The following discussion should be read in conjunction with the condensed financial statements and the notes thereto included in Part 1, Item 1 of this Quarterly Report on Form 10-Q.
Forward-Looking Information
This Quarterly Report on Form 10-Q contains forward-looking statements. The forward-looking statements are contained principally in the sections entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Risk Factors." These statements involve known and unknown risks, uncertainties and other factors that 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 and our collaborators' research, development and clinical programs, including the timing of regulatory submissions and whether future clinical trials will achieve similar results to clinical trials that we have successfully concluded;

• potential future licensing fees, milestone payments and royalty payments, including any milestone payments or royalty payments that we may receive under our collaborative arrangements with Ipsen Developments Limited and Merck & Co., Inc.;

• our and our collaborators' ability to obtain and maintain regulatory approvals of our product candidates and any related restrictions, limitations, and/or warnings;

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

• our and our collaborators' 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, uncertainties and other important factors. We discuss many of these risks in this Quarterly Report on Form 10-Q in greater detail in the section entitled "Risk Factors" under Part II, Item 1A below. Given these risks, uncertainties and other important factors, 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 Quarterly Report on Form 10-Q. You should read this Quarterly Report on Form 10-Q and the documents that we incorporate by reference in and have filed as exhibits to this Quarterly Report on Form 10-Q, 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. Overview
We are a biopharmaceutical company dedicated to the discovery, development and commercialization of small molecules that selectively target hormone pathways to prevent and treat cancer, fractures and bone loss, muscle loss and other serious medical conditions. We are developing toremifene citrate, a selective estrogen receptor modulator, or SERM, in two separate clinical programs in men: first, toremifene 80 mg in a completed pivotal Phase III clinical trial for the prevention of bone fractures and treatment of other estrogen deficiency side effects of androgen deprivation therapy, or ADT, in men with prostate cancer, and second, toremifene 20 mg in an ongoing 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.
We commenced a pivotal Phase III clinical trial of toremifene 80 mg under a Special Protocol Assessment, or SPA, with the U.S. Food and Drug Administration, or FDA, for the prevention of bone fractures and treatment of estrogen deficiency related side effects of ADT in men with prostate cancer in November 2003. The last patient completed the ADT clinical trial in November 2007. In the first quarter of 2008, we announced that the Phase III clinical trial results for toremifene 80 mg for the prevention of bone fractures and treatment of other estrogen deficiency side effects of ADT in men with prostate cancer showed that toremifene 80 mg reduced new morphometric vertebral fractures, met other key endpoints of bone mineral density, or BMD, lipid profiles and gynecomastia, and also showed that toremifene 80 mg demonstrated a reduction in hot flashes in a subset of patients. In December 2008, we submitted a New Drug Application, or NDA, for toremifene 80 mg for the prevention of bone fractures in men with prostate cancer on ADT, which has been accepted for filing and review by the FDA. The FDA has informed us that it will target October 30, 2009 as the Prescription Drug User Fee Act, or PDUFA, date by which it will respond to our toremifene 80 mg NDA. We cannot predict if the NDA will be approved in a timely manner, or at all, and if approved, if the FDA will require any restrictions, limitations, and/or warnings in the label.
In January 2005, we initiated a pivotal Phase III clinical trial of toremifene 20 mg for the prevention of prostate cancer in high risk men with high grade PIN, which is being conducted under a SPA with the FDA. A planned efficacy interim analysis was conducted in the second quarter of 2008 that did not reach the specified statistical outcome of p<0.003 required under the SPA. We anticipate conducting a planned efficacy analysis after a certain number of additional cancer events have been recorded among study patients, which we currently expect to occur in late summer of 2009. If the efficacy analysis achieves a prespecified statistical goal, we plan to submit a NDA to the FDA. If we are able to submit a NDA based on the results of the planned efficacy analysis, we will continue the study to collect efficacy data and safety data during the NDA review process to satisfy the FDA's safety requirements set forth in the SPA. If the results from the efficacy analysis do not satisfy the specified statistical requirements, we will make a final determination about the continuation of the toremifene 20 mg Phase III clinical trial.
We have licensed to Ipsen Developments Limited, or Ipsen, exclusive rights in the European Union, Switzerland, Norway, Iceland, Lichtenstein and the Commonwealth of Independent States, which we refer to collectively as the European Territory, to develop and commercialize toremifene in all indications which we have licensed from Orion Corporation, or Orion, which include all indications in humans except the treatment and prevention of breast cancer outside of the United States.
In our third clinical program, selective androgen receptor modulators, or SARMs, are being developed to treat sarcopenia, which is the loss of skeletal muscle mass resulting in reduced physical

