UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
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:
(Exact Name of Registrant as Specified in its Charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer |
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Ole Maaloes Vej 3 DK-2200 Copenhagen N Denmark |
N/A |
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02109 |
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(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Name of each exchange on which registered |
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The |
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.
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).
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.
Large accelerated filer |
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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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
As of August 7, 2024, the registrant had
Table of Contents
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Page |
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PART I. FINANCIAL INFORMATION |
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Item 1. |
4 |
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4 |
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Condensed Consolidated Statements of Operations and Comprehensive Loss |
5 |
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Condensed Consolidated Statements of Changes in Stockholders’ Equity |
6 |
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8 |
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Notes to Unaudited Interim Condensed Consolidated Financial Statements |
9 |
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
17 |
Item 3. |
29 |
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Item 4. |
30 |
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PART II. OTHER INFORMATION |
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Item 1. |
31 |
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Item 1A. |
31 |
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Item 2. |
31 |
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Item 3. |
31 |
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Item 4. |
31 |
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Item 5. |
31 |
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Item 6. |
33 |
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34 |
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i
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,” “contemplate,” “project,” “continue,” “potential,” “ongoing,” “goal,” or the negative of these terms or other comparable terminology. These forward-looking statements include, but are not limited to, statements regarding:
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, 2023. 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.
ii
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)
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June 30, |
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December 31, |
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2024 |
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2023 |
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Assets |
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(unaudited) |
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Current assets |
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Cash and cash equivalents |
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$ |
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$ |
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Marketable securities |
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— |
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Prepaid expenses and other current assets |
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Total current assets |
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Operating lease right-of-use asset |
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Equipment, net |
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Other assets, non-current |
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Total assets |
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$ |
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$ |
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Liabilities and stockholders’ equity |
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Current liabilities |
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Accounts payable |
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$ |
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$ |
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Accrued expenses and other current liabilities |
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Total current liabilities |
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Operating lease liabilities, non-current |
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— |
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Total liabilities |
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and contingencies (Note 9) |
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Stockholders’ equity |
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Preferred stock, par value of $ |
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Common stock, par value of $ |
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Additional paid-in capital |
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Accumulated deficit |
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( |
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( |
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Accumulated other comprehensive gain |
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Total stockholders’ equity |
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Total liabilities and stockholders' equity |
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$ |
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$ |
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See accompanying notes to the unaudited interim condensed consolidated financial statements.
4
Galecto, Inc.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(in thousands, except share and per share amounts)
(Unaudited)
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Three Months Ended |
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Six Months Ended |
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2024 |
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2023 |
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2024 |
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2023 |
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Operating expenses |
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Research and development |
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$ |
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$ |
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$ |
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$ |
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General and administrative |
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Restructuring costs |
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— |
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— |
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Total operating expenses |
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Loss from operations |
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( |
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( |
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( |
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( |
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Other income, net |
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Interest income, net |
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Foreign exchange transaction gain, net |
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( |
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Total other income, net |
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Loss before income tax expense |
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( |
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( |
) |
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( |
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( |
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Income tax expense |
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— |
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— |
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Net loss |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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$ |
( |
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Net loss per common share, basic and diluted |
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$ |
( |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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Weighted-average number of shares used in computing net loss |
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Other comprehensive loss, net of tax |
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Currency translation loss |
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( |
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( |
) |
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( |
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( |
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Unrealized gain on marketable securities |
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Other comprehensive gain (loss), net of tax |
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( |
) |
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( |
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( |
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Total comprehensive loss |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
See accompanying notes to the unaudited interim condensed consolidated financial statements.
5
Galecto, Inc.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
(in thousands, except share amounts)
(Unaudited)
Three Months Ended |
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Common Stock |
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Additional |
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Accumulated |
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Accumulated Other |
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Total |
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June 30, 2024 |
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Shares |
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Amount |
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Capital |
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Deficit |
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Income (Loss) |
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Equity |
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Balance at March 31, 2024 |
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$ |
— |
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$ |
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$ |
( |
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$ |
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$ |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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Issuance of common stock in connection with vesting of restricted stock units |
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— |
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— |
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— |
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Other comprehensive loss, net |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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Net loss |
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— |
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— |
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— |
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( |
) |
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— |
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( |
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Balance at June 30, 2024 |
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$ |
— |
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$ |
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$ |
( |
) |
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$ |
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$ |
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Three Months Ended |
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Common Stock |
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Additional |
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Accumulated |
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Accumulated Other |
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Total |
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June 30, 2023 |
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Shares |
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Amount |
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Capital |
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Deficit |
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Income (Loss) |
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Equity |
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Balance at March 31, 2023 |
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$ |
— |
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$ |
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$ |
( |
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$ |
( |
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$ |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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Issuance of common stock; net of issuance costs |
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— |
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— |
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— |
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Other comprehensive loss, net |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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Net loss |
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
Balance at June 30, 2023 |
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$ |
— |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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|||
See accompanying notes to the unaudited interim condensed consolidated financial statements.
6
Galecto, Inc.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
(in thousands, except share amounts)
(Unaudited)
Six Months Ended |
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Common Stock |
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Additional |
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Accumulated |
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Accumulated Other |
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Total |
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June 30, 2024 |
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Shares |
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Amount |
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Capital |
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Deficit |
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Income (Loss) |
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Equity |
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Balance at December 31, 2023 |
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$ |
— |
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$ |
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$ |
( |
) |
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$ |
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$ |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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Issuance of common stock in connection with vesting of restricted stock units |
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— |
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— |
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— |
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Other comprehensive loss, net |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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Net loss |
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— |
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— |
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— |
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( |
) |
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— |
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( |
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Balance at June 30, 2024 |
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$ |
— |
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$ |
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$ |
( |
) |
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$ |
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$ |
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Six Months Ended |
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Common Stock |
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Additional |
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Accumulated |
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Accumulated Other |
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Total |
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June 30, 2023 |
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Shares |
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Amount |
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Capital |
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Deficit |
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Loss |
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Equity |
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Balance at December 31, 2022 |
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$ |
— |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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Issuance of common stock; net of issuance costs of $ |
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— |
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— |
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— |
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Other comprehensive gain, net |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
Balance at June 30, 2023 |
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$ |
— |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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|||
See accompanying notes to the unaudited interim condensed consolidated financial statements.
7
GALECTO, INC.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
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Six Months Ended |
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June 30, |
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2024 |
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2023 |
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Cash flows from operating activities: |
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Net loss |
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$ |
( |
) |
|
$ |
( |
) |
Adjustment to reconcile net loss to net cash used in operating activities: |
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Depreciation |
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Stock-based compensation |
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Issuance of common stock in connection with vesting of restricted stock units |
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— |
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Amortization of premiums and discounts on marketable securities |
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( |
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Amortization of right of use lease asset |
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Accretion of lease liability |
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Changes in operating assets and liabilities: |
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Prepaid expenses and other current assets |
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Other assets, noncurrent |
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( |
) |
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( |
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Accounts payable |
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( |
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Accrued expenses and other current liabilities |
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( |
) |
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Operating lease liabilities |
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( |
) |
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( |
) |
Net cash used in operating activities |
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( |
) |
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( |
) |
Cash flows from investing activities: |
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Purchases of marketable securities |
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— |
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( |
) |
Proceeds from sale of marketable securities |
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Net cash provided by investing activities |
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Cash flows from financing activities: |
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Proceed from issuance of common stock, net of issuance costs |
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— |
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Net cash provided by financing activities |
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— |
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Net increase (decrease) in cash and cash equivalents |
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( |
) |
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Effect of exchange rate changes on cash and cash equivalents |
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( |
) |
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( |
) |
Cash and cash equivalents, beginning of period |
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Cash and cash equivalents, end of period |
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$ |
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$ |
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Supplemental disclosures of cash flow information: |
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Cash paid for taxes |
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$ |
— |
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$ |
— |
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Supplemental disclosures of noncash activities: |
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Operating lease liabilities arising from obtaining right-of-use assets |
|
$ |
— |
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$ |
— |
|
See accompanying notes to the unaudited interim condensed consolidated financial statements.
8
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 June 30, 2024, 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.
In September 2023, the Company undertook an organizational restructuring and determined to conduct a comprehensive exploration of strategic alternatives. The restructuring and pursuit of strategic alternatives involves risks. There can be no assurance that the Company’s significantly reduced workforce will be sufficient to pursue the strategic alternatives and the development of the Company’s product candidates. Additionally, availability of suitable third parties with which to conduct contemplated strategic transactions may be limited and whether the Company will be able to pursue a strategic transaction, or whether any transaction, if pursued, will be completed on attractive terms or at all is uncertain.
