Item 7. Management’s Discussion and Analysis
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
In addition to historical information, the following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements as defined under Section 21E of the
Securities Exchange Act of 1934, as amended, and is subject to the safe harbor created therein for forward-looking statements. Such statements include, but are not limited to, statements concerning our anticipated operating results, research
and development, clinical trials, regulatory proceedings, and financial resources, and can be identified by use of words such as, for example, “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe” and “would,” “should,”
“could” or “may.” All statements, other than statements of historical facts, included herein that address activities, events, or developments that the Company expects or anticipates will or may occur in the future, are forward-looking
statements, including statements regarding: plans and expectations regarding clinical trials; plans and expectations regarding regulatory approvals; our strategy and expectations for clinical development and commercialization of our products;
potential strategic partnerships; expectations regarding the effectiveness of our products; plans for research and development and related costs; statements about accounting assumptions and estimates; expectations regarding liquidity and the
sufficiency of cash to fund currently planned operations through at least December 31, 2024; our commitments and contingencies; and our market risk exposure. Forward-looking statements are based on current expectations, estimates and
projections about the industry and markets in which Galectin Therapeutics operates, and management’s beliefs and assumptions. These statements are not guarantees of future performance and involve certain known and unknown risks and
uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. Such risks and uncertainties are related to and include, without limitation,
•
our early stage of development,
•
we have incurred significant operating losses since our inception and cannot assure you that we will generate revenue or profit,
•
our dependence on additional outside capital,
•
we may be unable to enter into strategic partnerships for the development, commercialization, manufacturing and distribution of our proposed product candidates,
•
uncertainties related to any litigation,
•
uncertainties related to our technology and clinical trials, including expected dates of availability of clinical data,
•
we may be unable to demonstrate the efficacy and safety of our developmental product candidates in human trials,
•
we may be unable to improve upon, protect and/or enforce our intellectual property,
•
we are subject to extensive and costly regulation by the U.S. Food and Drug Administration (FDA) and by foreign regulatory authorities, which must approve our product candidates in development and could restrict the sales and
marketing and pricing of such products,
•
competition and stock price volatility in the biotechnology industry,
•
limited trading volume for our stock, concentration of ownership of our stock, and other risks detailed herein and from time to time in our SEC reports, and
•
the impact resulting from a pandemic or the reemergence of COVID-19, which delayed our clinical trial and development efforts, as well as the impact that such a pandemic has on the volatility of the capital market and our ability to
access the capital market.
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We caution investors that actual results or business conditions may differ materially from those projected or suggested in forward-looking statements as a result of various factors including, but not limited to,
those described above and in the Risk Factors section of this annual report on Form 10-K. We cannot assure you that we have identified all the factors that create uncertainties. Moreover, new risks emerge from time to time and it is not
possible for our management to predict all risks, nor can we assess the impact of all risks on our business or the extent to which any risk, or combination of risks, may cause actual results to differ from those contained in any forward-looking
statements. Readers should not place undue reliance on forward-looking statements. We undertake no obligation to publicly release the result of any revision of these forward-looking statements to reflect events or circumstances after the date
they are made or to reflect the occurrence of unanticipated events.
Overview
We are a clinical stage biopharmaceutical company engaged in drug research and development to create new therapies for fibrotic disease, cancer and selected other diseases. Our drug candidates are based on our
method of targeting galectin proteins, which are key mediators of biologic and pathologic functions. We use naturally occurring, readily-available plant products as starting material in manufacturing processes to create proprietary, patented
complex carbohydrates with specific molecular weights and other pharmaceutical properties. These complex carbohydrate molecules are appropriately formulated into acceptable pharmaceutical formulations. Using these unique carbohydrate-based
candidate compounds that largely bind and inhibit galectin proteins, particularly galectin-3, we are undertaking the focused pursuit of therapies for indications where galectin proteins have a demonstrated role in the pathogenesis of a given
disease. We focus on diseases with serious, life-threatening consequences and those where current treatment options are limited specifically in NASH (non-alcoholic steatohepatitis) with cirrhosis and certain cancer indications. Our strategy is
to establish and implement clinical development programs that add value to our business in the shortest period of time possible and to seek strategic partners when one of our programs becomes advanced and requires significant additional
resources.
