Will Galena's Initiatives Translate Into Positive Returns?

Sep.28.13 | About: Galena Biopharma, (GALE)

Galena (GALE) acquired the commercial rights of FDA approved "Abstral" for the U.S market. The company has already started the commercialization effort for Abstral, and it expects to launch the drug in the fourth quarter of 2013. Additionally, the FDA has allowed the phase III trial for Galena's breast cancer vaccine, "NeuVax". Let's see what lies ahead for Galena in light of all these positive developments.

Acquired the commercial rights for "Abstral"

Galena acquired the U.S. commercial rights for Abstral from Sweden based Orexo AB in March 2013. The deal finalized for $10 million as an initial payment, $5 million in the first 12 months from closing the deal, a low double-digit royalty, and a one-time milestone payment based on acquisition agreement.

Abstral is a transmucosal immediate release fentanyl, or TIRF, used to manage breakthrough pain for adults with cancer. Currently, Abstral is a market leader in Europe; it generated revenue of $54 million in 2012, for ProStrakan/Kyowa Hakko Kirin, Orexo AB's European partners. The current U.S. TRIF market leader is "Fentora" by Teva Pharmaceutical (TEVA) with approximately 40% market share. According to Zack's the U.S. TIRF market has reached $400 million in 2012 and expected to grow at 3% year over year.

Acquiring Abstral is a strategic decision for Galena. According to Dr. Mark J. Ahn, CEO, Galena "Abstral diversifies and strengthens our pipeline, gives us an FDA-approved product that will become a cornerstone of our commercial strategy and will generate revenues in 2014 to support the development of our pipeline,"

Competitive advantage

Abstral is a quickly dissolving tablet that is placed under the tongue. The advantage is that the active ingredient is absorbed into the body through the mucous membrane, and therefore it starts acting fast. Also, the tablet is easy to take, store, and handle for patients. Abstral's fast acting mechanism can be a competitive advantage for Galena, and we expect Abstral to be a significant challenge for Fentora, which works similarly.

Marketing is the key

Galena will launch Abstral in the United States in the fourth quarter of 2013. We think the company must commercialize the drug aggressively. It started Abstral's sales and marketing campaign with the PAINWeek conference that took place during Sept. 4 to 7, 2013 in Las Vegas. PAINWeek witnessed over 1,800 attendees this year; it is one of the nation's largest pain conferences. Galena also started RELIEF, a post-marketing trial for Abstral, to evaluate its impact on improving quality of life for patients with breakthrough pain. The company is expecting to enroll 2,500 patients at multiple centers to deliver 30 day treatment for each patient. By demonstrating the ease and effectiveness of the product, the trial program will help the company convert the trial patients into paid consumers. However, the trial will put additional pressure on Galena's operating profits. We believe company's performance in the coming quarters highly depends on the commercial success of Abstral.

Pipeline developments

Currently NeuVax, Galena's breast cancer vaccine, is in phase III trials. NeuVax is a vaccine to prevent or delay breast cancer recurrence after standard care treatments, which are chemotherapy, hormone therapy, and radiation therapy. After successful completion of phase II trials, the FDA granted NeuVax a Special Protocol Assessment, or SPA, for its PRESENT study in phase III trials. PRESENT stands for Prevention of Recurrence in Early-Stage, Node-Positive Breast Cancer with Low to Intermediate HER2 Expression with NeuVax Treatment. As the name suggests, NeuVax is targeted for a particular subset of breast cancer patients, only those who are in early stage node-positive breast cancer and found with HER2 low to intermediate protein. Node-positive means the cancer cell is found in the lymph node in the armpit area, and there are high chances of cancer returning and spreading. HER2 is a protein that is found on the surface of normal breast cells, which can be responsible for growth of cancer cell post standard cancer treatment.

According to National Cancer Institute estimates, 232,340 new patients will be diagnosed with breast cancer in the U.S. in 2013. Out of these, 75% are expected to test positive for HER2. It is estimated that about 60% of HER2 positive patients will undergo the standard care treatment, creating a huge market for the vaccine.

On August 21, 2013, Galena received an intention to grant the Pharmaceutical Use Patent for NeuVax from the European Patent Office. The patent will provide NeuVax protection until April 2028. The new patent will add to the already issued patents for NeuVax in the U.S. and Mexico that also expire in 2028. The use patents will provide the company protection for the use of NeuVax for the treatment of breast cancer recurrence in patients.

We expect Verastem's (VSTM) new treatment to be meaningful competition for NeuVax. Verastem is in the development stage for its treatment of cancer tumor recurrence after standard care. At present there is no drug on the market that can prevent the recurrence of breast cancer, which creates a huge opportunity for NeuVax upon receiving approval.

The recent public offering

On September 13, 2013, Galena announced an underwritten public offering of 17,500,000 plus option of over allotment for underwriters to purchase up to 2,625,000 shares of common stock at $2 per unit. The offering has resulted in gross proceeds of $37.6 million. The company intends to use these proceeds for commercialization of Abstral and pipeline development. This offering had a dilutive impact of existing shareholders value; the stock price declined on the day of offering. However, the company has strong fundamentals and we believe there is enough room for the stock price to appreciate.

Conclusion

Galena experienced many positive developments in the past few quarters, including acquiring an FDA approved drug and advancement of its clinical trials. With the acquisition of Abstral, Galena will become a commercial organization. During the commercialization of Abstral, Galena will get a chance to build a relationship in the market that is beneficial for promoting its promising pipeline.

Now, the most legitimate question in the mind of investors is what is the outlook of Galena as an investment? We believe that by acquiring the FDA approved Abstral and the market potential of NeuVax, the outlook for Galena is bright, and the company will outperform in the foreseeable future.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Fusion Research is a team of equity analysts. This article was written by Satya Prakash, one of our research analysts. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.