GALECTO, INC. We are a clinical-stage biotechnology company developing novel small molecule therapeutics that are designed to target the biological processes that lie at the heart of cancer and fibrotic diseases. Our strategy is to focus on diseases without disease-modifying treatment options and where there is a high unmet medical need. We are concentrating on the development of a new class of medicines: small molecule inhibitors of galectin-3 and lysyl oxidase-like 2, or LOXL2, that target underlying biology for the treatment of multi-factorial diseases like cancer and fibrotic diseases.
Our most advanced product candidate, GB0139, is in Phase 2b clinical development
and our other current fibrosis and oncology product candidates are in early
stages of clinical development. Our ability to generate revenue from product
sales sufficient to achieve profitability will depend heavily on the successful
development and eventual commercialization of one or more of our product
candidates. Our operations to date have been financed primarily from our initial
public offering, or IPO, the issuance of convertible preferred shares and
convertible notes. Since inception, we have had significant operating losses.
Our net loss was
Cash used to fund operating expenses is impacted by the timing of when we pay
these expenses, as reflected in the change in our accounts payable and accrued
expenses. We expect to continue to incur net losses for the foreseeable future,
and we expect our research and development expenses, general and administrative
expenses, and capital expenditures will continue to increase. In particular, we
expect our expenses to increase as we continue our development of, and seek
regulatory approvals for, our product candidates, as well as hire additional
personnel, pay fees to outside consultants, lawyers and accountants, and incur
other increased costs associated with being a public company. See "Item 1A. Risk
Factors - Risks Related Our Financial Position and Need for
Based upon our current operating plan, we believe that our existing cash, cash
equivalents and marketable securities of
To date, we have not had any products approved for sale and, therefore, have not generated any product revenue. We do not expect to generate any revenues from product sales unless and until we successfully complete development and obtain regulatory approval for one or more of our product candidates.
The spread of COVID-19 and identification of new variants and subvariants of the virus has impacted the global economy and, both directly and indirectly, businesses and commerce. As worker shortages have occurred, supply chains have been disrupted; facilities and production have been suspended; and demand for certain goods and services, such as medical services and supplies, has spiked, while demand for other goods and services, such as travel, has fallen. The ongoing economic challenges of the COVID-19 pandemic and its effects on our business and operations are uncertain.
In addition, economic uncertainty in various global markets, including the
Although, to date, our business has not been materially impacted by these global
economic and geopolitical conditions, it is impossible to predict the extent to
which our operations will be impacted in the short and long term, or the ways in
which such instability could impact our business and results of operations. The
extent and duration of these market disruptions, whether as a result of the
military conflict between
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For additional information on the various risks posed by the COVID-19 pandemic and global economic uncertainty, please read the section entitled "Risk Factors" in this Annual Report on Form 10-K.
Components of Operating Results
Operating Expenses
Our operating expenses since inception have consisted primarily of research and development expenses and general and administrative costs.
Research and Development
Our research and development expenses consist primarily of costs incurred for the development of our product candidates and our drug discovery efforts, which include:
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personnel costs, which include salaries, benefits and equity-based compensation expense;
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expenses incurred under agreements with consultants, and third-party contract organizations that conduct research and development activities on our behalf;
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costs related to sponsored research service agreements;
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costs related to production of preclinical and clinical materials, including fees paid to contract manufacturers;
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laboratory and vendor expenses related to the execution of preclinical studies and planned clinical trials;
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laboratory supplies and equipment used for internal research and development activities; and
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acquired in-process research and development programs.
We expense all research and development costs in the periods in which they are incurred, including for acquired in-process research and development. Costs for certain research and development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and third-party service providers.
We have historically met the requirements to receive a tax credit in
Our direct research and development expenses are not currently tracked on a
program-by-program basis. We use our personnel and infrastructure resources
across multiple research and development programs directed toward identifying
and developing product candidates. The majority of our clinical spending in the
years ended
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We expect to continue to incur research and development expenses for the foreseeable future as we continue to invest in research and development activities related to developing GB0139, GB2064, GB1211 and any other product candidates we may develop, including investments in conducting clinical trials, manufacturing and otherwise advancing our programs. The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming, and the successful development of our product candidates is highly uncertain.
