GALECTIN THERAPEUTICS INC. In addition to historical information, the following Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements as defined under Section 21E of the Securities Exchange Act of 1934, as amended, and is subject to the safe harbor created therein for forward-looking statements. Such statements include, but are not limited to, statements concerning our anticipated operating results, research and development, clinical trials, regulatory proceedings, and financial resources, and can be identified by use of words such as, for example, "anticipate," "estimate," "expect," "project," "intend," "plan," "believe" and "would," "should," "could" or "may." All statements, other than statements of historical facts, included herein that address activities, events, or developments that the Company expects or anticipates will or may occur in the future, are forward-looking statements, including statements regarding: plans and expectations regarding clinical trials; plans and expectations regarding regulatory approvals; our strategy and expectations for clinical development and commercialization of our products; potential strategic partnerships; expectations regarding the effectiveness of our products; plans for research and development and related costs; statements about accounting assumptions and estimates; expectations regarding liquidity and the sufficiency of cash to fund currently planned operations through at leastDecember 31, 2021 ; our commitments and contingencies; and our market risk exposure. Forward-looking statements are based on current expectations, estimates and projections about the industry and markets in whichGalectin Therapeutics operates, and management's beliefs and assumptions. These statements are not guarantees of future performance and involve certain known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. Such risks and uncertainties are related to and include, without limitation, • our early stage of development,
• we have incurred significant operating losses since our inception and
cannot assure you that we will generate revenue or profit,
• our dependence on additional outside capital,
• we may be unable to enter into strategic partnerships for the
development, commercialization, manufacturing and distribution of our
proposed product candidates,
• uncertainties related to our technology and clinical trials, including
expected dates of availability of clinical data,
• we may be unable to demonstrate the efficacy and safety of our
developmental product candidates in human trials,
• we may be unable to improve upon, protect and/or enforce our
intellectual property,
• we are subject to extensive and costly regulation by the
Drug Administration (FDA) and by foreign regulatory
authorities, which
must approve our product candidates in development and could restrict
the sales and marketing and pricing of such products,
• competition and stock price volatility in the biotechnology industry,
• limited trading volume for our stock, concentration of ownership of
our stock, and other risks detailed herein and from time to time in
our SEC reports,
• challenges presented by the
COVID-19
pandemic, and
• other risks detailed herein and from time to time in our SEC reports,
including our Annual Report on Form
10-K
filed with the SEC for the fiscal year ended December 31, 2019 , and
our subsequent SEC filings.
The following discussion should be read in conjunction with the accompanying
consolidated financial statements and notes thereto of Galectin Therapeutics
appearing elsewhere herein.
Overview
We are a clinical stage biopharmaceutical company engaged in drug research and
development to create new therapies for fibrotic disease, cancer and selected
other diseases. Our drug candidates are based on our method of targeting
galectin proteins, which are key mediators of biologic and pathologic functions.
We use naturally occurring, readily-available plant products as starting
material in manufacturing processes to create proprietary, patented complex
carbohydrates with specific molecular weights and other pharmaceutical
properties. These complex carbohydrate molecules are appropriately formulated
into acceptable pharmaceutical formulations. Using these unique
carbohydrate-based candidate compounds that largely bind and inhibit galectin
proteins, particularly
galectin-3,
we are undertaking the focused pursuit of therapies for indications where
galectins have a demonstrated role in the pathogenesis of a given disease. We
focus on diseases with serious, life-threatening consequences to patients and
those where current treatment options are limited. Our strategy is to establish
and implement clinical development programs that add value to our business in
the shortest period of time possible consistent with the natural history of the
disease and to seek strategic partners when a program becomes advanced and
requires significant additional resources.
