It has been a fun few weeks here at BuyersStrike! HQ examining Galena Biopharma (GALE). We’ve looked at the lackluster performance of its fentanyl drug Abstral, and Galena’s relationship with fly-by-night stock tout shop DreamTeamGroup.*
Readers may be surprised to learn that, unlike most of the companies discussed on this site that are worth $0.00, Galena has a value. It is not a zero. GALE shares are worth something. Intrigued? Read on…
Today we are going to take a closer look at Galena itself, on a quantitative basis, and answer the question “What is Galena really worth?” It is with sincere hope that by following along and learning how to properly value a company a few sheep will shake off their stupor. The following sell side clowns:
- Vernon Bernardi of MLV & Co.
- Rahul Jasuka of Noble Financial Group
- Chad Messer of Needham & Co.
- Echo He** of Maxim Group LLC
- Joseph Pantginis of Roth Capital Partners
- Edward “Don’t Hassle The” Tenthoff of Piper Jaffray
- Boris Peaker of Oppenheimer & Co.
- and Jason Butler of JMP Securities
should also read along, once they are done giving last night’s earnings to their pimps. They clearly need the lesson.
Introduction:
Valuing Galena is actually a very simple task. We can examine each part on its own and then add them together. Galena consists of the following five parts:
- Cash
- Anagrelide CR (aka GALE-401)
- Abstral
- NeuVax
- FBP Vaccine
Cash:
First, lets look at the balance sheet. At the end of the last reported quarter (9/30/13) GALE had 54.23mm in cash and 9.83mm in debt. This leaves net cash of 44.4mm as of the end of September 2013.
The company has been burning about 8mm a quarter, so as of 12/31/13 we can estimate that they have 36.4mm in net cash.
And, in mid January, just a few weeks ago, they spent $1.6mm upfront to buy Mills Pharma. That leaves 34.8mm in net cash.
Now let’s assume, for the sake of argument, that superstar CEO Mark Ahn and the Galena gang do not waste all of this money, and give them full credit for the cash of $34.8mm
Value of Cash: $34.8mm
Anagrelide CR:
Second, is Anagrelide CR aka GALE-401. How much is Anagrelide CR worth? Well, thankfully we have a very recent transaction, where Galena acquired Mills Pharma, dated January 13, 2014 that pins a pretty exact value on Anagrelide CR, of $1.6mm cash upfront.
As only a month or so has past, it is obvious that Mills is worth what GALE paid for it. If we assume Galena was the high bidder, then in fact Anagrelide CR to any other buyer is actually worth less, but why quibble. Yes, there are some potential milestone payments ($3mm cash and up to 4mm shares) but who knows if they will ever be met? So we will discount the milestone payments, to a very generous $8.4mm. That makes our total value a nice round number.
Value of Anagrelide CR: $10mm
Abstral:
Third, is Abstral. We know that in a recent transaction, not even a year ago, Abstral was sold to GALE in April of 2013 for $15mm. This was 6.17x 2012 revenues of $2.43mm (recall that we examined Abstral revenues here).
We can estimate Abstral revenues, based on prescription data, for 2013 at about $3.75mm gross. and using Galena’s own deal multiple of 6.17x, it is now worth $23.15mm. Please note, this does not take into account the infamous free fentanyl promotion. Net revenues, and thus the value of Abstral, should actually be lower. But we will give Galena credit for the full amount, to err on the side of generosity.
Additionally, there are some royalty payments owed to Orexo, but any new buyer of Abstral would presumably owe them as well, so it is a wash.
Value of Abstral: $23.15mm
NeuVax:
Now for NeuVax. Smart people believe NeuVax actually has a negative value because the company will continually burn cash in development, and it doesn’t work. The following two articles by Adam Feuerstein at The Street.com clearly explain why it will not work:
Breast Cancer Vaccine Doomed to Fail
If you, dear reader, have read the above two articles, and understood them, please skip the next two paragraphs. They are not for your eyes.
If you have not read and understood those articles, go back and re-read them once more. Then please continue reading.
If you are still long GALE after reading those articles twice, you are at least 2 standard deviations to the left of the curve. You need to go back and re-read them yet again. (See what I did there? You were just insulted through statistics. You probably still don’t realize it. That’s also why you are long GALE. Get it now? No? OK, just take your daily Soma.)
At this point everyone should have read each of those articles at least once. Some readers twice, hopefully not many had to read them a third time.
We may proceed.
Obviously, the only people who still think NeuVax will work are the ones who have opened up, said “Ahhhhn”, and swallowed Mark’s Kool-Aid. But for the sake of this valuation exercise let’s give the Galeeediots the benefit of the doubt and pretend NeuVax just might work. What is the value of NeuVax?