Because of the numerous risks and uncertainties associated with product development and the current stage of development of our product candidates and programs, we cannot reasonably estimate or know the nature, timing and estimated costs necessary to complete the remainder of the development of our product candidates or programs. We are also unable to predict if, when, or to what extent we will obtain approval and generate revenues from the commercialization and sale of our product candidates. The duration, costs and timing of preclinical studies and clinical trials and development of our product candidates will depend on a variety of factors, including:
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successful completion of preclinical studies and initiation of clinical trials for GB0139, our other current fibrosis and oncology product candidates and any future product candidates;
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successful completion of our ongoing Phase 2 clinical trials for GB0139, GB2064 and GB1211, and any clinical trials for future product candidates;
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data from our clinical programs that support an acceptable risk-benefit profile of our product candidates in the intended patient populations;
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acceptance by the FDA, regulatory authorities in
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expansion and maintenance of a workforce of experienced scientists and others to continue to develop our product candidates;
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successful application for and receipt of marketing approvals from applicable regulatory authorities;
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obtainment and maintenance of intellectual property protection and regulatory exclusivity for our product candidates;
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arrangements with third-party manufacturers for, or establishment of, commercial manufacturing capabilities;
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establishment of sales, marketing and distribution capabilities and successful launch of commercial sales of our products, if and when approved, whether alone or in collaboration with others;
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acceptance of our products, if and when approved, by patients, the medical community and third-party payors;
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effective competition with other therapies;
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obtainment and maintenance of coverage, adequate pricing and adequate reimbursement from third-party payors, including government payors;
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maintenance, enforcement, defense and protection of our rights in our intellectual property portfolio;
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avoidance of infringement, misappropriation or other violations with respect to others' intellectual property or proprietary rights; and
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maintenance of a continued acceptable safety profile of our products following receipt of any marketing approvals.
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We may never succeed in achieving regulatory approval for any of our product candidates. We may obtain unexpected results from our preclinical studies and clinical trials. We may elect to discontinue, delay or modify clinical trials of some product candidates or focus on others. A change in the outcome of any of these factors could mean a significant change in the costs and timing associated with the development of our current and future preclinical and clinical product candidates. For example, if the FDA or another regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of clinical development, or if we experience significant delays in execution of or enrollment in any of our preclinical studies or clinical trials, we could be required to expend significant additional financial resources and time on the completion of preclinical and clinical development.
Research and development activities account for a significant portion of our operating expenses. We expect our research and development expenses to continue for the foreseeable future as we continue to implement our business strategy, which includes advancing GB0139, GB2064 and GB1211 through clinical development and other product candidates further into clinical development, expanding our research and development efforts, including hiring additional personnel to support our research and development efforts, and seeking regulatory approvals for our product candidates that successfully complete clinical trials. In addition, product candidates in later stages of clinical development generally incur higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. As a result, we expect our research and development expenses to increase as our product candidates advance into later stages of clinical development. However, we do not believe that it is possible at this time to accurately project total program-specific expenses through commercialization. There are numerous factors associated with the successful commercialization of any of our product candidates, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage of development.
General and Administrative Expenses
Our general and administrative expenses consist primarily of personnel costs, depreciation expense and other expenses for outside professional services, including legal, human resources, audit and accounting services and facility-related fees not otherwise included in research and development expenses. Personnel costs consist of salaries, benefits and stock-based compensation expense, for our personnel in executive, finance and accounting, business operations and other administrative functions. We expect our general and administrative expenses to continue over the next several years to support our continued research and development activities, manufacturing activities, increased costs of expanding our operations and operating as a public company. These expenses will likely include increases related to the hiring of additional personnel, legal, regulatory and other fees, director and officer insurance premiums and investor relations costs associated with our growth and continued expansion of our operations.
Other Income (Expense), Net
Our other income (expense), net is comprised of:
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Interest income: The interest income earned on our cash, cash equivalents and marketable securities is recorded in our statements of operations.
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Gain (loss) on sales of marketable securities: The loss on the sales of our marketable securities are recorded in our statements of operations.