15
--------------------------------------------------------------------------------Table of Contents Our lead galectin-3 inhibitor is belapectin (GR-MD-02), which has been demonstrated in preclinical models to reverse liver fibrosis and cirrhosis. Belapectin has the potential to treat many diseases due to galectin-3's involvement in multiple key biological pathways such as fibrosis, immune cell function and immunity, cell differentiation, cell growth, and apoptosis (cell death). The importance of galectin-3 in the fibrotic process is supported by experimental evidence. Animals with the gene responsible for galectin-3 "knocked-out" can no longer develop fibrosis in response to experimental stimuli compared to animals with an intact galectin-3 gene.Galectin Therapeutics Inc. is using its galectin-3 inhibitor to treat advanced liver fibrosis and liver cirrhosis in NASH (non-alcoholic steatohepatitis) patients. We have completed two Phase 1 clinical studies, a Phase 2 clinical study in NASH patients with advanced fibrosis (NASH-FX) and a second Phase 2B clinical trial in NASH patients with well compensated cirrhosis (NASH-CX). We announced, inDecember 2017 top line results from our NASH-CX trial and results of an End of Phase 2 meeting with the FDA inMay 2018 that provided direction on potentially acceptable end points for a Phase 3 trial. The latter was confirmed in a Type C meeting with FDA inFebruary 2019 . Thereafter, the Company with its external NASH consultants designed a Phase 3 study that was sent to various contract research organizations (CROs) for their input on feasibility, timing costs and other important considerations. At the request of theUnited States Food and Drug Administration (FDA), the trial protocol and answers to questions raised by FDA at the February meeting was submitted as a Type C (Written Response Only) request to FDA onJuly 17, 2019 ; this response sought FDA feedback and agreement with regards to the proposed clinical program. Further details on results of the NASH-CX trial were published in the journal Gastroenterology (Gastroenterology 2020;158:1334-1345). Comments from FDA were received in lateOctober 2019 and have been incorporated into the final version of the clinical trial protocol by the Company in conjunction with its hepatology consultants and medical and other experts at Covance, its chosen CRO. This modified trial design was discussed with FDA in a meeting onNovember 14, 2019 at which FDA indicated the design was reasonable (subject to a review of the protocol). The Company together with its advisors and Covance has modified the protocol and associated statistical analysis plans in conformance with the feedback received from FDA. and filed the protocol and various other documents with FDA onApril 30, 2020 . The study officially consented its first patient inJune 2020 . In addition, the Company has been working to some additional information requested by FDA which mostly relate to reporting of completed developmental toxicity studies. Additionally, a study protocol entitled "A Single-dose, Open-label, Pharmacokinetic Study of Belapectin (GR-MD-02) in Subjects With Normal Hepatic Function and Subjects With Varying Degrees of Hepatic Impairment" has been filed with FDA to examine the effects of the drug in subjects with normal hepatic function and subjects with varying degrees of hepatic impairment (study details are listed under study NCT04332432 on www.clinicaltrials.gov ); this study is began enrolling patients in Q2-2020. A study protocol was filed with FDA onApril 30, 2020 for a seamless adaptively-designed Phase 2b/3 clinical study, the NASH-RX trial, evaluating the safety and efficacy of its galectin-3 inhibitor, belapectin (GR-MD-02), for the prevention of esophageal varices in patients with non-alcoholic steatohepatitis (NASH) cirrhosis (Further details are available at www.clinicaltrials.gov under study NCT04365868); this study began enrolling patients in Q2-2020. Recently the Company received a letter from FDA providing comments, asking questions and providing guidance on various aspects of the ongoing NASH-RX trial. We endeavor to leverage our scientific and product development expertise as well as established relationships with outside sources to achieve cost-effective and efficient drug development. These outside sources, amongst others, provide us with expertise in preclinical models, pharmaceutical development, toxicology, clinical trial operations, pharmaceutical manufacturing, sophisticated physical and chemical characterization, and commercial development. We also have established several collaborative scientific discovery programs with leading experts in carbohydrate chemistry and characterization. These discovery programs are generally aimed at the targeted development of new carbohydrate molecules that bind galectin proteins and offer alternative options to larger market segments in our primary disease indications. We also have established throughGalectin Sciences LLC , a discovery program aimed at the targeted development of small molecules (generally, non-carbohydrate) that bind galectin proteins and may afford options for alternative means of drug delivery (e.g., oral) and as a result expand the potential uses of our galectin-3 inhibitor compounds. Initial results of the efforts atGalectin Sciences LLC were presented by Dr.E. Zomer at the AFDD meeting inBoston in Fall, 2019. Three series of composition of matter patents covering discoveries at Galectin Sciences have been filed. We are also pursuing a development pathway to clinical enhancement and commercialization for our lead compounds in immuno-oncology for cancer therapy. However, our clinical development efforts are primarily focused on liver fibrosis and NASH. All of our proposed products are presently in development, including pre-clinical and clinical trials. Our Drug Development Programs Galectins are a class of proteins that are made by many cells in the body, but predominantly in cells of the immune system. As a group, these proteins are able to bind to sugar molecules that are part of other proteins, glycoproteins, in and on the cells of our body. Galectin proteins act as a kind of molecular glue, bringing together molecules that have sugars on them. Galectin proteins, in particular galectin-3, are known to be markedly increased in a number of important diseases including inflammatory diseases, scarring of organs (e.g. liver, lung, kidney, and heart) and cancers of many kinds. The increase in galectin protein promotes the disease and is detrimental to the patient. Published data substantiating the importance of galectin-3 in the fibrotic process arises from gene knockout experiments in animal studies. Mice genetically altered to eliminate the galectin-3 gene, and thus unable to produce galectin-3, are incapable of developing liver fibrosis in response to toxic insult to the liver and in fatty liver disease as well as development of fibrosis in other tissues. 