Business Context and Reporting Period
Galectin Therapeutics Inc. is a development-stage biotechnology company developing galectin-targeting therapies for fibrotic disease and cancer. The Form 10-Q covers the three months ended March 31, 2013, with comparative results for the three months ended March 31, 2012. The company reported no significant revenue and has operated at a loss since inception in July 2000.
Lead programs were GR-MD-02 for NASH with advanced liver fibrosis and GM-CT-01 for cancer immunotherapy. The FDA permitted the company to proceed with a U.S. Phase 1 trial of GR-MD-02, expected to begin patient enrollment in the second quarter of 2013. GM-CT-01 remained in a Phase 1/2 melanoma study in Europe.
Financial Highlights
| Metric | Q1 2013 | Q1 2012 | Change |
|---|---|---|---|
| Revenue | None significant | None significant | Not applicable |
| Research and development expense | $1.752 million | $0.901 million | Up 94% |
| General and administrative expense | $1.456 million | $1.052 million | Up 38% |
| Total operating expenses | $3.208 million | $1.953 million | Up 64% |
| Net loss | $3.203 million | $1.950 million | Loss increased $1.253 million |
| Net loss applicable to common stockholders | $3.472 million | $2.204 million | Loss increased $1.268 million |
| Basic and diluted loss per share | $0.22 | $0.17 | Loss per share increased |
| Net cash used in operating activities | $2.423 million | $1.486 million | Use increased $0.937 million |
| Cash and cash equivalents at period end | $7.018 million | $15.314 million | Prior-period comparative balance declined |
At March 31, 2013, total assets were $7.196 million, total liabilities were $1.473 million, redeemable convertible preferred stock totaled approximately $6.759 million, and stockholders’ equity was a deficit of $1.036 million. The company had no conventional debt balance identified as outstanding at period-end, but had substantial redeemable preferred stock and contingent obligations.
Cash flow from financing activities was $77,000 in Q1 2013, primarily from option exercises, compared with $10.403 million in Q1 2012 from a public offering. Cumulative net cash used in operating activities since inception was $60.976 million, while cumulative net loss applicable to common stockholders was $83.744 million.
Material Changes Versus the Prior Comparable Period
- Research and development expense increased $851,000, primarily because of preparation and startup costs for the GR-MD-02 Phase 1 trial, increased preclinical fibrosis work, the University of Georgia discovery program, and higher stock-based compensation.
- Clinical activity expense increased to $743,000 from $248,000, while preclinical activity expense increased to $553,000 from $320,000.
- General and administrative expense increased $404,000, driven by higher stock-based compensation, legal costs related to litigation with the former CEO, investor relations, insurance, and public-company expenses. Lower rent partially offset the increase.
- Operating cash use increased as development and clinical-trial activities expanded.
- Common shares outstanding increased to 16.190 million at March 31, 2013 from 16.061 million at December 31, 2012. Potentially dilutive securities excluded from per-share calculations totaled approximately 13.704 million shares, including warrants, options, and preferred-stock conversion shares.
- Five shares of Series C preferred stock were converted into 8,475 common shares in January 2013. The number of outstanding Series C shares declined to 215 from 220.
Guidance, Outlook, Risks, and Unusual Items
Management expected GR-MD-02 patient enrollment to begin in late Q2 2013, with top-line Phase 1 results expected by late 2013 or early 2014. Subject to results and funding, a Phase 2 trial could begin in mid-2014. For GM-CT-01, the company expected the first-stage European melanoma cohort to be completed in Q2 2013; continuation depended on observing a response in at least one of six patients.
The company stated that its $7.018 million of unrestricted cash was expected to fund operations through the first quarter of 2014. Continued operations after that point depended on additional financing, strategic alternatives, cost containment, or achieving profitable operations, none of which was assured. Management anticipated continuing losses and additional cash use for the foreseeable future.
- The CTI clinical-trial work order for GR-MD-02 had an estimated budget of $2.155 million through March 2014; $728,000 was expensed in Q1 2013.
- The University of Georgia drug-discovery program required funding of $154,000 through December 2013.
- A $1.0 million severance obligation related to former CEO David Platt remained accrued. A company-initiated arbitration sought to rescind or reform the separation agreement; the outcome could result in reversal of the accrual, but timing and success were uncertain.
- A related Massachusetts Wage Act lawsuit against the CEO and CFO was dismissed on April 29, 2013. The company expected to indemnify the individuals consistent with its obligations.
- On May 6, 2013, certain Series B-related warrants were modified to permit broader cashless exercise and extend exercise lives. In exchange, Series B preferred stock would no longer be mandatorily redeemable if the specified severance-related promissory-note obligation ceased to apply.
- Key risks included clinical-trial failure or delay, regulatory nonapproval, dependence on external financing and collaborators, intellectual-property challenges, competition, stock-price volatility, and the early stage of the company’s programs.
Most Important Facts for Investors to Verify
- Whether GR-MD-02 enrollment, trial execution, and Phase 1 results met the stated timetable.
- Actual cash burn and whether financing was obtained before the projected first-quarter 2014 cash runway ended.
- The status, terms, and potential dilution from approximately 7.429 million warrants, 3.656 million options, and preferred-stock conversion rights outstanding at March 31, 2013.
- The outcome and financial effect of the arbitration concerning the $1.0 million former-CEO separation obligation.
- Progress and response data from the GM-CT-01 European melanoma trial, including whether the study advanced beyond its first stage.
- Whether CTI trial costs, the University of Georgia program, and other development commitments remained within budget.
- The company’s ability to obtain additional capital on acceptable terms given its continuing losses, negative equity, and lack of product revenue.