UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-K/A

Amendment No. 3

þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2004

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 005-79588

GTx, Inc.

(901) 523-9700

Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $0.001 per share

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes o No þ

     The aggregate market value of common stock held by non-affiliates of the Registrant based on the closing sales price of the Registrant’s common stock on June 30, 2005, as reported on the National Association of Securities Dealers Automated Market was $75,667,037.

     There were 24,664,716 shares of Registrant’s common stock issued and outstanding as of July 25, 2005.

Documents Incorporated by Reference

     None

Table of Contents

PART I

     ITEM 1. BUSINESS

Overview

     GTx is a biopharmaceutical company dedicated to the discovery, development and commercialization of therapeutics primarily related to the treatment of serious men’s health conditions and oncology. Our lead drug discovery and development programs are focused on small molecules that selectively modulate the effects of estrogens and androgens, two essential classes of hormones.

     We have four clinical programs. We are developing ACAPODENE® (toremifene citrate) for two clinical programs in men: (1) a pivotal Phase III clinical trial for the prevention of prostate cancer in high risk men and (2) a pivotal Phase III clinical trial for the treatment of serious side effects of androgen deprivation therapy (ADT) for advanced prostate cancer. In our third clinical program, we and our partner, Ortho Biotech Products, L.P. (Ortho Biotech), a subsidiary of Johnson & Johnson, are developing andarine, a selective androgen receptor modulator (SARM). We are working with Ortho Biotech to progress andarine to Phase II clinical testing in the second half of this year. In our fourth clinical program, we are developing our second SARM, ostarine, for andropause and other chronic conditions related to aging, including sarcopenia. We also have a marketed product, FARESTON® (toremifene citrate 60mg) tablets for the treatment of metastatic breast cancer. The active pharmaceutical ingredient in FARESTON is the same as in ACAPODENE, but a different dosage form.

     In addition, we have an extensive preclinical pipeline generated from our own discovery program, which includes the specific product candidates prostarine, a SARM for benign prostatic hyperplasia (BPH), and andromustine, an anticancer drug, for hormone refractory prostate cancer. We believe our four promising clinical programs along with our discovery pipeline create for us attractive long term commercial opportunities.

     Our most advanced product candidate, ACAPODENE, is being developed to prevent prostate cancer in high risk men with precancerous prostate lesions known as high grade prostatic intraepithelial neoplasia, or high grade PIN. Scientific evidence has established that men who have high grade PIN are at high risk of developing prostate cancer. Currently, there is no therapy for the treatment of high grade PIN. In 2004, we completed a Phase IIb clinical trial in which we enrolled 514 patients to determine the efficacy and safety of ACAPODENE in the prevention of prostate cancer in men with high grade PIN. This was the largest prospective study of the natural history and treatment of patients with high grade PIN. This well controlled study confirmed that men who have high grade PIN are at high risk, as 31% of placebo patients were diagnosed with prostate cancer by year one. The intent-to-treat analysis, defined as any patient who had at least one on-study biopsy, showed that ACAPODENE 20 mg had a 20% reduction in prostate cancer incidence. The reduction of prostate cancer incidence improved in men who received ACAPODENE 20mg for one year, with the clinical trial showing a 46% reduction in this high risk population compared to the placebo group, which is consistent with the interim analysis we conducted in 2003. For men who were diagnosed with prostate cancer, those treated with ACAPODENE had similar tumor grades to those of placebo patients, providing evidence that ACAPODENE does not affect the severity of the tumor in those patients who develop prostate cancer. ACAPODENE was well tolerated, as the number of adverse events was similar between those patients receiving ACAPODENE compared to placebo. We initiated a pivotal Phase III clinical trial in January 2005 under a Special Protocol Assessment (SPA) which we have filed with the Food and Drug Administration (FDA).

     We are also developing ACAPODENE for the treatment of serious side effects of androgen deprivation therapy, which is the standard medical treatment for patients who have advanced, recurrent or metastatic prostate cancer. Androgen deprivation therapy reduces blood levels of testosterone, the required growth factor for prostate cancer. Androgen deprivation therapy, however, can have serious side effects, including: severe bone loss, or osteoporosis, leading to skeletal fractures; hot flashes; and breast pain and enlargement, or gynecomastia. There are currently no drugs approved by the FDA for the treatment of these side effects of androgen deprivation therapy. We commenced a pivotal Phase III clinical trial of ACAPODENE under an approved SPA for this indication in November 2003.

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     Our third clinical program, andarine, is a product candidate being developed under a collaboration agreement with Ortho Biotech, initially for the treatment of cachexia from various types of cancer, a potentially life-threatening complication of many cancers. There are currently no drugs that have been approved by the FDA for the treatment of cancer cachexia. We are planning a placebo-controlled, dose-finding Phase II clinical trial for the treatment of cancer cachexia for the second half of this year.

     In our fourth clinical program, another SARM from our own discovery pipeline, ostarine, is being developed for andropause and other chronic conditions of aging. Andropause is associated with loss of muscle mass, hypogonadism, osteoporosis, high cholesterol and obesity. Ostarine has been shown to be highly selective in building muscle with favorable pharmacokinetic properties, including a long half life, that support continued clinical development for this indication.

     We market FARESTON for the treatment of metastatic breast cancer. FARESTON has been commercially available for over 15 years. In January 2005, we acquired from Orion Corporation the rights to distribute FARESTON in the U.S. and a license to toremifene, the active pharmaceutical ingredient in FARESTON and ACAPODENE, for all indications worldwide except breast cancer outside of the U.S.

     We have multiple product candidates that are in preclinical studies required prior to initiating clinical trials. Our current preclinical product candidates primarily focus on the treatment of other major indications in men’s health, including BPH, a benign prostate enlargement that results in obstruction of the urinary tract, and hormone refractory prostate cancer.

Scientific Background on Estrogens and Androgens

     Both estrogens and androgens are hormones that play critical roles in men’s health, regulating not only the reproductive system, but also having important effects on the muscular, skeletal, cardiovascular and central nervous systems. In order for the body to function properly, a balance must exist between estrogens and androgens.

     Estrogens prevent bone loss and osteoporosis and reduce the risk of skeletal fractures. In aging men, there is a gradual increase in the relative estrogen levels in the blood, which may promote BPH, initiate prostate cancer, and cause gynecomastia.

     Testosterone, the predominant androgen in men, is important for mental well-being and for masculine physical characteristics, such as muscle size and strength, bone strength and male pattern hair growth and loss. Male reproductive health is also dependent on testosterone to maintain sexual interest, fertility, erectile function and normal prostate growth. Testosterone also stimulates sebaceous and hair glands, which can cause unwanted effects like acne and hair loss. In aging men, there is a gradual decline in testosterone levels, which contributes to a loss of muscle mass and strength, decreased bone mineralization resulting in osteoporosis and bone fractures, erectile dysfunction, decreased sexual interest, depression, and mood changes.

     In order for estrogens and androgens to perform their physiologic functions, they must bind to and activate their hormone receptors located in various tissues. Once a hormone binds with its receptor, this activates a series of cellular events resulting in estrogenic or androgenic tissue effects, depending on the receptor.

     Pharmaceuticals that target hormone receptors for estrogens or androgens have been medically used for over 50 years. The drugs that have been used to stimulate androgen receptors are either natural or synthetic hormones, known as steroids. Steroids activate hormone receptors in all tissue types in a non-selective manner resulting in not only beneficial effects but also in unwanted clinical effects. In men, the absence of selectivity may result in unwanted side effects, such as the potential stimulation of latent prostate cancer, aggravation of existing BPH, acne, hair growth and gynecomastia. Testosterone products also have many pharmacologic limitations, such as an inability to administer them orally. Instead, they must be given by intramuscular injections, patches or gels which are not only inconvenient for patients, but also in some cases, result in inconsistent blood levels of testosterone.

     There are also classes of small molecules that bind to hormone receptors which are not steroids. These nonsteroidal small molecules may either stimulate or block hormone receptors depending on the type of tissue in which the receptor is found and the interaction of the molecule with the receptor. A drug that has the ability to either

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block or stimulate the hormone receptor is called a receptor modulator. A drug that can either block or stimulate a receptor in a tissue-selective manner may be able to mimic the beneficial, and at the same time minimize the unwanted effects of natural or synthetic hormones.

     A selective estrogen receptor modulator, or SERM, is a nonsteroidal small molecule that binds to and selectively modulates estrogen receptors. SERMs have the ability to either stimulate or block estrogen’s activity in different tissue types. SERMs mimic estrogen’s beneficial action in bone and block estrogen’s harmful activity in the breast. In addition, we believe that SERMs have the potential to block estrogen’s harmful activity in the prostate and the breast. Examples of SERMs currently on the market include toremifene, which has been prescribed to treat advanced female breast cancer, and raloxifene, which is used to prevent and treat female post menopausal osteoporosis.