16 -------------------------------------------------------------------------------- Table of Contents We have one new proprietary chemical entity (NCE) in development, belapectin, which has shown promise in preclinical and early clinical studies in treatment of fibrosis, severe skin disease, and in cancer therapy. Currently we are focusing on development of belapectin intended to be used in the treatment of liver fibrosis associated with fatty liver disease (NASH) and more specifically in NASH cirrhosis. We have also leveraged our relationships with well-known investigators to demonstrate clinical effects of belapectin in treating moderate to severe plaque psoriasis, severe atopic dermatitis, and in cancer therapy in combination with immune-system modifying agent(s). Belapectin is a proprietary, patented compound derived from natural, readily available, plant-based starting materials, which, following chemical processing, exhibits the properties of binding to and inhibiting galectin-3 proteins. A second NCE, GM-CT-01 is a proprietary, patented compound that is made from a completely different starting source plant material and also binds and inhibits galectin proteins. Previously in clinical development for cancer indications, GM-CT-01 compound has been explored in limited other preclinical studies. Our product pipeline is shown below: Indication Drug Status Fibrosis NASH with Advanced belapectin IND submitted January 2013. Results from the Fibrosis: Phase 1 clinical trial were reported in 2014, NASH-CX with final results reported in January 2015. trial and NASH-FX The Phase 2 NASH FX trial was designed for trial patients with advanced fibrosis but not cirrhosis. Its principal purpose was to evaluate various imaging modalities. The NASH FX trial top line data was reported in September 2016 The Phase 2 NASH CX trial, was designed for patients with well compensated cirrhosis. The NASH CX trial top line data was reported in December 2017 and was published in Gastroenterology in 2020. NASH - RX Based on FDA feedback, the NASH-RX trial is an adaptive Phase 2b/3 trial for the prevention of varices in NASH patients with well compensated cirrhosis. An interim efficacy analysis will be incorporated to confirm previous Phase 2 data, confirm an optimal dose and reaffirm efficacy, and the end of study endpoints will include development of varices and a composite clinical endpoint including progression to varices requiring treatment (large varices or varices with a red wale). See www.clinicaltrials.gov NCT04365868. Patient enrollment commenced in June 2020. A protocol for a hepatic impairment study was filed with FDA on March 30, 2020 This study is being conducted in subjects with normal hepatic function and subjects with varying degrees of hepatic impairment (CF: www.clinicaltrials.gov NCT04332432) and began enrolling patients in the second quarter of 2020. Lung Fibrosis belapectin In pre-clinical development Kidney Fibrosis belapectin In pre-clinical development 17
--------------------------------------------------------------------------------
Table of Contents
Indication Drug Status
Cardiac and Vascular belapectin and In
Fibrosis GM-CT-01 pre-clinical
development
Cancer Immunotherapy
Melanoma, Head, Neck belapectin Investigator IND submitted in December 2013.
Squamous Cell Phase 1B study in process. A second Phase 1B
Carcinoma (HNSCC) study began in
Q-1
2016. Investigator IND for that study submitted
in September 2015. Early data was reported in
February 2017 and studies with the 3
rd
cohort were reported in September 2018.
Continuation of trial is ongoing to expand the
dataset of melanoma and HNSCC patients at the 4
mg/Kg dose to determine if a possible Phase 2
trial is warranted.
Psoriasis
Moderate to Severe belapectin IND submitted March 2015. A phase 2a trial in
Plaque Psoriasis moderate to severe plaque psoriasis patients
Severe Atopic began in January 2016. Interim data on the
Dermatitis first four patients were positive and were
reported in May 2016. Further positive data was
reported in September 2016. Investigator
initiated IND submitted for treatment of three
patients with severe atopic dermatitis, with
positive preliminary data presented in February
2017. Further studies are dependent on finding
a suitable strategic partner.
Fibrosis.
Belapectin is our lead product candidate for treatment of fibrotic disease. Our
preclinical data show that belapectin has a significant therapeutic effect on
liver fibrosis as shown in several relevant animal models. In addition, in NASH
animal models, belapectin has been shown to reduce liver fat, inflammation, and
ballooning degeneration (death of liver cells). Therefore, we chose belapectin
as the lead candidate in a development program targeted initially at fibrotic
liver disease associated with
non-alcoholic
steatohepatitis (NASH). In January 2013 , an Investigational New Drug ("IND") was
submitted to the FDA with the goal of initiating a Phase 1 study in patients
with NASH and advanced liver fibrosis to evaluate the human safety of belapectin
and pharmacodynamics biomarkers of disease. On March 1, 2013 , the FDA indicated
we could proceed with a US Phase 1 clinical trial for belapectin with a
development program aimed at obtaining support for a proposed indication of
belapectin for treatment of NASH with advanced fibrosis. The Phase 1 trial was
completed and demonstrated that belapectin up to 8 mg/kg Lean Body Mass (LBM),
i.v. was safe and well tolerated.
Additionally, an open label drug-drug interaction study was completed in healthy
volunteers during the second quarter of 2015 with belapectin and it showed that
with 8 mg/kg LBM dose of belapectin and 2 mg/kg dose of midazolam there was no
drug-drug interaction and no serious adverse events or drug-related adverse
events were observed. The secondary objective was to assess the safety and
tolerability of belapectin when administered concomitantly with midazolam.
Our Phase 2 program in fibrotic disease consisted of two separate human clinical
trials. The primary clinical trial was the Phase 2b
NASH-CX
study for one year for patients with NASH with compensated cirrhosis, which
began enrolling in June 2015 . This study was the primary focus of our program
and is a randomized, placebo-controlled, double-blind, parallel-group Phase 2b
trial to evaluate the safety and efficacy of belapectin for treatment of liver
fibrosis and resultant portal hypertension in NASH patients with compensated
cirrhosis. A smaller, exploratory
NASH-FX
trial was conducted to explore potential use of various
non-invasive
imaging techniques in NASH patients with advanced fibrosis but not cirrhosis.
