5 Short-Term Catalysts Make Galena Biopharma A Long-Term Buy

| About: Galena Biopharma, (GALE)

If you look at the performance of stocks over any 52-week period, you'll notice that small and midcap biotechs almost always dominate the list of best performing stocks. In the last 12 months, it has been Acadia, Insys, Keryx, Celldex, etc. that have been the market luminaries in terms of performance. However, for the most part these contenders came from "left field", as very few would've predicted the performance of Insys, Keryx, Aegerion, or Alynylam in the last year. Therein trying to find the next 300% plus performer can be difficult if not impossible. Yet, when we look at the industry and the looming catalysts, Galena Biopharma (NASDAQ:GALE) has the earmarks of a company on the verge of being one of next year's top performers.

Setting the Stage

Galena Biopharma has seen gains of 45% in 2013, so it has not lagged in the market by any measure. Hitherto, 2013 has surprisingly been a period of consolidation following an incredible year in 2012 where GALE saw gains of nearly 300%. My impression is that the pieces are now in place for GALE to return to market-leading form in 2014, after having a year in 2013 that more or less set the stage for catalysts in the year ahead.

NeuVax: A Catalyst Then & Now

Let's start with the company's lead product NeuVax. In 2012, it was news and headlines regarding this product that helped to vivify large gains. The product is being tested in a Phase 3 trial to prevent breast cancer recurrence. NeuVax stimulates T cells to target cancer cells expressing HER2. Galena has ascertained that NeuVax yields top-notch results in patients expressing HER2 +1,+2. This is not unlike the gallant endeavor that Roche has set upon with its Herceptin, aiming to target HER2+ patients--though Galena's golden child capitalizes upon the 50%-75% target group not eligible for Herceptin, the low to intermediate expressors, also known as HER-2 Negative patients.

In patients expressing these +1,+2 levels of HER2, NeuVax reported a 78.4% reduction in the recurrence of breast cancer in its final 60-month landmark data. It was this data coupled with the enrollment of its new 700 patient Phase 3 trial that kept investors confident in 2012. Also, subsequent to this data Galena inked a deal with Teva (NYSE:TEVA) in 2012 and another collaboration with Germany's Leica Biosystems for the use of its Bond Oracle HER2 IHC System, which will help Galena select patients for its Phase 3 trial.

Not to mention, in 2012 Galena also provided further details of a trial with Roche's Herceptin, using NeuVax as a combination treatment. Galena also presented data on NeuVax as a booster, which revealed that administering boosters increased the long-term benefit of NeuVax. Thusly, 2012 was a fantastic year; 2013 has largely been a waiting year with fewer catalysts. However, in 2014 this will not be the case: The company will soon complete enrollment and will then present interim analysis on 70 events for NeuVax's Phase 3 trial. This interim analysis will be the first glance at the study since enrollment began and will likely jumpstart the enthusiasm for the end of the study.

True success for NeuVax in its Phase 3 trial would be proof positive results in the remaining 50%-75% of patients who do not qualify for Herceptin. Seeing as how Herceptin is the best-selling commercial breast-cancer drug in the world (with over $6 billion in annual sales), you can do the math to conclude with ease that NeuVax can be a landmark success. Furthermore, when you factor in Galena's $230 million market cap you can see that gains will be robust if data is encouraging. By using Phase 2 data as a guide, one can deduce that NeuVax will be successful in Phase 3 testing. At the very least interim data will likely be positive, putting its mega sales potential in perspective and moving the stock significantly higher in 2014.

Four Additional Catalysts for 2014

NeuVax is the heart and soul of Galena, but the company also has other valuable elements that investors may not be considering. Combined, this gives Galena a year of catalysts that could drive its price to new peaks.

The Teva partnership in 2012 was a key catalyst, but Galena is probably still seeking a U.S. partner. Given big pharma's interest in cancer fighting therapeutics-- and the success of Herceptin-- there is reason to believe that if interim data shows anything substantial, Galena could likely see either a large partnership or be acquired in 2014. While partnerships and acquisitions are unpredictable, I think it is a situation to observe and assess in 2014 given the Teva connection.

If you need more reasons that Galena might be a leading market performer in 2014, then remember that there is no financial overhang. Back in early September, Galena raised over $37 million in cash, which negatively affected the stock, but brought its total cash position to more than $60 million. Over the last year, Galena has produced operating cash flow of negative $21.79 million, meaning that Galena now has more than enough to fund its next two years of operations. This removes any looming peril of future financing in 2014, allowing the stock to fly without fear.

Although it has been covered thoroughly, it's worth mentioning that Galena's FDA approved product Abstral, for breakthrough cancer pain, has high upside and no real downside associated with its launch. In many ways, it is Abstral that makes me think that Galena could be one of the best performing stocks of 2014.

It is remarkably similar to Insys Therapeutics' pain drug, Subsys. The key difference is that Abstral dissolves under the tongue with a faster uptake while Subsys is administered as a spray. As I mentioned at the beginning of this article, Insys has been one of the best performing stocks of 2013 and that performance is tied to the growth of Subsys. Zack's Grant Zeng is bullish and provides a nice outlook of the estimates and market potential for Abstral. The numbers that stand out to me is that Abstral had full-year sales of $54 million in Europe, including 40% growth. Yet, Galena is guiding for 10%-15% peak penetration of the $400 million U.S. fentanyl market. With Subsys generating revenue of $18.5 million in its last quarter, and 90% quarter-over-quarter growth, it seems that Galena's estimates are too low. If conservative, Abstral could be a big catalyst in 2014, like Subsys was for Insys.

The final catalyst is regarding an earlier stage product called Folate Binding Protein, or E39. This is a vaccine treating both ovarian cancer and endometrial adenocarcinomas in a Phase 1/2a study that began in February of 2012 (which, might I add, was a catalyst in 2012). Correspondingly, Galena will present initial data either late this year or early next year. Right now, it is difficult to determine how the vaccine will perform, but investors will most certainly pay attention as the two study arms of the trial are near identical in age, grade, stage, etc. Hence, a 59.3% reduction in recurrence in the vaccinated group versus the control group were strong initial results, but investors will no doubt respond to the larger data provided at this interim look.

Conclusion

To summarize: Galena had data, partnerships, and the initiations of new trials in 2012. These catalysts elevated the stock price. In 2013, Galena raised money, enrolled patients, and investors now anticipate future catalysts. The different events in the past two years can be observed, but in 2014 Galena will present on the stage that was set in 2012, and also launch products while removing the threat of financing that existed previously. As a deduction, 2014 could be a special year for Galena. And at $2.20, it looks to be presenting a great investment opportunity.

Disclosure: I am long GALE. 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.