Galectin Therapeutics: Some more thoughts

Disclaimer: I'm long $GALT with a small position, and considering adding a bit more due to recent downswing in prices in $IBB.

So, I finally have some time to sit down and give some more analysis on $GALT, whose Phase I trial I wrote a snap-reaction to earlier in the week here. Give that a read, and then come back here.


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One of the funny things that I've been reading about that seems to be a prevailing opinion from retail investors  is that GALT, with a successful Phase II (or even Phase I) trial of GR-MD-02, deserves a market cap valuation identical to ICPT's ~ $6B. This is ludicrous for a few reasons.

• Dosing schedule/route: ICPT is the clear winner here, simply because OCA (the drug that ICPT tested in their recent Phase II trial to treat fibrosis) is taken orally. This is very important, as $GALT is being tested as an IV injection. Obviously, it is much easier to achieve patient compliance with an oral vs. injectable, as most people are reticent to stick themselves with a needle; additionally, an IV injection is a little more difficult to teach/learn/execute for a patient, whereas other injections (sub-cutaneous, intra-muscular, etc) may be easier to learn. Even worse, in animal testing for GR-MD-02, it appears that only IV infusions are able to achieve a therapeutic effect, whereas sub-cutaneous injections (probably the easiest for a patient to do) and oral administration were not effective (in mice). However, intra-peritoneal injection (which, to my knowledge, is sort of half-way between the 'instant administration of an IV and the slow-release Sub-Q injection, as far as kinetics go) was effective in rats...so there's maybe something in play for humans as an alternate delivery. IP injections aren't typically done in humans, but it leaves the possibility open that perhaps an alternate delivery route would work. 
• Second mover: ICPT is also the winner here, as they are likely to be first to market, first to advertise, first to enlist physician key opinion leaders, etc. If ICPT's OCA is approved for the treatment of NAFLD/NASH/liver fibrosis (as I and most expect it to be), even if everything goes swimmingly for GALT, they still won't have their product out until at least a year or two after ICPT, I estimate. 
• Essentially, even assuming GALT eventually is able to see through the approval of GR-MD-02 for the treatment of NASH, I predict a much smaller market for GR-MD-02 than ICPT's OCA treatment. 

ICPT Pipeline, from company website (click to make BIG)

GALT Pipeline, from company website (click to make BIG)

• Pipeline: Both ICPT and GALT are essentially 'one trick ponies'. ICPT uses primarily OCA, while GALT primarily is investigating GALT. The difference is that OCA has just successfully completed a Phase III trial for a rare autoimmune disease (primary biliary cirrhosis, which to my knowledge does not have any other satisfactory treatments other than knocking down the immune system). Even though the target population isn't very large, OCA for the treatment of PBC will still represent a decent revenue stream; PBC isn't something that is typically thought of as treatable: even liver transplant can cause recurrence. So, OCA will probably be a nice, long-term, essential treatment for PBC. 

At this point, it's probably rational for the reader to be wondering "if ICPT has so many advantages over GALT, why are you long GALT instead of ICPT?" In fact, halfway through this analysis, I started to think the same thing myself! So, let's outline the case for why I believe GALT is a better investment than ICPT. As a trader/investor in small cap, binary biotech stocks, I'm interested in large gains in short periods of time. Of course, in order for this to happen, we have to accept a great deal of risk. So, the point of these analyses is to try to figure which securities either demonstrate possibility for much greater upside, or present with less risk than other investments. 

The meteoric rise of ICPT 

• Firstly, I think that a lot of the short-term upside in ICPT is, frankly, gone. Of course, things can change, but the prime time to get into ICPT would have been a year ago, before the phase II trial, and sell a few weeks ago, when you would have made one of the infamous 'ten-baggers'. Of course, that sort of upside is extremely rare, but gains of 100-300% aren't uncommon for these small cap biotechs. ICPT has already experienced its big run-up; investing in ICPT may still be a great long-term play, especially if someone with a bit more finance background were willing to run all the numbers on their price per treatment, number of treatable patients, etc., and make some models to determine a fair valuation. I'm just not as interested in long-term value biotech investing.
• Secondly, even drugs that aren't "as good", or are considered "subpar" have their place in the market. There are countless examples of differential efficiency of different drugs, even between two patients that, to a physician, may seem identical. So, even though one person with chronic headaches may swear by acetaminophen, another may find NSAIDs to work much better. Chronic diseases can be similar, with a physician attempting multiple different drugs before arriving on a therapy that has the desired outcome. GALT's GR-MD-02 might simply be better for some patients than others that have tried ICPT's OCA.

Combination therapy: perhaps GALT's best hope?

• Thirdly, it is not uncommon to treat the same disease with multiple pharmaceuticals, with many pharmaceutical companies actually making combination pills. So, you may treat a patient that has diabetes with both metformin and a thiazolidinedione, even though (in my opinion) there is a clear winner there with the second drug being seemingly superior in a lot of ways. Thus, GALT's GR-MD-02 could, in the future, be administered alongside OCA.
• This leads to my last point, which is that we don't know much about the side effects of these drugs yet. It still could certainly be that OCA has some sort of unattractive side effects, so that GR-MD-02 may be more desirable for certain patients. For instance, I'll use my above diabetes example. Metformin is sort of the old-school treatment, whereas the TZDs are the new, sexy way to treat diabetes. However, TZDs can cause unwanted weight gain despite really cleaning up the patient's liver and improving their blood sugar, which is probably the last thing a type 2 diabetic wants to see. Thus, you'll see a lot of patients steer clear of TZDs, even though they're probably better for them health-wise, so that they can avoid weight gain. In the same way, patients may steer clear of OCA and opt for GR-MD-02, if the profile of side effects is more desirable for that patient.

In conclusion, is GALT set-up to become the world dominator in anti-fibrosis treatment? In my opinion, no. But, might they have a place in the market? Perhaps. Recently, $IBB (biotech sector ETF) has been on a strong negative tear, likely due to its high-flying returns in the past-year or so, a lot of rotation out of momentum stocks, worries about bubbles in momentum stocks, profit-taking, whatever. Anyway, there is some risk in these small-cap biotechs, because they can easily be dragged down by their industry. However, as GALT has fallen with $IBB, I'm considering adding a little to my position in the next few days. If GALT has some decent Phase I results, the mid-term upside is still very high in my opinion; if GALT has great Phase I results in the next 6 months, I'll probably exit the position for a triple digit gain.

I might come back to add some more to this post over the weekend, so check back on Sunday in case I have a little more.

Happy Investing!

JVS

This is a trade analysis, not recommendation.