18
--------------------------------------------------------------------------------Table of Contents NASH-FX Trial: The NASH-FX trial, a Phase 2a pilot trial for patients with NASH and advanced fibrosis, explored use of three non-invasive imaging technologies, was completed. It was a short, single site, four-month trial in 30 NASH patients with advanced fibrosis (F3), but not cirrhosis (F4), randomized 1:1 to either 9 bi-weekly doses of 8 mg/kg LBM of belapectin or placebo. The trial did not meet its primary biomarker endpoint as measured using multi-parametric magnetic resonance imaging (LiverMultiScan (R) ,Perspectum Diagnostics ). The trial also did not meet secondary endpoints that measure liver stiffness as a surrogate for fibrosis using, magnetic resonance-elastography and FibroScan ® score. We, and many experts in the field, now believe that a four-month treatment period may not be sufficient to show efficacy results in established advanced liver fibrosis. This small study was also not adequately powered for the secondary endpoints. In the trial, belapectin was found to be safe and well tolerated with no serious adverse events and evidence of a pharmacodynamic effect. These results provided support for further development in NASH. NASH-CX Trial: The NASH-CX trial was a larger multi-center clinical trial that explored the use of belapectin for the treatment of liver fibrosis and resultant portal hypertension in patients with well-compensated NASH cirrhosis. Enrollment in this trial was completed inSeptember 2016 , and a total of 162 patients at 36 sites inthe United States were randomized to receive either 2 mg/kg LBM of belapectin, 8 mg/kg LBM of belapectin or placebo, with 54 patients in each group. Approximately 50% of patients at baseline had esophageal varices (a complication of portal hypertension). The primary endpoint was a reduction in hepatic venous pressure gradient (HVPG). Patients received an infusion of belapectin or placebo every other week for one year, a total of 26 infusions, and were evaluated to determine the change in HVPG as compared with placebo. Secondary or exploratory endpoints included fibrosis on liver biopsy, measurement of liver stiffness (FibroScan (R) ) and assessment of liver metabolism ( 13 C-methacetin breath test, Exalenz). Top line data readout was reported inDecember 2017 . The study demonstrated a favorable safety profile and clinically meaningful efficacy results in patients without esophageal varices at baseline demonstrated by a prevention of development of varices when compared to placebo. In the total patient population, the primary endpoint HVPG showed a trend toward benefit with belapectin treatment, but the difference from placebo was not statistically significant. The mean change in HVPG of placebo from baseline to week 54 was 0.3 mm Hg. The mean change in HVPG from baseline was -0.37 and -0.42 for the 2 mg/kg LBM dose and 8 mg/kg LBM dose of belapectin, respectively. In those NASH cirrhosis patients without varices at baseline (about 50% of the total population), there was a statistically significant effect of the 2 mg/kg LBM dose of belapectin on the absolute change in HVPG (-1.08 mm Hg, p<0.01). The effect of the 8 mg/Kg LBM dose of belapectin on absolute or percent change in HVPG from baseline to week 54 was not significant. Also because of the clinical relevance of this population, a responder analysis was performed on those patients without varices at baseline. Analysis was performed looking at two groups: those with an equal to or greater than 2 mm Hg decrease in HVPG from baseline or those with an equal to or greater than 2 mm Hg and a greater than or equal to 20% decrease in HVPG from baseline. In both cases, the change observed in the belapectin 2 mg/kg LBM group was statistically significant (p<0.01) while that of the 8 mg/kg LBM group was not. Over the 54-week treatment period, in patients without varices there were statistically significantly fewer new varices that developed in the belapectin treatment groups (0% and 4% in the 2 mg/kg LBM and the 8 mg/kg LBM, respectively) vs placebo (18%). As esophageal varices can lead to hemorrhagic complication, that can be fatal, we believe the prevention of esophageal varices may represent a clinically relevant measure of clinical efficacy in patients with NASH cirrhosis. The major conclusions from the NASH-CX trial results are that: i) belapectin had a statistically significant and clinically meaningful effect in improving HVPG vs placebo in patients with NASH cirrhosis who did not have esophageal varices at baseline. This effect was seen regardless of the patient's baseline portal hypertension. ii) There was an important drug effect of belapectin in the total patient population on liver biopsy with a statistically significant improvement in hepatocyte ballooning (ie cell death), (iii) There was a statistically significant reduction (p=0.02) in the development of new esophageal varices in drug-treated patients compared to placebo. We believe that this is a clinically relevant endpoint related to patient outcomes, (iv) While there was a drug effect in both the 2 mg/kg LBM and 8 mg/kg LBM groups on the development of varices and liver biopsy there was a consistently greater and statistically significant effect of the 2 mg/kg LBM dose of belapectin, (v) belapectin appears to be safe and well tolerated in this one year clinical trial, a feature that is of prime importance for a cirrhotic population and (vi) We believe this is the first large, randomized clinical trial to demonstrate a clinically meaningful improvement in portal hypertension or liver biopsy in patients with compensated NASH cirrhosis who have not yet developed esophageal varices. Further information and details on the NASH-CX results summarized above is available in public presentations posted to our website and filed with theSEC and in a peer reviewed publication in Gastroenterology (Gastroenterology 2020;158:1334-1345). 