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. Yes ☒ No ☐

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). Yes ☒ No ☐

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.

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 ☐ No ☒

As of ~~November 4, 2022,~~April 26, 2023, the registrant had ~~25,581,029~~25,673,474 shares of common stock, $0.00001 par value per share, outstanding.

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, ~~2021.~~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.

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.

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.


	September 30,			December 31,			March 31,			December 31,
	2022			2021			2023			2022
Assets	(unaudited)						(unaudited)
Current assets
Cash and cash equivalents	$	28,336		$	62,563		$	25,068		$	32,786
Marketable securities		40,748			37,628			28,179			27,438
Prepaid expenses and other current assets		2,115			9,911			3,881			3,686
Total current assets		71,199			110,102			57,128			63,910
Marketable securities, non-current		6,829			9,048			3,964			5,832
Operating lease right-of-use asset		852			834			704			810
Equipment, net		338			203			345			357
Other assets, non-current		2,807			2,028			2,489			2,279
Total assets	$	82,025		$	122,215		$	64,630		$	73,188
Liabilities and stockholders’ equity
Current liabilities
Accounts payable	$	1,907		$	1,531		$	3,550		$	3,350
Accrued expenses and other current liabilities		6,951			3,013			10,513			7,757
Total current liabilities		8,858			4,544			14,063			11,107
Operating lease liabilities, non-current		440			448			234			328
Total liabilities		9,298			4,992			14,297			11,435
Commitments and contingencies (Note 9)
Stockholders’ equity
Preferred stock, par value of $0.00001 per share; 10,000,000 shares authorized at September 30, 2022 and December 31, 2021; no shares issued or outstanding as of September 30, 2022 and December 31, 2021		—			—
Common stock, par value of $0.00001 per share; 300,000,000 shares authorized at September 30, 2022 and December 31, 2021; 25,581,029 and 25,261,832 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively		—			—
Preferred stock, par value of $0.00001 per share; 10,000,000 shares authorized at March 31, 2023 and December 31, 2022; no shares issued or outstanding as of March 31, 2023 and December 31, 2022								—			—
Common stock, par value of $0.00001 per share; 300,000,000 shares authorized at March 31, 2023 and December 31, 2022; 25,673,474 and 25,652,392 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively								—			—
Additional paid-in capital		278,319			273,655			281,190			279,733
Accumulated deficit		(203,667	)		(156,112	)		(230,730	)		(217,736	)
Accumulated other comprehensive loss		(1,925	)		(320	)		(127	)		(244	)
Total stockholders’ equity		72,727			117,223			50,333			61,753
Total liabilities and stockholders' equity	$	82,025		$	122,215		$	64,630		$	73,188

See accompanying notes to the unaudited interim condensed consolidated financial statements.


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2022			2021			2022			2021			2023			2022
Operating expenses
Research and development	$	10,494		$	9,748		$	37,436		$	28,373		$	10,362		$	13,235
General and administrative		3,128			3,191			10,246			10,386			3,130			3,704
Total operating expenses		13,622			12,939			47,682			38,759			13,492			16,939
Loss from operations		(13,622	)		(12,939	)		(47,682	)		(38,759	)		(13,492	)		(16,939	)
Other income (expense), net
Interest income, net		221			35			438			126			434			61
Loss on sale of marketable securities		—			—			(70	)		—
Foreign exchange transaction gain (loss), net		(329	)		208			(241	)		290			64			(60	)
Total other income (expense), net		(108	)		243			127			416
Total other income, net														498			1
Net loss	$	(13,730	)	$	(12,696	)	$	(47,555	)	$	(38,343	)	$	(12,994	)	$	(16,938	)
Net loss per common share, basic and diluted	$	(0.54	)	$	(0.50	)	$	(1.88	)	$	(1.52	)	$	(0.51	)	$	(0.67	)
Weighted-average number of shares used in computing net loss per common share, basic and diluted		25,491,786			25,261,832			25,342,153			25,261,832			25,672,902			25,261,832
Other comprehensive loss, net of tax
Currency translation loss		(344	)		(369	)		(1,233	)		(740	)
Currency translation gain (loss)														25			(170	)
Unrealized gain (loss) on marketable securities		(82	)		34			(442	)		(23	)		92			(205	)
Reclassification adjustment for loss included in net income		—			—			70			—
Other comprehensive loss, net of tax		(426	)		(335	)		(1,605	)		(763	)
Other comprehensive gain (loss), net of tax														117			(375	)
Total comprehensive loss	$	(14,156	)	$	(13,031	)	$	(49,160	)	$	(39,106	)	$	(12,877	)	$	(17,313	)

See accompanying notes to the unaudited interim condensed consolidated financial statements.


For the Three Months Ended	Common Stock				Additional Paid-In		Accumulated			Accumulated Other Comprehensive			Total Stockholders’			Common Stock				Additional Paid-In		Accumulated			Accumulated Other Comprehensive			Total Stockholders’
September 30, 2022	Shares		Amount		Capital		Deficit			Income (Loss)			Equity
Balance at June 30, 2022		25,342,138	$	—	$	276,501	$	(189,937	)	$	(1,499	)	$	85,065
March 31, 2023																Shares		Amount		Capital		Deficit			Income (Loss)			Equity
Balance at December 31, 2022																	25,652,392	$	—	$	279,733	$	(217,736	)	$	(244	)	$	61,753
Stock-based compensation expense		—		—		1,398		—			—			1,398			—		—		1,434		—			—			1,434
Issuance of common stock; net of issuance costs		238,891		—		420		—			—			420			21,082		—		23		—			—			23
Other comprehensive loss, net		—		—		—		—			(426	)		(426	)
Other comprehensive gain, net																	—		—		—		—			117			117
Net loss		—		—		—		(13,730	)		—			(13,730	)		—		—		—		(12,994	)		—			(12,994	)
Balance at September 30, 2022		25,581,029	$	—	$	278,319	$	(203,667	)	$	(1,925	)	$	72,727
Balance at March 31, 2023																	25,673,474	$	—	$	281,190	$	(230,730	)	$	(127	)	$	50,333

For the Three Months Ended	Common Stock				Additional Paid-In		Accumulated			Accumulated Other Comprehensive			Total Stockholders’			Common Stock				Additional Paid-In		Accumulated			Accumulated Other Comprehensive			Total Stockholders’
September 30, 2021	Shares		Amount		Capital		Deficit			Income (Loss)			Equity
Balance at June 30, 2021		25,261,832	$	—	$	271,193	$	(130,007	)	$	246		$	141,432
March 31, 2022																Shares		Amount		Capital		Deficit			Income (Loss)			Equity
Balance at December 31, 2021																	25,261,832	$	—	$	273,655	$	(156,112	)	$	(320	)	$	117,223
Stock-based compensation expense		—		—		1,219		—			—			1,219			—		—		1,404		—			—			1,404
Other comprehensive loss, net		—		—		—		—			(335	)		(335	)		—		—		—		—			(375	)		(375	)
Net loss		—		—		—		(12,696	)		—			(12,696	)		—		—		—		(16,938	)		—			(16,938	)
Balance at September 30, 2021		25,261,832	$	—	$	272,412	$	(142,703	)	$	(89	)	$	129,620
Balance at March 31, 2022																	25,261,832	$	—	$	275,059	$	(173,050	)	$	(695	)	$	101,314

See accompanying notes to the unaudited interim condensed consolidated financial statements.

~~See accompanying notes to the unaudited interim condensed consolidated financial statements.~~


	Nine Months Ended						Three Months Ended
	September 30,						March 31,
	2022			2021			2023			2022
Cash flows from operating activities:
Net loss	$	(47,555	)	$	(38,343	)	$	(12,994	)	$	(16,938	)
Adjustment to reconcile net loss to net cash used in operating activities:
Depreciation of equipment		21			13
Depreciation								18			8
Stock-based compensation		4,222			3,237			1,434			1,404
Amortization of premiums and discounts on marketable securities		447			731			(154	)		264
Net loss on sale of marketable securities		70			—
Amortization of right of use lease asset		305			317			121			110
Accretion of lease liability		36			57			16			16
Changes in operating assets and liabilities:
Prepaid expenses and other current assets		7,802			(7	)		(194	)		6,478
Other assets, non-current		(785	)		(203	)
Other assets, noncurrent								(212	)		(770	)
Accounts payable		376			(871	)		200			1,684
Accrued expenses and other current liabilities		3,919			993			2,779			1,061
Operating lease liabilities		(342	)		(403	)		(148	)		(114	)
Net cash used in operating activities		(31,484	)		(34,479	)		(9,134	)		(6,797	)
Cash flows from investing activities:
Purchases of marketable securities		(40,656	)		(84,209	)		(12,751	)		(26,385	)
Proceeds from sale of marketable securities		38,865			21,976			14,125			16,221
Purchases of property and equipment		(155	)		(227	)		—			(43	)
Net cash used in investing activities		(1,946	)		(62,460	)
Net cash provided by (used in) investing activities								1,374			(10,207	)
Cash flows from financing activities:
Proceeds from issuance of common stock, net of issuance costs		442			—			23			—
Net cash provided by financing activities		442			—			23			—
Net decrease in cash, cash equivalents and restricted cash		(32,988	)		(96,939	)		(7,737	)		(17,004	)
Effect of exchange rate changes on cash and cash equivalents		(1,239	)		(740	)
Cash and cash equivalents, beginning of period		62,563			163,836
Cash and cash equivalents, end of period	$	28,336		$	66,157
Effect of exchange rate changes on cash, cash equivalents and restricted cash								19			(171	)
Cash, cash equivalents and restricted cash, beginning of period								32,786			62,563
Cash, cash equivalents and restricted cash, end of period							$	25,068		$	45,388
Supplemental disclosures of cash flow information:
Cash paid for taxes	$	—		$	40		$	—		$	—
Supplemental disclosures of noncash activities:
Operating lease liabilities arising from obtaining right-of-use assets	$	449		$	409		$	—		$	—

See accompanying notes to the unaudited interim condensed consolidated financial statements.

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, 2022,~~March 31, 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.

