Avid Bioservices Inc (CDMO)

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Peregrine Pharmaceuticals (NASDAQ:PPHM): Reinforcing Our Bias Ahead Of Earnings
By Mike Robinson - September 3, 201683

Last month, we highlighted California based biotech Peregrine Pharmaceuticals (NASDAQ:PPHM) as a stock to watch near term. The logic was rooted in the company’s manufacturing subsidiary, Avid Biosciences.

The company has been pretty flat since we last offered up an insight, but premarket on September 2, is up close to 10%. No real news has hit press, but the company has issued a statement saying it expects to put out its first quarter fiscal 17 earnings after the market closes out on September 8, 2016. There’s a webcast set to accompany the release, and it looks as though the gains have come in anticipation of some positive numbers and news.

We maintain our bullish bias on Peregrine, and there’s an important clinical related update that we are looking for from the upcoming report to reinforce our thesis.

First let’s reiterate our stance. Back in February the company announced it was discontinuing its lead oncology trial, the SUNRISE trial of bavituximab in patients with previously treated locally advanced or metastatic non-squamous non-small cell lung cancer (NSCLC). The goal was to show that the drug in combination with an SOC chemo agent, docetaxel, was superior to docetaxel alone. A DMC recommended the trial be discontinued based on better than expected performance from the control arm, and the company did as advised.



While this was a setback, the real value in bavituximab is in its immuno-oncology (IO) pairings. Yes, it would have been nice to pick up an approval in a legacy pairing, but from a revenues perspective such an approval would be far from future proof. IO is the future of oncology, and there’s far more value to be had from an IO combination than there is a docetaxel combo. It’s a setback, but we don’t think quite to the same degree that markets seem to.

Many sources claim that Bavituximab is a global checkpoint inhibitor. Indeed, Peregrine itself does on its website. This isn’t totally accurate, and is still up for debate. It targets an amino-phospholipid called phosphatidylserine (PS), which is something cells that have undergone apoptosis use to signal to macrophages to swallow them up after they break apart. Tumor cells express it, however, and it hides them from T cells. In this sense, it’s a sort of checkpoint inhibitor. A proper checkpoint inhibitor (like a PD-L1 inhibitor) is an antibody that binds to a receptor and stops it linking up with its comparable protein on cancerous cells. Cancer cells express proteins that hide them from the immune system. This blocking stops the cloaking action, and allows the T cell to recognize the pathogenic tumor cell.

This is why a combination of a PS target and a checkpoint inhibitor should be so effective. The PS target (Bavituximab) removes the cloak of PS from the cell, and the checkpoint inhibitor removes the mask of protein that fools the T cell into thinking it’s a healthy cell.

Peregrine is working with AstraZeneca plc (ADR) (NYSE:AZN) right now to put forward a plan for a phase I examining Bavituximab in combination with AZN’s PD-L1 inhibitor, durvalumab. It’s this game plan that we are looking for an update on.

If the company can put forward a strategy for initiating an AZN sponsored trial investigating the two drugs as a combination therapy, we believe the science is strong enough to serve up multiple upside catalysts across the quarters subsequent to trial initiation. Combine this with the planned expansion of the Avid manufacturing facilities discussed in our previous analysis, and there’s a clear path to recovery.

Cash is solid – $61 million at June 30 – and Avid brought in $19 million revenues last quarter, which should ramp up across the coming 24 months. The company burns through quite a lot of R&D related cash, but this should slow now the phase III has stopped enrolling.

One to watch.

http://streetregister.com/2016/09/03/peregrine-pharmaceuticals-nasdaqpphm-reinforcing-our-bias-ahead-of-earnings/

Mike Robinson
Mike covers the financial, utilities and biotechnology sectors for Street Register. He has been writing about investment and personal finance topics for almost 12 years. Mike has an MBA in Finance from Wake Forest University.