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 June 30, 2024, the Company had an accumulated deficit of $
9
As of June 30, 2024, the Company’s cash and cash equivalents amounted to $
In September 2023, the Company announced a restructuring plan to reduce the Company's operations to preserve financial resources, resulting in a reduction of the Company’s workforce by up to
Additionally, in September 2023, the Company initiated a process to evaluate strategic alternatives in order to maximize stockholder value. As part of the strategic review process, the Company continues to explore potential strategic alternatives that include, without limitation, a stock or asset acquisition, merger, business combination, liquidation, dissolution or other transaction. The Company is also exploring strategic alternatives related to its product candidates and related assets, including, without limitation, licensing transactions and asset sales. There can be no assurance that the strategic review process will result in the Company pursuing a transaction, or that any transaction, if pursued, will be completed on terms favorable to the Company and its stockholders.
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 June 30, 2024 and for the three and six months ended June 30, 2024 and 2023, 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 June 30, 2024, results of operations, statement of stockholders’ equity for the three and six months ended June 30, 2024 and 2023 and its cash flows for the six months ended June 30, 2024 and 2023. 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, 2023, as filed with the Securities and Exchange Commission (“SEC”) on March 8, 2024 ("2023 Consolidated Financial Statements"). The results for the three and six months ended June 30, 2024 are not necessarily indicative of the results expected for the full fiscal year or any interim period.
For the six months ended June 30, 2024, there have been no material changes to the significant accounting policies as disclosed in Note 2 to the 2023 Consolidated Financial Statements.
Recently issued accounting standards
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.
The Company had
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At December 31, 2023 |
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Amortized |
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Gross Unrealized |
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Gross Unrealized |
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Fair |
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Marketable securities: |
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Cost |
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Gains |
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Losses |
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Value |
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$ |
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$ |
— |
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$ |
( |
) |
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$ |
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Total |
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$ |
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$ |
— |
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$ |
( |
) |
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$ |
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4. PROPERTY AND EQUIPMENT, NET
Property and equipment as of June 30, 2024 consisted of the following (in thousands):
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June 30, |
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December 31, |
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2024 |
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2023 |
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Equipment |
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$ |
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$ |
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Less: accumulated depreciation |
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( |
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( |
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Equipment, net |
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$ |
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$ |
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Depreciation expense for the three and six months ended June 30, 2024 was $
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 June 30, 2024 and December 31, 2023 is as follows (in thousands):
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Fair Value Measurement at |
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Assets: |
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Carrying |
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Quoted Prices in |
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Significant |
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Significant |
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Money market funds(1) |
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$ |
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$ |
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$ |
— |
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$ |
— |
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Debt securities |
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— |
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— |
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— |
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— |
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Total |
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$ |
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$ |
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$ |
— |
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$ |
— |
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Fair Value Measurement at |
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Assets: |
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Carrying |
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Quoted Prices in |
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Significant |
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Significant |
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Money market funds(1) |
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$ |
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— |
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— |
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Debt securities |
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— |
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— |
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Total |
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$ |
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$ |
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$ |
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$ |
— |
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11
6. PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consist of the following (in thousands):
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June 30, |
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December 31, |
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2024 |
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2023 |
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Research and development tax credit receivable |
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$ |
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$ |
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Prepaid insurance costs |
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Value-added tax refund receivable |
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Contract research and development costs |
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Other |
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Total prepaid expenses and other current assets |
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$ |
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$ |
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7. LEASES
The Company has the following operating leases:
Location |
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Primary Use |
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Lease |
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Renewal Option |
Copenhagen, Denmark |
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Corporate headquarters |
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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 and six months ended June 30, 2024 was $
Quantitative information regarding the Company’s leases for the three and six months ended June 30, 2024 and 2023 was as follows:
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Three Months Ended |
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Six Months Ended |
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Lease Cost |
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2024 |
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2023 |
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2024 |
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2023 |
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Operating lease cost (in thousands) |
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$ |
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$ |
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$ |
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$ |
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Other Information |
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Operating cash flows paid for amounts included |
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$ |
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$ |
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$ |
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$ |
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Operating lease liabilities arising from obtaining |
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$ |
— |
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$ |
— |
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$ |
— |
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$ |
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As of June 30, 2024 and December 31, 2023, the weighted average remaining lease term for operating leases was
As of June 30, 2024 and December 31, 2023, the weighted average discount rate for operating leases was
Operating lease liabilities at June 30, 2024 are as follows (in thousands):
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Operating |
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Future Lease Payments |
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Leases |
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2024 (excluding the period ended June 30, 2024) |
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$ |
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2025 |
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— |
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2026 |
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— |
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2027 |
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— |
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2028 |
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— |
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Total lease payments |
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Less: imputed interest |
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( |
) |
Total lease liabilities |
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$ |
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12
8. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following (in thousands):
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June 30, |
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December 31, |
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2024 |
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2023 |
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Employee compensation costs |
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$ |
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$ |
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Restructuring costs |
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Contract research and development costs |
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Other liabilities |
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Total accrued expenses and other current liabilities |
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$ |
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$ |
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9. COMMITMENTS AND CONTINGENCIES
During the three and six months ended June 30, 2024, there were no material changes to the Company’s commitments and contingencies as disclosed in Note 9 of the 2023 Consolidated Financial Statements. Further, the Company’s commitments related to lease agreements are disclosed in Note 7 to the Company’s unaudited interim condensed consolidated financial statements.
10. STOCK-BASED COMPENSATION
Employee equity plan
In March 2020, the Company's Board of Directors and stockholders approved the 2020 Stock Option and Grant Plan (“2020 Plan”). Holders of stock options under the 2020 Plan shall be entitled to exercise the vested portion of the stock option during the term of the grant. If a qualified exit, as defined in the 2020 Plan, occurs before the stock option vests, then all of the holders' unvested options shall vest immediately.
In October 2020, the Company's Board of Directors and stockholders approved the 2020 Equity Incentive Plan (“2020 Equity Plan”). Following the adoption of the 2020 Equity Plan,
The following table sets forth the activity for the Company’s stock options during the six months ended June 30, 2024:
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Number of |
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Weighted- |
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Weighted- |
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Aggregate |
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Outstanding at December 31, 2023 |
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$ |
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$ |
— |
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Granted |
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— |
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Cancelled |
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( |
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— |
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Outstanding at June 30, 2024 |
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$ |
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$ |
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Vested and expected to vest at June 30, 2024 |
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$ |
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$ |
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Vested and exercisable at June 30, 2024 |
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$ |
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$ |
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The weighted-average grant date fair value of all stock-based awards granted for the six months ended June 30, 2024 was $
In November 2022, the Company's Board of Directors approved the 2022 Inducement Plan (the “Inducement Plan”), which allows for the grant of equity awards to be made to a new employee where the equity award is a material inducement to an employee entering into employment with the Company. The Inducement Plan was adopted by the Company's Board of Directors without stockholder approval pursuant to Nasdaq Listing Rule 5635(c)(4). A total of
13
Restricted stock units
In January 2024, the Company granted
The following table sets forth the activity for the Company’s RSUs during the six months ended June 30, 2024:
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Restricted |
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Weighted- |
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Total nonvested units at December 31, 2023 |
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$ |
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Granted |
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Vested |
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( |
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Cancelled |
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( |
) |
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Total nonvested units at June 30, 2024 |
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$ |
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Stock-based compensation
The grant date fair value of stock-based awards vested during the six months ended June 30, 2024 and 2023 was $
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Three Months Ended |
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Six Months Ended |
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2024 |
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2023 |
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2024 |
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2023 |
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Research and development |
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$ |
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$ |
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$ |
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$ |
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General and administrative |
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Total stock-based compensation |
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$ |
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$ |
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$ |
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$ |
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The Company uses a Black-Scholes option pricing model to determine fair value of its 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 based on the implied yield on a U.S. Treasury security.