Our lead galectin-3 inhibitor is belapectin (GR-MD-02), which has been demonstrated in preclinical models to reverse liver fibrosis and cirrhosis and in clinical studies to decrease portal hypertension and
prevent its complication: the development of esophageal varices. Belapectin has the potential to treat many diseases due to galectin-3’s involvement in multiple key biological pathways such as fibrosis, immune cell function and immunity, cell
differentiation, cell growth, and apoptosis (cell death). The importance of galectin-3 in the fibrotic process is supported by experimental evidence. Animals with the galectin-3 gene “knocked-out” can no longer develop fibrosis in response to
experimental stimuli compared to animals with an intact galectin-3 gene. We are using our galectin-3 inhibitor to treat advanced liver fibrosis and liver cirrhosis in NASH patients. We have completed two Phase 1 clinical studies, a Phase 2
clinical study in NASH patients with advanced fibrosis (NASH-FX) and a second Phase 2b clinical trial in NASH patients with compensated cirrhosis and portal hypertension (NASH-CX).
Results of Operations from the Years Ended December 31, 2023 and 2022
Research and Development Expense
Year ended
December 31,
2023 as Compared to 2022
2023
2022
$Change
% Change
(in thousands, except %)
Research and development
$
32,130
$
31,737
$
393
1
%
We generally categorize research and development expenses as either direct external expenses, comprised of amounts paid to third party vendors for services, or all other research and development expenses,
comprised of employee payroll and general overhead allocable to research and development. We consider a clinical program to have begun upon acceptance by the FDA, or similar agency outside of the United States, to commence a clinical trial in
humans, at which time we begin tracking expenditures by the product candidate. Clinical program expenses comprise payments to vendors related to preparation for, and conduct of, all phases of the clinical trial, including costs for drug
manufacture, patient dosing and monitoring, data collection and management, oversight of the trials and reports of results. Pre-clinical expenses comprise all research and development amounts incurred before human trials begin and for
additional toxicology studies to support advanced development, including payments to vendors for services related to product experiments and discovery, toxicology, pharmacology, metabolism and efficacy studies, as well as manufacturing process
development for a drug candidate. We have two product candidates, belapectin and GM-CT-01; however only belapectin is in active development.
Our research and development expenses were as follows:
Year Ended
December 31,
2023
2022
Direct external expenses:
(in thousands)
Clinical programs
$
23,942
$
26,746
Pre-clinical activities
3,021
1,262
Other research and development expenses:
Payroll and other including stock-based compensation
5,167
3,727
$
32,130
$
31,737
22
Index
Clinical programs expenses decreased in the year ended December 31, 2023 over the year ended December 31, 2022 primarily due to costs related to our the NAVIGATE clinical trial activities and a decrease in costs
related to contract manufacturing of belapectin. Pre-clinical activities increased due to activities incurred in support of the clinical program such as development and reproductive toxicity studies, clinical supplies and other supportive
activities. Payroll and other costs increased primarily due to additional employees being hired in research and development.
General and Administrative Expense
Year ended
December 31,
2023 as Compared to 2022
2023
2022
$ Change
% Change
(in thousands, except %)
General and administrative
$
5,942
$
6,615
$
(673
)
(10
%)
General and administrative expenses consist primarily of salaries including stock-based compensation, legal and accounting fees, insurance, investor relations, business development and other office related
expenses. The primary reasons for the decrease for the year ended December 31, 2023, as compared to the same period for 2022 are due to a decrease in non-cash stock-based compensation of $624,000.
Other Income and Expense
During the year ended December 31, 2023, other income and expense consisted of $230,000 of interest income offset by interest expense and amortization of debt discounts on convertible notes payable and
convertible line of credit of $2,792,000 and change in fair value of derivatives of $432,000.
During the year ended December 31, 2022, other income and expense consisted of $52,000 of interest income and change in fair value of derivatives of $557,000 offset by interest expense and amortization of debt
discounts on convertible notes payable and convertible line of credit of $1,033,000.
Results of Operations from the Years Ended December 31, 2022 and 2021
Research and Development Expense
Year ended
December 31,
2022 as Compared to 2021
2022
2021
$Change
% Change
(in thousands, except %)
Research and development
$
31,737
$
23,818
$
7,919
33
%
We generally categorize research and development expenses as either direct external expenses, comprised of amounts paid to third party vendors for services, or all other research and development expenses,
comprised of employee payroll and general overhead allocable to research and development. We consider a clinical program to have begun upon acceptance by the FDA, or similar agency outside of the United States, to commence a clinical trial in
humans, at which time we begin tracking expenditures by the product candidate. Clinical program expenses comprise payments to vendors related to preparation for, and conduct of, all phases of the clinical trial, including costs for drug
manufacture, patient dosing and monitoring, data collection and management, oversight of the trials and reports of results. Pre-clinical expenses comprise all research and development amounts incurred before human trials begin and for
additional toxicology studies to support advanced development, including payments to vendors for services related to product experiments and discovery, toxicology, pharmacology, metabolism and efficacy studies, as well as manufacturing process
development for a drug candidate. We have two product candidates, belapectin and GM-CT-01; however only belapectin is in active development.
