GALT - NASDAQ

Peter Traber - President, Chief Executive Officer Jack Callicut - Chief Financial Officer

Ed Arce - HC Wainwright Thomas Yip - FBR Len Levi - Dotdot Partners Sa’ar Yaniv - Roth Capital

Good morning ladies and gentlemen and welcome to the 2016 Year-End Galectin Therapeutics Business Update conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session and instructions will follow at that time. If anyone should require operator assistance during the conference, please press star then zero on your touchtone telephone. As a reminder, this conference call is being recorded. I would now like to turn the turn over to Mr. Jack Callicut of Galectin Therapeutics.

Thank you and good morning. I’m Jack Callicut, Chief Financial Officer for Galectin Therapeutics, and I’d like to welcome you to our business update conference call for the fourth quarter and year end of 2016. These calls are intended to provide a corporate update and to discuss the company’s financial results. Today we’ll cover several items that were included in the press release that we issued earlier this morning. Joining me this morning is Dr. Peter Traber, our President, Chief Executive Officer and Chief Medical Officer. Before I turn the call over to Peter, I’d like to remind you that certain comments made during this conference call, particularly those anticipating our future financial condition and results of operations, results of our clinical trials and our strategic plans constitute forward-looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements by their very nature are subject to certain risks and uncertainties that may cause actual results, events and performance to differ materially from those referred to in such statements. These risks and other risks are discussed in our Securities and Exchange Commission filings, including our Form 10-K which was also filed earlier this morning. A transcript of this presentation will be available on our website. I would now like to turn the call over to Dr. Traber.

Thank you, Jack. Good morning and thank you to all for joining us. Today I will provide a comprehensive view of the state of the company and its drug development programs. We achieved a number of significant milestones in 2016 in the development of our lead compound, GR-MD-02, and we anticipate reporting critical clinical data in our NASH-CX trial in December 2017. Before recapping the company’s progress, our plans for the upcoming year and opening this call to questions, let me first turn the call back over to Jack to cover our financial position and results. Jack?

Thanks Peter. For the year ended December 31, 2016, the company reported a net loss applicable to common shareholders of $22.4 million or $0.76 per share compared with a net loss applicable to common shareholders of $21.1 million or $0.88 per share for 2015. The increased net loss is largely due to higher research and development expenses primarily related to our Phase II clinical program. Research and development expenses for 2016 were $15.3 million compared with $13.1 million for 2015. Again, the increase primarily relates to costs for the NASH-CX Phase II clinical trial, partially offset by a lower preclinical cost. General and administrative expenses for 2016 was $6.2 million compared with $7 million for 2015, primarily due to a decrease in stock-based compensation. As of December 31, 2016, the company had $15.4 million of non-restricted cash and cash equivalents. In January and February 2017, the company raised a total of $1.5 million in net proceeds from the issuance of common stock. The company believes that it has sufficient cash to fund currently planned operations in research and development activities through December 31, 2017. Peter?

