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Peregrine Pharmaceuticals (NASDAQ:PPHM)

Q2 2014 Earnings Call

December 10, 2013 4:30 pm ET

Executives

Jay Carlson

Steven W. King - Chief Executive Officer, President, Director, Chief Executive Officer of Avid Bioservices Inc and President of Avid Bioservices Inc

Joseph S. Shan - Vice President of Clinical & Regulatory Affairs

Robert Garnick - Head of Regulatory Affairs

Jeffrey T. Hutchins

Stephen Worsley

Paul J. Lytle - Chief Financial Officer, Principal Accounting Officer, Corporate Secretary, Chief Financial Officer of Avid Bioservices Inc and Corporate Secretary of Avid Bioservices Inc

Analysts

Charles C. Duncan - Piper Jaffray Companies, Research Division

George B. Zavoico - University of Virginia

Operator

Good day, ladies and gentlemen, and welcome to the Peregrine Pharmaceuticals, Inc. Second Quarter Fiscal Year 2014 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference, Jay Carlson of Peregrine's Investor Relations group. Please go ahead.

Jay Carlson

Thanks, Kate. Good afternoon, and thank you for joining us. On today's call, we have Steve King, President and Chief Executive Officer; Paul Lytle, Chief Financial Officer; Joe Shan, Vice President of Clinical and Regulatory Affairs; Jeff Hutchins, Vice President of Preclinical Research; Stephen Worsley, Vice President of Business Development; and Rob Garnick, Head of Regulatory Affairs. Steve will begin by providing a brief overview of the company's progress over the last quarter, including our SUNRISE Phase III trial, investigator-sponsored trials or ISTs, and our preclinical immunotherapy development program, and how these events set the stage for numerous near-term clinical data milestones. He will also introduce a new member of the Peregrine Executive Team. Joe will review the recent developments related to our SUNRISE Phase III clinical trial, with Rob providing insight into recent regulatory achievements. Jeff will then discuss the proof-of-concept program, including the first data coming from it. We will then hear again from Joe on the remainder of the clinical update. Paul will then finish with a summary of our financial results for the second quarter of fiscal year 2014 and some insight into our subsidiary, Avid Bioservices. After our prepared remarks, we'll welcome your questions.

Before we begin, we would like to remind you that during this call, we will be making forward-looking statements that are subject to risks and uncertainties that may cause actual results to differ. These forward-looking statements reflect our current views about future events and financial performance and are identified by the use of terms and phrases such as believe, expect, plan, anticipate, on target and similar expressions identifying forward-looking statements.

These risks include, but are not limited to, the risk factors detailed from time to time in our filings with the Securities and Exchange Commission, including, but not limited to, the Annual Report on Form 10-K for our fiscal year 2013, ended April 30, 2013, and quarterly report on Form 10-Q for the second quarter ended October 31, 2013.

Investors should not rely on forward-looking statements because they are subject to a variety of risks, uncertainties and other factors that could cause actual results to differ materially from our expectations. And we expressly do not undertake any duties to update forward-looking statements, whether as a result of new information, future events or otherwise.

I will now turn the call over to Steve.

Steven W. King

Thanks, Jay, and thanks to all of you for participating in today's quarterly call. This quarter, we continued to build on momentum from activities started earlier in the year on the research, clinical and manufacturing fronts. Initiation of the SUNRISE Phase III trial for bavituximab in second line non-small cell lung cancer is, by far, the biggest single ongoing activity. Initiating and operationalizing a Phase III study is a huge undertaking. And Joe Shan, our Vice President of Clinical Affairs; along with Rob Garnick, our Head of Regulatory Affairs, will provide an overview of efforts to initiate this worldwide study, which remains on track to be initiated by the end of the year. Joe will continue with the discussion of other ongoing bavituximab clinical trials that could yield important clinical data over the coming months, as well as a brief discussion of potential new studies that are on the horizon. These studies are expected to explore the immunotherapy potential of bavituximab in combination with other immune checkpoint inhibitors, and to build on our ongoing clinical program, driven by the recent clinical data in breast cancer, as well as new immunotherapy combination data presented at the Society for the Immunotherapy of Cancer Conference.

Following the clinical update, Jeff Hutchins, our Vice President of Clinical -- or Preclinical Developments, will provide an overview of our preclinical and translational research programs, which include a recent publication, a high-profile symposium at a major lung cancer conference, presentations of new data at the Society of -- for the Immunotherapy of Cancer Conference and the addition of new scientific and clinical thought leaders to help guide and expedite the program.

