What The GEN-003 News Means For Genocea

Genocea Biosciences Inc GNCA) announced late Monday that it is effecting a strategic shift to immuno-oncology. The company also said it would focus on the development of neoantigen cancer vaccines, including GEN-009, and that it would explore strategic alternatives for GEN-003.

Reacting to the announcements, the shares of the company are slumping 68.47 percent to $1.68.

Delving on Genocea's decision on GEN-003, Cowen noted that the company has been indicating for some time now that it would begin a phase III trial of GEN-003 if a partner or a source of funding is zeroed in.

GEN-003 is a protein subunit T cell-enabled therapeutic vaccine tested to reduce the duration and severity of clinical symptoms associated with moderate-to-severe genital herpes and to control transmission of the infection.

Analysts Phil Nadeau and Marc Frahm estimate that the phase III study would have cost the company about $150 million. Given the stock price of the company, the analysts think it could not have found a sufficiently attractive way to fund the phase III program.

Therefore, Cowen believes the company will no longer develop GEN-003 by itself and will advance the treatment candidate further only if a partner can be found.

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"We continue to project that GEN-003 will be successfully developed, but now we assume that GNCA will receive a 17.5% royalty on sales, rather than capturing all economics," the firm said.

Given the changed expectations, the firm lowered its DCF-based price target from $40 to $10, but it maintains its Outperform rating on the shares of the company.

The firm noted that Genocea is stopping spending on GEN-003 and reducing workforce by 40 percent. As a result, the company expects annualized savings of $6.5 million in personal-related costs, the firm added.

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