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  • Were GALE Concerns Overstated?

    Introduction

    I am a Galena Biopharma (NASDAQ:GALE) shareholder, but the intent of this article is not to present a one-sided bullish case for investing in the stock, instead, it's an attempt to take an objective look at the events of the past few months, separate facts from speculation, and determine if GALE is still a good investment.

    If you're a GALE shareholder, or have monitored the stock for the past six months, then you've witnessed some stomach turning moves up and down. GALE was trading at just over $2 per share in October 2013, peaked in January 2014 at $7.77 per share, only to recently nose dive back below the $2 per share mark. The cause for the recent price decrease can be attributed to several negative articles, which contributed to a slew of lawsuits being filed against GALE, as well as an SEC inquiry. The most damning of the negative articles came from Richard Pearson and Adam Feuerstein. I have read through these articles many times and, while there are causes for concern, I've yet to find any conclusive evidence supporting the claims that Galena intentionally mislead investors, that management was actively involved in a pump-and-dump scheme, or that management knew the company hired to provide Investment Relations (NYSE:IR) services, Mission IR, was operating in an underhanded, and possibly illegal manner. I would encourage everyone to read the pieces by Mr. Pearson and Mr. Feuerstein prior to reading the rest of this article as I reference them throughout. These articles can be found by following the links below.

    Free Fentanyl Samples and the 'Zombie Apocalypse' (2/3/14 article by Mr. Feuerstein)

    Galena Biopharma Pays for Stock-Touting Campaign While Insiders Cash Out Millions (2/12/14 article by Mr. Feuerstein)

    Behind the Scenes with Dream Team, CytRx and Galena (3/13/14 article by Mr. Pearson)

    Mr. Feuerstein is a polarizing author; the vast majority of the people that read his articles and post comments seem to love him or hate him, with very little in between. Personally I enjoy reading his articles, however I do find some of them appear to have been written for the sole purpose of being sensational; case in point the 2/12/14 article on GALE. In this article Mr. Feuerstein states;

    "I've been a longtime Galena bear…"

    I think it's important to keep this in mind when reading articles about GALE that are written by Mr. Feuerstein.

    Mr. Pearson, on the other hand, is a bit of an unknown. According to his bio he was previously a Director in Equity Capital Markets, Investment Banking for a top tier global investment bank. By all accounts he is a well-educated person who enjoys researching and identifying companies that may be involved in illegal behavior.

    I do believe that, based on the information presented by Mr. Pearson, certain parties have violated Section 17(b) of the Securities Act of 1933, but it is my opinion that the concerns over GALE's involvement have been greatly exaggerated. I'll outline my reasons for optimism, and concern, for GALE below, while also calling into question a number of the allegations made by Mr. Pearson and Mr. Feuerstein.

    Before diving into the negative articles, I think it's important to review a timeline of events. I selected the timeframe that covers the period of time that the contract between GALE and Mission IR is reported to have covered; 240 days, or July 2013 - February 2014.

    Timeline

    7/1/2013 - GALE opened at 2.24/share. For the month of July, average daily share volume was 1,611,686.

    8/1/13 - GALE opened at 1.95/share. For the month of August, average daily share volume was 1,773,259.

    8/5/13 thru 8/9/13 - On 8/6/13 an article allegedly written by someone working for Mission IR was posted to Seeking Alpha. The article was bullish on GALE and the author failed to disclose that they worked for Mission IR or that Mission IR had a contract with GALE. The article had the following effect on the stock price:

    - 8/6/2013 - GALE opened at 2.08/share and closed at 2.04/share on daily volume of 835,000 shares.

    - 8/7/13 - GALE opened at 2.08/share and closed at 2.04/share on daily volume of 773,200 shares.

    - 8/8/13 - GALE opened at 2.07/share and closed at 2.04/share on daily volume of 734,100 shares.

    - 8/9/13 - GALE opened at 2.03/share and closed at 1.95/share on daily volume of 2,215,000 shares.

    - Clearly this article had no impact on the stock price, and trading volume on all but one day was lower than the average daily volume for the month of August.

    9/3/13 - GALE opened at 2.27/share. For the month of September, average daily share volume was 3,686,900.

    10/1/13 - GALE opened at 2.35/share. For the month of October, average daily share volume was 2,384,404.

    11/1/13 - GALE opened at 2.23/share. I think it's important to note that at this point in time GALE was roughly 120 days into its 240 day IR service contract, and the share price had moved exactly 0.01 from its July 1, 2013 open. It is clear that through the first 120 days the efforts of Mission IR had been completely ineffective, yet Mr. Pearson and Mr. Feuerstein would have you believe that the Mission IR marketing campaign was directly responsible for the increase in GALE's stock from this point forward.

    11/6/13 - GALE announced third quarter earnings (quarter ending 9/30/13) which included surprise revenue from Abstral.

    11/11/13 - GALE opened at 2.44/share. Zacks Small Cap Research releases a positive report on the impact of initial Abstral sales for GALE.

    - From 11/1/13 - 11/11/13 average daily share volume was 2,219,471.

    - Following the Zacks article (11/12/13 - 11/30/13) average daily share volume increased to 7,782,717.

    - In the days directly following the Zacks research article, volume picked up significantly, and the stock broke through 3.00/share.

    11/12/13 - GALE opened at 2.49/share. Trading volume was 6,253,500 shares.

    11/13/13 - GALE opened at 2.75/share. Trading volume was 14,778,800 shares.

    11/14/13 - GALE opened at 3.10/share. Trading volume was 10,468,000 shares.

    11/22/13 thru 11/29/13 - On 11/22/13 another article allegedly written by someone working for Mission IR was posted to Seeking Alpha. This was allegedly the same individual who posted the 8/6/13 article on Seeking Alpha, only the author used a different name when posting this article. Once again the article was bullish on GALE and the author failed to disclose that they worked for Mission IR or that Mission IR had a contract with GALE. The daily stock prices for the five trading days following the article were as follows:

    - 11/22/2013 - GALE opened at 3.50/share and closed at 4.00/share on daily volume of 13,890,700 shares.

    - 11/25/13 - GALE opened at 3.94/share and closed at 3.67/share on daily volume of 10,850,200 shares.

    - 11/26/13 - GALE opened at 3.90/share and closed at 3.88/share on daily volume of 6,580,500 shares.

    - 11/27/13 - GALE opened at 4.00/share and closed at 3.88/share on daily volume of 4,248,700 shares.

    - 11/29/13 - GALE opened at 3.98/share and closed at 4.00/share on daily volume of 2,435,400 shares.

    - If you attribute 100% of the stock move during the week to the article (which is irresponsible) then it resulted in a 0.50 (14%) increase in the share price of the stock during that period of time.

    12/2/13 - GALE opened at 4.05/share. For the month of December, average daily share volume was 5,995,281.

    1/2/14 - GALE opened at 5.08/share. For the month of January, average daily share volume was 10,603,024.

    1/7/14 - GALE opened at 5.56/share. Piper Jaffray raises price target from $2.75 to $7.

    1/8/14 - GALE opened at 5.52/share. Maxim raises price target from $6 to $9.