The preclinical development program, a publication of peer-reviewed data, the continuous presentation of the immune stimulatory mechanism at conferences and the addition of key opinion leaders are all important incremental steps in raising awareness for the program, within the immunotherapy community. This recognition has already resulted in many new opportunities for collaborations, heightened interest from clinical investigators and increased interest from potential partners. Taken together, we believe that Peregrine is uniquely positioned among the companies developing immunotherapies, based on our stage of clinical development and combination potential with other drugs in the space. And that because of our current valuation, we represent a unique investment opportunity. And while we have been extremely pleased as to how the data supporting bavituximab has been received to date, we're looking forward to continuing ongoing research and clinical activities that are expected to add to and supplement these discussions over the coming months. On the corporate development front, we are pleased to announce the addition of Steve Worsley as Vice President of Business Development. Steve comes to us with a great track record of business development, particularly in the monoclonal antibody space, and will be briefly introduced. Last, but not least, Paul Lytle, our CFO, will discuss the continued solid revenue performance for our manufacturing subsidiary, Avid Bioservices, along with an overview of the company financial outlook, Avanir remains an important piece of our overall business model with continued growth potential.

Now, I will turn the call over to Joe for the clinical update. Joe?

Joseph S. Shan

Thanks, Steve. Clinical activities during the quarter focused on preparations for the start of the SUNRISE pivotal Phase III trial in non-small cell lung cancer. Efforts to increase awareness of bavituximab's immune mechanism and plans for a clinical trial combining bavituximab with an improved immunotherapy.

Beginning with our SUNRISE trial, our clinical and regulatory teams are completing the final operational pieces for this pivotal Phase III trial, which we anticipate to initiate by the end of the year, as this will be a global study involving well over 100 U.S., European and Asia Pacific sites with various regulatory and ethics approval timeline. A process of site activation will occur over a number of months. We're taking great care to ensure the right balance between delivering on our 2-year enrollment goal and overall study quality. I've been very pleased with the positive response for the protocol design and mechanism of action through the site identification and selection process to date, even in the current competitive lung cancer landscape. This has allowed us to adjust our country and site mix towards the U.S. and EU, and be in a position to select the highest quality sites. You may recall that SUNRISE is a gold standard randomized double-blind, placebo-controlled trial evaluating bavituximab, plus the chemotherapy, docetaxel versus docetaxel plus placebo in approximately 600 patients. These sites will enroll patients with Stage 3b or 4 non-squamous, non-small cell lung cancer but progress after standard frontline treatment. Patients will be randomized to receive standard docetaxel of up to 6 21-day cycles, 75 milligrams per meter squared in combination with either 3 milligrams per kilogram of bavituximab or placebo weekly until progression or toxicity. As SUNRISE is a pivotal trial intended to support product approval, the primary endpoint is overall survival. For additional information about the SUNRISE trial, please visit clinicaltrials.gov. And let me ask Rob to say a few words on recent regulatory activities.

Robert Garnick

Thanks, Joe. As you have just heard from Joe, the SUNRISE global Phase III trial is close to the beginning of its enrollment. This is an exciting time for this program. A point that we achieved following the execution of a great number of activities that relied on close collaboration with many worldwide regulatory agencies.

From a regulatory perspective, this global trial was set to roll out first in the United States, followed by sites throughout Europe and the Asia Pacific region. Our interaction with these countries and regions has been a major focus for our regulatory department for the past several months. These discussions, including those with the FDA and various European regulatory agencies have been extremely positive. And I am pleased to say that the process of globally filing our Phase III study protocols is moving ahead very smoothly.

We are also looking forward to further meetings with these regulatory authorities throughout the course of the trial. I'm very pleased with how these tests have been executed to date, and believe that we have the necessary people and qualified third parties in place to support the SUNRISE trial.

With that, I'll turn it back to Joe.

Joseph S. Shan

Thanks, Rob. In addition to the work on initiating the SUNRISE trial, we have been expanding our internal capabilities in the area of translational medicine. Augmenting our advisory board with prominent clinical immunotherapy experts such as doctors Scott Antonia and David Carbone, just to name a couple, in raise the awareness of bavi's novel immune mechanism at key medical and scientific conferences.

In late October, we sponsored a symposium titled, Immune Checkpoints in the Tumor Environment, Novel Targets in the Clinical Promise of Combined Immunotherapies, which was presented at the International Association for the Study of Lung Cancers 15th World Conference on Lung Cancer. This is the world's largest meeting dedicated to lung cancer and other thoracic malignancies. And the symposium focused on the identification of new immunosuppressive targets in tumors and the potential for improved clinical outcomes through multiple immune checkpoint blockade. A section of this presentation was dedicated to the discussion of phosphatidylserine, or PS, and its role as an immunosuppressive checkpoint in the tumor microenvironment that induces multiple downstream effects. This was the best-attended symposia of the morning and a number of experts and investigators followed up immediately with ideas for collaborations or interest in the clinical trial participation.