     Similarly, a selective androgen receptor modulator, or SARM, is a small molecule that binds to and selectively modulates androgen receptors. In men, we believe that SARMs will be able to stimulate testosterone’s beneficial action in bone and muscle while blocking testosterone’s harmful action in the prostate and skin. We further believe that SARMs will have the ability to either cross or not cross into the central nervous system and to selectively modulate receptors in the brain to affect mood and sexual interest. Although no SARMs have been commercialized to date, we believe that SARMs, like testosterone, could be developed to treat a range of medical conditions without the side effects of testosterone including: (1) low testosterone conditions, such as hypogonadism and andropause (sarcopenia); (2) muscle wasting conditions of chronic diseases, such as cancer, AIDS, end stage renal disease neurodegenerative disorders, trauma and burns; (3) disorders of the central nervous system, such as low libido, depression and other mood disorders; (4) male reproductive functions, such as infertility, male contraception and erectile dysfunction; (5) prostate disorders, such as high grade PIN, BPH and prostate cancer; and (6) other conditions, such as anemia, male hair loss and male osteoporosis.

Marketed Product

FARESTON®

     Toremifene is a selective estrogen receptor modulator compound owned and manufactured by Orion Corporation (Orion), a Finnish corporation. In December 2004, we announced an agreement with Orion to acquire the exclusive license to toremifene in the U.S. and additional rights in all other countries giving us exclusive global rights to all toremifene-based products for all indications in humans, except breast cancer outside of the U.S. Toremifene is the active pharmaceutical ingredient in ACAPODENE, our lead product currently in Phase III clinical trials for two indications, and FARESTON, which has been approved by the FDA for the treatment of metastatic breast cancer. In 2000, we in-licensed toremifene from Orion to develop ACAPODENE for certain indications in men’s health. At the time the agreement was executed, Shire Pharmaceuticals had already licensed from Orion the distribution rights in the U.S. to sell toremifene as FARESTON for the treatment of metastatic breast cancer. Under the terms of our purchase agreement with Orion, we paid to Orion a license fee of approximately $4.8 million and purchased FARESTON inventory of approximately $448,000. We will continue to market FARESTON in the U.S. for the treatment of metastatic breast cancer and will pay a royalty to Orion on FARESTON sales. The royalty rate for FARESTON will be reduced after we commercialize a new toremifene based product such as ACAPODENE for men’s health indications. Additionally, as part of our acquisition agreement with Orion, our license and supply agreement with Orion was amended to provide that Orion will manufacture and supply all of our needs for clinical trial and commercial grade material for toremifene-based products developed and marketed globally by us, including ACAPODENE and FARESTON.

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Product Candidates

     The following table summarizes key information about our product candidates:

ACAPODENE®

     Our most advanced product candidate, ACAPODENE, is a selective estrogen receptor modulator, or SERM. ACAPODENE is being developed for a once-a-day oral dosing schedule. In January 2005, we acquired all rights to toremifene for all indications, except breast cancer outside of the U.S., including the rights to develop, market and distribute toremifene worldwide in the field of the prevention and treatment of prostate cancer and the prevention and treatment of osteoporosis, hot flashes and gynecomastia as side effects of androgen deprivation therapy for prostate cancer. We licensed rights to toremifene based on our belief that a SERM potentially could reduce the incidence of prostate cancer in men with high grade PIN and because of the established safety and efficacy record of toremifene in the treatment of post menopausal women and men with advanced breast cancer. Orion manufactures commercial quantities of toremifene citrate 60mg as FARESTON for us and is supplying us with ACAPODENE (toremifene citrate 20mg and 40mg) for our clinical trials under a supply agreement.

     The indications for which we are developing ACAPODENE target two different patient populations: (1) patients who have been diagnosed with high grade PIN, which has a high likelihood of progressing to prostate cancer; and

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(2) patients who have been diagnosed with advanced, recurrent or metastatic prostate cancer and are being treated with androgen deprivation therapy.

     ACAPODENE (toremifene citrate 20mg) For The Prevention Of Prostate Cancer In Men With High Grade PIN

     Scientific Overview. Patients who have an abnormal test result from a serum PSA test, a prostate cancer blood test that is commonly administered to men as part of physical examinations, or an abnormal digital rectal examination undergo a prostate biopsy to determine whether they have prostate cancer. Precancerous prostate lesions known as high grade prostatic intraepithelial neoplasia, or high grade PIN, rather than prostate cancer, are detected in approximately 10% of the patients who undergo prostate biopsies. Over the last 17 years, scientific evidence has established that men who have high grade PIN are at high risk of developing prostate cancer. Scientific studies demonstrated that prostate cancer is found in approximately 30% to 71% of high grade PIN patients within one year of a high grade PIN diagnosis and in 45% to 80% of high grade PIN patients within five years of a high grade PIN diagnosis. Because of this correlation between high grade PIN and prostate cancer, we believe that treating men at high risk for prostate cancer may prevent the disease.

     Estrogens play an important role in the initiation of prostate cancer. One way estrogens may influence the initiation of prostate cancer is by stimulating high grade PIN and causing it to progress into prostate cancer. Estrogen receptors are found in the prostate and in high grade PIN lesions. In animal models of prostate cancer, blocking estrogens’ action has been shown to regress high grade PIN and reduce the incidence of prostate cancer. Because ACAPODENE is designed to directly block estrogen receptors, we believe that it has the potential to reduce the incidence of prostate cancer in men with high grade PIN.

     Potential Market. Prostate cancer is one of the most commonly diagnosed cancers and the second leading cause of cancer-related deaths in men in the United States. There are approximately 400,000 new cases of prostate cancer diagnosed each year and 239,000 prostate cancer deaths annually worldwide. In the United States, there are over 115,000 new cases of high grade PIN diagnosed each year, and an estimated 9.4 million men unknowingly harbor high grade PIN.

     Because there is currently no therapy for the treatment of high grade PIN, patients who are diagnosed with high grade PIN are subjected to repeat biopsies immediately after diagnosis and every three to six months thereafter in order to detect the progression of high grade PIN into prostate cancer. Prostate biopsies are performed through an ultrasound probe placed in the rectum. Hollow needles are then inserted through the probe into the prostate to obtain cores of tissue. Complications from this procedure include bleeding, pain, prostate infection and life-threatening blood infection (sepsis). Because the prostate biopsy technique randomly samples the prostate gland with a relatively thin needle, both prostate cancer and high grade PIN may be missed by the biopsy. Patients with high grade PIN are exposed to the potential complications and the discomfort of invasive, repeat prostate biopsies and suffer the mental anguish of fearing that a diagnosis of prostate cancer may be imminent.

     During 2004, we entered into three separate collaboration agreements with diagnostic companies, Hybritech, Inc., a wholly owned subsidiary of Beckman Coulter, Inc., diaDexus, Inc., and Tessera, Inc., to provide clinical samples to each party from our now completed Phase IIb clinical trial of ACAPODENE. Information resulting from these collaborations will be used to evaluate whether a commercial test from blood or urine may be effectively developed to detect high grade PIN and/or prostate cancer. We believe that there now exists the opportunity to develop a test for high grade PIN and/or prostate cancer. By continuing to collaborate with leading diagnostic labs, we hope to have a urine or blood test developed to detect high grade PIN in the millions of American men who may unknowingly harbor this precancerous prostate lesion.

     Clinical Trials. In 2000, we completed a Phase IIa clinical trial of ACAPODENE in 21 patients with high grade PIN. The trial was conducted at the University of Tennessee in Memphis, Tennessee. Phase IIa clinical trials typically evaluate the proof of a concept for treatment. The primary endpoint of the trial was the presence of high grade PIN. Each participant in the trial received a daily oral dose of ACAPODENE for four months. The trial was open label and not placebo-controlled, and we did not perform long-term follow-up on the patients in the trial. Each patient underwent a prostate biopsy to detect high grade PIN at the beginning and end of the four-month trial period. Results showed that 72% of the trial participants had no detectable high grade PIN in the prostate biopsy performed

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at the end of the trial period. Based on studies reported in scientific literature, only approximately 18% of patients with untreated high grade PIN would be expected to have no high grade PIN detected in their repeat biopsy. There were no serious adverse events attributable to ACAPODENE in this trial.

     Based on the results from our Phase IIa clinical trial, in 2001, we began a placebo-controlled, randomized Phase IIb clinical trial in men with diagnosed high grade PIN to determine the efficacy and safety of a daily dose of ACAPODENE compared to placebo treatments for one year. The trial was conducted at 64 clinical sites across the United States. On June 4, 2004, we announced positive results from our Phase IIb clinical trial for ACAPODENE. The ACAPODENE Phase IIb study was a four arm, double-blind, placebo-controlled, clinical trial in 514 men with high grade PIN who are at high risk for prostate cancer. The four arms included in this study were 20mg, 40mg and 60mg of ACAPODENE and placebo given orally once a day. There were approximately 125 patients per arm. The primary entry criterion for the study was men with biopsy proven and confirmed high grade PIN. All patients were rebiopsied at 6 and 12 months from randomization. The primary endpoint was the incidence of prostate cancer. This was the largest prospective study to determine the natural history of patients with high grade PIN and supports the previous retrospective clinical observations that high grade PIN patients have a high risk for developing prostate cancer. The study also suggests that ACAPODENE may be an effective agent in preventing prostate cancer. This Phase IIb clinical trial demonstrated that ACAPODENE 20mg can produce a clinically significant reduction of prostate cancer cumulative risk by one year with the incidence of prostate cancer being approximately 24% with ACAPODENE 20mg compared to approximately 31% with placebo. Furthermore, the data appears to suggest that the longer men with high grade PIN are treated with ACAPODENE, the greater the likelihood that their risk of prostate cancer is reduced. Patients who had a negative prostate biopsy for cancer after 6 months of treatment had approximately a 46% reduction in prostate cancer after a full 12 months of treatment with ACAPODENE. ACAPODENE was well tolerated by patients compared to placebo in this trial. Based on the positive data from our Phase IIb clinical trial, we submitted our plan for a pivotal Phase III clinical trial for ACAPODENE to the FDA in October 2004 under a Special Protocol Assessment (SPA). An SPA, which is provided for in the Food and Drug Administration Modernization Act, allows a sponsor to obtain a written agreement from the FDA on the evaluation of issues related to the adequacy of the design of proposed clinical protocols. We initiated our Phase III clinical trial in January 2005 and have refiled our revised SPA in response to the FDA’s input to our initial filing.

