputes may arise between Oncternal and its licensors regarding intellectual property subject to a license agreement, including:

 

   

the scope of rights granted under the license agreement and other interpretation-related issues;

 

   

whether and the extent to which Oncternal’s technology and processes infringe on intellectual property of the licensor that is not subject to the licensing agreement;

 

   

Oncternal’s right to sublicense patents and other rights to third parties;

 

   

Oncternal’s diligence obligations with respect to the use of the licensed technology in relation to its development and commercialization of Oncternal’s product candidates, and what activities satisfy those diligence obligations;

 

   

Oncternal’s right to transfer or assign the license; and

 

   

the ownership of inventions and know-how resulting from the joint creation or use of intellectual property by Oncternal’s licensors and Oncternal and its partners.

 

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If disputes over intellectual property that Oncternal has licensed prevent or impair Oncternal’s ability to maintain its current licensing arrangements on acceptable terms, Oncternal may not be able to successfully develop and commercialize the affected product candidates, which would have a material adverse effect on Oncternal’s business.

If the scope of any patent protection Oncternal obtains is not sufficiently broad, or if it loses any of its patent protection, Oncternal’s ability to prevent its competitors from commercializing similar or identical product candidates would be adversely affected.

The patent position of biopharmaceutical companies generally is highly uncertain, involves complex legal and factual questions, and has been the subject of much litigation in recent years. As a result, the issuance, scope, validity, enforceability and commercial value of Oncternal’s and its licensor’s patent rights are highly uncertain. Oncternal’s and its licensor’s pending and future patent applications may not result in patents being issued which protect Oncternal’s product candidates or which effectively prevent others from commercializing competitive product candidates.

Moreover, the coverage claimed in a patent application can be significantly reduced before the patent is issued, and its scope can be reinterpreted after issuance. Even if patent applications Oncternal owns or licenses currently or in the future issue as patents, they may not issue in a form that will provide Oncternal with any meaningful protection, prevent competitors or other third parties from competing with Oncternal, or otherwise provide Oncternal with any competitive advantage. Any patents that Oncternal owns or licenses may be challenged or circumvented by third parties or may be narrowed or invalidated as a result of challenges by third parties. Consequently, Oncternal does not know whether its product candidates will be protectable or remain protected by valid and enforceable patents. Oncternal’s competitors or other third parties may be able to circumvent Oncternal’s or its licensor’s patents by developing similar or alternative technologies or products in a non-infringing manner which could materially adversely affect Oncternal’s business, financial condition, results of operations and prospects.

The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and Oncternal’s and it licensor’s patents may not cover its product candidates or may be challenged in the courts or patent offices in the United States and abroad. Oncternal’s and its licensor’s patents may be subject to a third-party pre-issuance submission of prior art to the USPTO, or become involved in opposition, derivation, revocation, reexamination, post-grant review, or PGR, and inter partes review (“IPR”), or other similar proceedings in the USPTO or foreign patent offices challenging Oncternal’s or its licensor’s patent rights. The outcome following legal assertions of invalidity and unenforceability is unpredictable. With respect to the validity question, for example, Oncternal cannot be certain that there is no invalidating prior art, of which Oncternal or its predecessors or its licensor and the patent examiner were unaware during prosecution. There is no assurance that all potentially relevant prior art relating to Oncternal’s patents and patent applications or those of Oncternal’s licensors has been found. There is also no assurance that there is not prior art of which Oncternal, its predecessors or licensors are aware, but which Oncternal does not believe affects the validity or enforceability of a claim in Oncternal’s patents and patent applications or those of its licensors, which may, nonetheless, ultimately be found to affect the validity or enforceability of a claim. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate or render unenforceable, Oncternal’s or its licensor’s patent rights, allow third parties to commercialize Oncternal’s product candidates and compete directly with Oncternal, without payment to Oncternal. Such loss of patent rights, loss of exclusivity or in patent claims being narrowed, invalidated or held unenforceable could limit Oncternal’s ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of Oncternal’s product candidates. Such proceedings also may result in substantial cost and require significant time from Oncternal’s scientists and management, even if the eventual outcome is favorable to Oncternal. In addition, if the breadth or strength of protection provided by Oncternal’s or its licensor’s patents and patent applications is threatened, regardless of the outcome, it could dissuade companies from collaborating with Oncternal to license, develop or commercialize current or future product candidates.

 

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The patent protection and patent prosecution for some of Oncternal product candidates may be dependent on third parties.

Oncternal or its licensors may fail to identify patentable aspects of inventions made in the course of development and commercialization activities before it is too late to obtain patent protection on them. Therefore, Oncternal or its licensors may miss potential opportunities to strengthen its patent position. It is possible that defects of form in the preparation or filing of Oncternal’s or its licensor’s patents or patent applications may exist, or may arise in the future, for example with respect to proper priority claims, inventorship, claim scope, or requests for patent term adjustments. If there are material defects in the form, preparation, prosecution, or enforcement of Oncternal’s or its licensor’s patents or patent applications, such patents may be invalid and/or unenforceable, and such applications may never result in valid, enforceable patents. If Oncternal or its licensors, whether current or future, fail to establish, maintain or protect its patents and other intellectual property rights, such rights may be reduced or eliminated. If Oncternal’s licensors are not fully cooperative or disagree with Oncternal as to the prosecution, maintenance or enforcement of any patent rights, such patent rights could be compromised. Any of these outcomes could impair Oncternal’s ability to prevent competition from third parties, which may have an adverse impact on Oncternal’s business.

As a licensee of third parties, Oncternal relies on third parties to file and prosecute patent applications and maintain patents and otherwise protect the licensed intellectual property under some of Oncternal’s license agreements. Oncternal has not had and does not have primary control over these activities for certain of Oncternal’s patents or patent applications and other intellectual property rights. Oncternal cannot be certain that such activities by third parties have been or will be conducted in compliance with applicable laws and regulations or will result in valid and enforceable patents or other intellectual property rights. Pursuant to the terms of the license agreements with some of Oncternal’s licensors, the licensors may have the right to control enforcement of Oncternal’s licensed patents or defense of any claims asserting the invalidity of these patents and even if Oncternal is permitted to pursue such enforcement or defense, Oncternal will require the cooperation of its licensors. Oncternal cannot be certain that its licensors will allocate sufficient resources or prioritize their or Oncternal’s enforcement of such patents or defense of such claims to protect Oncternal’s interests in the licensed patents. Even if Oncternal is not a party to these legal actions, an adverse outcome could harm Oncternal’s business because it might prevent Oncternal from continuing to license intellectual property that Oncternal may need to operate its business. If any of Oncternal’s licensors or any of its future licensors or future collaborators fail to appropriately prosecute and maintain patent protection for patents covering any of Oncternal’s product candidates, Oncternal’s ability to develop and commercialize those product candidates may be adversely affected and Oncternal may not be able to prevent competitors from making, using and selling competing products.

In addition, even where Oncternal has the right to control patent prosecution of patents and patent applications Oncternal has acquired or licensed from third parties, Oncternal may still be adversely affected or prejudiced by actions or inactions of its predecessors or licensors and their counsel that took place prior to Oncternal assuming control over patent prosecution.

Oncternal’s technology acquired or licensed from various third parties may be subject to retained rights. Oncternal’s predecessors or licensors often retain certain rights under their agreements with Oncternal, including the right to use the underlying technology for noncommercial academic and research use, to publish general scientific findings from research related to the technology, and to make customary scientific and scholarly disclosures of information relating to the technology. It is difficult to monitor whether Oncternal’s predecessors or licensors limit their use of the technology to these uses, and Oncternal could incur substantial expenses to enforce Oncternal’s rights to its licensed technology in the event of misuse.

If Oncternal is limited in its ability to utilize acquired or licensed technologies, or if Oncternal loses its rights to critical in-licensed technology, Oncternal may be unable to successfully develop, out-license, market and sell its products, which could prevent or delay new product introductions. Oncternal’s business strategy depends on the successful development of licensed and acquired technologies into commercial products. Therefore, any

 

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limitations on Oncternal’s ability to utilize these technologies may impair Oncternal’s ability to develop, out-license or market and sell its product candidate.

Some of Oncternal’s intellectual property has been discovered through government funded programs and thus may be subject to federal regulations such as ”march-in” rights, certain reporting requirements and a preference for U.S.-based companies. Compliance with such regulations may limit Oncternal’s exclusive rights, and limit Oncternal’s ability to contract with non-U.S. manufacturers.

Some of the intellectual property rights Oncternal has acquired or licensed or may acquire or license in the future may have been generated through the use of U.S. government funding and may therefore be subject to certain federal regulations. For example, some of the research and development work on cirmtuzumab and TK216 was funded by government research grants. As a result, the U.S. government may have certain rights to intellectual property embodied in Oncternal’s product candidates pursuant to the Bayh-Dole Act of 1980, or Bayh-Dole Act. These U.S. government rights include a non-exclusive, non-transferable, irrevocable worldwide license to use inventions for any governmental purpose. In addition, the U.S. government has the right, under certain limited circumstances, to require Oncternal to grant exclusive, partially exclusive, or non-exclusive licenses to any of these inventions to a third-party if it determines that: (i) adequate steps have not been taken to commercialize the invention; (ii) government action is necessary to meet public health or safety needs; or (iii) government action is necessary to meet requirements for public use under federal regulations (also referred to as ”march-in rights”). The U.S. government also has the right to take title to these inventions if the grant recipient fails to disclose the invention to the government or fails to file an application to register the intellectual property within specified time limits. Intellectual property generated under a government funded program is also subject to certain reporting requirements, compliance with which may require Oncternal to expend substantial resources. In addition, the U.S. government requires that any products embodying any of these inventions or produced through the use of any of these inventions be manufactured substantially in the United States. This preference for U.S. industry may be waived by the federal agency that provided the funding if the owner or assignee of the intellectual property can show that reasonable but unsuccessful efforts have been made to grant licenses on similar terms to potential licensees that would be likely to manufacture substantially in the United States or that under the circumstances domestic manufacture is not commercially feasible. This preference for U.S. industry may limit Oncternal’s ability to contract with non-U.S. product manufacturers for products covered by such intellectual property. To the extent any of Oncternal’s future intellectual property is also generated through the use of U.S. government funding, the provisions of the Bayh-Dole Act may similarly apply.

Intellectual property rights do not necessarily address all potential threats to Oncternal’s competitive advantage.

The degree of future protection afforded by Oncternal’s intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect Oncternal’s business or permit Oncternal to maintain its competitive advantage. For example:

 

   

others may be able to develop products that are similar to Oncternal’s product candidates but that are not covered by the claims of the patents that Oncternal owns or licenses;

 

   

Oncternal or its licensors or predecessors might not have been the first to make the inventions covered by the issued patents or patent applications that Oncternal owns or licenses;

 

   

Oncternal or its licensors or predecessors might not have been the first to file patent applications covering certain of Oncternal’s inventions;

 

   

others may independently develop similar or alternative technologies or duplicate any of Oncternal’s technologies without infringing Oncternal’s intellectual property rights;

 

   

it is possible that Oncternal’s or its licensor’s pending patent applications will not lead to issued patents;

 

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issued patents that Oncternal owns or licenses may be held invalid or unenforceable, as a result of legal challenges by Oncternal’s competitors;

 

   

Oncternal’s competitors might conduct research and development activities in countries where Oncternal does not have patent rights and then use the information learned from such activities to develop competitive products for sale in Oncternal’s major commercial markets;

 

   

Oncternal may not develop additional proprietary technologies that are patentable; and

 

   

the patents of others may have an adverse effect on Oncternal’s business.

Should any of these events occur, it could significantly harm Oncternal’s business, results of operations and prospects.