Our research and development expenses were as follows:
Year Ended
December 31,
2022
2021
Direct external expenses:
(in thousands)
Clinical programs
$
26,748
$
20,830
Pre-clinical activities
1,262
562
Other research and development expenses:
Payroll and other including stock-based compensation
3,727
2,426
$
31,737
$
23,818
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Index
Clinical programs expenses increased in the year ended December 31, 2022 over the year ended December 31, 2021 primarily due to costs related to our the NAVIGATE clinical trial activities and preparations and
some preclinical activities incurred in support of the planned clinical program such as development and reproductive toxicity studies, clinical supplies and other supportive activities. Payroll and other costs increased primarily due to
additional employees being hired in research and development.
General and Administrative Expense
Year ended
December 31,
2022 as Compared to 2021
2022
2021
$ Change
% Change
(in thousands, except %)
General and administrative
$
6,615
$
6,361
$
254
4
%
General and administrative expenses consist primarily of salaries including stock-based compensation, legal and accounting fees, insurance, investor relations, business development and other office related
expenses. The primary reasons for the increase for the year ended December 31, 2022, as compared to the same period for 2021 are due to an increase in non-cash stock-based compensation of $399,000 partially offset by decreases in legal fees and
insurance expense of $146,000 and $131,000, respectively.
Other Income and Expense
During the year ended December 31, 2022, other income and expense consisted of $52,000 of interest income offset by interest expense and amortization of debt discounts on convertible notes payable and convertible
line of credit of $1,033,000.
During the year ended December 31, 2021, other income and expense consisted of $4,000 of interest income offset by amortization of the debt discount associated with warrants issued with a line of credit entered
into in December 2017 of $174,000 which is classified as interest expense, and interest expense and amortization of debt discounts on convertible notes payable of $315,000.
Liquidity and Capital Resources
As described above in the Overview and elsewhere in this Annual Report on Form 10-K, we are in the development stage and have not generated any revenues to date. Since our inception on July 10, 2000, we have
financed our operations from proceeds of public and private offerings of debt and equity. As of December 31, 2023, we raised a net total of $284.5 million from these offerings. At December 31, 2023, the Company had $25.7 million of unrestricted
cash and cash equivalents in addition to $30 million available under two lines of credit provided by our chairman available to fund future operations. The Company believes there is sufficient cash to fund currently planned operations through
March 31, 2025. We will require more cash to fund our operations after March 31, 2025 and believe we will be able to obtain additional financing. The currently planned operations include costs related to our adaptively designed NAVIGATE Phase
2b/3 clinical trial. However, there can be no assurance that we will be successful in obtaining such new financing or, if available, that such financing will be on terms favorable to us.
2023 compared to 2022
Net cash used in operations increased by $1,909,000 to $32,965,000 for 2023, as compared to $31,056,000 for 2022. Cash operating expenses increased principally due to increased research and development activities
primarily related to our NAVIGATE clinical trial and associated activities.
There were no equipment purchases or other investing activities in 2023 or 2022.
Net cash provided by financing activities was $40,033,000 during 2023 as compared to $10,000,000 during 2022, due primarily to the transactions described below.
In 2023, we received $30,000,000 in proceeds under a convertible line of credit provided by our chairman in addition to $10 million in proceeds from stock purchase warrants exercised by our chairman. In 2022, we
received proceeds of $10,000,000 under a convertible line of credit provided by our chairman.
2022 compared to 2021
Net cash used in operations increased by $6,748,000 to $31,056,000 for 2022, as compared to $24,308,000 for 2021. Cash operating expenses increased principally due to increased research and development activities
primarily related to our NAVIGATE clinical trial and associated activities.
There were no equipment purchases or other investing activities in 2022 or 2021.
Net cash provided by financing activities was $10,000,000 during 2022 as compared to $36,814,000 during 2021, due primarily to the transactions described below.
In 2022, we received $10,000,000 in proceeds under a convertible line of credit provided by our chairman. In 2021, we received proceeds of $30,000,000 from three related-party convertible notes payable,
$2,950,000 from the exercise of common stock warrants and $3,864,000 in net proceeds from issuance of common shares under our ATM.
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Operating leases
Effective February 28, 2022, the Company entered into an amendment to its operating lease for office space in Norcross, GA for a term of thirty-eight months, beginning on March 1, 2022 and ending April 30, 2025
at an average rate of approximately $4,250 per month. The amended lease provided for free rent for the first six months of the lease and continues the security deposit of $6,000. In addition to base rental payments included in the contractual
obligations table above, the Company is responsible for our pro-rata share of the operating expenses for the building.
