Galena Biopharma: Clinical Programs Remain on Track and
Valuation is Attractive
By Grant Zeng, CFA
Balance Sheet Boosted by New Equity Financing
On December 18, 2012,
Galena Biopharma (
priced an underwritten public offering of 15,156,250 units at a
public offering price of $1.60 per unit with total gross proceeds
of $24.25 million.
Each unit consists of one share of common stock, and a warrant
to purchase 0.5 share of common stock at an exercise price of
$1.90 per share. The warrants are immediately exercisable and
expire on the fifth anniversary of the date of issuance. The
shares of common stock and warrants are immediately separable and
will be issued separately.
Galena intends to use the net proceeds from the offering to
conduct its ongoing Phase III clinical trial for NeuVax, its
Phase I/II clinical trial for Folate Binding Protein-E39 (FBP),
the planned Phase II clinical trial for NeuVax in combination
with trastuzumab (Herceptin®), as well as for general corporate
Although the equity financing dilutes existing shareholder
base, it greatly boosts the Company's balance sheet.
As of September 30, 2012, Galena had cash and cash equivalents
of $15.4 million. We estimate cash burn for the 4Q12 will be
about $6 million. With this new financing, current cash balance
should be around $35 million, which could last into the second
quarter of 2014.
Also, in connection with the RXi spin-off on April 27, 2012,
approximately 67.0 million shares of RXi common stock were
distributed as a dividend to the Galena shareholders,
representing a net liability position of $2.2 million at
historical cost. GALE retained a 4% interest in RXi, or
approximately 32.7 million shares of RXi common stock, which is
carried at historical cost, effectively zero, at June 30, 2012.
The market value of the RXi shares held by Galena at Jan 8, 2013
was approximately $3.0 million.
To download a free copy of the GALE research report, click here:
GALE Presents Final Landmark 60-Month Results From NeuVax
Phase I/II Trials
On December 7, 2012, Galena Biopharma (
) presented data from the completed SN-33 trial and final results
from the Phase I/II trials of NeuVax (nelipepimut-S or E75) for
breast cancer at the 35th Annual CTRC-AACR San Antonio
Breast Cancer Symposium.
Overview of the Phase I/II Trails
The Phase I/II trials of NeuVax included SN-33 (Node Positive,
n=97) and SN-34 (Node Negative, n=90), which evaluated a combined
187 patients with 108 in the vaccine group (VG) and 79 in the
unvaccinated control group (CG).
The Rational for Booster Inoculation
Patients were initially given a series of up to six
inoculations of NeuVax once a month. As the trials progressed,
the physicians noticed that E75-specific immunity waned after
this initial monthly primary vaccine series (PVS) and translated
to late recurrences of cancer in some patients. As a result of
this finding, a voluntary booster program was added to the trials
to maintain long-term immunity following the initial monthly
The booster program offered patients an additional inoculation
every six months with a maximum of six boosters. Because the
booster program was voluntary, not all women chose to receive the
full six additional doses.
The Combined SN-33 and SN-34 Results
Trials SN-33 (NP) (n=97) and SN-34 (NN) (n=90) enrolled
clinically eligible patients who were rendered disease-free after
completion of standard of care multi-modality therapy (n=187).
Treatment assignment was then based on HLA type, with HLA-A2/A3
patients vaccinated and HLA-A2/A3 negative patients followed
prospectively as controls for recurrence. NeuVax exhibited an
excellent safety and tolerability profile, and demonstrated a
durable response out to 60 months:
- Maximum toxicity for all inoculations produced primarily
Grade 1 and some Grade 2 toxicities, with injection site
reactions and fatigue most common. No serious adverse events
(SAEs) or cardiotoxicity were reported.
- At 24-month: 94.3% of NeuVax patients were disease-free
versus 86.8% of patients on the control arm (p=0.08).
- At 60-month: 89.7% of NeuVax patients remain disease-free
versus 80.3% of patients on the control arm (p=0.077)--a
recurrence reduction of 47.7% among all patients at any dose.
Multiple dose response analyses underscore the efficacy of the
vaccine with statistical significance being achieved among the
optimally-dosed and boosted patients.