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, 2022,~~March 31, 2023, the Company had an accumulated deficit of $~~203.7~~230.7 million, from recurring losses since inception in 2011. The Company has incurred recurring losses and has no sales as none of its product candidates have obtained the necessary regulatory approval for commercialization and to be marketed as approved products. The Company expects to continue to incur losses as a result of costs and expenses related to the Company’s clinical development and corporate general and administrative activities. The Company had negative cash flows from operating activities during the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ of $~~31.5~~9.1 million and $~~34.5~~6.8 million, respectively, and current projections indicate that the Company will have continued negative cash flows for the foreseeable future as it continues to develop its product candidates. Net losses incurred for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 were $~~13.7~~13.0 million and $~~47.6~~ ~~million, respectively. Net losses incurred for the three and nine months ended September 30, 2021 were $12.7~~ ~~million and $38.3~~16.9 million, respectively.

At ~~September 30,~~March 31, 2023, the Company’s cash, cash equivalents and marketable securities amounted to $57.2 million and current assets amounted to $57.1 million and current liabilities amounted to $14.1 million. At December 31, 2022, the Company’s cash, cash equivalents and marketable securities amounted to $~~75.9~~66.1 million, ~~and~~ current assets amounted to $~~71.2~~63.9 million and current liabilities amounted to $~~8.9~~ ~~million. At December 31, 2021, the Company’s cash, cash equivalents and marketable securities amounted to $109.2~~ ~~million, current assets amounted to $110.1~~ ~~million and current liabilities amounted to $4.5~~11.1 million.

In the future, the Company will consider the following ways to fund its operations including: (1) raising additional capital through equity and/or debt financings; (2) new commercial relationships to help fund future clinical trial costs (i.e. licensing and partnerships); (3) reducing spending on one or more research and development programs by discontinuing development; and/or (4) restructuring operations to change its overhead structure. Volatility in equity capital markets may adversely affect the market price of the Company’s shares of common stock, which may materially and adversely affect the Company’s ability to fund its business through public or private sales of equity securities. The Company’s future liquidity needs, and ability to address those needs, will largely be determined by the success of its product candidates, key ~~development~~developments and regulatory ~~events and its decisions in the future.~~events.

~~Coronavirus pandemic~~

The novel coronavirus (“COVID-19”) and its variants, and ensuing pandemic, has continued to spread worldwide, causing many governments to implement measures to slow the spread of the outbreak. COVID-19 and its variants have had a significant impact, both directly and indirectly, on businesses and commerce, as worker shortages have occurred; supply chains have been disrupted; facilities and production have been suspended; and demand for certain goods and services, such as medical services and supplies, has spiked, while demand for other goods and services has fallen. The Company continues to monitor the impact of COVID-19 and its subvariants and assess its strategy accordingly. However, there can be no assurance that the Company will not experience additional negative impacts associated with the COVID-19 pandemic, which could decrease or delay enrollment of patients in the Company’s clinical trials or otherwise cause interruptions or delays in the Company’s clinical trials, programs and services, and negatively impact the Company’s business, financial condition and results of operations.

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, 2022~~March 31, 2023 and December 31, ~~2021~~2022 consisted of the following (in thousands):


	At September 30, 2022									At March 31, 2023
	Amortized		Gross Unrealized		Gross Unrealized			Fair		Amortized		Gross Unrealized		Gross Unrealized			Fair
Marketable securities:	Cost		Gains		Losses			Value		Cost		Gains		Losses			Value
Corporate bonds	$	41,035	$	—	$	(287	)	$	40,748	$	28,269	$	—	$	(90	)	$	28,179
Total	$	41,035	$	—	$	(287	)	$	40,748	$	28,269	$	—	$	(90	)	$	28,179
Marketable securities, non-current:
Marketable securities, noncurrent:
Corporate bonds	$	6,991	$	—	$	(162	)	$	6,829	$	4,047	$	—	$	(83	)	$	3,964
Total	$	6,991	$	—	$	(162	)	$	6,829	$	4,047	$	—	$	(83	)	$	3,964

	At December 31, 2021									At December 31, 2022
	Amortized		Gross Unrealized		Gross Unrealized			Fair		Amortized		Gross Unrealized		Gross Unrealized			Fair
Marketable securities:	Cost		Gains		Losses			Value		Cost		Gains		Losses			Value
Corporate bonds	$	37,671	$	—	$	(43	)	$	37,628	$	27,573	$	—	$	(135	)	$	27,438
Total	$	37,671	$	—	$	(43	)	$	37,628	$	27,573	$	—	$	(135	)	$	27,438
Marketable securities, non-current:
Marketable securities, noncurrent:
Corporate bonds	$	9,082	$	—	$	(34	)	$	9,048	$	5,963	$	—	$	(131	)	$	5,832
Total	$	9,082	$	—	$	(34	)	$	9,048	$	5,963	$	—	$	(131	)	$	5,832

~~The Company incurred a realized loss on an available-for sale investment during the nine months ending September 30, 2022 of $0.1~~ ~~million, which is included in other income (expense), net in the consolidated statements of operations and comprehensive loss.~~

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.

1110

A summary of the assets that are measured at fair value as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 is as follows (in thousands):


	Fair Value Measurement at September 30, 2022								Fair Value Measurement at March 31, 2023
Assets:	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Money market funds(1)	$	13,160	$	13,160	$	—	$	—	$	17,017	$	17,017	$	—	$	—
Debt securities		47,577		—		47,577		—		32,143		—		32,143		—
Total	$	60,737	$	13,160	$	47,577	$	—	$	49,160	$	17,017	$	32,143	$	—

	Fair Value Measurement at December 31, 2021								Fair Value Measurement at December 31, 2022
Assets:	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Money market funds(1)	$	49,626		49,626		—		—	$	16,445		16,445		—		—
Debt securities		46,676		—		46,676		—		33,270		—		33,270		—
Total	$	96,302	$	49,626	$	46,676	$	—	$	49,715	$	16,445	$	33,270	$	—

(1)

Money market funds with maturities of 90 days or less at the date of purchase are included within cash and cash equivalents in the accompanying condensed consolidated balance sheets and are recognized at fair value.

7. LEASES

The Company has the following operating leases:


Location	Primary Use	Lease Expiration Date	Renewal Option
Copenhagen, Denmark	Corporate headquarters	January 2025	None
London, United Kingdom	Office space	February 2024	None
Gothenburg, Sweden	Office space	May 2023	None
Stevenage, United Kingdom	Laboratory space	August 2025	None

The Company has no finance leases and has elected to apply the short-term lease exception to all leases of one year or less. Rent expense for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 was $0.1 million ~~and $~~during both periods.~~0.4~~ ~~million, respectively. Rent expense for the three and nine months ended September 30, 2021 was $0.1~~ ~~million and $0.4~~ ~~million, respectively.~~

1211

Quantitative information regarding the Company’s leases for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ was as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
Lease Cost	2022		2021		2022		2021		2023		2022
Operating lease cost (in thousands)	$	125	$	130	$	368	$	374	$	137	$	126
Other Information
Operating cash flows paid for amounts included in the measurement of lease liabilities (in thousands)	$	134	$	142	$	368	$	403	$	148	$	114
Operating lease liabilities arising from obtaining right-of-use assets (in thousands)	$	449	$	409	$	449	$	409	$	—	$	—

As of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, the weighted average remaining lease term for operating leases was ~~2.0~~1.6 years and ~~2.4~~1.8 years, respectively.

As of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, the weighted average discount rate for operating leases was 8% for both periods.

Operating lease liabilities at ~~September 30, 2022~~March 31, 2023 are as follows (in thousands):


	Operating			Operating
Future Lease Payments	Leases			Leases
2022 (excluding the period ended September 30, 2022)	$	134
2023		481
2023 (excluding the period ended March 31, 2023)				$	384
2024		269			299
2025		47			52
2026		—			—
2027					—
Total lease payments		931			735
Less: imputed interest		(74	)		(49	)
Total lease liabilities	$	857		$	686

10. STOCK-BASED COMPENSATION

Employee equity plan

In March 2020, the Company's Board of Directors and stockholders approved the 2020 Stock Option and Grant Plan (“2020 Plan”). Holders of stock options under the 2020 Plan shall be entitled to exercise the vested portion of the stock option during the term of the grant. If a qualified exit, as defined in the 2020 Plan, occurs, then all of the holders' unvested options shall vest immediately.

In October 2020, the Company's Board of Directors and stockholders approved the 2020 Equity Incentive Plan (“2020 Equity Plan”). Following the adoption of the 2020 Equity Plan, no further options are available to be issued under the 2020 Plan. Stock options granted under the 2020 Equity Plan generally vest over a four-year period and expire ten years from the grant date. The shares available for grant under the 2020 Equity Plan will cumulatively increase by 5 percent of the number of shares of common stock issued and outstanding on January 1st each year. At ~~September 30, 2022,~~March 31, 2023, the Company had ~~853,223~~395,602 ~~options~~shares available for future grant under the 2020 Equity Plan.

The following table sets forth the activity for the Company’s stock options during the ~~nine~~three months ended ~~September 30, 2022:~~March 31, 2023:

Number of
Options

Weighted-
average
exercise
price per
share

Weighted-
average
remaining
contractual
term
(in years)

Aggregate
intrinsic
value

Outstanding at December 31, 2021

3,998,728

$
6.51

8.3

$
1,357,655

Granted

1,827,750

2.98

—

111,013

Cancelled

(16,250
)

4.24

—

—

Outstanding at September 30, 2022

5,810,228

$
5.41

8.1

$
2,400

Vested and expected to vest at September 30, 2022

5,506,086

$
5.41

8.5

$
2,400

Vested and exercisable at September 30, 2022

2,464,125

$
5.52

7.2

$
—


	Number of Options			Weighted- average exercise price per share		Weighted- average remaining contractual term (in years)		Aggregate intrinsic value
Outstanding at December 31, 2022		5,778,885		$	5.43		7.9	$	—
Granted		1,797,350			1.22		—		425,460
Cancelled		(25,766	)		2.40		—		11,445
Outstanding at March 31, 2023		7,550,469		$	4.44		8.2	$	1,430,221
Vested and expected to vest at March 31, 2023		7,246,327		$	4.40		8.4	$	1,430,221
Vested and exercisable at March 31, 2023		3,356,935		$	5.36		7.2	$	44,205

The weighted-average grant date fair value of all stock options granted for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 was $~~2.22~~0.94. The intrinsic value at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 was based on the closing price of the Company’s common stock on that date of $~~1.89~~1.99 and $~~3.03~~1.15 per share, respectively.

