On August 14, 2017 Galena Biopharma, Inc. (NASDAQ: GALE), a biopharmaceutical company developing hematology and oncology therapeutics that address unmet medical needs, reported its financial results for the quarter ended June 30, 2017 (Press release, Galena Biopharma, AUG 14, 2017, View Source [SID1234520250]).
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"Last week we made a transformative announcement to merge with SELLAS Life Sciences Group in what we believe is the best option for our stockholders," said Stephen F. Ghiglieri, Interim Chief Executive Officer and Chief Financial Officer. "We reached out to hundreds of companies through our financial advisor during our review of strategic alternatives; and, after considerable effort and evaluation of alternative options, we chose SELLAS due to our belief that the combination of our two development pipelines gives our stockholders the best opportunity for a potential return on their investment in Galena."
Mr. Ghiglieri continued, "Our assets are synergistic with the SELLAS pipeline, and their galinpepimut-S (GPS) program has unique advantages for a cancer vaccine that we believe will make a significant impact in the cancer immunotherapy space. GPS is targeting Wilm’s Tumor 1, or WT1, which is ranked as a leading antigen by the National Cancer Institute and is present in over 25 different cancer types, giving GPS a potentially broad therapeutic opportunity. Unlike NeuVax, GPS is not HLA restrictive which broadens the eligible patient population; and, it has the ability to activate both CD4+ and CD8+ T cells to expand the immune response. And, finally, the ongoing and planned combination trials with the GPS vaccine and checkpoint inhibitors are part of the next treatment paradigm in cancer immunotherapy. Once the proposed merger is approved, GPS will be the lead program moving forward."
"Additionally, SELLAS is committed to supporting the three, ongoing NeuVax (nelipepimut-S) investigator sponsored trials through the end of 2019 and will evaluate the GALE-401 and GALE-301/GALE-302 programs for possible internal development or partnering to deliver value from those programs to our stockholders as well. The combined company has a series of near term milestones which could be significant value creating opportunities, including the interim efficacy readout from the NeuVax Phase 2b trial in HER2 1+/2+ patients, data readouts from two of the GPS trials, and planned trial initiations for GPS in several indications," added Mr. Ghiglieri.
Mr. Ghiglieri concluded, "The merger with SELLAS and the steps involved in completing this merger, including a reverse split of our stock, are necessary to ensure that the combined entity continues to be listed on the NASDAQ Capital Market and has sufficient access to capital to realize the value of the various clinical programs. I understand this has been a long and challenging road for many Galena stockholders. Our management and board undertook a diligent effort to reach this point of combining with SELLAS, and we believe the participation in the combined company offers multiple opportunities for value creation in the coming quarters. We firmly believe that the promise of the SELLAS assets, combined with its strong leadership team, and a new board of directors, offer the best opportunity to maximize Galena’s value."
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FINANCIAL REVIEW
Operating loss from Galena’s development programs and general and administrative expenses, classified as continuing operations, during the three months ended June 30, 2017 was $4.9 million, including $0.2 million in non-cash stock-based compensation, compared to an operating loss from continuing operations of $9.3 million, including $0.6 million in non-cash stock-based compensation for the same period in 2016. Operating loss for the first half of 2017 was $10.0 million, including $0.4 million in non-cash stock-based compensation, compared to an operating loss from continuing operations of $18.3 million, including $1.3 million in non-cash stock-based compensation for the same period in 2016.
Loss from continuing operations for the second quarter of 2017 was $7.1 million, or $0.19 per basic and diluted share, including $2.2 million in non-operating expense. Income from continuing operations for the second quarter of 2016 was $8.3 million, or $0.91 and $0.90 per basic and diluted share, respectively, including $17.6 million in non-operating income. Loss from continuing operations for the first half of 2017 was $9.4 million, or $0.29 per basic and diluted share, including $0.6 million in non-operating income. Loss from continuing operations for the first half of 2016 was $4.8 million, or $0.13 per basic and diluted share, including a $13.4 million in non-operating income.
Loss from discontinued operations from Galena’s former commercial business for the second quarter of 2017 was $1.3 million, or $0.03 per basic and diluted share, compared to $2.9 million, or $0.32 per basic and diluted share, for the same period of 2016. Loss from discontinued operations for the first half of 2017 was $10.7 million, or $0.34 per basic and diluted share, compared to $6.3 million, or $0.17 per basic and diluted share, for the same period of 2016. Loss from discontinued operations during the first half of 2017 includes an accrual for a one-time $7.5 million civil payment settlement, which was recognized in the first quarter of 2017 in current liabilities of discontinued operations, related to the oral agreement in principle with the U.S. Attorney’s Office for the District of New Jersey (USAO NJ) and the Department of Justice (DOJ). The final terms and details of this settlement are subject to change pending the completion and execution of a definitive settlement agreement among Galena and the USAO NJ and DOJ. The agreement is anticipated to be a global settlement encompassing any potential claims that might be made by state and federal agencies. There is no assurance that the Galena will be able to complete a definitive settlement agreement on the final terms of the oral agreement in principle including its financial impact or any future adjustment to the financial statements.
