IPO Launch: Galecto Gets Ready For $85 Million U.S. IPO

IPOStreet

Galecto (GLTO) has filed to raise $85 million in an IPO of its common stock, according to an S-1 registration statement.

Copenhagen, Denmark-based Galecto was founded to advance a pipeline of treatments for fibrotic diseases of the lung, bone marrow and liver as well as a potential cancer condition treatment.

Management is headed by Hans Schambye, M.D., Ph.D., who has been with the firm since 2011 and was previously CEO of ReceptIcon A/S, a Danish biotech firm.

Below is a brief overview video of pulmonary fibrosis:

Source: American Lung Association

The firm's lead candidate, GB0139, is in Phase 2b trials for the treatment of idiopathic pulmonary fibrosis.

Management plans to further develop GB0139 for other pulmonary fibrosis conditions.

Galecto expects the next data readout to occur not until some time in 2022.

Below is the current status of the company’s drug development pipeline:

galectopipe

Source: Company S-1 Filing

Investors in the firm have invested at least $119 million and include OrbiMed, Novo Holdings, Sunstone Life Science Ventures, Merck Ventures, Bristol-Myers Squibb, HBM Healthcare, Cormorant, Ysios BioFund and Bay City Capital.

According to a 2019 market research report by Grand View Research, the global market for idiopathic pulmonary fibrosis [IPF] was an estimated $2.0 billion in 2018 and is expected to reach $5.2 billion by 2027.

This represents a forecast CAGR (Compound Annual Growth Rate) of 12.7% from 2018 to 2027.

Key elements driving this expected growth are a continued rise in the number of cigarette smokers and an aging global population.

Also, below is a chart indicating the historical and forecast growth in the U.S. market for the treatment of IPF:

galectomkt

Major competitive vendors that provide or are developing treatments include:

  • Pharmaxis (PXSLY)
  • Biogen (BIIB)
  • AbbVie (ABBV)
  • Gilead Sciences (GILD)
  • Pliant Therapeutics (PLRX)
  • Galectin Therapeutics (GALT)
  • FibroGen (FGEN)
  • Liminal BioSciences (LMNL)
  • Galapagos (GLPG)
  • Others

Galecto’s recent financial results are typical of a clinical stage biopharma in that they feature no revenue and significant R&D and G&A expenses associated with its development efforts.

Below are the company’s financial results for the past two and ½ years (Audited PCAOB for full years):

galectopl

Source: Company registration statement

As of June 30, 2020, the company had $35.8 million in cash and $3.9 million in total liabilities. (Unaudited, interim)

Galecto intends to raise $85 million in gross proceeds from an IPO of 5.67 million shares of its common stock, offered at a proposed midpoint price of $15.00 per share.

No existing shareholders have indicated an interest to purchase shares at the IPO price, a common feature of life science IPOs.

Assuming a successful IPO, the company’s enterprise value at IPO would approximate $332.9 million, excluding the effects of underwriter over-allotment options.

Management says it will use the net proceeds from the IPO as follows:

approximately $95 million to fund the clinical development of our lead product candidate, GB0139, including for conducting our Phase 3 clinical trial in IPF;

approximately $13 million to fund the clinical development of GB1211, including for conducting our Phase 2a clinical trial in NASH;

approximately $11 million to fund the clinical development of GB1211, including for conducting our Phase 2a clinical trial in oncology;

approximately $12 million to fund the clinical development of GB2064, including for conducting our Phase 2 clinical trial in myelofibrosis; and

the remainder, if any, for additional early-stage research and development activities, business development activities, working capital and other general corporate purposes.

Based on our current plans, we believe our existing cash and cash equivalents, together with the net proceeds from this offering, will be sufficient to fund our operating expenses and capital expenditure requirements into 2024.

Management’s presentation of the company roadshow is available here.

Listed bookrunners of the IPO are BofA Securities, SVB Leerink, Credit Suisse and Kempen & Co.

Commentary

Galecto is seeking public capital to advance its fibrosis-focused pipeline through continued trials.

The firm’s lead candidate, for the treatment of idiopathic pulmonary fibrosis, is expected to produce the next data readout in 2022, so prospective investors will need to be quite patient.

In clinical trials, GLTO has ‘demonstrated that orally inhaled GB0139 is well-tolerated and inhibits galectin-3 in the lungs, in a dose-dependent manner, and that it significantly decreases levels of a range of plasma biomarkers, such as YKL-40, that have been linked to mortality, severity and/or progression in IPF.’

The market opportunity for the various fibrotic conditions is significant and management intends to expand the coverage to other related fibrotic diseases should it continue to see positive results.

While the firm has no disclosed commercial or research collaborations, its investor syndicate is quite impressive and includes major pharma firms and well-known venture capital firms.

BofA Securities is the lead left underwriter and IPOs led by the firm over the last 12-month period have generated an average return of 66.4% since their IPO. This is a top-tier performance for all major underwriters during the period.

As to valuation, the IPO is priced within the typical range for clinical stage biopharma IPOs.

Given the firm’s promising trial results to-date, reasonable IPO valuation, and strong investor syndicate, for life science investors with a two-year hold time-frame, my opinion on the IPO is a BUY at up to $15.00 per share.

tstBUY

Expected IPO Pricing Date: October 28, 2020

Glossary Of Terms

(I have no position in any stocks mentioned as of the article date, no plans to initiate any positions within the next 48 hours, and no business relationship with any company whose stock is mentioned in this article. IPO stocks can be very volatile in the days immediately after an IPO. Information provided is for educational purposes only, may be in error, incomplete or out of date, and does not constitute financial, legal, or investment advice.)

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