GTx, INC.

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K


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

For the fiscal year ended December 31, 2005


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

For the transition period from to

Commission file number 000-50549

GTx, Inc.

(Exact name of registrant as specified in its charter)


Delaware		62-1715807

(State or other jurisdiction of		(I.R.S. Employer Identification No.)
incorporation or organization)
3 N. Dunlap Street
Van Vleet Building
Memphis, Tennessee		38163

(Address of principal executive offices)		(Zip Code)

(901) 523-9700

(Registrant’s telephone number, including area code)

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

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

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 a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer þ Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). 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 NASDAQ National Market was $75,667,037.

There were 30,998,217 shares of Registrant’s common stock issued and outstanding as of March 1, 2006.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements. The forward-looking statements are contained principally in the sections entitled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” These statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. Forward-looking statements include statements about:

	•		the anticipated progress of our research, development and clinical programs;

	•		potential future licensing fees, milestone payments and royalty payments;

	•		our ability to market, commercialize and achieve market acceptance for our product candidates or products that we may develop;

	•		our ability to generate additional product candidates for clinical testing;

	•		our ability to protect our intellectual property and operate our business without infringing upon the intellectual property rights of others; and

	•		our estimates regarding the sufficiency of our cash resources.

In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would,” and similar expressions intended to identify forward-looking statements. Forward-looking statements reflect our current views with respect to future events, are based on assumptions, and are subject to risks and uncertainties. We discuss many of these risks in this Annual Report on Form 10-K in greater detail in the section entitled “Risk Factors” under Part I, Item 1A below. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our estimates and assumptions only as of the date of this Annual Report on Form 10-K. You should read this Annual Report on Form 10-K and the documents that we incorporate by reference in and have filed as exhibits to this Annual Report on Form 10-K, completely and with the understanding that our actual future results may be materially different from what we expect.

Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, even if new information becomes available in the future.

PART I

ITEM 1. BUSINESS

Overview

GTx is a biopharmaceutical company dedicated to the discovery, development and commercialization of therapeutics for cancer and serious conditions related to men’s health. 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 are developing ACAPODENE^® (toremifene citrate), a selective estrogen receptor modulator, or SERM, in two separate clinical programs in men: first, a pivotal Phase III clinical trial for the treatment of serious side effects of androgen deprivation therapy, or ADT, for advanced prostate cancer, and second, a pivotal Phase III clinical trial for the prevention of prostate cancer in high risk men with precancerous prostate lesions called high grade prostatic intraepithelial neoplasia or high grade PIN. In our third clinical program we are developing ostarine, a selective androgen receptor modulator, or SARM. We believe that ostarine has the potential to treat a variety of indications including muscle wasting and bone loss in frail elderly patients, osteoporosis, muscle wasting in end stage renal disease patients, and severe burn wounds and associated muscle wasting. We are currently planning a Phase II clinical trial of ostarine for the treatment of muscle wasting and bone loss in 120 elderly men and postmenopausal women. In our fourth clinical program, we and our partner, Ortho Biotech Products, L.P., a subsidiary of Johnson & Johnson (Ortho Biotech), are developing andarine, another one of our SARMs, for the treatment of weight loss from various types of cancer, which is known as cancer cachexia. We are planning a Phase II clinical trial with Ortho Biotech.

In addition, we have an extensive preclinical pipeline generated from our own discovery program that includes the specific product candidates prostarine, a SARM for benign prostatic hyperplasia,and andromustine, an anticancer product candidate, for hormone refractory prostate cancer.

Our most advanced product candidate, ACAPODENE, is being developed to treat both the multiple side effects of ADT and to prevent prostate cancer in high risk men with high grade PIN. ADT is the standard medical treatment for patients who have advanced, recurrent or metastatic prostate cancer, and we believe that there will be approximately one million prostate cancer survivors who are expected to be treated with ADT by 2008. The low estrogen levels caused by ADT can lead to serious side effects, including: severe bone loss, or osteoporosis, resulting in skeletal fractures; hot flashes; lipid changes and breast pain and enlargement, or gynecomastia. There are currently no drugs approved by the United States Food and Drug Administration, or FDA for the treatment of multiple side effects of ADT. We commenced a pivotal Phase III clinical trial of ACAPODENE under a Special Protocol Assessment, or SPA, with the, FDA for this indication in November 2003. A SPA is designed to facilitate the FDA’s review and approval of drug products by allowing the agency to evaluate the proposed design and size of clinical trials that are intended to form the primary basis for determining a drug product’s efficacy. If agreement is reached with the FDA, a SPA documents the terms and conditions under which the design of the subject trial will be adequate for submission of the efficacy and human safety portion of a New Drug Application, or a NDA. We reached our enrollment goal in 2005 with approximately 1,400 patients randomized. The primary endpoint is the incidence of vertebral skeletal fractures measured by x-ray, and the secondary endpoints include bone mineral density (BMD), hot flashes, gynecomastia and lipid changes. In accordance with the SPA, we completed a planned interim analysis of BMD in the first 200 patients who completed one year of treatment. Patients treated with ACAPODENE demonstrated statistically significant increases in BMD compared to placebo in all three skeletal sites measured, with lumbar spine showing an improvement of 2.3 percentage points (p<0.001), hip, a 2.0 percentage point improvement (p=0.001), and femoral neck, a 1.5 percentage point improvement (p=0.009). It is anticipated that this clinical trial will be completed in the fourth quarter of 2007. If the results are favorable, we expect to file a NDA with the FDA in the first half of 2008. We also plan to conduct a one-year blinded extension trial in the same patients to gather additional fracture data.

