Galena Biopharma fka GALE

[Harleyman]

2 Biotech Stocks To Buy Right Now
January 27, 2013 | includes: DNDN, GALE, VVUS
Disclosure: I am long SBFM.OB. (More...)

The biotechnology industry can be one of the most challenging industries to invest in but also one of the most rewarding. It seems that there are many companies with a promising future but unfortunately, most of these companies will fail. One example of a stock that helps tell the story of how challenging biotech can be is Vivus (VVUS). Vivus is currently one of the most discussed biotech companies in the world. But that hasn't always been the case. Before 2012, the company was relatively unknown except to its investors. But once 2012 rolled around, the company seemed to have finally hit its stride. The company received FDA approval for its drug called Qsymia. Qsymia is used in the treatment of obesity and was the first major drug to be approved for use in this disease. As shown in the chart below, the stock really took off on the FDA approval.

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However, in the later part of the year, reality started to set in for investors. Getting approval is only half the battle. The other half is finally turning that approval into a sustainable business which can sometimes be the hardest part for a biotechnology company. In the case of Vivus, it is clear that the company has had trouble turning its miracle drug into a legitimate business. From the third quarter filing of Vivus, its financial results still were not in a favorable place. The company was still not generating revenue. For the third quarter of 2012, Vivus generated only $41,000 in revenue compared to $0 for the same period in 2011. Additionally, the company's operating expenses had swelled to over $40 million from just under $9 million for the same period in 2011. Investors expected more and thus far, Vivus has failed to deliver. This is just one case of how challenging the biotechnology space can be and hopefully the two companies discussed below won't face the same future.

Below is a list of two biotechnology companies that I believe will be sound investments for 2013. They were chosen based on the following criteria:

1) Each company has an upcoming catalyst in 2013

2) Each company is focused on a treatment for a particular type of cancer

3) Each company has average daily equity volume of at least 400,000 shares to provide investors with plenty of liquidity

Dendreon (DNDN)

Dendreon Corporation is a biotechnology company engaged in the discovery, development and commercialization of therapeutics to enhance cancer treatment options for patients. The company has a pipeline that includes active cellular immunotherapy and small molecule product candidates to a treat a range of cancers. Dendreon is mostly known for its drug used in the treatment of prostate cancer, Provenge.

Financially speaking, Dendreon appears to be on its way to greatness. On January 7, 2013, the company announced its preliminary fourth quarter 2012 revenues and the numbers were impressive. For the fourth quarter, net product revenue is expected to be approximately $85.5 million. On a pro-forma basis, revenue is expected to be $81 million which will be an increase of 5% on a sequential basis. Additionally, community accounts continued to grow on a quarter over quarter basis. Urology grew by 25% and oncology grew by 4%. Community accounts represent 71% of Dendreon's total sales, which increased by 13% from the fourth quarter in 2011. Most importantly, this report indicates that physicians are showing more interest in Provenge. The company was able to add 61 new accounts, which brings the total to 802. Let's analyze four reasons why Dendreon investors will be rewarded in 2013.

There are four main reasons to be optimistic about Dendreon. First, the stock appears to be gaining a lot of momentum. As the chart below shows, the stock is very close to its 6-month high after reaching a 52 week low of $3.69 towards the end of October.

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The company has made some strong strides which has caused this recent run-up and it appears that the momentum isn't about to stop anytime soon.

A second reason why I like Dendreon is because of its upcoming catalyst regarding approval of Provenge by the European Union. The company has begun patient enrollment for the Provenge European Union open-label study. The ultimate decision will be given by mid-2013 and is expected to be favorable because of the success that Provenge has already demonstrated. Should it be approved, investors should be rewarded with a nice jump in the stock price.

A third reason why I like Dendreon is because of the growth expectations. As the stock chart above shows, the stock has rallied since its last earnings report. With analysts expecting 2013 revenue to come in around $370 million, that represents a 15% growth rate on the 2012 numbers which should be official towards the end of February. The expected loss in 2012 is $2.77. The company expects to have a narrower loss in 2013 of $1.34. These are admirable improvements on their own.

