Not even two weeks after announcing final data for its Phase 2 trial of NeuVax to treat breast cancer, Galena Biopharma (GALE) is removing the number one concern expressed by investors, a public offering of common stock and warrants. However, financing is the nature of the beast, and despite the continuous feed of noteworthy news on behalf of the company and a very attractive valuation, it was pushed lower in after hours trading yesterday following the news of a public offering.
Maybe now with the removal of financial concerns, investors and the company can progress without the fear of needing additional cash. By the time Galena runs out of money next time, it will be a completely different company/stock. It will be a stock that has priced in the interim data from its Phase 3 trial, a stock that has had a great 2012 and will be entering 2013 with a stronger balance sheet and solid data in hand.
On December 7 Galena Biopharma presented final landmark 60-month results from NeuVax's Phase 2 trials. The results from the study were for both node-positive and node-negative patients. However, the node-positive study is the only patient group that is relevant, as these are the only patients who will be included in the Phase 3 trial. In the study, the recurrence of breast cancer was greatly reduced; as 25.9% of patients who received standard treatment experienced recurrence, compared to only 5.6% of those who received NeuVax.
The final results from the company's Phase 2 trial show that NeuVax had a meaningful impact on the outcome of the patients in the study. Only 5.6% of patients treated with the vaccine saw their breast cancer recur, with much of these solid results due to the booster dosages included in the study. This brings me to another point made by analysts and those who follow the company: Aside from treating only node-positive patients, those patients treated with NeuVax will receive booster injections, meanwhile very few received this treatment in the Phase 2 trial.
The final results from Galena's Phase 2 trial were very positive. But what's strange is that Galena actually fell after the news, it traded lower after announcing this data. There were some investors who suggested that the results were already priced into the stock, due to the announcements earlier in the week regarding partnerships with both Teva Pharmaceuticals (TEVA) and Leica Biosystems. Although, the more consistent reason that Galena did not trade higher was because investors were expecting an offering, and in my opinion, the expectation of an offering is what kept the stock from trading higher. Now that the offering has been announced there does not appear to be any further risks in the foreseeable future.
It was never a secret that Galena Biopharma would need cash to finish enrollment and to complete its Phase 3 trial. The company has $15,420,000 on its balance sheet as of its most recent quarter. The current offering will strengthen the balance sheet by adding cash, thus, giving Galena additional flexibility and the ability to negotiate from a position of strength during any potential partnership talks.
The details are still yet to be known. We don't know how many shares, the price, or any other detail regarding the offer. All we know is that a high quality firm, Piper Jaffray, is doing the sole book-running, and that the money raised will likely be more than enough to complete Phase 3 enrollment and carry the company into interim analysis. At that point we will know a lot more about the company. If interim analysis is good then my guess is that investors won't necessarily mind giving the company money to finish its clinical trials.
If interim data is promising then the stock will be much higher, the offering will be less dilutive on the stock, and it is possible that no additional financing will be necessary. In after hours yesterday, Galena traded at $1.50, meaning it should begin trading on Tuesday with a market cap of just $100 million. This is quite conservative for a company that just announced such a large advantage over standard of care in final analysis and added two partnerships that will save the company money throughout the remainder of its trial.
There is no way to be certain of how investors will react to the news long-term of Galena's public offering, but my belief is that it will be viewed as an eliminated risk. Most believe that if Galena would have had more cash on its balance sheet at the end of November that it would be trading at 52-week highs because of its announcements during the week of December 3. However, investors might have kept the risk of financing in their thoughts. Now, after the completion of the public offering, the company can turn back its attention towards NeuVax and look to add more partners to remove the costs associated with the trial. By this time next year, if interim data shows NeuVax to be effective, investors will see one or more of three things: more partnerships, a buyout, or a $5 stock at the least. One thing investors won't worry about is the threat or reality of financing.