In November 2022, the Company's Board of Directors approved the 2022 Inducement Plan (the “Inducement Plan”), which allows for the grant of equity awards to be made to a new employee where the equity award is a material inducement to an employee entering into employment with the Company. The Inducement Plan was adopted by the Company's Board of Directors without stockholder approval pursuant to Nasdaq Listing Rule 5635(c)(4). A total of 250,000 shares of the Company's common stock have been reserved for issuance under the Inducement Plan. As of March 31, 2023, no shares have been issued under the Inducement Plan.

Stock-based compensation

The grant date fair value of stock options vested during the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ was $~~5.7~~2.2 million and $~~1.9~~3.0 million, respectively. Total unrecognized compensation expense related to unvested options granted under the Company’s stock-based compensation plan was $~~12.3~~11.1 million at ~~September 30, 2022,~~March 31, 2023, which is expected to be recognized over a weighted average period of ~~2.4~~2.2 years. The Company recorded stock-based compensation expense related to the issuance of stock as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
	2022		2021		2022		2021		2023		2022
Research and development	$	657	$	516	$	1,980	$	1,372	$	684	$	653
General and administrative		741		703		2,242		1,865		750		751
Total stock-based compensation	$	1,398	$	1,219	$	4,222	$	3,237	$	1,434	$	1,404

The Company uses a Black-Scholes option pricing model to determine fair value of its stock options. The Black-Scholes option pricing model includes various assumptions, including the fair value of common shares, expected life of stock options, the expected volatility based on the historical volatility of a publicly traded set of peer companies and the expected risk-free interest rate based on the implied yield on a U.S. Treasury security.

1413

The fair values of the options granted were estimated using the following assumptions:


	Nine Months Ended						Three Months Ended
	September 30,						March 31,
	2022			2021			2023			2022
Risk-free interest rate		1.7	%		0.7	%		3.8	%		1.5	%
Expected term (in years)		6.0			6.0			6.1			6.1
Expected volatility		90.0	%		90.5	%		90.7	%		90.2	%
Expected dividend yield		—			—			—			—

11. NET LOSS PER SHARE

Basic and diluted net loss per share is calculated as follows (in thousands except share and per share amounts):


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2022			2021			2022			2021			2023			2022
Net loss	$	(13,730	)	$	(12,696	)	$	(47,555	)	$	(38,343	)	$	(12,994	)	$	(16,938	)
Weighted-average number of shares used in computing net loss per common share, basic and diluted		25,491,786			25,261,832			25,342,153			25,261,832			25,672,902			25,261,832
Net loss per common share, basic and diluted	$	(0.54	)	$	(0.50	)	$	(1.88	)	$	(1.52	)	$	(0.51	)	$	(0.67	)

The following outstanding potentially dilutive securities have been excluded from the calculation of diluted net loss per share, as their effect is anti-dilutive:

Three and Nine Months Ended
September 30,

2022

2021

Stock options to purchase common stock

5,810,228

3,923,728


	Three Months Ended March 31,
	2023		2022
Stock options to purchase common stock		7,550,469		5,647,478

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following information should be read in conjunction with the unaudited interim condensed consolidated financial statements and the notes thereto included in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto for the year ended December 31, ~~2021,~~2022, and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, contained in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2021,~~2022, filed with the United States Securities and Exchange Commission, or the SEC, on ~~February 17, 2022.~~March 9, 2023. This discussion and analysis and other parts of this Quarterly Report contain forward-looking statements based upon current beliefs, plans and expectations that involve risks, uncertainties and assumptions, such as statements regarding our plans, objectives, expectations, intentions and projections. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2021~~2022 and in other SEC filings.

We are a clinical-stage biotechnology company developing novel small molecule therapeutics that are designed to target the biological processes that lie at the heart of cancer and fibrotic diseases. Our strategy is to focus on diseases without disease-modifying treatment options and where there is a high unmet medical need. We are concentrating on the development of a new class of medicines: small molecule inhibitors of galectin-3 and lysyl oxidase-like 2, or LOXL2, that target underlying biology for the treatment of multi-factorial diseases like cancer and fibrotic diseases. Galectin proteins, and especially galectin-3, are highly expressed in many cancers, where they promote cancer progression, and fibrotic diseases, ~~and promote cancer progression, while the~~where they reduce organ function. The collagen cross-linking enzyme LOXL2 builds the backbone of fibrotic tissue by cross-linking collagen and elastin molecules and has been linked to cancer growth, metastasis and ~~metastasis.~~fibrosis. Our product candidates are designed to modulate multiple disease pathways simultaneously by inhibiting the master drivers of the cancer and fibrotic ~~cascades and may also work synergistically with and enhance the efficacy of other therapeutics.~~cascades. We believe our galectin and LOXL2 product candidates are distinct from the current generation of anti-cancer and anti-fibrotic agents and have the potential to significantly improve patient outcomes for these complex diseases. We recently completed a Phase 1b/2a clinical trial in patients with decompensated liver cirrhosis, and we currently have three other ongoing Phase 2 clinical trials.

Our most advanced product candidate, GB0139, is an inhaled small molecule inhibitor of galectin-3, one of the key regulators of fibrosis that controls the pro-fibrotic activity of ~~TGF-~~b.TGF-b. Overexpression of galectin-3 is ubiquitous in fibrotic tissue, including in fibrotic lung tissue, and is linked to both disease severity and disease progression, as well as acute exacerbations of idiopathic pulmonary fibrosis, or IPF. We are initially developing GB0139 for the treatment of IPF, a life-threatening progressive fibrotic disease of the lung. IPF affects approximately 100,000 people in the United States, but limited treatment options have been associated with significant side effects, leading to poor therapeutic adherence ~~and have not conclusively shown an impact on survival.~~or dose reduction. In our clinical trials completed to date, we found orally-inhaled GB0139 to be generally well-tolerated and it inhibited galectin-3 in the lungs in a dose-dependent manner. ~~We also observed~~

In our clinical, preclinical and in vitro testing to date, we have demonstrated that GB0139 can directly target galectin-3 in the lungs and markedly lowers the systemic plasma levels of biomarkers of fibrosis in IPF patients. In our Phase 1/2a trial in both healthy volunteers and IPF patients, GB0139 was generally well-tolerated, showed consistent and tight pharmacokinetics measured as plasma levels of the compound, and showed target engagement with the inhibition of galectin-3 in the lungs of IPF patients in a dose-dependent manner. Our clinical trials completed to date have found that orally inhaled GB0139 also decreased systemic levels of a range of plasma biomarkers, such as the glycoprotein YKL-40 and ~~platelet-derived growth factor~~PDGF, that have been linked to mortality, disease severity and/or progression in IPF.

We are currently conducting the GALACTIC-1 trial, a 52-week randomized, double-blind, multicenter, parallel, placebo-controlled Phase 2b trial investigating the safety and efficacy of GB0139 in patients with IPF. The primary endpoint of the trial is to assess the annual rate of decline in forced vital capacity, or FVC, over 52 weeks, which is the regulatory endpoint identified for IPF therapy approval. Reduction in the decline of FVC is the endpoint that was accepted by the FDA for the approval of both nintedanib, marketed as Ofev® by Boehringer Ingelheim, and pirfenidone, marketed as Esbriet® by Roche/Genentech, which ~~we refer to as~~are the ~~GALACTIC-1 trial.~~only current therapeutic treatments for IPF. We have completed ~~target~~ enrollment of ~~141~~144 patients ~~during the second quarter of 2022~~ and we expect topline results to be available in ~~mid-2023.~~August 2023.

GB2064 is a selective oral small molecule inhibitor of LOXL2. We are initially developing GB2064 for the treatment of myelofibrosis, a malignant disease of the bone marrow in which fibrosis reduces the ability to form blood cells. Myelofibrosis is one of several types of cancer and multiple fibrotic diseases in which expression of LOXL2 is significantly increased. Unlike current treatment options for myelofibrosis, we believe that GB2064 has the potential to be a disease-modifying therapy as it is designed to have a direct impact on the fibrotic process and slow the progression of the disease. We are currently conducting a Phase 2a trial examining GB2064 in myelofibrosis, which we refer to as the MYLOX-1 trial, and we announced results from a planned intermediate assessment in the third quarter of 2022. As part of this assessment, we evaluated results from the first five patients who had completed at least six months of treatment with GB2064 and who had repeated bone marrow biopsies. In the intermediate assessment, four out of five evaluable myelofibrosis patients who received GB2064 monotherapy for at least six months experienced a ≥ 1-grade reduction in collagen fibrosis of the bone marrow, an improvement suggesting that GB2064 could impact the progression of the disease and be disease modifying. All four patients who experienced a > 1-grade reduction in fibrosis score also showed stable hematological parameters (hemoglobin, white blood cell count, and thrombocytes) and stable spleen volume over the six month treatment period, and none required transfusion. As of the date of the planned intermediate assessment, sixteen patients in the MYLOX-1 trial had been dosed with GB2064, of which eight patients have completed or continue to receive treatment and eight patients have either discontinued treatment as a result of an adverse event or disease progression. The most commonly observed treatment-related adverse events were gastrointestinal in nature and were manageable in most patients with standard therapy. In the five patients who completed at least six months of treatment with GB2064, there were no treatment-related serious adverse events, while in the entire trial population, the only possibly treatment-related serious adverse event was a case of fall, demonstrating a generally acceptable tolerability profile from this assessment. We expect topline results to be available in the second half of 2023.

