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Source: National Cancer Institute. 

For drug developers, there is arguably no indication garnering more interest at present than cancer. According to IMS Health, global cancer drug sales crossed the psychologically important $100 billion level for the first time in 2014, and per its estimates, global sales could push as high as $147 billion by 2018. Not surprisingly, quite a few drug developers want a piece of this rapidly growing pie.

One such company that's structured its pipeline around cancer drug development is small-cap biotech Peregrine Pharmaceuticals (NASDAQ:PPHM).

Peregrine's push into cancer immunotherapy
As it stands now, Peregrine's only source of revenue is its contract manufacturing subsidiary, Avid Bioservices. While its contract manufacturing backlog is growing, and a new facility coming online should only further expand its backlog, the majority of Peregrine's current $230 million valuation and future growth rests on the potential of its cancer immunotherapy pipeline.

Front and center in its pipeline is bavituximab, a therapy designed to enhance the body's immune system to better locate and fight cancer. Without getting too technical, bavituximab is a phosphatidylserine (PS)-targeting therapy. PS receptors are typically located on the inside of healthy cells, and they act to protect a cell from being destroyed by the immune system. In cancer cells, PS-receptors are located on the outside of the cell and act to suppress detection. Bavituximab works to cancel out this degree of immunosuppression, allowing the immune system to locate cancer cells and do its work.

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Source: Peregrine Pharmaceuticals. 

Currently, the most important study for Peregrine is SUNRISE, a phase 3 trial analyzing bavituximab as a second-line therapy for non-small cell lung cancer, or NSCLC. In mid-stage studies, bavituximab led to a statistically significant improvement in median overall survival (11.7 months versus 7.3 months for the placebo). Clearly Peregrine and its shareholders are eager for the top-line results, expected in Q4 2016 or Q1 2017 -- but even more so, simply meeting the primary endpoint in SUNRISE would validate Peregrine's immuno-oncology development platform.

Peregrine lands a major collaborative partner
Although Peregrine is focused on NSCLC, its management team has been upfront about wanting to explore bavituximab's potential as a combination therapy in multiple cancer indications. Earlier this week, Peregrine snagged a collaboration with another Big Pharma company, AstraZeneca (NYSE: AZN).

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Source: AstraZeneca.

As announced on Monday in a press release, Peregrine and AstraZeneca will explore their respective cancer immunotherapies -- PS-suppressor bavituximab and anti-PD-L1 checkpoint inhibitor MEDI4736 from AstraZeneca -- in various solid tumor types in a phase 1/1b trial. The phase 1 portion will focus on dose-finding, while phase 1b will examine the safety and efficacy of the combination therapy. Under the terms of the agreement, Peregrine will run the initial study.

This news comes nearly three months after the annual American Society of Clinical Oncology meeting where Peregrine demonstrated via a pilot study that PD-L1 and PD-1 expression could be potential biomarkers that could enhance the effect of bavituximab as it relates to NSCLC.

But this isn't Peregrine's only collaboration, nor is it AstraZeneca's only partnership for its checkpoint inhibitor MEDI4736.

One of the more exciting upcoming studies for Peregrine is a second-line NSCLC trial involving bavituximab in combination with Bristol-Myers Squibb's Opdivo, an anti-PD-1 immunotherapy. Opdivo is already approved by the FDA to treat metastatic melanoma, and in May the Food and Drug Administration expanded its use to advanced squamous NSCLC after it improved median overall survival by 3.2 months compared to docetaxel.

Likewise, AstraZeneca is exploring the potential of MEDI4736 with Pharmacyclics, Eli Lilly, Celgene, and Juno Therapeutics.

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Source: Peregrine Pharmaceuticals.

This important point can't be ignored
While it's far too early to determine which combinations will be successful and which ones wont, the important point that can't be overlooked here is that Peregrine is having no trouble finding potential big-time partners for its lead drug. This bodes well for the future monetization of Peregrine's immuno-oncology platform or bavituximab should the company choose to seek a buyer or raise cash via a licensing deal or collaboration.

Peregrine ended its most recent quarter with $68 million in cash and cash equivalents on its balance sheet, so financing its operations isn't an immediate concern. However, right around the time Peregrine is set to release its top-line results from SUNRISE is when Peregrine could begin to worry a bit about its remaining cash on hand (assuming it seeks no additional financing or deals prior to this data release). Thus, knowing that Peregrine has a product that other Big Pharmas are interested in pairing up with their checkpoint inhibitors is a great sign, and an indication that upfront payments or milestones could be in the cards.

The other side of this coin is that Peregrine doesn't have many major catalysts until its pivotal SUNRISE data. In October, the American Society of Radiation Oncology's annual meeting should yield data on bavituximab as a treatment for rectal adenocarcinoma (I say "should" because it's an investigator-sponsored, event-driven trial that Peregrine has no control over), and in the first-half of 2016 we could see interim data on the Opdivo/bavituximab combination for second-line NSCLC. But the true validation of Peregrine's pipeline is to be found in SUNRISE.

Therefore, investors should understand that buying Peregrine right now is a very risky bet. If SUNRISE doesn't hit the mark, the entire foundation of Peregrine's research will be shaken to the core. The good news is that if you hang out on the sidelines, even if you miss the initial pop following the data release you'll have plenty of opportunity to take advantage of catalysts from other indications, partnerships, and even sales of the immuno-oncology product.

Regardless, this is one cancer immunotherapy developer you'll want to monitor closely.

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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