Net loss for the second quarter of 2017 was $8.4 million, or $0.22 per basic and diluted share, compared to net income of $5.4 million, or $0.59 and $0.58 per basic and diluted share, respectively, for the same period of 2016. Net loss for the first half of 2017 was $20.1 million, or $0.63 per basic and diluted share, compared to $11.1 million, or $0.30 per basic and diluted share, for the same period of 2016.
Galena had cash and cash equivalents of approximately $18.1 million as of June 30, 2017, compared with $18.1 million as of December 31, 2016. During the first half of 2017 Galena used $20.0 million in operating activities offset by $15.5 million in net proceeds from issuance of common stock and warrants to purchase common stock in February 2017 and $4.5 million in redemptions of the debenture paid by Galena in shares of common stock which facilitated the release of restricted cash in the same amount.
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SECOND QUARTER AND RECENT HIGHLIGHTS
Operational Highlights
Positive Interim Safety Data on the NeuVax (nelipepimut-S) Clinical Trial in Combination with Trastuzumab in High-Risk HER2 3+ Patients
In April 2017, a poster was presented on the NeuVax investigator-sponsored Phase 2 clinical trial in high-risk, HER2 3+ patients at the American Association for Cancer Research (AACR) (Free AACR Whitepaper) Annual Meeting 2017 in Washington, DC. The Phase 2 is a multi-center, prospective, randomized, single-blinded, placebo-controlled trial combining NeuVax and trastuzumab in the adjuvant setting to prevent recurrence in HER2-positive (HER2 3+) breast cancer patients. The poster, entitled, "Pre-specified interim analysis in a prospective, randomized phase II trial of trastuzumab vs trastuzumab + NeuVax to prevent breast cancer recurrence in HER2+ breast cancer patients," presented the interim safety analysis that was initiated after enrollment of the 50th patient in the trial (vaccine group (VG) n=22, control group (CG) n=28). The analysis demonstrated that the agent is well tolerated with no increased cardiotoxicity associated with giving NeuVax in combination with trastuzumab.
Corporate Highlights
Entry into Merger Agreement with SELLAS Life Sciences Group
On August 8, 2017, Galena and SELLAS Life Sciences Group Ltd, a privately-held, oncology-focused, clinical stage biopharmaceutical company, jointly announced they entered into an all stock definitive merger agreement under which SELLAS will merge into and become an indirect, wholly-owned subsidiary of Galena. The combined company will be renamed SELLAS Life Science Group, Inc. The proposed merger, if completed, will result in a combined company focused on the development of novel treatments for cancer. The proposed merger is expected to close in the fourth quarter of 2017, subject to the approval of Galena stockholders and other customary closing conditions.
Reached Binding Term Sheet in In Re Galena Biopharma, Inc.
As reported on its Current Report of Form 8-K filed on July 28, 2017, Galena entered into a binding settlement term sheet to settle the litigation currently pending in the Court of Chancery of the State of Delaware, captioned In re Galena Biopharma, Inc., C . A . No. 2017 – 0423 – JTL. The settlement resolves the putative stockholder class action claims against the defendants, Galena and/or certain of its current and former officers and directors, as well as Galena’s petition to validate certain corporate actions. The settlement will not become effective until approved by the court. Under the terms of the settlement, the class will receive a settlement payment of $1.3 million, in addition to attorney fees in an amount to be approved. The settlement payment of $1.3 million consists of $50,000 in cash to be paid by the defendants or their insurers and $1,250,000 in unrestricted shares of the Galena’s common stock pursuant to the terms and conditions of the settlement. Any amounts awarded by the Court for attorneys’ fees will be paid in part by the settlement fund and in part by the Company’s insurance carriers.
Reached Agreement in Principle with the U.S. Attorney’s Office for the District of New Jersey (USAO NJ) and the Department of Justice (DOJ)
In its Annual Report on Form 10-K filed on May 10, 2017, Galena previously announced it had reached an oral agreement in principle with USAO NJ and DOJ regarding the material terms of a settlement related to the USAO NJ and DOJ’s investigation. The final terms and details of this settlement are subject to change pending the completion and execution of a definitive civil settlement agreement among Galena and the USAO NJ and DOJ as well as the settlement of any claims that might be made by state agencies and federal agencies such as U.S. Department of Defense, the Office of Personnel Management, the Office of Inspector General for the U.S. Department of Health and Human Services. The agreement in principle involves a non-criminal resolution and a civil payment, the terms of which are being negotiated with the USAO NJ and DOJ, of approximately $7.5 million, plus interest accrued since the date of reaching an agreement in principle, in return for a release of government claims in connection with the investigation.
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Settlement with the Securities and Exchange Commission
In December 2016, Galena and its former CEO, Mark Ahn, reached an agreement in principle to a proposed settlement that would resolve an investigation by the staff of the Securities and Exchange Commission (SEC) involving conduct in the period 2012-2014 regarding the commissioning of internet publications by outside promotional firms. On April 10, 2017, the SEC made an announcement that marks a formal conclusion to the SEC investigation of Galena.