strength and ability to perform activities of daily living, cancer cachexia (cancer induced muscle loss), and other musculoskeletal wasting or muscle loss conditions. In December 2006, we announced that OstarineTM (designated by Merck & Co., or Merck, as MK-2866) met its primary endpoint in a Phase II proof of concept, double blind, randomized, placebo controlled clinical trial in 60 elderly men and 60 postmenopausal women. In December 2007, we and Merck entered into a collaboration agreement governing our and Merck's joint research, development and commercialization of SARM compounds and related SARM product candidates, including SARMs currently being developed by us and Merck and those yet to be discovered, for all indications of interest. We and Merck are evaluating multiple SARM product candidates, including Ostarine™ and MK-0773, for a variety of musculoskeletal wasting indications including sarcopenia and cancer cachexia. In October 2008, we announced topline results of a Phase II clinical trial evaluating Ostarine™ in patients with cancer cachexia. In this analysis, the study met its primary endpoint of absolute change in total lean body mass (muscle) compared to placebo and the secondary endpoint of muscle function (performance) after 16 weeks of treatment in 159 cancer patients with reported weight loss. In the second half of 2009, we and Merck expect to complete an ongoing Phase II clinical trial evaluating MK-0773 in sarcopenia.
We are also developing GTx-758, an oral luteinizing hormone, or LH, inhibitor for the treatment of advanced prostate cancer. In preclinical in vitro and in vivo models, GTx-758 has demonstrated the potential to reduce testosterone to castrate levels, increase bone mineral density, and prevent hot flashes. We have initiated a Phase I clinical trial evaluating GTx-758 in healthy male volunteers in the first quarter of 2009. We further expect to establish proof of concept of reduction in testosterone blood concentrations to castrate levels for GTx-758 with a Phase I multiple ascending dose clinical trial that we are planning to initiate in the second quarter of 2009 and conclude in the fourth quarter of 2009. We also have an extensive preclinical pipeline generated from our own discovery program.
We currently market FARESTON® (toremifene citrate) 60 mg tablets, approved for the treatment of metastatic breast cancer in postmenopausal women in the United States. The active pharmaceutical ingredient in FARESTON® is the same as in our toremifene 80 mg and toremifene 20 mg product candidates.
Our net loss for the three months ended March 31, 2009 was $11.3 million. Our net loss included FARESTON® net product sales of $759,000 and the recognition of collaboration revenue of $2.9 million. We have financed our operations and internal growth primarily through public offerings and private placements of our common stock and preferred stock, as well as proceeds from our collaborations. We expect to continue to incur net losses as we continue our clinical development and research and development activities, apply for regulatory approvals, expand our sales and marketing capabilities and grow our operations.

We expect that future research and development expenditures will be focused on the following:
• activities relating to our efforts to obtain regulatory approval of toremifene 80 mg for the prevention of bone fractures and treatment of other estrogen deficiency side effects of ADT in men with prostate cancer;

• the continuation of the pivotal Phase III clinical trial of toremifene 20 mg for the prevention of prostate cancer in high risk men with high grade PIN;

• our ongoing SARM research and development efforts with Merck as a part of our collaboration; and

• the continued preclinical and clinical development of other product candidates, including GTx-758.

There is a risk that any drug discovery and development program may not produce revenue. Moreover, because of uncertainties inherent in drug discovery and development, including those factors described in Part II, Item 1A "Risk Factors" of this Quarterly Report on Form 10-Q, we may not be able to successfully develop and commercialize any of our product candidates.