    1/13/14 - GALE opened at 6.80/share. Roth Capital raises price target from $7 to $11 and GALE announced it acquired Mills Pharmaceuticals.

    1/14/14 - GALE shares peak at an intraday high of 7.77/share.

    1/16/14 - Jim Cramer, host of Fast Money, interviewed Mark Ahn, President & CEO of Galena. The segment can be found here. The segment was extremely bearish, or as Mr. Feuerstein put it in his 2/12/14 article;

    "…Jim Cramer used the bully pulpit of Mad Money to raise questions about the company's chief asset - the breast cancer vaccine Neuvax."

    At one point during the piece, Mr. Cramer calls Galena, "a very controversial company" and states, "…a University of Pennsylvania study published about a year ago said that cancer vaccines such as NeuVax, which target a specific antigen, are ineffective." Roughly a minute and forty three seconds into the piece Mr. Cramer suggests investors take money off the table, followed by the statement, "bulls make money, bears make money, hogs get slaughtered". Not surprisingly TheStreet.com, which was founded by Mr. Cramer, began a bearish campaign on GALE immediately following the segment.

    1/17/14 - The first trading day following the Jim Cramer piece, GALE drops 6% on 11,144,900 shares traded. This was a Friday.

    1/20/14 - The market was closed in honor of Martin Luther King's birthday.

    1/21/14 - On the second trading day following the Jim Cramer piece, TheStreet.com published an article; Water Logged and Getting Wetter: Galena Biopharma . GALE opened at 7.05/share and closed at 6.38/share (a 9% decline) on trading volume of 20,087,100 shares.

    2/3/14 - TheStreet.com's Adam Feuerstein published an article; Free Fentanyl Samples and the 'Zombie Apocalypse' . GALE's previous days close was 5.27/share and it closed on 2/3/14 at 4.22/share (20% decline) on trading volume of 19,543,100 shares.

    2/12/14 - TheStreet.com's Adam Feuerstein published an article; Galena Biopharma Pays for Stock-Touting Campaign While Insiders Cash Out Millions. In the article Mr. Feuerstein claims that two articles written by the same individual, but using different names, were removed from Seeking Alpha. The articles in question, which were bullish on GALE, were published on 8/6/13 and 11/22/13 respectively, and Mr. Feuerstein claims they were written by someone hired by Mission IR. GALE opened at 5.22/share and closed at 4.34/share (17% decline) on trading volume of 23,689,400 shares.

    2/14/14 - GALE issued a letter to its shareholders. GALE opened at 4.30/share and closed at 3.73/share (13% decline) on trading volume of 40,744,000 shares.

    2/18/14 - TheStreet.com's Adam Feuerstein published an article; Galena CEO's Response to Stock Promotions Leaves Questions Unanswered.

    3/5/14 - The first lawsuit is filed against GALE.

    3/13/14 - Mr. Pearson published an article on Seeking Alpha titled Behind the Scenes with Dream Team, CytRx and Galena , in which he thoroughly details a series of events involving himself and The Dream Team.

    3/17/14 - Galena reported results for the 4th quarter and year end after market close. The company increases Abstral revenue guidance by over 25%, but discloses the SEC has initiated an inquiry into the company. Shares initially moved up significantly following earnings, but reversed course following the note on the SEC inquiry. GALE closed on 3/17 at 3.22/share. GALE opened on 3/18 at 2.63/share and closed at 2.82 on trading volume of 17,653,100 shares.

    For the 240 day period I looked at the top 10 trading days (by share volume). It's interesting to note the following breakdown:

    · 4 out of the top 10 trading days occurred on days when TheStreet.com released negative articles on GALE (2/12/14, 1/21/14, 2/3/14 & 2/18/14). Average daily volume on those days was 20,295,075 and the average share price move was a decline of 15%.

    · 2 out of the top 10 trading days occurred on days when analysts raised their price target for GALE (1/8/14 & 1/13/14). Average daily volume on those days was 23,574,750 and the average share price move was an increase of 10%.

    · 2 out of the top 10 trading days occurred on, or following, days when the company released news (2/14/14 & 3/18/14). Average daily volume on those days was 29,198,550, and the average share price move was a decrease of 13%.

    · The last 2 days in the top 10 (9/13/13 & 2/7/14) had no positive or negative news releases/articles that I could find. Average daily volume on these days was 19,508,700, and the average share price move was an increase of 8%.

    Dissecting the Negative Articles

    The 2/12/14 article by Adam Feuerstein titled Galena Biopharma Pays for Stock-Touting Campaign While Insiders Cash Out Millions, and the 3/13/14 piece by Richard Pearson titled Behind the Scenes with Dream Team, CytRx and Galena were, in my opinion, the most damaging pieces written during the past few months. I will admit that I was extremely concerned after reading each of the articles when they were released, but as I reread them I realized there were no facts that tied GALE directly to any of the supposed nefarious actions of Mission IR, nor any facts that supported the allegations being made against GALE by the authors. Below are various quotes from these articles, and my counterpoint to each quote. Please be aware that the authors of both pieces use The DreamTeam Group and Mission IR interchangeably. Mission IR is actually an affiliate network partner of DreamTeam Group.

    Mr. Feuerstein's piece on 2/12/14 indicates two articles were pulled from Seeking Alpha because they were written by the same person using different aliases, and this person supposedly worked for The DreamTeam Group. Mr. Feuerstein links GALE to The DreamTeam Group as follows;

    "In July 2013, Galena paid $50,000 to a subsidiary of The DreamTeam Group for 240 days of "advertising, branding, marketing, investor relations and social media services," according to a disclaimer on The DreamTeam Group's Web site

    …Aided by this promotional campaign, Galena shares tripled in value from this summer."

    I'd suggest readers go back and review the timeline above. The 'promotional campaign' clearly had no impact on GALE's stock price through the first 120 days of the contract period, yet Mr. Feuerstein is suggesting that, for the period of 11/1/13 - 1/14/14, the campaign contributed to GALE's stock price tripling. To put it another way, the $25,000 worth of IR services remaining on the contract increased GALE's market cap by roughly $650 million, for a return on investment of 2,599,900%.

    The following quotes are from Mr. Feuerstein's 2/12/14 and 2/18/14 pieces;

    "Coincidence or not, Galena insiders have made millions of dollars by selling company stock in January."

    "As for the recent stock selling by Galena executives and directors, Ahn told The Oregonian that insiders were prohibited from selling stock until very recently because the company was in negotiations to acquire Mills Pharmaceuticals.