GB1211 (Liver Cirrhosis and Oncology Indications) – GULLIVER-2, GALLANT-1 and Providece Investigator-Initiated Trials

GB1211 is a selective oral small molecule inhibitor of galectin-3 and is chemically distinct from ~~GB0139 and is initially being developed for the treatment of oncology indications and liver cirrhosis.~~GB0139. We believe GB1211 has the potential to treat multiple types of fibrosis and oncology indications. GB1211 demonstrated antifibrotic and anticancer activity in multiple preclinical models and was evaluated in a Phase 1 trial in 78 healthy volunteers. In the Phase 1 trial, GB1211 was well-tolerated and showed dose-dependent pharmacokinetics.

Within the field of fibrotic diseases, our initial target indication for GB1211 is liver cirrhosis, a severe, progressive disease that ultimately leads to liver failure and for which there are limited treatment options and no FDA-approved disease modifying therapeutics available. During the fourth quarter of 2022, at the American Association for the Study of Liver Diseases' (AASLD) The Liver Meeting® 2022, we announced topline results from our Phase 1b/2a GULLIVER-2 trial in patients with decompensated liver cirrhosis showing statistically significant reductions in ALT (p<0.0005), AST (p<0.005) and GGT (p<0.05), with encouraging reductions for ALP (p<0.09), after 12 weeks of treatment. These findings suggest that GB1211 provided liver cell protection and improved liver status, further supporting clinical development in severe liver disease. The consistency of the reductions in liver enzymes shown in this severe form of liver cirrhosis, the progressive improvement we observed over 12 weeks and the favorable safety profile observed in the GULLIVER-2 trial lead us to believe that a broader study in patients with compensated and/or decompensated cirrhosis could show broader clinical activity, providing a potential regulatory path to approval as the first FDA-approved therapy in liver cirrhosis. Our next step in the development of GB1211 for the treatment of liver cirrhosis and other liver diseases is to conduct a Phase 2b trial, subject to obtaining additional financing or collaborating with a third party.

GB1211 is also being studied in oncology. Many tumors overexpress galectin-3, which mechanistically is linked to several cancer promoting mechanisms, including those linked to programmed cell death receptor 1 (PD-1) or its ligand, PD-L1 resistance and chemotherapy resistance, and may ultimately lead to worse clinical outcomes. Galectin-3 inhibition has the potential to both directly reduce tumor growth as well as increase the immune mediated eradication of tumors and is believed to increase T-cell recruitment and activation in the tumor microenvironment. WeIn an animal model, we observed that oral administration of our galectin-3 inhibitors reduced human and mouse lung adenocarcinoma growth and blocked metastasis. Treatment with one of our galectin-3 inhibitors also ~~believe that inhibiting galectin-3 could lead to an increase in~~potentiated the ~~efficacy~~activity of a PD-L1 immune checkpoint ~~inhibitors in cancer patients with high galectin-3 expression,~~inhibitor. The mechanisms at work include checkpoint inhibitor-type mechanisms (inhibition of TGF-β signaling, LAG-3, T-cell receptor, interferon gamma) and mechanisms potentially enhancing PD-1/PD-L1 activity, as evidenced by preclinical data that we ~~recently~~ presented at the 2022 American Society of Clinical Oncology Annual Meeting showing that GB1211 reversed a galectin-3 induced blockage of the checkpoint inhibitors atezolizumab and pembrolizumab and exhibited synergistic ~~effects~~activity with these checkpoint inhibitors. Furthermore, in the clinic, a retrospective study showed that patients with high tumor staining for galectin-3 were resistant to treatment with pembrolizumab, an anti-PD-1 antibody approved for the treatment of NSCLC, and, by contrast, patients with low galectin-3 had a good response to pembrolizumab and a reduction in tumor volume. Thus, galectin-3 could be a biomarker for anti-PD-1/PD-L1 resistance and, therefore, also be a marker for patients who may benefit from galectin-3 inhibition, which could enable a biomarker-based therapy. We believe the emerging data of galectin-3 as a checkpoint inhibitor resistance mechanism supports a key role for our oral galectin-3 inhibitor candidates in cancer therapy.

Our initial target indication for GB1211 in oncology is non-small cell lung cancer, or NSCLC, a cancer indication with high unmet medical need. In the fourth quarter of 2021, we announced that we had entered into a clinical trial supply agreement with F. Hoffmann-La Roche Ltd, or Roche, for our ~~planned~~ Phase 2a trial of GB1211 in combination with atezolizumab, marketed by Roche as Tecentriq®, a ~~programmed death-ligand 1 (PD-L1)~~PD-L1 checkpoint inhibitor for the first-line treatment of ~~first-line~~ NSCLC, which we refer to as the GALLANT-1 trial. This randomized, double blind, placebo-controlled trial is examining the effect of GB1211 and atezolizumab on tumor shrinkage based on RECIST criteria, as well as secondary endpoint measures such as overall survival and progression-free survival. We also plan to analyze how plasma galectin-3 levels and tumor galectin-3 correlate with tumor response.

We have initiated Part A of the GALLANT-1 trial, an open-label study to select the dose of GB1211 to be used in Part B of the trial, which is designed to evaluate the safety and tumor shrinkage (based on RECIST criteria) of the combination of the selected dose of GB1211 and atezolizumab. In the first seven patients who received GB1211 200 mg twice daily in combination with atezolizumab, we observed two serious adverse events of autoimmune-type skin rashes (showing perivascular lymphocytic infiltrates), which were determined by the principal investigator to be related to the administration of atezolizumab. In accordance with the protocol, we reduced the GB1211 dose to 100 mg twice daily for the second patient cohort. The reactions were similar to those observed with atezolizumab and described in the label. Both reactions responded to therapy with oral glucocorticosteroids and were clinically manageable. Interestingly, inflammatory and perivascular lymphocytic infiltrates were observed in both skin reactions, and could signal an exaggerated immune activation, something often observed with checkpoint inhibitor therapy and associated with improved clinical outcomes. Because a central aspect of the mechanism of action for GB1211 in combination with a checkpoint inhibitor is to remove galectin-3 from the lymphocytes and the tumor cells, and thereby increase lymphocyte-based tumor killing, we believe this could also be a positive signal of enhanced lymphocyte activation.

One patient in the GALLANT-1 trial who has been in treatment for 23 weeks with both GB1211 200 mg twice daily and atezolizumab showed a partial response, which is defined by the RECIST criteria to be shrinkage of at least 30% of the tumor, at week 18. Another patient who has been in treatment for 14 weeks with GB1211 100 mg twice daily and atezolizumab also showed a partial response at week six and week 12. Both partial responses were pursuant to investigator-led assessments. Both patients continue to receive treatment with GB1211 and atezolizumab. Recruitment in Part A is currently ongoing and we expect to release interim safety data in the second ~~quarter~~half of ~~2022 and~~2023. We expect topline results to be available in the ~~second~~first half of ~~2023.~~2024.

In October 2022, we expanded our focus on additional oncology indications and entered into an agreement with Providence Portland Medical Center’s ~~Earle A. Chiles Research Institute (EACRI)~~EACRI to evaluate the safety and efficacy of GB1211 in combination with pembrolizumab ~~(Keytruda®).~~in an investigator-initiated trial in metastatic melanoma and HNSCC patients. Galecto has committed to supply GB1211 for this Phase 2 trial. The randomized, double-blind placebo controlled, investigator-initiated Phase 2 trial ~~will~~is expected to evaluate whether the addition of GB1211 increases the response rate of pembrolizumab in metastatic melanoma and ~~head and neck squamous cell carcinoma (HNSCC)~~HNSCC patients. The study ~~will employ a fixed dose of~~is designed to evaluate GB1211 in ~~conjunction~~combination with the standard therapeutic dose of pembrolizumab in patients with unresectable or metastatic melanoma or recurrent or metastatic HNSCC progressing during or after platinum-containing chemotherapy. In addition to monitoring for toxicity and clinical response, blood and tumor samples will be obtained to assess immunologic measures relevant to galectin-3 biology and checkpoint inhibition. This trial is expected to begin in the second half of 2023 and topline results ~~of the combination are expected to~~could be reported as early as 2025.

GB2064 is a selective oral small molecule inhibitor of LOXL2 that we are initially developing for the treatment of myelofibrosis, a malignant disease of the bone marrow in which progressive fibrosis ~~our initial target indication for GB1211~~reduces the ability to form blood cells in the bone marrow. Myelofibrosis is ~~liver cirrhosis, a severe, progressive disease that ultimately leads to liver failure~~one of several types of cancer and ~~for~~multiple fibrotic diseases in which ~~there are limited~~expression of LOXL2 is significantly increased. Unlike current treatment options for myelofibrosis, we believe that GB2064 has the potential to be a disease-modifying therapy as it is designed to have a direct impact on the fibrotic process and ~~no FDA-approved disease specific therapeutics available.~~ slow the progression of the disease.

We are currently conducting a Phase ~~1b/~~2a MYLOX-1 trial examining GB2064 in myelofibrosis in which the primary endpoint is safety and secondary endpoints include measurements of drug levels in the bone marrow and grade of fibrosis, improvement of anemia and/or thrombocytopenia and assessment of spleen and liver size. In the third quarter of 2022, we announced results from a planned intermediate assessment of the first five patients who had completed at least six months of treatment with GB2064. Four of the five patients experienced a ≥ 1-grade reduction in collagen fibrosis of the bone marrow, an improvement suggesting that GB2064 could impact the progression of the disease and potentially be disease modifying. All four patients who experienced a ≥ 1-grade reduction in collagen fibrosis also showed stable hematological parameters (hemoglobin, white blood cell count, and thrombocytes) and stable spleen volume over the six month treatment period, and none required transfusion. As of the date of the planned intermediate assessment, the most commonly observed treatment-related adverse events were gastrointestinal in nature and were manageable in most patients with standard therapy. In the five patients who completed at least six months of treatment with GB2064 and valid bone marrow biopsies, there were no treatment-related serious adverse events, while in the entire trial population, the only possibly treatment-related serious adverse event was a case of fall.