     ACAPODENE (toremifene citrate) 80mg For The Treatment Of Serious Side Effects Of Androgen Deprivation Therapy

     Scientific Overview. The standard medical treatment for patients who have advanced, recurrent or metastatic prostate cancer is androgen deprivation therapy, which reduces blood levels of testosterone, the required growth factor for prostate cancer. Androgen deprivation therapy is accomplished either surgically by removal of the testes, or chemically by treatment with luteinizing hormone releasing hormone agonists, known as LHRH agonists. LHRH agonists work by shutting off luteinizing hormone secretion by the pituitary gland, which stops testosterone production by the testes. Examples of commercially marketed LHRH agonists are Lupron, Zoladex and Eligard.

     Side effects associated with LHRH agonists include bone loss leading to osteoporosis and skeletal fractures, muscle weakness, hot flashes, gynecomastia, depression, loss of libido and erectile dysfunction. Bone loss leading to osteoporosis and skeletal fractures is a significant clinical problem because prostate cancer patients who develop skeletal fractures have shorter survival rates compared to patients who do not develop skeletal fractures, with the median survival time shortened by 39 months. Hot flashes occur because of the lack of estrogen in the brain. Hot flashes experienced by prostate cancer patients taking LHRH agonists tend to be severe, frequent and protracted.

     Based on the results of our Phase II clinical trials and our preclinical testing of ACAPODENE, as well as preclinical and clinical information known about toremifene, we believe that ACAPODENE has estrogenic activity both in bone, which may prevent osteoporosis, and in the brain, which may reduce hot flashes. Also, ACAPODENE can block estrogens’ action in the male breast, which may prevent and treat gynecomastia. As a consequence, we believe that ACAPODENE has the potential to treat at least three serious side effects of LHRH agonists: osteoporosis, hot flashes and gynecomastia.

     Potential Market. In the United States, more than 675,000 men are currently being treated with androgen deprivation therapy for advanced, recurrent or metastatic prostate cancer, with over 120,000 new patients started on this therapy each year. An increasing number of prostate cancer patients are being treated by androgen deprivation

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with LHRH agonists earlier than in the past because of two main factors: first, medical studies have shown that early androgen deprivation therapy prolongs the survival of prostate cancer patients, and second, the serum PSA test is detecting advanced prostate cancer earlier than in the past. The net effect of this trend is that the side effects of androgen deprivation therapy now contribute significantly to the morbidity, and in some cases the mortality, of men with prostate cancer. Physicians are prescribing some other drugs on an off-label basis to help ameliorate some of the individual side effects of androgen deprivation therapy. These drugs include bisphosphonates for osteoporosis, Megace and antidepressants for hot flashes and tamoxifen for gynecomastia. Radiation is also used to treat gynecomastia. However, no single therapy is available to treat multiple side effects of androgen deprivation therapy.

     Clinical Trials. We have completed two Phase II clinical trials of ACAPODENE for the treatment of osteoporosis and hot flashes in patients with advanced, recurrent or metastatic prostate cancer. The first Phase II trial was conducted at five clinical sites across the United States and treated 43 patients with advanced, recurrent or metastatic prostate cancer shortly after initiation of treatment with LHRH agonists. The second of these trials was conducted at three clinical sites across the United States and treated 46 patients with advanced, recurrent or metastatic prostate cancer who had been receiving LHRH agonists for more than 12 months. In each trial, participants were randomized to either a daily oral dose of ACAPODENE or a placebo for six months. The primary endpoint of both trials was bone mineral density. The secondary endpoint of both trials was the incidence of hot flashes. We measured bone mineral density and hot flash symptoms at entry into each of the clinical trials and at six months. We did not evaluate the effects of ACAPODENE on gynecomastia in either of these trials.

     In our first Phase II clinical trial, which evaluated 43 patients shortly after initiation of treatment with LHRH agonists, patients who received ACAPODENE at the highest tested dose on average experienced an approximately 2% decrease in lumbar vertebral spine bone mineral density at six months, while the patients who received the placebo on average experienced an approximately 4% decrease in lumbar vertebral spine bone mineral density at six months. At the lower tested doses, ACAPODENE, as compared to the placebo, did not have a meaningfully different effect on lumbar vertebral spine bone mineral density. There was no significant difference between ACAPODENE and the placebo in the incidence of hot flashes at any tested dose.

     In our second Phase II clinical trial, which evaluated 46 patients who had been receiving LHRH agonists for more than 12 months, patients who received ACAPODENE at the highest tested dose on average experienced a 3.5% increase in lumbar vertebral spine bone mineral density, while the patients who received the placebo on average experienced a 0.5% decrease in lumbar vertebral spine bone mineral density. Only 12.5% of the patients in this trial who received ACAPODENE at the highest tested dose, compared to 50% of the patients who received the placebo, reported experiencing an increase in the frequency of hot flashes during the clinical trial. The magnitude of the bone changes seen in treated patients in this Phase II clinical trial were similar to those reported for each of raloxifene and bisphosphonates in post menopausal women with osteoporosis and bisphosphonates being prescribed off-label to men with prostate cancer. However, bisphosphonates have not been shown to have any effect on hot flashes or gynecomastia. At the lower tested doses, ACAPODENE, as compared to the placebo, did not have a meaningfully different effect on lumbar vertebral spine bone mineral density or frequency of hot flashes.

     In November 2003, we initiated a pivotal Phase III clinical trial of orally administered ACAPODENE in patients undergoing androgen deprivation therapy for advanced, recurrent or metastatic prostate cancer under a SPA from the FDA. We designed this pivotal Phase III clinical trial principally based on the results of our Phase II clinical trial that evaluated patients who had been receiving LHRH agonists for more than 12 months. The primary endpoint of the trial is the incidence of skeletal fractures. The secondary endpoints of the trial include bone mineral density, hot flashes and gynecomastia. We expect that over 100 clinical sites across the United States will participate in this study. Approximately 1,200 patients with advanced, recurrent or metastatic prostate cancer who have been receiving androgen deprivation therapy for at least 6 months and who have significant existing bone loss, or are greater than 70 years of age, will be randomized to receive either a placebo or a daily dose of ACAPODENE for 24 months. The primary endpoint is the reduction in vertebral skeletal fractures. We are planning an interim analysis of the measurement of bone mineral density, a secondary endpoint, in the first 200 patients in this clinical trial in the second half of this year.

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Andarine

     In our third clinical program, we are developing andarine, a SARM, and it is our most advanced product candidate of our internally discovered portfolio of compounds designed to target the androgen receptor. Andarine is taken orally and is being developed for a once-a-day dosing schedule. Our strategy is to continue the clinical development of andarine with Ortho Biotech for the treatment of cachexia from various types of cancer. We selected this indication because it represents a potentially large market, and we believe it has a relatively well-defined clinical and regulatory process. For cachexia from various types of cancer, we are developing andarine for the treatment of both men and women.

     In March 2004, we entered into a joint collaboration and license agreement with Ortho Biotech for andarine and specified backup SARM compounds. Under the terms of the agreement, in April 2004, we received an up front licensing fee and reimbursement of development expenses of the completed Phase Id clinical trial for andarine totaling approximately $6.7 million. The up front licensing fee and reimbursement of development expenses are expected to be amortized into revenue on a straight-line basis through March 2009. Additionally, we will receive licensing fees and milestone payments of up to $82.0 million based on andarine and up to $45.0 million for each additional licensed compound achieving specific clinical development decisions or obtaining regulatory approvals. All milestone payments for andarine are based on achievements prior to its commercial launch. Johnson & Johnson Pharmaceutical Research & Development will be responsible for further clinical development and related expenses for andarine and other licensed SARM compounds. Ortho Biotech will be responsible for commercialization and related expenses for andarine and other licensed SARM compounds. If andarine is approved for commercial sale, Ortho Biotech will exclusively market andarine in the United States and in markets outside the United States. Under the agreement, we have the option to copromote andarine and the other licensed SARM compounds to urologists in the United States for indications specifically related to men’s health. We will receive up to double digit base royalties on all United States and worldwide sales. For all copromoted sales generated from urologists in the United States, we will receive the base royalty plus an additional royalty in excess of 20%. Depending on the results of our initial development efforts, together with Ortho Biotech, we may also develop andarine for the treatment of other diseases.