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Foreign exchange: The functional currency of our subsidiaries in
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Results of Operations
Comparison of the Years Ended
The following sets forth our results of operations for the years endedDecember 31, 2022 and 2021: Year Ended December 31, Change 2022 2021 Amount Percent (in thousands)
Operating expenses
Research and development
61,207 52,227 8,980 17%
Loss from operations (61,207 ) (52,227 ) (8,980 ) 17%
Other income (expense), net (417 ) 475 (892 ) -188%
Net loss $ (61,624 ) $ (51,752 ) $ (9,872 ) 19%
Research and development expenses
Research and development expenses were comprised of:
Year Ended December 31,
2022 2021 Change
(in thousands)
Preclinical studies and clinical
trial-related activities $ 26,488 $ 17,358 $ 9,130
Chemistry, manufacturing and control 7,019 9,989 (2,970 )
Personnel 9,331 7,383 1,948
Consultants and other costs 5,368 3,758 1,610
Total research and development expenses
Research and development expenses were
General and administrative expenses
General and administrative expenses were
Other income (expense), net
Other expense was
Liquidity and Capital Resources
Sources of Liquidity
Our operations to date have been financed primarily through our IPO, the
issuance of common stock through our at-the-market program and the issuance of
convertible preferred shares and convertible notes. Since inception, we have had
significant operating losses. On
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Form S-3, or the Registration Statement, which registers the offering, issuance
and sale of up to
Our net losses were
Cash Flows
The following table summarizes our cash flows for the periods indicated:
Year Ended
December 31,
2022 2021
(in thousands)
Net cash used in operating activities $ (42,932 ) $ (52,308 ) Net cash provided by (used in) investing activities 12,384 (48,048 ) Net cash provided by financing activities
507 -
Net decrease in cash and cash equivalents $ (30,041 ) $ (100,356 )
Cash used in operating activities of
Cash used in operating activities of
Cash provided by investing activities of
Cash used in investing activities of
Net Cash Provided by Financing Activities
Cash provided by financing activities of
We had no cash used in or provided by financing activities for the year ended
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Funding Requirements
Any product candidates we may develop may never achieve commercialization and we anticipate that we will continue to incur losses for the foreseeable future. We expect that our research and development expenses, general and administrative expenses, and capital expenditures will continue. As a result, until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity offerings, debt financings or other capital sources, including potentially collaborations, licenses and other similar arrangements. Our primary uses of capital are, and we expect will continue to be, compensation and related expenses; costs related to third-party clinical research, manufacturing and development services; costs relating to the build-out of our headquarters and other offices, our laboratories and our manufacturing facility; license payments or milestone obligations that may arise; laboratory expenses and costs for related supplies; clinical costs; manufacturing costs; legal and other regulatory expenses and general overhead costs.
Based upon our current operating plan, we believe that our existing cash, cash
equivalents and marketable securities of
Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical products, we are unable to estimate the exact amount of our operating capital requirements. Our future funding requirements will depend on many factors, including, but not limited to:
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the initiation, progress, timing, costs and results of preclinical studies and clinical trials for our product candidates, including GB0139, GB2064, GB1211 and any other product candidates we may develop in the future;
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the clinical development plans we establish for these product candidates;
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the number of, and development requirements for, other product candidates that we develop;
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the timelines of our clinical trials and the overall costs to finish the clinical trials due to geopolitical instability and conflict and economic challenges caused by the COVID-19 pandemic;
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the outcome, timing and cost of meeting regulatory requirements established by
the FDA, the
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our ability to enter into contract manufacturing arrangements for supply of active pharmaceutical ingredient, or API, and manufacture of our product candidates, and the terms of such arrangements;
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whether we are able to enter into and maintain collaboration agreements, including the terms of and timing of payments under any such agreements;
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the cost of filing, prosecuting, defending and enforcing our patent claims and other intellectual property rights;
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the cost of defending intellectual property disputes, including patent infringement actions brought by third parties against us or our product candidates;
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the extent to which we acquire or in-license other products, product candidates, or technologies;
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the effect of competing clinical, technological and market developments;
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the cost and timing of completion of commercial-scale outsourced manufacturing activities;
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changes in economic conditions, including rising inflation and interest rates, lower consumer confidence and volatile equity capital markets; and
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the costs of continuing to operate as a public company.
Further, our operating plans may change, and we may need additional funds to meet operational needs and capital requirements for clinical trials and other research and development activities. Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates, we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our current and anticipated product development programs.
Critical Accounting Policies and Significant Judgments and Estimates
Our management's discussion and analysis of our financial condition and results
of operations is based on our consolidated financial statements, which have been
prepared in accordance with
Research and Development Costs
We incur substantial expenses associated with clinical trials. Accounting for clinical trials relating to activities performed by CROs, CMOs and other external vendors requires management to exercise significant estimates in regard to the timing and accounting for these expenses. We estimate costs of research and development activities conducted by service providers, which include, the conduct of sponsored research, preclinical studies and contract manufacturing activities. The diverse nature of services being provided under CRO and other arrangements, the different compensation arrangements that exist for each type of service and the lack of timely information related to certain clinical activities complicates the estimation of accruals for services rendered by CROs, CMOs and other vendors in connection with clinical trials. We record the estimated costs of research and development activities based upon the estimated amount of services provided by the CRO, CMOs and other vendors but not yet invoiced and include these costs in the accrued and other current liabilities or prepaid expenses on the balance sheets and within research and development expense on the consolidated statements of operations. In estimating the duration of a clinical study, we evaluate the start-up, treatment and wrap-up periods, compensation arrangements and services received attributable to each clinical trial and fluctuations are regularly tested against payment plans and trial completion assumptions.
