Galectin Therapeutics Inc. — Form 10-Q Summary
Business context and reporting period
Quarterly report for the three and nine months ended September 30, 2016. Galectin is a clinical-stage biopharmaceutical company developing galectin-targeting therapies for fibrotic diseases and cancer, primarily GR-MD-02. The company has no significant revenues and has operated at a loss since inception.
Financial condition and key metrics
| Metric | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| Revenue | No significant revenue | No significant revenue |
| Research and development expense | $3.289 million | $11.892 million |
| General and administrative expense | $1.248 million | $4.990 million |
| Total operating loss | $4.537 million | $16.882 million |
| Net loss | $4.526 million | $16.845 million |
| Net loss applicable to common stockholders | $5.636 million | $18.473 million |
| Loss per common share | $0.19 | $0.64 |
| Net cash used in operating activities | Not separately provided | $11.544 million |
Cash and cash equivalents were $16.059 million at September 30, 2016, compared with $25.846 million at December 31, 2015. Total assets were $16.115 million and total current liabilities were $4.087 million. The filing reports no debt or borrowing arrangements. Preferred stock included Series C redeemable preferred stock of $1.723 million and Series A, B-1, B-2 and B-3 preferred stock classified in equity.
Cash decreased by $9.787 million during the first nine months. Financing activities provided $1.757 million, including $1.5 million of net proceeds from Series B-3 preferred stock and warrants and approximately $257,000 from common stock and warrants. Management stated that cash on hand was expected to fund currently planned operations through August 2017, subject to obtaining additional financing or achieving profitable operations thereafter.
Material changes versus the prior comparable period
- Third-quarter research and development expense decreased 26% to $3.289 million, while nine-month research and development expense increased 17% to $11.892 million. The nine-month increase primarily reflected higher clinical-program costs.
- General and administrative expense decreased 13% in the quarter and 4% for the nine-month period, primarily due to lower stock-based compensation, partly offset by higher legal, accounting, investor-relations and public-relations costs.
- Nine-month net loss increased to $16.845 million from $15.356 million, although net loss applicable to common stockholders was affected by a $991,000 deemed dividend related to the Series B-3 beneficial conversion feature.
- Net cash used in operations improved to $11.544 million from $12.382 million, primarily due to the timing of payments for clinical-trial activities.
- Common shares outstanding increased to 29.397 million at September 30, 2016, from 28.825 million at December 31, 2015. The company also had 10.453 million warrants, 3.500 million options, and 3.415 million shares issuable upon preferred-stock conversion excluded from diluted loss per share because they were anti-dilutive.
Guidance, outlook, risks and unusual items
- The NASH-CX Phase 2b trial in patients with NASH cirrhosis completed enrollment of 162 patients in September 2016; data readout was expected by the end of 2017.
- The NASH-FX Phase 2a trial in 30 patients with advanced fibrosis but not cirrhosis did not meet its primary biomarker endpoint or secondary liver-stiffness endpoints. Management stated that the four-month treatment period may have been insufficient to demonstrate efficacy; the treatment was reported as safe and well tolerated.
- A psoriasis study showed average improvement of 48% after 24 weeks in four patients, but management noted that marketed therapies can produce improvements of 75% or more and did not expect further trials absent a strategic partnership.
- The company expects continued losses and increasing or fluctuating clinical-program costs. It cannot forecast the timing or cost of commercialization because of clinical, regulatory, manufacturing, enrollment and efficacy uncertainties.
- The September 2016 Series B-3 financing included 1.5 million preferred shares convertible into 892,349 common shares and warrants for 1,544,262 common shares in total related to the transaction and lock-up arrangement. The warrants have a $3.00 exercise price and seven-year terms.
- The company removed the holders’ ability to require redemption of Series B preferred stock and reclassified Series B-1 and B-2 from redeemable preferred stock into permanent equity.
- Shareholder class-action and derivative litigation remained subject to appeals or other proceedings. The company stated that it could not estimate potential losses, although it did not believe reasonably possible losses were material based on information then available.
- The company disclosed effective disclosure controls and procedures and no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether the $16.1 million cash balance and stated runway through August 2017 were adequate given subsequent clinical spending and financing needs.
- The eventual NASH-CX clinical results and the implications of the negative NASH-FX biomarker and secondary-endpoint results.
- The terms, conversion effects and voting or consent rights of the Series B and Series C preferred stock and related warrants.
- The magnitude of potential dilution from outstanding warrants, options, preferred-stock conversions and future financings.
- The status and ultimate resolution of the pending shareholder litigation and appeals.
- Whether GR-MD-02 can demonstrate efficacy and obtain regulatory approval in fibrosis, cancer or other indications.