Galectin Therapeutics Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2019. The company is a clinical-stage biopharmaceutical developing galectin-targeting therapies, principally belapectin (GR-MD-02), for NASH-related liver fibrosis/cirrhosis, cancer immunotherapy and other fibrotic or inflammatory diseases. The interim financial statements are unaudited.
Financial position and results
- Revenue: No significant revenue; the company has operated at a loss since inception.
- Operating expenses: $2.9 million for the quarter and $8.3 million for the nine months, compared with $2.7 million and $10.6 million, respectively, in the comparable 2018 periods.
- Research and development: $1.5 million for the quarter, essentially flat year over year; $3.7 million for the nine months, down 30% from $5.3 million. Lower year-to-date spending primarily reflected reduced stock-based compensation and completion of prior Phase 2 activities, partly offset by NASH-RX planning and startup costs.
- General and administrative: $1.4 million for the quarter, up 16% year over year; $4.6 million for the nine months, down 14%, primarily due to lower stock-based compensation.
- Net loss: $2.8 million for the quarter, compared with $2.8 million in the third quarter of 2018; $8.2 million for the nine months, compared with $10.9 million. Net loss applicable to common stockholders was $15.0 million for the nine months, including a $6.6 million one-time non-cash warrant-modification charge.
- Loss per share: $0.05 for the quarter and $0.27 for the nine months, compared with $0.07 and $0.30, respectively, in 2018.
- Cash flow: Net cash used in operating activities was $7.1 million for the nine months, compared with $8.2 million in 2018, according to the cash flow statement. Management’s liquidity discussion refers to $7.5 million of operating cash use, creating an internal presentation difference to verify.
- Liquidity: Cash and cash equivalents were $50.3 million at September 30, 2019, versus $8.3 million at December 31, 2018. Financing activities provided $49.2 million, principally from the May 2019 rights offering.
- Capitalization: Common shares outstanding increased to 56.7 million from 41.2 million at year-end 2018. Stockholders’ equity was $47.8 million, compared with $5.2 million at December 31, 2018.
- Debt: No borrowings were outstanding under the $10 million related-party line of credit. The facility was extended to permit borrowings through December 31, 2021, with repayment due December 31, 2022.
- Preferred stock: Series B preferred stock was converted into common stock in January 2019. Series C super-dividend redeemable convertible preferred stock remained outstanding with a $1.7 million carrying value and $8.7 million redemption value.
Material changes from the prior comparable period
- Cash increased substantially following the May 2019 rights offering, which generated approximately $44.9 million from 10.5 million common shares and warrants for 2.6 million additional shares exercisable at $7.00 per share through May 2026.
- Year-to-date operating expenses and operating cash usage declined, primarily because 2018 included higher Phase 2 trial close-out and stock-based compensation costs.
- The January 2019 conversion of Series B preferred stock eliminated those preferred classes and related special voting rights, while increasing common shares outstanding.
- The company recorded a $6.6 million non-cash warrant-modification charge in the first quarter of 2019 after extending the exercise period for warrants covering approximately 3.6 million shares.
- Outstanding warrants increased to 12.5 million at September 30, 2019 from 10.6 million at December 31, 2018; outstanding options were 3.1 million.
Guidance, outlook, risks and unusual items
- Management expects losses to continue and believes existing cash, together with line-of-credit availability, will fund currently planned operations through at least December 31, 2020.
- Management estimates the NASH-RX trial and related general overhead through December 31, 2020 will cost approximately $100 million to $115 million, although timing and costs were not finalized. Additional financing will be required after that period, and there is no assurance that financing will be available on acceptable terms.
- The company expected to enroll the first NASH-RX patient in the first quarter of 2020. The contemplated adaptive trial could involve at least 500 patients at approximately 130 sites in 11 countries and at least two years of dosing.
- FDA feedback received in late October 2019 was still under evaluation and appeared to question the potential use of progression to varices as a surrogate endpoint for accelerated approval. The protocol was being redesigned and further FDA discussions were planned.
- Key risks include clinical-trial enrollment, safety and efficacy uncertainty, regulatory approval, manufacturing, intellectual-property protection, dependence on additional capital or strategic partners, competition and biotechnology stock-price volatility.
- The company reported no significant pending legal proceedings, no material off-balance-sheet arrangements and effective disclosure controls as of September 30, 2019.
Investor verification points
- Reconcile the $7.1 million operating cash use in the cash flow statement with management’s $7.5 million figure in the liquidity discussion.
- Assess the adequacy of the $50.3 million cash balance relative to the estimated $100 million–$115 million NASH-RX and overhead requirement.
- Monitor final FDA feedback, the NASH-RX protocol, endpoint strategy, enrollment timing and trial budget.
- Evaluate dilution and overhang from 12.5 million warrants, 3.1 million options and remaining preferred-stock conversion rights.
- Review the effect of the $6.6 million non-cash warrant charge separately from recurring operating performance.
- Verify the company’s ability to obtain financing beyond December 31, 2020 and the terms of any future capital raise.