19 -------------------------------------------------------------------------------- Table of Contents NASH-RX Trial: Building on the experience of the NASH-CX trial, the NASH-RX Trial is a seamless adaptively-designed Phase 2b/3 clinical study evaluating the safety and efficacy of our galectin-3 inhibitor, belapectin (GR-MD-02), for the prevention of esophageal varices in patient with non-alcoholic steatohepatitis (NASH) cirrhosis. The major features of this innovative Phase 2b/3 study design are: i) In patients with NASH cirrhosis and clinical signs of portal hypertension but without esophageal varices at baseline, this trial will assess the effect of belapectin on the incidence of new varices (the primary endpoint) - as well as assessing effect on the incidence of long-term, clinically significant cirrhosis-related outcomes (a key secondary efficacy endpoint), (ii) The study targets NASH patients with a clearly identified unmet medical need: patients with compensated cirrhosis who are at risk of developing esophageal varices, a potentially life-threatening complication of cirrhosis (bleeding varices are a cause of death in about one-third of cirrhotic patients). There is no approved treatment for preventing varices in these patients. In addition, the development of esophageal varices reflects the progression of hepatic cirrhosis and thus portends the development of other cirrhosis complications such as ascites, hepatic encephalopathy, and liver failure, and (iii) During the first 18 months, two belapectin dose levels (2 mg/kg LBM and 4 mg/kg LBM) will be compared to placebo (phase 2b). Then, at the interim analysis (IA), one belapectin dose will be selected based on efficacy and safety, for continued evaluation (Phase 3). The belapectin dose selected for the phase 2b/3 are based on the analysis of the NASH-CX trial, including a dose response pharmacokinetic analysis of the hepatic venous gradient pressure (HVPG, a reflection of portal hypertension). Prior belapectin clinical studies have also indicated the good tolerance and safety profile of belapectin with doses of up to 8 mg/kg LBM for 52 weeks (Phase 2b Study NASH-CX), an important feature of the future risk benefit analysis in patients with NASH cirrhosis. The study design provides for a pre-specified interim analysis (IA). The IA of efficacy and safety data will be conducted after all planned subjects in Phase 2b component have completed at least 78 weeks (18 months) of treatment and an esophago-gastro-duodeno endoscopic assessment. The purpose of the IA is to allow potential seamless adaptive modifications of the study, including: (1) the selection of the optimal dose of belapectin for Phase 3, (2) the re-estimation of the study sample size for Phase 3 portion of the trial, (3) the re-evaluation of the randomization ratio for the Phase 3 portion of the trial, (4) the refinement of the inclusion and exclusion criteria for the Phase 3 portion of the trial, including the cirrhosis status, (5) and/or termination of the study for overwhelming efficacy or for futility. The trial design also includes a blinded sample size re-estimation ("SSR") during the Phase 2b, prior to the IA, to allow for potential sample size readjustment. The SSR will be conducted when 50% of the patients have completed 18 months of therapy. This will allow to confirm the underlying assumption regarding the rate of varices development, currently estimated from our prior Phase 2b trial (NASH-CX). The study design also minimizes invasive testing requirements, such as the measurement of HVPG or repeated liver biopsies, which we believe will facilitate enrollment and retention of patients. It also provides for a seamless transition of patients from the phase 2b component into the phase 3 stage, including the potential addition of new patients. The trial design preserves the surrogate end-point concepts (development of new varices versus variceal hemorrhage) previously discussed with FDA. We believe that these adaptations taken together are innovative and optimize conduct of the NASH-RX trial with a relevant primary outcome giving belapectin the best opportunity to show a positive therapeutic effect to address an unmet medical need. If the results of the NASH-RX trial are compelling, there could be the potential for accelerated FDA approval and/or partnership opportunity with a pharmaceutical company. In the Phase 3 component of this trial, as proposed in the protocol, the primary endpoint remain the development of varices. Secondary endpoints include a composite clinical outcomes endpoint, including varices requiring treatment (development of large varices or varices with a red wale), decompensating events, all-cause mortality, MELD score increase, liver transplant. Also, NASH non-invasive biomarkers will be evaluated. To target a population at risk of developing esophageal varices, patient selection will be based on clinical signs of portal hypertension, including, a low platelet count, an increased spleen size and/or evidence of collaterals circulation. The focus and goal of the therapeutic program is to stop the progression of and/or reverse portal hypertension and thereby prevent the development of varices, potentially one of the most immediately life-threatening complication of cirrhosis. Based on the results of the NASH-CX trial and subject to confirmation in later stage clinical trials, we believe that this goal is achievable in a significant portion of the NASH cirrhosis patient population i.e. those NASH cirrhosis patients with clinical signs of portal hypertension. We currently expect enrollment in the Phase 2(b) portion of the trial to be require 12-14 months and enrollment began inJune 2020 . This remains subject to potential site delays due to the impact of the global COVID-19 pandemic. Our CRO has identified more than 125 clinical trial sites in 11 countries interested in the trial. Further details on the NASH-RX trial can be found on www.clinicaltrials.gov under study NCT04365868. The Company also has commenced a Hepatic Impairment Study, which will run in parallel with the phase 2b/3 trial as part of the Phase 3 development program. The Hepatic Impairment Study will be conducted at up to four sites and will involve approximately 40 patients (divided amongst normal healthy volunteers, and patients with hepatic impairment categorized as Child-Turcotte-Pugh (CTP) classes A (mild), B (moderate), and C (severe)). Each subject will receive a single infusion of belapectin (4 mg/kg LBM) and their serum belapectin levels will be monitored for up to approximately two weeks to define the effects of various stages of cirrhosis on serum belapectin levels and safety. Based on the results from this hepatic impairment study, the Company may consider including patients with more advanced cirrhosis in the Phase 3 portion of its NASH-RX trial. Until dosing and safety profile is further informed in CTP Class B and/or Class C patients, the NASH-RX trial will enroll only CTP Class A patients. Further details on this hepatic impairment study can be found on www.clinicaltrials.gov study NCT04332432. 