We estimate these costs based on factors such as estimates of the work completed and budget provided and in accordance with agreements established with our collaboration partners and third-party service providers. We make significant judgments and estimates in determining the accrued liabilities and prepaid expense balances in each reporting period. As actual costs become known, we adjust our accrued liabilities or prepaid expenses. We have not experienced any material differences between accrued costs and actual costs incurred since our inception.
Our expenses related to clinical trials are based on estimates of patient enrollment and related expenses at clinical investigator sites as well as estimates for the services received and efforts expended pursuant to contracts with multiple research institutions and CROs that may be used to conduct and manage clinical trials on our behalf. We generally accrue expenses related to clinical trials based on contracted amounts applied to the level of patient enrollment and activity. If timelines or contracts are modified based upon changes in the clinical trial protocol or scope of work to be performed, we modify our estimates of accrued expenses accordingly on a prospective basis.
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Stock-based Compensation
We have issued stock-based compensation awards through the granting of stock options, which generally vest over a four-year period. We account for stock-based compensation in accordance with ASC 718, Compensation-Stock Compensation, or ASC 718. In accordance with ASC 718, compensation cost is measured at estimated fair value and is recognized as compensation expense over the vesting period during which service is provided in exchange for the award.
We use a Black-Scholes option pricing model to determine fair value of our stock options. The Black-Scholes option pricing model includes various assumptions, including the fair value of common shares, expected life of stock options, the expected volatility based on the historical volatility of a publicly traded set of peer companies and the expected risk-free interest rate. These assumptions reflect our best estimates, but they involve inherent uncertainties based on market conditions generally outside our control. As a result, if other assumptions had been used, stock-based compensation cost could have been materially impacted. Furthermore, if we use different assumptions for future grants, share-based compensation cost could be materially impacted in future periods.
The fair value of our awards in the year ended
We will continue to use judgment in evaluating the assumptions utilized for our equity-based compensation expense calculations on a prospective basis. In addition to the assumptions used in the Black-Scholes model, the amount of equity-based compensation expense we recognize in our consolidated financial statements includes stock option forfeitures as they occurred. We recognize forfeitures as they occur, and the compensation expense is reversed in the period that the forfeiture occurs.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating losses and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted statutory tax rates expected to apply to taxable income in the jurisdictions and years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
Based on the level of historical operating results and projections for the taxable income for the future, we have determined that it is more likely than not that our net deferred tax assets will not be realized. Accordingly, we have recorded a full valuation allowance to reduce our deferred tax assets.
We recognize tax benefits from uncertain tax positions only if (based on the
technical merits of the position) it is more likely than not that the tax
positions will be sustained on examination by the tax authority. The tax
benefits recognized in the financial statements from such positions are measured
based on the largest amount that is more than 50% likely to be realized upon
ultimate settlement. We have not recorded any uncertain tax positions as of
We operate in multiple jurisdictions, both within and outside
Recently Adopted Accounting Pronouncements
Refer to Note 2, "Summary of Significant Accounting Policies," in the
accompanying notes to our consolidated financial statements for the years ended
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Contractual Obligations
We enter into contracts in the normal course of business with third-party service providers for clinical trials, preclinical research studies and testing, manufacturing and other services and products for operating purposes. We have not included our payment obligations under these contracts in the table, as these contracts generally provide for termination upon notice, and therefore, we believe that our non-cancelable obligations under these agreements are not material and we cannot reasonably estimate the timing of if and when they will occur. We could also enter into additional research, manufacturing, supplier and other agreements in the future, which may require up-front payments and even long-term commitments of cash.
Emerging Growth Company and Smaller Reporting Company Status
As an EGC under the JOBS Act, we may delay the adoption of certain accounting
standards until such time as those standards apply to private companies. Other
exemptions and reduced reporting requirements under the JOBS Act for EGCs
include presentation of only two years of audited consolidated financial
statements in a registration statement for an IPO, an exemption from the
requirement to provide an auditor's report on internal controls over financial
reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act, an exemption
from any requirement that may be adopted by the
In addition, the JOBS Act provides that an EGC can take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an EGC to delay the adoption of some accounting standards until those standards would otherwise apply to private companies. We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our consolidated financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
We may remain classified as an EGC until the end of the fiscal year following
the fifth anniversary of the completion of our IPO, although if the market value
of our common stock that is held by non-affiliates exceeds
We are also a "smaller reporting company," meaning that the market value of our
shares held by non-affiliates is less than
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