                         Product
                        Candidate/            Development
     Program            Indication               Phase                  Status


 SERM              Toremifene             NDA under FDA review   NDA submitted for
                   80 mg                                         the prevention of
                   Prevention of bone                            bone fractures in
                   fractures and                                 December 2008 and
                   treatment of other                            has been accepted
                   estrogen deficiency                           for filing and
                   side effects of ADT                           review by the FDA;
                   in men with prostate                          PDUFA date of
                   cancer                                        October 30, 2009

                   Toremifene             Pivotal Phase III      Phase III clinical
                   20 mg                  clinical trial         trial ongoing under
                   Prevention of                                 a SPA; planned
                   prostate cancer in                            efficacy analysis
                   high risk men with                            expected to occur in
                   high grade PIN                                late summer of 2009

 SARM              OstarineTM (MK-2866)   Phase II clinical      Phase II clinical
                   *                      trial                  trial
                   Treatment of cancer                           completed in
                   cachexia                                      September
                                                                 2008

                   MK-2866 * and          Phase II clinical      MK-2866 Phase IIa
                   MK-0773 *              trial                  clinical trial
                   Treatment of                                  completed in
                   sarcopenia                                    December 2006

                                                                 MK-0773 Phase II
                                                                 clinical trial
                                                                 ongoing and expected
                                                                 to be completed in
                                                                 the second half of
                                                                 2009

 LH inhibitor      GTx-758                Phase I clinical       Phase I clinical
                   Treatment of           trial                  trial initiated in
                   advanced prostate                             the first quarter of
                   cancer                                        2009

* Compound part of the GTx and Merck joint research, development and commercialization collaboration agreement

Sales and Marketing We currently market FARESTON® (toremifene citrate) 60 mg tablets, approved for the treatment of metastatic breast cancer in postmenopausal women in the United States. The active pharmaceutical ingredient in FARESTON® is the same as in our toremifene 80 mg and toremifene 20 mg product candidates, but in a different dose. In January 2005, we acquired from Orion the right to market FARESTON® tablets in the United States for the metastatic breast cancer in postmenopausal women indication. We also acquired from Orion a license to toremifene for all indications in humans worldwide, except breast cancer outside of the United States. 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 specialty sales and marketing infrastructure, which we expect to include approximately 65 sales consultants, to market toremifene 80 mg and toremifene 20 mg, if approved by the FDA, to the relatively small and concentrated community of urologists and medical oncologists in the United States. We have partnered with Ipsen to commercialize toremifene in Europe if approved for commercial sale. We are currently seeking partners to market toremifene in Asia and other markets outside of the United States and Europe.