In the United States, prostate cancer is one of the most commonly diagnosed cancers and the second leading cause of cancer-related deaths in men. Scientific evidence has established that men who have high grade PIN are at high risk of developing prostate cancer (approximately 50% of the men with high grade PIN found on a prostate biopsy develop prostate cancer within three years). In the United States, there are over 115,000 new cases of high grade PIN diagnosed each year and an estimated 14 million men under the age of 80 unknowingly harbor this

condition. Currently, there is no approved treatment to prevent prostate cancer in men with high grade PIN. In January 2005, we initiated a pivotal Phase III clinical trial of orally administered ACAPODENE for the prevention of prostate cancer in men with high grade PIN which is being conducted under a SPA with the FDA. We expect to reach our total enrollment goal of 1,260 patients by the end of the first quarter of 2006. We will evaluate efficacy endpoints 36 months after completion of enrollment, with an interim efficacy analysis within 24 months of completion of enrollment. Once we have achieved the efficacy endpoint (at 24 or 36 months), we plan to file a NDA with the FDA. We anticipate that we will collect safety data required under the SPA during the NDA review process if we file a NDA based on the 24 month interim analysis. In 2004, we completed a randomized, double-blind, placebo-controlled, dose-finding Phase IIb clinical trial of ACAPODENE in men with recently diagnosed high grade PIN to determine the efficacy and safety of a daily dose of ACAPODENE for 12 months. The trial enrolled 514 men and was conducted at 64 clinical sites across the United States. The primary endpoint of this trial was the incidence of prostate cancer at 12 months. 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 after one year in the study. The intent-to-treat analysis, defined to include any patient who had at least one biopsy during the study, showed that ACAPODENE 20 mg had a 22% reduction in prostate cancer incidence. The reduction of prostate cancer incidence improved in men who received ACAPODENE 20 mg for a full year, with the clinical trial showing a 48% reduction in this high risk population compared to the placebo group. 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 adversely 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.

In our third clinical program, ostarine, a SARM, is being developed to treat a variety of medical conditions relating to muscle wasting and/or bone loss. After approximately age 30, people lose about one-half pound of muscle every year. This muscle loss accelerates in people with chronic illness and other conditions that stress the body and this muscle loss depletes protein reserves and detrimentally impacts recovery. Testosterone and other anabolic steroids have been proven to reverse involuntary muscle wasting caused by aging, burns and trauma, cancer, end-stage renal disease, chronic obstructive pulmonary disease and other diseases. However, testosterone and other anabolic steroids may cause serious unwanted side effects, including stimulating prostate cancer growth in men and masculinization in women. Ostarine is a novel non-steroidal agent designed to have anabolic activity like testosterone without unwanted side effects on the prostate and skin and in a once daily oral dose. We are currently planning to initiate a proof of concept Phase II clinical trial of ostarine for the treatment of muscle wasting and bone loss in elderly men and postmenopausal women to commence in the second quarter of 2006. Our recently completed second Phase I clinical trial of ostarine included 48 healthy male volunteers and 23 elderly males with truncal obesity. In the trial, 14 day treatment with ostarine demonstrated anabolic activity without unwanted androgenic side effects.

In our fourth clinical program, andarine, a SARM, is being developed in collaboration with Ortho Biotech, initially for the treatment of cachexia from various types of cancer, a potentially life-threatening muscle wasting complication of many cancers. There are currently no drugs that have been approved by the FDA for the treatment of cancer cachexia.

We market FARESTON^® (toremifene citrate) 60 mg tablets for the treatment of metastatic breast cancer in post-menopausal women in the United States. FARESTON has been commercially available for over 15 years in Europe and over 8 years in the United States. In January 2005, we acquired from Orion Corporation the rights to distribute FARESTON in the United States and a license to toremifene, the active pharmaceutical ingredient in FARESTON and ACAPODENE, for all indications worldwide except breast cancer outside of the United States.

We have identified other product candidates that are currently undergoing preclinical studies, including product candidate prostarine to treat benign prostatic hyperplasia, or BPH, a benign prostate enlargement that results in obstruction of the urinary tract, and andromustine to treat hormone refractory prostate cancer.

Scientific Background on Estrogens and Androgens

Both estrogens and androgens are hormones that play critical roles in men’s and women’s health, regulating not only the reproductive system, but also having important effects on the muscular, skeletal, cardiovascular, metabolic 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 reducing the risk of skeletal fractures. But in aging men, as testosterone levels decrease, the gradual increase in estrogen levels in the blood relative to testosterone levels 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 is converted into a more potent androgen, dihydrotestosterone (DHT) which also stimulates sebaceous and hair glands and may 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, which may result in osteoporosis and bone fractures, erectile dysfunction, decreased sexual interest, depression and mood changes.

