2 Biopharmaceuticals With Huge Upside Potential

Mohsin is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

The Biopharmaceutical industry was one of the most profitable last year. A number of companies have appreciated to sky high valuations and returned investors a lot of money. While this price appreciation is good news for investors that are already invested, it leaves little room for new investors to make money. There are still a few biopharmaceuticals available at cheap valuations, however. I believe Galena BioPharma (NASDAQ: GALE) and Oncolytics Biotech (NASDAQ: ONCY) are two such stocks that still offer a considerable upside to investors.

Oncolytics Biotech

The share price of Oncolytics has appreciated by more than 45% in the last few months due to positive market perception of Reolysin. The Canadian company is involved in the development of cancer therapies. The primary drug of Oncolytics is Reolysin, which has undergone approximately 32 different trials for various forms of cancer; 16 trials have been successfully completed. The drug has the ability to treat RAS activated tumors, and according to studies approximately 67% of all cancers are RAS activated.

Oncolytics has recently released data for the effect of Reolysin on neck and head cancer and carcinoma of the lung. According to top-line data, from trials on patients with head and neck cancer, the combination of Reolysin with paclitaxel and carboplatin had a higher likelihood of decreasing tumor size. The trials showed that the combination was 19% more effective than standard therapy.  The mid-stage Phase II data from Reolysin’ SCCLC trials show that the combination of Reolysin and carboplatin & paclitaxel was able to reduce tumor size in 95% patients.

The patent cliff makes Oncolytics an interesting acquisition target for large pharmaceuticals facing expiring patents. The wide oncology applications of Reolysin makes it gold for companies with strong oncology pipelines. The mean sell side target price on Oncolytics is $7.4, which is more than a 100% return on current price levels. I believe the company is both a strong acquisition target and has the potential to appreciate further on more trial data for Reolysin.

Galena BioPharma 

Galena is a biopharmaceutical company involved in the discovery and development of therapeutics for the treatment of cancer. The primary candidate of the company is a peptide based vaccine called NeuVax. The drug aims to treat breast cancer patients who achieve remission. The drug aims to delay or prevent the recurrence of breast cancer in such patients.  NeuVax harnesses the immune system of the patient to stop the recurrence of any cancer cells. The drug has the potential to treat prostate, bladder, breast, colon, pancreatic and ovarian cancer.

The stock of Galena has fluctuated a lot during the last few years and has given a return of 63% to investors. The entire valuation of Galena is currently dependent on the success of NeuVax in clinical trials. The drug was tested in 200 breast cancer patients in phase II clinical trials for a period of 5 years, the results showed NeuVax to be effective and safe. Two additional studies for the drug are underway, which are as follows:

i)    Phase 3 trial on 700 patients

ii)   Phase 2 trial involving 300 patients which tests the combination of Herceptin and NeuVax

Despite recent rallies the stock still has a lot of potential upside. The mean sell side target price on Galena is $4.5, which is more than a 100% return on current price levels. Galena is also an attractive acquisition target and has a pretty strong partnership agreement with Teva Pharmaceuticals (NYSE: TEVA). The generics giant has agreed to commercialize NeuVax in Israel.

In addition to this commercialization agreement, the company has also provided NeuVax with at least four testing sites in Israel for its Phase III trials. Teva is already suffering from expiring patents with its major drug Copaxone under threat from generics. Galena has a market capitalization of only $137 million, which makes it an easy target for Big-Pharma players like Teva. 

Mohsin Saeed has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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