Non-alcoholic fatty liver disease afflicts some nine to 15 million Americans. Left unchecked, it can devolve into fibrosis, cirrhosis, liver cancer, and liver failure. Galectin Therapeutics — a young, NASDAQ-traded company — is fighting this ailment with GR-MD-02, a new drug with encouraging Phase I clinical-trial results.
But Galectin's progress comes amid frequent migraines, thanks to federal regulations. Galectin executive chairman James C. Czirr blames "all three of the bad boys" — Sarbanes-Oxley, Dodd-Frank, and the USA Patriot Act's financial-control provisions.
Czirr counts eight people in Galectin's suburban-Atlanta headquarters. They share one corporate checkbook. Regardless, Sarbanes-Oxley's Section 404 demands that Galectin produce "an internal control report…for establishing and maintaining an adequate internal control structure and procedures for financial reporting." Galectin, thus, must develop a manual to trace how each bill enters its office, undergoes review, and then gets paid.
"Really?" Czirr asks in bewilderment. "We have to spend $50,000 to show how an invoice gets from Beth's desk to Jack's, and then Jack writes a check?"
But wait. It gets worse.
"The government wants the processing of invoices and payments to be checked by multiple employees," Czirr says. "We would have to hire more people to create this kind of redundancy... Then we have to hire an outside auditor to come in randomly and test these 'internal controls.'"
Auditors already swarm Galectin like biblical locusts. "Every quarter, four auditors come into our office," Czirr says. After sidetracking Galectin's staff with document requests in advance, these auditors "spend three to four days there each quarter, looking at financials." These 48 to 64 annual man-days are like an employee dedicating 10 to 13 work weeks inspecting paperwork rather than injecting patients with potential cures.
Leaping through flaming hoops bears a high clinical cost, too.
"We did a test last year that shows that Galectin's drug can be used to treat lung diseases," Czirr says. "That test cost about $100,000. We could have done that test a year earlier, if we didn't chew up scarce funds on things like this."
Also, uninvited attorneys can collect money for acting like backseat drivers. Without being asked, one outside lawyer told Galectin about some jot or tittle that it might have followed when Czirr purchased company stock. This attorney then billed Galectin $1,500 for his unsolicited legal advice. This is like telling a stranger that his suit and tie clash — then invoicing him for "fashion consulting."
Dr. Peter Traber, Galectin's chief medical officer, finds this red tape distracting. "I am busy doing medical research," Traber says in frustration. "I have to stop what I am doing, take care of these things, sit through conference calls, and so on."
These new rules have not changed the old standard: fraudulent statements are illegal. That basic principle still applies, only now with forms and procedures encrusting it like barnacles on a yacht.
Page two of Galectin's introductory presentation pours ice water over any perceived guarantee that it ever will succeed. Rather than promise potions that yield vaults of cash, Galectin devotes 542 words to tell investors how their money might get pulverized.
"Our clinical trials may not begin or produce positive results in a timely fashion, if at all," Galectin's prospectus discloses. "Estimates regarding the potential benefits of our drugs and the potential market for any of our drugs may be inaccurate," it continues. "We may not be successful in achieving revenues from any such drugs…Our ongoing discussions with other companies may not lead to partnering opportunities."
This disclaimer — up front and in black and white — should be warning enough that investors should proceed with caution. Washington should free Galectin and other companies, simply to state such caveats as clearly as those terrifying side-effects warnings that accompany drug ads. In turn, let investors withhold or unleash their capital according to their risk tolerance. Companies like Galectin then could manage Bunsen burners and business plans rather than wrestle with lawyers and bureaucrats.
Deroy Murdock is a Fox News contributor and a media fellow with the Hoover Institution on War, Revolution and Peace at Stanford University.