Galectin Therapeutics Inc. 2018 Form 10-K Summary
Business Context and Reporting Period
Annual report for the fiscal year ended December 31, 2018, filed March 6, 2019. Galectin Therapeutics is a clinical-stage biopharmaceutical company with no approved products or revenue. Its lead candidate, GR-MD-02, is an intravenous galectin-3 inhibitor being developed primarily for NASH-related liver fibrosis and compensated cirrhosis, with additional investigator-sponsored cancer studies and earlier-stage fibrosis and dermatology programs.
Financial Performance, Cash Flow and Liquidity
| Metric | 2018 | 2017 | Change |
|---|---|---|---|
| Revenue | $0 | $0 | No change |
| Research and development expense | $6.5 million | $11.7 million | Down 45% |
| General and administrative expense | $7.1 million | $4.5 million | Up 58% |
| Total operating loss | $13.6 million | $16.2 million | Improved by $2.6 million |
| Net loss | $13.9 million | $16.2 million | Improved by $2.3 million |
| Net loss applicable to common stockholders | $15.0 million | $17.5 million | Improved by $2.4 million |
| Basic and diluted loss per share | $0.38 loss | $0.49 loss | Improved |
| Net cash used in operations | $10.2 million | $15.9 million | Improved by $5.7 million |
| Cash and cash equivalents at year-end | $8.3 million | $3.1 million | Up $5.2 million |
R&D declined mainly because the NASH-CX Phase 2 trial was completed in 2017. G&A increased primarily because of $1.9 million of additional non-cash stock-based compensation and $0.5 million of higher investor-relations and business-development costs. Stock-based compensation totaled $4.4 million in 2018 versus $1.1 million in 2017.
The company had no debt borrowings at year-end. It maintained an undrawn $10 million unsecured line of credit with director and stockholder Richard E. Uihlein. Current liabilities were $2.1 million, including $1.5 million of accrued expenses and $0.3 million of accrued preferred dividends. The company also had Series C preferred stock with a stated carrying amount of $1.7 million and a redemption value of $8.9 million.
Financing activities provided $15.4 million in 2018, including $5.6 million from at-the-market common-stock sales, $6.0 million from warrant exercises and $3.8 million from option exercises. Common shares outstanding increased to 41.2 million at December 31, 2018 from 35.8 million at December 31, 2017. The filing does not provide a meaningful operating margin because the company has no revenue.
Material Changes Versus the Prior Comparable Period
- Operating cash burn and R&D spending decreased substantially following completion of the Phase 2 NASH-CX program.
- G&A expense rose materially, principally from stock-based compensation and business-development activity.
- The company moved from $12.3 million of net cash reduction in 2017 to a $5.2 million net cash increase in 2018, supported by equity and warrant financing.
- GR-MD-02 remained the primary active development program; the company planned a Phase 3 NASH-cirrhosis study but had not finalized its design, cost or timing.
- In 2018, the pembrolizumab combination investigator-sponsored study reported preliminary data showing a 50% objective response rate in 14 advanced melanoma patients and a 33% objective response rate in six head-and-neck cancer patients. These are early, non-pivotal investigator-sponsored results.
- Former CEO and President Peter Traber resigned effective July 6, 2018. Harold Shlevin became CEO and President, and Jack Callicutt became Secretary in connection with the management changes.
Clinical Outlook, Risks and Unusual Items
The Phase 2b NASH-CX trial did not meet its primary endpoint in the total population because the HVPG difference versus placebo was not statistically significant. Management highlighted statistically significant effects in selected patients without baseline esophageal varices, including reductions in HVPG and new-varices development, but these findings require confirmation in later-stage trials.
Following a February 2019 FDA Type C meeting, the FDA supported progression to varices as a potential surrogate endpoint and progression to large varices as part of a composite clinical-benefit endpoint, subject to additional information. The Phase 3 study remained in planning, with CRO proposals under evaluation. Management expects Phase 3 trial costs and related overhead to be approximately $100 million, although the estimate and timing were not finalized.
Management stated that cash on hand, the undrawn credit facility and approximately $1.87 million of net ATM proceeds received in January and February 2019 should fund currently planned operations through at least March 31, 2020. This estimate excludes Phase 3 costs. Additional financing will be required thereafter and for Phase 3; failure to obtain financing could require curtailment of operations or postponement of the trial.
Key risks include continued operating losses, no revenue, dependence on GR-MD-02, clinical-trial failure or delay, uncertain FDA approval, reliance on contract research and manufacturing organizations, competition, intellectual-property challenges, potential shareholder litigation, dilution from future equity financing, and dependence on third-party partners for commercialization. The company stated that it has incurred losses in every year since inception and had an accumulated deficit of $196.2 million at December 31, 2018.
Subsequent to year-end, 10X Fund converted all Series B preferred stock into common stock, extinguishing related protective provisions. The company extended expiration dates on warrants covering 3.6 million shares and recognized a $6.6 million non-cash charge in January 2019 related to the warrant modification.
Most Important Facts for Investors to Verify
- Whether the planned Phase 3 NASH trial receives a finalized protocol, FDA alignment, financing and a disclosed start date.
- Whether the FDA accepts the proposed surrogate and composite endpoints and what additional information is required.
- Cash burn after the Phase 2 program, availability and terms of the related-party credit facility, and the timing and terms of future capital raises.
- The statistical robustness and durability of the NASH-CX subgroup results and the preliminary cancer response data.
- The potential dilution from outstanding warrants, options, convertible preferred stock and future equity issuance.
- The redemption obligations and dividend accruals associated with preferred stock, particularly Series C.
- Whether the company can maintain operations beyond March 31, 2020 and fund the estimated approximately $100 million Phase 3 program.