As investors, most of us have seen the movies "Wall Street" and "The Wolf of Wall Street." If you haven't, to summarize, they are flashy stories of greed, intimating that one should just be on the right side of the trade and you will be all right; but most of us never are. How does "The Street" always know? How deep do the money-rivers run? The answers are simple: money talks and the river runs very deep. Wall Street needs a great story to put a stock "in play," or in the immunotherapy space, the story of a promise: The word cancer, followed by a cure; no better promise, hence no better story.
A little background: The immuno-oncology field has emerged as one of most exciting and fastest- developing pharmaceutical markets in 2014, and will prove to be for many years to come. Immunomodulatory antibodies help the cancer patient's own immune system to fight the disease and are being developed for the treatment of a number of solid tumors. They have demonstrated therapeutic potential in difficult-to-treat cancers, such as metastatic melanoma and lung cancer by Bristol-Myers (BMY) and in 2nd-line non-small cell lung cancer (NSCLC) by Peregrine Pharmaceuticals (PPHM). A recent forecast by Citigroup predicts this market to become the biggest blockbuster drug class in history, with potential sales of up to $35 billion a year over the next 10 years.
Now let's talk about which companies have been "in play." The clear leaders have been the companies pioneering the CAR T-cells immunotherapy class of biologics. CAR T-cells involve engineering the patients' own immune cells to recognize and attack their tumors. This process is called adoptive cell transfer. ACT has shown promise in Phase I trials in very small groups of patients. ACT's building blocks are T-cells, a type of immune cell collected from the patient's own blood. After collection, the T-cells are genetically engineered to produce special receptors on their surface called chimeric antigen receptors (CARs). CARs are proteins that allow the T-cells to recognize a specific protein (antigen) on tumor cells. These engineered CARs T-cells are then grown in the laboratory until they number in the billions. Juno Therapeutics (JUNO) and Kite Pharma (KITE) are pioneers of this field, with small laboratories working towards the hope of FDA approval. These companies are producing so called "living drugs." After production at the laboratory, the CARs T-cells are infused into the patient. After the infusion, if all goes as planned, the T-cells multiply in the patient's body and with guidance from their engineered receptor, recognize and kill cancer cells that harbor the antigen on their surfaces.
With market caps currently in the billions, investors have to wonder "if" and how long before the FDA approves the first biologic of this class. Investors must realize these companies are only in Phase I/II clinical trials. These companies are looking at many years of trials to see if profitability can ever be realized; dilution is certain to the common shareholder. For now, the biggest hurdle will be safety for the CARs T-cell class and as with any new biologic, Phase I/II could take years before moving to Phase IIb or Phase III trials, where efficacy can be proven. What we know now is that CARs T-cell therapy can cause several worrisome side effects, perhaps the most troublesome being cytokine-release syndrome. The infused T-cells release cytokines, which are chemical messengers that help the T-cells carry out their duties. With cytokine-release syndrome, there is a rapid and massive release of cytokines into the bloodstream, which can lead to dangerously high fevers and precipitous drops in blood pressure, and even death.
For those investors that rode the CARs T-cell company IPO wave, I congratulate you. But in my opinion, the ride is over. Juno Therapeutics and Kite Pharma have reached fair market value in my opinion and substantial gains from here will only be earned by strong clinical data. What concerns me for current shareholders, is that the large initial investors already know this. To make money in this space, the diligent investor must look at which company has the proven biologic, a biologic which is proving to be both safe and efficacious. Investors must do their own due diligence to determine which company will be the true investment of the future. That stock, in my opinion, is Peregrine Pharmaceuticals. With a market capitalization of nearly $300 million, Peregrine Pharmaceuticals could be worth many multiples higher at any moment, due simply to the fact of being so undervalued and so close to market approval in the immunotherapy space. When I compare the potential value of Peregrine Pharmaceuticals to the immunotherapy companies Juno Therapeutics and Kite Pharma, it is clear how much farther ahead Peregrine Pharmaceuticals is toward FDA approval and commercialization, the true measure of value in the biotech space.
Let's take a look at where Peregrine Pharmaceuticals is today in the development process. Peregrine Pharmaceuticals' flagship immunotherapy candidate, bavituximab, is currently over 14 months into their SUNRISE clinical Phase III registrational trial for 2nd-line NSCLC, with 154 trial sites around the globe. Bavituximab has been granted fast-track status by the FDA and has already been proven to be both safe and efficacious in a Phase IIb trial in 2nd-line NSCLC. The FDA has approved two look-ins for the SUNRISE trial, which means at any moment, the trial could be halted and bavituximab granted marketing approval. What's most amazing is that in Peregrine Pharmaceuticals' Phase IIb trial, bavituximab doubled survival over standard of care, and the FDA has set only a 30% improvement in median overall survival as the goal for the SUNRISE trial. Investors can learn about bavituximab's unique mechanism of action through "PS binding" in this video.