Oncternal relies on licensee relationships, and any disputes or litigation with our partners or termination or breach of any of the related agreements could reduce the financial resources available to us, including milestone payments and future royalty revenues.

Oncternal’s existing collaborations may not continue or be successful, and Oncternal may be unable to enter into future collaborative arrangements to develop and commercialize its unpartnered assets. If any of Oncternal’s collaborative partners breach or terminate their agreements with Oncternal or otherwise fail to conduct their collaborative activities successfully, Oncternal’s product development under these agreements will be delayed or terminated. Disputes or litigation may also arise with our collaborators (with us and/or with one or more third parties), including those over ownership rights to intellectual property, know-how or technologies developed with our collaborators. Such disputes or litigation could adversely affect our rights to one or more of our product candidates and could delay, interrupt or terminate the collaborative research, development and commercialization of certain potential products, create uncertainty as to ownership rights of intellectual property, or could result in litigation or arbitration. In addition, a significant downturn or deterioration in the business or financial condition of our collaborators or partners could result in a loss of expected revenue and our expected returns on investment. The occurrence of any of these problems could be time-consuming and expensive and could adversely affect our business.

Oncternal’s commercial success depends significantly on its ability to operate without infringing the patents and other proprietary rights of third parties. Claims by third parties that Oncternal infringes their proprietary rights may result in liability for damages or prevent or delay Oncternal’s developmental and commercialization efforts.

Oncternal’s commercial success depends in part on avoiding infringement of the patents and proprietary rights of third parties. However, Oncternal’s or its licensee’s research, development and commercialization activities may be subject to claims that Oncternal or its licensee infringes or otherwise violates patents or other intellectual property rights owned or controlled by third parties. Other entities may have or obtain patents or proprietary rights that could limit Oncternal’s or its licensee’s ability to make, use, sell, offer for sale or import Oncternal’s product candidates and products that may be approved in the future, or impair Oncternal’s competitive position. There is a substantial amount of litigation, both within and outside the United States, involving patent and other intellectual property rights in the biopharmaceutical industry, including patent infringement lawsuits, oppositions, reexaminations, IPR proceedings and PGR proceedings before the USPTO and/or foreign patent offices. Numerous third-party U.S. and foreign issued patents and pending patent applications exist in the fields in which Oncternal is developing product candidates. There may be third-party patents or patent applications with claims to materials, formulations, methods of manufacture or methods for treatment related to the use or manufacture of Oncternal’s product candidates.

As the biopharmaceutical industry expands and more patents are issued, the risk increases that Oncternal’s product candidates may be subject to claims of infringement of the patent rights of third parties. Because patent

 

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applications are maintained as confidential for a certain period of time, until the relevant application is published Oncternal may be unaware of third-party patents that may be infringed by commercialization of any of Oncternal’s product candidates, and Oncternal cannot be certain that Oncternal was the first to file a patent application related to a product candidate or technology. Moreover, because patent applications can take many years to issue, there may be currently-pending patent applications that may later result in issued patents that Oncternal’s product candidates may infringe. In addition, identification of third-party patent rights that may be relevant to Oncternal’s technology is difficult because patent searching is imperfect due to differences in terminology among patents, incomplete databases and the difficulty in assessing the meaning of patent claims. In addition, third parties may obtain patents in the future and claim that use of Oncternal’s technologies infringes upon these patents. Any claims of patent infringement asserted by third parties would be time consuming and could:

 

   

result in costly litigation that may cause negative publicity;

 

   

divert the time and attention of Oncternal’s technical personnel and management;

 

   

cause development delays;

 

   

subject Oncternal to an injunction preventing Oncternal from making, using, selling, offering for sale, or importing Oncternal products;

 

   

prevent Oncternal from commercializing any of its product candidates until the asserted patent expires or is held finally invalid or not infringed in a court of law;

 

   

require Oncternal to develop non-infringing technology, which may not be possible on a cost-effective basis;

 

   

subject Oncternal to significant liability to third parties; or

 

   

require Oncternal to enter into royalty or licensing agreements, which may not be available on commercially reasonable terms, or at all, or which might be non-exclusive, which could result in Oncternal’s competitors gaining access to the same technology.

Although no third-party has asserted a claim of patent infringement against Oncternal as of the date of this prospectus, others may hold proprietary rights that could prevent Oncternal’s product candidates from being marketed. Any patent-related legal action against Oncternal claiming damages and seeking to enjoin activities relating to Oncternal’s product candidates or processes could subject Oncternal to potential liability for damages, including treble damages if Oncternal was determined to willfully infringe, and require Oncternal to obtain a license to manufacture or develop its product candidates. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from Oncternal’s business. Oncternal cannot predict whether it would prevail in any such actions or that any license required under any of these patents would be made available on commercially reasonable terms, if at all. Moreover, even if Oncternal or its future strategic partners were able to obtain a license, the rights may be nonexclusive, which could result in Oncternal’s competitors gaining access to the same intellectual property. In addition, Oncternal cannot be certain that it could redesign its product candidates or processes to avoid infringement, if necessary. Accordingly, an adverse determination in a judicial or administrative proceeding, or the failure to obtain necessary licenses, could prevent Oncternal from developing and commercializing its product candidates, which could harm Oncternal’s business, financial condition and operating results.

Parties making claims against Oncternal may be able to sustain the costs of complex patent litigation more effectively than Oncternal can because they have substantially greater resources. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation or administrative proceedings, there is a risk that some of Oncternal’s confidential information could be compromised by disclosure. In addition, any uncertainties resulting from the initiation and continuation of any litigation could have a material adverse effect on Oncternal’s ability to raise additional funds or otherwise have a material adverse effect on Oncternal’s business, results of operations, financial condition and prospects.

 

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Oncternal may be involved in lawsuits to protect or enforce Oncternal’s patents or the patents of its licensors, which could be expensive, time consuming and unsuccessful. Further, Oncternal’s issued patents could be found invalid or unenforceable if challenged in court.

Competitors may infringe Oncternal’s intellectual property rights or those of its licensors. To prevent infringement or unauthorized use, Oncternal and/or its licensors may be required to file infringement claims, which can be expensive and time consuming. In addition, in a patent infringement proceeding, a court may decide that a patent Oncternal owns or licenses is not valid, is unenforceable and/or is not infringed. If Oncternal or any of its licensors or potential future collaborators were to initiate legal proceedings against a third-party to enforce a patent directed at one of Oncternal’s product candidates, the defendant could counterclaim that Oncternal’s or its licensor’s patent is invalid and/or unenforceable in whole or in part. In patent litigation, defendant counterclaims alleging invalidity and/or unenforceability are commonplace. Grounds for a validity challenge include an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness, lack of written description or non-enablement. Grounds for an unenforceability assertion could include an allegation that someone connected with prosecution of the patent withheld relevant information from the USPTO or made a misleading statement during prosecution.

If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability, Oncternal would lose at least part, and perhaps all, of the patent protection on such product candidate. In addition, if the breadth or strength of protection provided by Oncternal’s patents and patent applications or those of its licensors is threatened, it could dissuade companies from collaborating with Oncternal to license, develop or commercialize current or future product candidates. Such a loss of patent protection would have a material adverse impact on Oncternal’s business.

Even if resolved in Oncternal’s favor, litigation or other legal proceedings relating to Oncternal’s or its licensor’s intellectual property rights may cause Oncternal to incur significant expenses, and could distract Oncternal’s technical and management personnel from their normal responsibilities. Such litigation or proceedings could substantially increase Oncternal’s operating losses and reduce the resources available for development activities or any future sales, marketing or distribution activities. Oncternal or its licensor may not have sufficient financial or other resources to conduct or participate in such litigation or proceedings adequately. Some of Oncternal’s competitors may be able to sustain the costs of such litigation or proceedings more effectively than Oncternal or its licensor can because of their greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could compromise Oncternal’s ability to compete in the marketplace.

Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation or other legal proceedings relating to Oncternal’s intellectual property rights, there is a risk that some of Oncternal’s confidential information could be compromised by disclosure during this type of litigation or other proceedings.

Intellectual property litigation may lead to unfavorable publicity that harms Oncternal’s reputation and causes the market price of Oncternal’s common shares to decline.

During the course of any intellectual property litigation, there could be public announcements of the initiation of the litigation as well as results of hearings, rulings on motions, and other interim proceedings in the litigation. If securities analysts or investors regard these announcements as negative, the perceived value of Oncternal’s existing products, programs or intellectual property could be diminished. Accordingly, the market price of shares of Oncternal’s common stock may decline. Such announcements could also harm Oncternal’s reputation or the market for Oncternal’s future products, which could have a material adverse effect on Oncternal’s business.

 

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Derivation or interference proceedings may be necessary to determine priority of inventions, and an unfavorable outcome may require Oncternal to cease using the related technology or to attempt to license rights from the prevailing party.

Derivation or interference proceedings provoked by third parties or brought by Oncternal or its licensors or declared by the USPTO or similar proceedings in foreign patent offices may be necessary to determine the priority of inventions with respect to Oncternal’s or its licensor’s patents or patent applications. An unfavorable outcome could require Oncternal to cease using the related technology or to attempt to license rights to it from the prevailing party. Oncternal’s business could be harmed if the prevailing party does not offer Oncternal a license on commercially reasonable terms. Oncternal’s or its licensor’s defense of such proceedings may fail and, even if successful, may result in substantial costs and distract Oncternal’s management and other employees. In addition, the uncertainties associated with such proceedings could have a material adverse effect on Oncternal’s ability to raise the funds necessary to continue its clinical trials, continue its research programs, license necessary technology from third parties or enter into development or manufacturing partnerships that would help Oncternal bring its product candidates to market.

Recent patent reform legislation could increase the uncertainties and costs surrounding the prosecution of Oncternal’s patent applications and the enforcement or defense of Oncternal’s issued patents.

On September 16, 2011, the Leahy-Smith America Invents Act, or Leahy-Smith Act, was signed into law. The Leahy-Smith Act includes a number of significant changes to U.S. patent law. These include provisions that affect the way patent applications will be prosecuted and may also affect patent litigation. In particular, under the Leahy-Smith Act, the United States transitioned in March 2013 to a “first inventor to file” system in which, assuming that other requirements of patentability are met, the first inventor to file a patent application will be entitled to the patent regardless of whether a third-party was first to invent the claimed invention. A third-party that files a patent application in the USPTO after March 2013 but before Oncternal could therefore be awarded a patent covering an invention of Oncternal’s even if Oncternal had made the invention before it was made by such third-party. This will require Oncternal to be cognizant going forward of the time from invention to filing of a patent application. Furthermore, Oncternal’s ability to obtain and maintain valid and enforceable patents depends on whether the differences between Oncternal’s technology and the prior art allow Oncternal’s technology to be patentable over the prior art. Since patent applications in the United States and most other countries are confidential for a period of time after filing or until issuance, Oncternal cannot be certain that it or its licensor was the first to either (1) file any patent application related to Oncternal’s product candidates or (2) invent any of the inventions claimed in Oncternal’s or its licensor’s patents or patent applications.

The Leahy-Smith Act also includes a number of significant changes that affect the way patent applications will be prosecuted and also may affect patent litigation. These include allowing third-party submission of prior art to the USPTO during patent prosecution and additional procedures to attack the validity of a patent by USPTO administered post-grant proceedings, including PGR, IPR, and derivation proceedings. An adverse determination in any such submission or proceeding could reduce the scope or enforceability of, or invalidate, Oncternal’s patent rights, which could adversely affect Oncternal’s competitive position.