Surprisingly NeuVax is very easy to value because there happens to be an almost perfect comparable out there. There is a stand alone, single product public company that is an amazing “comp” to NeuVax. Why? Because the company’s product is a Her2 targeted peptide based vaccine….almost exactly like NeuVax, just targeting a slightly different peptide.
In fact, if you actually believe in the science behind peptide vaccines and NeuVax, then this other vaccine is the superior candidate. It targets the correct peptide to generate an immune response. NeuVax targets p369-377 (aka E75), this other vaccine targets p373–382. It is in trials at the Mayo Clinic right now.
So we have a company with a peptide vaccine almost like NeuVax (but better, if you believe peptide vaccines will work).
A company with a superior Her2 peptide vaccine to GALE’s must be worth more than Galena, right?
Spoiler alert……..it’s not.
The mystery company with the cancer vaccine? It is TapImmune (TPIV) and it sports a monstrous market cap of $3.8mm. Yes folks, that is all a peptide-based Her2 vaccine, in trials at a major institution in the US, is worth. $3.8mm***…which is actually less than the $5.8mm that Galena paid for NeuVax in 2011.
Value of NeuVax: $3.8mm
FBP Vaccine:
Finally we come to the Folate Binding Protein vaccine. This product is another peptide based vaccine, like NeuVax, but targeting E39. Since we just figured out that NeuVax is only really worth $3.8mm based on the comp, let’s assign an equivalent value to FBP.
Value of FBP Vaccine: $3.8mm
Conclusions:
Together we have just valued Galena using their own recent deal multiples and an almost perfect industry comp. Let’s total it up.
$34.80 Cash +10.00 Angrelide CR +23.15mm Abstral +3.8mm NeuVax +3.8mm FBP =75.55mm Total
Galena has 105.2mm shares outstanding. That yields a value of roughly $0.72 per share.
The difference between that value and the market price is what is called here at BuyersStrike! the “promotion premium”.
Perhaps a GALE bull would say we are being unkind, and undervaluing GALE’s assets. That somehow Abstral deserves a higher multiple, equal to that of Insys (INSY)****, which trades at an absurd 11x estimated 2013 revenues of its fentanyl product Subsys.
OK, lets give Abstral a 11x multiple and see how it changes our equation.
11 x 3.75 = 41.25mm. Our new, we-love-Galena-it-is-the-bestest equation is:
34.8 + 10 + 41.25 + 3.8 + 3.8 = $93.65mm. This yields a value of 89c per share.
If one still does not want to accept that Galena’s value is mostly hot air, the only other way to justify GALE’s insane over-valuation (by about 300mm) is to believe that our peptide vaccine comp, TapImmune, is insanely undervalued, and should be worth $150mm. (Recall that we use TPIV’s value twice in our equation).
But even the most cursory examination of TapImmune will show it is clearly not worth $150mm, and therefore….
“So,” you ask, “what does that mean?”
You’re smart. You’ll figure it out.
*This is not the first time Galena has been involved with shady folks on the fringes of the investment world. GALE paid bucket shop Legend Securities for “services” for many years. Read more about Legend in a great piece by Roddy Boyd here. More detail can be found here, as well.
**We’ve missed Echo He. So nice to see her again.
***There is another vaccine in development known as AE37, by lowly Generex (GNBT) but this is not purely a peptide vaccine. It consists of a peptide paired with the Ii-Key protein. Therefore it is not really as good of a comp as the TapImmune vaccine.
****Insys markets a somewhat different fentanyl product, Subsys. Subsys is a sublingual spray formulation of fentanyl base, whereas Abstral is a sublingual tablet of fentanyl citrate. Insys recently received a nastygram from the Feds related to their marketing practices for Subsys.
PHOENIX, AZ–(Marketwired – Dec 12, 2013) – Insys Therapeutics, Inc. (NASDAQ: INSY) announced today that it has received a subpoena from the Office of Inspector General of the Department of Health and Human Services (“HHS”) in connection with an investigation of potential violations involving HHS programs. The subpoena requests documents regarding Subsys®, including Insys’ sales and marketing practices relating to this product. Insys intends to cooperate with the investigation.
Which marketing practices would those be? Possibly similar to these?
If you short it waiting for $0.72, or even $0.89, you’re gonna have a bad time
[@MCN If one was long it at $7 one is already having a bad time. There is no reason why mkts cannot overshoot in both directions, but the fair value for GALE is somewhere below $1 – Editor]
Zing! on the BNW reference.
On the TapImmune website, weirdly, they call HER2+ breast a $10B market, with more billions to be found in the ovarian and colorectal markets. Where did they get that number? Herceptin sales are, what, $6B?
Great article.
One thing to point out…GALE has a boatload of options and warrants that make its fully diluted share count ~130M. So that would actually put GALE’s value closer to $0.60.