    But when asked about insider selling in a different interview on Feb. 4, Ahn said he sold stock to "diversify for my family," and made no mention of insider sale restrictions, leaving yet another unanswered question. "

    I've reviewed the SEC filings for stock purchases and sales dating back to when Galena Biopharma was spun off from RXI Pharmaceuticals. I specifically focused on stock option awards, and stock options that were exercised with the corresponding shares being sold. Below is a summary for each of the GALE executives who are still part of the management team and sold shares during the January 2014 timeframe:

    Richard Chin

    1/13/11 received 50,000 stock options that started vesting 3/31/11

    3/25/11 received 100,000 stock options that started vesting 6/25/11

    9/27/11 received 25,000 stock options that vested immediately

    1/12/12 received 50,000 stock options that started vesting 4/12/12

    1/29/13 received 50,000 stock options that started vesting 4/29/13

    11/26/13 received 200,000 stock options that started vesting in February 2014

    1/30/14 exercised stock options (75,000); cashed out 75,000 shares @ 5.59 (average)

    2/12/14 exercised stock options (187,500); cashed out 187,500 shares @ 4.333

    Total Granted: 475,000 Total Remaining: 212,500

    Mark Ahn

    1/13/11 received 50,000 stock options that started vesting 3/31/11

    3/31/11 received 625,000 stock options that started vesting 6/30/11 (50k vest once stock closed at or above $3/share for 30 consecutive days; 75k at/above $4/share for 30 consecutive days; 100k at/above $5/share for 30 consecutive days)

    1/12/12 received 400,000 stock options that started vesting 4/12/12

    1/29/13 received 650,000 stock options that vested immediately

    11/26/13 received 800,000 stock options that started vesting 2/26/14

    1/27/14 exercised stock options (796,765); cashed out 796,765 shares @ 4.83

    Total Granted: 2,525,000 Total Remaining: 1,728,235

    Nisi Rudolph

    1/13/11 received 50,000 stock options that started vesting 3/31/11

    3/25/11 received 200,000 stock options that started vesting 6/25/11

    9/27/2011 received 100,000 stock options that vested immediately

    1/12/12 received 50,000 stock options that started vesting 4/12/12

    1/29/13 received 50,000 stock options that started vesting 4/29/13

    11/26/13 received 200,000 stock options that started vesting 2/26/14

    1/15/14 Nisi Rudolph exercised stock options (200,000); cashed out 200,000 shares @ 6.90

    1/29/14 Nisi Rudolph exercised stock options (250,000); cashed out 250,000 shares @ 5.28

    Total Granted: 650,000 Total Remaining: 200,000

    Mark Schwartz

    4/13/11 received 40,000 stock options that started vesting on 7/13/11

    9/7/11 received 250,000 stock options that vested immediately

    1/12/12 received 200,000 stock options that started vesting 4/12/12

    1/29/13 received 250,000 stock options that started vesting immediately

    11/26/13 received 300,000 stock options that started vesting 2/26/14

    Total Granted: 1,040,000 Total Remaining: 1,040,000 (Mr. Schwartz did sell shares, but they were not related to stock options he'd been awarded)

    Steven Kriegsman

    1/13/11 received 50,000 stock options that started vesting 3/31/11

    3/25/11 received 300,000 stock options that started vesting 6/25/11

    9/27/11 received 200,000 stock options that vested immediately

    1/12/12 received 50,000 stock options that started vesting 4/12/12

    1/29/13 received 50,000 stock options that started vesting 4/29/13

    11/26/13 received 200,000 stock options that started vesting 2/26/14

    1/17/14 Steven Kriegsman exercised stock options (450,000); cashed out 450,000 shares @ 6.13

    1/23/14 Steven Kriegsman exercised stock options (150,000); cashed out 150,000 shares @ 5.9236

    Total Granted: 850,000 Total Remaining: 250,000

    Sanford Hillsberg

    1/13/11 received 50,000 stock options that started vesting 3/31/11

    3/25/11 received 200,000 stock options that started vesting 6/25/11

    9/27/11 received 200,000 stock options that vested immediately

    1/12/12 received 50,000 stock options that started vesting 4/12/12

    1/29/13 received 50,000 stock options that started vesting 4/29/13

    11/26/13 received 200,000 stock options that started vesting 2/26/14

    1/17/14 Sanford Hillsberg sold 200,000 shares @ 6.925 (previously exercised options 1/14/14)

    1/30/14 Sanford Hillsberg exercised stock options (250,000); cashed out 250,000 shares @ 5.41

    Total Granted: 750,000 Total Remaining: 300,000

    Stephen Galliker

    1/13/11 received 50,000 stock options that started vesting 3/31/11

    3/25/11 received 100,000 stock options that started vesting 6/25/11

    9/27/11 received 50,000 stock options that vested immediately

    1/12/12 received 50,000 stock options that started vesting 4/12/12

    1/29/13 received 50,000 stock options that started vesting 4/29/13

    11/26/13 received 200,000 stock options that started vesting 2/26/14

    2/3/14 Stephen Galliker exercised stock options (300,000); cashed out 300,000 shares @ 4.1768

    Total Granted: 500,000 Total Remaining: 200,000

    I consider both of Mark Ahn's statements referenced above to be factual; GALE management was prohibited from selling stock while in negotiations to purchase Mills Pharmaceuticals, and he personally sold shares to diversify his portfolio. Put yourself in the shoes of the individuals above for a moment; since 2011 you've received hundreds of thousands of stock options. In late November 2013 you receive an allotment of 200,000 or more stock options. Between November 2013 and January 2014 you witness your company's stock skyrocket and you're now sitting on stock options that are worth millions of dollars. What responsible person wouldn't take some gains off of the table? At a minimum I would have exercised and sold a number of shares equal to the November allotment I had received, and if you review the transactions above, you'll see that several of the individuals appear to have done just that.

    Unfortunately heavy insider trading is a metric used by a number of traders; high buy volume by insiders is viewed as management being optimistic in a company and contributes to the notion that a company's share price might be undervalued, while heavy selling by insiders is seen as management pulling out before something really bad is about to happen, or management believing the stock has peaked, and can lead to investors following suit, creating a snowball effect.

    Finally Mr. Feuerstein states;

    "Publicly traded companies routinely pitch their stock to new investors, but some of DreamTeam's marketing tactics appear to resemble stock promotion schemes which run afoul of standard investor relations practices."

    I completely agree with this statement. Publicly traded companies do routinely pitch their stocks, and there is absolutely nothing wrong with this. Nor is there anything wrong with hiring an IR firm to perform these functions on the company's behalf. Additionally, it does appear some of the DreamTeam's tactics run afoul of standard investor relations practices, but there is absolutely nothing that proves GALE had any knowledge of these actions.

    With Mr. Pearson's article, I would like to start with the following paragraph;

    "Those who are interested in background information on these types of situations can refer to this article which details an SEC crackdown on internet stock touting and the laws that were violated. It is a forceful read and I strongly encourage readers to at least give it a quick browse".

    I read the article referenced above and found it to be very enlightening. In the article William Walker, the SEC Director of Enforcement, as part of his opening statement, was quoted as follows;

    "Today's cases all have a common thread. They all allege fraudulent touting of securities, which violate Section 17(b) of the 1933 Act. So, what does Section 17 prohibit? 17(b) provides that it is unlawful to publicize a security, if you are being paid to do so, unless you disclose three things. The first thing that is required to be disclosed is nature of the compensation you are receiving, whether it is cash, or whether it is stock. The second is the amount of compensation you are receiving. And the third is the source of the compensation."