20 -------------------------------------------------------------------------------- Table of Contents Cancer Immunotherapy. We believe there is potential for galectin inhibition to play a key role in the burgeoning area of cancer immunotherapy. For example, there have been several recent approvals of drugs that enhance a patient's immune system to fight cancer. It is our goal to use a galectin inhibitor to further enhance the immune system function to fight cancer in a way that complements other approaches to this type of therapy. This hypothesis is supported by the fact that galectin-3 is expressed at high levels in multiple types of tumors, adds to the malignant nature of the tumors, and protects the tumors from immune system attack. Our drug candidates provide a promising new therapeutic approach to enhance the activity of the immune system against cancer cells. Preclinical studies have indicated that belapectin enhances the immune response to cancer cells, increased tumor shrinkage and enhanced survival in immune competent mice with prostate, breast, melanoma and sarcoma cancers when combined with one of the immune checkpoint inhibitors, anti-CTLA-4 or anti-PD-1, or with the immune cell activator anti-OX40. These preclinical data led to the filing of two Investigator-sponsored INDs and the initiation of studies of belapectin in combination with Yervoy ® (ipilimumab) and KEYTRUDA (pembrolizumab) in Phase 1B studies of patients with metastatic melanoma. The KEYTRUDA trial has also been expanded to include patients with non-small cell lung cancer and head and neck squamous cell carcinoma. These studies are being conducted under the sponsorship ofProvidence Portland Medical Center's Earle A. Chiles Research Institute (EACRI). Data on this combination immunotherapy program was initially presented onFebruary 7, 2017 at the 9thGTCBio Immunotherapeutics & Immunomonitoring Conference inSan Diego, CA by Dr.William L. Redmond ,Providence Cancer Center . Preclinical results in mouse models of multiple types of cancers showed important anti-tumor activity and increased survival effects of combining belapectin with different types of immune modulators, providing a case for progressing studies into human patients with cancer. Seven patients were treated in the belapectin trial in combination with ipilimumab (Yervoy ® ), with no safety concerns in these low dose cohorts. Due to changes in the standard of care for metastatic melanoma (i.e., approval of anti-PD-1), recruitment has been slowed significantly in this trial. Promising results were reported in the Phase 1b trial combining belapectin with pembrolizumab (KEYTRUDA ® ). Cohort 1 was completed (n=6, 5 with melanoma, one with head and neck cancer) with one partial response and one mixed response in the melanoma patients. There was a rapid and marked tumor response after 3 doses of combined belapectin and pembrolizumab in the one partial response patient who had failed high-dose IL-2 and oncolytic virus + ipilimumab. The study is ongoing and progression to further development will be based on response rate as compared to historical response rates to pembrolizumab alone. InSeptember 2018 we announced additional preliminary clinical data from cohort 3 of this investigator-initiated trial. When aggregated with cohorts previously reported, the data shows a 50% objective response rate in advanced melanoma with belapectin in combination with KEYTRUDA, and a significant decrease in the frequency of suppressive myeloid-derived suppressor cells following treatment in the responding patients (on day 85 post-treatment). Fourteen advanced melanoma patients across three dose cohorts now have Objective Response Rate (ORR) and Disease Control Rate (DCR) data. Six patients completed in cohort 3 (8 mg/kg) have now been added to the three patients completed in cohort 2 (4 mg/kg) and five patients completed in cohort 1 (2 mg/kg). Cohorts 1 and 3 each had two patients with an objective response. All three patients in cohort 2 had an objective response. In addition to the fourteen advanced melanoma patients, six patients with head and neck cancer were enrolled in this trial with a 33% ORR and 67% DCR. These data, taken together with the observed favorable safety and tolerability of the combination, in the view of the principal investigator, provide compelling rationale to move forward. Given that all three melanoma patients were responders at the 4 mg/kg dose, the investigators plan to continue the trial with the expansion of the 4 mg/Kg cohort to include additional advanced melanoma patients and additional head and neck cancer patients. The expansion cohort will target to include 15 patients and is planned to have continued belapectin dosing as long as pembrolizumab is administered. Currently more than 40% of the patients in the expansion cohort have been enrolled and further information will be reported as it becomes available. Assuming these additional data are positive, the next logical step could be a Phase II trial. Severe skin diseases. During our Phase 1 NASH fibrosis trial with belapectin, a clinical effect on plaque psoriasis was observed in a NASH patient who also had this disease. This patient had marked improvement in her psoriasis, with improvement beginning after the third infusion. She reported that her psoriasis was "completely gone" and her skin was "normal" after the fourth infusion. Her skin remained normal for 17 months after the final infusion of study drug. The patient is convinced that the improvement in her psoriasis is related to the study drug. This serendipitous finding, combined with galectin-3 protein being markedly upregulated in the capillary epithelia (small blood vessels) of the psoriatic dermis (plaque lesions), led to a phase 2a trial in patients with moderate to