As of the date of this report, we have enrolled and treated 18 patients in the MYLOX-1 trial, of ~~GB1211~~which two patients continue to receive treatment and four patients are currently in the extension phase because their treating physician deemed them to be clinically responsive to treatment with GB2064. Since the analysis of five evaluable patients in the intermediate assessment referenced above, three more patients have passed the six and nine month periods to be deemed evaluable. Of these three patients, one patient experienced a 1-grade reduction in reticulin fibrosis at nine months and, following an initial increase of collagen fibrosis score of 1 grade at six months, experienced a 1-grade reduction in collagen fibrosis at nine months. Consistent with the trends observed in the intermediate assessment, the patient who experienced reduction in fibrosis also showed stable hematological parameters and stable spleen volume and did not require transfusion. Marked reductions of lactate dehydrogenase levels (LDH) were observed in local laboratory findings for ~~liver cirrhosis, which we refer~~two of these three patients. LDH assessment was not part of the scheduled assessments for the MYLOX-1 trial, but reduciton of LDH is generally viewed as a positive signal in myelofibrosis since increase in LDH are linked to ~~as the GULLIVER-2 trial, that is focused on safety and effect on liver function and fibrosis biomarkers.~~worse prognosis.

~~In November 2022, we announced topline results~~The data received to date from the ~~GULLIVER-2~~MYLOX-1 trial that showed statistically significant reductions in ALT (p<0.0005), AST (p<0.005) and GGT (p<0.05), with encouraging reductions for ALP (p<0.09), after 12 weeks of treatment. Patients treated with GB1211 also demonstrated improvement and consistent signs of activity across biochemical liver function markers and markers of target engagement, apoptosis, and fibrosis, including reductions in galectin-3 (p<0.05) and CK-18 (M65) (p<0.002). Bilirubin, albumin, international normalized ratio (INR) and other biochemical measurements remained stable. These findings suggest that ~~GB1211 provided liver cell protection~~inhibiting LOXL2 may be a way to reduce tissue collagen levels in multiple fibrosis and ~~improved liver status, further supporting clinical development~~oncology indications. Four out of eight evaluable patients have now shown a ≥ 1 grade reduction in ~~severe liver disease. Liver enzyme (AST, ALT,~~collagen fibrosis, which we believe has not been shown with any FDA-approved therapy. Because the trial has already exceeded the pre-defined target of a ≥ 1 grade reduction in collagen fibrosis in at least three out of 16 evaluable patients, we believe that MYLOX-1 has reached the dual goal of confirming LOXL2 as an attractive fibrosis target and ~~GGT) reductions were observed after seven days of treatment and continued~~demonstrating that GB2064 has clinically meaningful antifibrotic activity. Accordingly, we have determined to decrease over the 12 weeks of treatment. These liver enzyme levels remained decreased compared to baseline two weeks after the study’s conclusion, indicating durable effects and a decrease in liver inflammation. The use of GB1211 in the GULLIVER-2 trial showed encouraging numerical improvements in liver health biomarkers after 12 weeks of therapy.

~~GB1211 exhibited a favorable tolerability profile in Child-Pugh B decompensated liver cirrhosis~~stop enrolling additional patients in the ~~GULLIVER-2 trial. Five~~trial and will continue following the remaining patients. We continue to expect to report topline results in the second half of ~~15 patients on GB1211~~2023. Given that we have already shown bone marrow collagen reduction and ~~four of 15 patients on placebo reported nine and eight treatment-emergent adverse events (TEAEs), respectively. Three serious TEAEs were observed~~a manageable clinical tolerability profile, we are beginning to plan for next steps in ~~one patient on GB1211, but were deemed to be unrelated to GB1211.~~clinical development, which we expect could include combining GB2064 with another myelofibrosis treatment.

Our product candidates GB0139, GB1211 and GB2064 are in Phase 2 of clinical development. Our ability to generate revenue from product sales sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of these product candidates. Our operations to date have been financed primarily from our initial public offering, or IPO, the issuance of common stock through our ATM Program, the issuance of convertible preferred shares and convertible notes. Since inception, we have had significant operating losses. Our net loss was ~~$13.7~~$13.0 million and ~~$47.6~~$16.9 million for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022, ~~respectively. Our net loss was $12.7 million and $38.3 million for the three and nine months ended September 30, 2021,~~ respectively. As of ~~September 30, 2022,~~March 31, 2023, we had an accumulated deficit of ~~$203.7~~$230.7 million and ~~$75.9~~$57.2 million in cash, cash equivalents and marketable securities.

Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our prepaid expenses, accounts payable and accrued expenses. We expect to continue to incur net losses for the foreseeable future, and we expect our research and development expenses, general and administrative expenses, and capital expenditures will ~~continue to increase.~~continue. In particular, we expect our expenses to ~~increase~~continue as we ~~continue~~further our development of, and seek regulatory approvals for, our product candidates, as well as hire additional personnel, pay fees to outside consultants, lawyers and accountants, and incur other ~~increased~~ costs associated with being a public company. In addition, if and when we seek and obtain regulatory approval to commercialize any current or future product candidate, we will also incur increased expenses in connection with commercialization and marketing of any such product. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our clinical trials and our expenditures on other research and development activities.

To date, we have not had any products approved for sale and, therefore, have not generated any product revenue. We do not expect to generate any revenues from product sales unless and until we successfully complete development and obtain regulatory approval for one or more of our product candidates. If we obtain regulatory approval for any of our product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. As a result, until such time, if ever, that we can generate substantial product revenue, we expect to finance our cash needs through equity offerings, debt financings or other capital sources, including collaborations, licenses or similar arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed or on favorable terms, if at all. Any failure to raise capital as and when needed could have a negative impact on our financial condition and on our ability to pursue our business plans and strategies, including our research and development activities. If we are unable to raise capital, we will need to delay, reduce or terminate planned activities to reduce costs.

The ~~COVID-19 pandemic, which began in December 2019 and has spread worldwide, has caused many governments to implement measures to slow the~~ spread of COVID-19 and identification of new variants and subvariants of the ~~outbreak through quarantines, travel restrictions, heightened border scrutiny~~virus has impacted the global economy and, ~~other measures. The outbreak and government measures taken in response have also had a significant impact,~~ both directly and indirectly, on businesses and ~~commerce, as~~commerce. As worker shortages have ~~occurred;~~occurred, supply chains have been disrupted; facilities and production have been suspended; and demand for certain goods and services, such as medical services and supplies, has ~~spiked.~~spiked, while demand for other goods and services, such as travel, has fallen. The ~~continued impact~~ongoing economic challenges of ~~these events~~the COVID-19 pandemic and its effects on our business and operations are uncertain.

In ~~response to~~addition, economic uncertainty in various global markets, including the ~~disruptions~~U.S. and Europe, caused by political instability and conflict, such as the ongoing conflict in Ukraine, and economic challenges caused by the COVID-19 pandemic, have led to market disruptions, including significant volatility in commodity prices, credit and ~~various resulting government directives, we implemented certain measures intended to help us manage its impact, including a hybrid work-from-home strategy for administrative functions~~capital market instability and ~~operations. Despite our implementation of such measures, the actual and perceived effect of the COVID-19 pandemic continues to evolve. The COVID-19 pandemic has~~supply chain interruptions, which have caused delays and difficulties in the initiation of and recruitment in our ongoing clinical trials of GB0139 (GALACTIC-1), GB2064 (MYLOX-1) and GB1211 (GALLANT-1 and our recently completed GULLIVER-2 trial). If COVID-19 and its variants continue to impact patient recruitment on our trials, we may not be able to maintain our planned timing for completion of enrollment in these trials, which could require further amendments to trial protocols and delay planned readouts from our trials. We cannot assure you that we will not experience additional negative impacts associated with COVID-19 and its variants, which could be significant. The COVID-19 pandemic may negatively impact ourrecord inflation globally. Our business, financial condition and results of operations ~~including~~could be materially and adversely affected by ~~decreasing~~further negative impact on the global economy and capital markets resulting from these global economic conditions, particularly if such conditions are prolonged or ~~delaying~~worsen.

Although, to date, our business has not been materially impacted by these global economic and geopolitical conditions, it is impossible to predict the ~~enrollment of patients~~extent to which our operations will be impacted in ~~our clinical trials~~the short and long term, or ~~otherwise causing interruptions or delays~~the ways in ~~our programs and services. See “Risk Factors—Risks Related to Managing Our Business and Operations—The global pandemic of the novel coronavirus disease, COVID-19, has, and may continue to, adversely~~which such instability could impact our business ~~including our preclinical studies~~ and ~~clinical trials” in our~~ ~~Annual Report on Form 10-K~~ ~~for~~results of operations. The extent and duration of these market disruptions, whether as a result of the ~~fiscal year ended December 31, 2021 for more information regarding~~military conflict between Russia and Ukraine and effects of the ~~potential~~Russian sanctions, geopolitical tensions, record inflation or otherwise, are impossible to predict, but could be substantial. Any such disruptions may also magnify the impact of ~~COVID-19 and its variants on our business and operations.~~other risks described in this report.

Our operating expenses since inception have consisted primarily of research and development expenses and general and administrative costs.

Our research and development expenses consist primarily of costs incurred for the development of our product candidates and our drug discovery efforts, which include:

We expense all research and development costs in the periods in which they are incurred, including for acquired in-process research and development. Costs for certain research and development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and third-party service providers.

We have historically met the requirements to receive a tax credit in Denmark of up to $0.9 million per year for losses resulting from research and development costs of up to approximately $4.1 million per year. The tax credit is reported as a reduction to research and development expense in the condensed consolidated statements of operations. We recorded a tax credit of $0.8 million for each of the three month periods ended March 31, 2023 and ~~$0.9 million for the nine month period ended September 30, 2022 and 2021, respectively.~~2022.

Our direct research and development expenses are not currently tracked on a program-by-program basis. We use our personnel and infrastructure resources across multiple research and development programs directed toward identifying and developing product candidates. The majority of our clinical spending in the ~~nine~~three month ~~period~~periods ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ was on GB0139.

