Galena Biopharma Comes Up Short in Q2 and Investors Pounce

Cancer cells dividing. Source: National Institutes of Health.

Small-cap biopharmaceutical company Galena Biopharma reported its second-quarter earnings results after the closing bell on Thursday, and once again the results weren't up to par with Wall Street's expectations.

Galena Biopharma, by the numbers For the quarter, Galena generated $3.38 million from the sale of Abstral, a sublingual tablet used to treat breakthrough cancer pain that it acquired from Orexo for $15 million back in 2013. Abstral sales improved by 48% on a year-over-year basis, but as the only revenue generating product in Galena's product portfolio as of the end of Q2, it fell short of the $3.54 million in sales that Wall Street had been expecting.

Furthermore, Galena announced that it had launched Zuplenz, a therapy designed to treat chemotherapy-induced nausea and vomiting, on July 29. With Abstral and Zuplenz in its back pocket, Galena anticipates reporting full-year revenue of approximately $15 million in 2015. The only problem? Wall Street had been forecasting $16.1 million in full-year sales.

Source: Galena Biopharma.

This isn't the first time that Galena has been overzealous with its revenue projections, either. It began the year suggesting that the combo of Abstral and Zuplenz could generate $15 million to $18 million in sales. It turns out that Galena will be coming in at the very low-end of that guidance range, based on its own approximation. Then, last year, when it reported $9.3 million in full-year Abstral sales, it had guided to $11 million to $15 million in Abstral sales at the beginning of the year. Long story short, Galena's management has struck out twice while issuing full-year sales guidance.

Back to Galena's second-quarter results, the company reported a narrower operating loss of $11.3 million compared to the $15.8 million operating loss in the year-ago quarter, and its net loss per share, inclusive of a $4.3 million non-cash expense tied to warrant revaluation, was $0.10. In Q2 2014 Galena lost $0.17 per share, so this was a nice step in the right direction.

However, Wall Street was also looking for a narrower loss of just $0.09 per share. The wider loss marks the first time since Q2 2014 that Galena has missed on EPS.

Ultimately, Galena missed on both its top- and bottom-line (albeit not by much), but it was enough to send shares of the stock down by 4% as of this writing.

The bright side The good news for Galena shareholders is that Abstral and Zuplenz are merely the appetizers before the main dish, which is NeuVax, the company's cancer immunotherapy vaccine. Even if Abstral and Zuplenz miss the mark, NeuVax and Galena's other pipeline products can more than make up the difference over the long run.

Source: Galena Biopharma.

NeuVax, Galena's most advanced immunotherapy product, is being tested in the phase 3 PRESENT trial as an adjuvant therapy in low-to-moderate HER2-expression breast cancer patients. Its goal is to statistically outperform the placebo in terms of preventing breast cancer recurrence. In its five year long midstage study involving NeuVax, Galena's immunotherapy led to a 78% risk of recurrence reduction compared to the placebo. Thus, the promise for success is there, and interim data from the PRESENT trial should be available in the fourth quarter of this year or first quarter of 2016. The full analysis that will allow investors to know whether NeuVax hit its primary endpoint or not won't be available until 2018.

In addition to NeuVax, GALE-301, an immunotherapy vaccine designed to prevent the recurrence of ovarian and endometrial cancers, and GALE-401, for myeloproliferative neoplasm-related thrombocytosis, both generated intriguing data at the American Society of Clinical Oncology and European Hematology Association's annual meetings, respectively. The 1,000 mcg dose of GALE-301 led to a 78% risk of ovarian and endometrial cancer recurrence compared to the control group in an ongoing dose-finding study, while GALE-401 led to an overall response rate of 78% in a small group of patients in a phase 2 study presented in June.

From a clinical perspective things appear to be going well for Galena.

But these are still big concernsYet, there are plenty of reasons to still be concerned if you're a Galena Biopharma shareholder.

Source: Flickr user Mike Poresky.

During the first-half of the year Galena solved some of its cash crunch by raising $47.4 million in cash from the issuance of common stock. Unfortunately, it's already burned through $23.4 million of that cash with its day-to-day operating activities. Based on its rate of quarterly cash burn and the $45.3 million in cash and cash equivalents it ended Q2 with, Galena has about a year or less left in its cash runway. For investors it very well could mean more dilutive stock offerings are in the offing.

Galena also has to deal with what I'd refer to as the small-cap oncology curse. Small-cap biopharmaceutical companies can get drugs approved by the Food and Drug Administration, but when it comes to cancer products their chances of phase 3 success or an FDA approval are historically very low. It probably means NeuVax is going to need blowout results in PRESENT to convince regulators to approve it. With a substantial amount of Galena current market value riding on the PRESENT study and NeuVax, a failure could be devastating to investors and Galena's drug development pipeline.

Lastly, investors have to price in the real likelihood that losses could continue for some time. With the primary endpoint readout of the PRESENT study not expected until 2018, it could be four years or more before Galena has a chance to produce enough recurring revenue that it can turn a profit.

What's an investor to do?Given the push-pull between Galena's potentially positive and negative catalysts, as well as another disappointing earnings report, what's an investor to do?

My suggestion, as it's been all along, is for investors to steer clear of Galena for the time being. Galena could be wildly successful with NeuVax, or it could see most of its market value evaporate overnight if NeuVax flops. With Abstral sales continually missing the mark, the risk just seems far too high compared to the possible reward. There will be plenty of time to buy into Galena over the long haul if NeuVax succeeds in PRESENT, so don't feel as if it's a now-or-never scenario when it comes to choosing between buying or not buying Galena's stock.

The article Galena Biopharma Comes Up Short in Q2 and Investors Pounce originally appeared on

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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