Thank you, Jack, for that recap of the finances. In setting the stage for this update, I will start with some history. Since taking the helm at Galectin in 2011, my goal has been to build shareholder value by realizing the tremendous potential for targeting galectin proteins in many human diseases. That’s because the galectin protein is associated with inflammation, scarring, and many other processes that are involved in the development of multiple diseases. There is a growing body of research demonstrating that galectin-3 is increased and involved in the development of many types of chronic human diseases, including liver, lung, kidney and heart fibrosis, most cancers, serious skin diseases, diabetes, atherosclerosis, and more. In 2011, we began testing various animal disease models that represented large unmet medical needs using two different carbohydrate-based drugs that bind to galectin-3. One drug was GM-CT-01 or Davanat, which was previously in development by the company for other purposes, and a new drug candidate we named GR-MD-02. Both of these drugs were tested in each animal model of disease. We started with models of fibrosis because it had been shown that galectin-3 was crucial for the development of fibrosis, and a therapy that can reduce or reverse fibrosis would address a very large group of disorders that are responsible for a major burden of disease. One of the two compounds, GR-MD-02 was discovered to have a more profound effect on fibrosis of the liver, kidney and lung in these animal experiments. As a result of this more profound effect on fibrosis, GR-MD-02 rather than GM-CT-01 has been the focus of our efforts. It is important to note that we have strong intellectual property claims for our lead compound and it uses with 15 granted patents in the United States, 24 granted patents outside the U.S., six patent applications in the U.S., and 49 patent applications outside the U.S. We decided that liver fibrosis due to fatty liver disease would be the lead indication. This has turned out to be a good decision since it is now widely believed that fatty liver disease, or NASH, is a very large opportunity in drug development. Cancer was chosen as a second area of focus because galectin-3 had been shown to be important in the aggressiveness of tumors and inhibition of galectin may be beneficial. Finally and much later, a third area of focus arose serendipitously when a patient with psoriasis enrolled in our Phase I NASH trial had a remarkable remission of her disease. Therefore, the company has three clinical development programs for GR-MD-02: the lead program in fatty liver disease, or non-alcoholic steatohepatitis, called NASH, with the most advanced form of fibrosis, called cirrhosis; two, chronic inflammatory skin diseases, including moderate to severe plaque psoriasis and severe atopic dermatitis; and three, combination immunotherapy for cancer. Based upon the clinical trials conducted to this point, these programs have demonstrated a number of critical characteristics of GR-MD-02 that are very encouraging. First, the compound seems to be safe and well tolerated with thousands of doses having been administered without any serious drug-related complications. The compound also appears to demonstrate biological activity in humans as shown by results in ameliorating severe skin diseases. We believe these characteristics make GR-MD-02 an attractive candidate for further investigation along all the indications currently under development. First, I will discuss our program in NASH cirrhosis. Our preclinical results show that GR-MD-02 has significant anti-fibrotic effects in multiple animal models, including liver, kidney, lung, pulmonary artery, and heart fibrosis. The liver disease NASH was chosen as the first target for development of GR-MD-02 for a number of reasons. First, it is the most common liver disease with one in four individuals in the world having fatty liver, and about 2% of those destined to die of complications of late-stage NASH cirrhosis. Second, there are no currently approved drugs for NASH, and the market for NASH drugs globally in 2025 may be as high as $40 billion annually, according to some analysts. This makes NASH one of the largest potential markets for drug development today, as evidenced by a number of significant recent transactions in the industry. NASH is a chronic disorder with fat accumulation in the liver resulting in inflammation and progressive fibrosis, or scarring. Over years, this can ultimately lead to the end stage of scarring, called cirrhosis. Because of the long duration - potentially decades - of underlying asymptomatic disease before reaching cirrhosis, which is when complications and death may occur, the timing of intervention during the course of disease is an important issue. We have targeted GR-MD-02 therapy to patients with NASH cirrhosis who have not yet serious complications with a goal of reducing the progression of or reversing fibrosis. Unlike the treatment of early-stage NASH where the medical benefits are uncertain, reducing the progression of fibrosis or reversing existing fibrosis in cirrhosis is likely to reduce complications, help avoid liver transplant, or may ultimately prevent death from complications of cirrhosis. Our robust data in animal models of liver fibrosis and cirrhosis have shown the ability of GR-MD-02 to reverse fibrosis and cirrhosis. While there are many companies and different drugs targeting pre-cirrhotic NASH, we are one of only three companies with clinical trials in NASH cirrhosis, and we anticipate being the only company to report data this year in a NASH cirrhosis clinical trial. The NASH-CX trial is the ongoing Phase IIb clinical trial that studies the effect of GR-MD-02 in NASH cirrhosis in patients, and it has a number of important aspects. The study has a rigorous FDA agreed design that measures many parameters in patients with NASH cirrhosis who have not had serious complications and are not yet candidates for a liver transplant. The trial has enrolled 162 patients in three treatment arms: placebo and two doses of drugs, with treatment given every other week for 52 weeks, or essentially one year of therapy. The primary endpoint of the trial is the baseline adjusted reduction in portal blood pressure as assessed by hepatic venous pressure gradient, or HVPG. Increased portal pressure occurs in advancing cirrhosis and is directly related to patient outcomes. This is