Galectin Therapeutics Inc. — Form 10-Q Summary
Reporting period: Three months ended March 31, 2016. The filing was signed May 10, 2016. Galectin is a clinical-stage biopharmaceutical company developing galectin-targeting therapies for fibrotic disease and cancer, primarily GR-MD-02. The company has no significant revenues and has operated at a loss since inception.
Financial Position and Results
| Metric | Q1 2016 | Q1 2015 / Prior Period | Change |
|---|---|---|---|
| Revenue | None reported | None reported | Not applicable |
| Research and development expense | $4.377 million | $3.136 million | Up 40% |
| General and administrative expense | $2.437 million | $1.704 million | Up 43% |
| Total operating expenses | $6.814 million | $4.840 million | Up $1.974 million |
| Net loss | $6.800 million | $4.826 million | Loss increased $1.974 million |
| Net loss applicable to common stockholders | $7.010 million | $5.074 million | Loss increased $1.936 million |
| Basic and diluted loss per share | $0.24 | $0.22 | Higher loss per share |
| Net cash used in operating activities | $3.490 million | $4.311 million | Improved by $0.821 million |
| Cash and cash equivalents | $22.356 million | $29.349 million at March 31, 2015 | Down $6.993 million year over year |
Operating expenses exceeded any reported income, so operating and net margins are not meaningful. Interest income was $14,000. The company reported no investing cash flows and no financing proceeds in Q1 2016, compared with $4.532 million of common-stock proceeds in Q1 2015.
At March 31, 2016, total assets were $22.788 million, total liabilities were $3.250 million, and stockholders’ equity was $12.472 million. The company had no reported debt, but had redeemable convertible preferred stock with carrying values totaling approximately $7.066 million and redemption values of approximately $12.408 million. Common shares outstanding were 28,979,179 at March 31, 2016, compared with 28,825,033 at December 31, 2015.
Material Changes Versus Q1 2015
- Research and development expense increased $1.241 million, primarily from higher clinical-program costs associated with Phase 2 trials.
- General and administrative expense increased $733,000. The increase included $300,000 of severance and $578,000 of accelerated noncash stock-based compensation related to the January 2016 termination of the executive chairman.
- Stock-based compensation increased to $1.223 million from $935,000.
- Operating cash use decreased despite the higher reported net loss, principally because of the timing of payments for clinical-trial research and development activities.
- The company issued no common stock in Q1 2016, compared with 1,279,416 shares issued for approximately $4.532 million of net proceeds in Q1 2015.
Liquidity, Outlook, and Development Programs
Management stated that the $22.4 million of unrestricted cash at March 31, 2016 was sufficient to fund currently planned operations through March 31, 2017. Continued operations after that point depend on additional financing or achievement of profitable operations, neither of which is assured. The company expects losses to continue for the foreseeable future and cautions that the financial statements would require adjustments if it cannot continue as a going concern.
- GR-MD-02 is being evaluated in Phase 2 trials for NASH with cirrhosis and advanced fibrosis. NASH-FX top-line data was expected around the end of Q3 2016; NASH-CX data was expected around the end of 2017.
- A Phase 2a open-label psoriasis trial began in January 2016, with top-line data expected around Q3 2016.
- GR-MD-02 cancer-immunotherapy studies included a Phase 1B melanoma study and a planned or commencing study in combination with Keytruda.
- Clinical activity costs are expected to increase and may fluctuate as Phase 2 trials progress. The company cannot reliably estimate the ultimate cost or timing of commercialization.
Risks, Contingencies, and Unusual Items
- The company remains dependent on external capital and has no commercial product revenue. Clinical, regulatory, manufacturing, intellectual-property, partnership, and commercialization risks could materially affect future results.
- Approximately 15.0 million potentially dilutive shares from warrants, options, and preferred-stock conversions were excluded from diluted loss-per-share calculations because they were anti-dilutive.
- As of March 31, 2016, the company had 8.9 million outstanding warrants and 3.6 million outstanding options, in addition to preferred-stock conversion rights.
- Shareholder class-action and derivative lawsuits had been dismissed with prejudice, but appeals were pending. A related Nevada derivative action was dismissed in April 2016, subject to a motion concerning the dismissal order. The company could not estimate potential losses, although it did not believe reasonably possible losses were material based on available information.
- The company contributed $227,000 to Galectin Sciences LLC during Q1 2016, increasing its ownership interest to 77.9%; the LLC is consolidated as a less-than-wholly-owned subsidiary.
- On May 6, 2016, the company entered into a three-year employment agreement with its CEO providing for an initial annual salary of $512,500, a target annual bonus of 50% of base salary, equity grants, and specified severance and acceleration benefits.
- Management reported that disclosure controls and procedures were effective at a reasonable assurance level as of March 31, 2016, with no material change in internal control over financial reporting during the quarter.
Investor Verification Items
- Verify the current cash runway, quarterly cash-burn rate, and expected financing requirements after March 31, 2017.
- Track enrollment, safety, efficacy, and regulatory developments for the NASH-CX, NASH-FX, psoriasis, and cancer-immunotherapy programs.
- Assess dilution risk from 8.9 million warrants, 3.6 million options, preferred-stock conversion rights, and future equity offerings.
- Review the terms and potential financial impact of the redeemable preferred stock, including redemption and liquidation values.
- Monitor the status and outcomes of the pending litigation appeals and the Nevada derivative proceeding.
- Reconcile the May 2016 CEO employment agreement with subsequent compensation disclosures and filings.