Because of a lower evidentiary standard in USPTO proceedings compared to the evidentiary standard in United States federal courts necessary to invalidate a patent claim, a third-party could potentially provide evidence in a USPTO proceeding sufficient for the USPTO to hold a claim invalid even though the same evidence would be insufficient to invalidate the claim if first presented in a district court action. Accordingly, a third-party may attempt to use the USPTO procedures to invalidate Oncternal’s or its licensor’s patent claims that would not have been invalidated if first challenged by the third-party as a defendant in a district court action. Thus, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of Oncternal’s or its licensor’s patent applications and the enforcement or defense of Oncternal’s or its licensor’s issued patents, all of which could have a material adverse effect on Oncternal’s business, financial condition, results of operations and prospects.

 

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Changes in U.S. patent law, or laws in other countries, could diminish the value of patents in general, thereby impairing Oncternal’s ability to protect its product candidates.

As is the case with other biopharmaceutical companies, Oncternal’s success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the biopharmaceutical industry involve a high degree of technological and legal complexity. Therefore, obtaining and enforcing biopharmaceutical patents is costly, time consuming and inherently uncertain. Changes in either the patent laws or in the interpretations of patent laws in the United States and other countries may diminish the value of Oncternal’s intellectual property rights and may increase the uncertainties and costs surrounding the prosecution of patent applications and the enforcement or defense of issued patents. Oncternal cannot predict the breadth of claims that may be allowed or enforced in Oncternal’s or its licensor’s patents or in third-party patents. In addition, Congress or other foreign legislative bodies may pass patent reform legislation that is unfavorable to Oncternal.

For example, the U.S. Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to Oncternal’s and its licensor’s ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on decisions by the U.S. Congress, the U.S. federal courts, the USPTO, or similar authorities in foreign jurisdictions, the laws and regulations governing patents could change in unpredictable ways that would weaken Oncternal’s or its licensor’s ability to obtain new patents or to enforce its existing patents and patents it might obtain in the future.

Oncternal may be subject to claims challenging the inventorship or ownership of Oncternal’s patents and other intellectual property.

Oncternal may also be subject to claims that former employees or other third parties have an ownership interest in Oncternal’s patents or other intellectual property. Litigation may be necessary to defend against these and other claims challenging inventorship or ownership. If Oncternal fails in defending any such claims, in addition to paying monetary damages, Oncternal may lose valuable intellectual property rights. Such an outcome could have a material adverse effect on Oncternal’s business. Even if Oncternal is successful in defending against such claims, litigation could result in substantial costs and distraction to management and other employees.

Patent terms may be inadequate to protect Oncternal’s competitive position on its product candidates for an adequate amount of time.

Patents have a limited lifespan. In the United States, if all maintenance fees are timely paid, the natural expiration of a patent is generally 20 years from its earliest U.S. non-provisional filing date. Various extensions may be available, but the life of a patent, and the protection it affords, is limited. Even if patents covering Oncternal’s product candidates are obtained, once the patent life has expired, Oncternal may be open to competition from competitive products. Given the amount of time required for the development, testing and regulatory review of product candidates, patents protecting Oncternal’s product candidates might expire before or shortly after such candidates are commercialized. As a result, Oncternal’s patent portfolio may not provide it with sufficient rights to exclude others from commercializing products similar or identical to Oncternal’s.

If Oncternal does not obtain patent term extension for its product candidates, its business may be materially harmed.

Depending upon the timing, duration and specifics of FDA marketing approval of Oncternal’s product candidates, one or more of its or its licensor’s U.S. patents may be eligible for limited patent term restoration under the Drug Price Competition and Patent Term Restoration Act of 1984 (the “Hatch-Waxman Amendments”). The Hatch- Waxman Amendments permit a patent restoration term of up to five years as compensation for patent term lost during product development and the FDA regulatory review process. A

 

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maximum of one patent may be extended per FDA approved product as compensation for the patent term lost during the FDA regulatory review process. A patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval and only those claims covering such approved drug product, a method for using it or a method for manufacturing it may be extended. Patent term extension may also be available in certain foreign countries upon regulatory approval of Oncternal’s product candidates. However, Oncternal may not be granted an extension because of, for example, failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents or otherwise failing to satisfy applicable requirements. Moreover, the applicable time period or the scope of patent protection afforded could be less than it requests. If Oncternal is unable to obtain patent term extension or restoration or the term of any such extension is less than Oncternal requests, its competitors may obtain approval of competing products following Oncternal’s or its licensor’s patent expiration, and Oncternal’s revenue could be reduced, possibly materially. Further, if this occurs, Oncternal’s competitors may take advantage of its investment in development and trials by referencing Oncternal’s clinical and preclinical data and launch their product earlier than might otherwise be the case.

Oncternal may not be able to protect its intellectual property rights throughout the world.

Although Oncternal and its licensors have issued patents and pending patent applications in the United States and certain other countries, filing, prosecuting and defending patents in all countries throughout the world would be prohibitively expensive, and Oncternal’s intellectual property rights in some countries outside the United States can be less extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States. Consequently, Oncternal may not be able to prevent third parties from practicing Oncternal’s inventions in all countries outside the United States or from selling or importing products made using Oncternal’s inventions in and into the United States or other jurisdictions. Competitors may use Oncternal’s technologies in jurisdictions where Oncternal or its licensor has not obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where Oncternal has patent protection but enforcement is not as strong as that in the United States. These products may compete with Oncternal’s product candidates, and Oncternal’s and its licensor’s patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.

Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of many foreign countries do not favor the enforcement of patents and other intellectual property protection, which could make it difficult for Oncternal to stop the infringement of its patents or marketing of competing products in violation of Oncternal’s proprietary rights. Proceedings to enforce Oncternal’s patent rights in foreign jurisdictions could result in substantial costs and divert Oncternal’s efforts and attention from other aspects of its business, could put its patents at risk of being invalidated or interpreted narrowly and its patent applications at risk of not issuing and could provoke third parties to assert claims against Oncternal. Oncternal or its licensor may not prevail in any lawsuits that it initiates, and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, Oncternal’s or its licensor’s efforts to enforce its intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that Oncternal develops or licenses.

Many countries have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In addition, many countries limit the enforceability of patents against government agencies or government contractors. In these countries, the patent owner may have limited remedies, which could materially diminish the value of such patent. If Oncternal or its licensor is forced to grant a license to third parties with respect to any patents relevant to Oncternal’s business, Oncternal’s competitive position may be impaired, and its business, financial condition, results of operations and prospects may be adversely affected.

 

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Obtaining and maintaining Oncternal’s patent protection depends on compliance with various procedural, documentary, fee payment and other requirements imposed by regulations and governmental patent agencies, and Oncternal’s patent protection could be reduced or eliminated for non-compliance with these requirements.

Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and/or applications will be due to the USPTO and various foreign patent offices at various points over the lifetime of Oncternal’s and its licensors’ patents and/or applications. Oncternal has systems in place to remind it to pay these fees, and Oncternal relies on third parties to pay these fees when due. Additionally, the USPTO and various foreign patent offices require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. Oncternal employs reputable law firms and other professionals to help it comply, and in many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with rules applicable to the particular jurisdiction. However, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. If such an event were to occur, it could have a material adverse effect on Oncternal’s business.

If Oncternal is unable to protect the confidentiality of its trade secrets, its business and competitive position would be harmed.

In addition, Oncternal relies on the protection of its trade secrets, including unpatented know-how, technology and other proprietary information to maintain Oncternal’s competitive position. Although Oncternal has taken steps to protect its trade secrets and unpatented know-how, including entering into confidentiality agreements with third parties, and confidential information and inventions agreements with employees, consultants and advisors, Oncternal cannot provide any assurances that all such agreements have been duly executed, and any of these parties may breach the agreements and disclose Oncternal’s proprietary information, including its trade secrets, and Oncternal may not be able to obtain adequate remedies for such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time consuming, and the outcome is unpredictable. In addition, some courts inside and outside the United States are less willing or unwilling to protect trade secrets.

Moreover, third parties may still obtain this information or may come upon this or similar information independently, and Oncternal would have no right to prevent them from using that technology or information to compete with Oncternal. If any of these events occurs or if Oncternal otherwise loses protection for its trade secrets, the value of this information may be greatly reduced and Oncternal’s competitive position would be harmed. If Oncternal does not apply for patent protection prior to such publication or if Oncternal cannot otherwise maintain the confidentiality of its proprietary technology and other confidential information, then Oncternal’s ability to obtain patent protection or to protect its trade secret information may be jeopardized.

Oncternal may be subject to claims that it has wrongfully hired an employee from a competitor or that Oncternal or its employees have wrongfully used or disclosed alleged confidential information or trade secrets of their former employers.

As is common in the biopharmaceutical industry, in addition to Oncternal’s employees, Oncternal engages the services of consultants to assist it in the development of its product candidates. Many of these consultants, and many of Oncternal’s employees, were previously employed at, or may have previously provided or may be currently providing consulting services to, other biopharmaceutical companies including Oncternal’s competitors or potential competitors. Oncternal may become subject to claims that Oncternal, its employees or a consultant inadvertently or otherwise used or disclosed trade secrets or other information proprietary to their former employers or their former or current clients. Litigation may be necessary to defend against these claims. If Oncternal fails in defending any such claims, in addition to paying monetary damages, it may lose valuable

 

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intellectual property rights or personnel, which could adversely affect Oncternal’s business. Even if Oncternal is successful in defending against these claims, litigation could result in substantial costs and be a distraction to Oncternal’s management team and other employees.

Risks Related to Oncternal’s Common Stock

An active, liquid and orderly market for the combined company’s common stock may not develop, and you may not be able to resell your common stock at or above the purchase price.

There has been no public market for Oncternal’s common stock. Although GTx’s common stock is listed on the Nasdaq Capital Market, or Nasdaq, and Oncternal and GTx have applied to have the combined company’s common stock listed on Nasdaq, an active trading market for the combined company’s common stock may never develop or be sustained following the merger. Oncternal, GTx and their financial advisors will set the final reverse split ratio to target a trading price to provide for sufficient liquidity. The price that the combined company trades at immediately after the merger may not necessarily reflect the price at which investors in the market will be willing to buy and sell the shares on a sustained basis. In addition, an active trading market may not develop following the consummation of the merger or, if it is developed, may not be sustained. The lack of an active market may impair your ability to sell your shares at the time you wish to sell them or at a price that you consider reasonable. An inactive market may also impair the combined company’s ability to raise capital by selling shares and may impair the combined company’s ability to acquire other businesses or technologies using the combined company’s shares as consideration, which, in turn, could materially adversely affect the combined company’s business.

The trading price of the shares of the combined company’s common stock could be highly volatile, and purchasers of the combined company’s common stock after the merger could incur substantial losses.

The combined company’s stock price is likely to be volatile. The stock market in general and the market for stock of biopharmaceutical companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, investors may not be able to sell their common stock at or above their purchase price. The market price for the combined company’s common stock may be influenced by those factors discussed in this “Risk Factors” section and many others, including:

 

   

the combined company’s ability to enroll subjects in its ongoing and planned clinical trials;

 

   

results of the combined company’s clinical trials and preclinical studies, and the results of trials of the combined company’s competitors or those of other companies in the combined company’s market sector;

 

   

regulatory approval of the combined company’s product candidates, or limitations to specific label indications or patient populations for its use, or changes or delays in the regulatory review process;

 

   

regulatory developments in the United States and foreign countries;

 

   

changes in the structure of healthcare payment systems, especially in light of current reforms to the U.S. healthcare system;

 

   

the success or failure of the combined company’s efforts to acquire, license or develop additional product candidates;

 

   

innovations or new products developed by the combined company’s or its competitors;

 

   

announcements by the combined company or its competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;

 

   

manufacturing, supply or distribution delays or shortages;

 

   

any changes to the combined company’s relationship with any manufacturers, suppliers, licensors, future collaborators or other strategic partners;

 

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achievement of expected product sales and profitability;

 

   

variations in the combined company’s financial results or those of companies that are perceived to be similar to the combined company;

 

   

market conditions in the biopharmaceutical sector and issuance of securities analysts’ reports or recommendations;

 

   

trading volume of the combined company’s common stock;

 

   

an inability to obtain additional funding;

 

   

sales of the combined company’s stock by insiders and stockholders;

 

   

general economic, industry and market conditions other events or factors, many of which are beyond the combined company’s control;

 

   

additions or departures of key personnel; and

 

   

intellectual property, product liability or other litigation against the combined company.

