1-Star Stocks Poised to Plunge: Peregrine Pharmaceuticals?

Based on the aggregated intelligence of 180,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, biotechnology company Peregrine Pharmaceuticals (Nasdaq: PPHM  ) has received the dreaded one-star ranking.

With that in mind, let's take a closer look at Peregrine's business and see what CAPS investors are saying about the stock right now.

Peregrine facts

Headquarters (founded) Tustin, Calif. (1981)
Market Cap $298.0 million
Industry Biotechnology
Trailing-12-Month Revenue $15.2 million
Management CEO Steven King (since 2003)
CFO Paul Lytle (since 2002)
Return on Equity (average, past 3 years) (259.3%)
Cash/Debt $18 million / $124 thousand
Competitors Amgen
Merck
Roche Holding

Sources: S&P Capital IQ and Motley Fool CAPS.

On CAPS, 74% of the 35 All-Star members who have rated Peregrine believe the stock will underperform the S&P 500 going forward.

Just last week, one of those Fools, zzlangerhans, succinctly summed up the Peregrine bear case for our community:

They're now a four-bagger and counting from the June low of [$0.43]. ... Now, of course, the upward momentum is pure speculation in the usual game of baby biotech chicken.

Red flag one is that [bavituximab] has been around for like, forever. Longer than I've been following biotech. That's a long time for a miracle drug to reveal its miraculous nature.

Red flag two is that [progression free survival] was only 4.5 months vs 3 months for standard of care. Better than nothing, but not necessarily predictive of prolonged survival. ...

Red flag three is that the company released very little of the data from the trial. Statistical significance?

Red flag four is that the share price didn't start taking off until a month after the data release in May. ... The delayed reaction reeks of manipulation and speculation.

Red flag five is courtesy of Adam Feuerstein, who points out that Peregrine has made a business model out of selling stock through unannounced ATM financings for years. ...

If you don't want to miss that kind of dilution and you can't bring yourself to pore through the quarterly SEC filings, just remember to click that cash flow link under Financials on Yahoo Finance. They can dilute without telling you in PR, but they can't hide their Sale Purchase of Stock.

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Fool contributor Brian Pacampara owns no position in any of the companies 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 Fool's disclosure policy always gets a perfect score.


Read/Post Comments (17) | Recommend This Article (9)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 14, 2012, at 10:26 AM, rwgoed wrote:

    A little point-counter-point game:

    Green flag one: Cancer is especially tricky as it may take years in clinical development to find the right tumor type and place in therapy (1st line, 2ndl line, etc..)

    Green flag two: You should really take a look at approved drugs for 2nd-line NSCLC (e.g. docetaxel, premetrexed, erlotinib) and see that their PFS is 3 mo or less. 50% improvement to 4.5mo with bavi is actually quite impressive.

    Green flag three: The 2nd line trial in NSCLC has not completed yet, because both bavi arms the majority of patients are still ALIVE, while placebo median overall survival is already established at less than 6 mo. Can't report full details until trial completes. 117 pts in a placebo controlled PhIIb trial cancer trial is quite robust.

    Green flag four: Again, the May results only showed the primary endpoint results (PFS and RR), while the most clinically significant endpoint, overall survival wasn't met. And in July conference call, it still wasn't met... hence the recent price appreciation.

    Green flag five: Adam Feuerstein is a, well, you can fill in the blank with any insult and it would fit. He speaks like he knows biotech, but is consistently wrong. Any Arena shareholders can attest to that.

    The Fool should do a bit more DD before they post this garbage.

  • Report this Comment On August 14, 2012, at 10:36 AM, TruffelPig wrote:

    I COMPLETELY agree with rwgoed: this article is about the biggest garbage I did read here thus far. Instead of analyzing the clinical results and acknowledge that the Bavi patients are actually still alive, we repeat what someone else wrote.

  • Report this Comment On August 14, 2012, at 10:40 AM, TSIF wrote:

    rwgoed, the Fool also allows you a forum to post your counterpoints, even if they don't come close to addressing any of the issues. For example Flag One says nothing to current valuation or about the countless companies that spend years and never suceed at anything.

    Point number 5 is simply name calling which is certainly not a way to add any value to the point that Peregrine is an ATM machine. Even if your point 2,3,4 have any merit, dilution is certain.

    Fool allowed your comments, good luck with your non-valuation model and conviction bias mode of investing.

  • Report this Comment On August 14, 2012, at 10:42 AM, TSIF wrote:

    Next you will be saying that this little Fool snippet of one persons opinion caused the 14% share price plunge, (more if you count the unwarranted spike that opened the day).

  • Report this Comment On August 14, 2012, at 10:49 AM, TruffelPig wrote:

    @TSIF: Tomorrow we will see.

  • Report this Comment On August 14, 2012, at 11:02 AM, TruffelPig wrote:

    @TSIF: I bought that dip - there was even a HFT flash crash mini involved. At one point price went down to 2.4 and back up to 2.65 in less than tenth of seconds. The HFT traders are like sharks - there is blood in the water and they are circling. We probably end the day in the green.

    Btw, an "unwarranted spike" does not exist. It simply means there are more buyers than sellers.

