Genta announces financial results for the third quarter of 2009, reduces workforce to cut payroll costs

Nov 16 2009

Genta Incorporated (OTCBB: GETA) today announced financial results for the quarter and nine months ended September 30, 2009. The Company also announced a restructuring, reduction in workforce, and re-ordering of clinical development priorities.

The restructuring has reduced the workforce by approximately 30%, which is estimated to reduce annualized payroll costs by approximately 25%. Together with other initiatives, the Company estimates that reduced expenses will yield sufficient cash to continue operations into the Second Quarter of 2010, which updates the Company’s prior guidance of January 2010.

The Company has conducted a randomized Phase 3 trial of Genasense^® in patients with advanced melanoma, known as AGENDA. Detailed results from AGENDA are being presented at a scientific meeting in Boston, MA, and this information is summarized in a separate press release today. Going forward, Genta internal staff expects to manage the further conduct and patient follow-up of AGENDA until an analysis for overall survival can be conducted. The double-blind design will be maintained until study completion, and the Company expects to maintain the same high level of quality.

“The initiatives undertaken today emphasize that Genta remains a multi-product company with special expertise in the broad development of oncology-focused therapeutics”, said Dr. Raymond P. Warrell, Jr., Genta’s Chief Executive Officer. “If the survival analysis from AGENDA yields a promising result, we retain a near-term approval opportunity. By redirecting other Genasense^® expenses, and pending adequacy of continued funding, Genta plans to accelerate progress on our pipeline products, with a particular focus on tesetaxel in advanced cancer and oral gallium compounds for accelerated bone loss.”

Tesetaxel: A Novel Oral Targeted Tubulin Inhibitor

The initial Genta-sponsored trial of tesetaxel will conclude enrollment this month. A dose for extended study using a once-every-3-weeks schedule has been determined. Clinical activity in heavily pre-treated patients with various types of cancer has been observed in this study; some of these patients had previously failed therapy with other taxanes. We expect that these data will be submitted for presentation to the June 2010 annual meeting of the American Society of Clinical Oncology (ASCO).

Pending FDA agreement, The Company plans to initiate 4 new clinical trials with tesetaxel, as follows:

• Dose-ranging study of a new once-weekly treatment schedule;
• Phase 2b trial in 2^nd-line gastric cancer. Prior to initiating a Phase 3 trial, the Company will seek to confirm the 20% response rate previously reported for tesetaxel in these patients and will use these aggregate data to secure a Special Protocol Assessment (SPA) from FDA;
• Phase 2a trial as 1^st-line treatment in castrate-resistant prostate cancer;
• Phase 2a trial in 2^nd-line melanoma.

Initial studies are also planned in breast and bladder cancer. In breast cancer, the Company plans to seek confirmation of the 38% response rate previously reported for tesetaxel in women after 2nd-line and 3^rd-line treatment.

For the expected new trials, the Company has undertaken the purchase of additional clinical supplies of tesetaxel sufficient to complete all contemplated studies, including those that may involve a potential partner. The Company is developing a new supply chain for the manufacturing of both active pharmaceutical ingredient (API) as well as finished capsules with several high-quality suppliers.

The Company is continuing its discussions with potential licensing and development partners for tesetaxel.

Oral Gallium Compounds: Potential Treatments for Accelerated Bone Loss

Genta has completed its initial trial with an oral proprietary compound based on the active ingredient in the Company’s marketed product, Ganite^®. The active ingredient has already demonstrated broad clinical activity in a range of bone-losing disorders. In oncology, these disorders include cancer-related hypercalcemia that is resistant to hydration, as well as complications of cancer that has spread to bone (bone metastases). Non-oncology disorders include osteoporosis and Paget’s disease of bone.

The initial clinical trial demonstrated that the oral proprietary compound achieves blood levels that are sufficient for chronic low-dose administration, which is the focus of both the major cancer and non-cancer indications. Genta plans further studies to validate the formulations of its oral proprietary compounds in order to expedite clinical development. We expect to provide details of this program in the First Quarter 2010.