In addition, in the past, stockholders have initiated class action lawsuits against biopharmaceutical companies following periods of volatility in the market prices of these companies’ stock. Such litigation, if instituted against the combined company, could cause Oncternal to incur substantial costs and divert management’s attention and resources, which could have a material adverse effect on the combined company’s business, financial condition and results of operations.

The combined company’s failure to meet the continued listing requirements of the Nasdaq could result in a delisting of the combined company’s common stock.

If, after listing, the combined company fails to satisfy the continued listing requirements of the Nasdaq, such as the corporate governance requirements or the minimum closing bid price requirement, Nasdaq may take steps to delist the combined company’s common stock. Such a delisting would likely have a negative effect on the price of the combined company’s common stock and would impair your ability to sell or purchase the combined company’s common stock when you wish to do so. In the event of a delisting, the combined company can provide no assurance that any action taken by the combined company to restore compliance with listing requirements would allow the combined company’s common stock to become listed again, stabilize the market price or improve the liquidity of the combined company’s common stock, prevent the combined company’s common stock from dropping below the Nasdaq minimum bid price requirement or prevent future non-compliance with Nasdaq’s listing requirements.

After the merger, the combined company’s executive officers, directors and principal stockholders, if they choose to act together, will continue to control or significantly influence all matters submitted to stockholders for approval. Furthermore, two of the combined company’s anticipated directors will be appointed by one of Oncternal’s principal stockholders.

Following the completion of the merger, the combined company’s executive officers, directors and greater than 5% stockholders, in the aggregate, will own approximately 38% of Oncternal’s outstanding common stock (assuming no exercise of outstanding options). Furthermore, two of the combined company’s anticipated directors will be appointed by the combined company’s largest stockholder, SPH USA. As a result, such persons or their appointees to the combined company’s board of directors, acting together, will have the ability to control or significantly influence all matters submitted to the combined company’s board of directors or stockholders for approval, including the appointment of the combined company’s management, the election and removal of directors and approval of any significant transaction, as well as the combined company’s management and business affairs. This concentration of ownership may have the effect of delaying, deferring or preventing a change in control, impeding a merger, consolidation, takeover or other business combination involving the combined company, or discouraging a potential acquiror from making a tender offer or otherwise attempting to obtain control of the combined company’s business, even if such a transaction would benefit other stockholders.

 

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Oncternal does not currently intend to pay dividends on the combined company’s common stock, and, consequently, your ability to achieve a return on your investment will depend on appreciation, if any, in the price of the combined company’s common stock.

Oncternal has never declared or paid any cash dividend on Oncternal’s common stock. Oncternal currently anticipates that it will retain future earnings for the development, operation and expansion of the combined company’s business and does not anticipate declaring or paying any cash dividends for the foreseeable future. In addition, the terms of any future debt agreements may preclude the combined company from paying dividends. Any return to stockholders will therefore be limited to the appreciation of their stock. There is no guarantee that shares of the combined company’s common stock will appreciate in value or even maintain the price at which stockholders have purchased their shares.

Sales of a substantial number of shares of the combined company’s common stock by the combined company’s stockholders in the public market could cause the combined company’s stock price to fall.

Sales of a substantial number of shares of the combined company’s common stock in the public market or the perception that these sales might occur could significantly reduce the market price of the combined company’s common stock and impair the combined company’s ability to raise adequate capital through the sale of additional equity securities.

Based on shares of GTx’s common stock outstanding and issuable under the GTx Director Deferred Compensation Plan as of March 31, 2019 and assuming an exchange ratio of 0.5137, upon the closing of the merger, the combined company will have outstanding a total of 107,587,866 shares of common stock after the merger, assuming no exercise of outstanding options. Of these shares, only 60,206,643 shares of common stock will be freely tradable, without restriction, in the public market immediately following the merger, unless they are purchased by one of the combined company’s affiliates.

Oncternal’s directors and executive officers and holders of approximately 43.7% of Oncternal’s outstanding securities have entered into lock-up agreements with GTx pursuant to which they may not, with limited exceptions, for a period of 180 days from the date of the Effective Time, offer, sell or otherwise transfer or dispose of any of the GTx’s securities, without the prior written consent of GTx, subject to certain exceptions. Sales of these shares, or perceptions that they will be sold, could cause the trading price of the combined company’s common stock to decline. After the lock-up agreements expire, up to an additional 47,381,223 shares of common stock will be eligible for sale in the public market.

In addition, as of March 31, 2019, up to 4,514,683 shares of common stock that are either subject to outstanding options or reserved for future issuance under GTx’s equity incentive plans will become eligible for sale in the public market to the extent permitted by the provisions of various vesting schedules, the lock-up agreements and Rule 144 and Rule 701 under the Securities Act. If these additional shares of common stock are sold, or if it is perceived that they will be sold, in the public market, the trading price of the combined company’s common stock could decline.

After the merger, the holders of approximately 0.8 million shares of GTx’s outstanding common stock (prior to adjustment for the GTx Reverse Stock Split), or approximately 3.3% of GTx’s total outstanding common stock as of March 31, 2019, will be entitled to rights with respect to the registration of their shares under the Securities Act, subject to vesting and the 180-day lock-up agreements described above. See “Description of GTx’s Capital Stock—Registration Rights.” Registration of these shares under the Securities Act would result in the shares becoming freely tradable without restriction under the Securities Act, except for shares held by affiliates, as defined in Rule 144 under the Securities Act. Any sales of securities by these stockholders could have a material adverse effect on the trading price of the combined company’s common stock.

 

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Oncternal will incur significant increased costs as a result of operating as a public company, and its management will be required to devote substantial time to new compliance initiatives.

As a public company, Oncternal will incur significant legal, accounting and other expenses that Oncternal did not incur as a private company. Oncternal will be subject to the reporting requirements of the Exchange Act, which will require, among other things, that Oncternal files with the U.S. Securities and Exchange Commission, or SEC, annual, quarterly and current reports with respect to Oncternal’s business and financial condition. In addition, Sarbanes-Oxley, as well as rules subsequently adopted by the SEC and Nasdaq to implement provisions of Sarbanes-Oxley, impose significant requirements on public companies, including requiring establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices. Further, pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the SEC has adopted additional rules and regulations in these areas, such as mandatory “say on pay” voting requirements that will apply to Oncternal when it ceases to be an emerging growth company. Stockholder activism, the current political environment and the current high level of government intervention and regulatory reform may lead to substantial new regulations and disclosure obligations, which may lead to additional compliance costs and impact the manner in which Oncternal operates its business in ways Oncternal cannot currently anticipate.

Oncternal expects the rules and regulations applicable to public companies to substantially increase Oncternal’s legal and financial compliance costs and to make some activities more time consuming and costly. If these requirements divert the attention of Oncternal’s management and personnel from other business concerns, they could have a material adverse effect on Oncternal’s business, financial condition and results of operations. The increased costs will increase Oncternal’s net loss, and may require Oncternal to reduce costs in other areas of its business or increase the prices of its products or services. For example, Oncternal expects these rules and regulations to make it more difficult and more expensive for Oncternal to obtain director and officer liability insurance, and Oncternal may be required to incur substantial costs to maintain the same or similar coverage. Oncternal cannot predict or estimate the amount or timing of additional costs Oncternal may incur to respond to these requirements. The impact of these requirements could also make it more difficult for Oncternal to attract and retain qualified persons to serve on its board of directors, its board committees or as executive officers.

If securities or industry analysts do not publish research or reports or publish unfavorable research or reports about the combined company’s business, the combined company’s stock price and trading volume could decline.

The trading market for the combined company’s common stock will depend in part on the research and reports that securities or industry analysts publish about the combined company, its business, its market or its competitors. Oncternal does not currently have and may never obtain research coverage by securities and industry analysts. If no securities or industry analysts commence coverage of the combined company, the trading price for the combined company’s stock would be negatively impacted. In the event the combined company obtains securities or industry analyst coverage, if one or more of the analysts who covers the combined company downgrades its stock, the combined company’s stock price would likely decline. If one or more of these analysts ceases to cover the combined company or fails to regularly publish reports on the combined company, interest in the combined company’s stock could decrease, which could cause the combined company’s stock price or trading volume to decline.

If the combined company fails to maintain proper and effective internal control over financial reporting, Oncternal’s ability to produce accurate and timely financial statements could be impaired, investors may lose confidence in the combined company’s financial reporting and the trading price of the combined company’s common stock may decline.

Pursuant to Section 404 of Sarbanes-Oxley, the combined company’s management will be required to report upon the effectiveness of the combined company’s internal control over financial reporting beginning with the annual report for the combined company’s fiscal year ending December 31, 2019. Additionally, if the combined

 

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company reaches an accelerated filer threshold, the combined company’s independent registered public accounting firm will be required to attest to the effectiveness of the combined company’s internal control over financial reporting. The rules governing the standards that must be met for management to assess the combined company’s internal control over financial reporting are complex and require significant documentation, testing and possible remediation. To comply with the requirements of being a reporting company under the Exchange Act, the combined company will need to upgrade its information technology systems; implement additional financial and management controls, reporting systems and procedures; and hire additional accounting and finance staff. If the combined company or, if required, its auditors are unable to conclude that the combined company’s internal control over financial reporting is effective, investors may lose confidence in the combined company’s financial reporting and the trading price of the combined company’s common stock may decline.

The combined company cannot assure you that there will not be material weaknesses or significant deficiencies in the combined company’s internal control over financial reporting in the future. Any failure to maintain internal control over financial reporting could severely inhibit the combined company’s ability to accurately report its financial condition, results of operations or cash flows. If the combined company is unable to conclude that its internal control over financial reporting is effective, or if the combined company’s independent registered public accounting firm determines the combined company has a material weakness or significant deficiency in the combined company’s internal control over financial reporting once that firm begin its Section 404 reviews, investors may lose confidence in the accuracy and completeness of the combined company’s financial reports, the market price of the combined company’s common stock could decline, and the combined company could be subject to sanctions or investigations by Nasdaq, the SEC or other regulatory authorities. Failure to remedy any material weakness in the combined company’s internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict the combined company’s future access to the capital markets.

Provisions in the combined company’s charter documents and under Delaware law could discourage a takeover that stockholders may consider favorable and may lead to entrenchment of management.

