Galectin Therapeutics: Neutral On Belapectin For NASH Cirrhosis Amid Financial Challenges

Galectin Therapeutics Inc. (NASDAQ:GALT) is a biotechnology company focused on developing therapies that target galectin proteins related to conditions such as metabolic dysfunction-associated steatohepatitis (MASH), cirrhosis, and cancer. Galectins, specifically galectin-3, are involved in inflammation, fibrosis, and tumor growth by binding to carbohydrates on cell surfaces, stimulating pathological disease processes. Thus, GALT’s leading drug candidate, belapectin, is a galectin-3 inhibitor with promising results for treating NASH cirrhosis, a severe liver disease without an FDA-approved therapy.

Additionally, GALT is researching potentially new belapectin indications for fibrosis in different organs and cancer immunotherapy. However, I also see GALT’s challenged competitive position against MDGL’s already approved resmetirom and limited cash runway, which leads me to rate the stock as a “hold” for now.

Belapectin: Business Overview

Galectin Therapeutics develops targeted galectin therapies in biological mechanisms underlying pathological processes related to chronic liver diseases, metabolic dysfunction-associated steatohepatitis, cirrhosis, and cancer. The company’s leading product is belapectin, which GALT is researching across several potential indications such as NASH Cirrhosis, NASH Advanced Fibrosis, lung and kidney fibrosis, arrhythmia, and pulmonary arterial hypertension.

Galectins are proteins found in immune cells but are also produced by other cell types. These proteins bind to carbohydrates in cell surface proteins, acting like glue for molecules with sugar groups that facilitate various cellular processes. There are different subtypes of galectins, but galectin-3 is notably related to inflammation, fibrosis, and cancer. Galectin-3 contributes to fibrogenesis, leading to scarring and malfunctioning of organs, and is also associated with tumor growth because it promotes cell adhesion and migration. Thus, galectin-3 forms new blood vessels that help cancer cells proliferate. Note that some galectins are also related to the pathophysiology of endometriosis in the uterus and neuronal damage in neurodegenerative diseases like Alzheimer’s.

Therefore, GALT is developing compounds to bind and inhibit the galectin function to modulate their pathological part in diseases, reducing inflammation, fibrosis, and tumor advancement. Its pipeline includes the drug candidate belapectin [GR-MD-02], a galectin-3 inhibitor with several indications.

The research for non-alcoholic steatohepatitis [NASH] cirrhosis is in Phase 2b/3. Interim top-line results of this trial are expected in Q4 2024. Belapectin received a Fast Track Designation from the FDA for NASH, which is a metabolic dysfunction-associated steatohepatitis [MASH]. It is a condition characterized by fat proliferation, inflammation, and liver fibrosis. On the other hand, for NASH advanced fibrosis, belapectin is in phase 2, addressing an early stage of liver disease compared to cirrhosis. Belapectin is also preclinical for lung and kidney fibrosis, arrhythmia, and pulmonary arterial hypertension.

Additionally, GALT is studying belapectin in combination with other therapies for cancer immunotherapy. Belapectin plus Keytruda is in phase 1 and could potentially help with Melanoma and Head/Neck Cancer. This combination therapy aims to improve the efficacy of immunotherapy by inhibiting galectin-3, which is known to suppress immune responses. GALT is also working on belapectin in phase 2 for moderate to severe plaque psoriasis. The company is testing its effectiveness against this chronic inflammatory skin disease. Lastly, GALT has a discovery-stage program focused on subcutaneous and oral galectin-3 inhibitors, which are used for several conditions caused by this protein.

Market Dynamics and Strategic Focus

In March 2024, one of GALT’s competitors, Madrigal Pharmaceuticals (MDGL), received accelerated approval from the FDA for its drug Rezdiffra (resmetirom). Resmetirom is a NASH treatment indicated for moderate-to-advanced liver fibrosis, so it’d be a belapectin competitor for this indication. However, MDGL has far more resources than GALT, and pursuing a similar research line suggests a direct competitor for one of GALT’s main value drivers. Still, it’s worth noting that GALT’s belapectin theoretically has a broader range of potential applications. Also, belapectin’s most advanced trial is for cirrhosis.

Belapectin’s cirrhosis application allows GALT to potentially tap into a substantial unmet need in a patient population with limited therapy options. Moreover, since belapectin has a fast-track designation here, GALT should be able to leverage it to obtain accelerated approval from the FDA because it’s an urgently needed treatment alternative. According to the company’s most recent corporate presentation, GALT primarily focuses on cirrhosis treatment over advanced liver fibrosis because cirrhosis does not presently have an FDA-approved treatment.

