SEC Filing | Galecto

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10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to _______________

Commission File Number: 001-39655

GALECTO, INC.

(Exact Name of Registrant as Specified in its Charter)


Delaware	37-1957007
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

Ole Maaloes Vej 3 DK-2200 Copenhagen N Denmark	N/A

75 State Street, Suite 100 Boston, MA 02109	02109
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (+45) 70 70 52 10

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered

Common Stock, par value $0.00001 per share	GLTO	The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of April 26, 2023, the registrant had 25,673,474 shares of common stock, $0.00001 par value per share, outstanding.

Table of Contents


		Page
	PART I. FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements (Unaudited)	4
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Operations and Comprehensive Loss	5
	Condensed Consolidated Statements of Changes in Stockholders’ Equity	6
	Condensed Consolidated Statements of Cash Flows	7
	Notes to Unaudited Interim Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26
Item 4.	Controls and Procedures	27

	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	28
Item 1A.	Risk Factors	28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28
Item 3.	Defaults Upon Senior Securities	28
Item 4.	Mine Safety Disclosures	28
Item 5.	Other Information	28
Item 6.	Exhibits	29
Signatures		30

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of historical fact are “forward-looking statements” for purposes of this Quarterly Report on Form 10-Q. In some cases, you can identify forward-looking statements by terminology such as “may,” “could,” “will,” “would,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “intend,” “predict,” “seek,” “project,” “continue,” “potential,” “ongoing,” or the negative of these terms or other comparable terminology. These forward-looking statements include, but are not limited to, statements regarding:

•

the success, cost and timing of our product development activities and planned initiation and completion of clinical trials of our most advanced product candidate, GB0139, and our other current fibrosis and oncology product candidates, including GB2064 and GB1211, and any future product candidates;

•

our need to raise additional funding;

•

our ability to obtain regulatory approval for our current or future product candidates that we may identify or develop;

•

our ability to ensure adequate supply of our current or future product candidates;

•

our ability to maintain third-party relationships necessary to conduct our business;

•

our heavy dependence upon the success of our research to generate and advance additional product candidates;

•

our ability to establish an adequate safety or efficacy profile for our current or future product candidates that we may pursue;

•

the implementation of our strategic plans for our business, our current or future product candidates we may develop and our technology;

•

our intellectual property position, including the scope of protection we are able to establish and maintain for intellectual property rights covering our product candidates and technology;

•

the rate and degree of market acceptance and clinical utility for our current or future product candidates we may develop;

•

our estimates about the size of our market opportunity;

•

our estimates of our expenses, future revenues, capital requirements and our needs for additional financing;

•

our ability to maintain and establish collaborations;

•

our financial performance and liquidity;

•

our ability to effectively manage our potential growth;

•

developments relating to our competitors and our industry, including the impact of government regulation;

•

our ability to retain the continued service of our key professionals and consultants and to identify, hire and retain additional qualified professionals;

•

our ability to maintain adequate internal controls over financial reporting;

•

the effects of global economic uncertainty and financial market volatility caused by economic effects of rising inflation and interest rates, the COVID-19 pandemic, geopolitical instability, changes in international trade relationships and conflicts, such as the ongoing conflict between Russia and Ukraine, on any of the foregoing or other aspects of our business or operations; and

•

other risks and uncertainties, including those listed under the section titled “Risk Factors.”

These statements relate to future events or to our future financial performance and involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, the reasons described elsewhere in this Quarterly Report on Form 10-Q and those set forth in Part I, Item 1A - “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. Any forward-looking statement in this Quarterly Report on Form 10-Q reflects our current view with respect to future events and is subject to these and other risks, uncertainties, and assumptions relating to our operations, results of operations, industry, and future growth. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

This Quarterly Report on Form 10-Q also contains estimates, projections, and other information concerning our industry, our business, and the markets for certain drugs, including data regarding the estimated size of those markets, their projected growth rates, and the incidence of certain medical conditions. Information that is based on estimates, forecasts, projections, or similar methodologies is inherently subject to uncertainties, and actual events or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained these industry, business, market, and other data from reports, research surveys, studies, and similar data prepared by third parties, industry, medical and general publications, government data, and similar sources. In some cases, we do not expressly refer to the sources from which these data are derived.