More recently, preclinical data combining PS-targeting and anti-CTLA-4 antibodies were presented at the Society of Immunotherapy of Cancers Annual Meeting, which Jeff will discuss later in more detail. These results support advancing this novel immuno combination into clinical development and patients with advanced melanoma, and we're working with collaborators to initiate an IST in the coming months.

Lastly, as you've heard from Steve, we are continuing to explore the potential of bavituximab in treating breast cancer. Interim data from an ISP with paclitaxel and bavituximab in patients with HER2-negative metastatic breast cancer presented at this year's ASCO meeting, demonstrated an encouraging 85% response rate in 11 of 13 evaluable patients with 2 of those 11 responders achieving a complete response. These results in our prior clinical experience in breast cancer makes this a high-priority development area. We're actively evaluating opportunities to move this program forward, as resources permit and will provide an update in the future. I'll now turn the call over to Jeff who will review the preclinical highlights for the quarter.

Jeffrey T. Hutchins

Thanks, Joe. Today, I want to provide an overview and update on our ongoing preclinical proof-of-concept program designed on exploring the full immunotherapeutic potential of bavituximab. This program was created to capitalize on the data that emerged from Doctor Phil Thorpe's lab last spring, and was presented first at the AACR and later published in the peer reviewed journal, Cancer Immunology Research. This is a broad program designed to answer key questions surrounding the potential of bavituximab combinations with therapies that target various immuno checkpoint to define and translate the most effective future clinical development candidates. As Steve mentioned, this program is now receiving guidance and hands-on input from well-known experts in the field of immunotherapy, who are now part of our scientific advisory board. Doctor Dimitri Gabrilovich is a worldwide expert in the immunotherapy field, who discovered and identified the role of myeloid-derived suppressor cells. Doctor Scott Antonio has developed strategies designed to thwart the various immunosuppressive mechanisms used by tumors. Doctor David Carbone has advanced the understanding of cellular and genetic markers common in each patients of lung cancer, and how they develop specific cancer treatments. And finally, Doctor Håkan Mellstdedt, is an expert in tumor immunology and immunotherapy, incorporating cancer vaccines, antibody and cytokine treatments. We're very pleased to have these esteemed thought leaders assist us, as we advance this exciting program. Of note, 2 of these individuals were able to participate as speakers in our sponsored symposia at the World Lung Conference, as a Joe mentioned.

Recently, we announced the first set of data to emerge from this preclinical program. At the Society of Immunotherapy of Cancers Annual Meeting, we presented very encouraging preclinical data, demonstrating that in a mouse melanoma model, a mouse version of bavituximab, combined with an anti-CTLA-4 antibody resulted in superior growth inhibition, compared to either antibody alone. And importantly, with no additional toxicity with multiple treatment cycles. These data have been well received by the scientific community with considerable interest. And our goal is to have additional data from this expanded, preclinical proof-of-concept program in the coming months. As mentioned, these activities were designed to provide a translational bridge to our clinical program with other immunotherapies. We, along with our newly aligned scientific advisers, believe that these data present a strong rationale to proceed into a Phase Ib study with anti-CTLA-4 antibodies, in combination with bavituximab, in patients with advanced melanoma. As Joe mentioned, we anticipate that our academic collaborators will initiate this IST in early 2014.

Also as part of this robust proof-of-concept immunotherapy program, we are examining other immune checkpoint blockade treatments in combination with bavituximab, including anti PD-1 antibodies, anti PD-1 ligand antibodies and vaccine approaches. These targets have shown promising potential as therapeutics in oncology, as well as infectious disease. We expect data from these studies involving our multiple collaborators in the coming months. In short, it is important to note that with the breadth of these preclinical activities, we continue to learn more about bavituximab's immunotherapeutic mechanism of action and therapeutic potential, providing a very directive contribution towards the translational design of our clinical -- future clinical programs.

With that, I will turn the call back over to Steve.

Steven W. King

Thanks, Jeff. Today, we also announced that Mr. Stephen Worsley has joined Peregrine as Vice President of Business Development, as a member of our executive team. Stephen brings some over 15 years of business development experience within the biotechnology and pharmaceutical worlds. And we expect his addition will significantly augment and expand the ongoing business development discussions around our bavituximab, the broader PS-targeting and Cotara platforms.

I will now turn the call over to Steve for a brief introduction.