    17(b) does not prohibit free speech. It does not prohibit spamming, online newsletters, posting on message boards, without other activity as well. But lying to investors, or failing to disclose compensation, does violate the law."

    "Now, to whom does 17(b) apply? It applies to anyone person who publicizes a security through any means. When it comes to the Internet, that includes publicizing securities over World Wide Web pages, online investment newsletters, bulletin boards, chat rooms, or through Internet junk mail, which is popularly known as spam. Why is 17(b) important? 17(b) is important because investors have a right to know if information is objective, or whether someone is paying to provide that information to investors. Notwithstanding the attention that has been brought to requirement of the law, people continue to flout 17(b)'s requirements."

    I'm not an attorney, but I believe it is reasonable to summarize these paragraphs as follows; anyone who publicizes a security, and doesn't disclose the fact that they're receiving compensation, is violating the law.

    Now let's consider the GALE situation. GALE hired Mission IR to provide, "advertising, branding, marketing, investor relations and social media services". According to the article by Mr. Pearson, Mission IR contracted some of their work out to freelance writers. How do I know this? In Mr. Pearson's article he twice references tax form W-9;

    "We're going to pay you for your Galena research though ($300) once I get your W9."

    "In addition, confirming the involvement of Mr. Mylant should not prove to be too difficult given that DTG does require its writers to fill out a form W9 for tax purposes."

    A W-9 tax form is used when a person is providing his or her service as an independent contractor or freelancer. The information on the W-9, and the total of payments made to the individual are reported on Form 1099, which records miscellaneous income (i.e. income other than salaries, wages and tips).

    I would contend that in many of the cases referenced in the article by Mr. Pearson, the freelance writers were publicizing the security, therefore it was their responsibility to disclose the fact that they were receiving compensation for doing so, thus it was the freelance writers who violated the law.

    Mr. Pearson also indicates that Tom Meyer, an employee of The DreamTeam Group, wrote articles under various pseudonyms and failed to disclose he was receiving compensation. If that is found to be accurate, then at a minimum Mr. Meyer violated the law, and possibly The DreamTeam Group could be held accountable.

    But what about GALE's responsibility? Let's review the SEC Director of Enforcement's response to a question about whether companies hiring touters would be prosecuted;

    "There is nothing illegal about companies paying fees to touters. The law requires the touters have to disclose ... The laws do not cover the companies themselves who make the payments."

    This is a critically important statement. The onus is on the individual that writes the article. If the individual worked for Mission IR, either as a freelancer or directly for the company, then they are ultimately responsible for disclosing, not GALE.

    Mr. Pearson makes several other incorrect claims, three of which I've highlighted below;

    "The fact that management had enough control to prevent publication shows that they knew they were paying for these articles."

    This is an illogical conclusion. We know GALE had a contract with Mission IR to provide IR services, which clearly included advertising and social media services. As such, GALE reserved the right to instruct Mission IR to publish/not publish articles. In addition, based on the emails provided by Mr. Pearson, it is clear that Mission IR and/or the DreamTeam Group was paying the authors to write the articles, not GALE.

    "Management then edited and approved the articles and would have seen the lack of disclosure."

    I believe it is logical to assume that, if GALE did in fact review, edit and approve articles, it did so to verify the accuracy of the information being presented about their products. One could just as easily assume the disclosure statements were included in the copies that GALE received, and omitted from the final versions, or Mission IR assured GALE that disclosure statements would be added when the articles were submitted, but they never were. Or perhaps it was part of the contract between the two companies that Mission IR would abide by all required laws and regulations in its efforts to promote GALE, which would include disclosing their relationship. It is irresponsible to assume GALE management had any knowledge that these articles were being submitted without the proper disclosures.

    "The undisclosed media promotions coordinated with the release of news and data saw both of these stocks rise from around $2.00 in November to around $8.00 by January. The fact that these recent news releases were concurrent with undisclosed stock promotions casts significant doubt on many of the fundamental statements made by these companies regarding their drug prospects."

    This statement, as it relates to GALE, is untrue. First and foremost, the only news releases provided by GALE during the 240 day timeframe were their earnings releases and the letter to shareholders. There were no news releases that I could find related to data on GALE's drug candidates. Secondly, there appears to be a strong correlation between the release of the Zacks Small Cap Research report on 11/11/13 and the share price rise in GALE, and no correlation between the share price rise and the Mission IR marketing campaign. As I pointed out using the timeline, it appears as though the Mission IR promotional campaign was ineffective. Finally, to call into question the drug prospects of GALE because their stock price increased is absurd.

    I found several other oddities in the article by Mr. Pearson, so I reached out to him on 4/21/14 for comment. Below is my email in its entirety.

    Richard,

    I was hoping you'd be willing to answer a few questions related to the 3/13/14 article/expose you posted on Seeking Alpha titled Behind the Scenes with Dream Team, CytRx and Galena. It was one of the more thorough pieces I've read and I commend you for your work. While I feel it was quite damning for CytRx, I believe the evidence against Galena does not support all of the allegations, and there's a chance that company is being unfairly punished. I was hoping you could answer the questions below, the responses to which I may/may not use in a Seeking Alpha article.

    1) On 2/12/14 The Street's Adam Feuerstein posted an article titled Galena Biopharma Pays for Stock Touting Campaign While Insiders Cash Out Millions. Did you provide him with the information that he used to write his article?

    2) If you did provide the information to Adam Feuerstein; can you tell me if you've provided information to him in the past, and if so, would you share the company names you've provided him information on?

    3) In your piece you state, "The promotional articles and the paid retention of the Dream Team Group were coordinated with the release of news and data from the companies such that they coincided with the share prices of both stocks rising dramatically". Do you have proof of this or was this speculation on your part? I don't see any proof in your article that supports these allegations.

    4) In your piece, you indicate that you flew from California to Chicago for a meeting. Did you pay for the flight yourself, or did someone else pay for your ticket? If someone else did, who? If you paid for it yourself, what compelled you to spend money to take a flight half way across the country? Considering you aren't a journalist, it strikes me as odd that you would go to those lengths to follow up on an odd email.

    5) If CytRx and/or Galena are found to be guilty of your allegations, and the SEC enforces an action that yields monetary sanctions exceeding $1 million, will you be eligible to receive an award under the Whistleblower Award Program? If so, did you write the article with this knowledge and with the hope that it would lead to such an award?

    6) You disclose that you took a short position in CytRx; do you currently, or have you ever, taken a short position in Galena Biopharma (ticker symbol GALE)?

    7) Have you ever recommended someone (someone being an individual or institutional investor) take a short position in Galena Biopharma (ticker symbol GALE)?

    8) In your opinion, and based on your research/experience, is there anything inherently wrong with a company hiring an investment relations firm to promote the company and/or its products?

    9) In your piece you state, "Mr. Meyer suddenly informed me that he would no longer need an article for Galena. The fact that management had enough control to prevent publication shows that they knew they were paying for these articles." Do you have proof that management knew they were paying for these articles or is this speculation on your part? If you have proof, can you provide it?