potentially an acceptable regulatory endpoint for provisional approval with follow-up outcomes data. Secondary endpoints importantly include liver biopsy, serum biomarkers, complications, and several non-invasive measures of liver structure and function, including fibroscan and the methacetin breath test. This study is powered at greater than 80% to demonstrate a difference in HVPG of at least 2 millimeters of mercury, a change that is potentially clinically significant in these patients. Seventy-one patients have completed therapy in the NASH-CX trial, but the data will remain blinded until all patients have completed the trial. Again, we are on track to report top line data in December 2017. Data from the NASH-CX trial will represent a significant milestone in NASH therapy and for the company. Success of this trial could be a breakthrough finding for liver cirrhosis. The company cannot provide any guidance regarding the next steps in the program in NASH cirrhosis following positive NASH-CX trial data until the data are analyzed at the end of the trial and the FDA is consulted regarding next steps. The pharmaceutical industry is very interested in NASH. We have had discussions with multiple companies over the last couple of years. With positive data from the NASH-CX trial, is it likely that further partnership discussions will ensue. Next, I will discuss skin diseases. GR-MD-02 seems to have an important and clinically relevant effect in psoriasis and atopic dermatitis, two serious skin diseases. An exploratory open label Phase IIa trial was conducted in five adults with moderate to severe plaque psoriasis. One patient had over an 80% reduction in disease activity after 13 every-other-week infusions, while the other four patients reached 50% reduction in disease activity by their 10th infusion. We also studied GR-MD-02 in the treatment of severe and refractory atopic dermatitis in three patients in an open label investigator-initiated study. Atopic dermatitis is also commonly known as eczema. All three patients showed clinical response after receiving six every-other-week doses with two patients achieving an average of approximately 70% reduction in disease activity after receiving only three doses of GR-MD-02. These preliminary but clinically relevant findings provide two important conclusions. First, they show that GR-MD-02 has a clinical effect in two galectin-dependent human diseases, validating activity of the drug in clinical situations. Second, they provide a potential opportunity for additional drug registration pathways. While there are already multiple effective drugs on the market for the treatment of moderate to severe plaque psoriasis and generics are also entering the market, atopic dermatitis may present an opportunity. Atopic dermatitis is an important unmet medical need that can cause very serious debilitating problems for adults as well as children, and there have been no new agents approved in 30 years. While there are several new biological drugs in late clinical development, our preliminary results in a few patients compare favorably with the other drugs in development. Galectin is exploring partnerships and other options to finance a potential program in atopic dermatitis or possibly psoriasis, although no decisions have been made beyond the existing clinical studies. Until the results of the NASH-CX trial are known, potential skin disease partners would have to assure us that they would not impeded subsequent partnerships with GR-MD-02 for NASH cirrhosis. I will next discuss cancer immunotherapy. Galectin-3 production is increased in most cancers with multiple effects, including reducing the ability of the immune system to kill tumor cells. This prompted studies in combination with known immunotherapies. Investigators are Providence Cancer Center have tested GR-MD-02 as well as our other carbohydrate-based compound, GM-CT-01, in multiple sophisticated cancer animal models in combination with known cancer immunotherapeutic drugs. GR-MD-02 showed a synergistic effect on multiple cancers in combination with different immunotherapies. GM-CT-01 on the other hand had no effect. The Providence Cancer Center recently reported early results of GR-MD-02 in five patients with advanced melanoma who were treated with a combination of two milligrams per kilogram GR-MD-02 and pembrolizumab, brand name Keytruda. Out of these five patients, there has been one partial response which is moving toward a complete response, and one mixed response. While we cannot conclude that the responses were related to the addition of GR-MD-02, these findings provide a clinically relevant signal to follow as GR-MD-02 doses are escalated. The clinical trial is ongoing with increasing doses of GR-MD-02 and relevant data will be reported as determined by the principal investigator. There will likely be additional data reported in early 2018. A decision to move to a control Phase II trial of combination immunotherapy will be based on the response rate of the combination of pembrolizumab with GR-MD-02 as compared to historical response rates to pembrolizumab alone. The Providence Cancer Center is funding these trials. Potential partnerships will depend on the results of additional clinical data. So in summary, our clinical development program for GR-MD-02 progressed significantly during 2016 and we will have critical results in 2017. Paramount among those results and a value inflection point will be reporting of top line data from the NASH-CX trial, expected to be the next clinical trial in the treatment of NASH cirrhosis to read out with top line data in December 2017. In atopic dermatitis, additional data will be reported by the end of Q3 as patients continue on their GR-MD-02 therapy. We cannot predict whether there will be additional data on cancer immunotherapy in 2017 as this trial is controlled by Providence Cancer Center. We believe we have a very safe drug candidate with thousands of doses given to humans with no serious adverse events related to GR-MD-02. This is an exciting year for the company, and the reporting of top line NASH-CX data will culminate the efforts of a program that was initiated in 2011. Additionally, it is exciting for the entire field of galectin-3 inhibitors which have multiple potential applications beyond those indications the company is currently investigating. I thank you for your attention, and I will now take questions from individuals on the call.

