Galena Investors Are A Strange Brew

| About: Galena Biopharma, (GALE)

Galena Pharmaceuticals (NASDAQ:GALE) is a company that is centered around its Neuvax vaccine for the recurrence of breast cancer. I am intrigued by its clinical results as it has demonstrated a nice reduction in the relapse of breast cancer after the standard of care has been given to the patient. I see it as a promising treatment for breast cancer. Check out Seeking Alpha's Brian Nichols article for many of the reasons to buy Gale relating to the science and potential value of Neuvax.

I think Brian's article is good but it fails to take into account some of the history of this stock. Trying to make heads or tales of any information other than the clinical results Neuvax is difficult and is key to understanding the risks involved. I believe this is a intentional part of the strategy that its parent company is using to erase some negative investor sentiment and package each of its companies as buyout targets.

To understand the current whirlwind of where Gale came from (and where its headed), we will start with Cytrx (NASDAQ:CYTR). Cytrx acquired technology related to RNA interference at the height of its popularity. RNAi had won a nobel prize in 2006 and was red hot for investors. Cytrx spun off its RNAi assets and majority owned RXI pharmacuticals was born.

Shortly there after a perfect storm brewed for RNAi. RNAi had challenges relating to the delivery, the market crashed and major partnerships fell apart. My recent article on Tekmira (TKMR) will provide much more commentary on the events of this time and provide information of RNAi delivery technology. I would highly recommend reading it as part of your due diligence in Gale and RXI.

RXIs issues surrounding delivery were more pronounced than others and it translated into an extended preclinical work. They tried to do what Tekmira was doing by using nanoparticles to facilitate delivery, but it didn't pan out.

RXI settled on an interesting approach which sidestepped the issue of delivery. Their drug for scarring, RXI-109 would be self delivering and its technology would be labeled "sd-rxRNA." It would target the CTGF gene to prevent excessive scarring. Within the context of RNAi, this self delivering approach can fill a very interesting niche. It has potential for eye treatments as well. The latest data reported at the 7th Annual Meeting of the Oligonucleotide Therapeutics Society has CTGF gene silencing at 2 weeks following single intradermal administration. I would expect once it enters Phase I this year, results will be quick.

Despite its promise, RXI had other issues relating to public perception. They kept selling investors on partnerships that never materialized. Cytrx aggressively kept selling of large amounts of RXI stock to raise money which drove an already low PPS down further and infuriated investors. Cytrx, rightly or wrongly, has demonstrated that it is not very sensitive to its subsidiaries shareholders. Its CEO is perceived to be looking after Cytrx first rather than shareholders first. This public perception can be felt in the PPS of anything related to Cytrx.

With the depressed levels of RXI and the long road ahead for RXI-109, RXI made a huge strategic shift when it purchased Apthera (and hence Neuvax) for $7,100,000 in 2011. A very strange purchase for a pure play RNAi company. Sure enough, RXI very quietly announced it would be changing its name to Galena Pharmaceuticals and would then be spinning out its RNAi assets into a new RXI. One can assume the name change was for public perception reasons.

As a result of many shareholders being burned Gale has a high amount of people shorting the stock. Its Yahoo message board is terrible and virtually no relevant information comes out of it. You are pretty much on your own as there is no productive community of like-minded investors for Gale. Its filled to the brim with people who are trying to drive down the PPS of the stock to make money with their short positions. The funny part is it actually works.

Amazingly enough, when they announced a 1 for 1 split, instead of a short squeeze and continued run up of PPS, the share price actually went down. This is when I first bought Gale stock. Arguments for selling on the Yahoo board included that you would have to pay taxes on the PPS of RXI because the will issue it in the form of a dividend. Huh? Even if RXI was valued at $0.25, its laughable to me that this did not enjoy an immediate short squeeze. The run up of PPS finally found strong legs.

Id imagine that after the close on March 8th, the record date for the 1 for 1 dividend, the stock price will suffer a pretty substantial sell off. All the shorts have not covered their positions and will likely wait it out until then. It will be interesting to see how many people want the RXI shares, and how many will profit take before the close on March 8th.

With my money and weighing all the pros and cons, I'm taking the stock. RXI and Gale have promise and are being packaged as takeover targets with the spin offs.

Watch closely.

Disclosure: I am long GALE, TKMR.