The fair values of the options granted were estimated using the following assumptions:
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Six Months Ended |
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June 30, |
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2024 |
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2023 |
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Risk-free interest rate |
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% |
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% |
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Expected term (in years) |
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Expected volatility |
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% |
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% |
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Expected dividend yield |
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11. RESTRUCTURING ACTIVITIES
In September 2023, the Company’s Board of Directors approved a restructuring plan (the “Restructuring Plan”) to reduce the Company’s operating costs and better align its workforce with the needs of its business. The Restructuring Plan eliminated approximately
Employees affected by the Restructuring Plan and the May RIF obtained involuntary termination benefits pursuant to a one-time benefit arrangement. For employees who have no requirements to provide future service, the Company recognized the liability for the termination benefits in full at fair value at the time of termination. For employees who are required to render services beyond a minimum retention period to receive their one-time termination benefits, the Company recognized the termination benefits ratably
14
over their future service periods. For the Restructuring Plan, the Company recorded employee termination benefit charges during the year ended December 31, 2023 of $
Restructuring costs pertaining to the Restructuring Plan and the May RIF consist of the following (in thousands):
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Six |
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Balance at December 31, 2022 |
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$ |
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Restructuring expenses incurred |
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Payments |
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( |
) |
Non-cash charges |
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( |
) |
Balance at December 31, 2023 |
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Restructuring expenses incurred |
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Payments |
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( |
) |
Balance at June 30, 2024 |
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$ |
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The Company incurred an impairment charge related to a leased facility of $
In September 2023, the Board of Directors approved arrangements designed to provide that the Company will have the continued dedication and commitment of its remaining employees, including executives, determined to be key to the Company’s planned go-forward operations. The Board of Directors approved, and management implemented, a retention program for employees remaining with the Company which includes cash retention bonuses totaling $
12. INCOME TAXES
As a result of the Company's history of net operating losses ("NOL"), the Company continues to maintain a full valuation allowance against its domestic net deferred tax assets. For the three and six months ended June 30, 2024, the Company recognized an income tax expense of $
13. NET LOSS PER SHARE
Basic and diluted net loss per share is calculated as follows (in thousands except share and per share amounts):
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Three Months Ended |
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Six Months Ended |
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2024 |
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2023 |
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2024 |
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2023 |
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Net loss |
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$ |
( |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
Weighted-average number of shares used in computing net loss |
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Net loss per common share, basic and diluted |
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$ |
( |
) |
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$ |
( |
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$ |
( |
) |
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$ |
( |
) |
The following outstanding potentially dilutive securities have been excluded from the calculation of diluted net loss per share, as their effect is anti-dilutive:
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Six Months Ended |
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2024 |
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2023 |
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Stock options to purchase common stock |
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Restricted stock units |
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— |
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15
14. SUBSEQUENT EVENTS
The Company has evaluated subsequent events through the date on which the unaudited interim condensed consolidated financial statements were issued. The Company has concluded that no subsequent events have occurred that require disclosure to the unaudited interim condensed consolidated financial statements.
16
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following information should be read in conjunction with the unaudited interim condensed consolidated financial statements and the notes thereto included in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto for the year ended December 31, 2023, and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the United States Securities and Exchange Commission, or the SEC, on March 8, 2024. This discussion and analysis and other parts of this Quarterly Report contain forward-looking statements based upon current beliefs, plans and expectations that involve risks, uncertainties and assumptions, such as statements regarding our plans, objectives, expectations, intentions and projections. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 and in other SEC filings.
Overview
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.
In September 2023, we announced a corporate restructuring that resulted in a substantial reduction of our workforce and that we have initiated a process to evaluate strategic alternatives. As part of our ongoing strategic review process, we continue to explore potential strategic alternatives that include, without limitation, a stock or asset acquisition, merger, business combination, liquidation, dissolution or other transaction. We are also exploring strategic transactions regarding our product candidates and related assets, including, without limitation, licensing transactions and asset sales. We expect to devote substantial time and resources to exploring strategic alternatives in order to maximize stockholder value. Despite devoting significant efforts to identify and evaluate potential strategic alternatives, there can be no assurance that this strategic review process will result in us pursuing any transaction or that any transaction, if pursued, will be completed on attractive terms or at all. We have not set a timetable for completion of this strategic review process, and our board of directors has not approved a definitive course of action. Additionally, there can be no assurances that any particular course of action, business arrangement or transaction, or series of transactions, will be pursued, successfully consummated or lead to increased stockholder value or that we will make any cash distributions to our stockholders.
GB1211
GB1211 is a selective oral small molecule inhibitor of galectin-3. We believe GB1211 has the potential to treat multiple types of fibrosis and oncology indications.
During the fourth quarter of 2022, we announced topline results from our Phase 1b/2a trial of GB1211 that was focused on safety and effect on liver function and fibrosis biomarkers in patients with decompensated liver cirrhosis. These topline results showed statistically significant reductions in ALT (p<0.0005), AST (p<0.005) and GGT (p<0.05), with encouraging reductions for ALP (p<0.09), after 12 weeks of treatment. In this trial, GB1211 exhibited a favorable safety and tolerability profile in patients with decompensated liver cirrhosis.
During the third quarter of 2023, we completed Part A of the GALLANT-1 trial examining GB1211 in combination with atezolizumab, a PD-L1 checkpoint inhibitor, for the treatment of first-line non-small cell lung cancer, or NSCLC. Four patients in Part A of the GALLANT-1 trial (100 mg: three; 200 mg: one) showed a partial response according to RECIST criteria (version 1.1), and three of these four patients continue to receive treatment in the extension phase of the trial. One of these patients who has been receiving treatment for more than 78 weeks with both GB1211 200 mg twice daily and atezolizumab showed a partial response at the week 12, 18, 24, 30, 36, 42, 48, 54, 60, 66, 72 and 78 study visits. As of this patient's week 24 study visit, the observed tumor shrinkage was greater than 70% and has remained at that level through the week 78 study visit. Of the five patients who have been treated for at least six weeks with GB1211 100 mg in combination with atezolizumab, three patients showed a partial response. One of these five patients showed tumor shrinkage of greater than 80% at the week 36, 42, 48, 54, 60, 66 and 72 study visits.
In October 2023, we announced that, as a result of our recently announced strategic alternative process, we do not intend to initiate Part B of the GALLANT-1 trial. Part B of the trial had been designed to evaluate safety and tumor shrinkage and explore tumor response rate based on RECIST criteria (version 1.1), clinical activity and immune biomarkers.
17
While we do not intend to initiate Part B of the GALLANT-1 trial, we will continue to supply GB1211 at the recommended Phase 2 dose level of 100 mg twice daily in an investigator-initiated Phase 2 trial at Providence Portland Medical Center’s Earle A. Chiles Research Institute (EACRI). GB1211 will be administered in combination with the standard therapeutic dose of pembrolizumab (Keytruda®) in patients with unresectable or metastatic melanoma or recurrent or metastatic HNSCC progressing during or after platinum-containing chemotherapy. This trial is designed to evaluate (i) the safety and efficacy of GB1211, Galecto’s first-in-class, oral small molecule galectin-3 inhibitor candidate, in combination with pembrolizumab, in metastatic melanoma and HNSCC patients and (ii) whether the addition of GB1211 increases the response rate of pembrolizumab in metastatic melanoma and HNSCC patients. This trial was initiated and enrolled its first patient in the second quarter of 2024.
GB2064
GB2064 is a selective oral small molecule inhibitor of LOXL2 for the treatment of fibrotic diseases, including myelofibrosis. In December 2023, we announced topline results from a Phase 2a trial, or the MYLOX-1 trial, examining GB2064 for the treatment of myelofibrosis. The primary endpoint of this trial was safety and secondary endpoints included measurements of drug levels in the bone marrow and grade of fibrosis, improvement of anemia and/or thrombocytopenia, and assessment of spleen and liver size by MRI. Six out of ten evaluable myelofibrosis patients who received GB2064 monotherapy for at least six months experienced a ≥ 1-grade reduction in collagen fibrosis of the bone marrow, an improvement suggesting that GB2064 could impact the progression of the disease and be disease-modifying. A total of five patients entered the extension phase of the MYLOX-1 trial, of which two patients continue to receive treatment.
Financial Overview
We currently expect our expenses to decrease in the near future due to our decision to stop development of certain of our product candidates and reduce our workforce while we explore strategic alternatives. Our remaining product candidates, GB1211 and GB2064, are in Phase 2 of clinical development. Our ability to generate revenue from product sales sufficient to achieve profitability will depend heavily on the outcome of our exploration of strategic alternatives, as well as partnering and/or funding additional activities in order to achieve the successful development and eventual commercialization of one or more of these product candidates. Our operations to date have been financed primarily from our initial public offering, or IPO, the issuance of common stock through our Open Market Sale AgreementSM with Jefferies LLC, as sales agent, to provide for the issuance and sale of up to $50.0 million of our common stock from time to time in “at-the-market” offerings under the Registration Statement and related prospectus, or the ATM Program, the issuance of convertible preferred shares and convertible notes. Since inception, we have had significant operating losses. Our net loss was $5.3 million and $10.8 million for the three and six months ended June 30, 2024, respectively. Our net loss was $10.7 million and $23.7 million for the three and six months ended June 30, 2023, respectively. As of June 30, 2024, we had an accumulated deficit of $266.9 million and $22.9 million in cash and cash equivalents.
Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our prepaid expenses, accounts payable and accrued expenses. We expect our research and development expenses, general and administrative expenses, and capital expenditures will decrease in the near future compared to prior periods due to the recent restructuring announced in connection with our exploration of strategic alternatives. We anticipate that our expenses will increase substantially if, and as, we:
18
We expect to continue to incur net losses for the foreseeable future. In particular, we expect our expenses to increase if we determine to further our development of, and seek regulatory approvals for, our product candidates, pay fees to outside consultants, lawyers and accountants, and incur other costs associated with being a public company. In addition, if and when we seek and obtain regulatory approval to commercialize any current or future product candidate, we will also incur increased expenses in connection with commercialization and marketing of any such product. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our clinical trials and our expenditures on other research and development activities.
We expect to continue to incur costs and expenditures in connection with the process of evaluating our strategic alternatives. There can be no assurance, however, that we will be able to successfully consummate any particular strategic transaction. The process of continuing to evaluate these strategic options may be very costly, time-consuming and complex and we have incurred, and may in the future incur, significant costs related to this continued evaluation, such as legal, accounting and advisory fees and expenses and other related charges. A considerable portion of these costs will be incurred regardless of whether any such course of action is implemented or transaction is completed. Any such expenses will decrease the remaining cash available for use in our business. In addition, any strategic business combination or other transactions that we may consummate in the future could have a variety of negative consequences and we may implement a course of action or consummate a transaction that yields unexpected results that adversely affects our business and decreases the remaining cash available for use in our business or the execution of our strategic plan. There can be no assurances that any particular course of action, business arrangement or transaction, or series of transactions, will be pursued, successfully consummated, lead to increased stockholder value, or achieve the anticipated results. Any failure of such potential transaction to achieve the anticipated results could significantly impair our ability to enter into any future strategic transactions and may significantly diminish or delay any future distributions to our stockholders.
Subject to the outcome of our exploration of strategic alternatives, which may materially change any estimates, and based on current estimates of our expenses going forward, we believe that our existing cash and cash equivalents of $22.9 million as of June 30, 2024 will be sufficient to fund our operating expenditures and capital expenditure requirements through at least the next twelve months from the filing date of this Quarterly Report on Form 10-Q. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. Our estimates do not include any cash and cash equivalents that will be needed to fund a potential strategic transaction nor our financial needs following the consummation of any strategic transaction and our resource requirements could materially change to the extent we identify and enter into any strategic transaction.
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. As a result, until such time, if ever, that we can generate substantial product revenue, we expect to finance our cash needs through equity offerings, debt financings or other capital sources, including collaborations, licenses or similar arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed or on favorable terms, if at all. Any failure to raise capital as and when needed could have a negative impact on our financial condition and on our ability to pursue our business plans and strategies, including our research and development activities. If we are unable to raise capital, we will need to further delay, reduce or terminate activities to reduce costs beyond the restructuring implemented in September 2023 and May 2024.
Economic uncertainty in various global markets, including the U.S. and Europe, caused by political instability and conflict, such as the ongoing conflict in Ukraine and in Israel, have led to market disruptions, including significant volatility in commodity prices, credit and capital market instability and supply chain interruptions, which have caused record inflation globally. Our business, financial condition and results of operations could be materially and adversely affected by further negative impact on the global economy and capital markets resulting from these global economic conditions, particularly if such conditions are prolonged or worsen.
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 Russia and Ukraine and effects of the Russian sanctions, current armed conflict in Israel and the Gaza Strip, geopolitical tensions, record inflation or otherwise, are impossible to predict, but could be substantial. Any such disruptions may also magnify the impact of other risks described in this report.
19
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:
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 Denmark of up to $0.8 million per year for losses resulting from research and development costs of up to approximately $3.6 million per year. The tax credit is reported as a reduction to research and development expense in the condensed consolidated statements of operations. We recorded a tax credit of $0.8 million during both six month periods ended June 30, 2024 and 2023. We anticipate that we will be eligible to receive this credit in 2024 and 2025.
We have qualified for the R&D Expenditure Credit (RDEC) in United Kingdom for preclinical laboratory and in-patient clinical trials. The RDEC net tax benefit is reported in the consolidated statements of operations. We recorded a overall reduction for the RDEC, net of the UK corporation tax rate of $0.07 million during the six months ended June 30, 2024. There was no RDEC recorded during the three and six months ended June 30, 2023. We anticipate that we will be eligible to receive this credit in 2024.
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.
We anticipate that our research and development expenses will decrease in the near future compared to prior periods due to our planned reduced clinical efforts and the restructuring announced in connection with our exploration of strategic alternatives.
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:
20
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.
Depending on the results of the strategic alternatives being pursued, research and development activities may continue to account for a significant portion of our operating expenses in the future. However, we expect our research and development expenses to decrease in the near future compared to prior periods due to our planned reduced clinical efforts and the restructuring announced in connection with our exploration of strategic alternatives. 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 that if we choose to pursue further development and testing of our product candidates, our research and development expenses will 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 anticipate that our general and administrative expenses will decrease in the near future compared to prior periods due to the restructuring announced in connection with our exploration of strategic alternatives. We do expect to incur significant costs, however, related to our exploration of strategic alternatives, including legal, accounting and advisory expenses and other related charges. These costs cannot be determined with accuracy at this time.
21
Restructuring Costs
Our restructuring costs consist primarily of expenses related to employee severance and notice period payments, benefits and related costs and other expenses including non-cash stock-based compensation expense related to the accelerated vesting of certain share-based awards, lease commitments and legal expenses. We anticipate that our restructuring costs will decrease in the near future compared to the current period due to the majority of the restructuring charges being incurred in the period ended June 30, 2024 and December 31, 2023 and that the execution of our restructuring plan was substantially complete.
Other Income (Expense), Net
Our other income (expense), net is comprised of:
Results of Operations
Comparison of the Three Months Ended June 30, 2024 and 2023
The following sets forth our results of operations for the three months ended June 30, 2024 and 2023:
|
|
Three Months Ended |
|
|
|
|
||||||||||
|
|
June 30, |
|
|
Change |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
Amount |
|
|
Percent |
|
||||
|
|
(in thousands) |
|
|||||||||||||
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Research and development |
|
$ |
1,834 |
|
|
$ |
8,089 |
|
|
$ |
(6,255 |
) |
|
|
-77.3 |
% |
General and administrative |
|
|
2,775 |
|
|
|
3,070 |
|
|
|
(295 |
) |
|
|
-9.6 |
% |
Restructuring costs |
|
|
968 |
|
|
|
- |
|
|
|
968 |
|
|
|
100.0 |
% |
Total operating expenses |
|
$ |
5,577 |
|
|
$ |
11,159 |
|
|
$ |
(5,582 |
) |
|
|
-50.0 |
% |
Loss from operations |
|
|
(5,577 |
) |
|
|
(11,159 |
) |
|
|
5,582 |
|
|
|
-50.0 |
% |
Other income, net |
|
|
281 |
|
|
|
415 |
|
|
|
(134 |
) |
|
|
-32.3 |
% |
Loss before income tax expense |
|
|
(5,296 |
) |
|
|
(10,744 |
) |
|
|
5,448 |
|
|
|
-50.7 |
% |
Income tax expense |
|
|
42 |
|
|
|
— |
|
|
|
42 |
|
|
|
100.0 |
% |
Net loss |
|
$ |
(5,338 |
) |
|
$ |
(10,744 |
) |
|
$ |
5,406 |
|
|
|
-50.3 |
% |
Research and development expenses
Research and development expenses were comprised of:
|
|
Three Months Ended |
|
|
|
|
|
|
|
|||||||
|
|
June 30, |
|
|
Change |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
Amount |
|
|
Percent |
|
||||
|
|
(in thousands) |
|
|||||||||||||
Personnel |
|
$ |
711 |
|
|
$ |
2,538 |
|
|
$ |
(1,827 |
) |
|
|
-72.0 |
% |
Preclinical studies and clinical trial-related activities |
|
|
458 |
|
|
|
3,345 |
|
|
|
(2,887 |
) |
|
|
-86.3 |
% |
Chemistry, manufacturing and control |
|
|
105 |
|
|
|
603 |
|
|
|
(498 |
) |
|
|
-82.6 |
% |
Consultants and other costs |
|
|
560 |
|
|
|
1,603 |
|
|
|
(1,043 |
) |
|
|
-65.1 |
% |
Total research and development expenses |
|
$ |
1,834 |
|
|
$ |
8,089 |
|
|
$ |
(6,255 |
) |
|
|
-77.3 |
% |
Research and development expenses were $1.8 million for the three months ended June 30, 2024, compared to $8.1 million for the three months ended June 30, 2023. The decrease of $6.3 million was primarily related to decreased clinical trial-related expenses of $2.9 million due to discontinued clinical trial activities and decreased chemistry, manufacturing and control costs of $0.5 million, decreased personnel costs of $1.8 million and decreased consulting related costs and other research and development costs of $1.0 million.
