Business Context and Reporting Period
Galectin Therapeutics Inc. is a clinical-stage biopharmaceutical company developing galectin-targeting therapies for fibrotic diseases and cancer. This unaudited Form 10-Q covers the quarter ended March 31, 2015, with comparisons to the quarter ended March 31, 2014. The company had 23,729,885 common shares outstanding as of May 8, 2015.
The lead candidate, GR-MD-02, was being developed for NASH-related liver fibrosis and in combination with immunotherapy for cancer. The company reported no significant revenue and continued to operate at a loss.
Financial Metrics
| Metric | Q1 2015 | Q1 2014 | Change |
|---|---|---|---|
| Revenue | None reported | None reported | Not applicable |
| Research and development expense | $3.136 million | $2.772 million | +$364 thousand, 13% |
| General and administrative expense | $1.704 million | $2.072 million | -$368 thousand, 18% |
| Total operating expenses | $4.840 million | $4.844 million | -$4 thousand |
| Operating loss | $4.840 million | $4.844 million | Improved by $4 thousand |
| Net loss | $4.826 million | $5.110 million | Improved by $284 thousand |
| Net loss attributable to common stockholders | $5.074 million | $5.408 million | Improved by $334 thousand |
| Basic and diluted loss per share | $0.22 | $0.27 | Improved by $0.05 |
| Net cash used in operating activities | $4.311 million | $3.619 million | Increase of $692 thousand |
| Cash and cash equivalents, March 31 | $29.349 million | $36.594 million | Prior-year comparison declined by $7.245 million |
Operating and net margins are not meaningful because the company reported no significant revenue. Interest income was $14 thousand in Q1 2015, compared with $4 thousand in Q1 2014. The prior-year period also included a $270 thousand loss from the equity-method investment in Galectin Sciences, LLC; the LLC was consolidated beginning in the fourth quarter of 2014.
Cash increased by $221 thousand during Q1 2015, reflecting $4.532 million of net financing proceeds offset by $4.311 million of operating cash use. The company issued 1,279,416 common shares under its at-market offering for approximately $4.532 million of net proceeds.
At March 31, 2015, total assets were $29.974 million, including $29.349 million of cash. Current liabilities were $1.291 million, and the filing reports no long-term debt or other long-term liabilities. The company had redeemable convertible preferred stock with carrying values totaling approximately $6.836 million and redemption or liquidation values that differed by series. Preferred dividends and accretion totaled $248 thousand in Q1 2015.
Material Changes Versus the Prior Comparable Period
- Research and development expense increased 13%, principally because of completion of the Phase 1 trial, Phase 2 planning, and manufacturing costs for GR-MD-02.
- Clinical activity expense increased to $2.073 million from $1.162 million, while preclinical expense declined to $442 thousand from $774 thousand.
- General and administrative expense declined 18%, primarily because stock-based compensation decreased by $394 thousand.
- Total stock-based compensation declined to $935 thousand from $1.648 million.
- Operating cash use increased 19% despite a broadly stable operating loss, reflecting increased clinical development spending and working-capital changes.
- Financing proceeds declined substantially from $30.124 million in Q1 2014 to $4.532 million in Q1 2015.
- Common shares outstanding increased to 23.730 million at March 31, 2015 from 22.277 million at December 31, 2014, primarily reflecting the at-market issuance.
- Ownership of Galectin Sciences, LLC increased to 61.3% after SBH Sciences did not fund its share of required expenses; the company contributed $159 thousand for the LLC’s first-quarter expenses.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
Management stated that the $29.3 million of unrestricted cash at March 31, 2015 was expected to fund currently planned operations through September 30, 2016. Continued operations after that point depend on additional financing or achieving profitable operations, and no assurance was provided. The company has operated at a loss since inception and expects losses to continue.
Management expected to initiate the Phase 2 NASH-CX trial in the first half of 2015, with top-line results anticipated by the end of 2017, and the NASH-FX trial by the end of the second quarter of 2015, with top-line results anticipated by the end of 2016. The company also planned a small psoriasis trial and was conducting a Phase 1B melanoma study combining GR-MD-02 with ipilimumab.
Clinical development costs are expected to increase and fluctuate as Phase 2 enrollment begins. The timing and cost of development remain uncertain because of patient recruitment, clinical results, regulatory decisions, manufacturing requirements, and possible trial delays or suspensions. The company cannot yet forecast the cost or timing of commercialization or future material cash inflows.
Three shareholder securities class-action complaints and multiple derivative lawsuits were pending concerning alleged misleading statements, fiduciary-duty breaches, securities-law violations, waste, unjust enrichment, and alleged insider trading. The company disputes the allegations. It stated that potential losses could not reasonably be estimated, although it did not believe reasonably possible losses from currently pending matters would be material; an adverse outcome could nevertheless materially affect financial condition, results, or cash flows.
Outstanding potentially dilutive instruments excluded from loss-per-share calculations totaled 11.418 million shares at March 31, 2015, comprising 5.471 million warrants, 3.420 million options, and 2.527 million shares issuable upon preferred-stock conversion. The filing also disclosed $4.178 million of unrecognized compensation related to unvested options.
Important Facts for Investors to Verify
- Whether available cash remains sufficient to fund operations through the stated September 30, 2016 target under actual trial spending and enrollment conditions.
- Progress, enrollment, costs, and regulatory status of the NASH-CX and NASH-FX Phase 2 trials.
- Whether clinical signals observed in Phase 1 translate into statistically significant efficacy and acceptable safety in larger studies.
- Future financing requirements, potential dilution from common-stock offerings, warrants, options, and preferred-stock conversions.
- The status and potential financial impact of the securities class action and derivative litigation.
- The terms, redemption rights, dividends, and conversion features of the outstanding preferred stock.
- Whether Galectin Sciences, LLC’s increased ownership and consolidated accounting create additional funding obligations or future operating losses.