On Friday December 7th, shares of Galena Biopharma (GALE) traded higher by more than 10%, touching highs of $2.40 in premarket trading. The large pop was nothing new for the Phase 3 biotechnology company, as it continued to be one of the top performers of 2012. However, in what seemed like the blink of an eye, the stock began to fall, and has continued over a two-day period to a low of $1.85. Now, the stock has balanced, but the profit-taking itself has sparked a lot of confusion, as analysts continue to reiterate that key clinical data was positive yet investors remain uncertain of their next step.
The week of December 3rd was transformational for the biotechnology company. First it announced a deal with Teva Pharmaceuticals (TEVA); then it announced a partnership with Leica Biosystems; and finally it presented superior clinical data to anything else we've seen in the prevention of breast cancer recurrence. As a result of these developments, there were at least five firms that reiterated their outlook, initiated coverage, or simply presented their opinion on the price movement. With this in mind, let's take a look at what the analysts had to say about the developments.
December 4th-- Dawson James reiterated its price target of $3.00 with a "Market Outperform" rating following the company's partnership with Teva. The firm noted, "GALE has secured an important portal of entry in Israel, with Teva assuming regulatory registration, local development and commercialization responsibilities in the region." The firm also noted that it expects interim Phase 3 data during the second half of 2013, along with the initiation of a prostate cancer trial using NeuVax.
December 6th-- Roth Capital Partners reiterated their "buy" rating and $5.00 price target following the Teva deal and the Leica partnership. Leica's "Bond Oracle HER2 IHC System" will be used to screen patients who meet the criteria of Galena's PRESENT Phase 3 trial. The firm called the news "another positive chess move" and listed its upcoming catalysts including the belief that the Teva partnership is the first of many.
MLV & Co. presented a very detailed case on December 6th following both the news of Teva and Leica partnerships, giving a price target of $6.00, a "buy" rating, and defending its position well. MLV noted the Leica deal as removing the potential for human error, allowing the two to work together in identifying patients with HER levels less than 2+ that might benefit from treatment. In addition, MLV discusses the Teva partnership, saying it signals a strategy of adding global commercial value and places Galena in a stronger negotiating position for future partnerships and/or acquisition discussions.
In a Bloomberg interview on December 7th, following the company's data and the stock's decline, MLV & Co. analyst, Megan McCloskey, reminded investors that the data results were "phenomenal". Furthermore, Dawson James Securities analyst, Michael King, stated (in the same Bloomberg article) that "NeuVax had an exceptionally favorable safety profile and an impressive reduction in the risk of disease recurrence". The comments by both analysts show that, despite the stock's movement, it is not a reflection of data. In addition to taking part in a Bloomberg interview, Dawson James also provided a company update following Galena's announcement of data and its price movement on Friday.
Dawson James explained that final data included an exceptionally favorable safety profile and an impressive reduction in the risk of the disease. An important question for investors is whether the booster shots aid in preventing recurrence and, according to Dawson James, the booster shots were affective at improving the results. This is important because boosters will be used in the Phase 3 trial, while it was sparingly used in the Phase 2 trial. Also, Cantor reiterated its price target of $4.00 citing the benefits of the Teva partnership, including the elimination of costs and the progress of its clinical study. And finally, Zacks gave a bullish outlook in its assessment of the company's data, saying Galena is on track to advance NeuVax, and might be the best read of all the assessments of data.
Valuation and Bullish Price Targets
Galena Biopharma is currently trading with a market cap of $128 million, which represents a $32 million loss since the company announced data. Aside from the short-term volatility and its $1.90 price, most analysts are predicting a price anywhere between $3.00 and $6.00; but how does it get there?
If Galena was to reach the top target of $6.00, it would be valued over $400 million. Not bad for a company that began the year as a $35 million company. However, this is not an odd occurrence in this sector. There are countless companies, such as Inhibitex, Sarepta Therapeutics (SRPT), and Pharmacyclics (PCYC), that all saw similar valuations and rose with even larger gains in a shorter period of time. Therefore, Galena's 2012 movement and its expected 2013 gains are not unheard of and are obviously sought among the investment community.
The company's large increase in value and its bullish targets have come in a similar fashion as the three referenced companies above; as we've received additional data and now better understand the product and its design in the Phase 3 study. In the Phase 2 study, NeuVax established statistical significance at 36 months (Phase 3's landmark data), demonstrated far superior results with node-positive patients (those being tested in Phase 3), and when combined with boosters at 60-months, it demonstrated a recurrence rate of just 5.6% compared to a 25.9% rate for the control group.
All together the data indicates a strong chance of success in its Phase 3 trial and a company worth far more than $128 million. In the large trial, all patients will be node-positive rather than a combination with node-negative, which occurred in the Phase 2 study. All patients will be optimally dosed and will have booster shots; meanwhile only a quarter of the patients were optimally dosed in Phase 2 studies. When taking these facts into consideration it's not hard to see how analysts could value the company at $400 million.
If the product is successful, Galena could return sales in the billions; with the key word being "if". In the second half of 2013 the company will announce interim results and, if successful, it is likely that Galena could be instantly valued to reflect potential sales. Thus, bullish analyst targets are based upon their belief that clinical results will be favorable. This in part is due to the difference of design compared to the Phase 2 study.
Galena has been able to take all of the strengths from its Phase 2 trial and then build a Phase 3 study around those strengths. As a result, analysts believe these changes, combined with optimally-dosed patients, will yield better results. If so, a $400 million market cap would be attainable. And if the company can in fact build on its recent Teva partnership, and add more partnerships (now that it has final phase 2 data), then the stock might just exceed even the most bullish of expectations.
So what does all of this mean? We have a stock that has traded lower, but one that analysts are also screaming is a "buy". Perhaps investors don't see the short-term upside, now that final data has been announced? However, as pointed out in a recent Seeking Alpha article, Galena can now focus on finding partnerships and other licensing agreements to become a more efficient and cost-effective company. I agree with the assessment, and the assessment of the analysts, who believe the Teva partnership was the first of many. And now with one partnership and unmatched clinical data, the company begins to look more attractive than at any point over the last year.
Regardless of how you assess Galena Biopharma, it is hard to deny the data. After a while, the outlooks and the statistics start to run together, becoming difficult to assess. Therefore, I think a good conclusion to Galena's last week and its future is that the Teva partnership will cut costs and should open new doors; the Leica agreement should allow for a more efficient selection process, and the data from its final analysis was very strong as the company continues to innovate and move forward. As a result, with its recent pullback, the company is presenting value, with little risk and a high reward.