Galectin Therapeutics Inc. — Form 10-Q Summary
Reporting period: Three and nine months ended September 30, 2014, compared with the corresponding 2013 periods. The company is a clinical-stage biopharmaceutical developer focused on galectin-targeting therapies for fibrotic disease and cancer. It has no significant revenues and remains in development-stage operations.
Financial Highlights
| Metric | Q3 2014 | Q3 2013 | 9M 2014 | 9M 2013 |
|---|---|---|---|---|
| Revenue | None reported | None reported | None reported | None reported |
| Research and development expense | $2.0 million | $1.2 million | $6.3 million | $4.3 million |
| General and administrative expense | $1.5 million | $2.4 million | $5.4 million | $5.0 million |
| Total operating loss | $3.5 million | $3.5 million | $11.7 million | $9.3 million |
| Net loss | $3.5 million | $3.5 million | $12.1 million | $9.3 million |
| Net loss applicable to common stockholders | $3.9 million | $3.7 million | $13.0 million | $18.8 million |
| Basic and diluted loss per share | $0.17 | $0.22 | $0.60 | $1.15 |
| Net cash used in operating activities | Not provided quarterly | Not provided quarterly | $9.3 million | $5.8 million |
- Profitability and operating margins are not meaningful because the company has no significant revenue and is generating operating losses.
- Cash and cash equivalents were $31.2 million at September 30, 2014, compared with $10.5 million at December 31, 2013.
- Total assets were $31.3 million and total current liabilities were $1.4 million at September 30, 2014.
- The company reported no traditional debt in the balance sheet. It had redeemable convertible preferred stock with carrying values totaling approximately $6.7 million and a stated redemption value of approximately $6.0 million for Series B-1, Series B-2 and Series C shares.
- Stockholders’ equity increased to $23.2 million from $1.5 million at year-end 2013, primarily reflecting equity financing and related capital activity.
- Financing activities provided $30.4 million during the first nine months of 2014, including $28.2 million of net proceeds from common stock issuance and $2.2 million from warrant and option exercises.
Material Changes Versus the Prior Comparable Period
- Research and development expense increased 66% in the quarter and 48% for the nine-month period, driven by the GR-MD-02 Phase 1 clinical program, preclinical work and manufacturing preparation for a potential Phase 2 program.
- General and administrative expense decreased 36% in the quarter, primarily because of lower stock-based compensation, but increased 7% for the nine-month period because of higher legal expenses related to litigation with former CEO David Platt.
- Net loss for the nine-month period increased from $9.3 million to $12.1 million. The 2013 comparable period included an $8.8 million warrant-modification charge, which caused net loss applicable to common stockholders to be substantially higher in 2013.
- Operating cash use increased by $3.5 million year over year, reflecting higher clinical-development spending and payment of the $1.0 million Platt separation obligation.
- Common shares outstanding increased to 22.1 million at September 30, 2014 from 18.4 million at December 31, 2013. During the first nine months, the company issued 2.7 million shares through its at-the-market program for approximately $28.2 million of net proceeds.
- The company invested $400,000 in Galectin Sciences, LLC, a 50%-owned joint venture developing small-molecule galectin-3 inhibitors, and recorded a $390,000 equity-method loss for the nine-month period.
Business, Outlook and Risks
- The lead candidate, GR-MD-02, was in a Phase 1 trial for NASH with advanced liver fibrosis. Enrollment in the third cohort began in July 2014; management expected to complete the Phase 1 program in the fourth quarter of 2014 and potentially begin a Phase 2 trial in the first half of 2015, subject to Phase 1 results.
- GR-MD-02 was also being evaluated in a Phase 1B melanoma study in combination with Yervoy. Additional programs for lung, kidney and cardiac fibrosis remained preclinical.
- Management stated that the $31.2 million of unrestricted cash was sufficient to fund currently planned operations through mid-2016. Continued operations after that point depend on additional financing or profitable operations, neither of which is assured.
- The company expects losses to continue for the foreseeable future and cannot reliably forecast the cost or timing of commercialization, regulatory approval or material revenue generation.
- Key risks include clinical-trial safety and efficacy, regulatory approval, manufacturing and development delays, dependence on outside capital and collaborators, intellectual-property protection, competition, stock-price volatility and the need to establish commercial revenues.
- Three putative securities class actions and multiple shareholder derivative lawsuits were filed in 2014 alleging misleading public statements, inadequate controls and related fiduciary-duty violations. The actions were consolidated or pending transfer, and potential damages were unspecified.
- The company paid the $1.0 million separation obligation to Dr. Platt in July 2014 after an arbitrator ruled in his favor. The securities and derivative litigation remained unresolved at the filing date.
- Management reported that disclosure controls and procedures were effective at a reasonable assurance level as of September 30, 2014, with no material change in internal control over financial reporting during the quarter.
Investor Verification Points
- Verify the Phase 1 GR-MD-02 safety and efficacy results, including the third-cohort final report and any subsequent Phase 2 initiation.
- Assess projected cash burn and whether the stated mid-2016 cash runway remains valid under current clinical-development plans.
- Review future equity financing, dilution, warrant exercises and the substantial outstanding option and warrant overhang.
- Monitor the securities class actions and derivative lawsuits for consolidation, transfer, settlement, insurance coverage and potential financial exposure.
- Review the redemption and conversion terms of the preferred stock and their potential effect on common-stock ownership.
- Confirm whether the company has generated any commercial revenue or obtained strategic partnerships since the reporting date; the filing itself reports no significant revenue.