The anticipated amended and restated certificate of incorporation and amended and restated bylaws of the combined company that will be in effect immediately after consummation of the merger will contain provisions that could significantly reduce the value of the combined company’s shares to a potential acquiror or delay or prevent changes in control or changes in the combined company’s management without the consent of the combined company’s board of directors. The provisions in the combined company’s charter documents are expected to include the following:

 

   

a classified board of directors with three-year staggered terms, which may delay the ability of stockholders to change the membership of a majority of the combined company’s board of directors;

 

   

no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;

 

   

the exclusive right of the combined company’s board of directors, unless the board of directors grants such right to the stockholders, to elect a director to fill a vacancy created by the expansion of the board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on the combined company’s board of directors;

 

   

the prohibition on removal of directors without cause due to the classified board of directors;

 

   

the ability of the combined company’s board of directors to authorize the issuance of shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquiror;

 

   

the ability of the combined company’s board of directors to alter Oncternal’s amended and restated bylaws without obtaining stockholder approval;

 

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the required approval of at least 66-2/3% of the shares entitled to vote to adopt, amend or repeal the combined company’s amended and restated bylaws or repeal certain provisions of the combined company’s amended and restated certificate of incorporation;

 

   

a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of Oncternal’s stockholders;

 

   

an exclusive forum provision providing that the Court of Chancery of the State of Delaware will be the exclusive forum for certain actions and proceedings;

 

   

the requirement that a special meeting of stockholders may be called only by the chairman of the board of directors, the chief executive officer or the board of directors, which may delay the ability of the combined company’s stockholders to force consideration of a proposal or to take action, including the removal of directors; and

 

   

advance notice procedures that stockholders must comply with in order to nominate candidates to the combined company’s board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquiror from conducting a solicitation of proxies to elect the acquiror’s own slate of directors or otherwise attempting to obtain control of the combined company.

The combined company is also subject to the anti-takeover provisions contained in Section 203 of the Delaware General Corporation Law. Under Section 203, a corporation may not, in general, engage in a business combination with any holder of 15% or more of its capital stock unless the holder has held the stock for three years or, among other exceptions, the board of directors has approved the transaction.

The combined company’s amended and restated bylaws will provide that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially all disputes between the combined company and its stockholders, which could limit the combined company’s stockholders’ ability to obtain a favorable judicial forum for disputes with the combined company or its directors, officers or employees.

The combined company’s amended and restated bylaws will provide that the Court of Chancery of the State of Delaware is the exclusive forum for any derivative action or proceeding brought on the combined company’s behalf, any action asserting a breach of fiduciary duty, any action asserting a claim against the combined company arising pursuant to the Delaware General Corporation Law, the combined company’s amended and restated certificate of incorporation or the combined company’s amended and restated bylaws, or any action asserting a claim against the combined company that is governed by the internal affairs doctrine. These choice of forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with the combined company or its directors, officers or other employees, which may discourage such lawsuits against the combined company and its directors, officers and other employees. By agreeing to this provision, however, stockholders will not be deemed to have waived the combined company’s compliance with the federal securities laws and the rules and regulations thereunder. Furthermore, the enforceability of similar choice of forum provisions in other companies’ certificates of incorporation has been challenged in legal proceedings, and it is possible that a court could find these types of provisions to be inapplicable or unenforceable. If a court were to find the choice of forum provisions in the combined company’s amended and restated bylaws to be inapplicable or unenforceable in an action, the combined company may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect the combined company’s business and financial condition.

If the merger does not qualify as a “reorganization” for U.S. federal income tax purposes, U.S. Holders of Oncternal common stock will be required to recognize gain or loss for U.S. federal income tax purposes upon the exchange of their Oncternal common stock for GTx common stock in the merger.

The U.S. federal income tax consequences of the merger to U.S. Holders (as defined under the heading “The Merger—Material U.S. Federal Income Tax Consequences of the Merger”) will depend on whether the merger

 

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qualifies as a “reorganization” for U.S. federal income tax purposes. GTx’s and Oncternal’s obligations to effect the merger are subject to the satisfaction, or waiver, at or prior to the effective time of the merger, of the condition that each company receive an opinion of counsel, dated as of the closing date of the merger, to the effect that the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code. If, contrary to the opinions from counsel, the merger fails to qualify as a reorganization within the meaning of Section 368(a) of the Code, a U.S. Holder of Oncternal common stock would recognize gain or loss for U.S. federal income tax purposes on each share of Oncternal common stock surrendered in the merger for GTx common stock and any cash received in lieu of a fractional share. For a more complete discussion of the material U.S. federal income tax consequences of the merger, please carefully review the information set forth in the section entitled “The Merger—Material U.S. Federal Income Tax Consequences of the Merger.”

Oncternal’s ability to use net operating loss carryforwards and other tax attributes may be limited in connection with the merger and other ownership changes.

Oncternal has incurred substantial losses during its history and does not expect to become profitable in the near future, and Oncternal may never achieve profitability. To the extent that Oncternal continues to generate taxable losses, unused losses will carry forward to offset future taxable income, if any, until such unused losses expire (if at all). At December 31, 2018, Oncternal had federal and state NOL carryforwards of approximately $29.7 million. Such federal and state NOL carryforwards will begin to expire in 2033, unless previously utilized. At December 31, 2018, Oncternal had federal and state research and development credit carryforwards of approximately $0.9 million and $0.5 million, respectively. The federal research and development credit carryforwards will begin expiring in 2034, unless previously utilized. The state research and development credits do not expire.

Under the Tax Act, federal NOLs generated in taxable years ending after December 31, 2017, may be carried forward indefinitely but federal NOLs generated in taxable years beginning after December 31, 2017 may only be used to offset 80% of Oncternal’s taxable income annually. Oncternal’s NOL carryforwards are subject to review and possible adjustment by the IRS and state tax authorities. Under Sections 382 and 383 of the Code, Oncternal’s federal NOL and research and development tax credit carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant stockholders over a three-year period in excess of 50 percentage points. Oncternal’s ability to utilize its NOL carryforwards and other tax attributes to offset future taxable income or tax liabilities may be limited as a result of ownership changes, including in connection with the merger. Similar rules may apply under state tax laws. Oncternal has not yet determined the amount of the cumulative change in its ownership resulting from the merger or other transactions, or any resulting limitations on its ability to utilize its NOL carryforwards and other tax attributes. If Oncternal earns taxable income, such limitations could result in increased future tax liability to Oncternal and its future cash flows could be adversely affected. Oncternal has recorded a full valuation allowance related to its NOLs and other deferred tax assets due to the uncertainty of the ultimate realization of the future benefits of those assets.

U.S. tax legislation may materially adversely affect Oncternal’s financial condition, results of operations and cash flows.

The Tax Act has significantly changed the U.S. federal income taxation of U.S. corporations, including by reducing the U.S. corporate income tax rate and revising the rules governing NOLs. Many of these changes became effective beginning in 2018, without any transition periods or grandfathering for existing transactions. The legislation is unclear in many respects and could be subject to potential amendments and technical corrections, as well as interpretations and implementing regulations by the U.S. Treasury Department and the IRS, any of which could lessen or increase certain adverse impacts of the legislation. In addition, it is unclear how these U.S. federal income tax changes will affect state and local taxation, which often uses federal taxable income as a starting point for computing state and local tax liabilities. As a result of the rate reduction from the Tax Act, Oncternal has reduced its deferred tax asset balance as of December 31, 2017 by $2.8 million. However,

 

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due to Oncternal’s full valuation allowance position, there was no net impact on Oncternal’s income tax provision at December 31, 2017, as the reduction in the deferred tax asset balance was fully offset by a corresponding decrease in the valuation allowance.

There may be other material adverse effects resulting from the legislation that Oncternal has not yet identified. While some of the changes made by the tax legislation may adversely affect Oncternal in one or more reporting periods and prospectively, other changes may be beneficial on a going forward basis. Oncternal continues to work with its tax advisors to determine the full impact that the recent tax legislation as a whole will have on Oncternal. Oncternal urges its investors to consult with their legal and tax advisors with respect to such legislation.

The combined company could be subject to securities class action litigation.

In the past, securities class action litigation has often been brought against a company following a decline in the market price of its securities. This risk is especially relevant for the combined company, because biotechnology and pharmaceutical companies have experienced significant stock price volatility in recent years. If the combined company faces such litigation, it could result in substantial costs and a diversion of management’s attention and resources, which could harm the combined company’s business.

 

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FORWARD-LOOKING STATEMENTS

This proxy statement/prospectus/information statement and the documents incorporated by reference into this proxy statement/prospectus/information statement contain forward-looking statements (including within the meaning of Section 21E of the United States Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 27A of the United States Securities Act of 1933, as amended (the “Securities Act”)) concerning GTx, Oncternal, the merger and other matters. These statements may discuss goals, intentions and expectations as to future plans, trends, events, results of operations or financial condition, or otherwise, based on current beliefs of the management of GTx, as well as assumptions made by, and information currently available to, management. Forward-looking statements generally include statements that are predictive in nature and depend upon or refer to future events or conditions, and include words such as “may,” “will,” “should,” “would,” “expect,” “plan,” “believe,” “intend,” “look forward,” and other similar expressions among others. Statements that are not historical facts are forward-looking statements. Forward-looking statements are based on current beliefs and assumptions that are subject to risks and uncertainties and are not guarantees of future performance. Actual results and the timing of events could differ materially from those anticipated in such forward-looking statements as a result of these risks and uncertainties, which include, without limitation: (i) the risk that the conditions to the closing of the merger are not satisfied, including the failure to timely obtain stockholder approval for the transaction, if at all; (ii) uncertainties as to the timing of the consummation of the merger and the ability of each of GTx and Oncternal to consummate the merger; (iii) risks related to GTx’s ability to manage its operating expenses and its expenses associated with the merger pending closing; (iv) risks related to the failure or delay in obtaining required approvals from any governmental or quasi-governmental entity necessary to consummate the merger; (v) the risk that as a result of adjustments to the exchange ratio, GTx stockholders and Oncternal stockholders could own more or less of the combined company than is currently anticipated; (vi) risks related to the market price of GTx’s common stock relative to the exchange ratio; (vii) unexpected costs, charges or expenses resulting from the transaction; (viii) potential adverse reactions or changes to business relationships resulting from the announcement or completion of the merger; (ix) the uncertainties associated with the clinical development and regulatory approval of product candidates such as cirmtuzumab and TK216, including potential delays in the commencement, enrollment and completion of clinical trials; (x) risks related to the inability of the combined company to obtain sufficient additional capital to continue to advance these product candidates and its preclinical programs, including Oncternal’s CAR-T program and, depending on the determination of the combined company’s board of directors, potentially the SARD program; (xi) uncertainties in obtaining compelling or successful preclinical and clinical results for product candidates and unexpected costs that may result therefrom; (xii) risks related to the failure to realize any value from product candidates and preclinical programs being developed and anticipated to be developed in light of inherent risks and difficulties involved in successfully bringing product candidates to market; (xiii) the risk that the conditions to payment under the CVRs will be not be met and that the CVRs may otherwise never deliver any value to GTx stockholders, including in connection with the potential determination of the combined company’s board of directors to discontinue any SARD development efforts and to discontinue any divestment efforts with respect to the SARD technology or SARM technology; (xiv) risks associated with the possible failure to realize certain anticipated benefits of the merger, including with respect to future financial and operating results; and (xv) risks related to the impact of the workforce reduction reported herein on GTx’s business and unanticipated charges not currently contemplated that may occur as a result of the workforce reduction, including that the workforce reduction charges, costs and expenditures may be greater than currently anticipated. Actual results and the timing of events could differ materially from those anticipated in such forward-looking statements as a result of these risks and uncertainties. Except as required by applicable law, GTx undertakes no obligation to revise or update any forward-looking statement, or to make any other forward-looking statements, whether as a result of new information, future events or otherwise.

For a discussion of the factors that may cause GTx, Oncternal or the combined organization’s actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied in such forward-looking statements, or for a discussion of risk associated with the ability of

 

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GTx and Oncternal to complete the merger and the effect of the merger on the business of GTx, Oncternal and the combined organization, see the section entitled “Risk Factors” beginning on page 26.

Additional factors that could cause actual results to differ materially from those expressed in the forward-looking statements are discussed in reports filed with the SEC by GTx including GTx’s most recent Annual Report on Form 10-K, Form 10-K/A and Current Reports on Form 8-K filed with the SEC. See the section entitled “Where You Can Find More Information” beginning on page 358.

