Judging by the numbers, Galena Biopharma (NASDAQ:GALE) isn't exactly a stock many would call great. Sure, shares are up more than 45% year-to-date. Galena still has a long way to go, though, just to claw its way back to levels that the stock reached in 2010. The company has no revenue and continues to bleed millions of dollars every month.
Smart investors know, however, that the key to winning hinges on having a good take on where things are headed rather than where they are now. Could Galena actually be poised for its big break in the not-too-distant future? The answer depends primarily on the prospects for two products.
Gain with pain
Galena purchased the rights to cancer pain medication Abstral in March. Abstral was developed by Swedish drugmaker Orexo AB, which sold U.S. rights for the drug to Galena for $15 million plus royalties and potential milestone payments.
Orexo already secured U.S. regulatory approval for Abstral in 2011 but hasn't launched the drug in the American market yet. Galena expects to move forward with commercialization in the U.S. beginning in the fourth quarter of 2013.
Abstral reduces pain suffered by cancer patients by dissolving under the tongue and entering the bloodstream quickly. This pain -- known as breakthrough cancer pain, or BTcP -- affects 40% to 80% of all cancer patients.
Unfortunately, a successful launch of Abstral alone isn't likely to enable Galena to attain greatness. The drug racked up sales of $54 million last year in Europe. That's much better than generating no revenue, as is the case currently for Galena, but it's still not that much money.
However, the U.S. market for drugs similar to Abstral totaled around $400 million in 2012. Abstral should be competitive in that market. Even if sales figures aren't overly impressive right out of the gate, Galena should be able to leverage the cash it receives from Abstral to help further develop its pipeline. And it's that pipeline where the biggest potential exists.
A minimal approach
Galena's niche is in focusing on "minimal residual disease" that remains in cancer patients. The company's lead product, Neuvax, stimulates specific cytotoxic T lymphocytes, or CTLs, which then hone in on and destroy cancer cells that express a protein called HER2.
Neuvax is currently in a late-stage clinical study targeting treatment of breast cancer. If this study proves as effective as earlier studies, Galena could have a winner. In the phase 1/2 trials, breast cancer patients taking Neuvax experienced a recurrence rate of 5.6% compared with a 25.9% recurrence rate in the control arm -- an improvement of more than 78%.
Galena's results managed to attract the attention of a much larger firm. In December, Teva Pharmaceuticals (NYSE:TEVA) acquired the rights to market Neuvax in Israel pending regulatory approval. Based on Galena's SEC filings, no upfront payment has been made so far. However, the company said that the agreement with Teva "allows for significant royalty payments" on future sales.
It wouldn't be too much of a surprise if Teva or other bigger players expressed even more interest in Galena and Neuvax. Around 20,000 patients in the U.S. alone could be candidates for Neuvax. Zacks analyst Grant Zeng thinks that the drug could "reach a blockbuster status easily."
Neuvax is in another phase 2 study for breast cancer in combination with Roche's Herceptin. Galena is also exploring use of the drug with another indication -- prostate cancer -- in an early stage clinical study.
The phase 3 study for Neuvax isn't expected to be completed until 2015. In the meantime, a lot can change.
Roche's Herceptin currently claims a lead position, but biosimilars will hit the breast cancer market in Europe next year. Actavis (NYSE:AGN) and Amgen (NASDAQ:AMGN) are collaborating on multiple generic and biosimilar products, including a biosimilar for Herceptin. The partners gained rights to this biosimilar, trastuzumab, from Dutch pharmaceutical company Synthon. Trastuzumab is currently in a phase 3 trial needed for European approval.
Neuvax and Herceptin (as well as any forthcoming biosimilars) operate using different mechanisms. However, the introduction of lower-cost biosimilars could change the dynamic in the breast cancer market to some degree. That being said, I still think that buying shares in Galena could pay off in a big way eventually.
An alternative approach is to buy call options with expiration dates well in the future. This approach limits potential downside losses while preserving the opportunity to profit if the stock takes off. Galena's big break just might be around the corner, but there's no need to take great risks waiting for it to come.
Fool contributor Keith Speights has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.