     Andarine For The Treatment Of Cancer Cachexia

     Scientific Overview. Cachexia is defined as the unintentional loss of over 5% of a patient’s original body weight. Most of the weight loss attributable to cancer cachexia results from the loss of lean body, or muscle weight. Cancer causes the body to go into a starvation-like state that causes cachexia. Muscle wasting weight loss from cancer, or cancer cachexia, is diagnosed in approximately one-third of newly-diagnosed cancer patients and accounts for approximately 20% of cancer deaths. Weight loss is one of the most important indicators of how long a cancer patient will live since the survival of a patient with cancer is greatly impacted by the degree and rate of muscle wasting. A cancer patient’s response to cancer chemotherapy is diminished by weight loss. Cachexia results in weakness, fatigue and immobility. A greater lean body weight may increase activity levels, quality of life, response to chemotherapy and, ultimately, survival.

     Testosterone increases lean body weight in both men and women. One of the causes of cancer cachexia may be reduced levels of testosterone. Testosterone therapy, however, is not used for the treatment of cancer cachexia for two reasons. First, the delivery methods for testosterone are inconvenient for patients and in some cases result in inconsistent levels of testosterone in the blood. Testosterone cannot be given orally, but rather is given only by intramuscular injections, patches or gels. Second, testosterone can have a number of undesirable side effects in men, such as the potential stimulation of latent prostate cancer, aggravation of existing BPH and gynecomastia, and in women, it can have masculinizing effects such as acne and facial hair.

     We believe that andarine is similar to testosterone in activating androgen receptors in muscle, thereby promoting lean body weight, but does not stimulate sebaceous glands, the cause of hair growth and acne, or the prostate, which exacerbates BPH. In addition, andarine is taken orally, which makes it more convenient to administer.

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     Potential Market. There are approximately 1.3 million patients diagnosed with cancer each year in the United States. Cancer cachexia afflicts approximately one-third of newly-diagnosed cancer patients. Over 30 clinical trials of supplemental nutritional support alone have reported little or no benefit in counteracting cachexia in cancer patients receiving chemotherapy or radiation. There are no drugs that have been approved by the FDA for the treatment of cancer cachexia. Although there are two commercially available drugs, both steroids, which are being prescribed off-label for the treatment of some types of cancer cachexia, chronic use of these drugs may result in bleeding liver cysts and liver cell tumors.

     Clinical Trials. We have completed four Phase I clinical trials of andarine in a total of 134 healthy male and female volunteers. We tested andarine for safety and tolerance in single and multiple doses. Results from our Phase I trials support once-a-day oral dosing, and no serious adverse events were observed at any single or multiple dose tested. We observed early indications in the multiple dose Phase I clinical trial in men that andarine promoted growth activity, as measured by levels of a growth factor in the blood known as IGF-1, without affecting the sebaceous glands. We believe that these observations support the potential ability of andarine to selectively modulate androgen receptors in a tissue-specific manner. However, Phase I clinical trials are not designed to show efficacy, and these early observations are not necessarily indicative of the results that will be demonstrated in future clinical trials. The details and design of Phase II clinical trials for andarine will be determined by a joint development committee established as a part of our joint collaboration with Ortho Biotech.

Ostarine

     Our fourth clinical program is to develop ostarine, another SARM product candidate from our own discovery portfolio of compounds. Ostarine is being targeted for the treatment of andropause which is associated with sarcopenia, or loss of muscle mass related to aging as well as hypogonadism, osteoporosis, high cholesterol and obesity. Based on the positive preclinical data that we observed with ostarine, we are developing this product candidate for use in subjects with andropause for which there are currently no treatments available. Phase I clinical development commenced in January 2005 and will evaluate the safety, tolerability and pharmacokinetic profile of ostarine with single ascending dose and multiple ascending dose, double-blind, placebo-controlled designed studies in healthy volunteers which will include elderly subjects.

     Ostarine For The Treatment Of Andropause

     Scientific Overview. Andropause is associated with the loss of muscle mass associated with aging, also known as sarcopenia, osteoporosis, high cholesterol, hypogonadism and obesity. As people age they undergo hormonal and metabolic changes. Each year after age 30 people gain an average of a pound of fat every year and lose a half a pound of muscle every year. An average man may lose 40% of muscle between the ages of 30 and 90 years of age. Muscle provides strength and endurance, supports the skeletal system and helps protect the body through the immune system. Loss of muscle can cause frailty, loss of independence and worsens other conditions of aging such as osteoarthritis and osteoporosis.

     Potential Market. There are approximately 17 million people over the age of 65 who have age related sarcopenia each year in the United States. There are no drugs that have been approved by the FDA for the treatment of andropause.

     Clinical Trials. Our Phase I single ascending dose clinical trial to evaluate the safety, tolerability and pharmacokinetic profile of ostarine using a single ascending dose, double-blind, placebo-controlled was initiated in January 2005 in 96 healthy volunteers and elderly subjects. The Phase I clinical trial to evaluate the safety, tolerability, and pharmacokinetic profile using a multiple ascending dose, double blind, placebo-controlled design is planned for the second quarter of this year.

Prostarine

     We are also developing another SARM product candidate, prostarine, for the treatment of benign prostatic hyperplasia, or BPH, which is benign prostate enlargement that results in obstruction of the urinary tract. In animal models, prostarine has the ability to shrink and prevent growth of the prostate gland. We are conducting preclinical studies required to support clinical trials.

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Andromustine

     First line therapy of patients who have advanced, recurrent or metastatic prostate cancer is androgen deprivation therapy. Since prostate cancer is dependent on androgens, such as testosterone, to grow, the reduction in testosterone leads prostate cancer into remission. Unfortunately, with time, prostate cancer circumvents the need for testosterone and comes out of remission. Once prostate cancer no longer responds to androgen deprivation, it is referred to as hormone refractory prostate cancer.

     Building on the technology of our SARM discovery program, we designed and are developing small molecules like andromustine to specifically target androgen receptors and kill cancer cells. In one approach, the andromustine molecule has two components: (1) the SARM-like part of the molecule, which binds to the androgen receptor located on prostate cancer cells; and (2) the chemotherapeutic part of the molecule, which is designed to damage the DNA of prostate cancer cells. In cell culture, these compounds selectively kill metastatic human prostate cancer cells. We continue to use this and other approaches to identify molecules with potent in vitro and in vivo anticancer activity. Because advanced prostate cancers, including hormone refractory prostate cancer, have more androgen receptors than the normal prostate, andromustine has been designed to bind to and to selectively kill advanced prostate cancer cells.

     There are over 675,000 men in the United States being treated with LHRH agonists and other hormonal therapies for prostate cancer. Hormone refractory prostate cancer will eventually occur in a majority of these patients. Once a patient develops hormone refractory prostate cancer, his prognosis is poor. Andromustine could be second line cancer therapy for patients who develop hormone refractory prostate cancer.

Drug Discovery and Other Research & Development

     Steroid hormone therapies, which include estrogen and testosterone therapies, have been used to treat humans for many years. Steroid hormones by their nature have unselective effects in various tissues. As a result, they have unintended side effects, which limit their clinical value.

     SERM drugs, such as toremifene, tamoxifen and raloxifene, have achieved commercial success in treating women as nonsteroidal small molecules that modulate hormone estrogen receptors in a tissue selective way and minimize some of the side effects of the natural estrogen hormone to treat breast cancer (toremifene and tamoxifen) or to treat postmenopausal osteoporosis (raloxifene). We believe that the previous commercial and scientific success of SERMs indicates that it is possible to design and develop classes of nonsteroidal small molecule drugs to modulate hormone receptors in addition to estrogen receptors.

     We believe that our drug discovery expertise will allow us to sustain our clinical pipeline through the design and development of nonsteroidal small molecule drugs that modulate hormone receptors. Our in-house medicinal chemists and scientists provide us with significant discovery and development expertise. Using our capabilities in hormone receptor biology and medicinal chemistry, we are able to target many hormone receptors and generate compounds that are designed to address the shortcomings of natural hormone therapies.

     We design and synthesize new compounds based on computer, or in silico, models and crystal structures of a hormone receptor’s binding sites. We continually modify and improve these models to reflect our study of the activity of new compounds in the laboratory, in which we determine the link between chemical structures and biological activity, or structure-activity relationships.

     We also have significant medicinal scale-up and high throughput capabilities, which facilitate our rapid synthesis and evaluation of new compounds. Throughout our discovery process, we build diversity into our chemistry structures in order to improve our likelihood of success in developing novel compounds that have the potential to treat multiple indications. Through this approach, we have generated clinical product candidates for the androgen receptor, andarine and ostarine. We also have conducted other research and development efforts focused on SERM and SARM compounds, other receptor modulator compounds and viral cytolytics.

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Our Strategy

     Our objective is to develop and commercialize small molecule drugs to target serious men’s health conditions. Key elements of our strategy to achieve this objective are to:

     Obtain Regulatory Approval Of ACAPODENE. We are focused on completing clinical trials, obtaining regulatory approval and preparing for the potential commercial launch of ACAPODENE for two distinct indications in men’s health.