Estrogens and androgens perform their physiologic functions by binding to and activating or inhibiting 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.

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 and conversion of testosterone to DHT may result in unwanted side effects, such as the potential stimulation of latent prostate cancer, aggravation of existing BPH, acne, hair growth and gynecomastia. Currently, no orally available testosterone products have been approved for use in the United States, and those testosterone products that are available must be administered by intramuscular injections or by transdermal patches or gels that may not be convenient for patients and, in some cases, can result in inconsistent blood levels of testosterone.

There are also classes of small molecules that bind to hormone receptors that 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 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, while minimizing the unwanted, effects of natural or synthetic steroid hormones.

A 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 have been shown to mimic estrogen’s beneficial action in bone, and 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.

A SARM is a small molecule that binds to and selectively modulates androgen receptors. In men, we believe that SARMs can be engineered to stimulate testosterone’s beneficial action in bone and muscle while blocking testosterone’s unwanted action in the prostate and skin. We further believe that SARMs can be designed 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 without testosterone’s or other exogenous steroid therapies’ harmful side effects could be developed to treat a range of medical conditions, including: (1) low testosterone conditions, such as hypogonadism and andropause; (2) muscle wasting conditions of chronic diseases, such as cancer, AIDS, end stage renal disease, neurodegenerative disorders, trauma and burns; (3) muscle wasting conditions associated with aging such as frailty and sarcopenia; (4) disorders of the central nervous system, such as low libido, depression and other mood disorders; (5) male reproductive functions, such as infertility, male contraception and erectile dysfunction; (6) prostate disorders, such as BPH and prostate cancer; (7) other conditions, such as anemia, male hair loss; and (8) the prevention and/or treatment of osteoporosis.

Marketed Product

FARESTON^®

We currently market FARESTON (toremifene citrate) 60 mg tablets, which have been approved by the FDA for the treatment of metastatic breast cancer in postmenopausal women in the United States. Toremifene is a selective estrogen receptor modulator compound owned and manufactured by Orion Corporation (Orion), a Finnish corporation. On January 1, 2005, we entered into a revised license and supply agreement with Orion to exclusively license toremifene for all indications in the United States and for all indications in humans, except breast cancer outside of the United States. Toremifene is the active pharmaceutical ingredient in ACAPODENE, our lead product candidate currently in Phase III clinical trials for two indications, and FARESTON. We initially licensed toremifene from Orion in March 2000 to develop ACAPODENE for certain indications in men’s health. At that time, another pharmaceutical company already held the distribution rights in the United States from Orion to sell toremifene as FARESTON for the treatment of metastatic breast cancer. Under the terms of our 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 United States 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, 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 globally and FARESTON in the United States.

We currently sell FARESTON primarily through wholesale drug distributors. The top three distributors, McKesson Corporation, Cardinal Health, Inc. and AmerisourceBergen Corporation, accounted for approximately 94% of our revenues generated from the sale of FARESTON for the year ended December 31, 2005. The loss of any of these three distributors could have a material adverse effect on continued FARESTON sales.

Product Candidates

The following table summarizes key information about our product candidates:


	Product Candidate and	Development
Program	Indication	Phase	Status

SERM	ACAPODENE 80 mg Side effects of ADT	Pivotal Phase III clinical trial	Phase III clinical trial ongoing under a SPA; fully enrolled; obtained statistically significant BMD results from a planned interim analysis in fourth quarter of 2005
	ACAPODENE 20 mg
	Prevention of prostate cancer in men with high grade PIN	Pivotal Phase III clinical trial	Phase III clinical trial ongoing under a SPA; attainment of enrollment goal anticipated by the end of first quarter of 2006

SARM	Ostarine
	Muscle wasting and bone loss in elderly men and postmenopausal women	Planning to initiate Phase II clinical trial in second quarter of 2006	Two Phase I clinical trials completed

	Andarine
	Cachexia from various types of cancer	Planning Phase II clinical trial with Ortho	Four Phase I clinical trials completed
		Biotech

	Prostarine
	BPH	Preclinical	Preclinical studies

Anticancer	Andromustine
	Prostate cancer that is not responsive to ADT	Preclinical	Preclinical studies

ACAPODENE^®

Our most advanced product candidate, ACAPODENE, is a SERM. ACAPODENE is being developed as a once-a-day oral tablet to (i) treat the multiple side effects of ADT (80 mg dose) and (ii) prevent prostate cancer in high risk men (20 mg dose). In January 2005, we acquired all rights to toremifene, the active ingredient in ACAPODENE, for all indications, except breast cancer outside of the United States. We licensed rights to toremifene based on our belief that a SERM can reduce the incidence of prostate cancer in men with high grade PIN and treat complications resulting from ADT, and toremifene’s established record of safety in the treatment of post menopausal women with advanced breast cancer. Under our license and supply agreement, Orion manufactures and supplies us FARESTON, the 60 mg dose of toremifene citrate, for sale in the United States to treat advanced breast cancer, as well as ACAPODENE, both 80 mg dose and 20 mg dose of toremifene citrate, for our Phase III clinical trials for the treatment of multiple side effects resulting from ADT and to prevent prostate cancer in high risk men.

