Here’s What’s Going On With Genocea Biosciences, Inc. (NASDAQ:GNCA)

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Genocea Biosciences, Inc. (NASDAQ:GNCA) is one of the bigger movers this week and – unfortunately for the company and its shareholders – it’s not moving in the right direction. The company announced on Monday that it’s going to stop spending any more money on (and, by proxy, totally halt the advance of) a drug called GEN-003. This is essentially Genocea’s lead development asset and the halting of the program is a real blow to operations and long-term potential.

The drug was an immunotherapy candidate that, before the halt, many thought might be the next big thing in the genital herpes space. Genital herpes is a condition that can’t be cured but Genocea believed that the drug might be able to reduce the severity of symptoms (as well as the duration of onset) and also, as a bit of an added bonus, could potentially reduce viral load to such a degree that the chances of transmission would be dramatically reduced.

As it turns out, none of these seem to be the case.

Well, not exactly. Early to mid-stage development looked promising and the drug was able to demonstrate a degree of efficacy (as well as a relatively clean safety profile) during development to date. In order to advance through to late-stage development and a pivotal trial, however, the company really needed a partner before it could reach NDA stage and this seems to have been the limiting factor in the whole situation.

Anyway. Despite promising early-stage data the company doesn’t feel it can continue to justify spending on the program and that – for now, at least – it’s dead in the water.

In line with the halting of the program, Genocea expects that it will save more than $6.5 million in annualized savings and will reduce its workforce by somewhere in the region of 40%. The reduction will cost the company about $1.1 million in severance and one-time costs.

So what’s next for Genocea?

There are still a couple of assets a little further down the company’s pipeline, most notably an asset called GEN-009. This one’s a similar platform to the GEN-003 asset in terms of construction but it’s an oncology asset as opposed to an antiviral. Management expects to file an Investigational New Drug Application (IND) for the asset at some point during early 2018, meaning there’s a good chance we should see a clinical trial initiated before the middle of next year.

The company reported that it expects its current cash on hand to last through to mid next year. This is no coincidence – any phase I trial is going to cost money and we’ll no doubt see some degree of equity raise shortly before it commences.

So that’s something of a risk factor right now. This company is down heavily on the latest development (52% at the close of play on Monday) and some might be looking at the newly revised market capitalization as an opportunity to pick up an exposure to the above-mentioned GEN-009 development oncology asset at a discount. That’s not an unreasonable thesis (oncology is always a hot focus in biotechnology and if the company can pull in some early stage efficacy signals on the back of a small phase I study, there’s a solid chance it can appreciate from its current market capitalization of $152 million) but it’s tempered somewhat by the necessity to raise cash ahead of any data collection.

Why?

Because any equity raise is going to be dilutive to shareholders, meaning anyone that picks up a position ahead of time is going to have to take a hit to their proportionate representational holdings at some point between now and mid-2018 – likely during late first or early second quarter of next year.

At its most recent close, then, on Monday evening, Genocea went for $5.33. After hours’ activity (the announcement came after hours) knocked this down to $2.55. There’s a strong chance that we will see a continuation of the weakness (at least near term) as markets open on Tuesday as normal participation gets underway and the more risk-averse shareholders sell out of their positions.

Let’s see how things play out from here…

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