We expect our research and development expenses to increase substantially for the foreseeable future as we continue to invest in research and development activities related to developing our product candidates, including investments in conducting clinical trials, manufacturing and otherwise advancing our programs. The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming, and the successful development of our product candidates is highly uncertain.

Because of the numerous risks and uncertainties associated with product development and the current stage of development of our product candidates and programs, we cannot reasonably estimate or know the nature, timing and estimated costs necessary to complete the remainder of the development of our product candidates or programs. We are also unable to predict if, when, or to what extent we will obtain approval and generate revenues from the commercialization and sale of our product candidates. The duration, costs and timing of preclinical studies and clinical trials and development of our product candidates will depend on a variety of factors, including:

We may never succeed in achieving regulatory approval for any of our product candidates. We may obtain unexpected results from our preclinical studies and clinical trials. We may elect to discontinue, delay or modify clinical trials of some product candidates or focus on others. A change in the outcome of any of these factors could mean a significant change in the costs and timing associated with the development of our current and future preclinical and clinical product candidates. For example, if the FDA or another regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of clinical development, or if we experience significant delays in execution of or enrollment in any of our preclinical studies or clinical trials, we could be required to expend significant additional financial resources and time on the completion of preclinical and clinical development.

Research and development activities account for a significant portion of our operating expenses. We expect our research and development expenses to ~~increase~~continue for the foreseeable future as we continue to implement our business strategy, which includes advancing GB0139, GB2064 and GB1211 through clinical development and other product candidates further into clinical development, expanding our research and development efforts, including hiring additional personnel to support ~~our research and~~further clinical development efforts, and seeking regulatory approvals for our product candidates that successfully complete clinical trials. In addition, product candidates in later stages of clinical development generally incur higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. As a result, we expect our research and development expenses to ~~increase~~continue as our product candidates advance into later stages of clinical development. However, we do not believe that it is possible at this time to accurately project total program-specific expenses through commercialization. There are numerous factors associated with the successful commercialization of any of our product candidates, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage of development.

Our general and administrative expenses consist primarily of personnel costs, depreciation expense and other expenses for outside professional services, including legal, human resources, audit and accounting services and facility-related fees not otherwise included in research and development expenses. Personnel costs consist of salaries, benefits and stock-based compensation expense, for our personnel in executive, finance and accounting, business operations and other administrative functions. We expect our general and administrative expenses to ~~increase~~continue over the next several years to support our continued research and development activities, manufacturing activities ~~increased~~and continued costs of ~~expanding our operations and~~ operating as a public company. These ~~increases~~expenses will likely include ~~increases~~continued costs related to the hiring of additional personnel, legal, regulatory and other fees, director and officer insurance premiums and investor relations costs associated with our ~~growth and~~ continued ~~expansion of our~~ operations.

• Interest income: The interest income earned on our cash, cash equivalents, restricted cash and ~~marketable securities are recorded in our statements of operations.~~

~~• Loss on sales of marketable securities: The loss on the sales of our~~ marketable securities are recorded in our statements of operations.

• Foreign exchange: The functional currency of our subsidiaries in Denmark and Sweden is the Euro. Transactions denominated in currencies other than the Euro result in exchange gains and losses that are recorded in our statements of operations.

Comparison of the Three Months Ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~

The following sets forth our results of operations for the three months ended ~~September 30, 2022~~March 31, 2023 and ~~2021:~~2022:


	Three Months Ended												Three Months Ended
	September 30,						Change						March 31,						Change
	2022			2021			Amount			Percent			2023			2022			Amount			Percent
	(in thousands)												(in thousands)
Operating expenses
Research and development	$	10,494		$	9,748		$	746			7.7	%	$	10,362		$	13,235		$	(2,873	)		-21.7	%
General and administrative		3,128			3,191			(63	)		-2.0	%		3,130			3,704			(574	)		-15.5	%
Total operating expenses	$	13,622		$	12,939		$	683			5.3	%	$	13,492		$	16,939		$	(3,447	)		-20.3	%
Loss from operations		(13,622	)		(12,939	)		(683	)		5.3	%		(13,492	)		(16,939	)		3,447			-20.3	%
Other income (expense), net		(108	)		243			(351	)		-144.4	%
Other income, net														498			1			497			49700.0	%
Net loss	$	(13,730	)	$	(12,696	)	$	(1,034	)		8.1	%	$	(12,994	)	$	(16,938	)	$	3,944			-23.3	%


	Three Months Ended										Three Months Ended
	September 30,				Change						March 31,				Change
	2022		2021		Amount			Percent			2023		2022		Amount			Percent
	(in thousands)										(in thousands)
Preclinical studies and clinical trial-related activities	$	5,897	$	5,312	$	585			11.0	%	$	4,948	$	7,941	$	(2,993	)		-37.7	%
Chemistry, manufacturing and control		1,354		1,314		40			3.0	%		960		1,786		(826	)		-46.2	%
Personnel		1,993		2,046		(53	)		-2.6	%		2,523		2,433		90			3.7	%
Consultants and other costs		1,250		1,076		174			16.2	%		1,931		1,075		856			79.6	%
Total research and development expenses	$	10,494	$	9,748	$	746			7.7	%	$	10,362	$	13,235	$	(2,873	)		-21.7	%

Research and development expenses were ~~$10.5~~$10.4 million for the three months ended ~~September 30, 2022,~~March 31, 2023, compared to ~~$9.7~~$13.2 million for the three months ended ~~September 30, 2021.~~March 31, 2022. The ~~increase~~decrease of ~~$0.7~~$2.8 million was primarily related to ~~increased~~decreased clinical trial-related expenses of ~~$0.6~~$3.0 million ~~resulting from the GALACTIC-1 Phase 2b~~due to timing of clinical trial activities and ~~three other Phase 2 clinical trials~~decreased chemistry, manufacturing and control costs of $0.8 million, offset by increased other ~~general~~ research and development costs of ~~$0.2~~$0.9 million ~~offset by decreased~~and increased personnel costs of $0.1 million.

General and administrative expenses were ~~$3.1~~$$3.1 million for the three months ended ~~September 30, 2022,~~March 31, 2023, compared to ~~$3.2~~$$3.7 million for the three months ended ~~September 30, 2021.~~March 31, 2022. The decrease of ~~$0.1~~$0.6 million was primarily related to decreased insurance costs of $0.3 million and decreased net other general administrative ~~costs.~~costs of $0.3 million.

Other income (expense), net for the three months ended ~~September 30, 2022~~March 31, 2023 was ~~$(0.1)~~$0.5 million, compared to ~~$0.2 million other income (expense), net~~a de minimis amount for the three months ended ~~September 30, 2021.~~March 31, 2022. The ~~decrease~~increase of ~~$0.3~~$0.5 million was primarily due to ~~a net foreign exchange loss, offset by~~ an increase in net interest ~~income.~~income and an increase in foreign exchange transaction gain, net.

Research and development expenses were $37.4 million for the nine months ended September 30, 2022, compared to $28.4 million for the nine months ended September 30, 2021. The increase of $9.1 million was primarily related to increased clinical trial-related expenses of $8.5 million resulting from the GALACTIC-1 Phase 2b trial and three other Phase 2 clinical trials, increased personnel costs due to additional headcount of $0.6 million and personnel costs for non-cash stock-based compensation of $0.6 million and increased other general research and development costs of $0.7 million, offset by decreased manufacturing expenses of $1.3 million.

General and administrative expenses were $10.2 million for the nine months ended September 30, 2022, compared to $10.4 million for the nine months ended September 30, 2021. The decrease of $0.2 million was primarily related to decreased consulting related costs of $0.9 million and decreased legal related costs of $0.5 million; offset by increased personnel costs due to additional headcount of $0.4 million and personnel costs for non-cash stock-based compensation of $0.4 million and increased other general and administrative costs of $0.4 million.

Other income (expense), net for the nine months ended September 30, 2022 was $0.1 million, compared to other income (expense), net of $0.4 million for the nine months ended September 30, 2021. The decrease of $0.3 million was primarily due to a net foreign exchange loss, offset by an increase in net interest income.

Our operations to date have been financed primarily through our IPO, the issuance of common stock through our ATM Program (as defined below), the issuance of convertible preferred shares and convertible notes. Since inception, we have had significant operating losses. On November 2, 2020, we completed our IPO in which we raised $86.3 million in net proceeds. On November 4, 2021, we filed with the SEC, and the SEC declared effective on November 12, 2021, a registration statement on Form S-3, or the Registration Statement, which registers the offering, issuance and sale of up to $200.0 million of our common stock, preferred stock, debt securities, warrants, subscription rights and/or units of any combination thereof. Simultaneous with the filing of

the Registration Statement, we entered into an Open Market Sale ~~AgreementSM~~AgreementSM with Jefferies LLC, as sales agent, to provide for the issuance and sale of up to $50.0 million of our common stock from time to time in “at-the-market” offerings under the Registration Statement and related prospectus, or the ATM Program. During the three ~~and nine~~ months ended ~~September 30, 2022,~~March 31, 2023, we sold an aggregate of ~~238,891 and 319,197~~21,082 shares ~~respectively,~~ of our common stock under the ATM Program at a weighted average selling price of ~~$1.99~~$1.20 per ~~share~~share. We had no sales under the ATM Program during ~~both periods.~~the three months ended March 31, 2022.

Our net losses were ~~$13.7~~$13.0 million and ~~$47.6~~$16.9 million for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022, ~~respectively. Our net losses were $12.7 million and $38.3 million for the three and nine months ended September 30, 2021,~~ respectively. As of ~~September 30, 2022,~~March 31, 2023, we had an accumulated deficit of ~~$203.7~~$230.7 million and ~~$75.9~~$57.2 million in cash, cash equivalents and marketable securities. Our primary use of cash is to fund operating expenses, which consist primarily of research and development expenditures, and to a lesser extent, general and administrative expenditures. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable and accrued expenses.


