Last Updated on January 15, 2019 by Sultan Beardsley
- Galectin Therapeutics (NASDAQ: GALT $3.80)
GALT is our number 1 stock pick for August, 2018. After a fundamental analysis we conclude the scientific data is credible & compelling, GALT is unjustly discounted 61% from it’s 52 week high in June, and upcoming catalysts may propel the stock upward to new highs. Moreover, GALT has a strong financial position and management is focused on selling the company as evident by large equity incentives; something shareholders have been cheering for. Last but not least, Richard Uihlien’s involvement as board chairman bolsters market sentiments regarding GALT’s outlook and ultimate fate.
The first thing we noticed about GALT was the data from NASH-Cirrhosis/Fibrosis, Cancer Immunotherapy, and Plaque Psoriasis clinical trials strongly support the company’s rationale that inhibition of Galectin-3 proteins by GR-MD-02 (GALT’s lead drug candidate) is an effective treatment for these diseases. Equally as important, the data is corroborated by independent scientific studies. For example, a paper published on NCBI in February, 2018 discusses using Galectin-3 as a bio-marker in disease diagnosis and suppressing it as a therapy to treat the diseases. NASH-cirrhosis (aka liver cirrhosis not induced by alcohol consumption) is in the spotlight as it’s the furthest along in the commercialization process and addresses an unmet medical need worth billions. Initial read out of GALT’s NASH-phase 2b study in December, 2017 was a bit of a flop because it failed to meet the primary endpoints in the total patient population. The market reacted as you’d guess and sent the share price below $2, but it quickly recovered when further analysis revealed that the endpoints were indeed achieved with statistical significance in patients without varices (1/2 of the total patient population). The company’s conclusion was validated on May 14th when the FDA approved proceeding with a phase 3 trial for GR-MD-02 as a treatment for NASH-cirrhosis in patients without varcies. Over the next month the share price skyrocketed as more positive news was delivered including electing billionaire and respected businessman Richard Uihlein as board chairman, replacement of company CEO, and engagement of transaction advisory organization Back Bay Life Sciences pushing the share price to a new 52 week high of $9.49 per share. So why on earth is GALT currently trading in the $3 dollar range? In our opinion this was driven by 4 primary factors.
- First- Investors like Zion and Sultan bought low before the run-up and sold high into the peak. Consequently, the share price started to pull back down without any additional catalyst to maintain the upward momentum.
- Second-Investors who bought high ($8-$9 dollar range) were disheartened and sold for a loss or broke even as the share price started slipping below what they paid. This triggered a chain reaction of selling all the way back down baseline levels.
- Third- Throughout July and August there was wild speculations that because GALT had not yet reported cancer data from cohort 3 of the phase 1b keytruda-GR-MD-02 immunotherapy study that it somehow meant the data was bad. But this was pure speculation. Objective and dutiful investors understand that GALT is not conducting the trial and has no control over when the data will be ready. It should be noted that the purpose of a phase 1 study is not to determine if the drug works, but only if it’s safe. In this case the beneficial treatment effect seen was a welcomed surprise and prompted the recruitment of cohort 3 to test a higher dose (8mg). Given that no safety concerns have been reported we expect Portland medical center to advance the study to phase 2.
- Fourth-Short selling played a significant role in the recent share price decline.
Because the 61% decrease in value was not driven by anything material (i.e. failed trial, missed earnings, etc.) we view this as a massive ‘sale’ on on shares of GALT that will likely only last a month. The bull thesis we formulated back in early 2018 still rings true and is bolstered by new developments mentioned above, in addition to GALT receiving a new patent for GR-MD-02 as a method and treatment for Pulmonary Fibrosis.
In GALT’s 2nd quarter earnings report and business update the company announced they have enough funding through June, 2019 and are patiently awaiting cancer data from Providence Medical Center in Portland OR.
GALT has $10.497 million dollars cash in the bank in addition to an untapped $10 million dollar credit line provided by the chairmen and 12% stakeholder Richard Uihlein. In the business update GALT informed shareholders that in addition to the Pulmonary Fibrosis patent they received a patent for GR-MD-02 as a Novel Carbohydrate Drug for the Treatment of Human Diseases. They reiterated advancement to a phase 3 clinical study for GR-MD-02 as a treatment for NASH-cirrhosis after receiving guidance and advice from the FDA. However, trial design, timeline, and costs were not provided indicating to us that the primary focus of GALT is to sell the company. This was already fairly obvious based on the fact that they engaged Back Bay Life Science Advisors to help them achieve “strategic alternatives” (i.e. a buyout, partnership, or licensing agreement) and substantial cash incentives for executives to achieve a deal by January, 2019 at the latest (Details can be found the May 29th, 2018 8K). To conclude I’d like to leave you with a quote from Dr. Harold Shlevin the company’s CEO that I couldn’t agree more with describing the potential for a ‘Galectin Franchise‘.
““Galectin Therapeutics has developed a novel compound, GR-MD-02, a galectin-3 inhibitor, which we believe has the potential to be effective in treating a wide range of diseases wherein elevated levels of galectin protein and inflammation play key roles in the pathophysiology of the diseases. Most immediately, we are focused on advancing our Phase 3 trial in NASH Cirrhosis. However, we continue to investigate a variety of other preclinical applications where research shows that GR-MD-02’s antifibrotic capabilities may help provide more effective treatment in a variety of conditions. We believe this is the best path to build value in our overall galectin franchise.”
Leave a comment below! What’s your outlook on GALT? Is there a biotech stock you like more right now? Any stock you’d like to see coverage on?
I am/we are long GALT
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with Galectin Therapeutics.