Sell Side Shills, Chad Messer Edition, Part 2 – GALE

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.

The content contained in this blog represents only the opinions of the author. The author may hold either long or short positions in securities of various companies discussed in the blog. This commentary in no way constitutes investment advice, and should never be relied on in making an investment decision, ever. This blog is not a solicitation of business: all inquiries will be ignored. The content herein is intended solely for the entertainment of the reader, and the author.

Sell Side Shills, Chad Messer Edition, Part 1 – GALE

Why do we here at BuyersStrike! HQ think so poorly of sell-side analysts? Those sober-looking investment bank employees whose job is to, supposedly, give out insightful investment advice?

Because that is not really their job. Their job is to sell you, the investing public, something. That is why smart professionals ignore them, and call them by another name, “banking whores”.

Care for an example? Let’s deconstruct just the beginning bits of the dreadful Galena Biopharma (GALE) missive from Needham’s Chad Messer.

(Why Chad? Because we love The Chappelle Show here at HQ, and especially the Mad Real World skit, watch it again and again here, it sort of sums up Chad perfectly.)

Chad opens with a whopper:

Fundamentals Are Strong Despite Stock Promotion Overhang; Maintain BUY Rating

To which fundamentals could Chad possibly be referring? Galena has only one shipping product, the me-too fentanyl product Abstral. The consensus net revenue estimate for Q4 was $1.825mm. GALE reported net revenues of only $1.317mm, a miss of 27.84%. Only in the world of banking whores can a miss of almost 30% be considered a strong showing.

Revenues are not the only fundamental metric of course, there is also profitability. The mean estimate for Q4 EPS was a loss of 9c. GALE came through with a loss of 46c, a 400% miss to the downside. Maybe Chad doesn’t understand negative numbers? Moving on…

INVESTMENT HIGHLIGHTS: Galena currently holds $55.3 million in cash and expects ~$8 million/quarter in operating burn during 2014, leaving the company well capitalized.

Instead of going off of the audited financials in the 10K, Chad is hanging his hat on an odd figure that GALE trumpeted in the press release, mid-March cash of $55.3mm, Looking just at a single line item, unaudited cash, without examining the rest of the balance sheet is irresponsible.

A more fair, but still simplified, assessment would be as follows:

Audited cash of $47.8mm – debt of $9.9mm (ST + LT) = Net cash as of 12/31/13 $37.9mm. Given their stated burn of $8mm a quarter that gives the company just about 5 quarters of life left. In what fever-dream is that well-capitalized? Even that is a very brief, and irrationally optimistic, look at the balance sheet which skips over some glaring red flags which we will examine further.

One would like to think an analyst at a Wall Street bank would know how to read financial statements, and certainly could spot red flags. Here’s one a first semester accounting student could spot: Galena has Accounts Receivable (AR) of $3.7mm on only $1.3mm in sales, which gives a Days Sales Outstanding (DSO) calculation of a whopping 256 days. Lesson for you Chad, DSOs < 90 are good, > 90 are bad. C’mon, didn’t George teach you this?

Chad also fails to mention this red flag line item from the 10K:

Fair value of warrants potentially settleable in cash:  $48,965mm

A warrant liability greater than Galena’s audited cash balance, one which is potentially settleable in cash, and not a mention. Should the worst happen, settling this debt would leave Galena destitute. Still well-capitalized?

Nor does he mention the $5mm deferred tax liability, nor the contingent purchase price consideration liability of $6.8mm.

Chad is awfully silent about the Stockholder’s Equity line which dropped precipitously from $27.7mm at the end of 2012 all the way down to $5.9mm at the end of 2013.

Does anyone still think Galena is “well capitalized”?

More on Chad Messer’s intellectual musings next time, including his thoughts on Abstral, NeuVax, and his bizarre claim that “management has executed well”.

The content contained in this blog represents only the opinions of the author. The author may hold either long or short positions in securities of various companies discussed in the blog. This commentary in no way constitutes investment advice, and should never be relied on in making an investment decision, ever. This blog is not a solicitation of business: all inquiries will be ignored. The content herein is intended solely for the entertainment of the reader, and the author.

Are they still the world’s worst drug dealers? – GALE

Soon the world should finally see an earnings release from our favorite purveyor of highly addicitve opiods, and developer of highly suspect cancer vaccines, Galena Biopharma (GALE).

Readers might recall that we examined the sales of Abstral, Galena’s sublingual fentanyl citrate tablets, in this post. We then drilled down into the sales numbers in this post, and discovered that GALE was essentially buying their own product.

So, in anticipation of the upcoming earnings release, lets look at independent sales data for the first two months of 2014.

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Galena and the Epsilon Sock Puppets – GALE

A number of comments have recently been submitted for approval to the recent posts on bio-dreck Galena Biopharma (GALE), by commenters “Don Petty” and “Bryce in TX“. [Similar comments have been posted to other articles on other site, like Seeking Alpha, by Don and Bryce as well.]

Both seem to be stubbornly stupid GALE bulls.

It turns out that all 6 comments are from the exact same email address and posted from the same ip address. Nice try.

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Galena. What’s it really worth? – GALE

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…

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A Look Inside Their Black Hearts, Part 2 – GALE Edition

Recently, The Street.com ran an excellent piece exploring the relationship between bio-dreck Galena Biopharma Inc. (GALE) and a sleazy stock tout shop that goes under many names (DreamTeam Group, MissionIR, Quality Stocks, etc.), you can read it here.

We first ran into this crew during the SEFE promotion in the springtime of 2012. And back then an enterprising reader sent in pictures of the vacant SEFE offices. Read that piece here.

The DTG stock touting swine have removed the disclaimer about GALE from their website, but a captured image was posted on Twitter (see here) and copied below:

Captured Disclaimer on GALE

A BuyersStrike! reader, @FranklinForward made a great suggestion to visit DTG HQ. And so we decided to take a field trip. But to where, exactly?

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