Source: National Cancer Institute.
Last month, small-cap cancer immunotherapy developer Peregrine Pharmaceuticals (NASDAQ: PPHM) reported its first-quarter fiscal 2016 results, meeting or exceeding Wall Street's estimates in its bottom- and top-line.
For the quarter, Peregrine announced $9.67 million in revenue, a 76% increase from the year-ago period. The growth was almost entirely due to its contract manufacturing subsidiary Avid Bioservices, which subsequently saw its backlog grow 5% to $42 million from the sequential fourth quarter.
On the bottom-line, Peregrine's net loss widened to $15.1 million from $14.2 million in the year-ago quarter, although on a per share basis both quarterly losses equated to minus $0.08 in EPS. Comparatively, Wall Street was looking for an $0.08 loss per share, but it had been expecting only $7 million in revenue for Q1 2016.
Headline numbers are great for giving investors a quick peek at how a company performed last quarter, but for a predominantly clinical-stage biotech company it does little to tell us about the long-term health of, or opportunity for, the business. For that, we need to take a closer look at what Peregrine's management team had to say during its conference call to pick out the important strategies and data points that could aid investors in forming their investing thesis.
With this in mind, here are the five things Peregrine wants you to know. Quotes are courtesy of S&P Capital IQ.
Peregrine's top priority
"This global study [SUNRISE] remains our top clinical priority and I'm happy to say that the trial is proceeding according to plan and we continue to stay on target to complete approval by the end of this calendar year." – Joseph Shan, Head of Clinical & Regulatory Affairs
Just in case it wasn't crystal clear in Peregrine's previous quarterly reports or conference calls, it wants you to know that the SUNRISE trial involving phosphatidylserine-targeting immunotherapy bavituximab is its top priority. SUNRISE is a global study examining whether or not the addition of bavituximab can provide a statistically significant improvement in overall survival for non-small cell lung cancer patients as compared to a docetaxel monotherapy arm. Midstage studies, though initially flawed by a third-party laboratory, did ultimately demonstrate a statistically significant survival advantage over the placebo (11.7 months versus 7.3 months).
Source: Peregrine Pharmaceuticals.
It should be noted by investors that the first readout won't occur until 33% of adverse events have been reached (and in this instance an adverse event is death). Therefore, it's impossible to predict with any accuracy when that initial interim analysis will occur, although management seems to believe it will be in the first-half of 2016.
Clinical data may be coming your way sooner rather than later
"The open-label nature of these trials [new studies in NSCLC and breast cancer] may provide us the opportunity for data update and our goal is to generate as much clinical data as possible prior to the SUNRISE unblinding." – Joseph Shan
Source: National Cancer Institute.
In an industry where clinical data rules all, the waiting game isn't one that investors enjoy playing – and we can see that in Peregrine's stock, which has been drifting lower for months now. Shareholders want new data to support their investing thesis, and prior to the company's quarterly conference call it appeared as if all data prior to the end of calendar year 2016 was going to come from the SUNRISE study. Although SUNRISE remains the top priority, it looks as if additional clinical data could indeed be at the disposal of investors in 2016.
According to management, new studies in non-small cell lung cancer and metastatic breast cancer will be open-label, and as such could lend clinical data prior to the release of final results in SUNRISE, which is expected toward the end of 2016. Though these open-label phase 2/3 studies are still going to be potentially years away from marketing approval when initial data is reported, it could, nonetheless, represent more wind in the sails of bavituximab.
Surprise, chemotherapy isn't going away
"We really view that chemotherapy is still going to be a major part of the way cancer patients are treated and that's in non-small cell lung cancer as well as other indications. So I think while the order in which drugs are used may change over time, eventually the immuno-oncology agents may end up in a frontline setting." – Steven King, CEO
I believe the most intriguing statement of the entire conference call came from Peregrine's CEO Steven King. Relatively new investors to the cancer immunotherapy space, and interested of afflicted consumers, had potentially expected cancer immunotherapies (i.e., drugs designed to enhance the immune system to more efficiently target and destroy cancer cells) to supplant chemotherapy as the primary cancer fighter in the coming years. However, King sees things differently.
Source: Peregrine Pharmaceuticals.
According to King, chemotherapy will likely remain a staple of the cancer-fighting process. Instead, the real advantage that cancer immunotherapy developers can focus on is attempting to push for front-line and second-line status in cancer indications. There's still a lot of testing left to be done in terms of early stage efficacy, but Food and Drug Administration-approved immunotherapies like Opdivo and Keytruda certainly suggest that cancer immunotherapies have a potent second- or third-line effect on select cancer types.
Long story short, chemotherapy and immunotherapies should be viewed as complementary rather than competitive treatments by investors.
Bavituximab's niche
"[I] think that's where bavituximab is really, I think, uniquely positioned and our mechanism can really complement a host of different other mechanisms and the tolerability of the compound in our trial to date lends itself to be combined with different therapies. So I think it's going to be -- there's going to be a lot of opportunities for making other products work better." – Joseph Shan
To add to King's comments, not only will Peregrine push for its product to be a potential frontline therapy in the future (its SUNRISE study is as a second-line NSCLC treatment with docetaxel), but Peregrine's also focused on combining bavituximab with other FDA-approved and experimental chemotherapy and immunotherapy products.
Source: Peregrine Pharmaceuticals.
Based on commentary from Joseph Shan, bavituximab's best potential is not as a monotherapy vaccine, but instead as a combination therapy designed to improve the effectiveness of other drugs. Further, with Peregrine focusing its deal-making in such a way that it retains full rights to the drug in the U.S., it looks as if Peregrine will have ample opportunities to expand bavituximab into new labels in the future.
Our contract manufacturing sales could double
"We also believe this business [Avid Bioservices] has more opportunity to grow as our second manufacturing facility has the capacity to generate approximately $40 million in new revenue... As mentioned on previous calls, the nondilutive income generated from our manufacturing operations continues to offset the amount of capital we need to raise by other means." – Paul Lytle, CFO
Source: National Institute on Drug Abuse.
Last, but certainly not least, Peregrine's contract manufacturing subsidiary Avid Bioservices is on pace to open its new manufacturing facility within the next couple of weeks. The new facility, which is geared at phase 3 and post-approval production, and will handle the commercialization of bavituximab if it's eventually approved, should be able to add $40 million in extra revenue per year to Peregrine's top-line once it's fully operational.
If there's one small knock I have against Peregrine, it's that Avid appeared to be just a few weeks away from opening the facility when it reported its Q4 results just eight weeks prior. The longer shareholders wait for this new revenue-generating facility to open, the further Peregrine's stock could drift lower.
Of course, the silver lining is that Avid could almost push Peregrine into the black single-handedly if it's at full capacity inclusive of its ongoing clinical studies. But, keep in mind that it could take a few years to ramp up to full capacity.
What should you do?
You've read the earnings report, and you now have the important points of Peregrine's conference call. Now it's time to answer the toughest question of all: what should you do with Peregrine?
I still believe that the best course of action with Peregrine is to remain on the sidelines until we at least have the first or second interim data release from the SUNRISE study. Bavituximab makes up a substantial portion of Peregrine's valuation, and the failure of this immunotherapy in late-stage studies could demolish this stock. In my opinion, even if you miss the initial pop in Peregrine's stock (assuming it hits the mark in SUNRISE) you'll be able to take advantage of future sales of the drug, label expansion opportunities, and possible collaborative partnerships.
There's no need to rush into Peregrine right now, but I'd certainly suggest that keeping it on your radar is worthwhile.
