The bull case on GALT is simply stated in this manner:
1.) The FDA has allowed them to go to Phase three on the strength of a portion of the data from their Phase II test where the top line was missed. But about half the population of patients (those without esophegal varices) did respond well to the drug and that is what the Phase III study will test.
2.) They are the first late stage NASH drug to go ahead to phase III. The competitors in this portion of the NASH market are about 2 years behind them.
3.) Due to the large size of the NASH market and GALT's likely getting a drug on the market first, big pharma likely is interested in partnering or buying the company.
4.) The company hired advisors to shop itself to big pharma and BMY has already indicated interest in buying or partnering in the NASH arena.
5.) They also have a cancer indication in phase I tests that appears to supercharge Keytruda. Further test results on this should be out soon.
6.) The market cap of the company is tiny and any deal done with big pharma could yield a stock price much, much higher than the current one.
7.) The chairmen of the board is a billionaire who gave the company some really attractive terms for financing earlier this year so it has plenty of financial room for maneuver.
8.) The company instituted Transaction bonuses that end at the end of 2018. If a transaction (partnership or sale of the company) is attained, key management personnel can get paid a bonus equal to 3X their annual compensation.
The bear case is simply stated as follows:
1.) The CEO quit in early June, right after the new chairman and vice chairman of the board seemingly took charge of selling the company. He is a notable scientist in this field and his loss has to be felt at several levels. And why in the world did he quit? What does he know that we wish we knew?
2.) There has been a lot of insider selling related to 12b-5 plans that allow insiders to sell at predetermined levels despite any insider trading restrictions that might normally keep them from selling. These sales were put in place int he late February/early March time frame and triggered for different executives and board members during June as the share price ran higher ont he back of transaction bonus and financial advisor hiring news. Not all insiders put such plans in place and neither the new billionaire chairman or the vice chairman have sold any shares. The vice chairman actually bought shares back in February. But for those that did sell, why were they willing to sell at these prices when they set these plans up earlier this year? While the FDA had not given the go ahead to go to Phase III yet, there really was not any other noteworthy info back then that we do not have right now.
3.) Last week the CFO sold half of his remaining holdings for nearly $2 million. These were normal sales not ones predetermined at certain price levels back in late February/early March via 12b-5 plans. Why would he sell if he thought an attractive transaction was a high likelihood?
4.) Will the ex CEO exercise his options on about 1.7 million shares and sell them prior to the end of the 90 days he has after leaving the company to do so?
5.) Will the fact that GALT is furthest along in the FDA testing process and that it is treating NASH after it is actually a real medical issue for a patient rather than before like most of the other NASH companies, make it more attractive to big pharma or are there other aspects to the medical side of the equation that make GALT's approach less attractive relative to the competition.
