Image source: NIH Image Library via Flickr.
Quarterly earnings reports for small-cap, predominantly clinical-stage biotech stocks typically aren't big events. Wall Street and investors are usually looking at the big picture, including the potential patient pool and peak annual sales of a product portfolio, and are thus forgiving of quarterly losses in many instances for clinical-stage drug developers.
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However, Galena Biopharma wasn't so lucky. On Nov. 9, Galena reported a worse-than-expected third-quarter loss of $0.11 per share -- Wall Street was looking for a narrower loss of just $0.07 per share -- and the company announced that it was going to be discontinuing and selling its commercial operations consisting of breakthrough cancer pain therapy Abstral and chemotherapy-induced nausea and vomiting treatment Zuplenz. Based on the reaction from investors, the news wasn't taken too well.
Three things Galena Biopharma's management wants you to know But there's only so much an investor can learn about the health of a business from a few paragraphs in an earnings release. To get to the real meat and potatoes of a company's health, we need to listen to what its management team has to say about its outlook. With this in mind, here are the three key points you'll want to know following Galena's quarterly results and conference call. Quotes are from S&P Capital IQ.
Our reasoning behind the sale of our commercial operations"[W]e have hired a financial advisor to provide us a strategic advice and develop a process to divest the commercial business. ... [T]he foundation of Galena has always been our cancer immunotherapy programs, which are now rapidly advancing toward several key inflection points that Gavin will elaborate on shortly. Therefore, we believe it is important for Galena to renew our focus and our commitment to our core expertise in the successful advancement of our late- and mid-stage clinical pipeline." -- Mark Schwartz, CEO
It should come as no surprise that Galena Biopharma and its CEO had to spend quite a bit of time during the conference call justifying its decision to jettison the commercial business. The move appears to be focused on a number of angles, based on Schwartz's commentary.
Image source: Galena Biopharma.
Obviously, selling its commercial operations allows Galena to focus its efforts on its immunotherapy programs and the four compounds currently in development. Gaining approval for its immunotherapy products would result in substantially higher sales than Abstral and Zuplenz at their peak. Removing its commercial operations should also reduce costs, allowing Galena's cash runway to extend further out.
Schwartz also touched on his team's having completed a thorough analysis of the growth potential of the commercial business in Q2 and coming to the conclusion to sell. Considering that Abstral consistently underperformed management's sales projections, and its Zuplenz licensing would have resulted in constrained revenue for multiple quarters to come, Galena's team apparently felt that the commercial business wasn't worth the wait. It certainly makes one wonder what value they'll get from a buyer for two therapies that haven't met Galena's initial expectations.
Cash burn alert!"Based on our current and planned programs, we anticipate our quarterly burn rate to be between $9 million and $11 million for the next two quarters, which includes expenses of $1 million to $2 million related to the transition out of our commercial business. This does not include any proceeds we may receive from the divestiture." -- Ryan Dunlap, CFO
Clinical trial talk aside, the highlight of the conference call was getting Galena's management team to pinpoint what its cash-burn rate might look like in the coming quarters. Per CFO Dunlap, Galena is probably looking at a midpoint cash burn of $10 million in each of the next two quarters, which would leave the company with around $15 million in cash and cash equivalents at the end of Q1 2016.
Image source: Flickr user Mike Poresky.
A few things to keep in mind here. First, Galena does have its existing deal in place with Lincoln Park Financial, whereby it can sell shares of common stock privately to raise capital. However, based on the implied rate of cash burn for the next one to two quarters and the amount it can sell remaining, its share-selling tactics with Lincoln Park are only likely to buy it another year of cash runway.
Secondly, Galena is obviously going to be paid something for the divestment of its commercial operations, and the proceeds from its sale should further boost its remaining cash. Keep in mind that Galena has already paid Orexo $15 million out of pocket for Abstral, and it later licensed Zuplenz froma separate consortium for $5 million. Thus, if Galena can't doesn't net at least $20 million from the sale of its commercial product portfolio, it'll absorb a loss on its commercial experiment.
Cash burn remains the foremost concern for Galena and its shareholders.
Everything is on track for PRESENT"Based on cardiac monitoring data from the ECHO or MUGA scans, the IDMC recommended reduced cardiac toxicity monitoring consistent with prespecified Toxicity Monitoring Stopping Rules defined in the study protocol... Based on our current event rate, as we have indicated in the past, we expect to reach this milestone in the first quarter of next year. Once we reach the 70th event, we will prepare the data for a review and schedule the IDMC meeting, leading to the safety and futility analysis that will likely be reported in the second quarter of 2016." -- Gavin Choy, senior VP of Clinical Sciences and Operations
Finally, Galena's management team wants its shareholders to understand that everything is moving along as planned in the all-important phase 3 PRESENT trial examining NeuVax as an adjuvant treatment to prevent the recurrence of breast cancer for patients with low-to-moderate HER2-expression.
Image source: Galena Biopharma.
Galena recently reported that the independent monitoring committee for PRESENT suggested that cardiac monitoring for potential toxicities be "reduced." Before investors can even begin to think about NeuVax's efficacy, Galena must first establish that its immunotherapy vaccine is safe. This IDMC recommendation, along with an event-based interim analysis that's anticipated to occur in the first half of 2016, could help push NeuVax over its first safety hurdle.
For those of you waiting for a hint of efficacy (the primary endpoint readout that's expected in 2018), you'll also want to pay close attention to what's said in the second quarter. The event-driven analysis by the independent data monitoring committee will determine whether the PRESENT study should continue, or if NeuVax appears unlikely to reach its primary endpoint.
What now for Galena? For shareholders, the waiting game continues. Without any recurring revenue from its commercial business, and its cash balance shrinking, Galena is once again in a somewhat precarious position in terms of surviving over the long term. It's quite possible NeuVax and/or a licensing partner could change that, providing Galena with ample cash to keep the lights on while it grows its pipeline.
However, the long-term outlook is murky considering its shrinking cash position and the likelihood that it won't see a product on pharmacy shelves before 2018 or 2019. With that being said, Galena Biopharma is a stock that only investors with the highest levels of risk tolerance should consider. With its cash position still volatile, I'd suggest there's no shame in sticking to the sidelines for the time being.
The article 3 Things Galena Biopharma Inc. Wants You to Know originally appeared on Fool.com.
Sean Williamshas no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen nameTMFUltraLong, track every pick he makes under the screen nameTrackUltraLong, 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 servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.
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