Why Galectin Therapeutics Just Lost Nearly Half Its Market Cap

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Shares of Galectin Therapeutics Inc GALT, a clinical-stage biopharmaceutical company that creates therapies for fibrotic disease and cancer, tumbled nearly 50 percent on Wednesday after the company said that a Phase 2a study called NASH-FX involving its GR-MD-02 therapy failed its primary and secondary endpoints.

Sa'ar Yaniv of Roth Capital Partners pointed out that while the company maintains its study was an exploratory study and too short to establish efficacy, The Street "obviously feels otherwise."

Yaniv downgraded Galectin's stock to Sell from Buy with a price target slashed to $0.75 from a previous $3.

"In our opinion, the results in fibrosisreflect on GR-MD-02's efficacy, imparting a black mark on our confidence of a successful clinical program for GR-MD-02 in NASH cirrhosis," Yaniv added.

The analyst also commented:

"All three measurement methods used in the study, LiverMultiScan, FibroScan,and MRE, are innovative methods that are used to evaluate inflammation and liver stiffness, surrogates for fibrosis. We note that none of the methods are approvable FDA endpoints. Although patients had liver biopsy done at study initiation to establish the presence of fibrosis, no liver biopsies were conducted at trial end due to safety concerns (physicians are ambivalent about doing a liver biopsy more than once every 12 months)."

With that said, Yaniv was forced to change his valuation model for the company going forward. Specifically, with "less confidence" in the therapy's efficacy, the analyst decreased the success probability in his discounted cash flow model to 10 percent from a prior 15 percent.

The analyst's new revenue forecast for GR-MD-02 is now $400 million which is down from a prior forecast of $1 billion. Additionally, the company could run out of cash by the middle of next year if it does not raise $5 to $10 million which merely "increases investor's negative sentiments."

Shares traded recently at $1.47, down 40 percent.

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