Galena Biopharma: Late Stage NeuVax Justifies Higher Valuation

| About: Galena Biopharma, (GALE)

Galena Biopharma (NASDAQ:GALE) is a biotechnology company focused on discovering, developing, and commercializing innovative therapies addressing major unmet medical needs using targeted biotherapeutics. Galena currently has five peptide-based immunotherapy clinical trials in its pipeline; four that utilize an E75 peptide vaccine called NeuVax and one that employs a Folate-Binding Protein (FBP) E39 vaccine. The four trials that utilize NeuVax are in various stages of development, and the one vaccine that employs the E39 peptide was expected to begin Phase Ib trials in April of this year.

The four NeuVax vaccine trials and their respective stages of development are as follows:

NeuVax Vaccines

Phase of Clinical Development

NeuVax for treatment of node-positive breast cancer

Phase III trial

Combination of NeuVax with Roche's (OTCQX:RHHBY) Herceptin

Phase II trial expected to begin in July 2012

NeuVax for treatment of node-negative breast cancer

Phase II trial

NeuVax for treatment of prostate cancer

Phase I trial

By far the most exciting asset in Galena's immunotherapy pipeline is the NeuVax vaccine currently in a Phase III trial to treat node-positive breast cancer. The Phase III trial, also known as PRESENT (Prevention of Recurrence in Early-Stage, Node-Positive Breast Cancer with Low to Intermediate HER2 Expression with NeuVax Treatment), began earlier this year, is estimated to involve 700 to 1,000 patients, and will take about five years to complete (two years for enrollment and three years for a subsequent observation period). If the Phase III trial proves to be successful, the market opportunity for Galena's NeuVax is quite significant.

Each year, there are at least 200,000 new cases of invasive breast cancer. Galena estimates that only 70-80% of these 200,000 new cases are identified with an ImmunoHistoChemistry (IHC) score of 1+, 2+, or 3+. Moreover, Galena also cites that just 20-30% of these cases have an IHC score of +3 and are, therefore, eligible for Herceptin. With Galena's NeuVax vaccine, however, patients with IHC scores of 1+ or 2+ would be eligible for treatment. In fact, Galena estimates that NeuVax can potentially treat 35,000-40,000 patients annually. Thus, due to the fact that such a large portion of breast cancer patients are not eligible for the Herceptin treatment option, Galena's NeuVax vaccine has huge market potential, especially considering that Roche-Genentech's Herceptin treatment brought in roughly $4.5 billion in 2011 U.S. sales alone.

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As a result of such immense marketability, many people are beginning to speculate about the validity and future results of NeuVax's current Phase III trial. In fact, in a recent article entitled "Galena's Breast Cancer Vaccine Doomed to Fail," Adam Feuerstein wrote that Galena's NeuVax vaccine would ultimately fail its Phase III trial. One of Feuerstein's main arguments was that the peptide-based vaccine would fail because it works better in breast cancer tumors that express minimal levels of a protein called human epidermal growth factor receptor 2, or HER2/neu. In defense of NeuVax, it might be relevant to recall a January 2012 Department of Defense news article featuring Dr. George Peoples, the director and principal investigator for the Cancer Vaccine Development Program at San Antonio Military Medical Center as well as one of the biggest supporters of NeuVax.

Dr. Peoples explained in a January 2012 article that

"the vast majority of vaccines in the past were tested on end-stage cancer patients. However, a vaccine is meant to stimulate the immune system, and a healthy immune system isn't typically seen in someone in the last stages of cancer."

Therefore, when patients are expressing high levels of HER2, it is fair to say that their immune system may not be as effective in utilizing the E75 vaccine as someone with lower levels of HER2 and a somewhat healthier immune system. While Feuerstein raises a good argument, it is hard to ignore Dr. Peoples' reasoning considering the years of experience he has within the medical field.

Furthermore, one last thing worth mentioning with regard to NeuVax's future and potential effectiveness is the vaccine's optimal biologic dose (OBD). In the Phase II trial for NeuVax, it was discovered that

"E-75 immunity wanes over time with only 48% of patients maintaining significant residual immunity at 6 months."

More simply put, the patients were not given the best possible dose at the most appropriate times. As a result, the overall effectiveness of the Phase II trial results may have suffered from a false negative due to the fact that certain trial participants did not receive the vaccine's OBD.

It was only after this immunity deterioration was discovered in early 2008 that the booster program was initiated where trial participants received a booster inoculation every six months following the initial six consecutive months of intradermal injections. Thus, it is not unreasonable to conclude that the NeuVax vaccine may prove to be more effective in the Phase III trial now that a more appropriate dosing level and timing are known.

The interim results of the Phase III trial at 18 months and beyond will therefore be of the upmost importance in determining the future of both NeuVax and Galena Biopharma. In addition, any incremental details or updates given at the American Society of Clinical Oncology meeting in early June will also be crucial for the way investors drive Galena's stock price in the near future. Consequently, although there may be large swings in Galena's stock price through future data announcements, the real intrinsic value of Galena may not ultimately be known until the overall effectiveness of NeuVax is determined.

Moreover, if the Phase III trial is not successful, the company still has assets in its pipeline via the E75 and Folate Binding Protein E39 peptide vaccines as their potential effectiveness in other cancers has yet to be determined. Hence, when considering the late stage development of NeuVax as well as these other pipeline assets, Galena Biopharma's current $75 million market capitalization is discounted compared to peers who have similarly sized pipelines.


Market Capitalization

Galena Biopharma, Inc. (GALE)

$75 million

AVI Biopharma, Inc. (AVII)

$113 million

Amicus Therapeutics, Inc. (NASDAQ:FOLD)

$174 million

Verastem, Inc. (NASDAQ:VSTM)

$197 million

Cell Therapeutics, Inc. (NASDAQ:CTIC)

$208 million

Thus, the bottom line is that Galena's current discounted valuation may be an excellent investment opportunity considering the future potential of the company's immunotherapy pipeline.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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