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For more than a year now you'd have difficulty finding a sector that has performed better on the market than health care. From Big Pharma down to medical device makers and small biotechs, health care has absolutely been on a tear. As such, it's been drawing in venture capital and riskier investors faster than you can blink.
With that in mind, today I plan to look at two of the more polarizing and volatile biotech stocks in the immunotherapy sector -- Galena Biopharma (NASDAQ: GALE ) and Peregrine Pharmaceuticals (NASDAQ: PPHM ) -- and determine which company appears to be the smarter buy for investors.
However, before diving directly into the debate, I think we should have a better understanding of what's behind the immunotherapy craze.
Put simply, immunotherapy treatments are designed to retrain the body's immune system to recognize and attack cancer. Researchers for years have attacked cancer directly through chemotherapy agents. Some of these agents are targeted, such as with antibody-drug conjugates that seek out a specific protein signature given off by cancer cells, but the vast majority don't have cell-specific seeking qualities. Modifying or retraining a body's immune system is intended to ensure the patient won't deal with nearly as many adverse effects as with chemotherapy, and the attack on specific cancer cells may be even more targeted.
Galena and Peregrine's path to prosperity
Now let's have a look at the primary immunotherapeutic agents for both Galena Biopharma and Peregrine Pharmaceuticals.
Galena's potential claim to fame is NeuVax, an intradermal injection designed to delay or prevent the recurrence of breast cancer for patients who have received chemotherapy. NeuVax is being studied in a phase 3 trial known as PRESENT in patients who exhibit low-to-moderate HER2 expression. Without getting too technical, NeuVax stimulates select CD8+ cytotoxic T lymphocytes that, when activated, recognize, neutralize, and destroy HER2-expressing cancer cells. Perhaps its most intriguing aspect is over the course of the three-year treatment window a patient receives just 11 injections, making the treatment quite convenient.
In December 2012, Galena released the final 60-month results from its phase 2 study of NeuVax. The findings from its SN-33 (node-positive) study demonstrated that only 5.6% of patients in the NeuVax intent-to-treat arm had a recurrence while 25.9% of patients in the control arm had a recurrence, for a recurrence reduction of 78.4%. This patient population served as the basis for which its PRESENT study is modeled.
Peregrine Pharmaceuticals' possible white knight is bavituximab, an infused immunotherapeutic agent that is being tested in combination with docetaxel in second-line non-small cell lung cancer, or NSCLC, and in a handful of other indications. Bavituximab works by targeting phosphatidylserine, or PS, an immunosuppressive molecule typically found on the inside of healthy cells, but located on the outside of cancerous cells. Not only does PS allow cancer cells to largely go undetected by the immune system, but cancer has a way of even further enhancing this immunosuppressive effect. By targeting PS and blocking its immunosuppressive response, bavituximab allows the body's immune system to locate and attack cancer cells.
Peregrine is enrolling patients for its phase 3 SUNRISE study which will total about 600 patients and focus on improving median overall survival relative to the placebo. Its prospects are encouraging based on final phase 2 data which demonstrated a significantly improved median overall survival of 11.7 months for the bavitixumab and docetaxel group compared to 7.3 months with docetaxel alone.
Big potential doesn't come without big risks
Long story short, we've seen some encouraging data from both companies, but there are also serious risks associated with Galena and Peregrine.
Perhaps the greatest risk of all is that while both companies have other studies ongoing, NeuVax and bavituximab represent the lion's share of their existing research. Although different cancers can respond differently to the same therapy, a failure of NeuVax in breast cancer, or bavituximab in second-line NSCLC, would probably send the share price of both companies considerably lower.
Peregrine Pharmaceuticals also comes with its own bit of clinical data risk. In September 2012, Peregrine's share price plunged more than 80% after the company disclosed that a third-party clinical contractor had botched midstage trial results for bavituximab. Although Peregrine has stood by its final phase 2 data, Wall Street remains somewhat skeptical of its results.
Galena, on the other hand, must demonstrate that NeuVax is statistically a better treatment than the placebo. Although its phase 3 trial was based on low-to-intermediate HER2-expression breast cancer patients, a combined study including all patients on NeuVax demonstrated a relatively high p-value of 0.08 at 24 months and 0.077 at 60 months. A p-value measures how much chance may have played a role in achieving the final results. Generally speaking, 0.08 and 0.077 are fairly high and would cause some biotech-savvy investors to question the true effectiveness of NeuVax.
One final risk they both share is the potential for dilutive share offerings in order to continue funding their studies. Galena and Peregrine both believe they have a unique pipeline, and neither has decided to partner up with another company in the U.S., meaning they're burning cash at an incredible rate.
Which stock is the better buy?
Determining which stock is the better buy really comes down to your level of risk tolerance.
If you're willing to take a gamble and have an extremely high risk tolerance, Peregrine would appear to be a better choice. I predicted earlier in the week, based on sales of competing second-line NSCLC therapies, that bavituximab had peak sales potential of $600 million to $800 million. Yet Peregrine is valued at just shy of $400 million. Since most biotech companies trade at a decent multiple to their peak sales estimate, an approval of bavituximab would have the potential to send shares significantly higher. Keep in mind, of course, that a failure would be just as devastating in the other direction for its share price.
If you aren't that roulette-style biotech investor, but still enjoy taking above-average risks, Galena Biopharma would probably be your better bet. The reason the slightly more risk-averse will prefer Galena is its March 2013 acquisition from Orexo of the rights to Abstral sublingual tablets in the U.S. for breakthrough cancer pain. Abstral is FDA-approved and delivered $1.17 million in revenue for the third quarter, ahead of its official launch in the fourth quarter. While that may not seem like much, Abstral's growth potential will provide Galena with revenue that will help offset losses from its ongoing clinical studies.
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