Stephen Worsley

Thanks, Steve. It's a pleasure to be here. As background, prior to joining Peregrine, I was Chief Business Officer at Centrose Pharmaceuticals, an antibody drug conjugate company, that will be new ADC drugs for cancer. Prior to that, I was Vice President of Business Development at Intrexon, as well as numerous other antibody-focused firms. Leading the business development effort at Peregrine with respect to bavituximab will mark the sixth clinical level drug licensing program that I have led and closed. Of those 2 deals -- excuse me, rather, of those deals, 2 opportunities led to an acquisition by a larger partner, in the case of the Vectibix deal. It was a key element in the buyout of Abgenix by Amgen for $2.3 billion. I also led the licensing of RAV12 and B7-H3 antibody for Raven Biotechnologies, which evolved into an acquisition of Raven by MacroGenics in 2008. All in all, I've been licensing antibodies in the oncology space for the better part of the last 15 years and very much look forward to executing the business development strategy for Peregrine, especially as our efforts to get to a Phase III up and running, as well as a number of proof-of-concept studies will add even more value to the bavituximab program.

I'll now turn the call over to Paul, who will review the financial results from the quarter, and update you on Avid Bioservices.

Paul J. Lytle

Thanks, Steve. Since our detailed financial statements on Form 10-Q have been filed today, let me spend just a couple of minutes on a few important financial highlights. As a backdrop, the Phase III SUNRISE trial is on track to start soon, and the research team continues to explore the immunotherapy potential of bavituximab. In order to advance these and other goals, we have been carefully managing our business and enhancing our financial position with our various sources of capital.

Regarding our financial position, it's important to note that we have increased our cash position steadily over each of the last 6 quarters to $44.4 million in anticipation of starting the Phase III SUNRISE trial. This provides us the financial flexibility to initiate this trial, while also allowing us to evaluate other opportunities, including ongoing partnering discussions. In addition to our enhanced cash position, our cash burn rate from operations, which represents our net loss minus noncash expenses, decreased $2 million, or 26% this quarter to $5.8 million, compared to $7.8 million in the same quarter last year. This was primarily driven by an increase in third-party revenue generated from our contract manufacturing business, a key nondilutive source of capital for us.

Now turning to revenue. Contract manufacturing revenues increased 21% this quarter to $7.4 million, as a result of the greater demand for services and the timing of completed projects. In addition, we maintained our initial contract manufacturing revenue guidance of $18 million to $22 million for the entire fiscal year of 2014. I would also like to emphasize that with this strong backlog for future services in the amounts of $21.5 million, as of October 31, covering services to be completed during the remainder of this fiscal year and into fiscal year 2015.

Looking ahead, we will continue to maintain a balanced financial approach seeking nondilutive capital first, including contract manufacturing revenue, a potential debt offering and potential partnering opportunities, as we continue to advance these important programs. We look forward to keeping you updated on our progress and we will now open the call up for your questions. Kate?

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Charles Duncan with Piper Jaffray.

Charles C. Duncan - Piper Jaffray Companies, Research Division

First of all, congratulations on the progress with regard to the platform in this quarter, and getting ready for the start of SUNRISE. Secondly, I wanted to ask a couple of questions about SUNRISE. First of all is, Joe kind of alluded to this, but I'm wondering really how you think about geographic enrollment challenges that have beset other lung cancer trials? And how you're going about trying to avoid them?

Joseph S. Shan

Sure, Charles. Yes, I think, obviously, that's something that we strategize about quite a bit. As you know, it's quite competitive in the major geographies, the IPH regions. But as we've been going through this process of site identification, as I mentioned earlier, the interest levels have been extremely high in particularly, EU and U.S. And so I think, our strategy is to enroll obviously, the maximum number of patients from those regions. And we're confident the majority of the patients will, in fact, come from there. So I mean, I think having said that, when we look back at our prior studies and we look at various geographies. It didn't appear that there were significant differences based on region. But that is something that we are trying to manage as best we can.

Charles C. Duncan - Piper Jaffray Companies, Research Division

And then, Joe, I'm not sure if I caught this or just missed it. But I'm wondering if you could remind me of the powering assumptions, given the results from Phase II? What would you like to see? And then, if there is an interim analysis?

Joseph S. Shan

Sure. So, yes, on the Phase II, I think, we saw, I think, very positive estimates. But it's because it's Phase II, the sample size is smaller, and not quite as statistically robust, so taking that into account, we did more conservatively power this and you can tell based on the sample size of roughly 600. This is pretty standard fare for oncology pivotal study. The sample size and obviously, the power assumptions behind that are at the end of the day, agreed upon with numerous regulatory agencies. And we feel confident that, if obviously the results are positive, that would support a marketing application.

