Business Context and Reporting Period
Galectin Therapeutics, Inc., formerly Pro-Pharmaceuticals, Inc., filed an unaudited Form 10-Q for the quarter ended June 30, 2011. The company is a development-stage biotechnology company developing galectin-targeting therapies for cancer and fibrotic disease. Its lead candidate was GM-CT-01, formerly DAVANAT. The corporate name changed on May 26, 2011.
The company had no commercial products or operating revenue and continued to depend on equity, preferred stock, warrant and other financing activities.
Financial Results and Key Metrics
| Metric | Three Months Ended June 30 | Six Months Ended June 30 |
|---|---|---|
| Research and development expense | $1.291 million, versus $0.234 million | $2.035 million, versus $0.363 million |
| General and administrative expense | $1.700 million, versus $1.116 million | $2.969 million, versus $2.019 million |
| Total operating expenses | $2.991 million, versus $1.350 million | $5.004 million, versus $2.382 million |
| Net loss | $3.127 million, versus $1.654 million | $5.519 million, versus $3.792 million |
| Net loss applicable to common stockholders | $3.934 million, versus $2.475 million | $6.656 million, versus $5.292 million |
| Basic and diluted loss per share | $0.06 loss, versus $0.05 loss | $0.10 loss, versus $0.10 loss |
| Net cash used in operating activities | Not separately provided | $2.883 million, versus $1.692 million |
Amounts are in thousands unless otherwise indicated. The filing does not report operating revenue for either comparable period. Other expense was $0.136 million for the quarter and $0.515 million for the six months, compared with $0.304 million and $1.410 million, respectively, in 2010, primarily reflecting changes in warrant liability fair value.
At June 30, 2011, cash and cash equivalents were $7.984 million, compared with $5.891 million at December 31, 2010. Total assets were $8.160 million and total liabilities were $0.789 million. Redeemable convertible preferred stock totaled approximately $6.456 million, and stockholders’ equity was $0.915 million, compared with a deficit of $1.694 million at year-end 2010.
The company had no warrant liabilities at June 30, 2011, compared with $0.861 million at December 31, 2010. It reported $0.304 million of contractual operating lease payments at June 30, 2011, including $0.245 million due within one year.
Material Changes Versus the Prior Comparable Period
- Research and development expense increased 452% for the quarter and 461% for the six months, primarily due to increased fibrosis-related preclinical work, clinical program activity, payroll and stock-based compensation.
- General and administrative expense increased 52% for the quarter and 47% for the six months, driven by higher payroll, legal and accounting costs associated in part with the rebranding and name change, and higher stock-based compensation.
- Operating cash use increased by $1.191 million, or approximately 70%, to $2.883 million for the six months.
- Financing activities provided $4.981 million during the first six months, including $4.617 million from warrant exercises, $0.234 million from option exercises and $0.130 million of net proceeds from Series C preferred stock issuance.
- Common shares outstanding increased to 74.057 million at June 30, 2011 from 63.909 million at December 31, 2010. Additional dilution was possible from 42.789 million warrants, 19.313 million options, restricted shares and preferred-stock conversion rights.
- Noncash stock-based compensation increased to $2.039 million for the first six months from $1.171 million in the prior-year period.
Guidance, Outlook, Risks and Unusual Items
Management stated that the cash balance at June 30, 2011 was expected to fund operations through 2012, but that additional capital would be required. The company was actively seeking financing and warned that failure to raise capital before the end of 2012 could require it to cease operations or seek bankruptcy protection.
The company was pursuing Phase III development planning for GM-CT-01 in combination with standard chemotherapy for metastatic colorectal cancer, awaiting Colombian regulatory review for commercialization by PROCAPS, and advancing preclinical anti-fibrotic programs. No specific revenue, earnings or clinical filing timetable guidance was provided.
- The company remained dependent on outside capital, clinical-trial success, regulatory approvals, intellectual-property protection, third-party collaborators and key personnel.
- All product candidates remained in development, and the company could not reliably estimate the timing or ultimate cost of commercialization or future cash inflows.
- A $1.0 million deferred severance obligation to the former chief executive officer was not accrued because triggering milestones were considered uncertain. Bankruptcy would trigger the obligation, and certain milestones could also require stock options.
- The $0.200 million PROCAPS payment remained deferred revenue pending completion of remaining deliverables.
- Series B preferred-stock redemption dates were extended to the earlier of February 12, 2019, or the date of a specified promissory note. Dividends could be paid in cash or common stock.
- In July 2011, five Series C preferred shares were converted into 50,000 common shares, with continuing post-conversion dividend rights. The company also extended its office lease and entered into a one-year executive apartment lease.
- Management reported effective disclosure controls and no material change in internal control over financial reporting. No material legal proceedings were reported.
Important Facts for Investors to Verify
- Verify the company’s ability to raise additional capital and whether the stated cash runway through 2012 remained achievable.
- Review the clinical, regulatory and commercialization status of GM-CT-01, including the planned Phase III program and Colombian approval process.
- Assess total potential dilution from preferred-stock conversion rights, warrants, options and restricted shares.
- Evaluate the terms and potential timing of preferred-stock dividends, redemptions and the $1.0 million deferred severance obligation.
- Confirm whether research and development spending increases translate into measurable clinical progress.
- Monitor the deferred PROCAPS payment and the company’s lack of operating revenue.