Peregrine Pharmaceuticals (NASDAQ: PPHM) has been through a wild ride this year, and may continue to see some major volatility following yesterday's release of their Q3 2013 earnings report. In 2012, after it was revealed that there was a data mix up with their phase II trial for the non-small cell lung cancer (NSCLC) drug bavituximab, the stock (which was in the process of a massive rally) plunged 80% in a single trading session and drifted lower as frightened shareholders exited their positions. This was turned around in early January after the company announced that the trial was essentially "salvaged". The discrepancies in data were supposedly limited to the 1 mg bavituximab arm, which implies that the 3 mg bavituximab arm data can still be used to finish bavituximab's phase II development.
The news that the phase II trial was essentially "salvaged" resulted in a recovery rally that brought PPHM to the $2/share level, although it's clear that the market had its reservations since PPHM never again touched (or approached) its 52-week high of $5.50/share. Peregrine was still held a very bad reputation due to its botched phase II trial and other giant setbacks it saw in its past.
A little over a month after this announcement, Peregrine released final phase II data from the pancreatic cancer development program which can be found here.
The only thing we really got was pooled overall survival data for the bavituximab/gemcitabine arm and the control arm. This gave us median OS of 5.6 months and 5.2 months respectively, although the lack of details should be unsettling. These results are needed to progress bavituximab into phase III trials, and it seems unlikely that the FDA will take the current data. The market seemed to have the same feeling, and dropped PPHM about 25% since the press release.
Given its valuation, it seems that Peregrine still has a following of investors who believe that the company will be able to make progress on bavituximab, but I find the overall risk and reward on PPHM lacking in comparison to most other biotech stocks in the cancer space.
One factor that I find particularly unsettling about Peregrine is the size of the company given the price of shares. Peregrine is getting dangerously close to NASDAQ-delisting territory (anything below $1.00/share), and may have to undergo a reverse split if bavituximab has to conduct another phase II trial due to the deep-rooted concerns with the current data.
Also alarming are the company's expenses, which were posted at $12.2 million in the quarter ended January 31st 2013. While these losses were offset by a jump in revenues from the company's subsidiary Avid, bringing net losses for the quarter down to $4.9 million, it seems quite obvious that the stock will have to be diluted to finance another phase II trial for bavituximab. The current cash pile will run dry in approximately 1 year, so I'd expect a public offering to occur later this year.
To finish the development for bavituximab, the company would also have to once again ramp up expenses to fund a phase III trial for bavituximab, which could further dilute shareholder value.
If bavituximab ever does reach phase III development I think we could see a higher valuation of Peregrine than we do today based on the broad potential applications of anticancer agents, although the process might be very long and painful. I think that shareholders who are not more confident on bavituximab than they are on similar cancer drugs should consider revisiting PPHM as an investment at a later date, opting to sit on the sidelines given the company's current situation. The stock seems unable to hold onto gains due to the extreme uncertainty about bavituximab, and has plenty of fundamental incentive to drop below $1.00/share this year.