     Retain Commercial Rights To ACAPODENE And Establish Sales And Marketing Infrastructure. We intend to retain commercial rights to ACAPODENE in the United States. We believe that we can effectively market ACAPODENE to the target physician audience of urologists and medical oncologists, principally urological oncologists, in the United States through a small, specialty sales force that we plan to build. We plan to collaborate with pharmaceutical companies to commercialize, market and sell ACAPODENE to physicians outside of urology and medical oncology in the United States and all physicians in countries in Europe and Asia and in other countries outside of the United States.

     Extend Life Cycle Of ACAPODENE. We are studying various means to reformulate ACAPODENE with the goals of seeking longer intellectual property protection in the European and Asian markets and extending its life cycle in the United States. We also intend to apply for market exclusivity and regulatory extensions of patent life under applicable European and U.S. laws, as appropriate, to protect our exclusive rights in ACAPODENE for the indications we are currently testing in clinical trials.

     Develop Diagnostic Tests For High Grade PIN. We are currently collaborating with three large diagnostics companies; Hybritech, Inc., a wholly owned subsidiary of Beckman Coulter, Inc., diaDexus, Inc. and Tessera, Inc. to develop an accurate blood or urine test to detect high grade PIN. We will continue to seek additional collaborations for other companies with promising high grade PIN diagnostics. We believe that men would be more willing to be tested for high grade PIN if the diagnostic test were less invasive than a prostate biopsy. Given the large number of patients with undiagnosed high grade PIN, we believe that the development of a blood or urine test will increase the detection of high grade PIN and thereby expand the already large potential market for ACAPODENE.

     Maintain Commercial Sales Of FARESTON. We intend to devote sufficient marketing and sales efforts to maintain FARESTON at current sales levels.

     Pursue Clinical Development Of Andarine. Under our joint collaboration and license agreement with Ortho Biotech for the continued clinical development of andarine and specified backup SARM compounds, we intend to continue to pursue the clinical development of andarine for the treatment of cachexia from various types of cancer. In addition, we and Ortho Biotech may develop andarine for the treatment of other causes of cachexia, including end stage renal disease, which represents a large potential market with unmet medical needs. Andarine could also potentially be developed and commercialized for other men’s and women’s health indications. The terms of our agreement with Ortho Biotech are more fully described below in “Licenses and Collaborative Relationships – Ortho Biotech Products L.P., a subsidiary of Johnson & Johnson”.

     Build Upon Our Other SARM And Other Drug Discovery Capabilities To Sustain Our Small Molecule Product Candidate Pipeline. We intend to develop our other SARMs as well as other small molecule products to treat diseases that affect large numbers of patients and that are underserved by available alternatives. While our drug discovery efforts to date have focused on SERM and SARM technologies, we believe that we have the capability to discover additional drug candidates that target other hormone receptors. We plan to further strengthen our drug discovery, medicinal chemistry and preclinical pharmacology groups to sustain our pipeline of nonsteroidal small molecules designed to modulate a range of hormone receptors. We may seek one or more collaborators for the development and commercialization of our other SARM product candidates, including ostarine and prostarine.

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Licenses and Collaborative Relationships

     We have established and intend to continue to pursue licenses from and collaborative relationships with pharmaceutical companies and academic institutions to further the development and commercialization of our small molecule products.

     Ortho Biotech Products L.P., A Subsidiary of Johnson & Johnson

     Under a joint collaboration and license agreement with Ortho Biotech executed in March 2004 for andarine, our most advanced SARM compound, and specified backup SARM compounds, we received an upfront licensing fee of $6 million and reimbursement of certain development expenses of approximately $687,000. We also can receive additional licensing fees and milestone payments up to $82.0 million based on andarine and up to $45.0 million for each additional licensed compound achieving specific clinical development decisions or obtaining regulatory approvals. Johnson & Johnson Pharmaceutical Research & Development will be responsible for further clinical development and expenses related to andarine and other licensed SARM compounds. Ortho Biotech will be responsible for commercialization and expenses related to andarine and other licensed SARM compounds. If andarine is approved for commercial sale, Ortho Biotech will exclusively market andarine in the United States and markets outside the United States. Under the agreement, we have the option to co-promote andarine and the other licensed SARM compounds to urologists in the United States for indications specifically related to men’s health. We will receive up to double-digit royalties on all sales throughout the worldwide licensed territory, as well as an additional royalty in excess of 20% on all co-promoted sales generated from urologists in the United States.

     Orion Corporation

     On December 29, 2004, we entered into an Amended and Restated License and Supply Agreement (License and Supply Agreement) with Orion Corporation granting us exclusive rights to Orion’s compound, toremifene, for all products for human uses, including our product candidate, ACAPODENE, excluding, however products for breast cancer sold outside of the United States. The License and Supply Agreement, which has an effective date of January 1, 2005, replaces an earlier agreement entered into with Orion in 2000, and subsequently amended in 2001 and 2003 (Original License). Under the agreement, we paid a license fee of $4.8 million. The term of the License and Supply Agreement will survive the term of our patents, including the patents we license from University of Tennessee Research Foundation (UTRF) pertaining to ACAPODENE for the treatment and/or prevention of PIN and prostate cancer. We believe that our patents pertaining to methods of use for toremifene will survive until at least 2020.

     Under the Original License, we paid Orion $400,000 which we can offset, along with clinical trial expenses, against licensing fees and milestone payments we will pay to Orion if we receive licensing fees and milestone payments on account of our sublicensing rights to third parties. The License and Supply Agreement retains these provisions and, additionally, obligates us to make future royalty payments to Orion of varying amounts for sales of FARESTON for breast cancer in the U.S. and other toremifene based products licensed to us under the agreement, including ACAPODENE to treat or prevent PIN or prostate cancer or to treat complications arising from androgen deprivation therapy.

     We have agreed to achieve specified minimum sales requirements of ACAPODENE in the U.S. after commercialization of the product. If we do not do so, we must pay Orion royalties based on the amount of the shortfall below the applicable minimum sales requirement. In addition, we are required to pay up to $1.0 million if we are acquired before receiving marketing approval for the use of ACAPODENE for the prevention or treatment of high grade PIN or prostate cancer or to treat complications arising from androgen deprivation therapy. Orion may terminate its supply agreement for ACAPODENE toremifene based products if marketing approval for ACAPODENE is not granted in the U.S. by December 31, 2009.

     University of Tennessee Research Foundation

     In August 2002, we executed an Amended and Restated Exclusive License Agreement with UTRF granting us a worldwide exclusive license under their method of use patents relating to ACAPODENE for the prevention of prostate cancer in high risk men with PIN. Under the terms of the agreement, we are required to make annual

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maintenance fee payments and future royalty payments to UTRF. We are also required to pay all expenses to file, prosecute and maintain the patents relating to ACAPODENE for the prevention of prostate cancer in high risk men with high grade PIN.

     The amended license agreement superseded a 1998 license agreement with UTRF pursuant to which we reimbursed UTRF for certain patent expenses incurred by UTRF and agreed to make sublicense fee payments and future royalty payments.

     In June 2002, we executed two Amended and Restated Exclusive License Agreements with UTRF granting us worldwide exclusive licenses under its composition of matter and method of use patents relating to selective androgen receptor modulator (SARM) compounds, including andarine, to market, distribute and sell licensed products. Under the terms of these license agreements, we are required to make annual maintenance fee payments and future royalty payments to UTRF. We are also required to pay all expenses to file, prosecute and maintain the patents relating to SARMs.

     The amended license agreement superseded a 2000 license agreement with UTRF pursuant to which we reimbursed UTRF for certain patent expenses incurred by UTRF and agreed to make sublicense fee payments and future royalty payments.

     In December 2004, UTRF and the Ohio State University (OSU), entered into an Inter-institutional Agreement to share, in some cases, ownership of SARM technology, subject to our exclusive license rights, and royalty payments received from our SARM License with UTRF. We have agreed to amend our SARM License to require us to provide the same kind of reports and notifications to OSU that we currently provide to UTRF.

     We have also executed with UTRF an Amended and Restated Exclusive License Agreement granting us worldwide exclusive licenses with UTRF’s composition of matter and method of use patents for some of the preclinical programs pertaining to viral cytolytics and gene therapy.

     National Cancer Institute

     We are providing the National Cancer Institute with ACAPODENE for their use in an independent Phase II clinical trial of ACAPODENE at the University of Pittsburgh. The objective of the trial is to assess the biological effects of ACAPODENE on the prostate gland. In this trial, patients who have been diagnosed with prostate cancer have been given a single oral daily dose of ACAPODENE for up to 12 weeks prior to surgical removal of their cancerous prostate.

Manufacturing

     We do not currently own or operate manufacturing facilities for the production of clinical or commercial quantities of ACAPODENE or any of our SARMs, including andarine or ostarine. We currently rely and expect to continue to rely on third parties for the manufacture of our product candidates or products that we may develop.