	Nine Months Ended						Three Months Ended
	September 30,						March 31,
	2022			2021			2023			2022
	(in thousands)						(in thousands)
Net cash used in operating activities	$	(31,484	)	$	(34,479	)	$	(9,134	)	$	(6,797	)
Net cash used in investing activities		(1,946	)		(62,460	)
Net cash provided by (used in) investing activities								1,374			(10,207	)
Net cash provided by financing activities		442			—			23			—
Net decrease in cash and cash equivalents	$	(32,988	)	$	(96,939	)
Net decrease in cash, cash equivalents and restricted cash							$	(7,737	)	$	(17,004	)

Cash used in operating activities of ~~$31.5~~$9.1 million during the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 was primarily attributable to our net loss of ~~$47.6~~$13.0 million together with non-cash items of ~~$5.1~~$1.5 million principally with respect to stock-based compensation and a net increase of ~~$11.0~~$2.4 million in components of our working capital.

Cash used in operating activities of ~~$34.5~~$6.8 million during the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 was primarily attributable to our net loss of ~~$38.3~~$16.9 million together with non-cash items of ~~$4.4~~$1.8 million principally with respect to stock-based compensation ~~offset by~~and a net ~~decrease~~increase of ~~$0.5~~$8.3 million in components of our working capital.

Cash ~~used in~~provided by investing activities of ~~$1.9~~$1.4 million during the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 was the result of ~~$40.7 million for the purchase of marketable securities and $0.1 million for the purchase of property and equipment, offset by $38.9~~$14.1 million in proceeds from the sale of marketable securities, offset by $12.7 million for the purchase of marketable securities.

Cash used in investing activities of ~~$62.5~~$10.2 million during the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 was the result of ~~$84.2~~$26.4 million for the purchase of marketable securities, ~~and $0.2 million for the purchase of property and equipment,~~ offset by ~~$21.9~~$16.2 million in proceeds from the sale of marketable securities.

Cash provided by financing activities of ~~$0.4 million~~$23,000 during ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 was the result of net proceeds from the issuance of our common stock. We had no financing activities for the ~~nine~~three months ended ~~September 30, 2021.~~March 31, 2022.

Any product candidates we may develop may never achieve commercialization and we anticipate that we will continue to incur losses for the foreseeable future. We expect that our research and development expenses, general and administrative expenses, and capital expenditures will continue to increase. As a result, until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity offerings, debt financings or other capital sources, including potentially collaborations, licenses and other similar arrangements. Our primary uses of capital are, and we expect will continue to be, compensation and related expenses; costs related to third-party clinical research, manufacturing and development services; costs relating to the build-out of our headquarters and other offices, our laboratories and our manufacturing facility; license payments or milestone obligations that may arise; laboratory expenses and costs for related supplies; clinical costs; manufacturing costs; legal and other regulatory expenses and general overhead costs.

Based upon our current operating plan, we believe that our existing cash, cash equivalents and marketable securities of ~~$75.9~~$57.2 million as of ~~September 30, 2022~~March 31, 2023 will be sufficient to fund our operating expenses and capital expenditure requirements into the second half of 2024. ~~To finance our operations beyond that point we will need to raise additional capital, which cannot be assured.~~ We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect. To finance our operations beyond that point we will need to raise additional capital, which cannot be assured. We will continue to require additional financing to advance our current product candidates through clinical development, to develop, acquire or in-license other potential product candidates and to fund operations for the foreseeable future. We will continue to seek funds through equity offerings, debt financings or other capital sources, including potentially collaborations, licenses and other similar arrangements. ~~However,~~If we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Volatility in equity capital markets may adversely affect the market price of our equity securities, which may materially and adversely affect our ability to fund our business through public or private sales of equity securities. If wedo raise additional capital through public or private equity offerings, ~~in the future,~~ the ownership interest of our existing stockholders, will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders’ rights. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Any failure to raise capital as and when needed could have a negative impact on our financial condition and on our ability to pursue our business plans and strategies.

We may be unable to raise additional funds or enter into other arrangements when needed, on favorable terms, or at all. Although we assess our banking and customer relationships as we believe necessary or appropriate, our access to funding sources and other credit arrangements in amounts adequate to finance or capitalize our current and projected future business operations could be significantly impaired by factors that affect the financial services industry or economy in general. Volatility in equity capital markets, including market events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties or the financial services industry generally, may adversely affect the market price of our equity securities, which may in turn materially limit our ability to fund our business through public or private sales of equity securities. If we are unable to raise capital, we will need to delay, reduce or terminate planned activities to reduce costs. Furthermore, investor concerns regarding the U.S. or international financial systems could result in less favorable commercial financing terms, including higher interest rates or costs and tighter financial and operating covenants, or systemic limitations on access to credit and liquidity sources, thereby making it more difficult for us to acquire financing on acceptable terms or at all. Any decline in available funding or access to our cash and liquidity resources could, among other risks, adversely impact our ability to meet our operating expenses, financial obligations or fulfill other obligations. Any of the above events could significantly harm our business, prospects, financial condition and results of operations and cause the price of our common stock to decline.

Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical products, we are unable to estimate the exact amount of our operating capital requirements. Our future funding requirements will depend on many factors, including, but not limited to:

Further, our operating plans may change, and we may need additional funds to meet operational needs and capital requirements for clinical trials and other research and development activities. Because of the numerous risks and uncertainties

associated with the development and commercialization of our product candidates, we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our current and anticipated product development programs.

Our management’s discussion and analysis of our financial condition and results of operations is based on our unaudited interim condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these unaudited interim condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.

We incur substantial expenses associated with clinical trials. Accounting for clinical trials relating to activities performed by contract research organizations, or CROs, contract manufacturing organizations, or CMOs, and other external vendors requires management to exercise significant estimates in regard to the timing and accounting for these expenses. We estimate costs of research and development activities conducted by service providers, which include, the conduct of sponsored research, preclinical studies and contract manufacturing activities. The diverse nature of services being provided under CRO and other arrangements, the different compensation arrangements that exist for each type of service and the lack of timely information related to certain clinical activities complicates the estimation of accruals for services rendered by CROs, CMOs and other vendors in connection with clinical trials. We record the estimated costs of research and development activities based upon the estimated amount of services provided but not yet invoiced and include these costs in the accrued and other current liabilities or prepaid expenses on the balance sheets and within research and development expense on the condensed consolidated statements of operations. In estimating the duration of a clinical study, we evaluate the start-up, treatment and wrap-up periods, compensation arrangements and services rendered attributable to each clinical trial and fluctuations are regularly tested against payment plans and trial completion assumptions.

We estimate these costs based on factors such as estimates of the work completed and budget provided and in accordance with agreements established with our collaboration partners and third-party service providers. We make significant judgments and estimates in determining the accrued liabilities and prepaid expense balances in each reporting period. As actual costs become known, we adjust our accrued liabilities or prepaid expenses. We have not experienced any material differences between accrued costs and actual costs incurred since our inception.

Our expenses related to clinical trials are based on estimates of patient enrollment and related expenses at clinical investigator sites as well as estimates for the services received and efforts expended pursuant to contracts with multiple research institutions and CROs that may be used to conduct and manage clinical trials on our behalf. We generally accrue expenses related to clinical trials based on contracted amounts applied to the level of patient enrollment and activity. If timelines or contracts are modified based upon changes in the clinical trial protocol or scope of work to be performed, we modify our estimates of accrued expenses accordingly on a prospective basis.

We have issued stock-based compensation awards through the granting of stock options, which generally vest over a four-year period. We account for stock-based compensation in accordance with ASC 718, Compensation-Stock Compensation, or ASC 718. In accordance with ASC 718, compensation cost is measured at estimated fair value and is included as compensation expense over the vesting period during which service is provided in exchange for the award.

We use a Black-Scholes option pricing model to determine fair value of our stock options. The Black-Scholes option pricing model includes various assumptions, including the fair value of common shares, expected life of stock options, the expected volatility based on the historical volatility of a publicly traded set of peer companies and the expected risk-free interest rate based on the implied yield on a U.S. Treasury security. These assumptions reflect our best estimates, but they involve inherent uncertainties based on market conditions generally outside our control. As a result, if other assumptions had been used, stock-based compensation cost could have been materially impacted. Furthermore, if we use different assumptions for future grants, share-based compensation cost could be materially impacted in future periods.

The fair value of our awards in the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 has been estimated using Black-Scholes based on the following assumptions: expected term of ~~6.0~~6.1 years; expected volatility of ~~90.0%~~90.7%; risk-free interest rate of ~~1.7%~~3.8%; and no expectation of dividends. The fair value of our awards in the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 has been estimated using Black-Scholes based on the following assumptions: term of ~~6.0~~6.1 years; volatility of ~~90.5%~~90.25%; risk-free rate of ~~0.7%~~1.5%; and no expectation of dividends.

We will continue to use judgment in evaluating the assumptions utilized for our stock-based compensation expense calculations on a prospective basis. In addition to the assumptions used in the Black-Scholes model, the amount of stock-based compensation expense we recognize in our consolidated financial statements includes stock option forfeitures as they occurred. We recognize forfeitures as they occur, and the compensation expense is reversed in the period that the forfeiture occurs.

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating losses and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted statutory tax rates expected to apply to taxable income in the jurisdictions and years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Based on the level of historical operating results and projections for the taxable income for the future, we have determined that it is more likely than not that our net deferred tax assets will not be realized. Accordingly, we have recorded a full valuation allowance to reduce our net deferred tax assets.

We recognize tax benefits from uncertain tax positions only if (based on the technical merits of the position) it is more likely than not that the tax positions will be sustained on examination by the tax authority. The tax benefits recognized in the financial statements from such positions are measured based on the largest amount that is more than 50% likely to be realized upon ultimate settlement. We do not believe there will be any material changes in its unrecognized tax positions over the next 12 months. We have not incurred any interest or penalties. In the event we are assessed interest or penalties at some point in the future, they will be classified in the financial statements as a component of income tax expense.

We operate in multiple jurisdictions, both within and outside the United States, and may be subject to audits from various tax authorities. Management’s judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities, liabilities for uncertain tax positions, and any valuation allowance recorded against our net deferred tax assets. We will monitor the extent to which our deferred tax assets may be realized and adjust the valuation allowance accordingly.

