Peregrine Pharmaceuticals, Inc (PPHM) is a clinical stage biopharmaceutical company that is focused on the treatment of cancer. Peregrine also has in-house cGMP manufacturing capabilities through its wholly-owned subsidiary Avid Bioservices, Inc., which provides development and biomanufacturing services for both Peregrine and outside customers. Peregrine has in-house manufacturing capabilities through Avid, a contract manufacturing organization (CMO) that is the main source of Peregrine's revenue at this time. Peregrine has two clinical oncology programs with bavituximab the lead candidate in trials for multiple indications and Cotara in Phase II trials for the treatment of recurrent Glioblastoma Multiforme. In addition to these products, Peregrine is also advancing their lead molecular imaging agent, 124I-PGN650, in an exploratory clinical trial for the imaging of multiple solid tumor types. Peregrine holds or has an exclusive license to over 200 issued patents and published patent applications worldwide, which is important, but holds little value until the intellectual property is tested and in the clinic.
Peregrine Stock and Financials
Peregrine's stock price, quoted on the NasdaqCM, has seen quite a flux in 2013, ranging from $1.21 to $2.43 in 2013. Much of this flux was early in 2013 with the high occurring in January and the low in late February. It is currently trading at a market cap of around $224 million dollars and a PPS of $1.63. In the past 3 months, the stock has been just as volatile with a low of $1.29 and a high of $1.83. Shares have reached $1.95 on June 3rd after the release of their ASCO presentation, but the stock dropped below $1.80 by the end of the day. It should be noted that Peregrine was almost de-listed from the Nasdaq due to its share price being below $1.00 for a period greater than 30 days in Q4 2012. It was able to regain compliance in December and doesn't look under any threat of another occurrence, but it should be noted that with so many outstanding shares, one piece of bad news could easily sending it tumbling below $1.00. Analyst estimates are bullish for PPHM, but in the biotech space, analyst estimates are irrelevant. Almost every analyst is bullish with their price targets on biotech stocks because they want the financing business that almost every biotech will require. An example of this is Roth's recent $7 price target, or a target that is over 420% the current PPS or a market cap of $960 at current share structure. While PPHM could reach the $7 target one day, it is years off if a lucrative partnership is not found or if a buyout does not occur.
Peregrine had $37 million in cash as of January 31, 2013 with close to $19 million in liabilities. They are slowly narrowing their losses as revenues from contract manufacture increases and R&D costs decrease for the year. Revenues were about $7 million for the 3 months that ended Jan 31, 2013, with total costs of about $12.2 million (Loss of about $5.2 million). This compares to a loss of $11.1 million for the same period in 2012. Peregrine does still have $145.5 million worth of equity still to offer, which could potentially dilute the stock by 39%, thus affecting potential shareholder gains. Currently there are also just over 24 million shares outstanding that are to be issued under employee bonus and purchase plans. If no additional capital is raised, Peregrine expects to be able to operate through January 31, 2014.
Ayer Capital Management, one of the largest institutional funds in the biotech sector recently has sold off the majority of their holdings in Peregrine. This is not uncommon as they have bought and liquidated their position in Peregrine several times during the past year. Institutional holdership has increased with other large funds as of March 31, 2013, but the total institutional ownership of Peregrine is only a measly 8.5% however. Vanguard is the top holder with 2.9 million shares just ahead of Barclays UK Holdings at 2.25 million shares. This is less than a quarter of the institutional holdings of Alexza Pharmaceuticals (ALXA) or half of Celsion Corporation's holdings (CLSN). Slightly larger biotechs like Threshold Pharmaceuticals (THLD) (58%), Sarepta Therapeutics (61%), and Infinity Pharmaceuticals (75%) have much higher institutional holdings, which are good indicators as to the long term future of a company. I would not be surprised to see some form of increased holdership after ASCO, however.