Genta has received two new U.S. patents this year for our oral gallium-containing compounds, and the Company has recently filed two new worldwide patent applications. Genta will continue to maintain its ex-U.S. “named-patient” programs for both Genasense and Ganite.

Financial Information

For the third quarter of 2009, the Company reported a net loss of $20.4 million or $(0.15) per share, compared with net income of $212.6 million, or $289.23 per basic share and $5.12 per diluted share, for the third quarter of 2008. For the nine months ended September 30, 2009, the Company reported a net loss of $74.6 million, or $(0.98) per share, compared with a net loss of $535.4 million, or ($748.55) per share, for the nine months ended September 30, 2008. All share and per share data included in this press release have been retroactively adjusted to account for the effect of a 1-for-50 reverse stock split for all periods presented prior to June 26, 2009. Net product sales of $49,000 and $180,000 for the three and nine months ended September 30, 2009 declined from their comparison period figures of $115,000 and $363,000, respectively, due to the continued absence of promotional support.

Research and development expenses were $5.9 million for the third quarter of 2009, compared with $5.3 million for the third quarter of 2008. During 2009, with the establishment of the 2009 Stock Incentive Plan and implementation of two Equity Award Exchange programs, outstanding stock option awards granted under the 1998 Stock Incentive Plan, were exchanged for grants of new restricted stock units (RSUs). Incremental compensation cost for the new RSUs was measured as the excess of the fair value of the RSUs over the fair value of the stock option awards on the date of the exchange and the incremental compensation cost of the RSUs is being recognized over the remaining amortization period of the exchanged stock option awards. Share-based compensation expense recognized for the three months ended September 30, 2009 and 2008 was $2.9 million and $35 thousand, respectively, for those employees categorized as research and development. Partially offsetting this increase was lower expenses on the AGENDA clinical trial and lower payroll costs, resulting from lower headcount. Research and development expenses were $11.8 million for the nine months ended September 30, 2009, compared with $16.1 million for the nine months ended September 30, 2008. Share-based compensation expense recognized for the nine months ended September 30, 2009 and 2008 was $2.9 million and $0.1 million, respectively, for those employees categorized as research and development. The increase in share-based compensation expense was more than offset by lower expenses on the AGENDA clinical trial and lower payroll costs, resulting from lower headcount.

Selling, general and administrative expenses were $8.9 million for the third quarter of 2009, compared with $2.3 million for the third quarter of 2008. Share-based compensation expense recognized for the three months ended September 30, 2009 and 2008 was $6.6 million and $0.1 million, respectively. Selling, general and administrative expenses were $13.0 million for the nine months ended September 30, 2009, compared with $8.5 million for the prior-year period. Share-based compensation expense recognized for the nine months ended September 30, 2009 and 2008 was $6.7 million and $0.3 million, respectively. The increase in share-based compensation was partially offset by lower payroll costs and lower office rent of $0.8 million, resulting from the termination of a lease for one floor of office space in May 2008.

The Company issued convertible notes and warrants in June 2008 and in April 2009 and the Company issued shares of common stock, convertible notes and warrants in July 2009 and September 2009. These transactions resulted in the amortization of deferred financing costs and debt discount of $5.5 million and $3.6 million for the three months ended September 30, 2009 and 2008, respectively, and $22.4 million and $4.4 million for the nine months ended September 30, 2009 and 2008, respectively.

At the time of the financings in June 2008 and in April 2009, there were an insufficient number of authorized shares of common stock in order to permit conversion of all of the notes and warrants. Accordingly, the conversion obligation for the notes and warrants were classified as liabilities and measured at fair value on the balance sheet. The liabilities were then marked-to-market up until the dates that Company’s stockholders approved changes in the corporate structure, resulting in income of $224.4 million for the third quarter of 2008 and expense of $26.7 million and $502.8 million for the nine months ended September 30, 2009 and 2008, respectively.

At September 30, 2009, Genta had cash and cash equivalents totaling $7.4 million compared with $4.9 million at December 31, 2008. During the nine months of 2009, cash used in operating activities was $15.1 million compared with $22.0 million for the same period in 2008, reflecting the reduced size of the Company.