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Cancer cells dividing. Source: National Cancer Institute via Facebook.

The majority of Wall Street's attention may have gone to the megacap household names like Johnson & Johnson which are kicking off earnings season for the healthcare sector, but for parties interested in cancer immunotherapy drug developers, all eyes were on Peregrine Pharmaceuticals' (NASDAQ:PPHM) fourth-quarter and year-end earnings report on Tuesday, July 14.

Peregrine Pharmaceuticals' results, by the numbers
For the quarter, Peregrine Pharmaceuticals generated $9.31 million in contract manufacturing revenue from its subsidiary Avid Bioservices, a 44% increase from the $6.47 million it generated in contract manufacturing revenue in Q4 2014. But, because Peregrine's primary valuation is built around its clinical-stage pipeline and experimental cancer immunotherapy bavituximab, Peregrine reported a $13.5 million net loss, or $0.07 per share, which was wider than the $10.6 million loss, or $0.06 per share, it delivered in Q4 2014.

On a full-year basis Peregrine lost $0.30 per share on $26.74 million in sales compared to a $0.22 net loss per share on $22.29 million in sales in fiscal 2014.

How did this compare to Wall Street's expectations? Quite favorably! Although only a handful of Wall Street estimates were present, the consensus had been for just $6.42 million in sales and a wider $0.08 per share loss.

Three important takeaways
But, for predominantly clinical-stage biotech companies, headline numbers from an earnings report aren't often very meaningful. For the most important takeaways we need to be able to dig a bit deeper. With that in mind, here are three key takeaways from Peregrine's fourth-quarter report that the headlines won't tell you.

1. Peregrine's most important clinical trial remains on track
Perhaps the most important piece of information within Peregrine's year-end report was that its phase 3 SUNRISE trial is on track to be fully enrolled before the end of the year.

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Source: Peregrine Pharmaceuticals. 

SUNRISE is a late-stage study examining bavituximab -- a phosphatidylserine-targeting therapy designed to disrupt the immunosuppressant quality of cancer cells so they can be discovered (and destroyed) by a patient's immune system -- as a second-line treatment for non-small cell lung cancer. In midstage studies bavituximab led to a statistically significant improvement in median overall survival (11.7 months vs. 7.3 months for the control group), but its results were tainted by a retraction of its original phase 2 data release due to errors at a third-party laboratory. Thus, SUNRISE is going to be the proving grounds where investors find out what bavituximab is made of, and if the anchor of Peregrine's drug development pipeline can become a star.

Based on the median survival results from Peregrine's phase 2 study and the likely need of a month or two to compile and analyze data once the required number of events are reached, we're probably looking at Peregrine reporting its top-line SUNRISE results sometime between December 2016 and March 2017.

If approved, bavituximab may be the dangling carrot that could ease Peregrine's cash concerns by drawing in possible licensing partners, or even a potential bidder.

2. Avid Bioservices is growing faster than Wall Street had expected
For a more immediate catalyst Peregrine shareholders can take solace that Avid Bioservices is surpassing expectations. Following the $26.74 million it generated in contract manufacturing sales in 2015, Peregrine is forecasting revenue of between $30 million and $35 million in fiscal 2016. At the midpoint this is a 22% year-over-year improvement, while at the high-end we could be talking about 31% sales growth.

Images

Source: Modvigil.com via Flickr.

Although Avid's 2016 sales forecast is impressive, the real showstopper was Avid's backlog growth which surged from just $29 million at the end of the third quarter to $40 million by the end of Peregrine's fiscal year. Couple these orders, which stretch all the way into 2017, with Avid's new contract manufacturing facility which is designed to support phase 3 and commercial production, and is scheduled to come online in mid-2015, and you have all the ingredients needed for Peregrine to chip away at its cash outflow -- or at the very worst to help abate its rising costs as it dives headfirst into the SUNRISE study.

3. Confidence is high and new studies are on the way
Lastly, both clinical and preclinical data presented by Peregrine at the annual American Society of Clinical Oncology meeting a little more than a month prior have convinced Peregrine that it has a winning immunotherapy on its hands. As such, Peregrine has made the move to push bavituximab forward into new testing indications.

Opdivo

Source: Bristol-Myers Squibb.

Arguably the most intriguing planned study is a midstage trial that combines Bristol-Myers Squibb's FDA-approved checkpoint inhibitor Opdivo (an expected blockbuster immunotherapy) with bavituximab for patients with non-small cell lung cancer. The idea is that bavituximab's ability to remove the masking effect of cancer cells, and Opdivo's ability to supercharge T-cells, or the destroyers of foreign cells, within the body, should pack a nice one-two punch.

Additionally, Peregrine will be testing bavituximab in combination with chemotherapy as both an early stage HER2-negative breast cancer treatment, and a metastatic HER2-negative breast cancer therapy. Based on an early stage study in combination with paclitaxel in HER2-negative breast cancer patients, a whopping 85% of evaluable patients demonstrated an objective tumor response.

Look for all of these studies to initiate enrollment before the end of 2015.

Keep your eyes on the big catalyst
Overall, there weren't any huge surprises in Peregrine's Q4 report. Avid's rapid backlog growth and SUNRISE staying on track for an end-of-year enrollment completion date are both factors that could help buoy Peregrine's stock price over the near-term. Of course, ongoing losses and the possible need to raise additional cash in 2017 based on its cash burn rate could also weigh on Peregrine's stock.

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Source: Peregrine Pharmaceuticals.

What investors are going to want to pay close attention to is the eventual SUNRISE data in about a year-and-a-half. Though Avid is capable of slow and steady growth, the bulk of Peregrine's valuation is built around bavituximab (which itself could have blockbuster potential cumulatively across multiple label indications). If SUNRISE hits the mark, then Peregrine's drug development platform and PS-targeting hypothesis will be validated. If not, Peregrine's stock could go cliff diving because there's not much else in the pipeline.

Personally, I prefer the wait-and-see approach on the sidelines. The technology is intriguing, and the success in phase 2 studies encouraging. However, I've witnessed what a poor track record small-cap cancer therapy developers have in phase 3 trials and when filing for a new drug application, and would rather wait for Peregrine to prove its worth before wading in the water.

Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

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