ACAPODENE for the Treatment of Serious Side Effects of ADT

Scientific Overview. The standard medical treatment for patients who have advanced, recurrent or metastatic prostate cancer is ADT, which reduces blood levels of testosterone, a primary growth factor for prostate cancer. ADT 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^®, (leuprolide acetate), Zoladex^® (goserelin acetate),Viadur^® (leuprolide acetate) and Eligard^® (leuprolide acetate). The reduction in testosterone from ADT results in very low estrogen levels in men well below even postmenopausal women.

Estrogen related side effects associated with ADT include bone loss leading to osteoporosis and skeletal fractures, hot flashes, gynecomastia, adverse lipid changes, depression, and memory loss. Bone loss leading to osteoporosis and possible skeletal fractures is a significant clinical problem because clinical studies have shown that prostate cancer patients who develop skeletal fractures have shorter survival rates, with their median survival time shortened by 39 months. Hot flashes occur because of reduced estrogen levels in the brain. Hot flashes experienced by prostate cancer patients on ADT 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. Toremifene has been shown to improve lipid profiles in postmenopausal women. 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 four serious side effects of LHRH agonists: osteoporosis, hot flashes, adverse lipid changes and gynecomastia. Importantly, as evidenced by two Phase II clinical trials, ACAPODENE has not been shown to stimulate prostate cancer growth or increase luteinizing hormone in men on ADT.

Potential Market. In the United States, we believe approximately 1,000,000 prostate cancer survivors will be treated with ADT by 2008, and over 100,000 new patients are started on this therapy each year. An increasing number of prostate cancer patients are being treated by androgen deprivation with LHRH agonists earlier than in the past because of two main factors: first, medical studies have shown that early ADT prolongs the survival of prostate cancer patients, and second, the serum test for Prostate Specific Antigen, or PSA, is detecting advanced prostate cancer earlier than in the past. The net effect of prostate cancer being treated earlier and for longer periods is that the side effects of ADT now contribute significantly to morbidity, and in some cases mortality. Physicians are currently prescribing certain drugs on an off-label basis to help ameliorate some of the individual side effects of ADT. These drugs include bisphosphonates for osteoporosis, Megace^® (megestrol acetate) 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 ADT.

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 BMD. The secondary endpoint of both trials was the incidence of hot flashes. We measured BMD 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 BMD at six months, while the patients who received the placebo on average experienced an approximately 4% decrease in lumbar vertebral spine BMD 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 BMD. 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 experienced a 3.5% average increase in lumbar vertebral spine BMD, an indicator of bone strength, while the patients who received the placebo experienced a 0.24% average increase in lumbar vertebral spine BMD. The difference in these measurements had a p-value of less than 0.05. A p-value of 0.05 or less generally represents a statistically significant difference in treatments. The BMD changes in the hip were not significant vs. placebo. 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 BMD changes seen in patients treated with ACAPODENE 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 demonstrate a meaningfully effect on lumbar vertebral spine BMD or frequency of hot flashes.

In November 2003, we initiated a pivotal Phase III clinical trial of orally administered ACAPODENE 80 mg dose in patients undergoing ADT for advanced, recurrent or metastatic prostate cancer under a special protocol assessment, or 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 vertebral skeletal fractures measured by x-ray, and the secondary endpoints of the trial include BMD, hot flashes, lipid changes and gynecomastia. The Phase III trial completed enrollment in the fall 2005 with approximately 1,400 patients with advanced, recurrent or metastatic prostate cancer who have been receiving ADT for at least six months and who have significant existing bone loss, or are greater than 70 years of age. The patients were randomized to receive either a placebo or a daily 80 mg dose of ACAPODENE for 24 months. We are conducting the trial in approximately 150 sites in the United States and Mexico. In accordance with the SPA, we completed a planned interim BMD analysis among the first 200 patients who completed one year of treatment. Patients treated with ACAPODENE demonstrated statistically significant increases in BMD compared to placebo in all three different skeletal sites measured, with lumbar spine showing an improvement of 2.3 percentages points (p<0.001), hip, a 2.0 percentage point improvement (p=0.001), and femoral neck, a 1.5 percentage point improvement (p=0.009). For perspective, a SERM, raloxifene, study in postmenopausal osteoporosis in women showed a lumbar spine BMD increase of 2.0 percentage points after one year which resulted in a 55% fracture reduction in three years.

A Drug Safety Monitoring Board (DSMB) meets every 6 months to review unblinded data from the ACAPODENE ADT and prostate cancer prevention trials. In January 2006, the DSMB reviewed safety data from approximately 2,000 patients and recommended continuing both trials, which suggests there are no clinically significant trends of serious side effects related to ACAPODENE. We currently anticipate that the ADT study will be completed in the fourth quarter of 2007, and if efficacy is demonstrated in accordance with the requirements of the SPA, we expect to file a NDA during the first half of 2008. We also plan to conduct a one-year blinded extension trial in the same patients to gather additional fracture data.

ACAPODENE for the Prevention of Prostate Cancer in Men with High Grade PIN

Scientific Overview. Patients who have an abnormal 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, may 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 have demonstrated that prostate cancer is found in approximately 50% of men within 3 years of their being diagnosed with high grade PIN. We believe that this correlation between high grade PIN and prostate cancer makes these men an appropriate population to treat to prevent prostate cancer. Currently, there is no approved treatment to prevent prostate cancer in men who are diagnosed with high grade PIN.

