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GALT’s Bear Theses Deconstructed

Last Updated on May 1, 2019 by Sultan Beardsley

Before beginning let’s get one thing clear. We are NOT bearish on Galectin Therapeutics. Read one of our several articles (1, 2, 3, 4, 5) on GALT to learn  why we feel so bullish on this stock.  

In this article we try to deconstruct the main bear theses on Galectin Therapeutics (NASDAQ: GALT). Galectin Therapeutics is a small cap biotech stock with a rocky past and therefore has been a perfect target for notable biotech commentator Adam Feuerstein, a journalist at STAT. He has a twitter following of close to 80 thousand people and follows an incomprehensible number of biotech companies. How can one man know so much? Is he a Jim Cramer clone? The real question investors want to know is: Does he move markets? The answer is “yes,” but is there substance? How does he get his information so fast? Adam does both positive and negative pieces, and his work is very controversial and generates buzz, but his track record, like everyone else, is not perfect.

Galectin Therapeutics has been a prime target of Adam’s since they promoted their stock years ago in order to raise money from an offering. The most important question investors should ask: Have they used that money to produce an impressive drug? We think the following figures say it all.

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GR-anti tumor

pet scan 2pet scan 1

water fall chart
Waterfall plot depicting the doubling of patient response rates to treatment with Keytruda+GRMD02 vs Keytruda alone (62.5% vs 33%)

But according to Adam Feuerstein, definitely not. Here’s the top ten reasons why many bears may think that Galectin Therapeutics has not developed the fibrosis, cancer, or autoimmune treatment silver bullet.

    1. It’s apple juice.
    1. They “data mined the f–k” out of it.
    1. Insiders are selling stock.
    1. Failure to meet NASH endpoints. DOSING
    1. Cancer data lacks statistical relevance.
    1. The CEO/CMO recently resigned.
    1. Only $11M cash in the bank. Dilution is imminent
    1. The drug didn’t get breakthrough therapy – how can it be that good?
  1. Richard Uihlein has no experience in clinical stage biotech and pharmaceuticals and equally little experience with publicly traded companies.

1) It’s apple juice.

Sure, fruit is healthy. But how can apples ever reverse fibrosis, subside autoimmune diseases, and treat cancer?

Well, first of all, it isn’t apple juice. GR-MD-02, a galactoarabino- rhamnogalacturonan polysaccharide polymer, is derived from apple cell walls and hydrolyzed to increase solubility and binding ability. Furthermore, Galectin Therapeutics has a proprietary, patented carbohydrate discovery process, allowing them to develop specific carbohydrates for binding to different galectins.

You can drink apple juice all you want or even chug Adam Feuerstein’s Kool-Aid, but you won’t be getting any GR-MD-02, and you certainly won’t be inhibiting any galectin-3. Galectin-3 is differentiated in structure compared with other galectin proteins, and therefore it has behaves differently in the body, and has a different binding affinity for different geometries of carbohydrates due to its unique carbohydrate recognition domain. Who would have thought that a galactose-binding lectin would bind to a carbohydrate, a polysaccharide? The notion that the drug can’t work because it comes from such a simple source is unfounded and irrationale. In fact did you know that 50% of modern day pharmaceuticals are derived from natural sources?  Even Aspirin was first extracted from the bark of willow trees. 

2)  They “data mined the f–k” out of it.

Galectin Therapeutics’ GR-MD-02 was found to statistically significant in treating non-alcoholic steatohepatitis cirrhosis patients without esophageal varices. It successfully reduced their hepatic venous pressure gradients. However, the HVPG of patients with varices decreased on average, but not in a statistically significant manner.

Varices? What do the varices have to do with anything? Did the treatment also work in the subgroup of patients with long noses? Pinocchio said it worked on him!

Well, varices affect the pressure gradient of the liver. Their presence diverts blood flow around the liver, thereby reducing blood flow through the liver. Therefore, according to simple fluid mechanics (we are not accounting for blood being a shear thinning fluid, so that our analysis is simpler – the concept is still applicable), we can deduce that the reduction in overall liver blood flow will result in less of a change in HVPG compared to liver function/fibrosis.

Here’s another way to think about it. Think of a clogged dam. The water level rises until the water starts spilling out over the top of the dam. Even if the clog is partially removed, it might not increase the flow rate quite enough to bring the water level way back down to normal levels. I believe that the improvements to cirrhosis patients without varices existed. They were just not statistically relevant when measured via HVPG. It is possible that a longer treatment period would continually, slowly reverse fibrosis or cirrhosis, as the disease itself takes decades to develop.

3)  Insider selling

Yep, they are selling – but you have to look at who is selling.  These insiders have some of the worst track records when it comes to selling stock, and they are Peter Traber fans.  In March 2018 (SHELVINS TWEET)can’t find a tweet… before the shareholder meeting to elect new directors they signed up for a 10b-5 plan.   They cannot change this plan unless of course they like being sued. The lack of vision in setting price targets serves to demonstrate just how bad Traber was at valuing the company and why his departure was so welcome.  Even though these are some of the first insider sells its very helpful to look at their track record during the ATM sales. It is nothing short of abysmal, because they drove the stock down from $6.00 to under $1.00 giving the company a massive hit of dilution at $1.00.  These guys have a history at selling at the wrong time. Imagine following the track record of fund mgr Peter who loses on 99% of trades he does and then a friend of your said “hey this fund manager is buying this stock” and encourages you to get some. That means there is a 99% chance that they are selling at the wrong time.  Now look at Uihlein confidant Joel Lewis with a small insider purchase as a token of his support. 