22
General and administrative expenses
General and administrative expenses were $2.8 million for the three months ended June 30, 2024, compared to $3.1 million for the three months ended June 30, 2023. The decrease of $0.3 million was primarily related to decreased personnel costs of $0.5 million and decreased net other general administrative costs of $0.1 million, offset by increased legal costs relating to our exploration of strategic alternatives of $0.3 million.
Restructuring costs
Restructuring costs were $1.0 million for the three months ended June 30, 2024. There were no restructuring costs for the three months ended June 30, 2023. The increase was primarily related to employee severance and notice period payments, benefits and related costs.
Other income (expense), net
Other income (expense), net for the three months ended June 30, 2024 was $0.3 million, compared to $0.4 million for the three months ended June 30, 2023. The decrease of $0.1 million was primarily due to decreased interest income, net resulting from lower investable balances, offset by increased foreign exchange transaction gain, net.
Comparison of the Six Months Ended June 30, 2024 and 2023
The following sets forth our results of operations for the six months ended June 30, 2024 and 2023:
|
|
Six Months Ended |
|
|
Change |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
Amount |
|
|
Percent |
|
||||
|
|
(in thousands) |
|
|||||||||||||
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Research and development |
|
$ |
4,297 |
|
|
$ |
18,451 |
|
|
$ |
(14,154 |
) |
|
|
-76.7 |
% |
General and administrative |
|
|
6,053 |
|
|
|
6,200 |
|
|
|
(147 |
) |
|
|
-2.4 |
% |
Restructuring costs |
|
|
968 |
|
|
|
— |
|
|
|
968 |
|
|
|
100.0 |
% |
Total operating expenses |
|
$ |
11,318 |
|
|
$ |
24,651 |
|
|
$ |
(13,333 |
) |
|
|
-54.1 |
% |
Loss from operations |
|
|
(11,318 |
) |
|
|
(24,651 |
) |
|
|
13,333 |
|
|
|
-54.1 |
% |
Other income, net |
|
|
545 |
|
|
|
913 |
|
|
|
(368 |
) |
|
|
-40.3 |
% |
Loss before income tax expense |
|
|
(10,773 |
) |
|
|
(23,738 |
) |
|
|
12,965 |
|
|
|
-54.6 |
% |
Income tax expense |
|
|
42 |
|
|
|
- |
|
|
|
42 |
|
|
|
100.0 |
% |
Net loss |
|
$ |
(10,815 |
) |
|
$ |
(23,738 |
) |
|
$ |
12,923 |
|
|
|
-54.4 |
% |
Research and development expenses
Research and development expenses were comprised of:
|
|
Six Months Ended |
|
|
Change |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
Amount |
|
|
Percent |
|
||||
|
|
(in thousands) |
|
|||||||||||||
Personnel |
|
$ |
1,985 |
|
|
$ |
5,066 |
|
|
$ |
(3,081 |
) |
|
|
-60.8 |
% |
Preclinical studies and clinical trial-related activities |
|
|
886 |
|
|
|
8,291 |
|
|
|
(7,405 |
) |
|
|
-89.3 |
% |
Chemistry, manufacturing and control |
|
|
290 |
|
|
|
1,563 |
|
|
|
(1,273 |
) |
|
|
-81.4 |
% |
Consultants and other costs |
|
|
1,136 |
|
|
|
3,531 |
|
|
|
(2,395 |
) |
|
|
-67.8 |
% |
Total research and development expenses |
|
$ |
4,297 |
|
|
$ |
18,451 |
|
|
$ |
(14,154 |
) |
|
|
-76.7 |
% |
Research and development expenses were $4.3 million for the six months ended June 30, 2024, compared to $18.5 million for the six months ended June 30, 2023. The decrease of $14.2 million was primarily related to decreased clinical trial-related expenses of $7.4 million due to discontinued clinical trial activities and decreased chemistry, manufacturing and control costs of $1.3
23
million, decreased personnel costs of $3.1 million and decreased consulting related costs and other research and development costs of $2.4 million.
General and administrative expenses
General and administrative expenses were $6.1 million for the six months ended June 30, 2024, compared to $6.2 million for the six months ended June 30, 2023. The decrease of $0.1 million was primarily related to decreased personnel costs of $0.6 million and decreased net other general administrative costs of $0.2 million, offset by increased legal increased legal costs relating to our exploration of strategic alternatives of $0.7 million.
Restructuring costs
Restructuring costs were $1.0 million for the six months ended June 30, 2024. There were no restructuring costs for the six months ended June 30, 2023. The increase was primarily related to employee severance and notice period payments, benefits and related costs.
Other income (expense), net
Other income (expense), net for the six months ended June 30, 2024 was $0.5 million, compared to $0.9 million for the six months ended June 30, 2023. The decrease of $0.4 million was primarily due to decreased interest income, net resulting from lower investable balances.
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 ATM Program, the issuance of convertible preferred shares and convertible notes. Since inception, we have had significant operating losses. On November 2, 2020, we completed our IPO in which we raised $86.3 million in net proceeds. On November 4, 2021, we filed with the SEC, and the SEC declared effective on November 12, 2021, a registration statement on Form S-3, or the Registration Statement, which registers the offering, issuance and sale of up to $200.0 million of our common stock, preferred stock, debt securities, warrants, subscription rights and/or units of any combination thereof. Simultaneous with the filing of the Registration Statement, we entered into the ATM Program. During the three and six months ended June 30, 2024, we had no sales under the ATM Program. During the three and six months ended June 30, 2023, we sold an aggregate of 1,348,425 shares and 1,369,507 shares, respectively, of our common stock under the ATM Program at a weighted average selling price of $2.09 per share and $2.07 per share, respectively.
Our net losses were $5.3 million and $10.8 million for the three and six months ended June 30, 2024, respectively. Our net losses were $10.7 million and $23.7 million for the three and six months ended June 30, 2023, respectively. As of June 30, 2024, we had an accumulated deficit of $266.9 million and $22.9 million in cash and cash equivalents. Our primary use of cash is to fund operating expenses, which consist primarily of research and development expenditures, and to a lesser extent, general and administrative expenditures. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable and accrued expenses.
Cash Flows
The following table summarizes our cash flows for the periods indicated:
|
|
Six Months Ended |
|
|||||
|
|
June 30, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
|
|
(in thousands) |
|
|||||
Net cash used in operating activities |
|
$ |
(10,036 |
) |
|
$ |
(16,983 |
) |
Net cash provided by investing activities |
|
|
11,650 |
|
|
|
4,465 |
|
Net cash provided by financing activities |
|
|
— |
|
|
|
2,705 |
|
Net increase (decrease) in cash and cash equivalents |
|
$ |
1,614 |
|
|
$ |
(9,813 |
) |
24
Net Cash Used in Operating Activities
Cash used in operating activities of $10.0 million during the six months ended June 30, 2024 was primarily attributable to our net loss of $10.8 million together with non-cash items of $2.5 million principally with respect to stock-based compensation and a net decrease of $1.7 million in components of our working capital.
Cash used in operating activities of $17.0 million during the six months ended June 30, 2023 was primarily attributable to our net loss of $23.7 million together with non-cash items of $2.9 million principally with respect to stock-based compensation and a net increase of $3.8 million in components of our working capital.
Net Cash Provided by Investing Activities
Cash provided by investing activities of $11.7 million during the six months ended June 30, 2024 was the result of proceeds from the sale of marketable securities.
Cash used in investing activities of $4.5 million during the six months ended June 30, 2023 was the result of $26.5 million in proceeds from the sale of marketable securities, offset by $22.0 million for the purchase of marketable securities.
Net Cash Provided by Financing Activities
We had no financing activities for the six months ended June 30, 2024. Cash provided by financing activities of $2.7 million during six months ended June 30, 2023 was the result of net proceeds from the issuance of our common stock.
Funding Requirements
We currently expect our expenses to decrease in the near future due to our decision to stop development of certain of our product candidates and reduce our workforce while we explore strategic alternatives, however, some of these savings will be offset by an increase in legal, accounting and advisory expenses and other related charges related to our exploration of strategic alternatives. 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; laboratory expenses and costs for related supplies; clinical costs; manufacturing costs; legal and other regulatory expenses and general overhead costs. Subject to the outcome of our exploration of strategic alternatives which may materially change any estimates, and based on current estimates of our expenses going forward, we believe that our existing cash and cash equivalents of $22.9 million as of June 30, 2024 will be sufficient to fund our operating expenditures and capital expenditure requirements through at least the next twelve months from the filing date of this Quarterly Report on Form 10-Q. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. Our estimates do not include any cash and cash equivalents that will be needed to fund a potential strategic transaction nor our financial needs following the consummation of any strategic transaction. Our resource requirements could materially change to the extent we identify and enter into any strategic transaction. Because our resource requirements could materially change depending on the outcome of our ongoing strategic alternative review process, we are unable to estimate the exact amount of our working capital requirements. Our future funding requirements will depend on and could increase significantly as a result of many known and unknown factors, including those mentioned above.
