'The Market Gets it Wrong, Again'; Analyst Raises Target Price on Biotech
Research Report


Ed Arce, an analyst with H.C. Wainwright & Co., explained the positive elements of this drug developer's recently released clinical trial data and why they did not warrant the market reaction they got.

In a Dec. 7 research note, Arce called the market's response to Galectin Therapeutics Inc.'s (GALT:NASDAQ) Phase 2b NASH-CX trial results shortsighted, specifically the 37.9% drop in the biotech's share price on the news. The study aimed to evaluate the safety and efficacy of Galectin's proprietary compound GR-MD-02 (GR2) in patients with nonalcoholic steatohepatitis (NASH) cirrhosis.

Just because the study results "featured a miss on the overall primary efficacy endpoint, a discussion of positive data on a subset analysis (in a group defined ex post facto) and a lack of dose response" doesn't mean they're invaluable, argued Arce. The share price fall "reflects, we believe, the inability of many biotech investors to recognize any value from a trial result that does not myopically present as a 'clean win,'" he added.

H.C. Wainwright's takeaway from NASH-CX is that "this study is a landmark for the treatment of cirrhosis." First, the trial "appears to offer the first ever pharmacological benefit in NASH cirrhosis (across several parameters)," Arce wrote. Second, it "defines a highly clinically significant and easily identifiable patient subpopulation for treatment: cirrhotics with mild portal hypertension, in other words, those without esophageal varices."

Arce pointed out that the market reacted similarly in the past to two other recent events in the NASH space. One was with Genfit SA's (GNFT:Euronext) Phase 2 GOLDEN-505 study after which an analysis on a patient subset led to the ongoing Phase 3 RESOLVE-IT trial. The other was Allergan Inc. (AGN:NYSE) finding value in Tobira Therapeutics Inc.'s (TBRA:NASDAQ) drug, which, in the CENTAUR study, missed its primary endpoint. The analyst wrote, "We remind investors that NASH is a complex, multi-factorial continuum of diseases for which there are no approved therapies precisely because our scientific understanding of the underlying mechanisms are only now beginning to reveal appropriate pharmacological approaches."

The data from Galectin's trial that are "positive, statistically significant and clinically meaningful," Arce detailed, are:

1. The study met the primary endpoint of reducing the hepatic venous pressure gradient (HVPG) among the subset of patients (~50%) without varices. HPVG was reduced by about 21%.

2. The study reached a secondary endpoint in the overall patient population by improving liver cell death, "a histologic hallmark of NASH."

3. In patients who started the trial without varices, development of new varices was reduced. Decrease of this "significant clinical event of disease progression" represents another secondary endpoint.

4. Patients without varices also experienced a ≥ 20% HVPG reduction.

These trial results, Arce indicated, are "very encouraging and highly supportive of Phase 3 development, in which several potential registration endpoints may be pursued." Going forward, Galectin has "multiple paths likely available" for such a program.

As such, H.C. Wainwright has increased its probability of success estimate for GR2 to 45% from 22%, said Arce. It also raised its price target to $10 per share from $6 per share and maintains its Buy rating on Galectin Therapeutics. The company's stock is currently trading at around $1.54 per share.

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