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Galena Biopharma's (NASDAQ:GALE) spin-off of RXi (OTC:RXII) Pharmaceuticals has caused a great deal of concern and confusion, among investors. The level of volatility has been at an all-time high for this stock as investors try and determine what, if any, impact the spin-off will have on GALE. There have been several opinions, including articles with various opinions, and history into the background of the company. As an investor who has a passion for biotechnology, I aim to provide a look at the spin-off and what it could mean for the company. I currently do not own any shares in GALE, but think that at the current price per share, it may be a good time to initiate a long position.

First, a little background information. Galena Biopharma is a biotechnology company that utilizes immunotherapy, in which its lead candidate, NeuVax (E75), is a phase III drug that treats breast cancer in patients that are not eligible for Roche-Genentech's (OTCQX:RHHBY) Herceptin. The science behind NeuVax is that it uses a person's own immune system to fight the cancerous disease. It successfully activates, locates, and then destroys the cancerous cells without affecting healthy cells. The problem with other cancer treatments has been the inability to treat the "root" of the problem, which results in high recurrence rates. NeuVax, which achieved its primary endpoint of disease free survival, has shown encouraging results. NeuVax was granted a Special Protocol Assessment (SPA) for a phase III clinical trial in adjuvant therapy of women with low-to-intermediate (also known as HER2-Negative, not eligible for Herceptin) status, by the FDA.

The company's spin-off and involvement with RXi Pharmaceuticals and CytRx (NASDAQ:CYTR) is causing a significant amount of unnecessary confusion among investors. The bottom line is that Galena was created after RXi Pharmaceuticals purchased Apthera (NeuVax) for $7.1 million. GALE purchased the drug and decided to focus on immunotherapy because it was a late stage candidate that had shown promise and was incredibly cheap, due to Apthera being in financial distress. As a result, GALE was created and the spin-off will result in all Galena investors being issued new shares of RXi Pharmaceuticals, however the internal pieces of the spin-off and what it means for the future of both companies has come under fire as of late, due to questions over which company will have "control."

I think it's a good idea to clarify a few of the issues affecting investor sentiment. First, I believe the spin-off is good for Galena Biopharma, as the company will now be able to focus on cancer treatments, and its CEO Mark Ahn will be able lead Galena by dedicating all of his attention to the treatment of cancer without any ties to RXI. The question of whether or not GALE will be tied to either RXI or CytRx has been of major concern to some. However, I don't see why there is any need to be concerned about CytRx's ownership in GALE. GALE is an independent company, and not a subsidiary of CytRx, as many people believe. In fact, they don't own any shares of GALE, or the new RXI, and have no say in any decision of either company.

After looking at the spin-off and the worries of investors I cannot find what is so confusing or debated among investors. I understand that there is an assumption that GALE will still be controlled by either Cytrx or RXI, but it's simply not true. The assumption is derived from the acquisition of "NeuVax" back when Galena was created, and the belief that previous shareholders would have a say in how GALE dictates its business. However, it's simply not the case, and investors should be pleased that RXI made the decision to acquire a phase III ready asset for a cheap price because the parent company was in financial distress. It's a common method used by big pharma, to purchase distressed assets for a cheap price, but when a small company such as RXI finds a similar deal it's frowned upon by the investment community.

The bottom line is that NeuVax is still the most advanced breast cancer vaccine under development and is 100% owned by GALE. The spin-off is necessary, and is good for investors, because it will make Galena stronger than ever, without any ties to CytRx or RXi. In fact, the spin-off is a great opportunity for investors to diversify into two technologies, GALE shares that are already owned and new RXI shares as a dividend. After the spin-off, there will be around 55 million new shares of RXI issued to Galena investors, representing an 8% stake in the company. Most likely, the RXi shares will open at a very low valuation, however the RNAi technology does have potential, and is almost like an IPO in which GALE investors will have a head start. Overall, I see very little if any downside to the spinoff and believe it will finally free the company and allow GALE to exclusively focus on its treatment, which is showing such early promise. The current status of NeuVax appears encouraging, and by all measures the company looks to be undervalued considering the results.

Source: Galena Looks Undervalued Considering Cancer Therapy Results