The last reason why Dendreon appears poised for a strong 2013 is because of its most recent Phase II study. Dendreon recently announced results from a Phase II study completed at the Georgia Health Sciences University. The study looked to improve upon the survival rates of Provenge by itself. The trial was led by Samir Khleif, who is the director at GHSU Cancer Center. Mr. Khleif looked to combine Provenge with two other cancer fighting drugs, CT-011 and cyclophosphamide. Although Provenge already extends life expectancy by 20%, the hope was that this trial could even take that further. The preclinical animal results were favorable. The trial showed that the combination led to a significant increase in survival and complete tumor regression in more than 50% of mice. Because of these results, Dendreon and GHSU are collaborating on a human study.

Although the four reasons laid out above appear to paint a rosy picture for Dendreon, it is important to discuss the main risks facing Dendreon. First, the company does face competition from Johnson & Johnson (JNJ), which has a competing product to treat prostate cancer called Zytiga. This product has been shown to be effective. Additionally, Zytiga is also a cheaper option as it costs $5,500 per month whereas Provenge costs nearly $100,000 per treatment. Secondly, while European approval is expected for Provenge, it is important to understand that approval is not a certainty. Should it not be approved, the stock is likely to see a lot of selling pressure.

Galena Biopharma (GALE)

Galena Biopharma is a biotechnology company focused on the development of cancer treatments using peptide-based immunotherapy products.

Much like Dendreon above, Galena has made great strides to solidify its financial position. On November 13th, 2012, Galena filed its quarterly report and the numbers were impressive. For the three months ended September 30, 2012, the company was able to improve its net cash position by approximately $4 million. Typically biotechnology companies are burning cash at a rapid pace, so the fact that Galena was able to increase its demonstrates management's ability to properly manage resources while advancing the company. Possibly even more impressive is that the company was able to keep liabilities almost entirely even. Total liabilities only increased by less than $200,000 from the end of 2011.

Another financial positive is that Galena was successfully able to raise roughly $24 million in a secondary offering that was announced on December 17, 2012. This helps to alleviate investor concerns of further dilution.

Right now, the company is entirely focused on its flagship product called Neuvax. Neuvax will be used in the treatment of breast cancer in an effort to reduce the rate of recurrence amongst patients.

As the chart below indicated, 2012 was a very strong year for Galena and the company's investors were rewarded nicely.

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The stock rallied from a 52 week low of $0.59 to a 52 week high of $3.54 before pulling back to its current trading range. It closed Friday at $1.74 but appears to have found a nice trading range during the past few weeks.

On Friday, December 7th, Galena presented the results of a Phase II trial for its flagship product, Neuvax. The results were well received by analysts even though the stock fell off a little bit. The company stated that only 5.6% of Neuvax patients had a recurrence of breast cancer, compared to patients receiving the standard treatment who had a 25.9% recurrence. The company also stated that 89.7% of patients treated with Neuvax were disease free after five years, compared to 80.3% of patients who hadn't received Neuvax.

The company should provide investors an update on Phase III progress at some point in 2013. The company does have a long way to go before announce the results of the Phase III clinical trial. So I am potentially worried about dilution down the road even though the company already announced its intent to raise additional funds in early December.

The main risk I see for Galena is competition. There are two main competitors to Galena, and they are Celldex Therapeutics (CLDX) and Sunshine Biopharma (SBFM.OB). Celldex Therapeutics is a biopharmaceutical company focused on the development, manufacture, and commercialization of novel therapeutics for human healthcare. The company has two main products. The first is CDX-110, which is currently in Phase III clinical trials to target the tumor-specific molecule, epidermal growth factor receptor variant III. The company's other drug, which is the focus of this article, is CDX-011. CDX-011 is an antibody drug conjugate used to treat metastatic breast cancer and melanoma indication. Sunshine Biopharma is another company focused on the development and treatment of novel therapeutics for human healthcare. Its main product is Adva-27a which is used in the treatment of breast cancer. It was recently found to be effective against multidrug resistant uterine cancer cells.

Conclusion

Dendreon and Galena appear poised for a bright future and a very strong 2013. But as the case of Vivus shows, it is important to always use proper risk management when trading biotechs and never invest more than you afford to lose in this industry. Hopefully, Dendreon and Galena will prove themselves to be worthy of long, sustainable businesses.

http://seekingalpha.com/article/1135551-2-biotech-stocks-to-buy-right-now?source=email_portfolio&ifp=0