So why is Peregrine Pharmaceuticals so grossly undervalued one may ask? One answer lies in the fact that Peregrine Pharmaceuticals' Phase IIb trial in 2nd-line NSCLC was presumably the target of sabotage by an employee at the distribution facility "CSM" overseeing the labeling of the control drug and the labeling of the experimental drug bavituximab. Why? Who was the money behind the motive? These are the questions for the government agencies investigating. The sabotage of a registrational trial sounds like a future episode of "American Greed" in my opinion, but I will leave that to the courts to decide in the current trial in which Peregrine Pharmaceuticals is suing CSM pharmaceutical distribution. The case is currently two years underway in a CA central court; "Peregrine Pharmaceuticals Inc v. Clinical Supplies Management Inc" case (8:12-cv-01608) viewable on law360.com, gives savvy investors some insight into the alleged sabotage and intentional mis-labeling of bavituximab. Peregrine Pharmaceuticals is suing for damages of up to $2 billion. Peregrine Pharmaceuticals presumably had a deal with AbbVie Pharmaceuticals (ABBV) in the summer of 2012 for royalties of up to $2 billion for partnering of bavituximab based on the Phase IIb trial results. AbbVie allegedly pulled out of the deal when the discrepancies were discovered. Amazingly, only three months later, Peregrine Pharmaceuticals was able to salvage the data from the trial. Later, the FDA approved the data submitted, granting Phase III the green light. The FDA is clearly aware of bavituximab's potential to double median overall survival over standard of care therapy in 2nd-line NSCLC. With Fast Track status, FDA data monitoring committee in place and two event driven look-ins, investors are anxiously awaiting news. Of note to investors, over the past five years, over 90% of biologics with fast-track status have been granted marketing approval by the FDA.
Here's the "big play" part. If bavituximab was worth potentially $2 billion to partner over two years ago to a large pharmaceutical company, one must ask what the value is today. With new recent data available on bavituximab's mechanism of action, the value of Peregrine Pharmaceuticals' pipeline has grown in my opinion. Bavituximab has recently shown to statistically improve the efficacy in preclinical trials of CTL-4 and PD-1 antibodies. Bavituximab is also proving in preclinical trials, to be the combo-therapy needed for the currently FDA-approved immunotherapies Yervoy (ipilimumab) and Opdivo (nivolumab). It is known that CTL-4 and PD-1 cannot be used in patients presenting with high levels of MDSCs (myeloid-derived suppressor cells) in the blood, and this accounts for greater than 30% of patients with melanoma and lung cancer. I urge investors to realize this combination data is preclinical, but if proven in human trials, which are underway, could be a game changer. Bavituximab is currently in a Phase Ib trial with Yervoy for melanoma.
In summary, bavituximab is not only proving to double survival in 2nd-line NSCLC by eliciting a robust immune response against cancer cells, but is also proving to strongly lower MDSCs in cancer patients, which Peregrine Pharmaceuticals recently showed in a Phase II liver cancer trial.
Of note to investors, Peregrine Pharmaceuticals recently announced on their last quarterly conference call the doubling of capacity of their fully owned subsidiary Avid Bioservices, and plans to have full commercialization capacity ready for bavituximab, by summer of 2015. A requirement by the FDA for early approval is sufficient commercialization capacity. Analyst at Cowen Co. recently estimated the 2nd-line NSCLC market to exceed $1 billion annually by 2020. If granted FDA approval bavituximab sales could exceed $700 million annually. If results of the SUNRISE trial are near what was seen in the Phase IIb trial or better, this is certain. If bavituximab becomes the combo immunotherapy of choice for PD-1 and CTL-4 future revenues could exceed $2 billion annually.
Peregrine Pharmaceuticals' key financial highlights from the most recent quarterly conference call include: $64 million in cash, zero debt and a quarterly cash burn of $9.9 million. As I mentioned before, Peregrine Pharmaceuticals' wholly owned subsidiary Avid Bioservices is expanding and also is expected to generate $23 million in contract revenues during fiscal year 2015. Peregrine Pharmaceuticals is financially well positioned to see bavituximab to the goal line of FDA approval; therefore, I do not foresee additional dilution to the common shareholder.
In March, Peregrine Pharmaceuticals will be presenting data on their liver cancer trial in which bavituximab has already showed great promise combined with sorafenib, Bayer's (OTCPK:BAYRY) blockbuster drug Nexavar. In a second presentation in March, Peregrine Pharmaceuticals will be speaking with key opinion leaders on a world stage in Boston, showing bavituximab's potential to statistically improve the efficacy of CTL-4 and PD-1 antibodies. Peregrine Pharmaceuticals is setting the stage for a new era in oncology. The era of a cure.
The time for biotech investors is clear, it's time to be on the right side of the trade.