     We purchase toremifene, marketed as FARESTON and branded as ACAPODENE, from Orion under an exclusive license and supply agreement providing for Orion to supply our requirements for clinical and commercial product. Orion has agreed to supply us with, and we have agreed to purchase from Orion, our worldwide requirements of toremifene in finished tablet form at specified transfer prices. Orion’s manufacturing facility also produces commercial quantities of toremifene tablets for FARESTON and complies with the FDA’s current Good Manufacturing Practice regulations. The raw materials necessary to manufacture toremifene are readily available, but Orion is our only supplier of toremifene tablets.

     Orion may terminate its obligation to supply us with toremifene if:

	•	marketing approval for ACAPODENE for use in any of the licensed fields, except breast cancer, is not granted in the United States by December 31, 2009; or
	•	subject to a prior notice requirement, if Orion permanently ceases the manufacture of toremifene.

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     Our license and supply agreement with Orion does not provide us with the current right to manufacture toremifene. In addition, under the terms of our agreement with Orion, we have agreed to purchase our requirements for toremifene tablets from Orion during the term of the agreement, which extends for the life of our patent rights, beyond the term of Orion’s patents with respect to the composition of matter of toremifene. There are a number of circumstances in which Orion is required to grant manufacturing rights to us, including following termination of its supply obligation as set forth above, failure by Orion to supply product to us for 90 days or to supply product in dosages or formulations other than the dosages and formulations specified in the agreement or termination of the agreement by us following a breach by Orion. However, in the event that Orion terminates the license agreement as a result of our bankruptcy or a material breach of the agreement by us that is not cured, we would not have the right to manufacture toremifene for ACAPODENE until Orion’s patents with respect to the composition of matter of toremifene expire.

     We have entered into an agreement with EaglePicher Pharmaceutical Services, a division of EaglePicher Technologies, LLC, under which EaglePicher has agreed to manufacture andarine for us in a quantity that we believe is sufficient to supply clinical trials of andarine and initial commercialization. We also contract with EaglePicher Pharmaceutical Services and Metrics, Inc. for our clinical supply needs for ostarine. Metrics uses the material provided by EaglePicher to provide us with tablets for our ostarine clinical trials. We do not have a contract with EaglePicher or Metrics for the supply of andarine or ostarine for full-scale commercialization. The active ingredient, andarine or ostarine, is manufactured using a four-step synthetic process that uses commercially available starting materials and raw materials for each step. There are no complicated chemistries or unusual equipment required in the manufacturing process. Under our joint collaboration and license agreement with Ortho Biotech, the manufacturing of andarine is being transitioned to Ortho Biotech, and Ortho Biotech will be responsible for clinical supply and full-scale commercialization of andarine.

Competition

     The biotechnology and biopharmaceutical industries are characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products. We face competition from many different sources, including commercial pharmaceutical and biotechnology enterprises, academic institutions, government agencies and private and public research institutions.

     Many of our competitors have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, clinical trials, regulatory approvals and marketing approved products than we do. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. Our commercial opportunities will be reduced or eliminated if our competitors develop and commercialize similar products that are safer, more effective, have fewer side effects or are less expensive than any products that we may develop. These third parties compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies and technology licenses complementary to our programs or advantageous to our business.

     ACAPODENE For The Prevention Of Prostate Cancer In Men With High Grade PIN

     Currently, there are no drug products that would compete with ACAPODENE for the treatment of high grade PIN to reduce the incidence of prostate cancer.

     ACAPODENE For The Treatment Of Serious Side Effects Of Androgen Deprivation Therapy

     Currently, there are no products that have been approved by the FDA to treat multiple side effects of androgen deprivation therapy. We are aware of a number of marketed drugs that are prescribed off-label for the treatment of single side effects. For example, Evista®, Eli Lilly’s trade name for raloxifene, Fosamax® (aledronate sodium), a bisphosphonate marketed by Merck, and Actonel (risendronate sodium), a bisphosphonate marketed by Aventis and Procter & Gamble, are each prescribed off-label for the treatment of osteoporosis. Amgen has an investigational drug, AMG-162, in Phase III trials for the prevention of fractures in men undergoing ADT. Effexor, marketed by

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Wyeth Pharmaceuticals, Catapres, marketed by Boehringer Ingelheim, and Megace, marketed by Bristol Myers Squibb, are prescribed off-label to treat hot flashes caused by androgen deprivation therapy. External beam radiation is used to treat gynecomastia. There can be significant side effects associated with the off-label use of these drugs and radiation treatment. Most patients would need to take several different drugs and potentially receive radiation treatments to treat multiple side effects of androgen deprivation therapy. In contrast, we believe that ACAPODENE, as a single product candidate, has the potential to treat multiple side effects.

     Andarine For The Treatment Of Cancer Cachexia

     There are currently no drugs that have been approved by the FDA for the treatment of cancer cachexia. Although there are two commercially available drugs, Nandrolone and Oxandrin, that are being prescribed off-label for the treatment of some types of cancer cachexia, chronic use of these drugs may result in bleeding liver cysts and liver cell tumors. Nandrolone is an oral steroid that is available from Steris Laboratories, a subsidiary of Watson Pharmaceuticals. Oxandrin, marketed by Savient Pharmaceuticals, is prescribed for the treatment of involuntary weight loss associated with severe trauma, chronic infection or intensive surgery, but has been prescribed as off-label for cancer cachexia. Oxandrin is a tissue non-selective steroid that has the potential to stimulate latent prostate cancer and breast cancer and cause virilization in women. Both Nandrolone and Oxandrin, as steroid drugs, have the potential to cause severe liver toxicities. Andarine is not a steroid, and we believe that it will be tissue-selective.

     Ostarine For The Treatment Of Andropause

     There are currently no drugs that have been approved by the FDA for the treatment of andropause. Testosterone products have been used off-label to treat andropause. Owing to its potentially unwanted effects in the prostate, we believe testosterone products have not had much of an impact on the market for andropause.

     In addition, as to ACAPODENE, andarine, and ostarine, there may be product candidates of which we are not aware at an earlier stage of development. If any are successfully developed and approved, they could compete directly with our product candidates, if approved for commercial sale.

     FARESTON For The Treatment Of Breast Cancer

     There are a number of drugs that have been approved by the FDA for the treatment of breast cancer. Tamoxifen, which is marketed by AstraZeneca and several generic manufacturers, has been approved by the FDA for the treatment of advanced breast cancer and the reduction of breast cancer in women at high risk for developing the disease. The aromatase inhibitors, such as anastrozole, letrozole and exemestane are used to treat breast cancer in post menopausal women. The aromatase inhibitors (AIs) are growing at the expense of SERMs due to clinical trials such as Arimidex and Tamoxifen: Alone or in Combination (ATAC) which have shown efficacy and tolerability advantages for AIs compared to tamoxifen.

Sales and Marketing

     In order to commercialize any future products, we must broaden our sales and marketing infrastructure or collaborate with third parties with sales and marketing experience and personnel. We plan to build a small, highly-focused, specialty sales and marketing infrastructure, which we expect to include 50 to 80 sales representatives, to market ACAPODENE to the relatively small and concentrated community of urologists and medical oncologists and FARESTON prescribers, principally medical oncologists, in the United States and to market andarine to urologists in the United States. We believe that the urology and medical oncology markets in the United States are readily accessible by a limited sales and marketing presence due to the concentration of prescribing physicians. We plan to establish collaborations with pharmaceutical companies to commercialize ACAPODENE in countries in Europe and Asia and for other countries outside of the United States for prostate cancer-related conditions. GTx currently markets FARESTON to approximately 1,000 medical oncologists in the United States.

     In part, because marketing andarine to address the cancer cachexia market would require a large sales force and due to the risks and costs of developing andarine for cachexia from various types of cancer, we have entered into a joint collaboration and license agreement with Ortho Biotech for the development and commercialization of

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andarine and specified backup SARM compounds. See “Licenses and Collaborative Relationships – Ortho Biotech Products L.P., a subsidiary of Johnson & Johnson”.

     Since ostarine for the treatment of andropause may be prescribed in the United States and abroad by general practitioners, as well as specialists like urologists, we anticipate that we will seek appropriate collaboration partners at an appropriate time to market, distribute and sell ostarine in the United States and abroad, although we expect to retain rights to sell to urologists in the United States through our specialty sales force.

     We intend to devote sufficient marketing and sales efforts to maintain FARESTON at current sales levels.

Intellectual Property

     We will be able to protect our technology from unauthorized use by third parties only to the extent it is covered by valid and enforceable patents or is effectively maintained as trade secrets. Patents and other proprietary rights are an essential element of our business.

     For ACAPODENE in the United States and internationally, we have entered into an Amended Restated License and Supply Agreement with Orion Corporation granting us an exclusive license under Orion’s patents covering the composition of matter of toremifene, the active pharmaceutical ingredient in ACAPODENE, for all uses in humans in the United States, and for all human uses outside the United States other than to treat breast cancer. The patent for toremifene will expire in the United States in 2009, in Japan in 2005 and in Australia, Italy, Sweden and Switzerland in 2008. This patent has already expired in other European countries and is likely to expire in countries outside the United States before we commercialize ACAPODENE. As a result, outside of the United States and in the United States after 2009, we will need to rely primarily on the protection afforded by the method of use patents that either have been already issued or other patents that may later be issued in respect of our owned and licensed patent applications relating to the use of ACAPODENE for the relevant indications we seek.