  • Report this Comment On August 14, 2012, at 11:21 AM, TSIF wrote:

    TrufflePig, I appreciate that you also play the CAPS game, unlike most reactive posters and that you add sometimes to the dialogue.

    The players here on CAPS such as myself and ZZ don't pitch for our pitches to be turned into articles by the Fool Staff trying to get headlines and attract new memers.

    We pitch and blog to share ideas, form our ideas, and have a place to tabulate our goal of becoming better investors. When our ideas are turned into articles we take harrassment from those who are offended who really need thicker skins or someone to lash at to hide their own ineptitude.

    Neither ZZ nor myself short and it's rare that anyone believes we can be negative about an equity and not have an agenda that is not directly financial. It's indirectly financial because we try to get get better at the equities we do invest in.

    Regarding PPHM, you may play a flash crash successfully, they sometimes/often trigger stop losses and the nervous holder buys back when the world doesn't end.

    Overall, however, they often signal that an equity has made it's run and most of the holders are ahead. Preservation of captital in today's market makes people protect those gains.

    I still expect a dilution off this spike, either adverstised or not. $30 Million per year in stock issue and the company is still cash poor. In some cases that's the nature of biopharms, but you have to know that at this stage of the process, nothing goes straight up forever and time and profit taking will take its toll.

    Good luck on your play, we'll see in a few days.

  • Report this Comment On August 14, 2012, at 11:33 AM, TruffelPig wrote:

    @TSIF - I understand that ZZ had nothing to do with the article. I was pretty upset with how it was used though by the author.

    Second, the dilution scare might be warranted. I agree on this. I just feel that at this point in time the medical data will be more important than dilution.

    Having said that we have to wait and see how this plays out. Micro-cap pharma stocks are notoriously volatile often. What PPHM really needs is a good partner with deep pockets. All this stock movement right now might have something to do with a partner coming in.

  • Report this Comment On August 14, 2012, at 12:00 PM, TSIF wrote:

    The majority, by far, of vocal participants in biopharms are speculators. They can come in the form of pumpers trying to ride the wave, or dumpers trying to ride the short reversals. Real investors need to shift through the noise, and understand that at a minimum , timing/scaling are important tools they can try to use to balance the "game".

    It's even harder to do on biopharms because our general inclination when we're not chasing the dollar is to root for medical break throughs. Sometimes we let our "heart" lead and don't listen to our gut.

    Sometimes on spikes, such as PPHM had it is because someone knows something, such as a partner, but more times than not it's a self feeding head fake.

    What I sometimes find that helps on biopharms is to have too pools of investment. A long term play and a trading portion. If you trade out on a spike and something does happen then you still have your long position. If nothing happens, except the price decaying back down, then you have your trading profit, wash, rinse, repeat.

    It think CAPS is best at trying to learn the phases and cycles, especially on biopharms for those with the risk appetite to "play them".

    Good luck.

  • Report this Comment On August 14, 2012, at 1:26 PM, TruffelPig wrote:

    @TSIF - It might surprise you but I closed my positions taking a meager 20% gain in 1 day. The risk-reward made me think and also that I really was trading. I also sold the "dip buying" at 2.73. Not bad :).

    Honestly, the 16 million cash made me feel a bit funny (6 month at current burn). Hanging this much fate in a partner coming in is probably a bit insane.

    Having said that - I might have sold way too early. I will observe that thing a bit and I can always trade with some options.

    There are safer speculative picks in the biotech space and I currently own long-term ECYT and EXEL and THLD. Probably enough risk for my money in those even though ECYT and EXEL are on the house already. But one also makes mistakes and the two must make up for those (like GERN.........).

    Best to you, TruffelPig

  • Report this Comment On August 23, 2012, at 2:46 PM, whoopingcrane wrote:

    Something else that was mention in test was Toxicities with other combinations. I take this to mean the patient was able to tolerate the treatment easier than other treatments. Yes, the primary drug has been around sometime. At one time it was considered the miracle cure, a little aspirin. Aspirin in low doses prevents heart attack. I own pphm and have lost and made money on it. I am encouraged by the recent studies.

  • Report this Comment On August 24, 2012, at 5:17 PM, TruffelPig wrote:

    Bought back in at $2.3 - great re-entry after making some money.

  • Report this Comment On August 24, 2012, at 5:30 PM, TMFBlacknGold wrote:

    I support TSIF 110%. Speculative bio more often than not loses investors money. Eventually people grow out of it (I hope). In the meantime, don't make it a large part of your portfolio.

  • Report this Comment On August 24, 2012, at 5:31 PM, EvanBuck wrote:

    I down thumbed Peregrine after I heard about its troubles, at about the peak of its rise. Boy, am I glad I did. :-)

  • Report this Comment On August 24, 2012, at 5:46 PM, Momentum21 wrote:

    I am usually try my hardest to spot a bullish case for a stock like this one. Can't do it at the moment. Going back to $1.00 I fear.

  • Report this Comment On September 07, 2012, at 3:42 PM, TruffelPig wrote:

    Oh what a plunge today.........50% up. Congratulations on this call ;P.

  • Report this Comment On September 21, 2012, at 8:00 AM, rwgoed wrote:

    @TSIF... hmmm how was that again? Guess it pays to listen to someone who acutally has a pharmaceutical background (I am a pharmacist and I work in the pharmaceutical industry)..

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