    10) In your piece you state, "Documents show that CYTR and GALE management edited, changed and approved the paid articles." I was unable to find any evidence in your piece that proves GALE management edited, changed and approved the paid articles. I found references where someone told you GALE management undertook these actions, but nothing concrete linking them to these actions. Do you have hard evidence proving GALE management edited, changed and approved paid articles?

    11) In your piece you state, "I was asked to write paid promotional articles on Galena Biopharma (GALE) and CytRx Corp (CYTR), without disclosing payment." Where is the evidence that shows that you were explicitly told not to disclose the fact that you were receiving payment? If there is evidence to support this, was it someone from Galena Biopharma or CytRx Corp that told you not to disclose payment, or was it someone from The Dream Team Group (aka Mission IR)?

    12) Would you consider it a possibility that management at Galena Biopharma reviewed and edited articles for the sole purpose of ensuring the information regarding their drug candidates was accurate and not misleading?

    13) Do you truly believe that a $50,000 contract with Mission IR for 240 days of service, which resulted articles being posted on several websites, were directly responsible for a $500 million increase in the market cap of Galena Biopharma, or do you concede that there were numerous positive catalysts for the company that contributed to the rise in price?

    Thank you for your time and efforts. I look forward to your responses.

    Mike

    (Disclosure, I am a GALE shareholder and individual investor. I do not work for Galena Biopharma nor do I work for any company or outlet that promotes or shorts stocks. I will not receive compensation for any article I write related to GALE.)

    As of 5/7/14 Mr. Pearson had not responded to my email.

    Reasons for Optimism

    The potential of Abstral®

    Abstral fentanyl sublingual tablets are a treatment option for breakthrough cancer pain, which affects an estimated 40%-80% of all cancer patients. Abstral is an FDA approved, fast acting, sublingual (under the tongue) tablet that is reported to start relieving pain in minutes. Abstral is the leading fast-acting fentanyl product in Europe, with a market share of approximately 27%. On 3/18/13 Galena announced that it reached an agreement with Orexo AB to acquire Abstral for sale and distribution in the United States (U.S.).

    Abstral was officially launched by GALE in the U.S. in the fourth quarter of 2013 (October 2013 - December 2013). Net revenue during that quarter was $1.3 million. On 5/6/14 GALE released quarterly results for the period ending 3/31/14. Net revenue associated with Abstral for the three months (January 2014 - March 2014) was $2.2 million, and the company reaffirmed its full year net revenue guidance of $11M-$15M.

    The U.S. market for fentanyl products is reported to be just over $400M annually. One of the market leaders in the U.S. is Insys Therapeutics (Insys). According to Insys's most recent 10-Q its lead fentanyl spray product, Subsys ®, currently holds a 28.3% share of the transmucosal immediate-release fentanyl (TIRF) market, and shows statistically significant pain relief at five minutes. In its most recent SEC filing, Insys reported net revenue associated with Subsys of $39.1M.

    It's interesting to compare the launch of Subsys to the launch of Abstral, which I've outlined in the chart below.

      

    Net Revenue (in millions) Following Launch of Fentanyl Product

    Company

    Product

    3 months

    6 months

    9 months

    12 months

    15 months

    18 months

    21 months

    Insys Therapeutics

    Subsys

    1.2

    2.6

    4.8

    9.7

    18.5

    28.4

    39.1

    Galeana Biopharma

    Abstral

    1.3

    2.2

    ?

    ?

    ?

    ?

    ?

    * The column headings "3 months", "6 months", etc., represent the first full quarter, second full quarter, and so on, following the launch of each of the drugs

    In order for GALE to meet its annual net revenue guidance of $11M-$15M for 2014, Abstral will need to average net revenue of between $2.94M and $4.27M per quarter for the remainder of the year. If Abstral can reach net revenue of over $4.0M for the second quarter of this year it will be tracking very closely to the growth of Subsys. For those of us that believe Abstral has the same potential as Subsys, the next two to four quarters are going to be extremely important and very exciting.

    The next chart shows the stock price of Insys and GALE following the launch of their fentanyl products.

             
      

    Stock Price Following Launch of Fentanyl Product

    Company

    Product

    3 months

    6 months

    9 months

    12 months

    15 months

    18 months

    21 months

    Insys Therapeutics

    Subsys

    $8.76

    $7.01

    $7.30

    $16.70

    $17.08

    $39.89

    $58.83

    Galeana Biopharma

    Abstral

    $5.27

    $2.45

    ?

    ?

    ?

    ?

    ?

    You'll notice that Insys stock took off when the net revenue numbers for the 12 months following the launch of the drug posted, and were double that of the previous quarter. While it's too early to tell if GALE will have the same success as Subsys, it is exciting to consider that if Abstral net revenue continues to run parallel with Subsys, GALE's share price could see considerable appreciation in the next 6 to 9 months.

    You might be thinking, "this is all well and good, but what is Abstral's value in terms of share price?". Great question, I'm glad you asked. To determine this I used Insys and Subsys as the baseline.

    Insys has 33.41M shares outstanding with a current share price of $39.57.

    GALE has 118M shares outstanding with a current share price of $2.58.

    Insys has no major products in its pipeline, therefore I believe it's fair to say the company's valuation is based on the two products it currently has on the market; Subsys and Dronabinol SG (Generic Marinol ®). According to the company's annual report, 96% of net revenue comes from Subsys. As of market close on 5/7/14, Insys shares traded at $39.57/share.

    A very basic way to calculate Subsys's value to the company in terms of share price is as follows.

    Multiply .96 x $39.57 (current share price) = $37.99

    Divide the most recent annual net revenue figure for Subsys ($95.7M) by the portion of the share price attributed to Subsys ($37.99) = $2.5M

    So every $2.5M in annual net revenue that Subsys generates is worth $1 in share price.

    If we apply this logic to Galena, we get the following valuation for Abstral:

    $11M to $15M (2014 annual net revenue estimate) divided by $2.5M = $4.40 to $6.00 per share

    We also must factor in the difference in the number of shares outstanding; Insys has 33.41M shares outstanding versus GALE's 118M, or 72% less than GALE.

    $4.40 to $6.00 x .28% = $1.23 to $1.68 per share

    Based on this calculation, Abstral is worth $1.23 to $1.68 in share price to GALE, based on annual net revenue of $11M to $15M.

    Using this information, we can then forecast the potential impact increased Abstral sales will have on the share price. Given Abstral has a 27% market share in Europe, and given the early success here in the U.S. (Abstral is reported to have 5% of the market based on prescription data), a conservative estimate would give Abstral the potential to grab a market share in the U.S. of between 10% and 15%. Once again using Insys and Subsys as the baseline;

    Subsys Quarterly Revenue (most recent quarter) - $39.1M

    Subsys Share of TIRF Market - 28.3%

    Quarterly Net Revenue per Percent of Market Share - $1.38M

    Using this logic, if Abstral were to capture a 10% to 15% market share, it would result in quarterly net revenue of between $13.8M and $20.7M, or between $55.3M and 82.9M annually. Using our share price model from above, Abstral alone could bring GALE's share price up to the range of $6.19 to $9.28 per share.

