Galena Focusing on Potential Blockbuster in NeuVax
Galena Biopharma (GALE) is a dynamic biotech company focusing on the development of innovative therapies used in treating cancer. The company is tackling major unmet medical needs with the use of targeted biotherapeutics. Cancer can affect any organ of the body, and is expected to affect one out of every two men and one out of every three women in the U.S. this year. Excluding the one million cases of skin cancer, nearly 1.6 million new cancer cases are diagnosed every year in the country. There are more than 100 different types of cancer today. They are divided into six major categories. The most common types of cancers are carcinomas, which originate in tissues that cover a surface or line a cavity. Cancers are called metastatic if they spread to other parts of the body and form secondary tumors. Cancer is caused by mutations in the genes that control the cell's ability to divide and grow. These mutations cause the cells to grow endlessly or lose the ability to die.
Scientific interest in using the body's own immune system to treat cancer dates back to the early 20th century. Immunologist Paul Ehrlich first suggested the use of targeted antibodies as "magic bullets" against malignant tumors. Recent advances in immunotherapy have made this possible. The FDA approved the use of the cancer vaccine, Provenge, for prostate cancer in 2010 and Yervoy, for melanoma, in 2011. Ideally, cancer vaccines should be able to attack and destroy only cancer cells without affecting normal, healthy cells.
NeuVax: How It Works
Galena's lead drug candidate, NeuVax, works by activating the immune system. The drug consists of an E75 peptide derived from HER2 combined with the immune adjuvant granulocyte macrophage colony stimulating factor (GM-CSF). It stimulates cytotoxic (CD8+) T cells in a highly specific manner to target cells expressing any level of HER2. The National Cancer Institute estimates that over 230,000 women in the U.S. are diagnosed with breast cancer annually. Only 25% of all breast cancer patients, those with HER2 3+ disease, can be treated with commonly-used Herceptin, marketed by Roche Holding AG (OTCQX:RHHBY). Keep in mind that Herceptin generated revenues of over $5 billion in 2010. NeuVax targets the remaining 50% of patients with HER2-Negative disease, which are not eligible for Herceptin. Although these patients may have achieved remission status, no treatments are currently available to help them maintain this status (prevent recurrence). NeuVax is currently undergoing clinical testing for the second-line treatment of early-stage HER2/neu-expressing breast and prostate cancer. Patient enrollment has started for the PRESENT phase 3 clinical trial of NeuVax under the FDA approved Special Protocol Assessment (SPA) to prove the safety and efficacy of the product and prepare it for regulatory approval. The company has been issued a U.S. patent for NeuVax, which will provide protection through 2028. This protection will not only protect the company's lead product if/when it is ultimately approved for marketing, but it also adds value to the company making it a more appealing take-over target or licensing partner.
Galena is also developing a second therapy using Folate Binding Protein-E39 (FBP), a targeted vaccine to prevent ovarian, endometrial, and breast cancers from recurring. Ovarian cancer kills more than 22,000 patients every year. It is the deadliest form of gynecological cancer. Endometrial cancer is the most common form of gynecological cancer and affects more than 46,000 women in the U.S. every year with more than 8,000 deaths annually. The papillary serous form of endometrial cancer is highly aggressive, and the majority of patients will die from this disease. Galena has been issued a patent in Japan that provides protection for its targeted vaccine until the year 2022 and additional patent applications elsewhere are pending.
The company's results for the second quarter of 2012 showed a net loss of $0.2 million, compared to a loss of $3.8 million on a year-on-year basis. An operating loss of $5.7 million was offset by other income of $5.8 million. For the six months ending June 30th, 2012, operating loss from continuing operations was $10.1 million, compared with $5.5 million for the same quarter of the previous year. As of June 30th, 2012, Galena had cash and cash equivalents of $19.2 million, compared with cash and cash equivalents of $11.4 million as of December 31st, 2011.
Galena's two lead candidates look promising, and NeuVax could prove to be a genuine blockbuster considering the revenue Herceptin is generating. Additionally, Galena is a strong investment candidate as it is not entirely dependent on the fortunes of NeuVax. I expect to see a significant upside if the phase 3 clinical trial data is positive. The stock is currently trading at around $1.94 with a 52-week low of $0.36 and high of $3.54. I urge investors to consider performing additional research on Galena Biopharma with a focus on the phase 2 clinical data for NeuVax and the targeted market group of HER2-negative breast cancer patients.
Spectrum Focusing On Fusilev and Folotyn
Spectrum Pharmaceuticals (SPPI) is another novel biotech company for consideration. It is focused on acquiring and developing drugs in the areas of oncology and hematology. Spectrum currently has two oncology drugs on the market. Its Fusilev (levoleucovorin) injection is used in combination with fluorouracil for the palliative treatment of patients with advanced metastatic colorectal cancer, while Zevalin (ibritumomab tiuxetan) is for intravenous use to fight non-Hodgkin's lymphoma. Due to its clinical expertise, Spectrum also has a robust and diversified development pipeline of 10 product candidates in advanced-stage phase 2 and phase 3 studies. Over the past couple of years, more than 50,000 patients have been treated with its approved products.
Despite its regulatory success, investors are nervous about the prospects of Fusilev. The drug currently accounts for over 80% of the company's sales; but a generic compound, called leucovorin, has nearly the same chemical structure (different isomer). However, due to leucovorin being in short supply, Fusilev sales increased 40% in the second quarter. Spectrum has pointed out that leucovorin is not quite a generic version of Fusilev, and there are fewer grade three and four toxicities in Fusilev than in generic leucovorin. Its targeted indication, colorectal cancer, is the third most common form of cancer, and the second leading cause of cancer deaths. Survival rates are extended by nearly two months when using Fusilev relative to leucovorin. On top of this, generic leucovorin is frequently recalled due to product impurities. These recalls are harmful to patients and frustrate doctors who need to switch treatments, often in mid-therapy.
