Why You Should (and Shouldn't) Buy Galena Biopharma, Inc.

By George Budwell and Cory Renauer Markets Fool.com

The clinical-stage biotech Galena Biopharma (NASDAQ: GALE) has been on one heck of a ride over the last couple of years, fueled by an alleged stock-pumping scheme and the late-stage failure of its experimental breast cancer vaccine NeuVax.The net result is that Galena shares have fallen a staggering 96% from the highs they reached a little over two years ago:

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GALE Market Cap data by YCharts.

Despite this jaw-dropping devaluation, the company does have some intriguing clinical assets remaining that could help it mount a comeback. With this in mind, we asked two of our regular healthcare contributors why investors should and shouldn't buy this beaten-down biotech stock. Here's what they had to say.

Image source: Getty Images.

Clinical pipeline or not, Galena is running on fumes

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George Budwell: Galena's NeuVax debacle has put the company in an unenviable position. The company's last stated cash position of around $25 million gives it about two more quarters of leg room before things start to get really desperate on the financial front.

After all, the biotech was recently forced to execute a 1-for-20 reverse split (reducing the number of shares to increase its share price) in order to simply meet the Nasdaq's listing requirements. Even then, the company's share price continues to hover dangerously close to the Nasdaq's minimum required share price of $1 (current share price $2.80), meaning that a sizable secondary offering may not be realistic right now.

In a nightmare scenario that is starting to look unavoidable, though, Galena may soon have to tap the public markets for a modest sum to stave off bankruptcy -- and then perform yet another value-destroying reverse split to keep its share price above the $1 threshold. Such a series of events would basically wipe out long-term shareholders. But the fact of the matter is thatGalena may have no other choice at this point.

That's why investors probably shouldn't take the risk -- even though Galena's pipeline does have the potential to eventually breathe new life into the company down the road.

It's not what it looks like

Cory Renauer:This summer the market mercilessly pounded Galena Biopharma's stock into the dirt after the company announced the discontinuation of a clinical trial with its leading drug candidate. NeuVax was supposed to prevent breast cancer recurrence following standard treatment, but at an interim analysis too many participants receiving the drug had developed what looked like tumors.

In this case, looks may be deceiving. Breast cancer diagnoses are far more common than healthcare providers care to admit, and Galena contends that false positives may have played a role in the observed rates of new tumors in the experimental group.

Here's why it's not as poor of an excuse as it sounds. NeuVax is supposed to foster the creation of circulating T-cells that recognize cancerous cells and attack them before they can become full-blown tumors. There's a fairly well documented phenomenon associated with immunotherapies, including Keytruda from Merck & Co., called "pseudoprogression."

In a nutshell, what looks like a tumor is actually swelling caused by the immune system attacking small collections of cells that might develop into tumors if left unchecked. In other words, there's a chance NeuVax was penalized just for doing its job.

NeuVax might have another shot. It's currently in mid-stage breast cancer trials in combination with Roche's Herceptin. The failure that just might not have been a real failure caused Galena Biopharma's market cap to plunge from around $400 million to about $30 million at recent prices. If the biotech can clear NeuVax's name, the stock could soar.

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Cory Renauer has no position in any stocks mentioned. George Budwell 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.