    And Then There's Neuvax ®

    Unlike Insys, GALE has a number of drug candidates in its pipeline, which we can see in the chart below that was pulled from a recent GALE presentation.

    Despite the early success of Abstral, NeuVax is the drug that shareholders are the most excited about. NeuVax is GALE's lead immunotherapy product candidate and was developed to prevent the recurrence of early stage breast cancer in patients with low to intermediate Human Epidermal Growth Factor Receptor (HER) 2 expression. HER2 is a protein that promotes the growth of cancer cells. NeuVax is currently in four ongoing or planned trials, with the Phase III Prevention of Recurrence in Early Stage Node-Positive Breast Cancer with Low-to-Intermediate HER2 Expression with NeuVax Treatment (PRESENT) trial scheduled to complete enrollment by the end of 2014.

    NeuVax is a targeted cancer immunotherapy that could benefit tens of thousands of the breast cancer patients that are diagnosed annually to be at high risk for breast cancer recurrence after achieving remission with the standard of care (surgery, chemotherapy, and radiation). The breast cancer drug market is a multi-billion dollar enterprise, with Roche's Herceptin being the top breast cancer drug on the market, with sales of over $6 billion in 2013. The excitement surrounding NeuVax is this; Herceptin currently targets 25% of all breast cancer patients (those that are HER2 positive), while NeuVax is attempting to address the needs of the remaining 75% of patients (those that are HER2 negative). If GALE is successful in bringing NeuVax to the market, it is projected to easily reach over $5 billion in sales annually.

    The Company's Cash Position

    According to the 5/6/14 conference call, GALE is projecting an operating cash burn of between $30 and $32M annually. GALE currently has $52.4M of cash & cash equivalents on hand, which is enough to fund operations for well over a year. Perhaps more importantly, when management was asked about the impact the pending lawsuits would have on their cash position, they stated;

    "We want to make sure the audience is very, very clear that we have adequate insurance to cover corporate issues like this, and our balance sheet is completely focused on building our capabilities and advancing our pipeline."

    This quote can be found around the 35:30 mark.

    Given this, it seems clear the company will not need to dilute shareholder value in the near future by issuing additional shares.

    Reasons for Concern

    The Lawsuits

    Clearly the biggest concerns are the pending lawsuits and the SEC Inquiry. The lawsuit complaints are essentially identical; here are the summaries of a few:

    Levi & Korsinsky, LLP

    The complaint alleges that throughout the Class Period, Galena made false and/or misleading statements that led to the artificial inflation of Galena's stock price…

    On February 12, 2014, an article featured on TheStreet.com alleged Galena was engaging in a misleading campaign aimed at boosting its stock price, alleging that investor relations firm The DreamTeam Group had published articles under aliases promoting the Company's stock without disclosing their sponsorship.

    Bernstein Liebhard, LLC

    The complaint alleges that throughout the Class Period, defendants violated the federal securities laws by disseminating false and misleading statements to the investing public. As a result of defendants' false statements, Galena's stock traded at artificially inflated prices during the Class Period.

    On February 12, 2014, Adam Feuerstein published an article on TheStreet.com claiming Galena was engaging in a misleading brand awareness campaign aimed at boosting its stock price. Additionally, the article represented that Galena paid investor relations firm The DreamTeam Group ("DreamTeam") to publish articles under aliases promoting the Company's stock without disclosing who paid for them.

    Shareholders Foundation

    The plaintiff claims that defendants violated the federal securities laws by disseminating allegedly false and misleading statements to the investing public…

    On February 12, 2014 an article was published alleging that Galena Biopharma Inc has engaged in a misleading brand awareness campaign designed to boost Galena's stock price. The article said that "aided by this promotional campaign, Galena shares tripled in value from this summer. Coincidence or not, Galena insiders have made millions of dollars by selling company stock in January." Additionally, the article represented that Galena Biopharma Inc paid investor relations firm The DreamTeam Group to publish articles under aliases promoting the Company's stock without disclosing who paid for them.

    Personally I don't see that these lawsuits have a lot of merit. For instance, the law firms absolutely misinterpreted the claims made by Mr. Feuerstein. Mr. Feuerstein never claims that,

    "Galena paid TheDreamTeam Group to publish articles under aliases promoting the Company's stock without disclosing who paid for them"

    Mr. Feuerstein simply indicates that GALE paid The DreamTeam to provide marketing and other services, and the actions of The DreamTeam appear to;

    "…resemble stock promotion schemes which run afoul of standard investor relations practices."

    Nowhere does Mr. Feuerstein indicate GALE was complicit.

    Whether you believe the lawsuits are frivolous or not, you can't ignore the impact they've had on GALE's share price. If GALE management is right, and the company's insurance will cover any damages that could possibly stem from these suits, then the impact may not be as severe as we all initially thought.

    Mishandling of the Situation by Management

    It is my opinion that GALE management mishandled the public relations nightmare that stemmed from the allegations made by Mr. Feuerstein and Mr. Pearson. Once GALE was notified of the alleged actions of Mission IR, management should have immediately condemned those actions and, assuming their contract contained clauses requiring Mission IR abide by all laws and regulations, terminated the contract and filed suit against the company.

    I also believe management could have been more definite in their response to the allegations. I don't recall management ever coming out and stating, "We vehemently deny all of the allegations being made against our company, and our management team". Instead we've gotten several carefully worded responses that left open the possibilities that there could be problems.

    Finally, after reviewing the SEC filings, it appears one of the members of the management team shorted GALE stock and later covered their position. There is absolutely no way that should be allowed to happen, and that person should have immediately been removed from his position and fired.

    Conclusion

    It is my opinion that the concerns over GALE have been exaggerated. GALE admitted to having a contract with Mission IR to provide various investment relations services, but this is common among publically traded companies. The alleged actions by Mission IR and the freelance writers it hired; writing multiple articles under various pseudonyms and not disclosing compensation, were reprehensible, but claiming GALE was a party to those actions is irresponsible.

    Yes, some members of the GALE management team exercised portions of their stock options and subsequently sold those shares, but let's keep in mind, the rise in the share price represented the first time the stock had ever closed above $3/share for a significant period of time, let alone closing above $4/share, $5/share, $6/share and $7/share, and therefore represented the first opportunity these individuals had to exercise their options and realize substantial gains. GALE management had been holding some of those stock options since 2011 (and perhaps earlier), and they all recently received additional substantial allotments of stock options (>200,000) in November 2013. It is reasonable to conclude some of them decided to rotate out of their older options contracts to avoid expiration, and, as Mark Ahn said, to diversify. It's also reasonable to conclude their wives told them that if they didn't sell some of their shares they'd be bachelors.

    GALE has a promising drug in Abstral; a rapid acting fentanyl product used to treat breakthrough cancer pain. Abstral revenue guidance was raised significantly in March of 2014, which bodes well for the future, and the drug could ultimately eliminate the company's need to raise capital by issuing shares, thereby preserving shareholder value. GALE also has a robust pipeline of drug candidates in various phases of testing, with its lead candidate Neuvax having blockbuster potential.