Multiple Deliverables ("EITF 00-21") and EITF Issue No. 99-19, Reporting Revenue Gross as a Principal Versus Net as an Agent ("EITF 99-19"). Accordingly, revenues from licensing agreements are recognized based on the performance requirements of the agreement. We have analyzed our agreements with multiple element arrangements to determine whether the deliverables under the agreement, including license and performance obligations such as joint steering committee participation and research and development activities, can be separated or whether all of the deliverables must be accounted for as a single unit of accounting in accordance with EITF 00-21. For these arrangements, we were not able to identify evidence of fair value for the undelivered elements and therefore recognize any consideration for a single unit of accounting in the same manner as the revenue is recognized for the final deliverable, which is ratable over the performance period. The performance period is estimated at the inception of the agreement and is reevaluated at each reporting period. Cost reimbursements for research activities are recognized as collaboration revenue if the provisions of EITF 99-19 are met, the amounts are determinable and collection of the related receivable is reasonably assured. Revenues from milestone payments for which we have no continuing performance obligations are recognized upon achievement of the performance milestone, as defined in the related agreement, provided the milestone is substantive and a culmination of the earnings process has occurred. Performance obligations typically consist of significant milestones in the development life cycle of the related product candidates and technology, such as initiation of clinical trials, achievement of specified clinical trial endpoints, filing for approval with regulatory agencies and approvals by regulatory agencies.
We estimate the performance obligation period to be ten years for our collaboration agreement with Merck and five years for the development of toremifene for both the high grade PIN and ADT indications in the European Territory under our collaboration agreement with Ipsen. The factors that drive the actual development period of a pharmaceutical product are inherently uncertain and include determining the timing and expected costs to complete the project, projecting regulatory approvals and anticipating potential delays. We use all of these factors in initially estimating the economic useful lives of our performance obligations, and we also continually monitor these factors for indications of appropriate revisions.
We recognize net product sales revenue from sales of FARESTON® less deductions for estimated sales discounts and sales returns. We recognize revenue from product sales when the goods are shipped and title and risk of loss pass to the customer and the other criteria of SAB No. 104 and SFAS No. 48 are satisfied. We account for rebates to certain governmental agencies as a reduction of product sales. We allow customers to return product within a specified time period prior to and subsequent to the product's labeled expiration date. As a result, we estimate an accrual for product returns, which is recorded as a reduction of product sales. We consider historical product return trend information that we continue to update each period. We estimate the number of months of product on hand and the amount of product which is expected to exceed its expiration date and be returned by the customer by receiving information from our three largest wholesale customers about the levels of FARESTON® inventory held by these customers. These three largest wholesale customers accounted for 96% of our product sales of FARESTON® for the three months ended March 31, 2009. Based on this information and other factors, we estimate an accrual for product returns. At March 31, 2009 and December 31, 2008, our accrual for product returns was $812,000 and $815,000, respectively. Research and Development Expenses
Research and development expenses include, but are not limited to, our expenses for personnel and facilities associated with research activities, screening and identification of product candidates, formulation and synthesis activities, manufacturing, preclinical studies, toxicology studies, clinical trials, regulatory affairs, quality assurance activities and license and royalty fees. We expense these costs in the period in which they are incurred. We estimate our liabilities for research and development expenses in

order to match the recognition of expenses to the period in which the actual services are received. As such, accrued liabilities related to third party research and development activities are recognized based upon our estimate of services received and degree of completion of the services in accordance with the specific third party contract.
Share-Based Compensation
We have stock option and equity incentive plans that provide for the purchase of our common stock by certain of our employees and directors and deferred compensation arrangements for our directors. We recognize compensation expense for our share-based payments based on the fair value of the awards in accordance with SFAS 123(R), Share-Based Payment.
The determination of the fair value of share-based payment awards on the date of grant include the expected life of the award, the expected stock price volatility over the expected life of the awards, expected dividend yield, and risk-free interest rate. We estimate the expected life of options by calculating the average of the vesting term and contractual term of the options, as allowed by SAB 110. We estimate the expected stock price volatility based on the historical volatility of our common stock. The risk-free interest rate is determined using U.S. Treasury rates where the term is consistent with the expected life of the stock options. Expected dividend yield is not considered as we have not made any dividend payments and have no plans of doing so in the foreseeable future. The amount of share-based compensation expense recognized is reduced ratably over the vesting period by an estimate of the percentage of options granted that are expected to be forfeited or canceled before becoming fully vested. This estimate is adjusted periodically based on the extent to which actual forfeitures differ, or are expected to differ, from the previous estimate.
Total share-based compensation expense for the three months ended March 31, 2009 was $1.1 million, of which $380,000 and $680,000 were recorded in the condensed statement of operations as research and development expenses and general and administrative expenses, respectively. Total share-based compensation expense for the three months ended March 31, 2008 was $781,000, of which $345,000 and $436,000 were recorded in the condensed statement of operations as research and development expenses and general and administrative expenses, respectively. Included in share-based compensation expense for the three months ended March 31, 2009 and 2008 is share-based compensation expense related to deferred compensation arrangements for our directors of $45,000 and $51,000, respectively. At March 31, 2009, the total compensation cost related to non-vested awards not yet recognized was approximately $13.7 million with a weighted average expense recognition period of 2.73 years. . . .