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Galena Biopharma ( GALE)

Stock return since Jan. 1: 168%

The prevailing "wisdom" seems to be that Galena is undervalued as a "phase III drug company" because investors have bestowed higher market values on other companies with products in late-stage clinical trials. Of course, this reasoning sidesteps the thorny question of whether or not Galena's "phase III drug" really belongs in a phase III trial. (At least, a phase III trial with a reasonable chance for success.)

The Galena drug in question is NeuVax, a cancer immunotherapy designed to stimulate the immune system in patients with breast cancer that express low levels of a protein known as Her-2. Similar patients who express high levels of Her-2 are typically treated with Roche's antibody cancer drug Herceptin.

Data from the NeuVax phase II study have been presented (and presented again) through so many updates and retrospective looks at various patient subgroups that the overall results -- NeuVax failed to significantly reduce breast cancer recurrence or improve survival -- have been virtually whitewashed. Instead, Galena pins its phase III hopes on assumptions culled from rosier retrospective looks at small subgroups of patients who were "optimally dosed" or who have low levels of Her-2 expression.

NeuVax isn't new. The therapy has been kicking around for years under the control of a private drug firm, Apthera, which conducted the earlier studies and drafted plans for the phase III study. Last year, RXi Pharmaceutical acquired Apthera in exchange for 4.8 million shares of RXi stock, worth a bit more than $7 million. At the time of the purchase, RXi had been focused (unsuccessfully) on developing RNAi therapeutics. RXi and its RNAi drugs are now gone, transformed into Galena with a more investor-friendly breast cancer immunotherapy moving into a pivotal phase III study.

How many high quality, late-stage cancer drugs get acquired for just $7 million?

Galena shares closed Tuesday down 20% to $1.01.

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