This year, I introduced a weekly series called "CEO Gaffe of the Week." Having come across more than a handful of questionable executive decisions last year when compiling my list of the worst CEOs of 2011, I thought it could be a learning experience for all of us if I pointed out apparent gaffes as they occur. Trusting your investments begins with trusting the leadership at the top -- and with leaders like these on your side, sometimes you don't need enemies!
This week we'll take a closer look at the CEO of Peregrine Pharmaceuticals (NASDAQ:PPHM), Steven King, and examine why it is this week's disaster du jour!
The dunce cap
I know what you're thinking and no, this is a different Stephen King, though with the 79% haircut the stock received this week, it could very well be a lead in to a horror story.
Peregrine's nightmarish week is just two weeks removed from announcing what appeared to be fantastic results in a mid-stage trial for its non-small-cell lung cancer treatment bavituximab. According to that press release, bavituximab, when combined with docetaxel, doubled patient survival rates versus just docetaxel by itself (12.1 months versus 5.6 months) and, more importantly, was well tolerated. The news shot the stock up by 70% over the course of the next two weeks.
Then every single wheel simultaneously fell off the bus...
Come Monday this week, we received a press release from Peregrine that, in effect, its mid-stage study results on bavituximab shouldn't be relied upon. D'oh! And let's go on the record saying that clinical-stage biotech investors don't take kindly to clinical boo-boos. Peregrine noted an unusually large number of censored patients in its trial (those that Peregrine is either unable to follow up with, or haven't been in the trial long enough to analyze), which likely skewed the results in favor of bavituximab's efficacy.
To the corner, Mr. King...
Oh, don't think this murder-mystery is done just yet, because there's even more disturbing news.
In addition to the, "oh by the way, don't rely on that bit of data we released two weeks ago," Peregrine's creditors, which include Oxford Finance, Silicon Valley Bank, and MidCap Financial SBIC, filed a notice of default on a $30 million loan underwritten just 28 days ago. I'm pretty sure this is the quickest default I've ever witnessed in my 14 years of following the market. According to the written nature of the loan, any material adverse changes in Peregrine's business are grounds for declaring default, and I'd definitely say a 79% tumble perpetuated by a "yeah, we actually didn't do that" serves as reasonable grounds to declare a default. Peregrine complied by returning the $15 million it had borrowed plus an additional $975,000 in penalties. According to Peregrine, it has enough cash to satisfy operations through April 2013.
In Peregrine's defense (if there is one), companies of all sizes have had a difficult time getting treatments past the Food and Drug Administration with regard to lung cancer of any form. Eli Lilly's (NYSE:LLY) Alimta failed in a combination study with Avastin to reach its target in a late-stage nonsquamous non-small-cell lung cancer study.Late last year, Sanofi's (NASDAQ:SNY) afilbercept failed in a late-stage study to meet its endpoint in combination with docetaxel as a second-line treatment to NSCLC. Even Merck (NYSE:MRK) has struggled for more than three years in its attempt to win approval for Erbitux in Europe to treat NSCLC.
With the deck clearly stacked against Peregrine, consider this week's snafu the final straw for investors. Good luck getting investors to believe your next set of results, Mr. King.
Do you have a CEO you'd like to nominate for this dubious honor? Shoot me an email and a one- or two-sentence description of why your choice deserves next week's nomination, and you just may see your suggestion in the spotlight.