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Is Galena's Big Break Just Around the Corner?

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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.

Foolish take
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.

Up-and-coming pharmaceutical stocks like Galena can often generate tremendous gains, but the approach most likely to lead to investing greatness is to choose well-run companies and stick with them for the long term. The Motley Fool's free report "3 Stocks That Will Help You Retire Rich" names stocks that could help you build long-term wealth and retire well, along with some winning wealth-building strategies that every investor should be aware of. Click here now to keep reading.

Read/Post Comments (4) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 26, 2013, at 5:22 PM, mbates50 wrote:

    Very good DD. Not even a mention of patent approval in Europe

  • Report this Comment On August 26, 2013, at 6:29 PM, westchannel wrote:

    AS a loyal subscriber I have often been ashamed of Motley Fool for allowing articles such as Speights article on Galena to be published under the motley fool name. This anti Galena article written after a good run of the stock was clearly written to stop its advance. Why nobody Knows! Its as if this contributer is a stock board denzien I think it degrades the reputation of Motley Fool!

  • Report this Comment On August 27, 2013, at 10:51 AM, applesaucehead wrote:

    Was an attempt to help the shorts associated with Galena. Our chance to accumulate more shares at a lower price.

  • Report this Comment On September 01, 2013, at 6:37 AM, retiredpharma wrote:

    ""That being said, I still think that buying shares in Galena could pay off in a big way eventually.""..especially when one considers that under the Her2 expression label only 25% of such are candidates for Herceptin which does Billion$ in sales and some how you FAIL to mention that market for Neuvax will likely be the remaining 75% who have Nothing now and always break through or RESIST whats offered conventionally!A similiar vaccine which may be even better at MHC classification is being developed by Antigen Express and has completed P-2 and reads out later this year..unfortunately AE 37 is under the YOLK of GNBT but may be spun out eventually to unlock potential...


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