If any of these risks or uncertainties materialize or any of these assumptions prove incorrect, the results of GTx, Oncternal or the combined organization could differ materially from the forward-looking statements. All forward-looking statements in this proxy statement/prospectus/information statement are current only as of the date on which the statements were made. GTx and Oncternal do not undertake any obligation to publicly update any forward-looking statement to reflect events or circumstances after the date on which any statement is made or to reflect the occurrence of unanticipated events.

 

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THE SPECIAL MEETING OF GTX’S STOCKHOLDERS

Date, Time and Place

The GTx special meeting will be held on June 5, 2019, at 17 W Pontotoc Ave., Suite 100, Memphis, Tennessee 38103 commencing at 9:00 a.m. Central time. GTx is sending this proxy statement/prospectus/information statement to its stockholders in connection with the solicitation of proxies by the GTx Board for use at the GTx special meeting and any adjournments or postponements of the GTx special meeting. This proxy statement/prospectus/information statement is first being furnished to GTx’s stockholders on or about                 , 2019.

Purpose of the GTx Special Meeting

The purpose of the GTx special meeting is:

1. To approve the Merger Agreement, and the transactions contemplated thereby, including the merger, the issuance of GTx’s common stock to Oncternal’s stockholders in accordance with the Merger Agreement and the change of control resulting from the merger.

2. To approve a series of alternative amendments to the restated certificate of incorporation of GTx to effect the GTx Reverse Stock Split, in the form attached as Annex D to this proxy statement/prospectus/information statement.

3. To approve the amendment to the restated certificate of incorporation of GTx to effect the GTx Name Change in the form attached as Annex E to this proxy statement/prospectus/information statement.

4. To approve the adoption of the GTx, Inc. 2019 Incentive Award Plan in the form attached as Annex F to this proxy statement/prospectus/information statement.

5. To approve, on a nonbinding, advisory basis, the compensation that will be paid or may become payable to GTx’s named executive officers in connection with the merger.

6. To consider and vote upon an adjournment of the GTx special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Proposal Nos. 1 and 2.

7. To transact such other business as may properly come before the GTx special meeting or any adjournment or postponement thereof.

Recommendation of The GTx Board

 

   

The GTx Board has determined that the transactions contemplated by the Merger Agreement, including the merger, the issuance of shares of GTx’s common stock to Oncternal’s stockholders pursuant to the Merger Agreement and the change of control resulting from the merger are fair to, advisable and in the best interest of GTx and its stockholders and has approved and declared advisable the Merger Agreement and such transactions. The GTx Board recommends that GTx’s stockholders vote “FOR” Proposal No. 1 to approve the Merger Agreement and the transactions contemplated thereby, including the merger, the issuance of shares of GTx’s common stock to Oncternal’s stockholders and the change of control resulting from the merger.

 

   

The GTx Board has determined that the GTx Reverse Stock Split is fair to, advisable and in the best interest of GTx and its stockholders and has approved and declared advisable the GTx Reverse Stock Split. The GTx Board recommends that GTx’s stockholders vote “FOR” Proposal No. 2 to approve a series of alternative amendments to the restated certificate of incorporation of GTx to effect the GTx Reverse Stock Split.

 

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The GTx Board has determined that the GTx Name Change is fair to, advisable and in the best interest of GTx and its stockholders and has approved and declared advisable the GTx Name Change. The GTx Board recommends that GTx’s stockholders vote “FOR” Proposal No. 3 to approve an amendment to the restated certificate of incorporation of GTx effecting the GTx Name Change.

 

   

The GTx Board has determined that the adoption of the GTx, Inc. 2019 Incentive Award Plan (the “GTx 2019 Plan”) is fair to, advisable and in the best interests of GTx and its stockholders and has approved and declared advisable the GTx 2019 Plan. The GTx Board recommends that GTx’s stockholders vote “FOR” Proposal No. 4 to approve the GTx 2019 Plan.

 

   

The GTx Board has determined that the approval of the nonbinding, advisory vote on the compensation that will be paid or may become payable to GTx’s named executive officers in connection with the merger is advisable and in the best interests of GTx and its stockholders and has approved such nonbinding advisory vote. The GTx Board recommends that GTx’s stockholders vote “FOR” Proposal No. 5 to approve, on a nonbinding, advisory basis, the compensation that will be paid or may become payable to GTx’s named executive officers in connection with the merger.

 

   

The GTx Board has determined and believes that adjourning the GTx special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Proposal Nos. 1 or 2 is advisable to, and in the best interests of, GTx and its stockholders and has approved and adopted the proposal. The GTx Board recommends that GTx’s stockholders vote “FOR” Proposal No. 6 to adjourn the GTx special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Proposal Nos. 1 or 2.

Record Date and Voting Power

Only holders of record of GTx’s common stock at the close of business on the record date, April 15, 2019, are entitled to notice of, and to vote at, the GTx special meeting. There were approximately 67 holders of record of GTx’s common stock at the close of business on the record date. At the close of business on the record date, 24,051,844 shares of GTx’s common stock were issued and outstanding. Each share of GTx’s common stock entitles the holder thereof to one vote on each matter submitted for stockholder approval. See the section entitled “Principal Stockholders of GTx” in this proxy statement/prospectus/information statement for information regarding persons known to GTx’s management to be the beneficial owners of more than 5% of the outstanding shares of GTx’s common stock.

Voting and Revocation of Proxies

The proxy accompanying this proxy statement/prospectus/information statement is solicited on behalf of the GTx Board for use at the GTx special meeting.

If you are a stockholder of record of GTx as of the record date referred to above, you may vote in person at the GTx special meeting or vote by proxy using the enclosed proxy card. Whether or not you plan to attend the GTx special meeting, GTx urges you to vote by proxy to ensure your vote is counted. You may still attend the GTx special meeting and vote in person if you have already voted by proxy. As a stockholder of record you may vote in any of the following ways:

 

   

to vote in person, attend the GTx special meeting and GTx will provide you a ballot when you arrive.

 

   

to vote using the proxy card, simply mark, sign and date your proxy card and return it promptly in the postage-paid envelope provided. If you return your signed proxy card to GTx before the GTx special meeting, GTx will vote your shares as you direct on the proxy card.

 

   

to vote by telephone or on the Internet, dial the number on the proxy card or voting instruction form or visit the website on the proxy card or voting instruction form to complete an electronic proxy card. You will be asked to provide GTx’s number and control number from the enclosed proxy card. Your vote must be received by 11:59 p.m., Central time on June 4, 2019 to be counted.

 

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If your shares of GTx’s common stock are held by your broker as your nominee, that is, in “street name,” the enclosed voting instruction card is sent by the institution that holds your shares. Please follow the instructions included on that proxy card regarding how to instruct your broker to vote your shares of GTx’s common stock. If you do not give instructions to your broker, your broker can vote your shares of GTx’s common stock with respect to “discretionary” items but not with respect to “non-discretionary” items. Discretionary items are proposals considered routine under certain rules applicable to brokers on which your broker may vote shares held in “street name” in the absence of your voting instructions. On non-discretionary items for which you do not give your broker instructions, your shares of GTx’s common stock will be treated as broker non-votes. It is anticipated that all proposals will be non-discretionary items.

All properly executed proxies that are not revoked will be voted at the GTx special meeting and at any adjournments or postponements of the GTx special meeting in accordance with the instructions contained in the proxy. If a holder of GTx’s common stock executes and returns a proxy and does not specify otherwise, the shares represented by that proxy will be voted “FOR” Proposal No. 1 to approve the Merger Agreement and the transactions contemplated thereby, including the merger, the issuance of shares of GTx’s common stock to Oncternal’s stockholders pursuant to the Merger Agreement and the change of control resulting from the merger; “FOR” Proposal No. 2 to approve a series of alternative amendments to the restated certificate of incorporation of GTx to effect the GTx Reverse Stock Split; “FOR” Proposal No. 3 to approve an amendment to the restated certificate of incorporation of GTx to effect the GTx Name Change; “FOR” Proposal No. 4 to approve the adoption of the GTx 2019 Plan; FOR” Proposal No. 5 to approve, on a nonbinding, advisory basis, the compensation that will be paid or may become payable to GTx’s named executive officers in connection with the merger; and “FOR” Proposal No. 6 to approve the adjournment of the GTx special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Proposal Nos. 1 or 2 in accordance with the recommendation of the GTx Board.

GTx’s stockholders of record, other than those GTx’s stockholders who have executed voting agreements, may change their vote at any time before their proxy is voted at the GTx special meeting in one of three ways. First, a stockholder of record of GTx can send a written notice to the Secretary of GTx stating that the stockholder would like to revoke its proxy. Second, a stockholder of record of GTx can submit new proxy instructions either on a new proxy card or by telephone or via the Internet. Third, a stockholder of record of GTx can attend the GTx special meeting and vote in person. Attendance alone will not revoke a proxy. If a stockholder of GTx of record or a stockholder who owns shares of GTx’s common stock in “street name” has instructed a broker to vote its shares of GTx’s common stock, the stockholder must follow directions received from its broker to change those instructions.

Required Vote

The presence, in person or represented by proxy, at the GTx special meeting of the holders of a majority of the shares of GTx’s common stock outstanding and entitled to vote at the GTx special meeting is necessary to constitute a quorum at the meeting. Abstentions and broker non-votes will be counted towards a quorum. Approval of Proposal Nos. 1, 4, 5 and 6 requires the affirmative vote of the holders of a majority of the shares of GTx’s common stock entitled to vote and present in person or represented by proxy at the GTx special meeting. Approval of Proposal Nos. 2 and 3 requires the affirmative vote of holders of a majority of GTx’s common stock having voting power outstanding on the record date for the GTx special meeting.

Votes will be counted by the inspector of election appointed for the GTx special meeting, who will separately count “FOR” and “AGAINST” votes, abstentions, broker non-votes, and in the case of the election of directors, “WITHHOLD” votes. Abstentions will be counted towards the vote total and will have the same effect as “AGAINST” votes for Proposal Nos. 1, 2, 3, 4, 5 and 6. Broker non-votes will have the same effect as “AGAINST” votes for Proposal Nos. 2 and 3. For Proposal Nos. 1, 4, 5 and 6, broker non-votes will have no effect and will not be counted towards the vote total, but will be used to determine whether a quorum is present at the GTx special meeting.

 

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Each of Proposal Nos. 1 and 2 are conditioned upon each other. Therefore, the merger cannot be consummated without the approval of Proposal Nos. 1 and 2. Proposal Nos. 3 and 4 are conditioned upon the consummation of the merger. If the merger is not completed or the stockholders do not approve Proposal No. 3, GTx will not change its name to “Oncternal Therapeutics, Inc.” If the merger is not completed or the stockholders do not approve Proposal No. 4, the GTx 2019 Plan will not become effective. Proposal Nos. 1 and 2 are not conditioned on Proposal No. 3 or Proposal No. 4 being approved.

As of March 31, 2019 the directors and executive officers of GTx and other stockholders who signed voting agreements beneficially owned approximately 45% of the outstanding shares of GTx’s common stock entitled to vote at the GTx special meeting. Pursuant to the voting agreements, each such director, executive officer and other signatory stockholder has agreed to be present (in person or by proxy) at the GTx special meeting to vote all shares of GTx’s common stock owned by him, her or it as of the record date in favor of Proposals Nos. 1, 2, 3, 4 and 5. Additionally, each such stockholder has agreed, solely in his, her or its capacity as a stockholder of GTx, to vote against any competing acquisition proposal and any action, proposal or transaction that would reasonably be expected to result in a material breach of the voting agreement. As of March 31, 2019 GTx is not aware of any affiliate of Oncternal owning any shares of GTx’s common stock entitled to vote at the GTx special meeting.

