GALECTIN THERAPEUTICS INC quarterly report, Q3 FY2013

Galectin Therapeutics Inc. Form 10-Q Summary

Business Context and Reporting Period

Galectin Therapeutics Inc. is a development-stage biotechnology company focused on galectin-targeting therapies for fibrotic disease and cancer. This unaudited Form 10-Q covers the quarter and nine months ended September 30, 2013. The company had no significant revenue and has operated at a loss since inception.

GR-MD-02: Phase I trial for NASH with advanced liver fibrosis began enrolling patients in July 2013. The FDA granted Fast Track designation in August 2013.
GM-CT-01: Phase I/II melanoma study was ongoing in Europe; six patients had been enrolled at the reporting date.
Common shares outstanding were 17.7 million at September 30, 2013 and 18.3 million at November 8, 2013.

Financial Condition and Operating Metrics

Metric	Three Months Ended September 30, 2013	Nine Months Ended September 30, 2013
Revenue	None reported	None reported
Research and development expense	$1.2 million	$4.3 million
General and administrative expense	$2.4 million	$5.0 million
Total operating expenses	$3.5 million	$9.3 million
Net loss	$3.5 million	$9.3 million
Net loss applicable to common stockholders	$3.7 million	$18.8 million
Net loss per common share	$0.22	$1.15
Net cash used in operating activities	Not separately provided	$5.8 million

Cash and cash equivalents were $9.7 million at September 30, 2013, compared with $9.4 million at December 31, 2012. Total assets were $9.8 million and total liabilities were $1.6 million. The balance sheet shows no conventional debt balance, but includes redeemable convertible preferred stock with a combined carrying value of approximately $6.9 million and redemption values totaling approximately $11.0 million.

Stockholders’ equity was $1.3 million. The company had $1.2 million of accrued expenses, including a $1.0 million severance obligation related to a former chief executive officer. No meaningful operating margin can be calculated because the company reported no significant revenue.

Material Changes Versus the Prior Comparable Period

Nine-month research and development expense increased 21.8%, from $3.5 million to $4.3 million, primarily because of GR-MD-02 clinical-trial startup and related activities.
Three-month research and development expense declined 15.4%, from $1.4 million to $1.2 million, while nine-month expense increased because of the timing of clinical and preclinical work.
General and administrative expense increased 58.2% for the quarter and 25.4% for the nine-month period, largely because of higher stock-based compensation and legal expenses.
Nine-month net loss applicable to common stockholders increased to $18.8 million from $8.2 million, principally reflecting an $8.8 million warrant-modification charge in 2013.
Stock-based compensation increased to $3.3 million for the nine months from $2.2 million in the prior-year period. A September 2013 extension of certain former director options generated a $930,000 non-cash charge.
Net cash used in operations increased modestly from $5.7 million to $5.8 million for the nine months.
Financing cash inflows declined to $6.2 million from $10.4 million, although 2013 included $3.0 million from a private placement and $3.2 million from warrant and option exercises.

Guidance, Outlook, Risks, Contingencies, and Unusual Items

Management expected cash on hand at September 30, 2013, together with approximately $2.1 million received after quarter-end, to fund operations into the third quarter of 2014. Continued operations thereafter depend on additional financing or profitable operations, neither of which was assured.
The company had up to $30.0 million of gross capacity under an October 2013 at-the-market offering agreement; approximately $29.5 million remained available as of November 8, 2013. Subsequent sales had generated approximately $531,000 of net proceeds.
Management expected first-cohort top-line results from the GR-MD-02 Phase I study in early 2014 and possible additional cohort results by mid-2014. A Phase II study could begin in late 2014 or early 2015, subject to results and funding.
The CTI clinical-trial work order had an estimated budget of $2.2 million through March 2014; $1.3 million was expensed during the first nine months.
The company accrued a $1.0 million separation payment to former CEO David Platt. After the company’s market capitalization exceeded $100 million, payment was demanded, but the company expected to defer payment for at least six months. Related arbitration was scheduled for May 2014, and the ultimate outcome was uncertain.
Clinical development, regulatory approval, patient recruitment, efficacy and safety results, intellectual-property protection, dependence on outside capital and collaborators, competition, and stock-price volatility were identified as significant risks.
The European GM-CT-01 study was not controlled by the company. Three completed patients had tolerated therapy without Stage 3 or 4 adverse events, but none had achieved a partial or complete response under RECIST criteria; two had mixed responses.
Outstanding potentially dilutive instruments included approximately 6.5 million warrants, 3.5 million options, and 2.6 million shares issuable upon preferred-stock conversion.

Important Facts for Investors to Verify

Whether GR-MD-02 clinical-trial cohorts produced the expected safety and pharmacodynamic results and progressed toward Phase II.
The company’s subsequent financing activity, remaining at-the-market capacity, and cash runway relative to ongoing clinical spending.
The status and outcome of the David Platt arbitration, severance obligation, appeal, and potential indemnification exposure.
The terms, redemption rights, dividends, and potential dilution associated with the Series B and Series C preferred stock.
The extent and accounting impact of stock-based compensation, warrant modifications, and other non-cash charges.
Whether GM-CT-01 enrollment and response rates support continuation or expansion of the European melanoma program.