Any product candidates we may develop may never achieve commercialization and we anticipate that we will continue to incur losses for the foreseeable future. Until such time, if ever, as we can generate substantial product revenue and subject to our pursuit of a potential strategic transaction and the consummation of such potential transaction, we expect to finance our future operations through our existing cash and cash equivalents and through a combination of equity offerings, including sales under our ATM Program, debt financings, collaborations, strategic alliances, marketing and distribution arrangements, and/or licensing arrangements. Other than funds which can be raised through our ATM Program, which is subject to the limitations of Section 1.B.6 of Form S-3 preventing us from raising more than one-third of our public float on a 12-month rolling basis, we do not currently have any committed external source of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, our stockholders’ ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders’ rights as a common stockholder. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making acquisitions or capital expenditures or declaring dividends. If we raise additional funds through collaborations, strategic alliances, marketing and distribution arrangements, or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we resume the development of our product candidates and are unable to raise additional funds through equity or debt financings or other arrangements when needed, we may be required to delay, limit, reduce or terminate our research, product development or future commercialization efforts, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
25
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, both near-term and long-term, will depend on many factors, including, but not limited to:
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 unaudited interim condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these unaudited interim condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the related disclosures of assets and liabilities at the date of the unaudited interim condensed consolidated financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, and the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.
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Research and Development Costs
We incur substantial expenses associated with clinical trials. Accounting for clinical trials relating to activities performed by contract research organizations, or CROs, contract manufacturing organizations, or 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 condensed 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.
Stock-based Compensation
We have issued stock-based compensation awards through the granting of stock options and restricted stock units, 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 included 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 based on the implied yield on a U.S. Treasury security. 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 six months ended June 30, 2024 has been estimated using Black-Scholes based on the following assumptions: expected term of 5.3 years; expected volatility of 99.3%; risk-free interest rate of 4.2%; and no expectation of dividends. The fair value of our awards in the six months ended June 30, 2023 has been estimated using Black-Scholes based on the following assumptions: expected term of 6.0 years; expected volatility of 91.0%; risk-free interest rate of 3.8%; and no expectation of dividends.
We will continue to use judgment in evaluating the assumptions utilized for our stock-based compensation expense calculations on a prospective basis. In addition to the assumptions used in the Black-Scholes model, the amount of stock-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
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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 net 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 do not believe there will be any material changes in our unrecognized tax positions over the next 12 months. We have not incurred any interest or penalties. In the event we are assessed interest or penalties at some point in the future, they will be classified in our financial statements as a component of income tax expense.
We operate in multiple jurisdictions, both within and outside the United States, and may be subject to audits from various tax authorities. Management’s judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities, liabilities for uncertain tax positions, and any valuation allowance recorded against our net deferred tax assets. We will monitor the extent to which our deferred tax assets may be realized and adjust the valuation allowance accordingly.
Recently Adopted Accounting Pronouncements
Refer to Note 2, “Summary of Significant Accounting Policies,” in the accompanying notes to our consolidated financial statements for the six months ended June 30, 2024 and 2023 appearing elsewhere in this Quarterly Report on Form 10-Q for a discussion of recent accounting pronouncements.
Nasdaq Delisting Notice
On September 27, 2023, we received a written notice from the staff of Nasdaq’s Listing Qualifications Department, notifying us that, for the prior 30 consecutive business days, the bid price for our common stock had closed below the $1.00 per share minimum bid price requirement for continued listing on Nasdaq pursuant to Nasdaq Listing Rule 5450(a)(1), or the Minimum Bid Price Requirement. In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we have 180 calendar days, or until March 25, 2024, to regain compliance with the Minimum Bid Price Requirement. On March 26, 2024, Nasdaq notified the Company that it had granted the Company an additional 180 calendar day period, or until September 23, 2024, to regain compliance with the Bid Price Requirement. Nasdaq’s determination was based on, among other things, (1) the Company meeting the continued listing requirement for market value of publicly held shares and all other initial listing requirements for The Nasdaq Capital Market, with the exception of the Bid Price Requirement, and (2) the Company’s written notice of its intention to cure the deficiency by effecting a reverse stock split, if necessary. If we fail to satisfy the continued listing requirements of Nasdaq, such as the Minimum Bid Price Requirement, Nasdaq may take steps to delist our common stock. Such a delisting would likely have a negative effect on the price of our common stock and may, among other things, adversely impact our ability to raise additional capital or enter into strategic transactions. See “Part II - Item 1A. Risk Factors” for additional information.
Emerging Growth Company and Smaller Reporting Company Status
As an emerging growth company, or EGC, under the Jumpstart our Business Startups Act of 2012, or 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 Public Company Accounting Oversight Board regarding mandatory audit firm rotation, and less extensive disclosure about our executive compensation arrangements.
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 condensed consolidated financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
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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 $700 million as of June 30 of any year before that time, or if we have annual gross revenues of $1.235 billion or more in any fiscal year, we would cease to be an EGC as of December 31 of the applicable year. We also would cease to be an EGC if we issue more than $1.0 billion of non-convertible debt over a three-year period.
We are also a “smaller reporting company,” meaning that the market value of our shares held by non-affiliates is less than $700 million and our annual revenue was less than $100 million during the most recently completed fiscal year. We may continue to be a smaller reporting company if either (i) the market value of our shares held by non-affiliates is less than $250 million or (ii) our annual revenue was less than $100 million during the most recently completed fiscal year and the market value of our shares held by non-affiliates is less than $700 million. If we are a smaller reporting company at the time, we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company, we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.
Effects of Inflation
Our assets are primarily monetary, consisting of cash and cash equivalents. Because of their liquidity, these assets are not directly affected by inflation. Since we intend to retain and continue to use our equipment, furniture, fixtures and office equipment, computer hardware and software and leasehold improvements, we believe that the incremental inflation related to replacement costs of such items will not materially affect our operations. However, the rate of inflation affects our expense and use of our resources. We continue to monitor the impact of inflation on these costs in order to minimize its effects through productivity improvements and cost reductions. There can be no assurance, however, that our operating results will not be affected by inflation in the future.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We are a smaller reporting company as defined by Item 10 of Regulation S-K and are not required to provide the information otherwise required under this item.
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Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and our principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2024. Based on the evaluation of our disclosure controls and procedures as of June 30, 2024, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2024.
The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial and accounting officer, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and our management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
We are not party to any material legal matters or claims. We may become party to legal matters and claims arising in the ordinary course of business. We cannot predict the outcome of any such legal matters or claims, and despite the potential outcomes, the existence thereof may have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
Item 1A. Risk Factors.
In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, which could materially affect our business, financial condition, or results of operations. There have been no material changes in or additions to the risk factors referred to in the previous sentence.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Use of proceeds from registered securities
On November 2, 2020, we completed our IPO in which we issued and sold 6,342,207 shares of common stock, $0.00001 par value per share, including 675,540 shares of common stock sold pursuant to the underwriters’ exercise of their option to purchase additional shares of common stock. The offer and sale of the shares in the IPO was registered under the Securities Act pursuant to registration statements on Form S-1 (File No. 333-249369), which was filed with the SEC on October 7, 2020 and subsequently amended and declared effective on October 28, 2020, or the Prospectus. The underwriters of the offering were BofA Securities, Inc., SVB Leerink LLC, Credit Suisse Securities (USA) LLC and Kempen & Co U.S.A, Inc.
We raised $86.3 million in net proceeds after deducting underwriting discounts and commissions of $6.7 million and other offering expenses of $2.1 million payable by us. No underwriting discounts and commissions or offering expenses were paid directly or indirectly to any of our directors of officers (or their associates) or persons owning ten percent or more of any class of our equity securities or to any other affiliates.
As of June 30, 2024, $66.8 million of the net proceeds from our IPO have been used for general working capital purposes, including the funding of our clinical development programs. We have invested the unused net proceeds from the offering in money market accounts and marketable debt securities. We expect to use the net proceeds from the offering described in our final prospectus filed pursuant to Rule 424(b)(4) under the Securities Act with the SEC on October 30, 2020, to fund our clinical development programs, including GB1211 and GB2064, as well as pursue strategic alternatives that include, without limitation, an acquisition, merger, business combination or other transactions, as well as exploring strategic alternatives related to our product candidates and related assets, including, without limitation, licensing transactions and asset sales.
Issuer Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not Applicable.
Item 5. Other Information.