Except where the context otherwise requires, in this Quarterly Report on Form 10-Q, “we,” “us,” “our,” “Galecto,” and the “Company” refer to Galecto, Inc. and, where appropriate, its consolidated subsidiaries.

Trademarks

We have applied for various trademarks that we use in connection with the operation of our business. This Quarterly Report on Form 10-Q includes trademarks, service marks, and trade names owned by us or other companies. All trademarks, service marks, and trade names included in this Quarterly Report on Form 10-Q are the property of their respective owners. Solely for convenience, the trademarks and trade names in this report may be referred to without the ® and ™ symbols, but such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto.

iii

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

GALECTO, INC.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share amounts)


	March 31,			December 31,
	2023			2022
Assets	(unaudited)
Current assets
Cash and cash equivalents	$	25,068		$	32,786
Marketable securities		28,179			27,438
Prepaid expenses and other current assets		3,881			3,686
Total current assets		57,128			63,910
Marketable securities, non-current		3,964			5,832
Operating lease right-of-use asset		704			810
Equipment, net		345			357
Other assets, non-current		2,489			2,279
Total assets	$	64,630		$	73,188
Liabilities and stockholders’ equity
Current liabilities
Accounts payable	$	3,550		$	3,350
Accrued expenses and other current liabilities		10,513			7,757
Total current liabilities		14,063			11,107
Operating lease liabilities, non-current		234			328
Total liabilities		14,297			11,435
Commitments and contingencies (Note 9)
Stockholders’ equity
Preferred stock, par value of $0.00001 per share; 10,000,000 shares authorized at March 31, 2023 and December 31, 2022; no shares issued or outstanding as of March 31, 2023 and December 31, 2022		—			—
Common stock, par value of $0.00001 per share; 300,000,000 shares authorized at March 31, 2023 and December 31, 2022; 25,673,474 and 25,652,392 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively		—			—
Additional paid-in capital		281,190			279,733
Accumulated deficit		(230,730	)		(217,736	)
Accumulated other comprehensive loss		(127	)		(244	)
Total stockholders’ equity		50,333			61,753
Total liabilities and stockholders' equity	$	64,630		$	73,188

See accompanying notes to the unaudited interim condensed consolidated financial statements.

Galecto, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except share and per share amounts)

(Unaudited)


	Three Months Ended March 31,
	2023			2022
Operating expenses
Research and development	$	10,362		$	13,235
General and administrative		3,130			3,704
Total operating expenses		13,492			16,939
Loss from operations		(13,492	)		(16,939	)
Other income (expense), net
Interest income, net		434			61
Foreign exchange transaction gain (loss), net		64			(60	)
Total other income, net		498			1
Net loss	$	(12,994	)	$	(16,938	)
Net loss per common share, basic and diluted	$	(0.51	)	$	(0.67	)
Weighted-average number of shares used in computing net loss per common share, basic and diluted		25,672,902			25,261,832
Other comprehensive loss, net of tax
Currency translation gain (loss)		25			(170	)
Unrealized gain (loss) on marketable securities		92			(205	)
Other comprehensive gain (loss), net of tax		117			(375	)
Total comprehensive loss	$	(12,877	)	$	(17,313	)

See accompanying notes to the unaudited interim condensed consolidated financial statements.