[Operator instructions] Our first question comes from the line of Ed Arce of HC Wainwright. Your line is now open.

Thank you. Hi Peter, it’s good to talk to you again.

Yes, hi Ed.

So just a few questions. First, a couple on NASH-CX. I just wanted to confirm, I believe you talked about this before, but as you report the data and get the full results, you will then, I assume, evaluate whether to pursue either a cohort that decreases HVPG to 10 millimeters of mercury, or the other that stops the progression to that level. And then the other question is the last update we had on the number of dropouts was five patients. I know that that’s still below the level that you assumed through your design. I’m just wondering if you had an update on that, and then I have a couple follow-ups.

Yes, let me answer that second question first, because it’s straightforward. We have had a total of 10 dropouts out of 162, which is about a 6% rate. We had anticipated at the beginning of the trial that there would be a 25% dropout rate, so we’re still well below the rate that we had anticipated for the trial. Let me go back to your first question, which is a complicated one in a number of aspects, but let me sort this out a little bit for you and the other callers. First of all, portal hypertension, or high blood pressure in the portal vein, is defined as a pressure above 5 millimeters of mercury. Clinically significant portal hypertension is defined at 10 millimeters of mercury, because above 10 millimeters of mercury is when complications begin to occur, such as the development of esophageal varices. We designed the clinical trial to enroll patients that had a mean portal pressure, or would have been expected to have a mean portal pressure between 12 and 15 millimeters of mercury, and without telling you the exact number, which we haven’t revealed, we were successful in enrolling a group of patients with a mean HVPG or portal pressure between 12 and 15 millimeters of mercury. So the mean patients have clinically significant portal hypertension, but not so severe that they’re in the end stage. Once we see the results of this trial on the mean change in portal pressure, we will also look at different groups of patients, those that started below 10 and those that started above, which were about two-thirds of the patients, and we will be able to determine then whether we--you know, what the next design of a clinical trial might look like based on the analysis of those results. But we are pleased that we were able to enrol a patient population with clinically significant portal hypertension, and we know that a 10 to 20% reduction in portal hypertension has clinically important outcome results in patients, so that’s why we’re targeting, or our statistical analysis targets 2 millimeter of mercury drop in patients that have above 12 millimeters of mercury of portal hypertension. Ed, I’m not sure if that fully answered your question.

Yes, it does. I just wanted to confirm that you would be looking at both sets of patients, those below and above that threshold of 10 millimeters of mercury, and it sounds like you’ve got a one-third to two-third split, so that’s helpful. You had also mentioned the other two programs that are focused on NASH cirrhosis. I was just wondering if you had any thoughts you’d care to share about how you view those programs and the approaches that they have.

Yes, the other two programs, one is a pan caspase inhibitor from Conatus, who just started a clinical trial enrolling even more severe patients with portal hypertension, and the second program is a Gilead clinical trial that is using an ASK-1 inhibitor, and they are enrolling a large clinical trial. Both of these clinical trials will not read out until long after ours because they’ve just been initiated.

Okay, then a couple last follow-ups. Do you expect to have any presence at EASL next month, and also I guess the last question for Jack is how should we think about operating expenses for 2017, just perhaps even just qualitatively? Thanks.

I will answer the EASL question. We will be attending EASL. We do have a late-breaking abstract at EASL, which is focused on an analysis of the methacetin breath test that we’re doing in conjunction with Exalenz. The presentation will be regarding the baseline values of the 13C-methacetin breath test as it correlates with HVPG, so we will be reporting data at EASL from that. Jack, you want to--?

Yes, as far as research and development expenses as well as our G&A expenses, we think those will be similar to 2016, and as we’ve mentioned, we’ve got cash currently to f fund operations through the end of the year, but we think those expenses will be about the same as they were last year.

Okay, great. Thank you, guys.

Thanks.

Thank you. Our next question comes from the line of Thomas Yip of FBR. Your line is now open.

Hi, good morning everyone. Thank you for taking our questions. Just asking a couple of quick questions for Vernon. We see that you have a large number of other galectin inhibitor candidates. Can you outline some on the activities that you have ongoing and when should we expect to see some early [indiscernible] presentations or medical conference data for those compounds?

Yes, thank you Thomas, and good to talk to you and Vernon. We have a program in discovery for identifying additional galectin-3 and other galectin inhibitors. We have not announced any information regarding those additional galectin inhibitors, but that program is ongoing, and when we have some animal data or additional data regarding those, we will communicate them. But we don’t have timing of that at this point. Thanks, Thomas.

Okay, so I guess from a bigger picture standpoint, if you see similar level of activity compared to GR-MD-02, I mean obviously they’re still in the preclinical stage, what are your plans to monetize them? Have you given any thought about it so far?