Solicitation of Proxies

In addition to solicitation by mail, the directors, officers, employees and agents of GTx may solicit proxies from GTx’s stockholders by personal interview, telephone, telegram or otherwise. GTx and Oncternal will share equally the costs of printing and filing this proxy statement/prospectus/information statement and proxy card. Arrangements will also be made with brokerage firms and other custodians, nominees and fiduciaries who are record holders of GTx’s common stock for the forwarding of solicitation materials to the beneficial owners of GTx’s common stock. GTx will reimburse these brokers, custodians, nominees and fiduciaries for the reasonable out-of-pocket expenses they incur in connection with the forwarding of solicitation materials. GTx has not retained a proxy solicitor with respect to the GTx special meeting.

Other Matters

As of the date of this proxy statement/prospectus/information statement, the GTx Board does not know of any business to be presented at the GTx special meeting other than as set forth in the notice accompanying this proxy statement/prospectus/information statement. If any other matters should properly come before the GTx special meeting, it is intended that the shares represented by proxies will be voted with respect to such matters in accordance with the judgment of the persons voting the proxies.

 

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THE MERGER

This section and the section entitled “The Merger Agreement” in this proxy statement/prospectus/information statement describe the material aspects of the merger, including the Merger Agreement. While GTx and Oncternal believe that this description covers the material terms of the merger and the Merger Agreement, it may not contain all of the information that is important to you. You should read carefully this entire proxy statement/prospectus/information statement for a more complete understanding of the merger and the Merger Agreement, including the Merger Agreement attached as Annex A, the opinion of Aquilo attached as Annex B-2, and the other documents to which you are referred herein. See the section entitled “Where You Can Find More Information” in this proxy statement/prospectus/information statement.

Background of the Merger

Historical Background for GTx

GTx is a biopharmaceutical company dedicated to the discovery and development of medicines to treat serious and/or significant unmet medical conditions. For the past several years, GTx has focused its development efforts on its SARM and SARD programs, two technologies licensed from UTRF.

In September 2017, GTx initiated a randomized, placebo-controlled Phase 2 clinical trial, or the ASTRID Trial, of its lead SARM product candidate enobosarm (also known as Ostarine or GTx-024) with both 3 mg and 1 mg doses to assess the safety and efficacy of the drug candidate compared to placebo.

In early August 2018, Company A reached out to GTx seeking an update on SARDs.

Following receipt of data on September 20, 2018, indicating that the ASTRID Trial had failed to achieve statistical significance on the trial’s primary endpoint, a special meeting of the GTx Board was held, with GTx senior management attending. The purpose of the meeting was for GTx senior management to discuss the data with the GTx Board and to share details of the press release GTx prepared for immediate release. GTx senior management informed the GTx Board that it was halting its financing plans and would undertake a more thorough assessment of data from the clinical trial to ascertain whether there were problems with the trial that caused the unexpected results or whether the data suggests that certain subsets of patients might potentially benefit from treatment versus the universe of stress urinary incontinence (“SUI”) patients included in the clinical trial. SUI is the involuntary leakage of urine during activities such as coughing, laughing, sneezing, exercising or other movements that increase intra-abdominal pressure and thus increase pressure on the bladder. In the interim, GTx senior management would assess whether it could realistically expedite the preclinical studies already underway for SARDs, and the GTx Board authorized GTx senior management to reach out to third parties who might have an interest in collaborating on SARD research and development or acquiring GTx to access the SARD technology.

On September 21, 2018, GTx announced that the ASTRID Trial failed to achieve statistical significance on the primary endpoint of the proportion of patients with a greater than 50% reduction in incontinence episodes per day compared to placebo. The percentage of patients with a greater than 50% reduction after 12 weeks of enobosarm treatment was 58.9% for 3 mg, 57.7% for 1 mg and 52.7% for placebo. Enobosarm was generally safe and well tolerated, and reported adverse events were minimal and similar across all treatment groups. After completing its review of the full data sets from the clinical trial and discussing the data with clinical experts, GTx determined that there is not a sufficient path forward to warrant additional clinical development of enobosarm to treat SUI. It has discontinued further development of enobosarm to treat SUI, including discontinuing the related durability and open-label safety extension studies which were initiated before GTx received topline data from the ASTRID Trial.

Remembering that he had received an inquiry in early August 2018 from pharmaceutical Company A seeking to get an update on SARDs, Mr. Hanover contacted the representative for Company A on September 24, 2018

 

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suggesting that GTx senior management review with Company A GTx’s current SARD data. It was noted that the parties had previously entered into a confidentiality agreement in December 2016 regarding prior SARDs discussions which was subsequently amended to address SARMs and extend the term to December 2018, and the parties agreed to assemble appropriate scientific personnel from both sides to review and discuss GTx’s SARD program.

On September 25, 2018, Dr. Wills received a call from a hedge fund representative with whom he and Mr. Hanover knew from previous interactions, indicating that his fund was an investor in Company B, which might be interested in considering a merger with GTx.

On September 28, 2018, Company C contacted Dr. Wills expressing an interest in SARDs and learning more about the technology.

On October 1, 2018, Mr. Hanover was introduced by telephone to the chief executive officer of Company D, a holding company for various subsidiaries, including a subsidiary developing selective estrogen receptor degraders (“SERD”) compounds. The chief executive officer of Company D expressed an interest in merging his SERD program with GTx’s SARD technology and suggested that the companies enter into a mutual confidentiality agreement for the exchange of information, which was done on October 2, 2018.

On October 2, 2018, Dr. Wills received a call from two senior executives from Company E stating an interest in better understanding GTx’s SARD technology, and the parties entered into a confidentiality agreement on October 3, 2018.

On October 4, 2018, GTx entered into a confidentiality agreement with Company C and the parties agreed to hold initial diligence discussions on October 10, 2018.

On October 10, 2018, GTx entered into a confidentiality agreement with Company F, which contacted Dr. Wills expressing an interest in a potential combination with GTx. Dr. Wills had a conversation and initial scientific discussion with Company F personnel on October 12, 2018 to assess their interest in moving forward with a broader discussion.

In early October 2018, Mr. Hanover inquired of pharmaceutical Company H whether it would have an interest in learning more about GTx’s SARD program. A business development executive from Company H indicated Company H was interested in learning more about GTx’s SARD program as well as its SARM technology, including enobosarm as a potential treatment for breast cancer. On October 10, 2018, GTx and Company H entered into a confidentiality agreement, and information about GTx and its SARD and SARM programs was sent to Company H for its review. Since SARD and SARMs comprised substantially all of the assets of GTx, Mr. Hanover told the Company H executive that it should analyze the opportunity as an acquisition of GTx.

On October 11, 2018, the chief executive officer of Company D visited GTx at GTx’s headquarters, and met with GTx’s senior management and GTx’s largest stockholder, Mr. Hyde. The chief executive officer of Company D also met with GTx personnel and indicated his willingness to provide employment to several clinical and financial personnel should a transaction between Company D and GTx come to fruition.

Also, on October 12, 2018, GTx senior management held a teleconference with executives and scientists representing Company C to discuss more specifically GTx’s SARD program.

GTx had previously sent a confidential slide deck about its SARD program to Company A on October 1, 2018, and on October 16, 2018, GTx senior management and scientists reviewed the information with various Company A personnel during a prearranged teleconference. At the end of the call, Company A stated that it would assemble its team and decide soon whether it wanted to make a business proposal to GTx. Also, the parties agreed to amend their existing confidentiality agreement to extend the term to December 2019.

On October 16, 2018, Company B notified Dr. Wills that it wanted to undertake some preclinical assays of GTx’s SARD compounds to determine if the information GTx provided Company B could be reproduced by Company

 

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B personnel and to determine if the SARD technology was sufficiently developed for Company B to make a proposal to GTx. A material transfer agreement (“MTA”) was executed between the companies on October 18, 2018.

Similarly, following a discussion between Company C executives and GTx senior management, an MTA was executed with Company C on October 23, 2018 for Company C to assess GTx’s SARD compounds. Under both MTAs, Company B and Company C were given a short period to conduct their assays and they were required to report their findings to GTx senior management.

On October 22, 2018, GTx senior management held a teleconference with Company F personnel to review GTx’s SARD technology.

On October 14, 2018, Dr. Wills reached back out to Company G based on discussions regarding a potential collaboration for the development of SARDs between Dr. Wills and Company G from several years earlier. Dr. Wills let Company G’s executives know that the SARD data it reviewed several years ago was not current and GTx had made strides in further developing the technology, which may be of interest to Company G. As a result of that conversation, the parties entered into a new confidentiality agreement on October 23, 2018, so that GTx could share current SARD data with Company G.

On October 23 and 24, 2018, Dr. Wills, Mr. Hanover and Dr. Johnston visited the headquarters of Company D to learn more about Company D’s organization and corporate structure and its ongoing pharmaceutical programs, including its SERD program. Following that meeting, per the direction received from the GTx Board in September, GTx senior management decided to continue discussions with Company D and move toward Company D making a proposal for a merger with GTx.

On October 30, 2018, Company A informed Mr. Hanover and Dr. Wills that Company A had decided not to proceed with an offer at this time until GTx has been able to better understand more about how SARDs produce the outcomes seen in the various preclinical assays conducted by GTx. Company A stated that it remained interested in SARDs and would welcome additional data once the technology was better understood.

Throughout October, GTx senior management provided the GTx Board with interim updates of its ongoing conversations with potential acquirers.

During the first week of November 2018, Company D proposed that it be combined with GTx’s SARD program in a combined company that would be a subsidiary of Company D. GTx and Company D discussed the possibility of a potential reverse merger between the parties, but Company D was not willing to consider a reverse merger transaction structure given its future plans for its company. Company D also proposed an equity split for the combined company stockholders that GTx senior management believed to be inadequate.

On November 1, 2018, a discussion between Company H scientists and GTx personal was held to review both programs.

Also on November 1, 2018, GTx and Company F had a follow-up discussion regarding SARDs.

On November 5, 2018, GTx senior management team and its largest stockholder and Mr. Hyde met in-person with Company D’s chief executive officer and other personnel at Company D’s corporate headquarters to learn more about Company D’s pharmaceutical programs and its proposal for a business combination with GTx. Company D continued to propose a corporate structure for a business combination that would be difficult for a public company like GTx to accomplish and an equity split for the combined company stockholders that GTx senior management believed to be inadequate. Nevertheless, GTx senior management and Mr. Hyde stated an intention to have further discussion with the full GTx Board at the upcoming quarterly meeting on November 7, 2018.

 

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On November 5, 2018, Company I contacted Dr. Wills inquiring about whether GTx would be interested in discussing a merger with Company I. Although Company I’s pharmaceutical programs appeared to be in areas outside of any fields of expertise pertaining to SARDs or SARMs, Dr. Wills agreed that GTx senior management would entertain discussions with Company I. GTx entered into a confidentiality agreement with Company I later that day and confidential information was exchanged between the parties.

On November 6, 2018, Dr. Johnston received an inquiry from Company J about GTx’s SARM program and stated an interest in exploring an acquisition of that asset. GTx and Company J entered into a confidentiality agreement on November 14, 2018, and information regarding enobosarm, including efficacy and safety data from prior clinical studies, was made available to Company J through GTx’s electronic data room.

