Shares of small-cap biopharmaceutical company Peregrine Pharmaceuticals (NASDAQ: PPHM) are relatively unchanged for the year, but that doesn't mean things haven't been incredibly volatile for this predominantly clinical-stage company.
Peregrine's wild ride
In March, shares of the company exploded higher after announcing that it would be presenting data in the Keystone Symposia conferences. Air quickly left its sails, though, and a lack of clinical catalysts compounded with widening losses have pushed Peregrine's stock essentially back to the flat line for the year.
As with all biopharmaceutical companies that are in the clinical stage of their development, cash burn is perhaps the greatest concern of all. Biotech stocks need a certain amount of money each year to ensure they have enough to cover research and development costs as well as the salaries of its employees and executives. Because it can be years, or in some cases decades, before an innovative drug makes it to pharmacy shelves, it's imperative that a company keep a cushy enough cash reserve in its coffers.
In Peregrine's first-quarter results, reported in September, the company delivered a loss that nearly doubled to $14.2 million from $7.6 million in the prior-year period. More importantly, though, its sequential cash and cash equivalent balance shrank to $73.3 million from $77.5 million at the end of the sequential fourth quarter. With the company on pace to burn through around $90 million in cash through 2016 (based on Wall Street's loss projections) it seems likely that more dilutive stock offerings may be warranted. Although the company's subsidiary, Avid Bioservices, continues to bring in revenue, it's just not going to be enough to stem Peregrine's ongoing losses.
A controversial make-or-break experimental drug
Of course, those concerns may all be for naught as Peregrine is working with an experimental drug in its pipeline known as bavituximab that offers it true make-or-break potential.
ImVacs Summit presentation slide. Source: Peregrine Pharmaceuticals.
Bavituximab is unique in that it's one of a growing class of cancer immunotherapies, which are designed to retrain the body's immune system to recognize and attack cancer cells. Bavituximab's mechanism of action is to target phosphatidylserine, or PS, an immunosuppressant normally found inside normal cells, but located on the outside of cancer cells. By suppressing PS, bavituximab should, in theory, allow the immune system to recognize the cancer cell as foreign and attack it.
Peregrine's bavituximab was put on the map in 2012 after the company reported stellar midstage results for its drug as a later-stage treatment for advanced non-squamous non-small cell lung cancer, or NSCLC. In that study, Peregrine noted that patient survival more than doubled to 12.1 months in the bavituximab plus docetaxel group from 5.6 months in the docetaxel monotherapy control arm, which is incredible considering that patients had progressed on other therapies before trying bavituximab.
Unfortunately, Peregrine's victory would be short-lived and the wheels fell off the bus a few weeks later after it announced that errors from its third-party clinical data contractor would potentially make its results unreliable. Shares lost 80% of their value following this news and have struggled to recover ever since.
Source: Peregrine Pharmaceuticals.
The good news is Peregrine did straighten out the data inconsistencies and still wound up reporting phenomenal data. Overall, the bavituximab intent-to-treat group delivered a median overall survive rate of 11.7 months compared to just a median of 7.3 months for the docetaxel arm. It was also well-tolerated with no significant differences in the adverse event profile between both clinical arms.
In December 2013 Peregrine kicked off the SUNRISE study, which will be enrolling patients at more than 100 sites around the world, but isn't expected to yield top-line data until December 2016. This means a lot of waiting in the meantime for investors.
More catalysts to come
However, Peregrine's bavituximab may have more to offer than just great NSCLC results. In addition to its second-line SUNRISE study, bavituximab is being tested:
- in combination with Nexavar in a midstage study to treat liver cancer
- in combination with paclitaxel as a possible treatment for HER2-negative breast cancer
- in combination with Xeloda and radiation as a treatment for rectal cancer
- in combination with Yervoy as a treatment for advanced melanoma
- as a frontline treatment for NSCLC in combination with carboplatin and pemetrexed
With these studies in the early-to-mid stages, it's highly likely we're going to get plenty of data to keep investors satisfied until Peregrine reports its SUNRISE data in about two years.
ImVacs Summit presentation slide. Source: Peregrine Pharmaceuticals.
What's even better is that with the exception of its SUNRISE study and its PS-targeted tumor imaging trial involving PGN650, the remaining five ongoing studies listed above are all investigator sponsored trials, which often involve significantly lower costs for the innovator company. This is great news for Peregrine given that the company is fronting a very costly late-stage study at the moment.
Where Peregrine heads next
While it's clear that bavituximab could have incredible potential, we're still years from realizing whether it'll make or break Peregrine's stock. Admittedly, small cap biotech stocks have a very poor track record of success in late-stage trials, so this does continue to weigh in the back of my mind.
Another point we have to be reminded of is that just because Peregrine's share price is minuscule, it still has a market value of around $250 million. That's not too cheap considering how far away the key SUNRISE results are, and after we take into account its likely need to raise cash next year or in 2016.
But, baivituximab's peak annual sales potential is probably somewhere in the $400 million range if approved for second-line NSCLC. Since most companies tend to trade notably above their peak annual sales projections there could be 100% or even 200% upside to Peregrine's stock if bavituximab were approved, and if the drug were successfully priced, marketed and launched.
Given the circus that ensued following its midstage results, I don't think it'd be a bad idea to sit on the sidelines and wait for additional evidence on bavitixumab's efficacy, be it from its phase 1 or 2 ongoing studies in non-NSCLC indications, or even riding it out on the sideline until the SUNRISE data is released. I'm cautiously optimistic and hoping for good results for the sake of NSCLC sufferers, but as a level-headed investor I'm not entirely sold on Peregrine just yet despite its potentially game-changing cancer immunotherapy drug.
