Yesterday we ripped apart just the very beginning of Chad Messer’s brilliantly insightful research note on Galena Biopharma (GALE). Catch up with it here. We continue with Part 2 of our series. Says Chad:
Fundamentals Remain Strong. Galena has 4 promising oncology-related products and management has executed well on their development thus far. This includes 2 specialty pharmaceutical products and 2 innovative cancer vaccines with blockbuster potential:
Well, we already know the fundamentals are not, and have never been, strong, but it is true that Galena has 4 products. We can even let Chad live with his delusion that the products are promising. After all, you totally could be a model, baby.
But the claim that management has executed well is just laughable. Firstly, Galena acquired the ho-hum fentanyl product, Abstral, after it had already been on the market for 2 years. GALE management had zero to do with its development…and as for sales, well, they were their own best customer in Q4. Galena picked up the second product, GALE-401 aka Anagrelide CR, in a tiny deal in January of this year, so it is unlikely that Mark Ahn and co have been able to work their execution magic. The last two products, NeuVax and the FBP vaccine were acquired through the fire sale of Apthera, after the failure of the NeuVax Phase 2 trials.
It is true that Galena management has advanced NeuVax into a Phase 3 trial, but what else were they going to do? In any event, it is one that seems to have been enrolling patients slower than expected. Chad, is that good execution or poor execution? Do you even know the difference?
Our intrepid analyst continues his note, with a breakdown of the products:
1) Abstral, a sublingual formulation of fentanyl for breakthrough cancer pain, is already on the market and exceeding initial launch expectations. Galena issued increased guidance for $11-15 million this year. We believe the drug has sales potential north of $50 million.
Chad is correct about two things. Abstral is a sublingual formulation of fentanyl (well, fentanyl citrate, but lets not split hairs) and Abstral already on the market. Good work. Unfortunately for Chad, the initial launch was in early 2011. Even if you believe the nonsensical spin that the “real” launch was somehow in late 2013, how could Galena have exceeded launch expectations when Q4 revenues were about 30% below Street consensus estimates? On the off chance that English is not Chad’s first language, the definition of “exceeding” is “to go beyond in quantity”. Does anyone think reporting sales below estimates is the same thing as going beyond them in quantity? Anyone?
Chad believes Abstral has sales potential north of $50mm. Given that in almost three full years (Feb 2011 to Dec 2013) on the market cumulative US sales of Abstral are about $8mm, is $50mm+ per annum a reasonable belief?
2) GALE-401, a controlled release anagrelide for essential thrombocytopenia, will enter a Phase II study this year and could be on the market by 2016. We estimate this product has sales potential in the low hundred millions.
Chad is truly reaching here. The entire market for anagrelide in 2013 was $89.6mm, and in 2012 $88.7mm. The market is dominated by generics. Brand-name Agrylin does only about $1mm a year in sales. Can someone please explain how GALE-401 will capture 110-400% of the existing market? Let’s move on.
3) NeuVax is in a pivotal study in breast cancer patients that will complete enrollment around 2Q and will report data in mid-2016. Previous Phase IIb data has shown the ability to delay disease recurrence in patients achieving an initial remission. NeuVax is also in a Phase IIb study in combination with Herceptin that is being run in collaboration with Roche and will soon to be in a Phase II study in gastric cancer being run and paid for by Dr. Reddy’s Laboratory.
The big mistake Chad makes is reading the Phase 2 study results. The study showed that NeuVax does not work. The data that Chad, and the other GALE-eediots, so desperately cling onto is from a data-mined retrospective sub-group analysis. Galena bulls confuse such post-hoc analysis with actual, valid, prospective trial results. Further, the rationale for the NeuVax Phase 3 trial makes no logical sense. A good explanation is available here, in a comment by Johnnyboy on Derek Lowe’s excellent blog, In The Pipeline.
Stunningly, Chad never mentions that the key (and only composition of matter) patent* for NeuVax expires in 2015. Before the Phase 3 study is even completed, and well before NeuVax would ever come to market. Further, Chad fails to disclose that Galena also has no foreign composition of matter patents. If by some remote lighting-strikes-plus-powerball-winning miracle the NeuVax Phase 3 trial is a success, every drug company in the world can easily, and legally, make generic NeuVax.
This makes the Dr. Reddy’s Laboratory partnership Chad mentions all the more frightening. Dr. Reddy’s is a large Indian generic drug company, one that will have plenty of in-house know how concerning NeuVax, which they could then easily produce and sell to the rest of the world, perfectly legally. Want to bet any sell side shills told that to their clients?
We’ll finish up our critical examination of Chad’s note next time. In the meantime, relax, take a 5 minute comedy break and enjoy the great John Witherspoon explaining all about ho-cakes, in “Hollywood Shuffle“. Because hoes got to eat too.
* GALE-eediots will cry out “But what about the American use patents?”…ok, what about them? Use patents are amazingly weak, easily challenged, and easy to work around. Even if upheld, American patients could simply drive to Canada or Mexico, fly to Costa Rica, or travel to anywhere else on the globe to get generic NeuVax for far cheaper than it would cost in the USA.
nice analysis