    Since there is an ongoing SEC inquiry, as well as pending lawsuits, there are dangers related to investing in this stock. Lawsuits can drain company resources, and if the SEC inquiry turns into a full blown investigation there could be a mass exodus from the stock. I firmly believe the SEC inquiry will find GALE was not involved in insider trading, or a pump-and-dump scheme, which is why I'm a buyer at these levels.

    Whether you're a bull or bear, I wish you successful trading.

    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.

    Tags: GALE, long-ideas
    May 09 4:04 PM | Link | 31 Comments
  • GALE: Recent Pullback Presents Interesting Short Term Trading Opportunities

    Since closing at a high of 7.48/share on 1/16/14, Galena Biopharma (NASDAQ:GALE) has seen some dramatic moves lower, the most recent of which occurred 2/12/14 when the stock shed over 16% to close at 4.34, which is nearly 42% lower than its January 16th high. For those new to the stock, several of these large moves lower have been the result of articles written by Adam Feuerstein (NYSE:AF) of TheStreet, which, among other things, criticized the company's Abstral promotional campaign, and the company's decision to solicit a marketing company that may have written two Seeking Alpha articles posing as two different authors.

    AF is a self-proclaimed GALE bear, so it isn't surprising to find him writing articles that support his position. His two most recent articles, Galena, Free Fentanyl Samples and the 'Zombie Apocalypse' (2/3/14) and Galena Biopharma Pays for Stock-Touting Campaign While Insiders Cash Out Millions (2/12/14) certainly made an impact with GALE shareholders as the stock shed 20% and 16.9% respectively on the days the articles hit the web. In the interest of full disclosure, I think it's important to point out that AF's boss, Jim Cramer, recommended taking some GALE gains off the table in the middle of January. One should consider that AF's articles, among other things, may be an attempt to drive the share price lower to make his boss look good.

    I find the first article, Galena, Free Fentanyl Samples and the 'Zombie Apocalypse', to be quite irresponsible, devoid of any facts about the company or its products, and nothing more than an attack on GALE. Abstral is an FDA approved drug, has been prescribed in Europe for years, and has helped numerous cancer patients control the debilitating pain associated with their disease. I find it shocking that AF, as controversial as he sometimes is, would stoop so low as to quote a blogger who viewed an advertisement for Abstral, which depicts a cancer patient and their child, and said it showed a, "…new-age style woman completely blissed out…". Each time I read that I come away incredibly offended.

    The second article, Galena Biopharma Pays for Stock-Touting Campaign While Insiders Cash Out Millions, attempts to implicate GALE in a stock promotion/insider trading scandal. Here are the bullet points from the article:

    · Two articles touting GALE were removed from Seeking Alpha because they were written by the same person.

    · AF indicates this is, "serious and potentially damaging because of evidence linking Galena to a stock-promotions firm which wrote and published the articles on Seeking Alpha." He does not provide the evidence anywhere in the article.

    · In July of 23013 GALE paid a company, DreamTeam Group, for 240 days of, "advertising, branding, marketing, investor relations and social media services"

    · "…Galena insiders have made millions of dollars by selling company stock…"

    · "Seeking Alpha was unable to determine if the author was paid by DreamTeam Group to write the two articles on Galena."

    For the months of July 2013 through October 2013 (4 months) the stock price hardly fluctuated, hovering around $2/share. In November GALE realized a substantial increase in the volume of shares traded, and the stock shot up to $4 by the end of the month. The November move can be attributed to the 11/6/13 earnings release and the excitement generated by the unexpected pre-launch success of Abstral. The December and early January moves were, in my opinion, carry-over euphoria from the November earnings release, excitement about the analyst's coverage that was initiated on the stock, and the 13-F filings that showed institutional investors had increased their position in GALE. Insinuating the stocks move from October to mid-January, which added roughly $500M to the company's market cap, was the result of a $50,000 contract with a marketing firm, and a few Seeking Alpha articles, is irrational. That being said, the recent insider trades are concerning, and I would like to see the company put out a statement soon to address the issue.

    Looking ahead to the March earnings call, I think there are some interesting short term trades that can take advantage of the mass selling that has recently occurred, coupled with my expectation that the company will report a substantial beat on both EPS and revenue. If you're not sold on the long term potential of GALE you can still trade the stock based on upcoming short term catalysts. Please be advised that trading options is not for the faint of heart, and individuals should understand the risk associated with options trading before executing any trades.

    Trade Idea #1

    This trade is conservative approach to take advantage of a potential stock rise following the 2013 Q4 earnings call scheduled to take place in March, but gain some downside protection in case of an earnings miss. The consensus revenue estimate for 2013 Q4 is 1.6M. Here's the trade, and for the sake of simplicity, these calculations do not factor in the cost of broker fees.

    1) Purchase 100 shares of GALE (trading at $4.40/share at the time this was written)

    2) Sell 1 April 19, 2014 call with a strike price of $4.50/share (selling a call means you, the seller, are giving the buyer of the call the right to buy those shares from you at a price of $4.50/share)

    * Keep in mind that 1 options contract equals 100 shares

    Example

    Purchasing 100 shares at $4.40/share will cost $440. The April 19, 2014 $4.50 call is trading at $0.70/contract at the time this was written, so selling 1 contract would net you $70.

    If, on April 19th the stock closes at $5.00/share;

    Your 100 shares are called away from you for $4.50/share, for a gain of $10. You keep the premium that was paid to you for the call contract you sold ($70), for a net gain of $80, or 18%.

    If, on April 19th, the stock closes at $4.00/share;

    Your 100 shares are not called away from you, and are worth $400. You keep the premium that was paid to you for the call contract you sold ($70). If you sell your shares, you realize a loss of $40, so your net gain is $70 - $40 = $30, or 6.8%.

    To lose money on this trade, the stock price would have to drop below $3.70/share, but your upside is capped at 18%, which means you could miss out on a big move up.

    Trade Idea #2

    This trade involves positioning yourself around the 2013 Q4 earnings call scheduled to take place in March, and the 2014 Q1 earnings call expected to take place in May. The consensus revenue estimates for those quarters are 1.6M and 2.3M respectively. I expect a big beat on the 2013 Q4 estimate of 1.6M, and the stock to rise significantly from its current levels as a result. Here's the trade, and for the sake of simplicity, these calculations do not factor in the cost of broker fees.

    1) Sell a GALE July 19, 2014 put contract with a strike price of $3.50 (selling a put obligates you to buy shares at the strike price. The obligation to buy occurs if the stock price is below the strike price at expiration)

    2) Buy a GALE April 19, 2014 call contract with a strike price of $2.50 (buying a call gives you, the buyer, the right to buy shares of stock at the strike price. The buyer is not obligated to buy the shares)

    * Keep in mind that 1 options contract equals 100 shares

    Example:

    GALE is trading at $4.40/share at the time this article is being written. The July 2014 $3.50 put is currently going for $0.90/contract, while the April 2014 $2.50 call is currently going for $2.00/contract.

    Selling the put nets you $90, while buying the call costs you $200, for a net cost of $110.