Galecto, Inc.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(in thousands, except share amounts)

(Unaudited)


For the Three Months Ended	Common Stock				Additional Paid-In		Accumulated			Accumulated Other Comprehensive			Total Stockholders’
March 31, 2023	Shares		Amount		Capital		Deficit			Income (Loss)			Equity
Balance at December 31, 2022		25,652,392	$	—	$	279,733	$	(217,736	)	$	(244	)	$	61,753
Stock-based compensation expense		—		—		1,434		—			—			1,434
Issuance of common stock; net of issuance costs		21,082		—		23		—			—			23
Other comprehensive gain, net		—		—		—		—			117			117
Net loss		—		—		—		(12,994	)		—			(12,994	)
Balance at March 31, 2023		25,673,474	$	—	$	281,190	$	(230,730	)	$	(127	)	$	50,333

For the Three Months Ended	Common Stock				Additional Paid-In		Accumulated			Accumulated Other Comprehensive			Total Stockholders’
March 31, 2022	Shares		Amount		Capital		Deficit			Income (Loss)			Equity
Balance at December 31, 2021		25,261,832	$	—	$	273,655	$	(156,112	)	$	(320	)	$	117,223
Stock-based compensation expense		—		—		1,404		—			—			1,404
Other comprehensive loss, net		—		—		—		—			(375	)		(375	)
Net loss		—		—		—		(16,938	)		—			(16,938	)
Balance at March 31, 2022		25,261,832	$	—	$	275,059	$	(173,050	)	$	(695	)	$	101,314

See accompanying notes to the unaudited interim condensed consolidated financial statements.

GALECTO, INC.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)


	Three Months Ended
	March 31,
	2023			2022
Cash flows from operating activities:
Net loss	$	(12,994	)	$	(16,938	)
Adjustment to reconcile net loss to net cash used in operating activities:
Depreciation		18			8
Stock-based compensation		1,434			1,404
Amortization of premiums and discounts on marketable securities		(154	)		264
Amortization of right of use lease asset		121			110
Accretion of lease liability		16			16
Changes in operating assets and liabilities:
Prepaid expenses and other current assets		(194	)		6,478
Other assets, noncurrent		(212	)		(770	)
Accounts payable		200			1,684
Accrued expenses and other current liabilities		2,779			1,061
Operating lease liabilities		(148	)		(114	)
Net cash used in operating activities		(9,134	)		(6,797	)
Cash flows from investing activities:
Purchases of marketable securities		(12,751	)		(26,385	)
Proceeds from sale of marketable securities		14,125			16,221
Purchases of property and equipment		—			(43	)
Net cash provided by (used in) investing activities		1,374			(10,207	)
Cash flows from financing activities:
Proceeds from issuance of common stock, net of issuance costs		23			—
Net cash provided by financing activities		23			—
Net decrease in cash, cash equivalents and restricted cash		(7,737	)		(17,004	)
Effect of exchange rate changes on cash, cash equivalents and restricted cash		19			(171	)
Cash, cash equivalents and restricted cash, beginning of period		32,786			62,563
Cash, cash equivalents and restricted cash, end of period	$	25,068		$	45,388
Supplemental disclosures of cash flow information:
Cash paid for taxes	$	—		$	—
Supplemental disclosures of noncash activities:
Operating lease liabilities arising from obtaining right-of-use assets	$	—		$	—

See accompanying notes to the unaudited interim condensed consolidated financial statements.

GALECTO, INC.

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

1. DESCRIPTION OF BUSINESS, ORGANIZATION AND LIQUIDITY

Business and Organization

Galecto, Inc., together with its consolidated subsidiaries (the “Company” or “Galecto”), is a clinical-stage biotechnology company developing novel therapeutics that are designed to target the biological processes that lie at the heart of fibrotic diseases and cancer. The Company’s initial focus is on the development of small molecule inhibitors of galectin-3 and lysyl oxidase-like 2 ("LOXL2”), which play key roles in regulating fibrosis and cancer.

As of March 31, 2023, the Company’s wholly owned subsidiaries were PharmAkea, Inc. or PharmAkea, Galecto Securities Corporation, and Galecto Biotech AB, a Swedish company. Galecto Biotech ApS, a Danish operating company, is a wholly-owned subsidiary of Galecto Biotech AB.