Spectrum recently announced that the Federal Trade Commission had cleared its acquisition of Allos Therapeutics (ALTH) for roughly $180 million by terminating the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, relating to the previously announced pending acquisition of all outstanding shares of common stock of Allos by Spectrum. This acquisition brings another cancer-fighting drug, Folotyn, into Spectrum's portfolio. Folotyn (pralatrexate injection) is a folate analog metabolic inhibitor which is approved in the U.S. for the treatment of patients with relapsed or refractory peripheral T-cell lymphoma (PTCL). Folotyn is also being developed for use in other hematologic malignancies and solid tumors. The drug is a second line therapy, which means that patients with peripheral T-cell lymphoma are still given chemotherapy as a first course of treatment, while Folotyn is used in the event of a recurrence of PTCL.
Spectrum reported record revenues and strong earnings for the second quarter of 2012. Consolidated revenue for the quarter was $68.7 million, comprised of $65.6 million from product sales and $3.1 million from licensing fees. This was a 51.5% increase from $45.4 million (of which product sales were $42.3 million) on a year-on-year basis. GAAP net income was $18.1 million, compared to a net income of $7.2 million in the same period 2011. During the three-month period ending June 30th, 2012, cash generation from operations was approximately $18 million while cash, equivalents, investments, and receivables as of June 30th, 2012 totaled $279 million, compared to $253 million as of March 31st, 2011. For the first six months of 2012, the company reported net income of $64.6 million, relative to income of $20 million in the same period 2011. Consolidated revenue for the first six months of $128.6 million was comprised of product sales of $122.4 million and $6.2 million from licensing fees, and represents a 44.5% increase from $89 million in consolidated revenue recorded in the same period of the previous year.
Spectrum is currently undervalued based on a discounted cash flow model. From a 52-week high of over $17.00 in July 2012, the stock has slipped to the level of around $12.00 and has been trading between a 52-week low of $8.18 and high of $17.48. With a strong pipeline of ten drugs in clinical trials, there are a large number of catalysts that could trigger an increase in share price. I see very little downside as the price now appears to have stabilized in the $11.5-$13.3 range since early August. Investors looking for exposure to a dynamic biotech with a diverse pipeline that is already generating revenue should consider performing additional research on Spectrum Pharmaceuticals.
Exelixis Focusing On Cabozantinib
Exelixis (EXEL) is a development-stage biotech company focused on developing small molecule therapies used in the treatment of cancer. The company's lead candidate, cabozantinib (formerly known as XL184), is a potent dual inhibitor of the MET and VEGF pathways designed to block MET-driven tumor escape. In many preclinical studies, cabozantinib has been shown to kill tumor cells, reduce metastases, and inhibit angiogenesis (the formation of new blood vessels necessary to support tumor growth). Cabozantinib is the primary focus within Exelixis' broad clinical development program. The company believes that the drug has the potential to be a high-quality, broadly-active, differentiated pharmaceutical product that can improve the quality of life for patients.
For the second quarter of 2012, Exelixis reported revenue of $7.8 million, compared to $32.2 million for the same quarter in 2011. This decrease was primarily due to the transfer of the development activities pertaining to XL147 and XL765 to Sanofi (SNY) in April 2011, the termination of the company's PI3K discovery collaboration with Sanofi in December 2011, and the termination of the company's agreement with Bristol Myers-Squibb (BMY) for XL281 in October 2011. Research and development expenses for the quarter were $32.6 million, compared to $42.9 million during the same quarter in 2011. This decrease of 24% is primarily due to lower clinical trial expenses as a result of the gradual wind down of EXAM, the company's phase 3 trial for cabozantinib in medullary thyroid cancer (MTC), for which the company completed its NDA submission in May 2012. These decreases were partially offset by an increase in costs related to clinical trial activities for the company's COMET-2 phase 3 pivotal trial in mCRPC. Personnel costs, stock-based compensation, and general corporate costs were lower for the quarter ended June 30th, 2012, compared to the same period in 2011. Net loss for the quarter ended June 30th, 2012 was $36.5 million compared to $21.0 million, on a year-on year-basis. This increased net loss was primarily due to decreases in revenues, partially offset by reductions in research and development and general and administrative expenses. Cash and cash equivalents stood at $294.8 million at June 30th, 2012, compared to $283.7 million on December 31st, 2011.
Exelixis has completed the rolling submission of its New Drug Application (NDA) for cabozantinib as a treatment for progressive, unresectable, locally advanced, or metastatic (MTC) to the U.S. Food and Drug Administration (FDA). The application was granted Priority Review designation with a stated action date (PDUFA) of November 29th, 2012. Exelixis also initiated COMET-1, a phase 3 pivotal trial of cabozantinib in men with metastatic castration-resistant prostate cancer (mCRPC). Data from the study is expected to become available in the first half of 2014. The company expanded its investigator-sponsored trial (IST) program as well as its development program under the Cooperative Research and Development Agreement (CRADA) with the National Cancer Institute's Cancer Therapy Evaluation Program (NCI-CTEP) to evaluate the potential of cabozantinib in renal cell carcinoma, hepatocellular carcinoma, non-small cell lung cancer, and other indications.
A favorable decision from the FDA on November 29th could significantly boost Exelixis' share price. While preliminary indications including safety are encouraging, investors should consider Exelixis for potential short-term trades and perform extensive research before taking a long-term position with the significant binary event approaching in a little over a month.