    Let's assume that on April 19th the stock closes at $5.50/share. The call you purchased would be worth $3.00/contract, while the price of the July put would be less than the $0.90 you sold it for; let's say $0.80/contract to be conservative.

    If you close your positions you net $300 for selling the call, and pay $80 to close your put, for a gain of $220. Subtract out the cost of the trade ($110) and you've got a net gain of $110, or 100%. Conversely, if you'd taken your $110 initial investment and instead bought shares of GALE (25 shares at $4.40/share) the move to $5.50 would have netted you $27.50, or 25%.

    Now let's assume that on April 19th the stock closes at $2.00/share. The call you purchased would be worthless, while the price of the July put would be more than the $0.90 you sold it for; let's say $2.25/contract.

    If you close your position in the July put it will cost you $225. Your loss on the trade would be $225 - $90 + $200 = $335. As you can see, there is more risk involved in this trade.

    There are many ways to position oneself to take advantage of the potentially good news that will come out of the upcoming earnings call in March, these are just a few ideas that can give you exposure. Given the recent bearish trend on this stock, it might be worth it to wait until we get closer to the earnings announcement in March to take any actions. Whether a bull or a bear, I wish you successful trading.

    Disclosure: I am long GALE.

    Tags: GALE
    Feb 14 11:15 AM | Link | 1 Comment
  • GALE Shareholders: Take A Deep Breath And Look At The Facts

    Inhale. Exhale. Repeat. If you're a GALE shareholder you've suffered through a rollercoaster ride recently; the stock soared at the beginning of the year, only to plummet recently thanks to a slew of disparaging articles, another of which was posted today on The Street. Everyone needs to separate the facts from speculation, conjecture and innuendo, and invest accordingly. Let's take a look at some of the recent claims and try to figure out what is factual, and what is not.

    First, I think it's important to review the timeline of these damning articles.

    On 1/16/14 Jim Cramer, who is co-founder and chairman of TheStreet.com, Inc., interviewed Galena (NASDAQ:GALE) CEO Mark Ahn on his CNBC program Mad Money. The questions Mr. Cramer asked were difficult, and were certainly slanted towards portraying the company in a bad light, but all things considered I thought they were fair. Cramer noted that investors should consider taking some gains off the table after GALE's incredible run, but, the stock was worth keeping an eye on. The stock closed at $7.48 on the 16th.

    Following the 1/16/14 Mad Money segment, TheStreet, which was founded by Cramer, has run seven articles on Galena, two of which were written by Adam Feuerstein (NYSE:AF), and were quite negative. Mr. Feuerstein is known to be controversial with his stance on companies, but we need to keep in mind, that's his job. He is not an analyst, he likes to speculate, and people should not react to his articles as strongly as they do. Among other things, AF questioned the effectiveness of Neuvax, the marketing tactics surrounding Abstral, and stock promoters. There is an abundance of information out there on Neuvax, so I won't discuss that, but I would like to address some of the other perceived issues.

    Abstral

    Facts

    1) On 11/6/13 GALE reported net revenue of 1.2M from Abstral sales for the 3 months ended 9/30/13. These sales were prior to the official launch of the drug. Per the 11/11/13 note from Zacks Small Cap Research, "It's a surprise to us that GALE reported Abstral sales ahead of its official launch and we are pleased with the initial commercial success to date with Abstral which is very encouraging...we expect to see continued Abstral sales growth in the fourth quarter of 2013 and fiscal 2014."

    2) Abstral sales are, on average, projected to be 2M/quarter for 2014.

    3) Orexo, the company that sold the US rights for Abstral to GALE, stated in their full year 2013 report, which can be found here (http://www.orexo.com/en/Investor-Relations/Press-releases/?guid=848714) that, "Orexo sold the rights of Abstral® to Galena Biopharma, Inc. in the US and the product was re-launched in October. At the end of December Abstral had attained a market share of about 5 % in terms of prescriptions, the highest ever since Abstral was approved in US in 2011."

    Speculation/Innuendo

    1) AF notes in his 2/3/14 article, "Galena doesn't make any money when it gives away Abstral for free...Galena bulls have pointed to growing prescription numbers as evidence the drug is taking market share from all the other fentanyl-based products...market share gains derived from free samples don't mean much..."

    Rebuttal: I've yet to see an article where a GALE bull is touting prescription numbers for Abstral. Shareholder optimism for Abstral is based on the 1.2M net revenue realized from Abstral sales in Q3 of 2013, and more importantly, the note from Orexo indicating it had already captured a 5% market share in terms of prescriptions. The US market for fast-acting fentanyl products is projected to be $400M to $500M, so shareholders should be optimistic about the drugs impact on the company.

    Regarding the free samples, it is a common practice for new drugs to be marketed via free samples. It's a tool that is frequently used in order to introduce new drugs to doctors and patients. It's ridiculous to attempt to portray this practice in a negative light.

    Stock Promoter's

    Facts

    1) Analysts at Oppenheimer, Roth Capital, and Piper Jaffrey have rated the stock a buy, strong buy, or outperform.

    2) According to the most recent 13-F filings (http://www.nasdaq.com/symbol/gale/institutional-holdings/activity) institutional investors added to their GALE holdings to the tune of a net 8.5M shares.

    3) The largest institutional holders are; State Street (5M), Barclay's (3.6M), Blackrock (2.8M), and Vanguard (2.5M), which are well known and well regarded companies.

    Speculation/Innuendo

    1) AF notes in his 2/12/14 article that two articles were removed from Seeking Alpha because they were written by the same person. He specifically points to articles written on 8/7 and 11/27 promoting the company.

    2) In the same article, AF notes GALE paid 50k to a company for, "advertising, branding, marketing, investor relations and social media services".

    Rebuttal: On 8/7 and 8/8 the stock closed at 2.04, a move of exactly 0%. The stock traded around 2.00/share until 8/21 when it moved to 2.14. On 11/26 and 11/27 the stock closed at 3.88/share, a move of exactly 0%. On 12/2 the stock went up to 4.49 on volume of 12.1M shares traded, but quickly retested the 4.00/share level. Clearly the articles referenced above had no impact on the stock, and it's, at best, premature to assume the company had any knowledge that these articles were being written.

    Every company in the world that is serious about marketing pays to market itself and its products. When you turn on the TV, you're seeing paid advertisements for companies and products, which include prescription drugs, on a regular basis. Start-up companies don't have the resources to pay top dollar for advertising campaigns, therefore they must find companies that will offer them the most bang for their buck. I won't defend their use of the DreamTeam because I know nothing about that company, but I will say the practice is common.

    Bottom Line

    Investors should diligently research any company they consider investing in. Do your homework and make an informed decision, but don't base your decisions on articles written by those that are whole-heartedly one-sided and devoid of facts. Just as there are bulls who blindly promote stocks, there are bears looking to bash stocks and take advantage of the corresponding fall in stock price.

    I am long GALE, currently hold shares, and would recommend buying on this dip.

    Disclosure: I am long GALE.

    Tags: GALE
    Feb 12 2:02 PM | Link | 6 Comments
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    Jun 4, 2014
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