That also assumes they dont get sued for hundreds of millions as a result of the current investigations.
[@Chet – Thanks for pointing out that additional dilution. They sure are good at printing stock. – Editor]
[Note: The following comment came from a sock puppet IP address 72.182.153.32 and email dp19032k12@sw.rr.com – Editor]
The following is my understanding of the science and statistics behind the Neuvax Phase II trial as it relates to Mr. Feuerstein’s 4/14/2012 article. He writes:
” If NeuVax trains T cells to recognize and destroy HER2-expressing breast cancer cells, the vaccine should work best in tumors where HER2 expression is highest. This makes sense, right? After all, it should be easier for those newly trained T cells to find tumor cells if the target (HER2) is illuminated with the molecular equivalent of red paint and strobe lights.
But guess what: NeuVax works best against breast cancer tumors that express low or middling levels of HER2; the vaccine doesn’t work well in tumors that over-express HER2, says Galena. Really? That’s strange and confusing. Can Galena explain why a HER2-targeted vaccine wouldn’t work well in tumors that contain lots and lots of HER2?
No, Galena just wants you to accept this odd, confounding “fact” about NeuVax as the gospel truth, which the company insists is supported by data from phase II studies. ”
In fact, the answer to this question comes at the 12:57 mark of the video below. The question is asked, wasn’t this vaccine directed towards HER2 over expression occurrences, so can you explain why it didn’t work against these occurrences? Dr. Clifton states that this is a frequent question that is asked. He goes on to say:
“We think that by targeting the HER2 low expressors there’s some thought that HER2 over expressing patients have developed even more tolerance to HER2 because they see it more, whereas the group that has lower expressing levels may be more susceptible because they have less immune tolerance.”
What I understand this means is that HER2 over expressing patients have developed a strong immunological tolerance, meaning the bodies immune system is ineffective in fighting the cancer cells in this setting. With lower expressing patients the vaccine is more effective because these patients have less immune tolerance, and the vaccine is more successful in creating an effective immune response in these patients.
See 12:57 and after for that part of the video.
http://meetinglibrary.asco.org/content/45310?media=vm
So, it appears to me that contrary to Mr. Feuerstein’s claims, Galena has, in fact, addressed this issue head on.
Mr. Feuerstein goes on to state:
” The phase II studies were designed to study NeuVax as an “adjuvant” treatment to reduce the risk of breast cancer recurrence. Patients recruited had breast cancer with all levels of HER2 expression that was successfully treated leaving no evidence of residual disease. Some of the patients were then injected with NeuVax and an immune system booster while others were untreated and simply observed. The goal of the study was to determine if NeuVax could reduce the breast cancer relapse rate compared to doing nothing.
NeuVax didn’t work. Of the 109 women vaccinated with NeuVax, 6.5% had a breast cancer relapse after 24 months of follow up compared to 14.5% of the 79 women in the control group, according to data presented at the 2010 ASCO annual meeting. NeuVax patients had numerically fewer relapses but the trend was not statistically significant, with a p value of 0.08, which exceeded the 5% benchmark typically signifying a positive study. ”
What is true is that the Phase II trial did not reach what is termed as “statistical significance”, or p being equal to or less than 0.05. However, 0.08 is very close to the arbitrarily chosen statistical significance level of 0.05. A p level greater than 0.05 does not mean that the result always occurs by chance. P equal to 0.08 means there is an 8% chance that the results occurred by chance and a 92% probability that Neuvax has efficacy. So, to say NeuVax didn’t work just doesn’t look credible to me.
Then Mr. Feuerstein states:
“Patients in these phase II studies were followed longer but the results didn’t get any better. After 36 months follow up, the cancer relapse rate for NeuVax-treated women was 8.5% compared to the same 14.5% relapse rate for the control group of women. The relapse rate gap narrowed and the statistics behind the study got worse, with the p value growing to 0.187.”
Dr. Clifton addresses this in the link below at the 9 minute mark. He states there was waning E75 specific immunity (as best I can tell from the chart at the 22 to 25 month mark) and as a result, they started the booster series in which roughly half the VG participated in. So, there was a percentage of the VG which was suboptimally dosed.
For those who were optimally dosed, the p value was 0.10 at the 24 month mark. There were zero (0) recurrences in the VG group and 5.7% recurrences (4 patients) in the CG. So, the booster series appears to have efficacy even though it did not reach the level of statistical significance.
PLease read the summary of the Phase II Trial results from the site below, rather than taking Mr. Feuerstein’s word for it.
” CONCLUSIONS:
The E75 vaccine has clinical efficacy that is more prominent in certain patients. A phase 3 trial enrolling lymph node-positive patients with HER2 low-expressing tumors is warranted.”
http://www.ncbi.nlm.nih.gov/pubmed/21989902
Disclosure: I am “Bryce in TX” on the SeekingAlpha forum.
