Business Context and Reporting Period
Galectin Therapeutics, Inc. (formerly Pro-Pharmaceuticals, Inc.) filed this unaudited Form 10-Q for the quarter and nine months ended September 30, 2011. The company is a development-stage biotechnology company developing galectin-targeting therapies for fibrotic disease and cancer. Its lead candidate is GM-CT-01, formerly DAVANAT.
Key Financial Metrics
| Metric | Three Months Ended September 30 | Nine Months Ended September 30 |
|---|---|---|
| Revenue | None reported | None reported |
| Research and development expense | $0.7 million, up 109% | $2.7 million, up 298% |
| General and administrative expense | $1.4 million, up 53% | $4.3 million, up 49% |
| Total operating expenses | $2.0 million | $7.0 million |
| Net loss | $2.0 million | $7.5 million |
| Net loss applicable to common stockholders | $2.3 million | $9.0 million |
| Basic and diluted loss per share | $0.03 loss | $0.13 loss |
| Net cash used in operating activities | Not separately provided | $4.1 million |
| Cash and cash equivalents at period end | $7.9 million |
Margins are not meaningful because the company had no operating revenue. Cumulative net losses applicable to common stockholders since inception totaled approximately $65.7 million.
Total assets were $8.1 million at September 30, 2011, compared with $6.3 million at December 31, 2010. Total liabilities were $0.8 million, with no warrant liability remaining at September 30, 2011. Redeemable convertible preferred stock totaled approximately $6.5 million in carrying value and had aggregate stated redemption values of approximately $10.2 million. The filing reports no conventional debt outstanding at the period end.
Material Changes Versus Prior Comparable Period
- Research and development expense increased by $2.0 million, primarily because of greater preclinical fibrosis activity, clinical program activity, higher payroll, and increased stock-based compensation.
- General and administrative expense increased by $1.4 million, driven by higher payroll, legal costs related partly to the rebranding, stock-based compensation, and a $162,000 litigation settlement expense.
- Net loss increased from $4.9 million to $7.5 million for the nine-month period, while net loss applicable to common stockholders increased from $7.2 million to $9.0 million.
- Operating cash use increased from $2.5 million to $4.1 million.
- Financing activities provided $6.2 million, including $5.8 million from warrant exercises and $0.2 million from option exercises. Common shares outstanding increased to approximately 76.9 million from 63.9 million at year-end 2010.
- Warrant liabilities declined from $861,000 at December 31, 2010 to zero at September 30, 2011, and the related fair-value expense was lower than in the prior-year period.
Outlook, Risks, Contingencies, and Unusual Items
- Management stated that the $7.9 million of unrestricted cash was sufficient to fund core operations through the first quarter of 2013. Additional capital will be required; failure to raise funds before then could require the company to cease operations or seek bankruptcy protection.
- The company remains dependent on equity or other external financing and has not generated revenue. Management stated that timing and cost of commercialization cannot be estimated reliably because of clinical, regulatory, patient recruitment, and product-development uncertainties.
- The company is not initiating Phase III GM-CT-01 trials at this time while awaiting additional experience from a Ludwig Institute clinical trial evaluating immunologic effects.
- On October 18, 2011, after the reporting date, the company entered into a collaboration, supply, marketing, and distribution agreement with PROCAPS for GM-CT-01 in Colombia and potentially other Central and South American countries. PROCAPS is responsible for obtaining regulatory approvals and will pay per-dose fees and royalties based on sales. The existing $200,000 payment from PROCAPS remained deferred revenue pending completion of deliverables.
- A deferred $1.0 million severance obligation to the former chief executive officer is not accrued because the triggering milestones are not considered probable. The obligation may be triggered by FDA approval, certain pharmaceutical transactions, relisting on a national exchange, or bankruptcy; related stock options may also become payable.
- The company settled litigation and related arbitration matters involving Summer Street Research Partners and Maxim Group, but motions concerning the scope and enforcement of the settlement remained pending. Management stated that the matters were not expected to be material, although proceedings could resume.
- Stock-based compensation was $2.7 million for the first nine months of 2011, and $7.6 million of unrecognized compensation remained for unvested options as of September 30, 2011.
Investor Verification Priorities
- Verify the company’s ability to raise additional capital before the stated first-quarter 2013 funding horizon and assess dilution risk from outstanding preferred stock, warrants, and options.
- Review clinical and regulatory progress for GM-CT-01, including the Ludwig trial and the timing of any Phase III program.
- Assess whether the PROCAPS agreement produces regulatory approvals, product sales, royalties, or recognition of the $200,000 deferred payment.
- Evaluate the potential cash and equity impact of the unaccrued $1.0 million severance obligation and associated option awards.
- Monitor litigation settlement enforcement proceedings and any change in the company’s liquidity outlook.
- Confirm the substantial potential dilution represented by approximately 40.0 million warrants, 19.2 million options, and approximately 15.8 million shares issuable upon preferred-stock conversion.