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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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 November 1, 2023, 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 |
16 |
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. |
34 |
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Item 3. |
35 |
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Item 4. |
35 |
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Item 5. |
35 |
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Item 6. |
36 |
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37 |
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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,” “project,” “continue,” “potential,” “ongoing,” or the negative of these terms or other comparable terminology. These forward-looking statements include, but are not limited to, statements regarding:
These statements relate to future events or to our future financial performance and involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, the reasons described elsewhere in this Quarterly Report on Form 10-Q and those set forth in Part I, Item 1A - “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. Any forward-looking statement in this Quarterly Report on Form 10-Q reflects our current view with respect to future events and is subject to these and other risks, uncertainties, and assumptions relating to our operations, results of operations, industry, and future growth. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.
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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September 30, |
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December 31, |
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2023 |
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2022 |
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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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Prepaid expenses and other current assets |
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Total current assets |
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Marketable securities, non-current |
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— |
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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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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 loss |
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( |
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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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Nine Months Ended |
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2023 |
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2022 |
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2023 |
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2022 |
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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 (expense), net |
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Interest income, net |
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Loss on sale of marketable securities |
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— |
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— |
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— |
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( |
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Foreign exchange transaction gain (loss), net |
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( |
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( |
) |
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( |
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Total other income, net |
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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 gain (loss) |
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( |
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( |
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Unrealized gain (loss) on marketable securities |
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( |
) |
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( |
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Reclassification adjustment for loss included in net income |
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— |
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— |
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— |
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Other comprehensive gain (loss), net of tax |
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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)
For the 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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September 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 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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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 September 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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For the 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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September 30, 2022 |
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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 June 30, 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 |
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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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( |
) |
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 September 30, 2022 |
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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)
For the Nine 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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September 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 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 September 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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For the Nine 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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September 30, 2022 |
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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, 2021 |
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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 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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( |
) |
Net loss |
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— |
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— |
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— |
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( |
) |
|
|
— |
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( |
) |
Balance at September 30, 2022 |
|
|
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|
$ |
— |
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|
$ |
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$ |
( |
) |
|
$ |
( |
) |
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$ |
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7
GALECTO, INC.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
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Nine Months Ended |
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September 30, |
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2023 |
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2022 |
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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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Amortization of premiums and discounts on marketable securities |
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( |
) |
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Net loss on sale of 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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Accrued expenses and other current liabilities |
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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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( |
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Proceeds from sale of marketable securities |
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Purchases of property and equipment |
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— |
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( |
) |
Net cash provided by (used in) investing activities |
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( |
) |
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Cash flows from financing activities: |
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Proceeds from issuance of common stock, net of issuance costs |
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Net cash provided by financing activities |
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Net 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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Supplemental disclosures of cash flow information: |
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Cash paid for taxes |
|
$ |
— |
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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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$ |
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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 September 30, 2023, the Company’s wholly owned subsidiaries were PharmAkea, Inc. or PharmAkea, Galecto Securities Corporation, and Galecto Biotech AB, a Swedish company. Galecto Biotech ApS, a Danish operating company, is a wholly-owned subsidiary of Galecto Biotech AB.
Risks and uncertainties
The Company is subject to risks common to companies in the biotechnology industry, including, but not limited to, new technological innovations, protection of proprietary technology, dependence on key personnel, compliance with government regulations and the need to obtain additional financing. Product candidates currently under development will require significant additional research and development efforts, including extensive preclinical and clinical testing and regulatory approval, prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel infrastructure and extensive compliance reporting capabilities.
The Company’s product candidates are in development. There can be no assurance that the Company’s research and development will be successfully completed, that adequate protection for the Company’s intellectual property will be obtained, that any products developed will obtain necessary government regulatory approval or that any approved products will be commercially viable. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will generate significant revenue from product sales. The Company operates in an environment of rapid change in technology and substantial competition from pharmaceutical and biotechnology companies. In addition, the Company is dependent upon the services of its employees and consultants.
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 September 30, 2023, the Company had an accumulated deficit of $
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At September 30, 2023, the Company’s cash, cash equivalents and marketable securities amounted to $
On September 26, 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, the Company has initiated a process to evaluate strategic alternatives in order to maximize stockholder value. As part of the strategic review process, the Company is exploring potential strategic alternatives that include, without limitation, an acquisition, merger, business combination or other transactions. 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 September 30, 2023 and for the three and nine months ended September 30, 2023 and 2022, and related interim information contained within the notes to the interim condensed consolidated financial statements, are unaudited. In management’s opinion, the unaudited interim condensed consolidated financial statements have been prepared on the same basis as the Company’s audited consolidated financial statements and include all adjustments (including normal recurring adjustments) necessary for the fair presentation of the Company’s financial position as of September 30, 2023, results of operations, statement of stockholders’ equity for the three and nine months ended September 30, 2023 and 2022 and its cash flows for the nine months ended September 30, 2023 and 2022. All intercompany balances and transactions have been eliminated. These unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and accompanying notes contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, as filed with the Securities and Exchange Commission (“SEC”) on March 9, 2023 ("2022 Consolidated Financial Statements"). The results for the three and nine months ended September 30, 2023 are not necessarily indicative of the results expected for the full fiscal year or any interim period.
For the nine months ended September 30, 2023, there have been no changes to the significant accounting policies as disclosed in Note 2 to the 2022 Consolidated Financial Statements.
Recently issued accounting standards
The Company periodically reviews new accounting standards that are issued and has not identified any new standards that it believes merit further discussion or would have a significant impact on its financial statements.
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3. INVESTMENTS
Cash in excess of the Company’s immediate requirements is invested in accordance with the Company’s investment policy that primarily seeks to maintain adequate liquidity and preserve capital.
A summary of the Company’s available-for-sale investments as of September 30, 2023 and December 31, 2022 consisted of the following (in thousands):
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At September 30, 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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At December 31, 2022 |
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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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Marketable securities, noncurrent: |
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Corporate bonds |
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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 September 30, 2023 consisted of the following (in thousands):
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September 30, |
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December 31, |
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2023 |
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2022 |
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Equipment |
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$ |
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$ |
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Less: accumulated depreciation |
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Equipment, net |
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$ |
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$ |
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Depreciation expense for the three and nine months ended September 30, 2023 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.
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A summary of the assets that are measured at fair value as of September 30, 2023 and December 31, 2022 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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