     We have licensed from the University of Tennessee Research Foundation method of use patents in the United States and issued and pending patent applications internationally related to the use of ACAPODENE for the reduction in the incidence of prostate cancer in men with high grade PIN. The method of use patents issued in the United States related to the use of ACAPODENE for this indication will begin expiring in 2019.

     We have our own pending method of use patent applications in the United States and internationally related to the use of ACAPODENE for the treatment of osteoporosis, gynecomastia and hot flashes as side effects of androgen deprivation therapy.

     In all countries in which we hold or have licensed rights to patents or patent applications related to ACAPODENE, the composition of matter patents for toremifene, the active pharmaceutical ingredient of ACAPODENE, will expire before the method of use patents. Furthermore, with respect to the method of use of ACAPODENE for the treatment of osteoporosis, hot flashes and gynecomastia as side effects of androgen deprivation therapy worldwide and the method of use of ACAPODENE for the reduction in the incidence of prostate cancer in men with high grade PIN outside the United States, we have some patents issued and many more pending patent applications. Method of use patents are more difficult to enforce than composition of matter patents because of the risk of off-label sale or use of the subject compounds.

     In the event that patents issued in respect of our pending method of use patent applications, after the expiration of the patent covering the composition of matter of toremifene in a particular country, competitors could market and sell generic versions of toremifene at doses and in formulations that are bioequivalent to ACAPODENE for uses other than the indications for ACAPODENE covered by these pending method of use patent applications, and physicians would be permitted to prescribe generic versions of toremifene for indications that are protected by our or our licensors’ method of use patents and pending patent applications. After the expiration of the patent covering the composition of matter of toremifene in a particular country, if patents do not issue in respect of our pending method of use patent applications related to the use of ACAPODENE for the treatment of osteoporosis, hot flashes and gynecomastia as side effects of androgen deprivation therapy worldwide and the method of use of ACAPODENE for the reduction in the incidence of prostate cancer in men with high grade PIN outside the United States,

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competitors could market and sell generic versions of toremifene at doses and in formulations that are bioequivalent to ACAPODENE for these indications.

     Until January 2005, our license from Orion was limited to the use of toremifene for the prevention and treatment of prostate cancer and the prevention and treatment of osteoporosis, hot flashes and gynecomastia as side effects of androgen deprivation therapy in the treatment of prostate cancer. We have since acquired the rights from Orion to market, sell and distribute a 60mg toremifene tablet under the trademark FARESTON for the treatment of advanced breast cancer in the US and the rights to market, sell and distribute toremifene for all other indications in humans in the United States and in the rest of world except for breast cancer outside of the U.S.

     For andarine and other specified SARMs licensed to Ortho Biotech in the United States and abroad, we have an exclusive license from the University of Tennessee Research Foundation (UTRF) under its patents and patent applications related to the composition of matter and formulations of, and methods of using, the active pharmaceutical ingredient in these compounds. In the United States, the patents covering the composition of matter and formulations of the active pharmaceutical ingredient in andarine will expire in 2021. We also have a license from UTRF to its pending patent applications in the United States and abroad related to methods of synthesizing the active pharmaceutical ingredient in andarine and methods for treating cancer cachexia with andarine. We also have our own pending patent applications in the United States and internationally related to methods of using andarine.

     For ostarine, we have a license from the UTRF under its pending patent applications in the United States and internationally covering the composition of matter of the active pharmaceutical ingredient in ostarine, pharmaceutical compositions and formulations of ostarine and methods of synthesizing the active pharmaceutical ingredient in ostarine. We also have our own pending patent applications in the United States and internationally related to methods for treating male osteoporosis and andropause using ostarine.

     For prostarine, we have an exclusive license from UTRF under its patent and pending patent applications in the United States and internationally covering the composition of matter of the active pharmaceutical ingredient in prostarine, pharmaceutical compositions and formulations of prostarine and methods of synthesizing the active pharmaceutical ingredient in prostarine. We also have our own pending patent applications in the United States and internationally related to methods for treating BPH using prostarine.

     For andromustine, we have an exclusive license from UTRF under its pending patent applications, as well as pending patent application of our own, in the United States and abroad and rights to file internationally covering the composition of matter of the active pharmaceutical ingredient in andromustine, pharmaceutical compositions of andromustine, methods of synthesizing the active pharmaceutical ingredient in andromustine and methods for treating prostate cancer that is not responsive to androgen deprivation therapy using andromustine.

     We also rely on trade secrets, technical know-how and continuing innovation to develop and maintain our competitive position. We seek to protect our proprietary information by requiring our employees, consultants, contractors, outside scientific collaborators and other advisors to execute non-disclosure and confidentiality agreements and our employees to execute assignment of invention agreements on commencement of their employment. Agreements with our employees also prevent them from bringing any proprietary rights of third parties to us. We also require confidentiality or material transfer agreements from third parties that receive our confidential data or materials.

Government Regulation

     New Drug Development and Approval Process

     Numerous governmental authorities in the United States and other countries extensively regulate the testing, clinical development, manufacturing and marketing of pharmaceutical products and ongoing research and development activities. In the United States, the FDA rigorously reviews pharmaceutical products under the Federal Food, Drug, and Cosmetic Act and applicable regulations. Non-compliance with FDA regulations can result in administrative and judicial sanctions, including warning letters, clinical holds, fines, recall or seizure of products, injunctions, total or partial suspension of production, refusal of the government to approve marketing applications or

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allow entry into supply contracts, refusal to permit import or export of products, civil penalties, criminal prosecution and other actions affecting a company and its products. The FDA also has the authority to revoke previously granted marketing authorizations.

     To secure FDA approval, an applicant must submit extensive preclinical and clinical data, as well as information about product manufacturing processes and facilities and other supporting information to the FDA for each indication to establish a product candidate’s safety and efficacy. The development and approval process takes many years, requires the expenditure of substantial resources and may be subject to delays or limitations of approval or rejection of an applicant’s new drug application. Even if the FDA approves a product, the approval is subject to post-marketing surveillance, adverse drug experience and other recordkeeping and reporting obligations, and may involve ongoing requirements for post-marketing studies. The FDA also may place conditions on any approvals that could restrict the commercial applications, advertising, promotion or distribution of these products. Product approvals may be withdrawn if compliance with regulatory standards is not maintained or if problems occur following initial marketing.

     Preclinical and Clinical Testing

     Preclinical studies involve laboratory evaluation of product characteristics and animal studies to assess the biological activity and safety of the product. In some cases, long-term preclinical studies are conducted while clinical studies are ongoing. The FDA, under its Good Laboratory Practices regulations, regulates preclinical studies. Violations of these regulations can, in some cases, lead to invalidation of the studies, requiring these studies to be replicated. When the preclinical testing is considered adequate by the sponsor to demonstrate the safety and scientific rationale for initial human studies, the results of the preclinical tests, together with manufacturing information and analytical data, are submitted to the FDA as part of an Investigational New Drug application, or IND. The IND becomes effective, if not rejected by the FDA, within 30 days after FDA receives the IND. The FDA may, at any time during the 30-day period after filing of an IND or at any future time, impose a clinical hold on proposed or ongoing clinical trials on various grounds, including that the study subjects are or would be exposed to an unreasonable and significant health risk. If the FDA imposes a clinical hold, clinical trials cannot commence or recommence without FDA authorization and then only under terms authorized by the FDA.

     Clinical trials involve the administration of the investigational product candidates to humans under the supervision of a qualified principal investigator. Clinical trials must be conducted in accordance with Good Clinical Practice, or GCP, under protocols submitted to the FDA as part of the IND. In addition, each clinical trial must be approved and conducted under the auspices of an Investigational Review Board, or IRB, and with patient informed consent. The IRB will consider, among other things, ethical factors and the safety of human subjects.

     Clinical trials are conducted in three sequential phases, but the phases may overlap. Phase I clinical trials usually involve healthy human subjects. The goal of the Phase I clinical trial is to establish initial data about the safety, tolerability and pharmacokinetic properties of the product candidates in humans. In Phase II clinical trials, controlled studies are conducted on an expanded population of patients with the targeted disease. The primary purpose of these tests is to evaluate the effectiveness of the drug candidate on the patients to determine if there are any side effects or other risks associated with the drug and to determine the optimal dose of the drug from the safety and efficacy profile developed from the clinical study. Phase III trials involve even larger patient populations, often with several hundred or even several thousand patients depending on the use for which the drug is being studied. Phase III trials are intended to establish the overall risk-benefit ratio of the drug and provide, if appropriate, an adequate basis for product labeling. During all clinical trials, physicians monitor the patients to determine effectiveness and to observe and report any reactions or other safety risks that may result from use of the drug candidate.

     Product Formulation and Manufacture

     Concurrent with clinical trials and preclinical studies, companies must develop information about the chemistry and physical characteristics of the drug and finalize a process for manufacturing the product. In addition, manufacturers, including contract manufacturers, are required to comply with the applicable FDA current Good Manufacturing Practice regulations. The current Good Manufacturing Practice regulations include requirements relating to quality control and quality assurance, as well as the corresponding maintenance of records and documentation. The manufacturing process must be capable of consistently producing quality batches of the product

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and the manufacturer must develop methods for testing the quality, purity and potency of the final drugs. Additionally, appropriate packaging must be selected and tested and chemistry stability studies must be conducted to demonstrate that the product does not undergo unacceptable deterioration over its shelf-life.

