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Summary

  • For all the positive results from NeuVax clinical studies, the ethical shortcomings of Galena's management mean that the future of the company is uncertain.
  • There is still a little hope for Geron with imetelstat. However, it's too little a hope to justify an investment in the company.
  • With the results both the Alzheimer's disease and Huntington disease studies, buying Prana is currently unjustifiable.

This time last year, stocks of biotech companies Galena (NASDAQ:GALE), Prana Biotech (NASDAQ:PRAN) and Geron Corp (NASDAQ:GERN) were nearly at the same level, and were touted as potential game-changers. And over the past year, these three stocks have moved in a similar fashion. In the wake of recent events, investors need be updated if these companies still maintain their "potential game-changer" titles. As far as I can see, they've all lost this title.

(click to enlarge)GALE data by YCharts

While all the three companies have seen positive moments over the last year, they are all currently going through hard times. Galena's downturn began in February following allegations that the company was involved in paid stock promotion, and later that SEC is investigating the company.

Geron's downturn began in March following the FDA's decision to put clinical trials for imetelstat - the company's only pipeline candidate - on hold due to an occurrence of persistent low-grade liver function test (LFT) abnormalities.

Prana, on the other hand, was riding high on the back of positive PBT2 phase 2a trials report in Huntington disease until the company reported that the same drug failed in the Alzheimer's disease study.

A shift in investors' sentiments

Market events so far indicate that the views of the investment community are changing for each of the companies. For instance, on March 18, traders purchased 5,990 and 4,980 put options on stocks of Galena and Geron respectively. This shows a huge deviation from the typical 1,343 and 986 daily put options on stocks of the two companies, in the same order. Following the revelation that PBT2 failed the Alzheimer's disease study, traders went on a purchase spree of 7,567 put options on Prana.

While the actions of traders could be termed short-term, the magnitude of these events call for a need to reassess the futures of these companies

Galena's two-sided future
Galena released its 2013 results Monday, March 17. Everything was going hunky-dory until the part that talks about the company being investigated by the SEC. To be honest, the results were quite impressive and they, to some extent, give assurance that the company is headed in the right direction.

In fact, that Abstral's sales came in within the company's forecast of $1.5 to $3 million gives hope that the new forecast of $11 million to $15 million is achievable. However, the ongoing SEC investigation is a big dent on the image of the management at Galena.

I don't expect this to affect the approval of NeuVax -- as long as it genuinely helps cancer patients. And considering the positive signals so far, I think the drug is genuinely helpful. Therefore, without being emotional, the long-term case for this company looks positive.

However, since emotions can't be taken out of a discussion that involves the hopes of cancer patients, we need to take a second look. Truth be told, regardless of how promising the drug is, it's so unethical and heartless of anyone to want to profit at the expense of dying cancer patients.

It gives a feeling that the execs at Galena are there, first, to make profits before thinking of helping the world. If it had never happened, we would hardly think of it ever happening. But now that it has happened, there is every chance that something as callous as this could happen in future. In fact, no one can say for sure that the company can't tamper with clinical results.

Therefore, in reality, the long-term future of the company hinges on hopes that the management would learn from this, and change for the better - which is uncertain. In view of this, investors might be better off without positions in this company.

Geron's slim future with imetelstat
Geron's situation seems more critical and calls for careful a judgment. In an updated press release, Geron announced that patients currently enrolled in the clinical trial of imetelstat in myelofibrosis (Myelofibrosis IST) who are deriving clinical benefit may continue imetelstat treatment under a partial clinical hold placed by the U.S. Food and Drug Administration (FDA).

But this doesn't alleviate the concerns of the adverse events noticed in the essential thrombocythemia (NYSE:ET) or polycythemia vera (PV) clinical trial - which is still on full hold. That the FDA has gone to the extent of placing a hold on clinical trials for this drug suggests that the side effect is quite serious, and probably higher than what is found with currently approved-drugs in the same class.

However, the following considerations offer some hope. First, this isn't the first time the FDA is placing a full hold on imetelstat's clinical trials. The first one - from late 2013 - lasted for just two weeks.

Second, the drug has been proven efficient at helping myelofibrosis patients, which is the primary requirement for any drug. In December 2013, a paper was published with regards to this trial, which indicated an overall response rate of 44%. Note that the myelofibrosis trial involves patients with high-risk or intermediate-2 risk myelofibrosis - most of who didn't respond to other treatments.

Therefore, the worst-case scenario could be that imetelstat ends up being approved for treatment of patients with high-risk or intermediate-2 risk myelofibrosis. And considering that most other drugs only slow the progress of the disease, or treat the symptoms, most patients are likely to end up in imetelstat treatment.

Put all of these together, and one can say that there is still a little hope for Geron with imetelstat. However, with this being its only pipeline candidate, the risk becomes a little higher than before. So I don't think it's worth it to invest in this company, with a tiny hope that imetelstat will come through.

Prana

Before talking about the failure of PBT2 in the Alzheimer's disease study, here are a few things to note about the Huntington disease trial.

To be clear, the primary endpoint for the trial in Huntington disease was safety. And while Prana claims that the primary end point of safety was met, we should remember the drug isn't being developed to check safety - it's to check if it can benefit patients.

Source: Prana Biotech

The chart above - available in the company's press release - shows the efficacy of the drug at treating Huntington's disease. The chart raises some concerns. First, there was almost no difference between the placebo group and the 100mg group, taking credibility away from the positive result from the 250mg group.

Second, the difference between the 250mg group and the 100mg group is just too wide, suggesting that the positive results from the former group aren't as statistically significant as stated. Lastly, the relatively large standard deviations - shown by the lines on each of the bars - suggest that the results from one subject to the other vary widely, thereby, increasing the probability that the results gotten were a result of luck.

Normally, there would be some hope if the reported positive safety profile meant that there were no dose-related side effects. The truth is some drugs just won't perform below a threshold dose. But, unfortunately, that's not the case for this trial, as it was reported that one patient who took the higher dose saw a worsened Huntington disease symptoms after the study. This means that with higher dose, more subjects could have experienced the same thing.

The results from the Alzheimer's disease study add salt to the injury. The company said in its press release:

"Prana's PBT2 did not meet its primary endpoint of a statistically significant reduction in the levels of beta-amyloid plaques in the brains of prodromal/mild Alzheimer's disease patients, as measured using PiB-PET Standardized Uptake Value Ratio (SUVR)."

Since the company have already said this, there is really nothing to analyze again.

Bottom line

Drawing from above, these three companies don't appear to be game-changers anymore, as far as present situations go. The plain truth is that any investment in any of these companies, at the moment, is more speculative than ever.

On a final note, these recent events goes to advise investors to take things slowly with biotech stocks - especially the small ones that have next to no suitable landing surface should they fail.

Editor's Note: This article covers a stock trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

Source: Are These 3 Biotech Companies Still Worth A Gamble?