A Great Move For Galena Biopharma

| About: Galena Biopharma, (GALE)

GALE Acquires Abstral Sublingual Tablets in the US

On March 18, 2013, Galena Biopharma (NASDAQ:GALE) announced that it has entered into an agreement with Orexo AB (ORX.ST), an emerging specialty pharmaceutical company based in Sweden, to acquire Abstral (fentanyl) Sublingual Tablets for sale and distribution in the United States. (here)

Abstral is a novel, rapidly-disintegrating, sublingual (under the tongue) rapid acting formulation of fentanyl, a well-established opioid, and is indicated for the management of breakthrough cancer pain (BTcP) in patients who are already receiving, and who are tolerant to, opioid therapy for their persistent baseline cancer pain. According to breakthroughcancerpain.org, BTcP affects as many as 40-80 percent of cancer patients, with reported episodes of 4 per day and a median duration of 30 minutes. The innovative Abstral formulation delivers the analgesic power of fentanyl in a convenient and easy to use sublingual tablet, which dissolves under the tongue within seconds. Abstral provides rapid relief of BTcP, predictable dosing, and is convenient and easy to use.

Abstral is the leading rapid acting fentanyl product in Europe, where it achieved full year sales of US$54 million by ProStrakan/Kyowa Hakko Kirin in 2012, and continues to exhibit a steady growth of 42% for Q4-2012 over Q4-2011. By the second half of 2012, the average volume market share of Abstral in the major European markets reached 29%. Abstral is marketed in Canada by Paladin Labs, and has been filed for regulatory approval in Japan by Kyowa Hakko Kirin Co Ltd.

Abstral was approved by the FDA in January 2011. Orexo announced in June 2012 the acquisition of all US rights to Abstral from ProStrakan Group plc as a part of a reconfiguration of the worldwide rights to Abstral. The US market for rapid acting fentanyl products reached US$400 million in 2012. Market research has documented a substantial unmet patient need for improved treatment of breakthrough cancer pain across oncology centers in the United States.

Under the terms of the agreement, Galena Biopharma will pay Orexo $10 million upfront and an additional $5 million within the first twelve months of closing with complete CMC transfer, plus 12% royalties and one-time milestone payments based on pre-specified net sales which include $2 MM one-time cash milestone payment on exceeding annual net sales of $20MM; $5 MM on exceeding annual net sales of $50 MM; and $10 MM on exceeding annual net sales of $100 MM.

To fund the acquisition and launch of Abstral, Galena plans to enter into a debt financing. The term loan would include a total loan amount of $15 million, to be drawn in two tranches. Terms would include a coupon rate of approximately 7.59 percent and 4.5 percent warrant coverage. Interest-only payments would be due monthly through April 2014, then 30 months of amortization to maturity in 2016. The actual terms of the proposed debt financing may be different.

Abstral Launch Plan and Key Milestones

Market positioning: Abstral is the first and only fentanyl sublingual tablet for the management of breakthrough cancer pain in opioid tolerant patients with cancer (abstral.com). Abstral is the best-in-class for the treatment of breakthrough cancer pain which provides:

  1. Rapid absorption: Innovative drug delivery technology ensures tablets dissolve quickly to allow rapid absorption from the oral mucosa;
  2. Rapid onset: Delivers rapid relief of breakthrough cancer pain. Novel formulation which delivers the fastest onset of action of any TRIF: 5-10 minutes;
  3. Treatment optimization: Can be titrated to meet the analgesic requirements of individual patients;
  4. Convenient administration: Tablets are placed under the tongue and allowed to rapidly dissolve;
  5. Superior side effect profile (increased GI motility; decreased oral irritation).

The breakthrough pain market in the US reached US$400 million in 2012 and expected to grow at 3%. In 2012, market share leaders include Fentora (fentanyl buccal tablet; Cephalon/Teva) with ~40% ($161M), Actiq (fentanyl lollipop, Cephalon/Teva) with 7.5% ($30M). Changes in REMS (Risk Evaluation and Mitigation Strategies) requirements (March 2012) have leveled the playing field. Market research has documented a substantial unmet patient need for improved treatment of breakthrough cancer pain across oncology centers in the United States.

Abstral will be launched in Q4 2013. Galena has identified its commercialization management team and expects to bring key personnel onboard shortly. The company will expand its marketing team and sales force as essential reimbursement and other commercial milestones are met towards a Q4 2013 launch. About 50 sales reps will be recruited and trained to market Abstral.

Management expects to achieve the following net revenues goals: >$1.5-3.0 MM in 2013; >$8.0-12.0 MM in 2014 and overall pro forma revenue peak sales of $40-60 MM or 10-15% market share in 3-5 years.

Our Takeaway from the Abstral Acquisition

We think the Abstral acquisition is an important milestone in GALE's development and growth. This acquisition has transformed GALE to a commercial organization from a pure development biotech company.

The acquisition of Abstral diversifies and strengthens GALE's pipeline, providing Galena with an FDA approved product that will become a cornerstone of GALE's commercial strategy and bring revenues to the company in 2014 to support the development of its pipeline.

GALE's launch of Abstral will build relationships with future prescribers of NeuVax™, which is currently in global Phase III clinical trials in node positive HER2 IHC 1+/2+ breast cancer patients. Medical oncologists, who manage tumor and treatment related pain, predominantly prescribe TIRFs for advanced breast cancer and other solid tumor patients which represent the majority of overall prescriptions.

The launch of Abstral will accelerate revenue initiation to 2013 reaching cash flow positive in 18-24 months, and reduce overall company cash burn through the launch of NeuVax. The acquisition of Abstral diversifies and deepens the breadth, depth and pace of pipeline towards becoming a mid-cap oncology company (not just a cancer immunotherapy company).

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