Interviewing Mark Ahn: The Truth Behind NeuVax

| About: Galena Biopharma, (GALE)

Last Tuesday I had the pleasure of interviewing the CEO of Galena BioPharma (NASDAQ:GALE), Mark Ahn. During the interview, he answered questions regarding the effectiveness of NeuVax, its potential, and past and upcoming trials. He was very clear and precise, therefore showing an assurance in his answers.

Following an interview of a CEO I always write reflection pieces, most recently after Bradley Jacobs of XPO Logistics (NYSEMKT:XPO) and Alan Mulally of Ford Motor Company (NYSE:F). My goal is to point out the areas that I feel were most important and answer any questions that investors may have asked following the interview because sometimes it's hard to fully understand the mood of an interview by reading a transcript.

One of the first questions that I asked Ahn was in regards to the effectiveness of NeuVax. The goal was to pick his brain and gather the facts, and more insight into how the drug works. This area has been questioned as of late, therefore Ahn responded by saying:

NeuVax has demonstrated preclinical and clinical benefit in all levels of HER2 expression, IHC 1+, 2+, and 3+ both alone and in combination with Herceptin.

It was very obvious from the conversation that Ahn's goal was to emphasize that NeuVax has demonstrated a clinical benefit in "ALL" levels of HER2, node positive and node negative. I have found it somewhat strange that this fact has been questioned by some investors. The data was presented at ASCO and reflects that patients were given the full 6 monthly doses, then patients were prospectively given booster doses every six months. The results clearly indicate that there is a dose response (six monthly doses are better than four, and boosters every six months work even better).

I also thought it was interesting that he "threw in" the comment about it demonstrating a benefit in combination with Herceptin. Herceptin is a near $6 billion per year drug that only targets 20-30% of the 200,000 women in the U.S. diagnosed with breast cancer annually (according to the National Cancer Institute). This fact is important to the outlook and potential of NeuVax because 70-80% of patients test positive for Human Epidermal growth factor Receptor 2, also known as HER2. This HER2 expression is known to impact disease recurrence and ultimately survival.

NeuVax targets this remaining 50-75% of breast HER2 positive (HER2 1+ and 2+) that Herceptin does not treat, following remission with standard of care. There are no available HER2 targeted adjuvant treatment options to maintain the disease-free status. Therefore, the combination trial with Herceptin is very important, especially if the two work together to create a more efficient vaccine by targeting all of HER2 1+,2+, and 3+ in breast cancer patients, which is very possible.

The NeuVax Phase II trials enrolled 187 patients, including node positive and node negative patients. All patients received standard of care (SoC) therapy and were confirmed to be disease-free prior to enrollment. Following enrollment, eligible patients were administered the NeuVax vaccine once a month for 6 months, followed by booster shots one every 6 months thereafter. The efficacy endpoint for the trial was disease-free survival (DFS), the same endpoint in the FDA approved SPA (Special Protocol Assessment) for the Phase III PRESENT study.

In biotechnology, the trials can become confusing to those of us without advanced medical degrees who have studied oncology for several years. I thought the statement above breaks it down to where anyone can understand the goals of NeuVax during clinical trials. During the studies the company accepts only patients who are considered disease-free. The goal is to then keep the patients disease-free with the use of NeuVax, which demonstrates a success for NeuVax.

In the Phase II study, NeuVax showed a significant advantage over standard care alone in the recurrence of the disease. This will be the same measure in Phase III PRESENT trial (disease free survival), therefore I find it difficult to conclude that the trial will not be a success when it has already demonstrated a success at lowering the rate of recurrence.

There is a statistically significant increase in disease-free survival at 36 months in the NeuVax treated group vs. the control group for the planned Phase III patient population (p=0.035). The vaccine-treated group showed no recurrences of cancer (0% recurrence rate), while the control group demonstrated a 22% recurrence rate which is consistent with historical norms.

As I just explained, the ultimate goal is to keep recurrence rates of those vaccinated with NeuVax lower than the control group. This statement above validates the results for NeuVax in Phase II in terms of recurrence. A 0% recurrence rate is much better than a 22% recurrence rate. The fact that the control group's rate was consistent with historic norms proves the efficiency of the test.

Galena is exploring NeuVax in combination with Herceptin (trastuzumab; Genentech/Roche) in a 300 patient, randomized Phase II study starting in 2012. This trial is being co-sponsored by Genentech/Roche and administered by the Henry M. Jackson Foundation for the Advancement of Military Medicine, Inc. A previously reported pilot Phase 2 trial investigated early stage breast cancer patients who had completed their standard of care primary treatment and were not eligible for Herceptin treatment due to having less than 3+ HER2 expression. A total of 62 patients enrolled, and all received trastuzumab. Of the 32 who received trastuzumab alone, 12.5% (4/32) recurred, comparable with reported rates of similarly staged and treated patients.

The above statement is an entire response following a question that I asked regarding GALE's relationship with Roche (OTCQX:RHHBY). This has been a major area of debate among investors who believe Roche will acquire GALE. I personally don't believe the acquisition would make any sense at this time. GALE is a $61 million company, therefore if it were to be acquired the buyout price would be a maximum of $200 million. To me, it makes no sense to settle for such a small premium if the drug could be worth billions in annual sales.

