Why Galena Biopharma Inc. Stock Tumbled

Galena stock is a big loser after the company fails to impress with its second-quarter earnings results.

Aug 12, 2014 at 1:01PM

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Galena Biopharma (NASDAQ:GALE), a biopharmaceutical company focused on developing immunotherapies to treat cancer, tumbled by as much as 16% after the company reported its second-quarter earnings results.

So what: For the quarter, Galena reported $2.3 million in revenue from Abstral, its cancer pain medication acquired from Orexo last year, compared to no revenue recorded in the year-ago period. Operating loss, however, ballooned to $15.8 million, including stock-based compensation charges, from $11.8 million in the year-ago quarter. On a per share basis this worked out to a loss of $0.17 when Wall Street was looking for a much narrower loss of $0.09 per share. Galena ended the quarter with $39.2 million in cash, which is down from $47.8 million as of the end of December.

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Source: Galena Biopharma.

Now what: Usually earnings reports for predominantly clinical-stage biopharmaceutical companies tend to not move a company's stock as much as we've witnessed Galena move today. However, the results of Galena's phase 3 study of lead drug NeuVax, its adjuvant breast cancer vaccine aimed at preventing or delaying the rate of recurrence, is still a ways out, so Galena's cash burn continues to come into play.

In addition, the quick start to Abstral -- $2.2 million in revenue in Q1 -- gave hope to investors that Galena could see meaningful revenue recognition sooner rather than later which it might use to offset the high costs associated with running a phase 3 study. However, Abstral's minimal quarter-over-quarter sales improvement (just $0.1 million) pretty much took that thesis off the table for the time being.

Overall, I still believe Galena represents an intriguing story stock considering the success of NeuVax in phase 2 studies and the potential behind immunotherapies, which retrain a person's immune system to locate and attack cancer. However, I'm also not blind to the fact that Galena is burning cash and is expected to lose money for the foreseeable future. Long story short, I'm staying firmly perched on the sidelines.

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Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

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 don't 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.

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