The SN-33 HER2 Negative Booster Results
SN-33 was conducted in node positive patients, and was well
balanced between the two arms: Vaccine HLA-A2/A3 positive (n=53)
vs Control HLA-A2/A3 negative (n=44). During the conduct of
this trial, Herceptin® (trastuzumab; Genentech/Roche) became
commercially available for HER2 IHC Positive (3+) patients, and
the trial was modified accordingly to allow these patients to
receive Herceptin, and exclude this patient group from future
enrollment and analysis.
Below are the summary results from the SN-33 trial. SN-33
Intent-to-treat (ITT) population (n=97); NeuVax (n=53) vs.
- At 24-month: 90.6% of NeuVax patients (n=53) were
disease-free versus 79.5% of patients on the control arm (n=44)
- At 60-month: 84.7% of NeuVax patients (n=53) remain
disease-free versus 77.1% of patients on the control arm
SN-33 HER2 Negative IHC 1+/2+ patients who received
(n=45). NeuVax (n=18) vs. Control (n=27):
- At 24-month: 0% recurrences for patients treated with
NeuVax: statistically significant DFS for NeuVax at 100% vs.
77.8% Control (p=0.0358).
- At 36-month: 0% recurrences for patients treated with
NeuVax for a statistically significant DFS for NeuVax at 100%
vs. 77.8% Control (p=0.035). Of note, no patients receiving
booster inoculations had a recurrence through 36 months, which
is the Phase III PRESENT study endpoint.
- At 60-month: 5.6% recurrence rate with NeuVax versus 25.9%
recurrence rate in the control arm. DFS for NeuVax at 94.4% vs.
74.1% Control--a recurrence reduction of 78.4% in the target
This new, 60-month data analysis shows that breast cancer
recurrence is greatly reduced for patients treated with
NeuVax and that these results are both clinically relevant
and durable over time.
of the booster inoculations from the data presented: the booster
inoculations are well-tolerated and don't increase any side
effects compared to the primary vaccine series. Further, booster
inoculations appear to assist in the maintenance of long-term
peptide-specific immunity. In terms of efficacy, boosted patients
have better recurrence rates and improved DFS compared to
patients who did not receive vaccine. This may be attributed to
increased immunity induced by the booster inoculations.
As a result of these findings, booster inoculations have been
incorporated into the design of the ongoing Phase III PRESENT
The Phase III PRESENT Trial is Underway
Based on the SN-33 booster data, on Jan. 20, 2012,
trial for NeuVax (E75 peptide plus GM-CSF) vaccine in HER2 1+ and
2+ breast cancer patients in the adjuvant setting to
The PRESENT (
tage, Node-Positive Breast Cancer with Low to Intermediate HER2
reatment) study is a randomized, multicenter, multinational
clinical trial that will enroll approximately 700 breast cancer
patients. The trial design has been updated to include current
National Comprehensive Cancer Network guidelines and recently
Special Protocol Assessment (SPA)
concurrence from the FDA. Based on a successful Phase II trial,
which achieved its primary endpoint of disease-free survival
(DFS), the FDA has agreed that the design and planned analysis of
the Phase III study adequately address the objectives necessary
to support an acceptable regulatory submission for marketing
The NeuVax Phase III trial will be conducted in adjuvant
breast cancer patients who are node positive, have an HLA status
of A2/A3+, and have low or intermediate HER2 expression (IHC 1+,
2+, sometimes referred to as HER2 negative). These patients are
not eligible to receive Herceptin (trastuzumab, marketed by
Roche-Genentech) therapy that is currently approved only for
patients with high HER2, or 3+ expression.
According to the protocol, once qualified patients have
achieved a complete response from current standard-of-care
treatment (surgery, radiation and/or chemotherapy), they will be
randomized and dosed with either NeuVax (E75 + GM-CSF) or control
(placebo plus GM-CSF). Patients will receive one intradermal
injection every month for six months, followed by a booster
inoculation every six months thereafter.
The primary endpoint is disease-free survival at three
or 139 events (recurrence of cancer). A data safety monitoring
board will conduct an interim analysis for safety and futility
after 70 events.
To date, 70 sites are approved globally, with continued
expansion to over 100 sites planned.
We think the Phase III trial design is prudent based on the
existing data from the Phase I/II trials. This Phase III trial is
well designed and better controlled one compared to the Phase
We believe NeuVax has a blockbuster potential if it finally
reaches the market.
