Headquartered in Copenhagen, Denmark, clinical-stage biotechnology company Galecto, Inc. (GLTO) is known for its lead candidate GB0139, which is being developed for the treatment of severe fibrotic lung diseases such as idiopathic pulmonary fibrosis (IPF). Also, in April, the company  published a paper in Gastric Cancer that highlighted the key role galectin 3 plays in gastric cancer.

However, all GLTO’s  candidates, including GB2064 and GB1211, are in early stages of development. Its stock has declined by nearly 59% over the past six months and 30.6% over the past three months to close yesterday’s trading session at $5.77. But its 18.7% returns over the past month indicate investors’ optimism about GLTO’s progress on the pipeline candidates.

Overall, investors’ interest in the biotech space has been growing, as evidenced by the iShares Nasdaq Biotechnology ETF’s (IBB) 5.8% returns over the past month compared to the SPDR S&P 500 Trust ETF’s (SPY) 1.3% gains. However, GLTO may not be able to continue rallying given its weak financials.

Click here to checkout our Healthcare Sector Report for 2021

Here are the factors that we think could influence GLTO’s performance in the coming months:

Industry Tailwinds

The biotech industry has grown significantly over the past few years thanks to innovation and development associated with molecular biology, which has been driving  advancements in the genomics and metabolomics space, among others. According to Global Market Insights, the biotechnology market is expected to grow at a CAGR of more than 9.4% between 2021 -2027. A rising, global incidence of chronic health ailments   is further expected to boost the development and discovery of drugs. So, we think GLTO should benefit from the industry tailwinds.

Drug Candidates are  Still in Developmental Stage

GB0139 is currently in Phase 2b of its  development process. However, based on  a review of GLTO’s Phase 2b GALACTIC-1 study of GB0139on March 15, the Data Safety Monitoring Board (DSMB) recommended the discontinuation of dosing and enrolling patients in the 10 mg arm and  patients in the 3 mg arm who are receiving combination treatment with the currently approved treatments of IPF, nintedanib and pirfenidone. Furthermore,  its GB2064 and GB1211 are in Phase 1/2a stage.

Weak Financials

GLTO’s research and development expenses increased 112.2% year-over-year to $9.99 million for the first quarter, ended March 31, 2021. This increase can be attributed primarily  to  increased clinical spending associated with the GALACTIC-1 study. The company’s loss from operations was  $13.55 million, up 132.5% year-over-year. GLTO’s net loss for the quarter increased 135.2% year-over-year to $13.35 million.

POWR Ratings Don’t Indicate Sufficient  Upside

GLTO has an overall C rating, which equates to Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight different categories. Among  these categories, GLTO has a C grade for Quality, which is in sync with its negative values for both trailing-12-month ROCE and ROTA.

The stock also has a C grade for Growth, consistent with analysts’ expectations that its EPS will remain negative in the coming quarters.

GLTO has a D grade for Momentum. This is justified given its 53.9% loss year-to-date and 30.6% decline over the past three months.

In addition to the POWR Ratings grades we’ve just highlighted, one  can see GLTO’s ratings for Value, Stability and Sentiment here.

GLTO is ranked #110 of 484 stocks in the Biotech industry.

Better than GLTO: Click here to access 30 top-rated stocks in the same industry.

Bottom Line

While GLTO has been making some progress on developing treatments for  fibrosis, cancer and other related diseases, all its candidates are still in their developmental stage. Also, its financials are unimpressive. So, we think it’s wise to wait before buying the stock. 

Click here to checkout our Healthcare Sector Report for 2021

GLTO shares were trading at $5.47 per share on Thursday morning, down $0.30 (-5.20%). Year-to-date, GLTO has declined -56.27%, versus a 13.06% rise in the benchmark S&P 500 index during the same period.

About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...

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