I believe the acquisition rumor was created by investors because Ahn showed no indication of a relationship beyond a clinical program. However, he does indicate a major need for this trial. In a previous "pilot program" of 62 patients, 12.5% of the patients relapsed using Herceptin alone. However, 0% receiving NeuVax+Herceptin relapsed after 24 months. Therefore, a Phase II 300 patient study is being conducted and seems necessary to determine whether or not a combination of the two drugs could expand the addressable market for both treatments. This gives NeuVax two possible avenues for significant revenue, both alone and with Herceptin, as explained by Ahn during his first comment.

Galena will present Ph II data at 48 months, as well as the booster data, to further evaluate the long-term durability of NeuVax.

Ahn responded with the statement above when asked about this year's ASCO. Some investors have looked for any indication that GALE is presenting at this year's ASCO. The statement above verifies that GALE will be presenting at the ASCO.

So far, Ahn has given us reason to believe that booster data will show very significant results. In this interview alone he mentioned that boosters have shown the greatest results, on several different occasions. This could be a major catalyst following ASCO if any additional information is provided.

NeuVax (E75) was discovered at the MD Anderson Cancer Center, one of the largest and most respected oncology centers. Moreover, NeuVax has been awarded millions of dollars in competitive research grants. Galena has completed the Phase II presented at ASCO, finalized commercial manufacturing, obtained an amended and US FDA approved SPA reflecting the current standards of care, and initiated a Phase III trial. In addition, the company has agreed to a clinical collaboration for a Phase II in combination with Herceptin.

While we can never guarantee the outcome of a double-blinded, randomized multicenter trial, many outstanding researchers, physicians, regulators and company employees are working tirelessly to appropriately evaluate the safety and efficacy of NeuVax.

The statement above sums up one of the reasons I am so optimistic regarding the future of GALE, and why I am an investor. This candidate was not created as an after-school science project but at one of the most respected oncology centers in the world. In fact it was rated #1 in 2011 for cancer, and then in the top 10 for several specialties. Some have implied that because of the price paid to acquire the candidate, it must not work. As famously quoted, some people "know the price of everything and value of nothing".

The price paid to acquire a candidate only affects the way the market prices a company but does not indicate whether or not the candidate will be successful. I prefer biotechnology companies that are able to go out and buy candidates and/or companies with products that haven't been developed appropriately. Every company has its strengths and weaknesses and for GALE it has hired a great team in the field of oncology. However, these companies that choose to buy candidates almost always have lower valuation compared to a company that develops from the pre-clinical phase.

I always like to use Spectrum Pharmaceuticals (NASDAQ:SPPI) as a company with a strategy of acquiring products rather than developing products. Despite over $200 million in revenue and $80 million in earnings (after its most recent quarter) the company has a valuation of just over $600 million. Meanwhile, companies such as Dendreon (NASDAQ:DNDN) were inappropriately valued before ever selling a drug, causing significant loss in the first year as a result of its one-time valuation over $8 billion.

There are some companies in biotechnology that are able to identify value and believe that its management is more capable of developing a drug to reach its full potential. The market is filled with stories of small biotechnology companies that acquired drugs for next to nothing and turned the small purchase into millions, sometimes even billions in annual revenue.

One of my favorite stories in the biotechnology space is the acquisition and development of Acthar by Questcor Pharmaceuticals (QCOR). The drug was a complete outcast of large pharma that no one wanted to touch. In fact, Questcor acquired the rights in 2001 from Aventis Pharmaceuticals for just $100,000. Over the last 12 months the drug has returned over $100 million in profits and nearly $300 million in total sales. However, it wasn't always a good story, the company nearly ran out of money in 2007 while investor confidence was running at all-time lows and people were starting to believe Acthar was nothing more than a way for the company to stay in business with financing. The good news is that those opinions are an afterthought and the stock has returned gains of more than 10,000% for some people who bought in 2007.

Questcor is just one of many examples to explain why the price paid to acquire a drug means nothing to the success of a candidate. If you want another story then look at Cougar and the price it paid for Zytiga. The company bought Zytiga for nearly $1 million and then sold it four years later to Johnson & Johnson (NYSE:JNJ) for almost $1 billion. Therefore, this should serve as a reminder that the price that Galena paid to acquire NeuVax, a drug that targets cancer stem cells and has shown positive results in the recurrence of breast cancer, is irrelevant.

Throughout the interview, Mark and I discussed a wide range of topics including the early results of NeuVax, its origin, enrollment, Herceptin, and predictions among other topics. As an investor I was encouraged even more after speaking with the CEO of Galena, and feel as though it is a company with a significant amount of unknown potential.

Although there will always be a number of opinions surrounding a small developmental biotechnology company (and everyone is entitled to their own opinion), early results suggest a 0% recurrence rate for its targeted group and in this case, you can't perform better than 0% recurrence, both alone and in combination.

Disclosure: I am long GALE, F, XPO, SPPI.