Estrogens play an important role in the initiation of prostate cancer. Estrogens may influence the initiation of prostate cancer 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 14 million men unknowingly harbor high grade PIN.

Patients who are diagnosed with high grade PIN may undergo repeat biopsies immediately after diagnosis and frequently 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 through the rectum into the prostate to obtain sample cores of tissue. Complications from this procedure include bleeding, pain, prostate infection and, in rare instances, 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 are subject to the mental anguish of fearing that a diagnosis of prostate cancer may be imminent.

We have entered into separate collaboration agreements with diagnostic companies, including, Hybritech, Inc., a wholly owned subsidiary of Beckman Coulter, Inc., diaDexus, Inc., MacroArray Technologies, LLC, Tessera, Inc., and Gen-Probe, Incorporated, to provide clinical samples to these companies from our Phase IIb clinical trial and our ongoing Phase III clinical trial of ACAPODENE for the prevention of prostate cancer in high risk men. 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. 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 high grade PIN and/or prostate cancer.

Clinical Trials. In 2004, we completed a randomized, double-blind, placebo-controlled, dose-finding Phase IIb clinical trial of ACAPODENE in men with recently diagnosed high grade PIN to determine the efficacy and safety of a daily dose of ACAPODENE for 12 months. The trial enrolled 514 men and was conducted at 64 clinical sites across the United States. The primary efficacy endpoint of this trial was incidence of prostate cancer at 12 months. Participants were randomized to receive a 20 mg, 40 mg or 60 mg dose of ACAPODENE or placebo. A screening prostate biopsy was performed on each trial participant at the time of enrollment into the trial, and eligibility was limited to participants who were diagnosed with high grade PIN and had no evidence of prostate cancer. A second biopsy was performed six months after enrollment in an effort to identify trial participants who had prostate cancer that was not detected by the initial biopsy. The intent-to-treat population consisted of all patients initially enrolled in the trial who returned for their six-month biopsy. We also analyzed trial results in a predefined subgroup of patients that excluded patients showing biopsy evidence of prostate cancer at six months and patients who did not complete the full course of therapy in the trial.

We analyzed the results of this Phase IIb clinical trial on a stratified basis, in which we assessed the effect of individual clinical sites on the overall statistical analysis of the trial results, and on an unstratified basis, in which we did not assess such effect. In the stratified analysis of the per protocol population, which is the intent-to-treat population less two patients in the group that received 20 mg of ACAPODENE who were deemed to be not compliant with the protocol, the cumulative, or overall, risk of prostate cancer was 24.4% in the group that received 20 mg of ACAPODENE compared with 31.2% in the group that received placebo. The p-value for this result was less than 0.05. Thus, the cumulative risk of prostate cancer based on a stratified analysis of the per protocol population was 22.0% lower in the 20 mg treatment group, which would imply an annualized rate of prevention of cancers of 6.8 per 100 men treated. The p-value in the unstratified analysis of the per protocol population for the comparison between the group that received 20 mg of ACAPODENE and the group that received placebo was 0.132. In the stratified analysis of the intent-to-treat population, the cumulative risk of prostate cancer was 24.9% in the group that received 20 mg of ACAPODENE compared with 31.2% in the group that received placebo. The p-value for this result was 0.081, which was statistically significant under the protocol for this trial. Statistical significance under the protocol was defined as a p-value of 0.10 or less. The p-value in the unstratified analysis of the intent-to-treat population for the comparison between the group that received 20 mg of ACAPODENE and the group that received placebo was 0.148.

In a stratified analysis of the subgroup of patients who had no biopsy evidence of prostate cancer at their initial screening biopsy or their six-month biopsy and completed the full course of therapy in the trial, the cumulative risk of prostate cancer was 9.1% in the group that received 20 mg of ACAPODENE compared with 17.4% in the group

that received placebo, a 48.2% reduction. The p-value for this result was less than 0.05. For the 40 mg and 60 mg treatment arms, in the intent-to-treat population, the per protocol population and the predefined patient subgroup, the cumulative risk of cancer was lower than the placebo group, although these results were not statistically significant.

The overall rates of drug-related adverse events and serious adverse events did not differ to a significant degree between any of the ACAPODENE dose groups and placebo. The results of our pivotal Phase III clinical trial of ACAPODENE for this indication may not be the same as the results of this Phase IIb clinical trial.

In January 2005, we initiated a randomized, double-blind, placebo-controlled pivotal Phase III clinical trial of orally-administered ACAPODENE for the prevention of prostate cancer in men with high grade PIN. Over 160 clinical sites across the United States, Canada, Mexico and Argentina are participating in this clinical trial. Approximately 1,260 patients with high grade PIN are being randomized to receive either a daily dose of 20 mg of ACAPODENE or placebo. Only patients who have confirmed high grade PIN and a prostate biopsy that excludes cancer in the past six months are eligible to participate. The primary endpoint is the incidence of prostate cancer. We are conducting this pivotal Phase III clinical trial under a SPA. We expect to reach our patient enrollment goal by the end of the first quarter of 2006. We will evaluate efficacy endpoints 36 months after completion of enrollment, with an interim efficacy analysis within 24 months of completion of enrollment. Once we have achieved the efficacy endpoint (at 24 or 36 months), we plan to file a NDA with the FDA. We anticipate that we will collect the safety data required under the SPA during the NDA review process if we file a NDA based on the 24 month interim analysis.

