Last year I bought a handful of Galena Biopharma (GALE) shares simply to keep tabs on the stock. I liked the concept behind the company's flagship breast cancer treatment NeuVax, but major clinical milestones were obviously years away. Oddly enough, I also decided to place an automatic buy order for a much larger chunk of shares at $3.00 at the time of my original purchase. My idea was that if the stock started to rally for reasons unknown to me at the time, $3.00 would probably be a good entry point. And honestly, I promptly forgot about the order, and even failed to keep a close eye on Galena, per my original intent.
Well, sometimes you get lucky. When I got back from vacation last week, I opened my email to a trade alert staring me in the face. Frankly I have no idea why I placed such a large order previously, but I wasn't thrilled upon learning that the trade had been executed. At first, I came within a hair's breadth of selling the position simply because I didn't know why the heck the stock was ripping higher, and the size of the order perturbed me. What in the world was I thinking?
Well, after a few deep breaths and some self-loathing, I decided to trust my instinct, and at least hold the position until I caught up on my homework.
As Galena investors know, this turned out to be the right move. The stock has blasted north of $3.00 and is now sitting at $4.05 in after-hours trading today. Most impressively, Galena shares are up a mind numbing 86% so far this month!
I share this candid story with fellow investors to illustrate a simple point about the vagaries of the market: it's often better to be lucky than good.
As a person that makes most of his living through the market, I pride myself on adequate preparation. Prior to putting a significant chunk of money on the line, I average roughly 20hrs of due diligence on a single stock. And frankly, I had no clue about the recent developments at Galena that triggered the recent bull run, and the subsequent execution of my poorly researched trade. Yet, it's my biggest winner this month. Sigh…
Turning to the real intent of this piece, I humbly suggest that Galena bulls should carefully consider their options over the weekend. We've had an amazing run this month, but another adage seems to be apt here: Luck favors the prepared.
Before deciding whether or not we should take profits after this run, let's consider what triggered this run and if it's sustainable.
Key Events that Got the Galena Bulls Running
First off, there is the acquisition of Abstral from Orexo last March. As a refresher, Abstral is an oral tablet taken for the management of breakthrough cancer pain in opioid tolerant patients, and was approved by the FDA in 2011. Galena launched the drug October 3rd, and oddly enough, the market barely reacted to it. Well, that's not exactly true: Galena shares actually dropped > 11% the two weeks following Abstral's launch. So it's safe to say Abstral's launch didn't trigger the run. And this isn't exactly surprising given that Abstral won't significantly impact Galena's bottom-at least in a positive manner, until 2017.
The current bull run really started on November 11th, when Galena announced positive Phase I results for its Folate Binding Protein Vaccine indicated as a preventative treatment for patients at high risk for endometrial or ovarian cancer. The announcement seemed benign enough, simply stating that the vaccine was well tolerated and low toxicity was observed. Some interesting immunological responses were observed indicating an initial sign of efficacy, but it's extremely important to understand that this trial was not designed nor powered to look at efficacy. Unfortunately, some folks, who will go unnamed, began to take Galena's press release way too far, suggesting the vaccine did show efficacy.
Ok, so let's assess the situation, shall we?
The initial NeuVax data is a little over a year and a half away, Abstral won't turn the company cash flow positive for a minimum of 4 more years, and Galena is about to embark on an expensive Phase 2 trial for another clinical candidate. In short, the rational part of my brain is telling me to take profits here. Stronger than expected Abstral sales numbers are the only possible catalysts remaining in the near-term, and the cash burn rate looks to increase as a result of a new clinical trial coming down the pike.
Turning towards a wholly irrational argument not to sell, Galena does have a comparatively small market cap ($420M) compared to its peers at similar stages in their life cycle. It's also hard to point to a company that has a strong Phase 3 candidate that could be a blockbuster, and has a nice little revenue generator in Abstral. Even so, my rational side wants to dump the position because the sole catalyst appears to be an early stage trial result. That's hard to stomach frankly.
Perhaps the market had a delayed reaction to Abstral's launch, making it a synergistic effect between these two events. Who knows? I certainly don't. In fact, it's hard to recall another > 80% rise in a company's share price where the catalyst was so hard to define. If it truly was over-enthusiasm for an initial dosing study, I have to conclude that the Market has lost its marbles.
In conclusion, the more I look at the cause(s) of Galena's rapid rise, the less I want to do so. In fact, I probably would have missed the bulk of this run if I had been paying closer attention to the stock all along.
Perhaps a new adage needs to be voiced for biotech investors in general: luck favors the unprepared.
Armed with this new wisdom, I've decided to go against all instinct, training, and reason going forward with Gale. And simply use what's worked so far: dumb luck.
Long Galena, despite knowing better.