Risks and uncertainties

The Company is subject to risks common to companies in the biotechnology industry, including, but not limited to, new technological innovations, protection of proprietary technology, dependence on key personnel, compliance with government regulations and the need to obtain additional financing. Product candidates currently under development will require significant additional research and development efforts, including extensive preclinical and clinical testing and regulatory approval, prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel infrastructure and extensive compliance reporting capabilities.

The Company’s product candidates are in development. There can be no assurance that the Company’s research and development will be successfully completed, that adequate protection for the Company’s intellectual property will be obtained, that any products developed will obtain necessary government regulatory approval or that any approved products will be commercially viable. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will generate significant revenue from product sales. The Company operates in an environment of rapid change in technology and substantial competition from pharmaceutical and biotechnology companies. In addition, the Company is dependent upon the services of its employees and consultants.

Liquidity and management plans

Since inception, the Company has devoted substantially all its efforts to business planning, research and development,

recruiting management and technical staff and raising capital, and has financed its operations primarily through the issuance of redeemable convertible preferred shares, debt financings, the Company’s initial public offering (“IPO”) and sales of the Company's common stock in "at-the-market" offerings.

As of March 31, 2023, the Company had an accumulated deficit of $230.7 million, from recurring losses since inception in 2011. The Company has incurred recurring losses and has no sales as none of its product candidates have obtained the necessary regulatory approval for commercialization and to be marketed as approved products. The Company expects to continue to incur losses as a result of costs and expenses related to the Company’s clinical development and corporate general and administrative activities. The Company had negative cash flows from operating activities during the three months ended March 31, 2023 and 2022 of $9.1 million and $6.8 million, respectively, and current projections indicate that the Company will have continued negative cash flows for the foreseeable future as it continues to develop its product candidates. Net losses incurred for the three months ended March 31, 2023 and 2022 were $13.0 million and $16.9 million, respectively.

At March 31, 2023, the Company’s cash, cash equivalents and marketable securities amounted to $57.2 million and current assets amounted to $57.1 million and current liabilities amounted to $14.1 million. At December 31, 2022, the Company’s cash, cash equivalents and marketable securities amounted to $66.1 million, current assets amounted to $63.9 million and current liabilities amounted to $11.1 million.

In the future, the Company will consider the following ways to fund its operations including: (1) raising additional capital through equity and/or debt financings; (2) new commercial relationships to help fund future clinical trial costs (i.e. licensing and partnerships); (3) reducing spending on one or more research and development programs by discontinuing development; and/or (4) restructuring operations to change its overhead structure. Volatility in equity capital markets may adversely affect the market price of the Company’s shares of common stock, which may materially and adversely affect the Company’s ability to fund its business through public or private sales of equity securities. The Company’s future liquidity needs, and ability to address those needs, will largely be determined by the success of its product candidates, key developments and regulatory events.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying interim condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”).

The accompanying interim condensed consolidated financial statements as of March 31, 2023 and for the three months ended March 31, 2023 and 2022, and related interim information contained within the notes to the interim condensed consolidated financial statements, are unaudited. In management’s opinion, the unaudited interim condensed consolidated financial statements have been prepared on the same basis as the Company’s audited consolidated financial statements and include all adjustments (including normal recurring adjustments) necessary for the fair presentation of the Company’s financial position as of March 31, 2023, results of operations, statement of stockholders’ equity for the three months ended March 31, 2023 and 2022 and its cash flows for the three months ended March 31, 2023 and 2022. All intercompany balances and transactions have been eliminated. These unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and accompanying notes contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, as filed with the Securities and Exchange Commission (“SEC”) on March 9, 2023 ("2022 Consolidated Financial Statements"). The results for the three months ended March 31, 2023 are not necessarily indicative of the results expected for the full fiscal year or any interim period.

For the three months ended March 31, 2023, there have been no changes to the significant accounting policies as disclosed in Note 2 to the 2022 Consolidated Financial Statements.