OSTARINE

Our third clinical program is to develop ostarine, a SARM, for the treatment of a variety of medical conditions relating to muscle wasting and/or bone loss. Testosterone and other anabolic steroids have been proven to beneficially treat involuntary muscle wasting caused by aging, burns and trauma, cancer, end-stage renal disease, chronic obstructive pulmonary disease and other diseases. However, testosterone and other anabolic steroids may cause serious unwanted side effects, including stimulating prostate cancer growth in men and masculinization in women. Ostarine is a non-steroidal agent designed to have anabolic activity like testosterone but in an orally available once-a-day formation and without unwanted side effects on the prostate and skin.

Our recently completed Phase I studies, which commenced in 2005, provided evidence that ostarine has the desired anabolic effects without the unwanted androgenic effects. We are planning to initiate a proof of concept Phase II clinical trial of ostarine in the second quarter of 2006 for the treatment of muscle wasting and bone loss in approximately 120 elderly men and postmenopausal women.

Ostarine for the Treatment of Muscle Wasting and Bone Loss

Scientific Overview. Every year after age 30 on average people lose a half pound of muscle and gain a pound of fat. An average man may lose 35% of muscle between the ages of 30 and 90 years of age. A contributing factor to muscle loss in men is that testosterone levels decrease by roughly 1% every year after 30. Muscle tissue plays several important roles. Muscle provides strength and endurance, supports the skeletal system, plays an important role in metabolism and helps protect the body through the immune system. During an illness or trauma to the body, the energy demands of the body increase and the body may break down muscle to get protein to fuel the body’s needs. Also, protein is needed to repair damaged organs and to replace immune system cells lost during periods of illness. Muscle wasting starts a vicious cycle. As people lose muscle, they become fatigued easily, making it more difficult to rehabilitate and recover. Loss of muscle can cause frailty, loss of independence and can worsen other conditions of aging such as osteoarthritis and osteoporosis. Also, people who are fatigued may become more sedentary, leading in many to a reduction in their quality of life. Once people have a low level of muscle mass, it is increasingly difficult for the body to recover from disease and the risk of dying or becoming bedridden may increase. Loss of muscle and bone with age is sometimes referred to as frailty. A 2001 study among more than 5,000 elderly adults found that over a 3-year period the death rate among the frail elderly was 18%, versus a 3% rate in the non-frail elderly. The frail were also far more likely to experience falls, hospitalizations and loss of independence.

We believe that ostarine can build muscle and bone by improving: 1) the body’s efficiency at metabolizing protein from food, 2) the body’s ability to recycle protein, 3) the body’s ability to burn fat and build muscle and (4) the body’s ability to maintain bone and promote bone formation. We believe that ostarine can increase muscle size and strength, resulting in improved function, quality of life and speed of recovery, and can prevent osteoporosis and

fractures. Ostarine has been designed to have anabolic properties in muscle and bone without unwanted androgenic side effects, such as the stimulation of prostate cancer. In preclinical studies of intact animals, ostarine has been shown to build muscle and bone while shrinking the prostate.

Potential Market. There are approximately 17 million people over the age of 65 in the United States who have age related loss of skeletal muscle mass, or sarcopenia. Additionally, a high percentage of patients with end-stage renal disease, congestive heart failure, chronic obstructive pulmonary disease, HIV and other chronic diseases experience varying degrees of muscle wasting. Roughly one quarter of men and women over 65 years of age are hospitalized annually. It has been shown that from the time of the onset of their illness, approximately one-half of the elderly declined in health after their hospital stay. Muscle wasting is a contributing factor in their inability to completely recover. We believe that ostarine may be able to improve recovery. A patient population experiencing one of the highest degree of muscle wasting is burn patients. Burn patients can lose up to 20 lbs. of muscle in two weeks as their bodies try to get the protein needed to repair trauma. We believe that ostarine may be able to reduce muscle wasting and speed healing in burn patients. We believe that current anabolic agents on the market have had limited commercial success due to concerns about their undesirable side effects, inconvenient dosing and lack of investment due to limited intellectual property. Testosterone is not available as an oral tablet in the United States with topical gels and patches as the most utilized forms of delivery.

Clinical Trials. We have data from two Phase I clinical trials of ostarine: a double-blind, placebo-controlled, single-ascending dose clinical trial and a double-blind, placebo-controlled, multiple-ascending dose clinical trial. The single-ascending dose clinical trial included 96 healthy male volunteers. Ostarine was well tolerated by the participants in this clinical trial, and there were no drug-related serious adverse events. This clinical trial demonstrated that the average half life of ostarine was approximately 24 hours, which supports a daily dosing regimen.