Peregrine Management
The biggest issue with success thus far is the management team at Peregrine. Inexperienced and overconfident management teams often are the difference between a successful start up and a failure. Examples of poor management were seen in several companies who have seen setbacks in 2012 and 2013, including Aveo Pharmaceuticals, Celsion Corporation, and Affymax Inc. While much of Peregrine's board has previous pharma and biotech experience, it is clear that the company could have put itself in a better position for success in the past. This was seen in 2012 when they released misleading trial results about a second-line NSCLC bavituximab trial. The stock price peaked at $5.39 after the release of data, then sharply fell to below $1.00 within 10 days after it was discovered the trial results could not be validated. Conducting ex-US studies is always risky and the money saved is often not worth the risk that the studies inherently bring. This was seen in Aveo's Tivozanib phase III study, and Medivation's Dimebon trials. Cancer trials are the toughest trials to conduct outside of the US and modernized EU as the protocols are often very limiting as to who can participate. In many ex-US locations, the quality of medical coverage is poor enough that patients cannot be accurately classified, and hence why the results are not always trustworthy and reproducible. It is clear that much will need to be done to bring investor trust back to this stock as the PPS has not come close to the run up before the results were released in September 2012. This is not the only time Peregrine has skewed results however. In March 2012, they also admitted that the unexpectedly high PFS in 1st line NSCLC patients taking bavituximab. This was attributed to "Principal Investigator" bias. What is clear is that management has made mistakes in the past and the stock price has been affected by this. This clearly has had an effect around the ASCO news release to the extent that investors either see the results as nothing extraordinary, or are still skeptical about investment in PPHM.
Bavituximab
Bavituximab, Peregrine's leading candidate, is currently completing wide-ranging phase II programs, and will move on to Phase III trials in second-line NSCLC. Bavituximab is a chimeric monoclonal antibody that targets the membrane phospholipid phosphatidylserine. In simplistic terms, bavituximab allows the immune system to target tumor cells by targeting phosphatidylserine, which is over expressed on the outside membrane of tumor cells. By targeting and blocking phosphatidylserine, immune cells are able to mature, thus fighting causing apoptosis of the tumor cells. It functions in a similar method as an antiviral, allowing immune systems to target the infected cells. In theory this sounds like an exciting immunotherapy, and may be, but the overall response rates were nothing extraordinary in second-line NSCLC (17.1% vs. 11.3% in the control group, p=.371). The overall survival for the 3 mg/kg was 4.4 months longer than the control group, however, which shows a benefit of bavituximab. PFS was only slightly higher in the Bavituximab group, however. I believe the second line results show that bavituximab has its merits, and could be used in combination with other immunotherapies and chemotherapy drugs, but it is nowhere near as exciting as the PD-1 drugs being developed by Bristol-Myers Squibb (NYSE:BMY), Roche (PINK:RHHBY.OB), and Merck(NYSE: MRK). With a safety profile that to this point is in line with other approved products, if the phase II results are similar in Phase III, I would foresee approval in second-line NSCLC.
Bavituximab was given the green light by the FDA to conduct a Phase III trial in600NSCLC patients with a primary endpoint of Overall Survival (OS). Overall Survival is a better judgment of how effective a molecule is in advanced cancers anyway as a primary endpoint since the ultimate goal of cancer products is to keep patients alive. The overall survival in phase II trials was in line with other drugs on the market, but the real question is, what would differentiate it from those products? Even if approved in second-line NSCLC, I would see it used as a combination therapy mainly with other target therapies. With Anti-PD1 (nivolumab) expected to reach market in 2014, bavituximab's market space is appearing to become more limited. In a previous article, I concluded "NSCLC's market space is expected be worth about $10 billion by 2018, with a current need for a first-line product that provides both safety and efficacy. Increased safety over tyrosine kinase inhibitors (Avastin) are needed". I don't believe that second line approval in NSCLC itself would make Peregrine a long term buy, but approval in first line would open up a large enough market to make any current entry into PPHM profitable.