Recently issued accounting standards

The Company periodically reviews new accounting standards that are issued and has not identified any new standards that it believes merit further discussion or would have a significant impact on its financial statements.

3. INVESTMENTS

Cash in excess of the Company’s immediate requirements is invested in accordance with the Company’s investment policy that primarily seeks to maintain adequate liquidity and preserve capital.

A summary of the Company’s available-for-sale investments as of March 31, 2023 and December 31, 2022 consisted of the following (in thousands):


	At March 31, 2023
	Amortized		Gross Unrealized		Gross Unrealized			Fair
Marketable securities:	Cost		Gains		Losses			Value
Corporate bonds	$	28,269	$	—	$	(90	)	$	28,179
Total	$	28,269	$	—	$	(90	)	$	28,179
Marketable securities, noncurrent:
Corporate bonds	$	4,047	$	—	$	(83	)	$	3,964
Total	$	4,047	$	—	$	(83	)	$	3,964

	At December 31, 2022
	Amortized		Gross Unrealized		Gross Unrealized			Fair
Marketable securities:	Cost		Gains		Losses			Value
Corporate bonds	$	27,573	$	—	$	(135	)	$	27,438
Total	$	27,573	$	—	$	(135	)	$	27,438
Marketable securities, noncurrent:
Corporate bonds	$	5,963	$	—	$	(131	)	$	5,832
Total	$	5,963	$	—	$	(131	)	$	5,832

4. PROPERTY AND EQUIPMENT, NET

Property and equipment as of March 31, 2023 consisted of the following (in thousands):


	March 31,			December 31,
	2023			2022
Equipment	$	425		$	419
Less: accumulated depreciation		(80	)		(62	)
Equipment, net	$	345		$	357

Depreciation expense for the three months ended March 31, 2023 and 2022 was $18,000 and $8,000, respectively.

5. FAIR VALUE MEASUREMENTS

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value are performed in a manner to maximize the use of observable inputs and minimize the use of unobservable inputs.

The Company classified its money market funds within Level 1 because their fair values are based on their quoted market prices. The Company classified its debt securities within Level 2 because their fair values are determined using alternative pricing sources or models that utilized market observable inputs.

A summary of the assets that are measured at fair value as of March 31, 2023 and December 31, 2022 is as follows (in thousands):


	Fair Value Measurement at March 31, 2023
Assets:	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Money market funds(1)	$	17,017	$	17,017	$	—	$	—
Debt securities		32,143		—		32,143		—
Total	$	49,160	$	17,017	$	32,143	$	—

	Fair Value Measurement at December 31, 2022
Assets:	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Money market funds(1)	$	16,445		16,445		—		—
Debt securities		33,270		—		33,270		—
Total	$	49,715	$	16,445	$	33,270	$	—

(1)

Money market funds with maturities of 90 days or less at the date of purchase are included within cash and cash equivalents in the accompanying condensed consolidated balance sheets and are recognized at fair value.

6. PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consist of the following (in thousands):


	March 31,		December 31,
	2023		2022
Contract research and development costs	$	1,938	$	1,450
Research and development tax credit receivable		804		792
Prepaid insurance costs		560		805
Value-added tax refund receivable		418		587
Other		161		52
Total prepaid expenses and other current assets	$	3,881	$	3,686

7. LEASES

The Company has the following operating leases:


Location	Primary Use	Lease Expiration Date	Renewal Option
Copenhagen, Denmark	Corporate headquarters	January 2025	None
London, United Kingdom	Office space	February 2024	None
Gothenburg, Sweden	Office space	May 2023	None
Stevenage, United Kingdom	Laboratory space	August 2025	None

The Company has no finance leases and has elected to apply the short-term lease exception to all leases of one year or less. Rent expense for the three months ended March 31, 2023 and 2022 was $0.1 million during both periods.

Quantitative information regarding the Company’s leases for the three months ended March 31, 2023 and 2022 was as follows: