Clinical Data Separate 3 Hopeful Cancer Candidates

Includes: CLDX, GALE, PPHM
by: Henry Kawabe

Galena Biopharma (NASDAQ:GALE) was founded in March 2011 when RXi Pharmaceuticals (NASDAQ:RXII) acquired Apthera. After the CEO was replaced, the company went through restructuring, during which time it was renamed Galena Biopharma. Since the restructuring, the company has been focusing on developing NeuVax, a cancer vaccine acquired as part of the deal with Apthera. Within a short period of time, the company has transformed itself from a preclinical stage biotech with a questionable future to a later stage biotech with marketing approval likely, depending on results of its phase 3 trial, which is already underway.

NeuVax, a synthetic breast cancer vaccine, is currently undergoing a large scale phase 3 trial under a Special Protocol Assessment (SPA) awarded by the FDA. The phase 3 testing is aimed at preventing the recurrence of breast cancer in women after an initial treatment via resection, chemotherapy or radiation. The idea of using medication to reduce the risk of recurrence has been around for a while, but the targeted patient population -- those with tumors having low HER2 expression -- represents a new approach in treating patients. Though there are other therapies available to treat the recurrence of breast cancer, this is a brand new, potentially groundbreaking approach. Herceptin, manufactured by Roche Holding AG (OTCQX:RHHBY), is also used to prevent the recurrence of breast cancer in patients with high levels of HER2.

Roughly 200 female patients were treated during the two phase 2 studies for NeuVax, and those who received the vaccine saw a 50% reduction in recurrence. The vaccine was even more effective when booster doses were utilized. This indicates that the vaccine can be used in several different ways, and thus, increases its market potential. The potential for billions in annual revenue resulted in one of the world's best-known capital markets investment banks, Cantor Fitzgerald, reiterating its "Buy" rating and a $4.00 price target for Galena Biopharma. This indicates that this stock is undervalued. Part of the reason may lie in the fact that the rights to NeuVax were gained through the $7 million purchase of Apthera, rather than being developed in-house for much more. Another outstanding example of an undervalued stock with a high-potential drug can be seen in Cougar Pharmaceuticals, which acquired Zytiga for just $1 million, and sold it to Johnson & Johnson (NYSE:JNJ) for $1 billion. The quickest path to growth in the biotech sector is to acquire companies that are believed to have an undervalued drug pipeline.

Galena also recently announced the issuance of a patent from the Japan Patent Office for a Composition of Matter and Method of Treatment patent covering Folate Binding Protein (FBP) peptide variants for use either alone or in combination with the FBP cancer vaccine, E39. The Japanese patent provides exclusivity in that country until 2022, and additional patent filings around the world are pending. This patent increases Galena's already-impressive intellectual property portfolio, giving it marketing protection in the event the technology enables a vaccine, utilizing it to successfully navigate the regulatory pathway. The patent can also make the company a more appealing takeover target, or can be licensed out to other pharmaceuticals for the much-needed revenue that development-phase biotechs need to fund their clinicals.

Rating upgrades and downgrades for biotech companies do not reflect true valuations. They are merely an assessment of the clinical data available at that time. Moreover, biotech stocks are highly volatile and immediately influenced by positive or negative news. But Galena, currently trading at $1.84 -- between a 52-week range of $0.36 and $3.54 -- looks like a promising stock. Investors should watch closely for buying opportunities from positive news surrounding its NeuVax vaccine.

Peregrine Pharmaceuticals (NASDAQ:PPHM) has been giving its investors a tough time recently. Up until September 21, Peregrine had recorded a gain of nearly 500% in 2012, and a 1,000% gain over the last three months, making it one of the best-performing stocks in the market. It had gone from being a $45 million market cap company to a $550 million market cap company in one year, on the back of impressive data from its lead candidate, bavituximab, for second-line non-small cell lung cancer (NSCLC).

However, it is now in a worse position than it was before the gains in the last year. The first bad news came after it announced that it had "discovered major discrepancies in treatment group coding by an independent third party vendor responsible for distribution of blinded investigational product used in the bavituximab phase 2 second-line non-small cell lung cancer trial." The company added that investors should not rely on any data disclosed on or before September 7, 2012. As if this were not enough, Peregrine reported a hit to its balance sheet of almost $16 million because of a loan default.

Earlier in September, the company announced trial results for bavituximab that were hugely impressive, especially since the treatment was tried on patients who had not responded to first-line therapy. The company reported a median survival rate of 12.1 months, as opposed to 5.6 months for patients treated with docetaxel and a placebo. This doubling of the survival rate was much better than that of other approved drugs like Genentech's Avastin, which extended the survival rate by only two months. Therefore, it appeared that the company had found a treatment that effectively dealt with the deadly disease. The latest announcement noted that the company had discovered that the major discrepancies appear to have been associated with the independent third-party contracted to code and distribute investigational drug products. The company will make more announcements soon, but it seems that the phase 2 data is highly unreliable, and the drug may not prove to be effective.

As noted earlier, Peregrine experienced a setback in a default related to a $30 million loan, which it had secured at the end of August. Lenders held Peregrine in default after the announcement of the major drug trial discrepancies. The lenders demanded full repayment of the outstanding principal amount of $15 million, plus accrued interest and a final payment fee of 6.5% off the outstanding principal. The company has paid $1.8 million in interest and fees for a loan that was repaid within 30 days, and the fact that it was promptly repaid is a tacit acknowledgement of the validity of the lender's claim. It appears that Peregrine will run out of cash sometime in 2013 and, with these problems in clinical trials, it will be difficult to raise equity or debt to keep going. It is extremely unlikely that the company is going to be able to proceed to a phase 3 trial, at least based on these results.

Peregrine exemplifies many of the investing risks associated with early-stage biotech companies. The clinical data associated with its drug sent the stock price into orbit until the company had to admit that there were discrepancies in the data, and that it was not reliable. Now the company appears to be headed in a downward spiral due to a shortage of cash. This stock is cheap at its current price of around $0.83, but should probably be avoided due to Peregrine's current financial situation. However, every company has its value, and investors are urged to research the company's pipeline and other clinical trials to ascertain Peregrine's true value and determine what a proper entry price might be.

Celldex Therapeutics (NASDAQ:CLDX) carried out a randomized phase 2 trial of CDX-011 versus Investigator's Choice (IC) in patients with GPNMB-positive advanced/refractory breast cancer. This was not a placebo-controlled study, and the patients who received active therapy had not responded to all previous therapies. The results from the trial compared quite favorably to currently approved therapies in this disease setting in the intention to treat (ITT) population. The efficacy was most noticeable in the 3 predefined subgroups: triple negative patients, triple negative patients who are also high GPNMB expressers, and high GPNMB expressers. Most importantly, there was a 36% partial response (PR+uPR) rate in patients who received CDX-011, versus 0% in the patients receiving Investigators Choice. There was also separation of the disease control rates between arms, all in favor of CDX-011. The progression-free survival (PFS) data presented was relatively immature, but shows encouraging signs of activity at this stage of the trial. The median PFS of about three months in the triple-negative high expressers was encouraging, since it is around what was expected with 1st-line treatment of triple-negative patients. CDX-011 was well-tolerated by the patients, with the exception of some peripheral neuropathy, giving it an excellent safety profile.

Management has expressed its intention to seek the accelerated approval of CDX-011 because there is a significant unmet need for patients with triple-negative disease. Naturally, the company would like to think that a single-arm study based on PFS (with a follow-up randomized study to test overall survival) is adequate, but it remains to be seen what stance the FDA is going to take. It appears that the necessary resources to be raised going forward can only be gained through a partnership with a major pharmaceutical company, or by selling itself. Triple-negative (TN) breast cancer accounts for roughly 15% to 20% of all patients, and Celldex Therapeutics believes that around 35% of all breast cancer patients (high-GPNMB and TN) could benefit from CDX-011. This is roughly the size of the HER2 population and, though it is much too early to say, investors should consider that Herceptin generates nearly $6 billion in revenues annually.

Celldex Therapeutics' cancer vaccine, Rindopepimut, used in fighting glioblastoma, has been showing promise lately. According to the company's second quarter earnings release on August 10, enrollment for the phase 3 ACT IV and phase 2 ReACT study is progressing well. Unfortunately for Celldex Therapeutics, glioblastoma studies are difficult to conduct due to enrollment. Doctors may be willing to try experimental therapies, but this type of cancer is quite uncommon, and it is much harder for a smaller company to get the necessary approvals to conduct new clinical studies. An effective glioblastoma drug could be worth up to $4 billion in annual revenue, but Rindopepimut is far more specialized, and the opportunity is more likely to be in the region of $1 billion. The amount of revenue generated by Celldex Therapeutics will depend on the success of its marketing efforts. Finally, the company has a surprisingly large early-stage pipeline, with drugs in human trials (CDX-1401, CDX-1127, and CDX-301) for solid tumors, lymphoma, and stem cell transplantation, and another (CDX-1135) about to commence a trial in renal disease.

Celldex Therapeutics has been trading around $6.55, between a 52-week range of $2.25 and $6.62. I do not recommend Celldex Therapeutics as an investment candidate at the current stock levels. However, investors should watch this stock closely for positive developments surrounding its phase 3 ACT IV and phase 2 ReACT study for glioblastoma, and use that information to ascertain entries or to look for dramatic dips in share price for wise entry points.

Disclosure: I am long GALE. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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