[Ooops – You forgot to add that you are also Don Petty and who knows who else. – Editor]
[Note: The following comment came from a sock puppet IP address 72.182.153.32 and email dp19032k12@sw.rr.com – Editor]
To address Mr. Feuerstein’s 5/22/2012 article, I’ll simply present the results of a sub-group from the Phase II trial.
That sub-group represents node positive, lower expressing HER2 patients, with the VG being optimally dosed. PLease see the 11:12 mark in the link below. One patient in the VG and one patient in the CG had received Herceptin treatment in this sub-group of 18 VG and 27 CG. Zero (0) in the VG had recurrence of cancer at the 24 month mark, versus six (6) in the CG. The p value was 0.04, statistically significant. So, in this group, Neuvax appears to be effective and Hercpetin cannot explain the difference.
See 11:12 on in the link:
http://meetinglibrary.asco.org/content/45310?media=vm
[Note: The following comment came from a sock puppet IP address 72.182.153.32 and email dp19032k12@sw.rr.com – Editor]
“Now for NeuVax. Smart people believe NeuVax actually has a negative value because the company will continually burn cash in development, and it doesn’t work.”
NeuVax achieved clinical efficacy (statistical significance) in the Phase II Trial at the 18 month mark. Yet it does work:
“We previously reported a primary analysis of these trials initiated at a median follow-up of 18 months per protocol design. The vaccine was demonstrated to be safe and effective in stimulating HER2-specific immunity. Importantly, at the time of that planned analysis, the vaccine had clinical efficacy, with the vaccinated group having a breast cancer recurrence rate of only 5.6% compared with 14.2% for the observation (control) group (P=.04). Trial follow-up was extended to 5 years, and patients provided consent for the additional
participation period.” (See page 2595 in link)
http://onlinelibrary.wiley.com/doi/10.1002/cncr.26574/pdf
The reason the p value dropped to 0.08 at the 24 month mark may be due to the vaccine waning in strength and effectiveness over time and boosters are needed to maintain effectiveness. Nevertheless, Neuvax has been proven to work.
“Later, it was observed that late recurrences in the vaccinated group corresponded to waning immunity, as demonstrated by decreased levels of E75-specific cytotoxic T lymphocytes (CTLs). This finding suggested that a booster inoculation may be necessary to maintain significant immunity. Toward that end, we instituted a booster program and recently reported the booster to be safe and effective in restimulating E75-specific immunity in patients who had failed to maintain significant residual immunity after initial vaccination.”
If I were short, I’d be shaking in my boots/shoes.
[Brain dead GALE sockpuppets should be the ones shaking. – Editor]
No, I am not a sockpuppet. Here is the wiki definition of a sockpuppet:
“A significant difference between the use of a pseudonym[3] and the creation of a sockpuppet is that the sockpuppet poses as an independent third-party unaffiliated with the puppeteer. ”
I voluntarily stated that I was Bryce_in_Texas in my post above. A sock puppet doesn’t want you to know that Don Petty and Bryce_in_TX are one and the same. Bryce is my middle name. Don’t believe me? Here’s a link to the property I own. Note the “B.” as middle initial which stands for Bryce. Btw, I don’t appreciate you posting my email address. That is private information. You have no right to post that, nor my IP address. I have done nothing wrong. I didn’t realize at first that my first and last name would be posted. I decided to change the name to my seeking alpha pseudonym or ID. What crime have I committed?
http://propaccess.wadtx.com/clientdb/Property.aspx?prop_id=XXXXXXXXX [Details masked for privacy – Editor]
[@Don/Bryce – For the sake of your own privacy the link to your property will not be posted in full. However, understand “My house, my rules” and up until this point no-one who has commented has had their email addresses revealed. You presented a special case, however, given your posting under two different aliases. Tell you what, provide a sincere apology for posting under two different names, and that info will be redacted. – Editor]
Until someone can show me a negative article that isn’t a reuse of Adam Feuerstein’s article (which btw, doesn’t have too much merit behind it), maybe i’ll start believing. At least show some evidence instead of pulling some numbers and charts and connecting them when there is no connection. Its like saying violent movies and games cause kids to be violent. Kids in kindergarten can come up with more logical arguments than you do. Someone should really sue Adam Feuerstein for stock manipulation, it’d be nice to see him on actually living on the street.
[@Lucas – Those articles are constantly referenced because they succinctly present the major issues with NeuVax. Of course all the numbers, charts, and references are a bit too dry and science-y for you, but don’t worry even Epsilons are useful. We couldn’t do without Epsilons. Oh look, time for Soma. – Editor]