Yes, well the GR-MD-02, as you know, is a parenteral IV administered drug. The drugs that we are working on discovery would have the potential for other routes of administration, including oral administration. Additionally, we are working on higher potency and more specificity with regard to galectin-3 inhibition.

Okay, that sounds good. We’ll just have to keep our eyes out for that. I guess I’ll switch gears a little bit, and I have a question about your pipeline in oncology. So given the IST that you have right now with Providence, what exactly do you need to file the IND and to go into Phase II clinical trials? Do you need to license it back from Providence or do you have the rights to that compound?

No, we have exclusive rights to GR-MD-02, and while we have pending intellectual property jointly with Providence with regard to the method of use, we have exclusive license to that as well, so there are no licensing or intellectual property issues there. The decision to go to a Phase II is going to be related, as I mentioned, to the results of ascending doses of GR-MD-02 in combination with pembrolizumab as compared to historical controls. With a significant difference in either the response or immunologic markers, which we are measuring as well, that would then lead us to a decision point about going to a Phase II control trial.

Okay, that sounds good. Thanks for the clarity. I guess one final question regarding the data that you’ve seen so far in atopic dermatitis. So you’ve outlined earlier that you plan to license that indication or enter into partnerships, so can you describe just on a very top level what would an ideal partnership look like, what specific characteristics will you be looking for?

Yes, it’s a good question. As I mentioned in the review, because it’s the same compound as we’re using in NASH cirrhosis, whatever deal we did with a partner around atopic dermatitis or a skin disease would have to not impair--protect the very large potential of the deal in NASH. So we are focusing on international companies rather than multinational or U.S. companies, skin-specific companies, and companies where we might do a deal that would not impeded a subsequent deal in NASH. So that’s kind of the focus of where we’re looking at this point.

Okay, that sounds good. Thank you again for taking my questions, and we’ll look forward to the progress this year and look forward to the CX data later this year.

Thank you, Thomas.

Thank you. Our next question comes from the line of Len Levi [ph] of Dotdot [ph] Partners. Your line is now open.

Thank you very much. Peter, as I speak with clinicians about how they think the NASH market will evolve with therapeutics over time, they’re drawing a parallel, albeit the sizes are different, to the hep-C market where they’re of the opinion that insurers will likely approve treatment for those patients with F3, F4 fibrosis cirrhosis initially because they’re most at risk for having complications. A lot of the NASH targets that other companies are developing seem to be aimed at earlier stages when the progression hasn’t yet gone as far and therefore the likelihood possibly of complications isn’t as great. I was just wondering if you could give us your thoughts on what’s the progression in years from NAFLD to NASH to cirrhosis and beyond is, and what indications, if any, you have where along that timeline you think that the initial treatments will be authorized by insurers or docs will want patients treated.

Yes Len, I think that’s an insightful question and also mirrors the discussions that we’ve had with thought leaders in NASH and liver disease. The progression from early fatty liver disease to cirrhosis is on the order of 20 years, so it progresses relatively slowly. There are some patients that may progress faster and so forth, but you can think about a 20-year period. Once you develop cirrhosis, it’s still about five years to developing complications of cirrhosis, and then a year or two before death or liver transplant. So we are focused on those will well compensated cirrhosis in that time frame where you have about five years or so to reverse or stave off the progression of fibrosis so that it doesn’t get to cirrhosis complications. It’s very clear that that target is going to be more accepted by both physicians, insurers and governments because you’re much closer to an outcome, a serious outcome, whereas in early stages of NASH in long-term follow-up studies that have been done, one study that was done in Sweden where they followed patients for 33 years, those with F1 or F2, Stage 1 or Stage 2 fibrosis when followed for 33 years had no difference in mortality or morbidity with relationship to a reference group. So an argument could be made that those patients with early disease, we can’t predict who is going to progress and they may not have any outcome problems, so that governments, insurers and physicians are going to be more reluctant to treat somebody for decades with the early form of the disease, particularly when lifestyle changes such as weight loss, exercise and so forth can make a big impact at that time. So I do think that it’s the late stage fibrosis that the most important approach to targeting this disease. Thanks Len.

Thank you.

Thank you, Sa’ar.

Thank you. At this time the question and answer session is completed. I will now turn the call back over to Dr. Traber for final remarks.

We thank you very much for your attention and for the excellent questions, and we look forward to delivering on the promise of the therapy of GR-MD-02 during the course of this year. Thank you very much for your attention.