The second Phase I clinical trial evaluated the safety, tolerability, pharmacokinetics, and specific pharmacodynamic characteristics of ostarine using multiple-ascending doses in 48 healthy male volunteers between the ages of 18 and 45 and 23 elderly males with truncal obesity who had an average age of 68 years. Safety and pharmacodynamic measurements were taken at the beginning of the study and after 14 days of daily oral dosing. These measurements included routine blood chemistry and hematology, sex hormones and gonadotropins, serum prostate specific antigen, metabolic markers of bone and muscle, cutaneous sebum analysis and DEXA scanning for body composition. Overall, clinical laboratory values and hormonal effects for the 71 volunteers were consistent with anabolic activity. Comparisons of DEXA assessments from the beginning of the study to DEXA assessments after 14 days showed positive changes in body composition at clinically relevant doses, with increases in lean body mass and decreases in fat mass observed. Ostarine did not appear to have unwanted side effects on the prostate or the skin. We believe that these observations support the potential ability of ostarine to selectively modulate androgen receptors in a tissue-specific manner. Ostarine has been well tolerated by the participants in this Phase I clinical trial, and there have been no drug-related serious adverse events. However, Phase I clinical trials are not designed to show efficacy, and the results of future clinical trials may not be the same as these early observations.

We are planning a proof of concept Phase II clinical trial of ostarine for the treatment of muscle wasting and bone loss in approximately 120 elderly men and postmenopausal women.

ANDARINE

In our fourth clinical program, we are developing andarine, another of our SARMs, with our partner, Ortho Biotech, for the treatment of cachexia from various types of cancer. We initially selected this indication because it represents a potentially large market, and we believe it has a relatively well-defined clinical and regulatory process.

Research & Development, an affiliate of Ortho Biotech, is responsible for further clinical development and related expenses for andarine and other licensed SARM compounds. If a licensed product containing andarine or any other SARM compound is approved for commercial sale, Ortho Biotech will have full and exclusive decision-making authority for marketing such product in the United States and in markets outside the United States. Under the agreement, we have the option, subject to meeting specified conditions, to co-promote andarine and other licensed products to urologists in the United Stated for indications specifically related to men’s health. Ortho Biotech is obligated to pay us up to double digit royalties on worldwide net sales of andarine and other licensed products, and an additional royalty in excess of 20% on all co-promoted net sales to urologists in the United States. Ortho Biotech may terminate the development or commercialization of andarine or any other licensed SARM compound under the agreement upon 90 days’ notice, or 30 days’ notice if there are safety issues, or may terminate the agreement for our uncured material breach.

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 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, 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 being developed as an oral tablet, which makes it more convenient to administer.

Potential Market. There are approximately 1.3 million patients diagnosed with cancer each year in the United States. It has been estimated that 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.

PROSTARINE

We are also developing another SARM product candidate, prostarine, for the potential 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 been shown to have the ability to shrink and prevent growth of the prostate gland. We are conducting preclinical studies required to support clinical trials.

ANDROMUSTINE

First line therapy of patients who have advanced, recurrent or metastatic prostate cancer is ADT. 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.

We believe there will be up to 1,000,000 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 a second line cancer therapy for patients who develop hormone refractory prostate cancer.

DRUG DISCOVERY AND OTHER RESEARCH AND 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 anticancer agents.

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 two pivotal Phase III clinical trials, both of which are being conducted under approved special protocol assessments with the FDA, 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 in the United States and Establish Sales and Marketing Infrastructure. We are currently planning 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 outside of the United States and to physicians outside of urology and medical oncology in 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 that we are currently testing in clinical trials.

Develop Diagnostic Tests for High Grade PIN. We are currently collaborating with several diagnostics companies, including Hybritech, Inc., a wholly owned subsidiary of Beckman Coulter, Inc., diaDexus, Inc., MacroArray Technologies, LLC, Tessera, Inc., and Gen-Probe, Incorporated 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 would 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 efforts to maintain FARESTON sales at current trends.

Pursue Clinical Development of Ostarine. We intend to initiate a proof of concept Phase II clinical trial for ostarine in the second quarter of 2006 in 120 elderly men and postmenopausal women to determine the effects on muscle and bone of varying doses of ostarine and to assess additional safety information. We believe that ostarine has the potential to treat a variety of indications, including frailty, osteoporosis, muscle wasting in end stage renal disease patients, and severe burn wounds and associated muscle wasting. Based on the results of our planned Phase II trial, which we expect to receive in the second half of 2006, we will determine ostarine’s further clinical development path.

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 expect to continue to pursue the clinical development of andarine for the treatment of cachexia from various types of cancer. 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 product candidates 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 continue to 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 prostarine.

