Galena Biopharma (GALE) is presently trading at $4.22 a share after a favorable reactionary move in the market when it announced a recent acquisition that has a potential for generating good revenue in the years ahead. I will write more about that later, but here is a company that is highly favored by investors and analysts alike. Roth Capital increased its price target on the company to $11.00 because of the acquisition of Mills Pharmaceuticals which would lead to the development of GALE-401. Let's take a look at where this company is presently and the "pipeline potential" that makes this company a good long-term growth investment.
The company is transforming from a "research and development" firm to a revenue-producing firm. The revenue in the 3Q of 2013 ($1,170k) was from its recent launch of "Abstral." Even though it is now producing revenue, the company is still a long-term growth investment because it will take a little bit more time for revenue to outgrow expenditures. In the company's 3Q of 2013 10Q report, research and development was still ($3,633k), so it's going to take a little bit more time for the company to be profitable.
Observing the company's balance sheet over the last four quarters from Yahoo Finance, we can see that it has been "cash strong" since its September offering. Presently, the company has $32 million in cash and equivalents. Its current "burn rate" is about $2 million per month according to Wall Street Cheat Sheet.
This means the company should have good working capital through 2015 and longer if revenues increase like the company plans.
In this type of industry, the financial position is important, but so is the debt load. I believe one thing analysts like about the company is its long-term debt is negligible compared to its cash position. This is what gives it such a small debt-equity ratio. According to MSN Money, it also has a very healthy "current ratio" of 1.55.
Presently, the company has 105.2 million outstanding shares of stock trading at $4.22, which gives it a market cap of $441.10 million.
It also has a good cash position as it starts to bring revenue to the company with Abstral. As I stated before though, this is a good long-term growth investment because it has two other products that look promising to bring to market. Let's take a look at all three of the company's pipeline products.
Product for Revenue
What does the company's pipeline look like?
Presently, the company has one product on market and two others in its research stage. The one already brought to market, I would conservatively say has a revenue potential of at least $40 million while the other two could conservatively top $120 million or more when they come to the market. (combined)
When it was announced in March 2013 that Galena bought Abstral, this was part of its growth plan to acquire drugs with good revenue potential for its pipeline. The drug treats "breakthrough cancer pain" which occurs in (40%-80%) of patients receiving treatment for cancer as well as pain management. When the drug was introduced, it was and remains the only fast-acting sublingual tablet for cancer treatment on the US market. The market value for this product in the United States is about $400 million. The 3Q of 2013 was the first quarter the company recorded revenue and it came from Abstral. It generated net revenue of $1.2 million for the first time.
This particular market is not overly crowded, and it would not be surprising for the company to capture 10% of the market which could see a potential revenue generation of $40 million a year.
As a second-line treatment, NeuVax focuses on the prevention of recurrence of breast cancer (and other tumors) around the body. It is not uncommon for some breast cancer cells to remain and possibly migrate to other parts of the body. To prevent them from growing and becoming tumors, NeuVax is treatment that seeks out cancer cells that are high in the HER2 protein, neutralizing and destroying the tumor cells. The HER2 protein is highly overexpressed by 85% in breast cancer cells. Studies have identified the NeuVax peptide sequence as being highly effective and clinical data has indicated the ability to maintain a long-term elevated level of NeuVax specific T cells, could potentially provide long-term prevention against the possibility of a tumor recurrence.
NeuVax is currently enrolling breast cancer patients for the NeuVax™ Phase 3 PRESENT (Prevention of Recurrence in Early-Stage Node-Positive Breast Cancer with Low to Intermediate HER2 Expression with NeuVax™ Treatment) study. The FDA granted NeuVax a Special Protocol Assessment (SPA) for its Phase 3 study.
How big is this HER2 Breast Cancer market?
HER2 accounts for close to 25% of the total breast cancer patients, but has 55% of the research breast cancer market and is expected to increase to 65% by 2021. The market itself is fairly busy with activity. Roche (OTCQX:RHHBY) and Novartis (NVS) dominate the first-line treatment market and Roche's drug, "Herceptin" earned more than $3 billion from back in 2011. The breast cancer market as a whole is close to $9 billion right now and expected to top out at $10.9 billion by 2018.
Decision Resources is a research and advisory firm for pharmaceutical and healthcare issues. They put out a report in 2013 that surveyed oncologists from the United States. 50% of them said they would prescribe a second line treatment for HER2 spastic breast cancer.
While the Phase 3 study is expected to observe and track survival rates three, five and 10 years out in vaccine controlled groups. Revenue generation from this product is a couple years out. Even though the market is crowded studies have proven that there is an interest in this type of treatment. Capturing but 1% of this market would generate $90 million in revenue.
Alliance to Open Market in India
Galena Biopharma and Dr. Reddy's Laboratories Ltd. have developed a strategic partnership for commercialization of NeuVax in India. When the drug is approved, it has the potential for doubling the patient population. By 2016, the pharmacological market for breast cancer is expected to reach INR $10,000 million, which translates into a USD $1.6 billion industry in a country that has a very high mortality rate that sees 50,000 women dying each year.
What the Mills Pharmaceuticals Acquisition means for Investors
Galena's long-term business strategy is to add therapies to their pipeline that will strengthen their hematology-oncology portfolio. The recent acquisition of Mills Pharmaceuticals is an example of that plan in action.
This is an acquisition with a long-term investment in mind for a market which potentially could reach $200 million in the United States alone. The market is for the treatment of Essential Thrombocythemia (ET). This is a rare disease that is characterized by a person's body manufacturing an overabundance of platelets in bone marrow.
Mills Pharmaceuticals owned the worldwide rights to GALE-401 which is a controlled-release formulation of a drug called anagrelide. The treatment has shown great promise reducing the side effects of anagrelide while maintaining efficacy for the patients. This is important because a significant amount of patients are unable to tolerate fully effective doses of anagrelide. They either stop treatment or the dose is reduced and becomes inefficient to achieve the target platelet levels.
Presently the drug is still in the trial phase, and Galena believes it will eventually be eligible for orphan status which enhances its regulatory process. A Phase 2 study is expected to be initiated in mid-2014 and the FDA indicated that only a single Phase 3 trial will be required for approval.
In a $200 million industry where many physicians are unhappy with the current treatment for ET, there is great potential here for Galena. Presently physicians are faced with the treatment which leaves patients with unmanageable side effects. If GALE-401 continues to prove effective in reducing the adverse effects on patients, physicians will notice quickly.
This is only in the Phase 2 study so it's a long-term vision. If the clinical trials continue to go well, physicians should embrace this therapy quickly. It is not out of the question to conservatively see the company capture 15% of this market which could translate into $30 million a year in revenue.
Outlook and Investment Risks
Galena Biopharma is just turning the road to profitability. It may take a little more time to get there, but with three strong drugs in its pipeline (Abstral already to market), the potential revenue base can conservatively be estimated at $160 million between the three.
The company appears to be managed well, has minimal debt compared to the industry as a whole and a strong asset to liability ratio which is important for small companies like this. This would make a good long-term growth investment for those who enjoy this industry. Its present drug, Abstral, could potentially bring the company into profitability by itself before the other two drugs are introduced to the market in the coming years ahead.
With all companies in this arena, potential growth is based upon FDA approval of the drugs going through trials. Abstral has a good market potential in itself, but there is no guarantee that the other two I described in this article will reach the market. This is the risk that investors face in this industry.
Author's note: The chart in this article came from the company's investor presentation in January.