Another reason the selling shouldn’t concern you is because the evidence suggest it is part of a plan for non-dilutive funding of the NASH Phase 3 study via warrant conversion. To convert warrants you need cash. One way to generate cash is by selling shares! And what do you know, looking at the form S-3/A filed a few weeks ago, all the preferred shareholders are selling roughly the same percentage of their shares amounting to the cash needed for warrant conversion . A coincidence? Definitely not. In the end, the company gets around 25 million dollars raising their cash position to about 45 million dollars and insider share counts remains the same, or likely increases since some warrants are at strike prices way below GALT’s current market value. Read this article to learn more.

4)  Failed to meet the NASH endpoint

If they failed to meet the endpoint in the total patient population, does it really matter in the grand scheme of things? NO – because the FDA granted them the opportunity to do a phase 3 study. Why? Because they unequivocally discovered that half the patients (those without varcies) experienced a significant treatment benefit. The reason you want to hit your endpoint in the total patient population is because then there is a higher chance the FDA permits advancement to the next phase.  There are instances when a drug might hit its endpoint but the FDA requests more safety or efficacy testing. That did not happen here.  When the FDA acknowledged GALT could move forward with phase 3, they are indirectly acknowledged the data demonstrated a significant treatment effect in NASH-cirrhosis patients without varices.

5)  Cancer Data Lacks Statistical Relevance

What makes a dataset statistically relevant? Differences of mean, lack of variance, and large enough sample size to prove it. So, are GALT’s cancer results relevant? GR-MD-02 has only been tested in less than 10 patients so far, with results posted. However, with a dose dependent trial, and 100% (3/3) of Keytruda/GR-MD-02 patients responding to higher dosage of GR-MD-02 (4 mg/kg) compared to a 33% response of Keytruda alone, you don’t need much of a statistical analysis to come to a reasonable conclusion. The even higher dose of GR-MD-02 (8 mg/kg) may even have a higher number of complete responses and a comparable ORR. Furthermore,   look at the before and after pictures of the cancer patients, and tell that to the patients that they aren’t statistically relevant. While GALT’s cancer combination immunotherapy results are statistically relevant, the naysayers are still sadistically relevant. Lastly, the waterfall plot depicted above suggests Keytruda-GRMD02 treatment in melanoma is dose dependent. Meaning as the dose strength increases so does the patient responses. In the 3rd cohort the dose strength increases from 4 mg/kg to 10 mg/kg. 

6)  The CEO/CMO recently resigned.

The CEO/CMO was Peter Traber. He had an Elvis themed wedding and that is one of Feuerstein’s favorite digs on the guy.  Traber was a decent guy, but a control freak, which led to his resignation. He thought of himself as a storyteller and an educator but all he did was bore investors with concepts well above their heads.  His LinkedIn profile showed that he was in full control of GALT and its press releases, and after dealing really poorly with Feuerstein, he got into a shareholder lawsuit that vindicated GALT, but was a drag on the press releases ever since. Although Traber was a good scientist, the “apple juice” is fully developed and manufacturable, ready for a phase 3 trial in NASH cirrhosis, and therefore easily be managed by someone else.

7)  Only ~$10M cash in the bank. Dilution is imminent.

This claim is blatantly false. They have sufficient funding through June 2019, plenty of time for executives to secure a buyout, partnership, or licensing, agreement and capitalize on the sizable transaction bonuses in store for them if they achieve one this year. We think this is a realistic expectation, especially given engagement of Back Bay Transaction advisory. Furthermore regarding their cash position, shorts seem to forget that GALT has an untapped $10 million dollar credit line. And if our thesis regarding warrant conversion plays out will bring GALT to around $45 million in cash; greatly strengthening their bargaining position with big pharma. 

Answer this for me shorts. If they were going to dilute, why wouldn’t they issue an offering in June when the share price was at $9.50 and were approved for phase 3? Hmm would love to hear your answers.

8)  The drug didn’t get breakthrough designation (BTD). How can it be that good?

Rejection GALT’s BTD request by the FDA was a controversial among investors and a point of disagreement between GALT and the FDA. Nonetheless, reflecting back now it seems utterly insignificant. The real win was FDA approval for advancement to a NASH-cirrhosis phase 3 study targeting patients with cirrhosis but not varcies. And the slam dunk endpoints for it deemed acceptable by the FDA. The same endpoints achieved in all of the patients without varcies in the NASH phase 2 trial.

9) – Richard Uihlein has no experience in clinical stage biotech and pharmaceuticals and equally little experience with publicly traded companies.

Fact – Dick Uihlein inherited a small fortune which on top of his Stanford degree, he turned into nearly an estimated $5 billion company called Uline.

Question – Why would Uihlein devote time to an obscure publicly traded biotech company?

With a guest cottage grander than most people’s dream house, he accepts the role of Chairman of the Board of Galectin Therapeutics because he can lead a company with a compelling scientific compound and intellectual property into a variety of medical applications that can make profound and life saving differences in the lives of millions of people.

This isn’t bad for a guy who never needed to turnaround another company in his career. Plus, he’s never sold any of his two million plus shares of GALT stock. Dick Uihlein is a man of determination, success, and perseverance, and chances are good that he turns Galectin Therapeutics into a big success story.

I am/we are long GALT.

The ideas in this article are my own. I did not receive any compensation for writing it and have no business ties with Galectin Therapeutics.

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