Cirrhosis has an addressable market of 5 million patients in the US and is expected to become the leading cause of liver transplants. Hence, GALT’s cirrhosis indication for belapectin presents a substantial market opportunity for GALT. Fortunately, the drug has demonstrated efficacy and safety in phase 2/3b for NASH cirrhosis, delivering proof of concept with relevant clinical outcomes in preventing the development of varices in the liver and reducing portal hypertension. Belapectin also seems well-tolerated, and no adverse safety signals were detected. If approved, belapectin can prevent the cirrhosis progression, reducing the need for liver transplants.

Limited Runway: Valuation Analysis

From a valuation perspective, the company trades at a relatively tiny market cap of $170.3 million. GALT’s balance sheet as of Q1 2024 holds $23.6 million in cash and equivalents. However, it also has $31.1 million in convertible notes and borrowings (debt) of $51.3 million, totaling a total financial debt of $82.4 million. I also estimate that the company’s latest quarterly cash burn was $12.1 million by adding its CFOs and Net CAPEX. This means the annual cash burn rate is $48.4 million, which implies a concerning cash runway of just 0.5 years. This suggests a high likelihood of GALT issuing more debt or making an equity offering that would lead to shareholder dilution in the near term.

Nevertheless, it’s worth mentioning that GALT’s board chairman is Richard E. Uihlein, an American billionaire heir to the Schlitz brewing fortune, with an estimated net worth of $6.8 billion. Mr. Uihlein has personally loaned GALT in the past, and I suspect this could be a potential financing source going forward as well. So, while the company’s cash burn is concerning, I think it likely has substantial potential backing through Mr. Uihlein. Also, GALT disclosed that it has enough resources to operate until May 2025, which exceeds my cash runway estimate. Thus, it’s likely that the company anticipates using its lines of credit and reducing some of its cash burn.

However, from a retail investor’s point of view, GALT is not expected to generate any revenues in the foreseeable future. Using its balance sheet figures, it has a negative book value of $73.3 million due to its accumulated losses of $365.9 million so far. We can’t price GALT through typical valuation multiples such as P/S or P/B. The only valuation reference point we can use is its total assets, which stand at just $25.9 million, against total liabilities of $97.0 million.

Hence, its $170.3 million market cap appears somewhat stretched by comparison, but it’s likely pricing in belapectin’s potential FDA approval for NASH Cirrhosis, which is in phase ⅔b. But even then, it’s important to remember that MDGL’s resmetirom already has a headstart on GALT’s belapectin and is a much larger competitor. In November 2023, I wrote about MDGL’s potential with resmetirom, so I don’t think that capturing market share will be easy even if GALT receives FDA approval for NASH. Thus, I believe that on balance, it’s prudent to lean neutral on GALT, which is why I rate it a “hold” for now.

Caveats: Risk Analysis

The major caveat to my “hold” rating is that GALT’s stock is effectively a microcap in biotech. This means it’s highly susceptible to huge price fluctuations upon news that might affect its outlook. If GALT announced a significant breakthrough with belapectin, its stock would surely increase rapidly. However, even if this occurred, investors must remember that the company’s cash runway is limited, and its balance sheet is already loaded with debt.

Moreover, even in GALT’s blue-skies scenario, approval still seems years away. I see no revenue generation for the foreseeable future, and its cash constraints loom large. So, in the interim, the company’s cash burn will likely continue to erode shareholder value. Plus, while GALT focuses the next few years on obtaining a belapectin approval for cirrhosis, MDGL’s resmetirom will continue cementing a foothold in this market.

It’s true that GALT’s belapectin specifically targets NASH cirrhosis, while MDGL’s resmetirom is indicated for NASH (non-alcoholic steatohepatitis) with fibrosis (an earlier stage than cirrhosis). Yet, MDGL’s MAESTRO-NASH and MAESTRO-NAFLD-1 trials could lead to resmetirom’s FDA approval in cirrhosis, which means their targeted patient populations will overlap. So, I think GALT is worth adding to your watch list, but I don’t think it’s a good investment today. Maybe it’ll go on sale and become more compelling in the future, or its research will progress further to reassess my “hold” rating. But for now, I would stay on the sidelines.

Watch list For Now: Conclusion

Overall, GALT has a promising drug candidate with belapectin that seems flexible, as it could eventually obtain FDA approvals across several indications. However, for now, GALT is not expected to generate any revenues for the foreseeable future, and it continues to burn cash at a concerning rate. My cash runway estimate is less than one year, which suggests it’ll load up on more debt or resort to an equity offering relatively soon. This, coupled with a challenged competitive position against MDGL’s already approved resmetirom, leads me to rate the stock a “hold” for now. However, I think GALT is worth adding to your watch list, as it could go on sale in the future, presenting a more compelling investment proposition.