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

In March 2004, we entered into a joint collaboration and license agreement with Ortho Biotech for andarine for indications related to men’s health and other licensed SARM compounds meeting specified criteria which Ortho Biotech may ultimately choose to develop instead of, or in addition to, andarine. We retain the right to independently develop specific SARM compounds which are excluded from the collaboration, including ostarine. Under the terms of the agreement, we received an up-front licensing fee and reimbursement of certain andarine development expenses totaling approximately $6.7 million, which is being amortized into revenue over five years. We are entitled to receive additional licensing fees and milestone payments prior to product launch of (1) up to an aggregate of $76 million for licensed products containing andarine or any replacement compound, and (2) up to $45 million for each licensed product containing any other compound developed under the agreement, upon achievement of specific clinical development milestones or receipt of regulatory approvals. Johnson & Johnson Pharmaceutical Research & Development, an affiliate of Ortho Biotech, is responsible for further clinical development and related expenses for andarine and other licensed SARM compounds. If a licensed product containing andarine or any other SARM compound is approved for commercial sale, Ortho Biotech will have full and exclusive decision-making authority for marketing such product in the United States and in markets outside the United States. Under the agreement, we have the option, subject to meeting specified conditions, to co-promote andarine and other licensed products to urologists in the United Stated for indications specifically related to men’s health. Ortho Biotech is obligated to pay us up to double digit royalties on worldwide net sales of andarine and other licensed products, and an additional royalty in excess of 20% on all co-promoted net sales to urologists in the United States. Ortho Biotech may terminate the development or commercialization of andarine or any other licensed SARM compound under the agreement upon 90 days’ notice, or 30 days’ notice if there are safety issues, or may terminate the agreement for our uncured material breach.

Orion Corporation

In March 2000, we entered into a license and supply agreement with Orion to develop and commercialize products containing toremifene, the active pharmaceutical ingredient in Fareston and ACAPODENE. Our rights under the original license agreement were limited to specific disease fields pertaining to prostate cancer. In December 2004, we entered into an agreement with Orion to purchase specified Fareston-related assets which Orion had re-acquired from another licensee. We also entered into an amended and restated license and supply agreement with Orion which replaces the original license agreement. We paid Orion approximately $5.2 million under the 2004 agreements for the assets and related license rights.

Under the amended and restated license agreement, we obtained an exclusive license from Orion to develop and commercialize toremifene-based products, including Fareston and ACAPODENE, for all human indications worldwide, except breast cancer outside of the United States. We are required to pay Orion a royalty on sales by us and our affiliates of Fareston for breast cancer in the United States. We are also required to pay Orion a royalty on sales by us, our affiliates and third-party sublicensees of other toremifene-based products, including ACAPODENE if approved for commercial sale. We are obligated to purchase all of our clinical and commercial requirements for toremifene from Orion at transfer prices specified in the amended and restated agreement. Orion may terminate its supply obligations under specified circumstances. However, we have specified rights to assume manufacture of toremifene if Orion terminates its supply of toremifene because it has ceased to manufacture toremifene, although we would have to engage another supplier to do so. The term of the amended and restated agreement lasts, on a country-by-country basis, until the later of expiration of our own patents claiming the method of use or manufacture of toremifene for prostate cancer or the end of all marketing or regulatory exclusivity which we may obtain for

toremifene-based products. Orion may terminate the agreement as a result of our uncured material breach or bankruptcy.

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 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 and restated 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 SARM compounds, including andarine and ostarine, 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 and restated license agreements 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 had previously provided the National Cancer Institute (NCI) with ACAPODENE for their use in an independent Phase II clinical trial of ACAPODENE at the University of Pittsburgh. The objective of the trial was to assess the biological effects of ACAPODENE on the prostate gland. We have been informed that the NCI has discontinued the study early due to recruitment challenges.

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 citrate in specified doses, marketed as FARESTON, from Orion under an exclusive license and supply agreement providing for Orion to supply our requirements for commercial product. Orion has agreed to supply us with, and we have agreed to purchase from Orion, our worldwide requirements of toremifene citrate in specified doses 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 citrate tablets are readily available, but Orion is our only supplier of toremifene tablets.

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


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Part I

Item 1	Business		2

Item 1A	Risk Factors		28

Item 1B	Unresolved Staff Comments		41

Item 2	Properties		41

Item 3	Legal Proceedings		41

Item 4	Submission of Matters to a Vote of Security Holders		41

Part II

Item 5	Market for Registrant’s Common Equity Related Stockholder Matters and Issuer
	Purchases of Equity Securities		41

Item 6	Selected Financial Data		43

Item 7	Management’s Discussion and Analysis of Financial Condition and Results of
	Operations		44

Item 7A	Quantitative and Qualitative Disclosures About Market Risk		53

Item 8	Financial Statements and Supplementary Data		54

Item 9	Changes in and Disagreements With Accountants on Accounting and Financial
	Disclosure		54

Item 9A	Controls and Procedures		54

Item 9B	Other Information		55

Part III

Item 10	Directors and Executive Officers of the Registrant		55

Item 11	Executive Compensation		55

Item 12	Security Ownership of Certain Beneficial Owners and Management
	and Related Stockholder Matters		55

Item 13	Certain Relationships and Related Transactions		56

Item 14	Principal Accountant Fees and Services		56

Part IV

Item 15	Exhibits and Financial Statement Schedules		57

Signatures			60

Reports of Independent Registered Public Accounting Firm			F-3
EX-23.1 CONSENT OF ERNST & YOUNG LLP
EX-31.1 SECTION 302 CERTIFICATION OF THE CEO
EX-31.2 SECTION 302 CERTIFICATION OF THE CFO
EX-32.1 SECTION 906 CERTIFICATION OF THE CEO
EX-32.2 SECTION 906 CERTIFICATION OF THE CFO

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