Seeking Alpha
Long/short equity, growth, long-term horizon, biotech
Profile| Send Message|
( followers)  

There has been considerable attention given to Galena Biopharma (NASDAQ:GALE) of late and it's understandable. The company has seen a YTD lift of 400%. The investing community will take quick notice when a value presents itself, and GALE has been no exception. I have read several articles with both the pros and cons on whether or not the company is worthy of a person's investment. Some very well laid out, providing facts and figures and others, that in my opinion, were written with the intent to create a selling frenzy, containing virtually no substantial reasoning.

I first bought Galena after reading an article by Brian Nichols in early February. After doing my follow up research, by pouring through FDA trial information and SEC documents, I made a significant purchase. At around the $0.66 price per share GALE seemed extremely undervalued and a no brainer investment choice. Especially, since I have a stake in several other immunotherapy biotechnology companies, it fit well in my portfolio. I believe there are several key factors have led the rally, that the company has experienced, some verifiable, while others more speculative in nature.

  • GALE has received additional exposure with the launch of the website NeuVax.com for patients
  • The FDA's approval of a co-funded Phase 2 trial with Genentech/Roche (OTCQX:RHHBY),
  • The initiation of a Phase 3 trial under a Special Protocol Assessment granted by the FDA,
  • Additional patent approval on its lead candidate NeuVax that isn't set to expire until 2028,
  • An announced dividend payment in the form of stock shares of RXi, as they spin them off to concentrate on cancer treatments,
  • The initiation of a Phase 1/2 trial of a second product E39, to be used in the treatment of ovarian and endometrial cancers.

All of this can looked up and verified as fact. Combined together it stimulated an increase in stock price and contributed to an increase in share volume. The other elements that pushed the price higher seem to be more rumor oriented than fact based. A buyout by Roche (OTCQX:RHHBY) or another big pharmaceutical company is possible, but more than likely, pure speculation at this point in time. Another I read was the halting of a trial early based on performance and efficacy; this is a long shot at best.

On the flipside of all the positives are the realities of investing in developmental biotech companies. Aside from the reasons why to invest in Galena, I believe there are three main factors that someone has to consider before putting their money in GALE.

The first is the time line for the Phase 3 trial; there will be approximately 5 years before interim analysis. My best guess would be 2 years for enrollment and another 3, prior to any news. Outside of an announcement of faster enrollment than anticipated, there will be no major catalysts in this trial prior to the interim or final results.

The second point to review will be the cost of the ongoing trials and the capital required over the next 5 years. I estimate that each patient, of the planned 700 participating, will cost between $75-100k per patient or between $50-70 million in total. This is a substantial amount of money that will need raised, but considering the previous results, NeuVax will become a multi billion-dollar application with positive results.

This brings us to financing, the third factor that one has to consider. Financing will be inevitable for Galena to operate and see its product come to fruition. The terms of financing and the type of investors who come into play in the next round will be something to keep an eye on. The quicker they are able to get financial support will reduce the long-term risk the company and its investors will be exposed to. If the terms and conditions are burdensome or not favorable the stock will suffer, however if you see healthcare hedge fund activity or other institutional money entering the impact would be mitigated for those long-term holders.

I have confidence that Galena and NeuVax has tremendous upside potential. I agree with the analysis of Brian Nichols and some of the other Seeking Alpha contributors, but have to discount the opinion of others as pure speculation and innuendo, with a motive of their own in place. As stock traders, we set our own entry and exit points based on our investment timelines and expected returns. If your personal outlook is to hold the stock in the near term, financing and dilution should be weighed into your decision. If you have a long-term horizon and don't mind the volatility and day-to-day ups and downs GALE is a good long term pick.

I sold a portion of my Galena holdings for a sizable profit last week and held a quantity back to capture the potential gains down the road. Thanks Brian and others, for pointing out the opportunity. I appreciate you uncovering the company for me, which turned out to be the highest returning investment I have made in years. I look forward to your next hidden gem.

Source: Galena Biopharma: An Investor's Overview