severe plaque psoriasis. Belapectin inhibition of galectin-3 may attenuate capillary changes in the psoriatic dermis and inflammatory cell recruitment, perhaps explaining the improvements observed in the NASH fibrosis trial patient. In this open-label, unblinded trial (no placebo, all patients knowingly receive active drug), 5 patients with moderate to severe plaque psoriasis were administered belapectin every two weeks for 24 weeks. InMay 2016 , we reported positive results on the first four patients after 12 weeks of therapy. Based on these results, we modified the trial to include 24 weeks of therapy. InAugust 2016 , we reported on four patients after 24 weeks of therapy and one patient after 12 weeks of therapy. The four patients who received 24 weeks of therapy experienced an average of 48% improvement in their plaque 21 -------------------------------------------------------------------------------- Table of Contents psoriasis. At this time, the average response in all five patients remains at 50% with one patient having an 82% improvement. However, there are existing drugs on the market in this disease that produce 75% and higher improvements in 60-90% of patients. While we are encouraged that this study has demonstrated clinically meaningful results in a human disease with belapectin, the next steps would entail a controlled, does-ranging clinical trial which we do not expect to conduct absent a strategic partnership. We believe the mechanism of action for belapectin is based upon interaction with, and inhibition of, galectin proteins, particularly galectin-3, which are expressed at high levels in certain pathological states including inflammation, fibrosis and cancer. While belapectin is capable of binding to multiple galectin proteins, we believe that it has the greatest affinity for galectin-3, the most prominent galectin implicated in pathological processes. Blocking galectin in cancer and liver fibrosis has specific salutary effects on the disease process, as discussed previously. Results of Operations Three and Nine Months EndedSeptember 30, 2020 Compared to Three and Nine Months EndedSeptember 30, 2019 Research and Development Expense. Three Months Ended Nine Months Ended 2020 as Compared to 2019 September 30, September 30, Three Months Nine Months 2020 2019 2020 2019 $ Change % Change $ Change % Change (In thousands, except %) Research and development$ 4,780 $ 1,503 $ 11,605 $ 3,671 $ 3,277 218 %$ 7,934 216 % We generally categorize research and development expenses as either direct external expenses, comprised of amounts paid to third party vendors for services, or all other research and development expenses, comprised of employee payroll and general overhead allocable to research and development. We consider a clinical program to have begun upon acceptance by the FDA, or similar agency outside ofthe United States , to commence a clinical trial in humans, at which time we begin tracking expenditures by the product candidate. Clinical program expenses comprise payments to vendors related to preparation for, and conduct of, all phases of the clinical trial, including costs for drug manufacture, patient dosing and monitoring, data collection and management, oversight of the trials and reports of results. Pre-clinical expenses comprise all research and development amounts incurred before human trials begin, including payments to vendors for services related to product experiments and discovery, toxicology, pharmacology, metabolism and efficacy studies, as well as manufacturing process development for a drug candidate. Our research and development expenses were as follows: Three Months Ended Nine Months Ended September 30, September 30, 2020 2019 2020 2019 (in thousands) Direct external expenses: Clinical programs$ 3,768 $ 718 $ 8,566 $ 1,648 Pre-clinical activities 64 232 427 333 All other research and development expenses 948 553 2,612 1,690$ 4,780 $ 1,503 $ 11,605 $ 3,671 Clinical programs expenses increased primarily due to costs related to our NASH-RX trial during the three and nine month periods endedSeptember 30, 2020 as compared to the same periods endedSeptember 30, 2019 . Other research and development expense increased primarily due to increased payroll and non-cash stock compensation expense related to the hiring of Dr.Pol Boudes as Chief Medical Officer inMarch 2020 . Both the time required and costs we may incur in order to commercialize a drug candidate that would result in material net cash inflow are subject to numerous variables, and therefore we are unable at this stage of our development to forecast useful estimates. Variables that make estimates difficult include the number of clinical trials we may undertake, the number of patients needed to participate in the clinical trial, patient recruitment uncertainties, trial results as to the safety and efficacy of our product, and uncertainties as to the regulatory agency response to our trial data prior to receipt of marketing approval. Moreover, the FDA or other regulatory agencies may suspend clinical trials if we or an agency believes patients in the trial are subject to unacceptable risks or find deficiencies in the conduct of the clinical trial. Delays or rejections may also occur if governmental regulation or policy changes during our clinical trials or in the course of review of our clinical data. Due to these uncertainties, accurate and meaningful estimates of the ultimate cost to bring a product to market, the timing of costs and completion of our program and the period during which material net cash inflows will commence are unavailable at this time. 22 -------------------------------------------------------------------------------- Table of Contents General and Administrative Expense. 