Refer to Note 2, “Summary of Significant Accounting Policies,” in the accompanying notes to our consolidated financial statements for the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ appearing elsewhere in this Quarterly Report on Form 10-Q for a discussion of recent accounting pronouncements.

As an emerging growth company, or EGC, under the Jumpstart our Business Startups Act of 2012, or the JOBS Act, we may delay the adoption of certain accounting standards until such time as those standards apply to private companies. Other exemptions and reduced reporting requirements under the JOBS Act for EGCs include presentation of only two years of audited consolidated financial statements in a registration statement for an IPO, an exemption from the requirement to provide an auditor’s report on internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act, an exemption from any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation, and less extensive disclosure about our executive compensation arrangements.

In addition, the JOBS Act provides that an EGC can take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an EGC to delay the adoption of some accounting standards until those standards would otherwise apply to private companies. We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our condensed consolidated financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.

We may remain classified as an EGC until the end of the fiscal year following the fifth anniversary of the completion of our IPO, although if the market value of our common stock that is held by non-affiliates exceeds $700 million as of June 30 of any year before that time, or if we have annual gross revenues of ~~$1.07~~$1.235 billion or more in any fiscal year, we would cease to be an EGC as of December 31 of the applicable year. We also would cease to be an EGC if we issue more than $1.0 billion of non-convertible debt over a three-year period.

We are also a “smaller reporting company,” meaning that the market value of our shares held by non-affiliates is less than $700 million and our annual revenue was less than $100 million during the most recently completed fiscal year. We may continue to be a smaller reporting company if either (i) the market value of our shares held by non-affiliates is less than $250 million or (ii) our annual revenue was less than $100 million during the most recently completed fiscal year and the market value of our shares held by non-affiliates is less than $700 million. If we are a smaller reporting company at the time, we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company, we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2021~~2022 and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.

Our assets are primarily monetary, consisting of cash and cash equivalents. Because of their liquidity, these assets are not directly affected by inflation. Since we intend to retain and continue to use our equipment, furniture, fixtures and office equipment, computer hardware and software and leasehold improvements, we believe that the incremental inflation related to replacement costs of such items will not materially affect our operations. However, the rate of inflation affects our expense and use of our resources. We continue to monitor the impact of inflation on these costs in order to minimize its effects through productivity improvements and cost reductions. There can be no assurance, however, that our operating results will not be affected by inflation in the future.

We are a smaller reporting company as defined by Item 10 of Regulation S-K and are not required to provide the information otherwise required under this item.

Our management, with the participation of our principal executive officer and our principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of ~~September 30, 2022.~~March 31, 2023. Based on the evaluation of our disclosure controls and procedures as of ~~September 30, 2022,~~March 31, 2023, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective at the reasonable assurance level.

The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial and accounting officer, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and our management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

There has been no change in our internal control over financial reporting as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

We are not party to any material legal matters or claims. We may become party to legal matters and claims arising in the ordinary course of business. We cannot predict the outcome of any such legal matters or claims, and despite the potential outcomes, the existence thereof may have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2021,~~2022, which could materially affect our business, financial condition, or results of operations. There have been no material changes in or additions to the risk factors referred to in the previous sentence.

On November 2, 2020, we completed our IPO in which we issued and sold 6,342,207 shares of common stock, $0.00001 par value per share, including 675,540 shares of common stock sold pursuant to the underwriters’ exercise of their option to purchase additional shares of common stock. The offer and sale of the shares in the IPO was registered under the Securities Act pursuant to registration statements on Form S-1 (File No. 333-249369), which was filed with the SEC on October 7, 2020 and subsequently amended and declared effective on October 28, 2020, or the Prospectus. The underwriters of the offering were BofA Securities, Inc., SVB Leerink LLC, Credit Suisse Securities (USA) LLC and Kempen & Co U.S.A, Inc.

We raised $86.3 million in net proceeds after deducting underwriting discounts and commissions of $6.7 million and other offering expenses of $2.1 million payable by us. No underwriting discounts and commissions or offering expenses were paid directly or indirectly to any of our directors of officers (or their associates) or persons owning ten percent or more of any class of our equity securities or to any other affiliates.

As of ~~September 30, 2022, $10.9~~March 31, 2023, $19.8 million of the net proceeds from our IPO have been used for general working capital purposes, including the funding of our clinical development programs. We have invested the unused net proceeds from the offering in money market accounts and marketable debt securities. We expect to use the net proceeds from the offering described in our final prospectus filed pursuant to Rule 424(b)(4) under the Securities Act with the SEC on October 30, 2020, to fund our clinical development programs, including for GB0139, GB1211 and GB2064.

On November 8, 2022, we announced topline results from the GULLIVER-2 trial that showed statistically significant reductions in ALT (p<0.0005), AST (p<0.005) and GGT (p<0.05), with encouraging reductions in ALP (p<0.09), after 12 weeks of treatment. Patients treated with GB1211 also demonstrated improvement and consistent signs of activity across biochemical liver function markers and markers of target engagement, apoptosis, and fibrosis, including reductions in galectin-3 (p<0.05) and CK-18 (M65) (p<0.002). Bilirubin, albumin, international normalized ratio (INR) and other biochemical measurements remained stable. These findings suggest that GB1211 provided liver cell protection and improved liver status, further supporting clinical development in severe liver disease. Liver enzyme (AST, ALT, and GGT) reductions were observed after seven days of treatment and continued to decrease over the 12 weeks of treatment. These liver enzyme levels remained decreased compared to baseline two weeks after the study’s conclusion, indicating durable effects and a decrease in liver inflammation. The use of GB1211 in the GULLIVER-2 trial showed encouraging numerical improvements in liver health biomarkers after 12 weeks of therapy.Not Applicable.

GB1211 exhibited a favorable tolerability profile in Child-Pugh B decompensated liver cirrhosis patients in the GULLIVER-2 trial. Five of 15 patients on GB1211 and four of 15 patients on placebo reported nine and eight treatment-emergent adverse events (TEAEs), respectively. Three serious TEAEs were observed in one patient on GB1211, but were deemed to be unrelated to GB1211.

† This certification will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent specifically incorporated by reference into such filing.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


Delaware	37-1957007
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

Ole Maaloes Vej 3 DK-2200 Copenhagen N Denmark	N/A

75 State Street, Suite 100 Boston, MA 02109	02109
(Address of principal executive offices)	(Zip Code)


Title of each class	Trading Symbol(s)	Name of each exchange on which registered

Common Stock, par value $0.00001 per share	GLTO	The Nasdaq Global Select Market


		Page
	PART I. FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements (Unaudited)	4
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Operations and Comprehensive Loss	5
	Condensed Consolidated Statements of Changes in Stockholders’ Equity	6
	Condensed Consolidated Statements of Cash Flows	87
	Notes to Unaudited Interim Condensed Consolidated Financial Statements	98
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1615
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2726
Item 4.	Controls and Procedures	27

	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	28
Item 1A.	Risk Factors	28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28
Item 3.	Defaults Upon Senior Securities	28
Item 4.	Mine Safety Disclosures	28
Item 5.	Other Information	2928
Item 6.	Exhibits	3029
Signatures		3130


	September 30,		December 31,		March 31,		December 31,
	2022		2021		2023		2022
Contract research and development costs	$	732	$	5,569	$	1,938	$	1,450
Research and development tax credit receivable		724		1,682		804		792
Prepaid insurance costs		214		1,728		560		805
Value-added tax refund receivable		368		598		418		587
Other		77		334		161		52
Total prepaid expenses and other current assets	$	2,115	$	9,911	$	3,881	$	3,686


	September 30,		December 31,		March 31,		December 31,
	2022		2021		2023		2022
Contract research and development costs	$	4,544	$	1,575	$	8,394	$	6,145
Employee compensation costs		1,549		601		1,121		597
Operating lease liabilities, current		418		399		452		476
Other liabilities		440		438		546		539
Total accrued expenses and other current liabilities	$	6,951	$	3,013	$	10,513	$	7,757


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the Nine Months Ended	Common Stock				Additional Paid-In		Accumulated			Accumulated Other Comprehensive			Total Stockholders’
September 30, 2022	Shares		Amount		Capital		Deficit			Income (Loss)			Equity
Balance at December 31, 2021		25,261,832	$	—	$	273,655	$	(156,112	)	$	(320	)	$	117,223
Stock-based compensation expense		—		—		4,222		—			—			4,222
Issuance of common stock; net of issuance costs of $0.2 million		319,197		—		442		—			—			442
Other comprehensive loss, net		—		—		—		—			(1,605	)		(1,605	)
Net loss		—		—		—		(47,555	)		—			(47,555	)
Balance at September 30, 2022		25,581,029	$	—	$	278,319	$	(203,667	)	$	(1,925	)	$	72,727

For the Nine Months Ended	Common Stock				Additional Paid-In		Accumulated			Accumulated Other Comprehensive			Total Stockholders’
September 30, 2021	Shares		Amount		Capital		Deficit			Income (Loss)			Equity
Balance at December 31, 2020		25,261,832	$	—	$	269,175	$	(104,360	)	$	674		$	165,489
Stock-based compensation expense		—		—		3,237		—			—			3,237
Other comprehensive loss, net		—		—		—		—			(763	)		(763	)
Net loss		—		—		—		(38,343	)		—			(38,343	)
Balance at September 30, 2021		25,261,832	$	—	$	272,412	$	(142,703	)	$	(89	)	$	129,620


Exhibit Number		Description

31.1*		Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*†		Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH		Inline XBRL Taxonomy Extension Schema Document
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document
104		Cover Page Interactive Data File (embedded within the Inline XBRL document)


	Galecto, Inc.

Date: ~~November 8, 2022~~April 28, 2023	By:	/s/ Hans T. Schambye
		Hans T. Schambye, M.D., Ph.D.
		President, Chief Executive Officer and Director (Principal Executive Officer)

Date: ~~November 8, 2022~~April 28, 2023	By:	/s/ Jonathan Freve
		Jonathan Freve
		Chief Financial Officer (Principal Financial and Accounting Officer)

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company