On November 7, 2018, the GTx board held its regularly scheduled quarterly meeting at the company headquarters in Memphis, Tennessee. At the meeting, Dr. Wills reported that GTx senior management had not as yet seen any clear path forward for the continued development of enobosarm to treat SUI, but it was continuing to review all data from the ASTRID Trial and discuss the data with GTx’s key opinion leaders and experts. Since the announcement of data from the enobosarm study, GTx senior management had engaged with several companies expressing interest in SARDs, and a few companies potentially interested in an acquisition of GTx. He reported that GTx senior management had discussions ongoing with three private pharmaceutical companies with either preclinical and/or androgen receptor expertise which would be helpful in furthering GTx’s SARD development efforts, but any merger with a private company presented difficult corporate structuring issues for a public company and the proposals that had been suggested so far would result in significant dilution for GTx’s stockholders. Also, he noted that while GTx had sufficient cash to undertake SARD development on its own without the need to raise additional funds until sometime in 2020, GTx would face the risk of having all of its value resting on a single preclinical technology. The best case for GTx would be to find a merger partner with expertise that would be helpful for continued SARD development and assets of its own to spread the risk for a combined company as the development programs progress. He noted that the companies expressing interest in GTx appeared to have little or no real cash of their own or were without sufficient expertise to help with SARD development. Mr. Hanover reported that GTx senior management also had been in discussions with at least three large pharmaceutical companies interested in SARDs, and while one has recently decided not to pursue the opportunity absent receiving additional data, two companies remained interested. During this meeting, the GTx Board also discussed potentially engaging a financial advisor to assist with the process and authorized GTx senior management to begin discussions with potential financial advisors. The GTx Board agreed that it would meet again on November 19, 2018 to review GTx senior management’s progress in its ongoing discussions.

On November 7, 2018, Company K contacted Mr. Hanover regarding the potential of licensing enobosarm. Mr. Hanover informed Company K that other parties were interested in acquiring enobosarm and a license of the asset was something that GTx senior management could not recommend to the GTx Board. However, should Company K be interested in making a proposal to acquire the asset, GTx senior management would be interested in receiving it.

On November 8, 2018, Company H informed Mr. Hanover that after evaluating the data for GTx’s SARD and SARM program, it would not be making a proposal to acquire GTx.

On November 9, 2018, Company B called Dr. Wills and told him they had completed their assays for the SARD compounds sent to them under the MTA, and while their data was confirmatory to the data GTx previously provided them, SARDs were too early stage for them and they preferred to focus only on their own pharmaceutical programs. On November 30, 2018, Company C provided the company with a report on the assays it conducted on certain of the company’s SARDs and indicated that it had decided not to pursue a merger with GTx. Under both MTAs, Company B and Company C ended their research work on SARDs and either returned excess SARD compound material to GTx or destroyed the compounds in accordance with GTx’s instructions.

 

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On November 8, 2018, Company L contacted Dr. Wills regarding the possibility of a merger transaction with GTx. After entering into a confidentiality agreement on November 16, 2018, information about both companies were exchanged between the parties.

On November 16, 2018, Company J and GTx discussed the enobosarm data.

Between November 16, 2018 and December 4, 2018, Company J and its scientific personnel continued its evaluation of enobosarm as a potential treatment for SUI.

On November 19, 2018, the GTx Board held a special meeting, with GTx senior management attending, for the purpose of receiving an update from GTx senior management of its ongoing discussions with various parties interested in discussing a transaction with GTx. Dr. Wills reported that one pharmaceutical company continued to express its interest in collaborating with GTx in the its ongoing SARD research but was not likely to be interested in discussing either a licensing of SARDs or an acquisition of GTx or its asset until such time as the preclinical research of SARDs had been completed and there was a compound identified as an IND candidate for clinical studies. Mr. Hanover reported that GTx senior management was continuing to discuss with Company D its interest in merging one of its subsidiary companies with and into GTx, but given both the continued complexity of accomplishing what Company D was suggesting and the inadequacy of its proposed equity split, Mr. Hanover believed Company D was not going to remain a viable merger prospect unless it significantly changed its proposal. Mr. Hanover reported on GTx senior management discussions with Company L and stated that it was too early in the process to know if a reasonable merger proposal could be negotiated, and GTx senior management had just started work on understanding Company L’s pharmaceutical programs and cash position.

Dr. Wills reported to the GTx Board that a few other pharmaceutical companies have determined not to continue discussions with GTx senior management about a corporate transaction and Company B and Company C had decided they would not pursue a merger with GTx. Mr. Hanover noted that Dr. Johnston had received a call from Company J expressing an interest in GTx’s SARM assets, including enobosarm, and he had been contacted by Company K also requesting GTx consider licensing enobosarm.

Mr. Doggrell updated the GTx Board on GTx senior management’s efforts to engage a financial advisor, noting that it had been difficult to find interest from financial advisors given GTx’s position unless there was a significant advisory fee. Mr. Doggrell explained to the GTx Board that it had discussed an engagement with Aquilo and had reached agreement on the terms, subject to approval by the GTx Board. Mr. Doggrell reviewed with the GTx Board an engagement letter from Aquilo, to provide financial advisory services for GTx and the GTx Board.

Between November 20, 2018 and December 11, 2018, GTx continued to engage in discussions with Company D, but the parties did not agree to revised terms.

On November 25, 2018, a GTx Board member, Dr. Carter, was contacted by David F. Hale, an Oncternal Board member, who had seen GTx’s recent press releases and whom Dr. Carter knew through other board memberships. Mr. Hale indicated he would be interested in discussing a merger of Oncternal with GTx.

On November 26, 2018, Dr. Wills discussed Oncternal’s business and a potential transaction with Mr. Hale and Dr. James B. Breitmeyer, Oncternal’s Chief Executive Officer.

On November 30, 2018, GTx and Oncternal entered into a confidentiality agreement and the parties begin exchanging information.

Between November 2018 and early February, 2019, Dr. Wills continued to have discussions with Company G about a possible collaboration whereby Company G would undertake preclinical research and development of GTx’s SARDs in collaboration with GTx and GTx’s third party contractors and consultants. At the direction of

 

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the GTx Board on November 7, 2018, Dr. Wills was exploring with Company G representatives whether it would consider making an offer to acquire either the company or its SARD assets or, alternatively, entering into a collaboration agreement to develop SARDs with an option for Company G to acquire GTx or the SARD assets should it be willing to do so when an IND had been filed and a SARD product candidate was ready to enter the clinic. Before committing to undertake any development efforts, Company G suggested entering into an MTA to allow it to conduct some initial experiments on GTx’s existing lead SARD compounds. A draft MTA was sent to Company G at the end of January 2019, to which Company G responded, but the finalization and execution of the MTA was placed on hold by GTx senior management as it was concluding discussions with Oncternal on a letter of intent for GTx senior management to present to the GTx Board.

During this same time period, Company O made a proposal to Dr. Wills about selling or licensing enobosarm to it. As drafted, the proposal would provide for a minimal upfront payment with milestones payable only upon the occurrence of certain events subsequent to the transaction. GTx decided to delay responding to the proposal from Company O with the expectation that the combined company of Oncternal and GTx would be able to assess whether a counter offer was appropriate or some other strategic alternative for enobosarm and the company’s SARM portfolio may be more appropriate.

On December 4, 2018, Company J called Mr. Hanover to communicate that it had decided not to proceed with a bid to acquire enobosarm.

On December 7, 2018, Oncternal and GTx had discussions regarding GTx’s SARD technology.

On December 12, 2018, the GTx Board held a special meeting, with GTx senior management attending, for the purpose of receiving an update from Dr. Wills and Mr. Hanover on their discussions with various parties interested in some form of a potential business transaction with GTx. Mr. Hanover reported that discussions with Company D were ongoing over the last several weeks but were becoming more protracted and complex, and he was unsure whether GTx senior management would be making a favorable recommendation to the GTx Board about pursuing that transaction. Mr. Hanover explained that the complexity of trying to merge GTx’s SARD technology with Company D’s SERD program under the umbrella of a holding company controlled by Company D would make it difficult for GTx shareholders to have any liquidity in this investment and the equity split being suggested for GTx shareholders was inadequate. Dr. Wills reported that discussions with Company L continued to be positive but their proposed equity split for a combined company was, in his opinion, insufficient and there was little synergy in Company L’s technology and what GTx would be bringing to the combined company for development. Dr. Wills reported that while discussions with Oncternal were at an early stage, he, Mr. Hanover and Mr. Hyde had good discussions with Oncternal and there seemed to be a willingness to structure a transaction that may be more beneficial to GTx and its stockholders than other companies have been willing to offer. He noted that Oncternal was an oncology company and the synergies between the two companies were good, and that Oncternal has asked for and had been given access to GTx’s data room so it and its advisors could undertake more extensive due diligence of GTx and its technologies. Mr. Hanover reported that Company J had decided not to pursue the acquisition of SARMs, including enobosarm, although he had received some interest in the asset from Company K and would explore with Company K whether it was in a position to make a meaningful proposal for GTx’s SARMs. He also stated that GTx senior management would be exploring with Oncternal whether it wanted GTx to retain SARMs as an asset should Oncternal and GTx decide to combine.

Mr. Shackelford reviewed with the GTx Board financial projections for 2019, assuming GTx agreed to accept one of the merger proposals then being discussed on terms which GTx senior management believed may be possible to negotiate, versus remaining independent and continuing its ongoing preclinical development of SARDs. Mr. Doggrell reported on his most recent discussions with Aquilo and reviewed with the GTx Board Aquilo’s engagement letter, which the GTx Board then approved and authorized GTx senior management to sign.

In addition, the GTx Board approved and authorized GTx senior management to enter into an agreement with Aquilo which was executed on December 12, 2018.

 

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On December 18, 2018, Dr. Wills and Mr. Hanover met in-person with Company L’s executives and scientists at Company L’s headquarters, and the principal executive officer thereafter informed Dr. Wills that Company L’s board of directors had authorized him and his team to negotiate a non-binding merger proposal to bring back to its board for discussion. He reiterated his proposal from a telephone conversation with Dr. Wills on November 18, 2018, and stated that was the proposal his Board was willing to accept, subject to the completion of diligence by both companies.

Also on December 18, 2018, a due diligence meeting was held in San Diego, California between Dr. Wills, Mr. Hanover and members of the Oncternal management.

Thereafter, on December 19, 2018, Dr. Wills telephoned Company L with a counter proposal that GTx senior management believed might be acceptable to bring to its Board for further discussion. Later in the day, this counter proposal was rejected by Company L, which added a proposal that the reverse merger be completed in a structure that would make the combined companies a subsidiary of Company L. However, the senior executive of Company L reiterated his desire to pursue the proposed reverse merger with GTx and suggested the parties meet again for a more protracted discussion about merging the two companies.

On December 19, 2018, Dr. Wills received a call from Company M expressing an interest in SARDs and suggesting a possible reverse merger with GTx. Dr. Wills explained that GTx had discussion underway with several other companies but would remain open to undertake discussions with Company M if it could move quickly through its review of GTx’s assets following execution of a confidentiality agreement.

On December 21, 2018, GTx and Company M entered into a confidentiality agreement. Given the focus of Company M, a combination between it and GTx seemed an unlikely fit, but information was exchanged to determine if there was reason to accelerate these discussions.

On December 21, 2018, the GTx Board held a special meeting, with GTx senior management attending, for the purpose of receiving an update on GTx senior management’s discussions with various interested parties. Representatives from each of Aquilo and GTx’s outside legal counsel, Cooley LLP (“Cooley”) participated in the meeting. Dr. Wills summarized ongoing discussions with both Company L and Oncternal, both of which are private companies interested in a reverse merger with GTx. He noted that Company L had proposed an unacceptable equity split for the combined company and seemed to now be suggesting that the combined company become a subsidiary of Company L, which raised additional issues about whether GTx’s stockholders could hope to effectively participate in any exit strategy that Company L may have longer term. He stated that GTx senior management had countered Company L’s proposal but their counter proposal was rejected. On the other hand, Dr. Wills reported that he was having good conver