On August 7, 2024, the Board of Directors of Galecto, Inc. (the “Company”) and Jonathan Freve, the Company’s Chief Financial Officer and Treasurer, mutually agreed that Mr. Freve’s last day with the Company would be August 12, 2024. On the same day, the Board of Directors of the Company approved the appointment of Lori Firmani, the Company’s current Vice President,
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Finance, as the Company’s interim Chief Financial Officer and Treasurer, as well as the Company’s principal financial officer and principal accounting officer, effective as of August 12, 2024.
The Company’s Board of Directors agreed to (i) pay Mr. Freve a one-time lump sum payment of $400,000 and (ii) fully accelerate the vesting of Mr. Freve’s 100,000 restricted stock units, both upon the execution of a separation agreement and release of claims reasonably acceptable to the Company.
Ms. Firmani, age 51, has served as the Company’s Vice President, Finance and Corporate Controller since November 2020. Prior to that, Ms. Firmani served as Chief Financial Officer of Spring Bank Pharmaceuticals, Inc. from April 2020 until its acquisition in November 2020, and prior to that served in financial roles of increasing responsibility from January 2016 to April 2020. Ms. Firmani is a certified public accountant in the Commonwealth of Massachusetts and holds an MBA from Babson College and a BS in accounting from the State University of New York at Geneseo.
Ms. Firmani has no direct or indirect material interest in any transaction required to be disclosed pursuant to Item 404(a) of Regulation S-K promulgated under the Securities Exchange Act of 1934, as amended, nor are any such transactions currently proposed. There are no family relationships between Ms. Firmani and any director or executive officer of the Company.
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Item 6. Exhibits.
Exhibit Number |
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Description |
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10.1*# |
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Employment Agreement between Galecto, Inc. and Garrett Winslow, dated April 12, 2021. |
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10.2*# |
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Retention Compensation Agreement between Galecto, Inc. and Garrett Winslow, dated October 19, 2023. |
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31.1* |
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31.2* |
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32.1*† |
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101.INS |
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Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
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101.SCH |
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Inline XBRL Taxonomy Extension Schema Document |
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104 |
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Cover Page Interactive Data File (embedded within the Inline XBRL document) |
* Filed herewith.
# Indicates management contract or any compensatory plan, contract or arrangement.
† This certification will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent specifically incorporated by reference into such filing.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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Galecto, Inc. |
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Date: August 12, 2024 |
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By: |
/s/ Hans T. Schambye |
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Hans T. Schambye, M.D., Ph.D. |
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President, Chief Executive Officer and Director (Principal Executive Officer) |
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Date: August 12, 2024 |
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By: |
/s/ Jonathan Freve |
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Jonathan Freve |
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Chief Financial Officer (Principal Financial and Accounting Officer) |
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Exhibit 10.1
April 12, 2021
Garrett Winslow
[Address]
Dear Garrett,
Congratulations! Galecto, Inc. (“Galecto” or the “Company”) is very pleased to offer you employment with the following initial terms:
Position
Your position will be the position of General Counsel, initially reporting to Hans Schambye, effective April 26, 2021 (the “Start Date”). Your position currently is based in Boston, Massachusetts. This is a full-time position. While you render services to the Company, you will not engage in any other employment, consulting or other business activities of any kind, whether full-time or part time, that conflict, compete or interfere with your duties to the Company.
Compensation
Your annualized salary will be $350,000 payable on a semi-monthly or other basis in accordance with Galecto's normal payroll policies and procedures. This is an exempt position, which means you are paid on a salary basis for the job you perform, not by the hour, and that you are not eligible for overtime.
You shall be eligible to receive, for each full calendar year (or, if different, each full fiscal year) occurring during your employment with Galecto, an annual bonus of up to 30% of your annual base salary, whether pursuant to a formal bonus or incentive plan or program of Galecto or otherwise, as determined by Galecto’s Board of Directors or a committee thereof (the “Board”) in its discretion. Such bonus, if any, will be assessed and approved by the Board in its sole discretion and will be based on such objectives as the Board determines, which may include individual and/or corporate performance objectives as developed and determined by the Board in its sole discretion. To earn any bonus, you must be employed Galecto on the date the bonus is paid. For the first fiscal year, such bonus, if any, will be prorated based on your start date.
Your salary and any bonus will be subject to customary federal and state taxes and other withholdings.
In addition, we will recommend to the Board that you be granted stock options to purchase 120,000 shares, subject to the approval of the Board (in its discretion) and subject to the terms of the Equity Documents (defined below). Such options will have an exercise price equal to the fair market value of our common stock as determined by the
Board on the date of grant and the following vesting schedule subject to your continuing employment with Galecto on each applicable vesting date: 25% upon the one-year anniversary, then 1/48 vesting monthly thereafter over the remaining 36 months. Your
Exhibit 10.1
entitlement to any stock options is conditioned upon your signing of the form of stock option agreement provided by the Company and is subject to the Company’s equity plan (collectively, the “Equity Documents”). Except as set forth in the section titled
“Termination Benefits,” if this letter conflicts with the Equity Documents, the Equity Documents shall control.
Employee Benefits
You may participate in any and all benefit programs that Galecto establishes and generally makes available to all of its employees from time to time, provided you are eligible under (and subject to all provisions of) the plan documents governing those programs. The benefit programs made available by Galecto, and the rules, terms and conditions for participation in such benefit plans, may be changed by Galecto at any time without advance notice. You will be eligible for vacation under Galecto’s vacation policy in effect from time to time.
Galecto reserves the right to change the terms or cancel its compensation and benefits programs at any time.
You will be entitled to receive reimbursement for all reasonable and documented expenses incurred by you in performing services, subject to any Company expense reimbursement policy in effect from time to time. If you are an executive officer, you will be provided the Company’s form of indemnification agreement, subject to the Company’s discretion.
Termination Benefits
In the event your employment is terminated by Galecto without Cause (as defined below) or by you for Good Reason (as defined below), and subject to your execution and nonrevocation, within the time period required by the Separation Agreement but in no event later than 60 days after the last day of your employment by Galecto (the “Termination Date”), of a separation and release agreement in the form provided by the Company (the “Separation Agreement”), then (i) the Company shall, during the Severance Period (as defined below), continue to pay you as severance pay your base salary rate as in effect on the last day of your employment with the Company (the “Date of Termination,” and such pay, the “Severance Pay”) and (ii) the Company shall pay the premiums for you and the covered members of your family to participate in continuation health coverage under the COBRA law (“COBRA”) (less such amount as you would have paid in premiums during a comparable period of employment with the Company, with such premiums measured as of the Date of Termination, and which premiums you agree may be deducted from your Severance Pay) for the shortest of (i) the Severance Period (ii) the period for which you elect and are eligible for such coverage and (iii) period until the date you become eligible for group health coverage from a subsequent employer. In addition, notwithstanding anything to the contrary in the Equity Documents, if your employment is terminated by Galecto without Cause or by you for Good Reason, Galecto will accelerate the vesting of all equity awards subject to time based vesting issued by Galecto and held by you as of your termination date (the “Time-Based Equity Awards”).
Exhibit 10.1
Any termination or forfeiture of the unvested portion of the Time-Based Equity Awards that would otherwise occur on the Termination Date under the Equity Documents in the absence of this Agreement will be delayed until the Separation Agreement becomes effective. If the Separation Agreement does not become effective within the time period required by the Separation Agreement, such termination or forfeiture will occur, consistent with the Equity Documents.
“Cause” shall mean (a) a good faith finding by the Company that (i) you have failed to perform your assigned duties for the Company and have failed to remedy such failure within 10 days following written notice from the Company notifying you of such failure,
(ii) you have engaged in dishonesty, gross negligence or misconduct or (iii) you have breached this letter agreement, the Restrictive Covenant Agreement or any other agreements to which you are a party with the Company or any policies or procedures of the Company, or (b) your conviction of, or your entry of a pleading of guilty or nolo contendere to, any crime involving moral turpitude or any felony.
“Good Reason” shall mean (i) any material reduction by the Company of the your base salary or target bonus as initially set forth herein or as the same may be increased from time to time; (ii) any material diminution in your duties, title, responsibilities or authority; or (iii) a requirement that you relocate to a principal place of employment more than seventy-five (75) miles from Boston, Massachusetts.
“Severance Period” shall mean the period beginning on Galecto’s first regular payroll cycle following the effective date of the Separation Agreement and ending on the date nine (9) months thereafter.
The Severance Pay payments shall commence within 60 days after the Date of Termination and shall be made on the Company’s regular payroll dates; provided, however, that if the 60-day period begins in one calendar year and ends in a second calendar year, the Severance Pay payments shall begin to be paid in the second calendar year. In the event you miss a regular payroll period between the Date of Termination and first Severance Pay payment date, the first Severance Pay payment shall include a “catch up” payment. Notwithstanding the foregoing, in the event you are entitled to any payments pursuant to the Restrictive Covenants Agreement (as defined below) (including without limitation Garden Leave Pay as defined therein), the Severance Pay payments to be paid to you in any calendar year will be reduced by the amount that you are paid in the same such calendar year pursuant to the Restrictive Covenants Agreement. The Severance Pay and benefits provided hereunder will be subject to all applicable taxes and withholdings and will be payable in installments in accordance with the Company’s then-regular payroll practices.
