4 Questions to Ask Ahead of Galena Biopharma's Third-Quarter Earnings Report

By Sean WilliamsFool.com

Image source: U.S. Food and Drug Administration.

Small-cap biotech company Galena Biopharma is far from a household name, but in terms of drug development it certainly offers some big potential.

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Galena is primarily involved in developing cancer immunotherapies, or vaccines that work with a person's immune system to better help it recognize cancer cells. Immunotherapies often take on a few different forms and are either responsible for blocking the immunosuppressant effect of cancer cells or supercharging the immune system to attack.

Galena's forecast, by the numbersHowever, a more immediate catalyst awaits Galena Biopharma and its shareholders: the release of the company's third-quarter earnings report on Monday, Nov. 9.

Based on Wall Street's estimates, Galena is expected to report $4.22 million in sales in Q3, up around 160% from what it recorded in the year-ago period, while its net loss is expected to grow to $0.07 per share, up from a net loss of $0.05 per share in Q3 2014. Over the last 11 quarters it's really been anyone's guess how Galena will perform, with the company missing the Street's forecast in five quarters, topping projections in five more, and meeting estimates in another.

Although Wall Street will clearly be focused on whether or not Galena can top projections, there are a number of finer points investors should be honing in on. Here are a handful of questions to ask when Galena delivers its results.

What's the initial reaction to Zuplenz? Over the past two years Galena has added two commercial products -- Abstral for breakthrough cancer pain and Zuplenz as a treatment for chemotherapy-induced nausea and vomiting (CINV) -- to its arsenal, and investors are getting antsy waiting for these new products to pay dividends.

If you recall, Abstral was acquired from Orexo in 2013, with Galena projecting that sales could reach as high as $15 million in the drug's first full year. Unfortunately, those early year estimates proved to be way off, with Abstral sales totaling a little over $9 million in 2014. Sales have certainly improved this year, but at a slower pace than most investors had been expecting.

Image source: Galena Biopharma.

The big question mark is how well Zuplenz has been received in its first full quarter of being licensed by Galena. CINV is a very competitive market, and investors are going to want to see Zuplenz getting out of the gate without too much trouble. However, investors may also want to temper their early expectations. In the second quarter, Galena's management cautioned during its conference call that Zuplenz's growth-to-net deductions could range between a whopping 60% and 70% in the early going since it has no established sales history.

Long story short, we want to see whether or not Galena's revenue-generating acquisitions are paying off.

Is everything still on track with NeuVax? Having revenue to offset Galena's cash burn is nice, but no one's lost sight of the true prize: NeuVax.

NeuVax, the company's lead immunotherapy vaccine, is being tested in post-treatment breast cancer patients with low-to-moderate HER2 expression as an adjuvant therapy to prevent recurrence. A five-year midstage study certainly held a lot of promise, with NeuVax providing a 78% clinical benefit in terms of recurrence reduction risk compared to the placebo. In short, NeuVax is Galena's primary ticket to profitability and alleviating any cash concerns the company may have.

Image source: Galena Biopharma.

At the moment NeuVax is being tested in a phase 3 trial known as PRESENT, with an interim analysis of the study (this analysis is focused on safety) due this quarter or perhaps the first quarter of 2016. The full readout of the study isn't expected until 2018, but an initial positive analysis during the planned interim review is going to be critical to calming nervous investors.

In the upcoming quarterly report investors are going to want to pay close attention to management's commentary regarding whether or not NeuVax's PRESENT study remains on track.

What's the plan of attack to address Galena's shrinking cash position?As with most predominantly clinical-stage drug developers, cash burn is a serious concern. Despite having $42 million still remaining in a deal with Lincoln Park Financial whereby Lincoln Park can privately purchase Galena's common stock, Galena ended the second-quarter with just $45.3 million in cash and cash equivalents. Based on Galena's quarterly cash burn, the company will likely run out of cash in about a year if it doesn't raise any additional capital.

As we head into Galena's Q3 report, investors will want to pay attention to what management has to say about its still-concerning cash situation. Galena has not been shy about issuing shares to raise capital, which does get the job done at the expense of existing shareholders, who find the value of their shares diluted. But at this point I'd surmise that Galena's shareholders are growing weary of the company's cash situation constantly being a concern.

Pay close attention to any commentary from management in its Q3 report and conference call concerning how it plans to address future capital raises.

Image source: U.S. Food and Drug Administration.

What's next in line?Investors obviously are focused on PRESENT, but Galena has a handful of additional developing drugs that could deliver results well before we find out if NeuVax is a success in preventing breast cancer recurrence for select patients. If I were a shareholder or investor interested in Galena, I'd eagerly be waiting for commentary regarding when we can expect new data from its pipeline to emerge.

As a quick refresher, this might involve the announcement of a new study for NeuVax, which is also being examined in separate breast cancer studies and a planned gastric cancer trial, or may take the form of an update on GALE-301 or GALE-401. Management announced during its second-quarter conference call that a midstage study involving GALE-401 would yield final data at some point this year, so this still looks like the nearest-term catalyst to watch for.

What you should doIn spite of its high volatility, I don't see any reason why long-term investors, or those on the outside looking in, should be changing their stance on Galena leading up to its earnings results. Galena's pipeline is the true growth driver here, and even potentially positive or poor earnings results seems unlikely to pack a huge punch.

We'll be sure to double back after Galena reports to hit on the key points highlighted by its management, but for the time being I wouldn't suggest altering your investment thesis before Galena dishes its Q3 results.

The article 4 Questions to Ask Ahead of Galena Biopharma's Third-Quarter Earnings Report 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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