Will Galena Biopharma Triple Soon?

When looking at small-cap biotechnology stocks, I typically like to invest in companies that have upcoming catalysts. These catalysts serve as significant events in which clarity is provided on products/treatments which help analysts and investors get a better handle on potential valuation. One stock that has significant catalysts coming up which should cause shares to appreciate is Galena Biopharma (NASDAQ:GALE).

Galena Biopharma is a biopharmaceutical company focused on developing first-in-class oncology treatments for major unmet medical needs. The company’s mission is to advance cancer care through its FDA-approved Abstral (used for treating cancer pain) and NeuVax (used in the treatment of breast cancer). Although Galena Biopharma is currently valued at approximately $250 million, the catalysts that lie ahead have the potential to turn Galena into a major industry player valued in the billions.

Last month, Galena Biopharma officially launched Abstral in the United States. Abstral received FDA approval in 2011 and is the only fentanyl sublingual tablet used in the treatment of breakthrough cancer pain in opioid tolerant patients. Patients with cancer can experience everyday pain, which is known as “background pain,” which can normally be controlled with pain medications that are taken daily.

However, patients with controlled background pain may still experience moderate to severe “spikes” of pain, known as “breakthrough pain.” Decision Resources estimates that the cancer pain drug market will grow to approximately $3.7 billion by the year 2018. If Galena Biopharma can successfully capture just 5 percent of this market, that would mean annual Abstral sales of approximately $185 million.

In addition to the potential Abstral success, investors are likely focused on NeuVax, a drug used to treat breast cancer. One of the main reasons why investors should be excited about the potential of the drug is that Galena Biopharma has already struck a partnership with Teva Pharmaceuticals (NYSE:TEVA). Teva Pharmaceuticals is one of the largest pharmaceutical stocks in the world, valued at over $35 billion.

The deal will allow Teva Pharmaceuticals to commercialize NeuVax in the country of Israel. This will certainly ease marketing burden on Galena for that area of the world. It is also possible that additional partnerships could be struck over the next couple of years as Galena looks to capitalize in other parts of the world. Any such as partnership announcement would likely send Galena shares soaring as the initial deal with Teva caused a 10 percent spike in Galena shares.

Studies conducted thus far have shown that NeuVax stimulates T cells to destroy cancerous cells that express any form of HER2. HER2 is a prominent oncogene and is known for stimulating cell growth. This cell growth then tends to cause deadly diseases including several forms of breast cancer. All levels of HER2 breast cancers (+1, +2, and +3) are deadly and typically carry a poor prognosis that requires patients to subject themselves to the most aggressive treatment plans.

Late last year, NeuVax reported final landmark 60-month results from its Phase 1 / 2 trials. The results were extremely encouraging since the 60-month analysis revealed that 84.7 percent of NeuVax patients remained disease-free versus just 77.1 percent of patients on the control arm.

 

In addition, NeuVax exhibited an excellent safety and tolerability profile. Galena Biopharma is now enrolling patients in a Phase 3 trial and investors can soon expect an enrollment completion announcement and then interim results on 70 events. These announcements should awaken investors and begin the rally in Galena shares.

HER2 IHC3+ tumors are currently treated by blockbuster drug therapies such as Herceptin and Perjeta. Last year, Herceptin generated total sales of $6.08 billion. Instead of going after that group of patients, Galena Biopharma is going after a major unmet medical need by targeting the +1, +2 populations. Galena Biopharma estimates that the market in the addressable node positive population is 120,000 (40,000 in the U.S. and 80,000 in the E.U.).

Herceptin costs roughly $70,000 per year so if we assume a similar cost for NeuVax, the potential annual revenue for Galena is $8.4 billion. If we take a conservative estimate that Galena can capture just 5 percent of this market, the annual sales would be $420 million.

In addition to the potential catalysts of Abstral sales, additional partnership announcements, and NeuVax enrollment completion and interim analysis, another potential catalyst is the company’s progress regarding the Folate Binding Protein-E39. Folate Binding Protein is highly over-expressed in breast, ovarian, and endometrial cancers. FBP is the source of immunogenic peptides that can stimulate cytotoxic T lymphocytes to eliminate cancer cells expressing FBP.

Galena Biopharma reported extremely encouraging results from the FBP Phase I trial on Monday, November 11. At the optimal dose of 500mcg peptide combined with 250 mcg GM-CSF, the Folate Binding Protein was shown to be well tolerated with minimal toxicity. The results were so promising that Galena Biopharma has decided to move forward with a Phase 2a trial that will begin by year end.

Clearly Galena Biopharma has a lot of promise and potential going forward. With the company’s valuation sitting right around $250 million, there is a lot of opportunity for investors to realize outsized gains at these price levels. Based on our revenue estimates for various products and therapies, it would seem that shares are severely undervalued.

Over the next 12 to 18 months, I expect Galena to be trading in the $6.50 to $7.50 range which would mean that investors who get in now could potentially see a triple on their investment.

James Ratz is a portfolio manager with Zebra Capital based out of Los Angeles. He focuses on providing actionable information to investors of all levels.

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