For the avoidance of doubt, in the event your employment is terminated by the Company for Cause, by you for any reason other than Good Reason, or due to your death or disability (the latter as determined by the Company in good faith), you will not be entitled to the Severance Benefits.
Exhibit 10.1
Employment Relationship
Your employment will be “at-will.” This means that you or Galecto may terminate the employment relationship at any time, for any reason or no reason, with or without cause and with or without prior notice. Likewise, the terms and conditions of your employment, including without limitation your compensation, benefits and job duties, are subject to change by the Company in its sole discretion. In connection with the termination of your employment for any reason, you agree to resign from any officer position or other position you have with the Company or any Company affiliate, effective as of the last day of your employment with the Company, and execute any document reasonably requested by the Company to effectuate such resignation(s).
Employment Contingency
This offer of employment and/or your employment by Galecto is contingent upon:
By signing this offer letter, you represent that you are not bound by any employment contract, restrictive covenant or other restriction preventing (or that purports to prevent) you from entering into employment with Galecto or carrying out your responsibilities for Galecto, or which is in any way inconsistent with the terms of this letter. You agree not to disclose or use any confidential information of any former employer and that you will respect any other restrictive covenant obligation you have to any former employer or other third party. You agree to disclose to the Company prior to the Start Date any confidentiality or restrictive covenant agreement you have to any prior employer.
Policies and Procedures
You will be required to abide by and agree to all Galecto policies and procedures, including as set forth in any applicable employee handbook and accompanying policies.
Other Terms
This letter sets forth the complete offer we are extending to you, and supersedes and replaces any prior inconsistent statements or discussions. In entering into this Agreement, you agree that you are not relying on any promises or representations of the Company or any Company affiliate, expect as are expressly contained herein. This letter may be changed only by a subsequent written agreement signed by you and the Chief Executive Officer or Chairperson of the Board. This Agreement shall inure to the benefit of and be binding upon you and the Company, and each of your and its respective successors, executors, administrators, heirs and (in the Company’s case only) assigns.
Except as may otherwise be expressly provided in the Restrictive Covenant Agreement or the Equity Documents, (i) the terms of this Agreement and the resolution of any disputes
Exhibit 10.1
as to the meaning, effect, performance or validity of this Agreement or arising out of,
related to, or in any way connected with this Agreement, your employment with the Company or any other relationship between you and the Company (the “Disputes”) will be governed by the law of the State of Massachusetts (the “State”), excluding laws relating to conflicts or choice of law; and (ii) you and the Company submit to the exclusive personal jurisdiction of the federal and state courts located in the State in connection with any Dispute or any claim related to any Dispute.
We are thrilled to have you join the Galecto team! We hope this will be a mutually rewarding professional relationship. If the terms of this offer are acceptable to you, please sign in the space provided below indicating your agreement to the provisions of this offer of employment.
Sincerely,
/s/ Hans Schambye
Hans Schambye
Chief Executive Officer
Acceptance:
I have read the terms of this offer of employment from Galecto, Inc. and I accept and agree to them.
/s/ Garrett Winslow
Garrett Winslow Date April 12, 2021
Offer Expiration Date: April 9, 2021 ENC: Restrictive Covenant Agreement
April 12, 2021
Re: Addendum to Offer Letter re: Background Checks Dear Garrett,
As part of the pre-employment process at Galecto, Inc., we require a standard background check be completed prior to commencement of employment for all external candidates. The background check includes education verification, past employment verification, a basic criminal background check, and confirmation that the candidate is not associated with governmental/industry-related debarment lists.
As a result of the current COVID-19 crisis many government bodies, businesses and institutions are working at limited capacity, which has caused delays in response times to many background check inquiries, and that has delayed our ability to secure completed background checks in a timely manner. This means your background check may take longer than usual to complete, and in some cases may not be cleared until after your agreed- upon start date. Due to the extenuating and unprecedented circumstances, we are modifying our policy and will review and consider permitting commencement of employment prior to a completed and cleared background check. However to do so we require you to acknowledge, by signing below, that you understand that should you commence employment prior to a completed and cleared background check, your continued employment remains contingent upon a completed and cleared background check. By signing below, you acknowledge and understand these statements.
Sincerely,
/s/ Hans Schambye
Hans Schambye
Chief Executive Officer
Acknowledged and agreed:
/s/ Garrett Winslow
Garrett Winslow Date April 12, 2021
EXHIBIT A
PAYMENTS SUBJECT TO SECTION 409A
Subject to the provisions in this Exhibit A, any severance payments or benefits under this letter shall begin only upon the date of your “separation from service” (determined as set forth below) which occurs on or after date of the termination of his
employment. The following rules shall apply with respect to distribution of the payments and benefits, if any, to be provided to you under this letter:
pay plan that does not provide for a deferral of compensation by reason of the application of Treasury Regulation 1.409A-1(b)(9)(iii) (relating to separation pay upon an involuntary separation from service). Any installments that qualify for the exception under Treasury Regulation Section 1.409A-1(b)(9)(iii) must be paid no later than the last day of your second taxable year following the taxable year in which the separation from service occurs.
Exhibit 10.2
October 19, 2023
Garrett Winslow
[Address]
Re: Retention Compensation
Dear Garrett:
As you know, Galecto, Inc. (or its affiliate as applicable, the “Company”) greatly appreciates your efforts and hopes to continue working with you in the future. In order to encourage your continued efforts for the Company, the Company is offering you the opportunity to receive retention compensation as specified below, subject to this “Agreement”:
Event is reproduced for your convenience below: “Sale Event” shall mean (i) the sale of all or substantially all of the assets of the Company on a consolidated basis to an unrelated person or entity, (ii) a merger, reorganization or consolidation
pursuant to which the holders of the Company’s outstanding voting power and outstanding stock immediately prior to such transaction do not own a majority of the outstanding voting power and outstanding stock or other equity interests of the resulting or successor entity (or its ultimate parent, if applicable) immediately upon completion of such transaction, (iii) the sale of all of the Stock of the Company to an unrelated person, entity or group thereof acting in concert, or (iv) any other transaction in which the owners of the Company’s outstanding voting power immediately prior to such transaction do not own at least a majority of the outstanding voting power of the Company or any successor entity immediately upon completion of the transaction other than as a result of the acquisition of securities directly from the Company; provided, however, that in the event an Award is subject to Section 409A, no such event shall constitute a payment event unless such event is also a change of control event as defined by Section 409A. Capitalized but undefined terms in this definition are defined in the Equity Plan.
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law of Massachusetts (the “Jurisdiction”), excluding laws relating to conflicts or choice of law; (ii) you and the Company submit to the exclusive personal jurisdiction and venue of the federal and state (or provincial, as the case may be) courts located in the Jurisdiction in connection with any Dispute; and (iii) you and the Company waive any right to a jury with respect to any Dispute, to the fullest extent permitted by applicable law. This letter may not be modified or amended, and no breach shall be deemed to be waived, unless agreed to in writing by you and the Chief Executive Officer of the Company.
The Company hopes that this letter encourages your continued effective commitment to the Company.
Sincerely,
/s/ Hans T. Schambye
Hans T. Schambye
President and CEO
Accepted and Agreed:
/s/ Garrett Winslow
Garrett Winslow Date October 19, 2023
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO RULES 13a-14(a) AND 15d-14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Hans T. Schambye, certify that:
Date: August 12, 2024 |
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By: |
/s/ Hans T. Schambye |
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Hans T. Schambye, M.D., Ph.D. |
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President, Chief Executive Officer and Director (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO RULES 13a-14(a) AND 15d-14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Jonathan Freve, certify that:
Date: August 12, 2024 |
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By: |
/s/ Jonathan Freve |
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Jonathan Freve |
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Chief Financial Officer (Principal Financial and Accounting Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Hans T. Schambye, the Chief Executive Officer, and Jonathan Freve, the Chief Financial Officer, of Galecto, Inc. (the “Company”), hereby certify, that, to their knowledge:
Date: August 12, 2024 |
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By: |
/s/ Hans T. Schambye |
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Hans T. Schambye, M.D., Ph.D. |
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President, Chief Executive Officer and Director (Principal Executive Officer) |
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Date: August 12, 2024 |
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By: |
/s/ Jonathan Freve |
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Jonathan Freve |
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Chief Financial Officer (Principal Financial and Accounting Officer) |