While the analysis of peak sales and potential patient populations may be appealing to most, it costs a great deal of money to launch a new product with success. In the case of Galena Biopharma Inc (NASDAQ:GALE), the company doesn’t have the cash, but touts tremendous sales potential, so might the company succeed anyway?
The reality of launching drugs in healthcare
I would like to share with you something that I think is truly telling about product launches in biotechnology, which are facts surrounding recent product launches.
— Last December, Amarin Corporation plc (ADR) (NASDAQ:AMRN) raised $100 million to assist in the launch of Vascepa. During its most recent quarter, the company spent almost $65 million to aid in Vascepa’s launch. As a result, the company earned $2.34 million in revenue during those initial months. During the last year, shares of Amarin Corporation have declined 60% showing its performance post-approval.
— Ariad Pharmaceuticals, Inc. (NASDAQ:ARIA) launched its new drug Iclusig in the first quarter, a drug that treats a form of leukemia. This promising drug, that many believe could achieve annual sales in excess of $1 billion, produced just $6.1 million in its first quarter post-launch. Much like Amarin, the company spent a large deal of money to earn its sales, more than $70 million last quarter.
— VIVUS, Inc. (NASDAQ:VVUS) has had its weight loss product, Qsymia, on the market for the last two quarters. During that period, Vivus has earned just $6 million and has spent more than $115 million. Over the last year, shares of this stock have declined 55%.
The information from these three companies all share certain similarities. Each has products that were once heralded as having billion-dollar potential; many of which still do. All have products that have been expensive to launch and each stock has traded lower during the launch period.
Will this launch be different?
Despite what we see above, Galena Biopharma Inc (NASDAQ:GALE) clearly believes that it will not be “like the others.” The company acquired an FDA approved pain medication called Abstral, which is a form of fentanyl that dissolves under the tongue.
Abstral is already marketed in Europe, but until Galena, no other company had been willing to sell the drug in the U.S. Yet, Galena proudly touts that European marketer ProStrakan reported 2012 sales of $54 million and that Abstral could see peak sales as high as $400 million annually.
Obviously, if Galena’s strategy of launching Astral works, the company would not have to raise more capital to fund its Phase 3 trial with NeuVax. However, Galena has raised just $15 million to fund the launch of Abstral.
My issue is that it doesn’t make sense that a small biopharmaceutical company could take $15 million, launch a pain management drug in a crowded market, and succeed despite the fact that other companies spend 100’s of millions when launching their products.
I suppose investors believe that Galena Biopharma Inc (NASDAQ:GALE) will be able to hire a handful of sales reps to visit hospitals and will succeed with just the cost of hotel stays and general expenses. But keep in mind, this is a company with absolutely zero product launch experience and is trying to enter one of the most widely penetrated markets in medicine.
Amarin Corporation, Vivus, and ARIAD Pharmaceuticals have all developed drugs that treat patient populations where there isn’t a wide variety of medical options available. For example, Vivus’ Qsymia was the first launched prescription weight loss product. Amarin Corporation’s drug was the first prescription grade fish oil to treat high triglycerides, a condition that affects millions in the U.S. Lastly; ARIAD’s leukemia drug faces no real competition as the only product for its specific indication.
Galena Biopharma Inc (NASDAQ:GALE) faces the most prescribed drug in the U.S., hydrocodone, and then other forms of pain medication such as oxycodone and morphine among many others. So, the idea that Galena can take a drug that no other pharma company chose to sell in the U.S., and make $50 million in short-term sales ($400 million peak), without a massive marketing campaign, is absurd.
Conclusion
If Galena Biopharma Inc (NASDAQ:GALE) was to succeed with Abstral, it would be the greatest product launch story in history. The company would be succeeding with no launch experience, very little money, and in a congested market. As of right now, I have no reason to believe that the story will end this favorably for this company. Moreover, I think the company may have just wasted $15 million that could have been used to support the development of its controversial drug NeuVax, which means more dilution.
In my opinion, the result is that Galena will see what I am presenting. I think the company will find that $15 million is not enough capital to launch Abstral, and that there may not be enough resources to launch a drug in a market where most physicians have a preferred choice of treatment. As a result, Galena will most likely try to continue raising money in the initial months of its launch, and that its stock will suffer the same fate that ARIAD, Vivus, and Amarin have experienced into their product launches.
In biotechnology, product launches are extremely difficult, and I just don’t think that Galena Biopharma Inc (NASDAQ:GALE) has the resources, man power, or knowledge to succeed, and that its stock will suffer the consequences.
Sherrie Stone has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
The article Should You Buy the Hype Surrounding This Product Launch? originally appeared on Fool.com.
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