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Galena Biopharma's (GALE) Promising Pipeline

Jul. 22, 2013 2:02 PM ETSLS
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2. Galena Biopharma's (GALE) Promising Pipeline

Startup biotech companies are the hot potatoes of the market, jumping up and down based on trial results and expectations. Big Pharma is on a buying spree as many blockbuster drugs come off patent and Galena Biopharma (GALE, $1.78, flat) may be a hidden gem that has yet to be discovered.

The $150 million biopharmaceutical company based in Lake Oswego, Oregon focuses on developing oncology treatments to address major unmet medical needs to advance cancer care. It is developing a pipeline of immunotherapy product candidates for the treatment of various cancers based on the E75 peptide.



The company acquired FDA approved pain medication Abstral, which is a formulation of fentanyl citrate that dissolves under the tongue. Fentanyl, shown on the left, is used to treat breakthrough pain, which is pain that comes on suddenly for short periods of time and is common in cancer patients.

Abstral was developed by Swedish drug maker Orexo. Under the terms of the agreement, Galena will pay Orexo $10 million upfront and $5 million within the first twelve months of closing, plus low double digit royalties and one-time milestone payments based on pre-specified net sales. The drug, which is approximately 100 times more potent than morphine, is already marketed in Europe, where 2012 sales were $54 million. The U.S. market for cancer pain drugs is estimated at $400 million annually. Recent studies have suggested that Abstral may work less than 10 minutes after administration. It was approved in the U.S. in 2011 and is the first and only fentanyl sublingual tablet for the management of breakthrough cancer pain in opioid tolerant patients. Product launch is expected for the 4th quarter of 2013.

Also in the company's pipeline is NeuVax, a treatment for breast cancer patients so that a recurrence could be prevented or delayed. The drug is given after regular breast cancer treatment and when the patients are found to be cancer free. NeuVax works by harnessing the patient's own immune system to seek out and attack any residual cancer cells that express Human Epidermal growth factor Receptor 2 (HER2/neu), a protein associated with tumors in breast, ovarian, pancreatic, colon, bladder, and prostate cancers. The drug has been tested as adjuvant treatment in nearly 200 breast cancer patients over a total of 5 years, and has shown to be safe and effective in Phase II trials. The FDA granted NeuVax a Special Protocol Assessment (SPA) for a Phase III clinical trial in adjuvant therapy of women with low-to-intermediate status.

It is estimated that over 230,000 women in the U.S. are diagnosed with breast cancer annually. Of these women about 75% test positive for HER2. Only 25% of all breast cancer patients, those with HER2 3+ disease, are eligible for Herceptin, a drug developed by Roche-Genentech, which had revenues of over $5 billion in 2010. NeuVax targets the remaining 50% of low-to-intermediate. Thus, blockbuster potential is high. The company has partnered with Israeli drug giant Teva Pharmaceutical (TEVA) for sales and marketing of the pipeline of NeuVax drugs.

The company's third drug in its pipeline is Folate Binding Protein-E39 (FBP), a targeted vaccine aimed at preventing the recurrence of ovarian, endometrial, and breast cancers. FBP has very limited tissue distribution and expression in non-malignant tissue, making it an ideal immunotherapy target. Ovarian cancer occurs in over 22,000 patients per year in the U.S. and is the most lethal gynecologic cancer. Endometrial cancer is the most common gynecologic cancer and occurs in over 46,000 women, with over 8,000 deaths, in the US annually. Thus, the potential market is much smaller than NeuVax.

Despite the company only has three drugs in its pipeline, NeuVax is undergoing four different drug trials.

As the case with many small biotech companies, Galena currently has no revenue and negative earnings.







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Source: Numbers calculated from Yahoo Finance and Finviz.com

The numbers say that the stock is fairly valued, with positives (green) equaling negatives (red) 5 to 5. The fact that insiders are buying stock means they may feel the stock will rise. After all, insiders only buy stock for two reasons: either they think it is undervalued or they are trying to save a dying company. But the presence of institutional selling contradicts the notion that the stock is undervalued. Also the low current ratio means current assets may soon not be enough to cover current liabilities. Thus, one way to raise current assets is issuing more stock, or dilution, which puts downward pressure on the stock.

At $1.78, the stock is way below its low target of $3.00 made by 8 analysts recorded by Thomson/First Call. Its mean target of $5.06, the medium target is $5.50, and the high target is $7.00. Using a scale of 1.0 as a strong buy and 5.0 as a sell, the average rating of the stock was 1.9, unchanged from a week ago.


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There is risk down to $1.50 as you will see in thechart below but at these entry prices, we try not to get caught up on the daily moves shares can make. We are more interested in where shares will be at yearend and after the 4Q debut of Abstral. The 52-week low is at $1.23 but we doubt this level gets tested ahead of its launch. Options do trade on this stock but we are waiting for a breakout before possibly selling call options against the position.

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