2020 as Compared to 2019 Three Months Nine Months Ended September 30, Ended September 30, Three Months Nine Months 2020 2019 2020 2019 $ Change % Change $ Change % Change (In thousands, except %) General and administrative$ 1,146 $ 1,360 $ 4,007 $ 4,579 $ (214 ) (16 )%$ (572 ) (12 )% General and administrative expenses consist primarily of salaries including stock-based compensation, legal and accounting fees, insurance, investor relations, business development and other office related expenses. The primary reasons for the decrease in general and administrative expenses for the three-months endedSeptember 30, 2020 as compared to the same period in 2019 is due to a decrease in non-cash stock compensation expense of approximately$70,000 and a decrease of approximately$67,000 in investor relations, business development and travel expenses due to less travel in 2020 due to the COVID-19 pandemic. The primary reasons for the decrease in general and administrative expenses for the nine-months endedSeptember 30, 2020 as compared to the same period in 2019 is due to a decrease in non-cash stock compensation expense of approximately$171,000 , a decrease in investor relations, business development and travel expenses of approximately$146,000 due to less travel in 2020 due to the COVID-19 pandemic, and a decrease in legal expenses of$281,000 partially offset by an increase in insurance expense of$211,000 . Liquidity and Capital Resources Since our inception onJuly 10, 2000 , we have financed our operations from proceeds of public and private offerings of debt and equity. As ofSeptember 30, 2020 , we raised a net total of$197.4 million from these offerings. We have operated at a loss since our inception and have had no significant revenues. We anticipate that losses will continue for the foreseeable future. AtSeptember 30, 2020 , the Company had$32.6 million of unrestricted cash and cash equivalents available to fund future operations. InDecember 2018 , the Company announced the extension of its$10 million unsecured line of credit facility with stockholder and director,Richard E. Uihlein . The Company has not drawn under the line of credit. The Company believes there is sufficient cash, including availability of the line of credit, to fund currently planned operations at least throughDecember 31, 2021 . We will require more cash to fund our operations afterDecember 31, 2021 and believe we will be able to obtain additional financing. The currently planned operations include costs related to a planned adaptively designed Phase 2b/3 clinical trial. Currently, we expect to require an additional approximately$40 million to cover costs of the trial to reach the planned interim analysis estimated to occur in the second quarter of 2023 along with drug manufacturing and other scientific support activities and general and administrative costs. However, there can be no assurance that we will be successful in obtaining such new financing or, if available, that such financing will be on terms favorable to us. Net cash used in operations increased by$8,098,000 to$15,187,000 for the nine months endedSeptember 30, 2020 , as compared to$7,089,000 for the nine months endedSeptember 30, 2019 . Cash operating expenses increased principally due to our NASH-RX clinical trial with belapectin. Net cash provided by financing activities for the nine months endedSeptember 30, 2020 , of$263,000 represents proceeds of$219,000 from the exercise of common stock options and$44,000 in net proceeds from issuance of common shares under our ATM. Net cash provided by financing activities for the nine months endedSeptember 30, 2019 , of$49,173,000 represents proceeds from the issuance of common stock from the stockholder rights offering of$44,889,000 , from the ATM of$2,028,000 and$2,650,000 from the exercise of common stock options and warrants offset partially by$394,000 paid in dividends on convertible preferred stock. Off-Balance Sheet Arrangements We have not created, and are not a party to, any special-purpose or off-balance sheet entities for the purpose of raising capital, incurring debt or operating parts of our business that are not consolidated into our financial statements. We do not have any arrangements or relationships with entities that are not consolidated into our financial statements that are reasonably likely to materially affect our liquidity or the availability of capital resources. Application of Critical Accounting Policies and Estimates The preparation of condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to accrued expenses, stock-based compensation, contingencies and litigation. We base our estimates on historical experience, terms of existing contracts, our observance of trends in the industry, information available from other outside sources and on various other factors that we believe to be appropriate under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. 23 -------------------------------------------------------------------------------- Table of Contents Critical accounting policies are those policies that affect our more significant judgments and estimates used in preparation of our consolidated financial statements. We believe our critical accounting policies include our policies regarding stock-based compensation, accrued expenses and income taxes. For a more detailed discussion of our critical accounting policies, please refer to our 2019 Annual Report on Form 10-K. Item 3. Quantitative and Qualitative Disclosures about Market Risk Market risk represents the risk of loss that may impact our financial position, operating results or cash flows due to changes in theU.S. interest rates. The primary objective of our investment activities is to preserve cash until it is required to fund operations. To minimize risk, we maintain our portfolio of cash and cash equivalents in operating bank accounts and money market funds. Since our investments are short-term in duration, we believe that we are not subject to any material market risk exposure. Item 4. Controls and Procedures Evaluation of Disclosure Controls and Procedures Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed, summarized, and reported within the time periods specified in theSecurities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. Our management, with the participation of the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934) and concluded that, as ofSeptember 30, 2020 , our disclosure controls and procedures were effective. In designing and evaluating our disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Changes in Internal Control over Financial Reporting During the quarter endedSeptember 30, 2020 , no change in our internal control over financial reporting has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 24
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