Promising results were also shown in early trials for pancreatic and breast cancer, but these trials were small and bavituximab would still be several years away from FDA submission in these indications. At this point, with limited data from 1st line NSCLC First-Line, breast cancer, Pancreatic cancer. and advanced HCC, I believe that there is too much risk and too many unknowns to suggest investing in PPHM. I personally will sit on the sidelines and look for more data as it comes in to ensure bavituximab has a chance to succeed in a wide range of indications. Bavituximab has widespread potential since its method of action is not limited to certain tumor types, since PS is expressed on living tumors as well as endothelial cells in the tumor vasculature. I do think that the biggest hurdle to overcome will be the cost of the wide-ranging PII/III programs that Peregrine are implementing along with a potential change in cancer drug pricing, which will affect the uptake of new products once approved. Bavituximab will need to show a superior OS benefit over the likes of nivolumab, BI's Nintedanib, Roche/Astellas Tarceva, and Roche's Avastin in NSCLC to really differentiate itself in a changing market. It would also appear that the antiviral program is on the back burner while the oncology program is being developed, keeping it away from the market for at least several years. There is a possibility of Peregrine striking a partnership, which could potentially make the stock's current PPS attractive, but this would all be speculation, and I believe the terms of the deal would be crucial.
Cotara
Cotara, Peregrine's other clinical compound is currently in development for glioblastoma multiforme (GBM), the deadliest form of brain cancer. Cotara is a monoclonal antibody using Peregrine's "Tumor Necrosis Therapy (TNT)", which is delivered in a single dose. According to Peregrine,
"Cotara links a radioactive isotope to a targeted monoclonal antibody designed to bind to the DNA histone complex that is exposed by dead and dying cells found at the center of solid tumors. Cotara's targeting mechanism enables it to bind to the dying tumor cells, delivering its radioactive payload to the adjacent living tumor cells and essentially destroying the tumor from the inside out, with minimal radiation exposure to healthy tissue".
In simplistic terms, Cotara binds to the histone H1 complex, and carries (131)I (Radioactive Iodine), which delivers its radioactive payload locally to kill adjacent tumor cells. GBM is a market with significant unmet need with only Gliadel and Temodar competing in newly diagnosed GBM. Both have an average to below average safety profile with similar efficacy, meaning that a safer more efficacious product could take the majority of the market were it to be approved. Roche's Avastin recently showed a failure to increase OS in newly diagnosed patients, even though it is approved for use in recurrent GBM. What is needed in GBM patients is a molecule that is able to cross the blood brain barrier and deliver a therapy locally, which Cotara can using a special method called convection-enhanced delivery (CED). The two problems seen in this with Cotara are that one, it's not a very large market (expected global revenue of only about $400 million by 2018: Source GlobalData), and two, Cotara has been stuck in development for over a decade. In 2002, Peregrine was given Orphan Drug Status and Fast Track Designation in the EU and US, yet they have been unable to bring the molecule to market. Peregrine had to restart its clinical program for Cotara since 2002 and was able to get it through Phase I and II trials in this time (Phase II took close to 5 years to complete). Phase III is expected to be a single arm study comparing 2 doses of Cotara in up to 300 patients. The main issue is that it will need to remain on the back burner until it is financially viable for Peregrine to conduct the study. It is also clear that they will need to conduct it with a different research organization and population than the last trial to expedite its completion.
Conclusion
I see Peregrine as an equity that has 2 products with potential, but repeated mistakes have cost the company and shareholders time and money. It is clear that Peregrine will need a partner to help them cover the cost of conducting bavituximab trials, and where this partner will come from is unknown. This is similar for Cotara, which has less upside since its potential market is only a fraction the size of bavituximab's. Ultimately, the question is, can Peregine get back on the track to success? I believe it is possible, but with the history of mistakes and lack of cash on hand, I am not too bullish. I do not believe that Peregrine is currently overvalued and a partnership deal could send the company easily to a $500 million market cap, but any source of bad news could send it to the OTC for good.