Charles C. Duncan - Piper Jaffray Companies, Research Division

Okay. But just to clarify, your results from Phase II, you've basically discounted them a little bit in terms of setting up expectations for the Phase III, correct?

Joseph S. Shan

Yes, absolutely -- that didn't answer the other part of the question. When you do that, we feel that it's possibly, even a little bit overpowered. And so, as a result, we have built in, again, this is pretty standard, a couple of interim looks. So that if early on, your magnitude of effect is really good, then you can maybe take advantage of that in -- during the interim analysis.

Operator

Our next question comes from the line of George Zavoico with Premier Consulting.

George B. Zavoico - University of Virginia

A couple other questions about SUNRISE that's following up on Charles' comments. When you say you're going to start the trial before the end of the year, do you mean you're going to open sites for recruitment? Or do you mean you're going to actually announce the first patient in?

Joseph S. Shan

I will not get into that level of detail, but suffice to say, we're really looking to get a very fast start. So we're getting a number of sites ready before we initiate trial.

Steven W. King

Just to expand on that a little bit. Obviously, we'd love to and out spoke those by yearend. I think, more importantly, what we're trying to do is to make sure that when we get the trial up and running, it really is up and running with a good start, so that we can influence enrollment upfront in the study because of course, the earlier in the trial you enroll the study the sooner you get to endpoints, and the sooner you hopefully you complete enrollment. But, we are looking at the big picture also, of making sure that we can meet our overall enrollment goal, but clearly, having a good start for the trial we think is imperative, and so, we really believe we're on track for that.

George B. Zavoico - University of Virginia

Okay. And regard to the design. Are you incorporating an adaptive component? But I assume you have an interim look that also looks not only in safety but also with efficacy, perhaps with the early termination in the best-case scenario. Is there going to be an option to say, increase the number of patients to increase the power? Should you need to do something like that if the interim look suggest that?

Joseph S. Shan

Yes. The way it's designed is not adaptive in that sense. It's a pretty classic design with interim analyses. It's not adaptive in terms of prospective sample size re-estimation.

George B. Zavoico - University of Virginia

And are there, lately with all these lung cancer trials and the selective patient classifications as it were. Are there any limitations in that regard to what the inclusion and exclusion criteria maybe, in terms of like, 6 months from recurrence or predominant failures, or anything like that? All right? And if not, then I presume you're going to look at those as subtypes or then analyze if there are any subtype of patients that respond particularly well?

Joseph S. Shan

Yes. We do have some provision in the inclusion and exclusion criteria, which I think, when the trial goes live will be further clarified. Obviously, we don't want very rapid progressors, meaning the patients who didn't even get through the first evaluation time point on frontline therapy. But beyond that, there's no requirement that they have stable or responding to the -- for 6 months -- 6-plus months. And of course, there are subgroup -- subset analyses that can be preplanned to try to adjust for any kind of imbalance that might occur on the trial.

George B. Zavoico - University of Virginia

And finally, with regard to the duration of enrollment you said too -- and I haven't looked at the clinicaltrials.gov, so forgive me if it's already in there. I imagine the overall survival look is about a year. So with a 2-year enrollment, if you meet that, then top line results in about 3 years then?

Joseph S. Shan

Again, it’s event driven, so that’s like Steve mentioned earlier, a function of enrollment if the enrollment curve more of a hockey stick or more of a flatline -- Straighter line slope, then that will determine when we think the number of events necessary will hit. But it's really hard to say right now when exactly it will reach the final number final of events and of course, the interim analyses are another factor.

George B. Zavoico - University of Virginia

And you mentioned a number of events. Have you identified how many events will unblind the trial? Can you say that yet?

Joseph S. Shan

Yes. Again, we haven't gone to that. We haven't announced that level of detail. I think all I can say is that it's pretty standard, Phase III pivotal study fare. So not going to look at it too early. that it's not informative and you're not going to look at it too late that it doesn't help you.

Operator

And I'm not showing any further questions at this time. I'd like to turn the call back over to Steve King for closing remarks.

Steven W. King

Okay. Well, as you heard today, with the advancements made during the last quarter, have been really placing us in a strong position, as we move into late-stage developments and continue to execute on a well-thought out proof-of-concept program aimed at enhancing shareholder value. We believe that the efforts we are making in aligning bavituximab within the promising area of immunotherapies will broaden those potential applications, as well as increase awareness amongst the scientific, medical industry and investor communities. And we look forward to continuing to update you as we reach additional milestones in the future. Thank you again.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone, have a good day.

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