Two Partnerships Established to Expedite NeuVax
Development and Commercialization
On December 4, 2012, GALE signed an agreement with a
Teva Pharmaceutical Industries
for the commercialization of NeuVax (nelipepimut-S or E75) in
Under the agreement, Teva Israel will assume responsibility
for regulatory registration in Israel, provide financial support
for local development, and will commercialize the product in the
region. Specific financial terms were not disclosed, but the
agreement allows for significant royalty payments to Galena
Biopharma on future sales.
Israel will be the location of at least four clinical
trial sites for the NeuVax
Phase III PRESENT
On December 6, 2012, GALE announced a partnership with
to develop a
for Galena's NeuVax (nelipepimut-S or E75) breast cancer
Leica Biosystems is a global leader in workflow solutions and
laboratory automation for anatomic pathology, bringing clinicians
and researchers high workflow efficiency and confidence in cancer
diagnostics. Leica Biosystems provides a comprehensive product
range with easy-to-use and consistently reliable solutions for
the entire laboratory.
Leica's Bond Oracle™ HER2 IHC System companion diagnostic will
be used to support the selection of the appropriate patients for
the NeuVax Phase III PRESENT study. Bond
Oracle™ HER2 IHC System is an FDA cleared
semi-quantitative immunohistochemical (IHC) assay to determine
HER2 (Human Epidermal Growth Factor Receptor 2) oncoprotein
status in breast cancer tissue processed for histological
evaluation. NeuVax targets HER2 negative patients (IHC 1+, or 2+
and FISH < 2.2) who achieve remission with current standard of
care, but have no available HER2-targeted adjuvant treatment
options to maintain their disease-free status.
We think the two partnerships established will accelerate the
development and commercialization of NeuVax in the US and around
The agreement with Teva Israel is the first piece of GALE's
global commercialization strategy. Teva is a world-class
pharmaceutical company and a major pharmaceutical company in
Israel. Their financial support, as well as market
leadership will help accelerate NeuVax development and
commercialization in the region.
The agreement with Leica also marks a significant milestone
for Galena. By partnering with Leica, GALE will be able to ensure
the proper and accurate assessment of breast cancer patients
considering participation in the NeuVax PRESENT trial. Galena
strengthens its NeuVax personalized medicine and regulatory
pathway with companion diagnostic development.
Valuation is Attractive
We are still bullish on GALE based on the recent progresses
the Company has made. Therefore, we maintain an Outperform rating
on Galena shares and reiterate our 12-month price target of $4.0
Apparently, Galena has made great progress in the past
few months in its clinical programs, IP protection and
strengthening its balance sheet. The Company has become stronger
than ever with the spin-off of RXi Pharmaceuticals with more
focused cancer programs and less cash burn for its
Galena's cancer program NeuVax and FBP provide significant
leverage in cancer immunotherapy generally, as well as in "off
the shelf" vaccines specifically.
Currently, the Company has 5 programs in clinic including
Phase III NeuVax for breast cancer, Phase I/II FBP for
gynecological cancers. This is quite unusual for a small
cap biotech company.
We believe NeuVax has a blockbuster potential if it reaches
the market. FBP also targets the relatively large gynecological
cancer market, which is underserved and has unmet medical
Based on the Company's strong fundamentals, we believe
Galena's shares are undervalued compared to its peers. Currently,
the Company's shares are trading at about $1.86 per share which
values the Company at about $153 million in market cap based on
83 million shares outstanding. This is a discount compared to its
peers. Most small biotech companies of development stage in the
business of cancer are valued from $50 million to $500 million in
market cap depending on how advanced the pipeline is and which
indications the company is targeting. Galena is a late stage
development biotech company, and its lead candidate NeuVax is
already in Phase III clinical trials.
We believe Galena should be valued at $300 to $400 million in
market cap. Our price of $4.0 per share corresponds to a $328
million in market cap based on 83 million outstanding shares.
But keep in mind that cash burn
is still a concern even with the new $24.3 million financing.
Current cash balance will last into the second quarter of
2014. More financing is needed to fund its ongoing clinical
trials. Equity financing is still the primary choice in our view,
which will dilute existing shareholder base.
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