     Compliance with current Good Manufacturing Practice regulations also is a condition of new drug application approval. The FDA must approve manufacturing facilities before they can be used in the commercial manufacture of drug products. In addition, manufacturing establishments are subject to preapproval inspections and unannounced periodic inspections.

     New Drug Application Process

     After the completion of the clinical trial phases of development, if the sponsor concludes that there is substantial evidence that the drug candidate is safe and effective for its intended use, the sponsor may submit a new drug application, or NDA, to the FDA. The application must contain all of the information on the drug candidate gathered to that date, including data from the clinical trials, and be accompanied by a user fee.

     The FDA determines whether an NDA as submitted is acceptable for filing. The FDA may refuse to file an application, in which case the FDA retains one-half of the user fee. If the submission is accepted for filing, the FDA begins an in-depth review of the application. As part of this review, the FDA may refer the application to an appropriate advisory committee, typically a panel of clinicians, for review, evaluation and a recommendation. The FDA is not bound by the recommendation of an advisory committee. Under the Prescription Drug User Fee Act, or PDUFA, submission of an NDA with clinical data requires payment of a fee, with some exceptions. In return, FDA assigns a goal of six or 10 months from filing of the application to return of a first “complete response,” in which the FDA may approve the product or request additional information. There can be no assurance that an application will be approved within the performance goal timeframe established under PDUFA.

     If the FDA evaluations of the NDA and the manufacturing facilities are favorable, the FDA may issue an approval letter authorizing commercial marketing of the drug candidate for specified indications. The FDA could also issue an approvable letter, which usually contains a number of conditions that must be met in order to secure final approval of the new drug application. When and if those conditions have been met to the FDA’s satisfaction, the FDA will issue an approval letter. On the other hand, if the FDA’s evaluation of the NDA submission or manufacturing facilities is not favorable, the FDA may refuse to approve the NDA or issue a non-approvable letter.

     Marketing Approval and Post-Marketing Obligations

     If the FDA approves an application, the drug becomes available for physicians to prescribe. Periodic reports must be submitted to the FDA, including descriptions of any adverse reactions reported. The FDA may require post-marketing studies, also known as Phase IV studies, as a condition of approval. In addition to studies required by the FDA after approval, trials and studies are often conducted to explore new indications for the drug. The purpose of these trials and studies and related publications is to develop data to support additional indications for the drug, which must be approved by the FDA, and to increase its acceptance in the medical community. In addition, some post-marketing studies are done at the request of the FDA to develop additional information regarding the safety of a product.

     Any products manufactured or distributed pursuant to FDA approvals are subject to continuing regulation by the FDA, including record keeping requirements, reporting of adverse experiences with the drug, drug sampling and distribution requirements, notifying the FDA and gaining its approval of certain manufacturing or labeling changes, complying with certain electronic records and signature requirements, and complying with FDA promotion and advertising requirements. Drug manufacturers and their subcontractors are required to register their establishments and are subject to periodic unannounced inspections for compliance with Good Manufacturing Practice requirements. Also, newly discovered or developed safety or effectiveness data may require changes to a product’s approved labeling, including the addition of new warnings and contraindications, or even in some instances revocation or withdrawal of the product’s approval.

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     Drug Price Competition and Patent Term Restoration Act of 1984

     Under the Drug Price Competition and Patent Term Restoration Act of 1984, known as the Hatch-Waxman Act, a portion of a product’s patent term that was lost during clinical development and application review by the FDA may be restored. The Hatch-Waxman Act also provides for a statutory protection, known as exclusivity, against the FDA’s acceptance or approval of certain competitor applications. The Hatch-Waxman Act also provides the legal basis for the approval of abbreviated new drug applications.

     Patent term restoration can compensate for time lost during product development and the regulatory review process by returning up to five years of patent life for a patent that covers a new product or its use. This period is generally one-half the time between the effective date of an IND and the submission date of an NDA, plus the time between the submission date of an NDA and the approval of that application. Patent term restorations, however, are subject to a maximum extension of five years, and the patent term restoration cannot extend the remaining term of a patent beyond a total of 14 years. The application for patent term extension is subject to approval by the United States Patent and Trademark Office in conjunction with the FDA. It takes at least six months to obtain approval of the application for patent term extension.

     The Hatch-Waxman Act also provides for a period of statutory protection for new drugs that receive NDA approval from the FDA. If a new drug receives NDA approval as a new chemical entity, meaning that the FDA has not previously approved any other new drug containing the same active entity, then the Hatch-Waxman Act prohibits an abbreviated new drug application or an NDA where the applicant does not own or have a legal right of reference to all of the data required for approval to be submitted by another company for a generic version of such drug, with some exceptions, for a period of five years from the date of approval of the NDA. The statutory protection provided pursuant to the Hatch-Waxman Act will not prevent the filing or approval of a full NDA, as opposed to an abbreviated new drug application or a new drug application in which the applicant does not own or have a legal right of reference to all of the data required for approval, for any drug, including, for example, a drug with the same active ingredient, dosage form, route of administration, strength and conditions of use. In order to obtain an NDA, however, a competitor would be required to conduct its own clinical trials. If NDA approval is received for a new drug containing an active ingredient that was previously approved by the FDA but the NDA is for a drug that includes an innovation over the previously approved drug, for example, an NDA approval for a new indication or formulation of the drug with the same active ingredient, and if such NDA approval was dependent upon the submission to the FDA of new clinical investigations, other than bioavailability studies, then the Hatch-Waxman Act prohibits the FDA from making effective the approval of an abbreviated new drug application or a new drug application in which the applicant does not own or have a legal right of reference to all of the data required for approval for a generic version of such drug for a period of three years from the date of the NDA approval. This three year exclusivity, however, only covers the innovation associated with the NDA to which it attaches. Thus, the three year exclusivity does not prohibit the FDA, with limited exceptions, from approving abbreviated new drug applications or a new drug application in which the applicant does not own or have a legal right of reference to all of the data required for approval for drugs containing the same active ingredient but without the new innovation.

     While the Hatch-Waxman Act provides certain patent restoration and exclusivity protections to innovator drug manufacturers, it also permits the FDA to approve abbreviated new drug applications for generic versions of their drugs. The abbreviated new drug application process permits competitor companies to obtain marketing approval for a drug with the same active ingredient for the same uses but does not require the conduct and submission of clinical studies demonstrating safety and effectiveness for that product. Instead of safety and effectiveness data, an abbreviated new drug application applicant needs only to submit data demonstrating that its product is bioequivalent to the innovator product as well as relevant chemistry, manufacturing and product data. The Hatch-Waxman Act also instituted a third type of drug application that requires the same information as an NDA, including full reports of clinical and preclinical studies, except that some of the information from the reports required for marketing approval comes from studies which the applicant does not own or have a legal right of reference. This type of application permits a manufacturer to obtain marketing approval for a drug without needing to conduct or obtain a right of reference for all of the required studies.

     Finally, the Hatch-Waxman Act requires, in some circumstances, an applicant submitting an abbreviated new drug application or a new drug application in which the applicant does not own or have a legal right of reference to all of the data required for approval to notify the patent owner and the holder of the approved NDA of the factual

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and legal basis of the applicant’s opinion that the patent is not valid or will not be infringed. Upon receipt of this notice, the patent owner and the NDA holder have 45 days to bring a patent infringement suit in federal district court and obtain a 30 month stay against the company seeking to reference the NDA. The NDA holder could still file a patent suit after the 45 days, but if they did, they would not have the benefit of the 30 month stay. Alternatively, after this 45-day period, the applicant may file a declaratory judgment action, seeking a determination that the patent is invalid or will not be infringed. Depending on the circumstances, however, the applicant may not be able to demonstrate a controversy sufficient to confer jurisdiction on the court. The discovery, trial and appeals process in such suits can take several years. If such a suit is commenced, the Hatch-Waxman Act provides a 30-month stay on the approval of the competitor’s abbreviated new drug application or a new drug application in which the applicant does not own or have a legal right of reference to all of the data required for approval. If the litigation is resolved in favor of the competitor or the challenged patent expires during the 30-month period, unless otherwise extended by court order, the stay is lifted and the FDA may approve the application. Under regulations recently issued by the FDA, and essentially codified under the recent Medicare prescription drug legislation, the patent owner and the NDA holder have the opportunity to trigger only a single 30-month stay per abbreviated new drug application or a new drug application in which the applicant does not own or have a legal right of reference to all of the data required for approval. Once the applicant of the abbreviated new drug application or a new drug application in which the applicant does not own or have a legal right of reference to all of the data required for approval has notified the patent owner and the NDA holder of the infringement, the applicant cannot be subjected to another 30-month stay, even if the applicant becomes aware of additional patents that may be infringed by its product.

     Pharmaceutical Pricing and Reimbursement

     In both domestic and foreign markets, sales of any products for which we receive regulatory approval for commercial sale will depen