In October 2012, the Company entered into an operating lease for office and lab space for research and development activities in Natick, MA. The lease is for a period of one year, beginning on October 1, 2012,
for a rate of $15,000 for the term, payable in equal monthly increments. This lease was continued on a month-to-month basis from October 1, 2013.
Other . We have engaged outside vendors for certain
services associated with our clinical trials. These services are generally available from several providers and, accordingly, our arrangements are typically cancellable on 30 days
notice.
Off-Balance Sheet Arrangements
We have not created, and are not a party to, any special-purpose or off-balance sheet entities for the purpose of raising capital, incurring debt or operating parts of our business that are not consolidated into
our financial statements. We do not have any arrangements or relationships with entities that are not consolidated into our financial statements that are reasonably likely to materially affect our liquidity or the availability of capital
resources.
Critical Accounting Policies and Estimates
Our significant accounting policies are more fully described in Note 2 to our consolidated financial statements included elsewhere in this annual report on Form 10-K. Certain of our accounting policies, however,
are critical to the portrayal of our financial position and results of operations and require the application of significant judgment by our management, which subjects them to an inherent degree of uncertainty. In applying our accounting
policies, our management uses its best judgment to determine the appropriate assumptions to be used in the determination of certain estimates. Our more significant estimates include stock option valuations and performance vesting features of
certain of these instruments, accrued liabilities, deferred income taxes and cash flows. These estimates are based on our historical experience, terms of existing contracts, our observance of trends in the industry, information available from
other outside sources, and on various other factors that we believe to be appropriate under the circumstances. We believe that the critical accounting policies discussed below involve more complex management judgment due to the sensitivity of
the methods, assumptions and estimates necessary in determining the related asset, liability, revenue and expense amounts.
Accrued Expenses . As part of the process of preparing our consolidated financial statements, we are required to estimate accrued expenses. This process involves
identifying services that third parties have performed on our behalf and estimating the level of service performed and the associated cost incurred on these services as of each balance sheet date in our consolidated financial statements.
Examples of estimated accrued expenses include professional service fees, such as those arising from the services of attorneys and accountants and accrued payroll expenses. In connection with these service fees, our estimates are most affected
by our understanding of the status and timing of services provided relative to the actual services incurred by the service providers. In the event that we do not identify certain costs that have been incurred or we under- or over-estimate the
level of services or costs of such services, our reported expenses for a reporting period could be understated or overstated. The date on which certain services commence, the level of services performed on or before a given date, and the cost
of services are often subject to our judgment. We make these judgments based upon the facts and circumstances known to us in accordance with accounting principles generally accepted in the U.S.
Research and Development Expenses. Research and development expenses, including personnel costs, allocated facility costs, lab supplies, outside
services, contract laboratory costs related to manufacturing drug product, clinical trials and preclinical studies are charged to research and development expense as incurred. The Company accounts for nonrefundable advance payments for goods
and services that will be used in future research and development activities as expense when the service has been performed or when the goods have been received. Our current NAVIGATE clinical trial is being supported by third-party contract
research organizations, or CROs, and other vendors. We accrue expenses for clinical trial activities performed by CROs based upon the estimated amount of work completed on each trial. For clinical trial expenses and related expenses associated
with the conduct of clinical trials, the significant factors used in estimating accruals include the number of patients enrolled, the number of active clinical sites, and the duration for which the patients have been enrolled in the trial. We
monitor patient enrollment levels and related activities to the extent possible through internal reviews, review of contractual terms and correspondence with CROs. We base our estimates on the best information available at the time. We monitor
patient enrollment levels and related activities to the extent possible through discussions with CRO personnel and based our estimates of clinical trial costs on the best information available at the time. However, additional information may
become available to us which will allow us to make a more accurate estimate in future periods. In that event, we may be required to record adjustments to research and development expenses in future periods when the actual level of activity
becomes more certain.
Stock-Based Compensation . Stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the service
period, which generally represents the vesting period. For awards that have performance-based vesting conditions the Company recognizes the expense over the estimated period that the awards are expected to be earned. The Company generally uses
the Black-Scholes option-pricing model to calculate the grant date fair value of stock options. The expense recognized over the service period is required to include an estimate of the awards that will be forfeited.
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Due to the nature of our operations, assets and debt, we are not exposed to any significant market risks at December 31, 2023 and 2022.
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Item 8.
Financial Statements and Supplementary Data
The financial statements required by this item are attached to this Annual Report on Form 10-K beginning on Page F-1.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.