The share prices of Galena Biopharma Inc. (GALE) have enjoyed a rally of approximately 58.4% since November 11, with bumps and falls during this time. The shares initially soared on the Phase I trial results of folate binding protein (FBP) vaccine for endometrial and ovarian cancer, and since then have continued the upward momentum fueled further by positive investor and analyst sentiment.
Oppenheimer yesterday initiated an Outperform rating on Galena's stock and set a price target of $6 in the next 12-18 months. This coverage was based on the potential of the commercialized cancer pain drug Abstral and the breast cancer candidate NeuVax.
The key reasons for the initiation by Oppenheimer include:
i. The Phase I/II study of NeuVax meeting its key points, which ultimately led to the PRESENT study. Oppenheimer is optimistic about the outcomes of the study.
ii. NeuVax having no direct competition, and the commercial opportunity for the drug being high, if approved. They predict global sales of NeuVax up to $5 billion, if successful.
iii. The active marketing of Abstral and commercial potential, considered as an upside to the company's valuation.
iv. Lastly, the milestones for the company including Abstral scripts, NeuVax update at SABCS, from December 10-14, 2013 and the initiation of Phase II/a for FBP around year end.
The coverage by Oppenheimer came as positive news, as it further strengthens the positive sentiment surrounding the company, which was translated into the share prices yesterday. The pipeline candidates of Galena are indeed promising, having expected blockbuster potential.
Galena is currently marketing Abstral in the U.S. and reported $1.2 million in sales, before its official launch. This was before the company began promotional efforts for the drug, and the sales are expected to further increase in the fourth quarter and into 2014. The sales estimate by the company was set at a trifle $3 million for the year 2013, and peak sales of $40-60 million. However, the sales prior to the launch were 40% of the guidance, and are expected to cross it, owing to the promotional activities for the drug and its potential. Hence, it is right to say that Abstral in the coming quarters may prove to be a major value creator for the company and help pave the way towards a profitable company.
The main star-studded candidate of Galena is NeuVax, which has garnered increased interest owing to its positive trial results, targeting an unmet medical condition and blockbuster potential. The enrollment for its Phase III trial is expected to complete in early 2014 and also expects to announce the interim results somewhere in mid-2014, based on 70 events. The interim results will prove to be an important catalyst for the company. If and when the drug is approved, it will definitely take Galena to new heights.
Let us conservatively estimate the sales potential of NeuVax based on the annual breast cancer patients of 230,000 in the United States. Among these patients, Galena estimates a target market of about 30,000-40,000 patients. Additionally, the breast cancer patients in Europe are approximately 450,000, among which 50,000-80,000 qualify for treatment with NeuVax. This brings the target market of NeuVax to 120,000, 40,000 in the U.S. and 80,000 in Europe. The existing breast cancer treatment for HER2 (1+, 2+), Herceptin, approximately costs $70,000 annually. If we take the same cost for NeuVax, the potential annual sales amount to a stellar $8.4 billion. Even if Galena succeeds in capturing only 10% of the market, the annual sales for the drug would be 840 million. Thus this provides a massive potential for the company, when and if it's approved.
The company is not void of risks associated to it, one of the major being the failure of NeuVax and FBP trials. The company is heavily relying on these trials for its success, and any failure would not only nosedive the share prices but would also have a major detrimental impact on the cash position of the company. Hence, this must be kept in mind when evaluating the company for investment.
The Bottom Line
Galena's coverage initiation by Oppenheimer is an additional treat for the already positive trend for the share prices and only supports the strong sentiment towards the company.
Financially, Galena is stable to sustain its current operations and there is no looming threat of another offering. The company has approximately $60 million in cash, which include the proceeds from the secondary offering in September. The sales of Abstral are expected to increase over the next quarters, and the U.S. market for fentanyl products in 2012 of $400 million, only supports the case. Hence, there is a high likelihood that the company will be able to sustain further studies on NeuVax using its own resources rather than raising more funding, thereby reducing the risk of dilution.
In my opinion Galena is a fair investment, with major long-term potential. The current price is a profitable entry point for long-term investors as the share prices are bound to take off and will bring in huge gains.