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By Investopedia | June 30, 2015
Small-cap biopharmaceutical company Peregrine Pharmaceuticals (NASDAQ: PPHM) could be sitting in the sweet spot when it comes to tackling cancer.
In pharmaceutical research today, not much is more exciting than cancer immunotherapies, or drugs and vaccines that enhance the body's immune system to more effectively target cancer cells. Peregrine's lead drug is bavituximab, a vaccine designed to stop an immunosuppressant quality of cancer cells. By binding with phosphatidylserine, or PS, receptors on the outside of cancer cells, the drug allows the immune system to more readily identify and attack these cells.
Bavituximab is being tested in the phase 3 SUNRISE study as a possible second-line treatment for patients with non-small cell lung cancer. Although its midstage trial wasn't without unwanted drama -- errors by a third-party laboratory forced Peregrine to restate its initial overall survival results, causing its share price to crater -- bavituximab demonstrated a statistically significant improvement in median overall survival compared to the placebo (11.7 months versus 7.3 months).
As you can tell, there's significant potential here. But, with the stock trading for just a little over $1 per share and a valuation of about $250 million, there's also substantial risk.
Three reasons Peregrine's stock could fall
Today, I'll look at three of the most probable reasons why Peregrine Pharmaceuticals' stock could fall. But first, keep in mind that negative catalysts don't automatically mean a stock will fall. Ultimately, Wall Street and investors determine where the stock price goes next.
1. SUNRISE turns into a sunset
Bavituximab is, without question, Peregrine's bread and butter. Peregrine's drug development platform is based on the idea of targeting PS receptors so the immune system can more readily fight cancer, thus bavituximab's success or failure in SUNRISE will go far in validating Peregrine's drug development process.
Easily the most dangerous situation for investors is that bavituximab doesn't hit the mark in the SUNRISE study. A quick examination of Peregrine's pipeline reveals that all of its ongoing, planned, and conceptual pipeline revolves around bavituximab. If SUNRISE turns into a sunset, then Wall Street and investors are going to question whether bavituximab can succeed in its other studies. It should be noted that different types of cancer often respond to the same therapy in different ways, but poor results in SUNRISE would still shake investors' foundation.
Plus, many small-cap cancer drug (or vaccine) developers have a very poor history of success in either phase 3 studies or in gaining approval from the Food and Drug Administration.
If SUNRISE fails to meet the mark, Peregrine shareholders can expect to be clobbered, at least over the short term.
2. Rapid cash burn
Second, investors should keep a close eye on Peregrine Pharmaceuticals' cash burn.
Cash burn in this context is used to evaluate predominantly clinical-stage biopharmaceutical companies that spend heavily on research and development and lose money since they're bringing in little revenue. Peregrine actually has a contract manufacturing subsidiary (Avid Bioservices) that helps reduce its cash outflow, but it still doesn't get anywhere near making the company profitable or cash flow positive.
The concern in this instance would be that Peregrine could need to turn to the open market to raise cash. Doing so could mean a dilutive secondary offering, which can hurt the value of stock held by current shareholders.
As of its most recent quarter Peregrine had $55.2 million in cash and cash equivalents, and no debt. However, that was down nearly $20 million from nine months prior, and Peregrine shareholders have witnessed a $40 million cash outflow on an operating basis over the trailing 12-month period. Phase 3 studies like SUNRISE aren't cheap, and as it advances its PS-targeting portfolio Peregrine's need for cash will likely grow. In short, Peregrine's cash situation could get much worse before it has an opportunity to get better.
3. Vaccine launch woes
Finally, even if bavituximab's data appears stellar in SUNRISE and the Food and Drug Administration approves the vaccine, investors will have to worry about the possibility of a vaccine launch failure.
Two decades ago, drug launches weren't this big a deal. There wasn't much in the way of pharmaceutical competition, and if a pharmaceutical company had a drug approved by the FDA there was a good chance it would succeed. Today, with increased drug development competition, properly launching a drug is just as important as getting the drug approved.
If you need proof, don't forget about cancer immunotherapy pioneer Dendreon, with its metastatic prostate cancer vaccine Provenge. Once forecast to be a $4 billion-plus drug, most on Wall Street now figure Provenge will peak at about $400 million in annual sales. In fact, Dendreon went so deep into debt while developing and launching Provenge that it was forced into bankruptcy protection in November. Provenge's $93,000 price point and its failure to stand out in a crowded field doomed it to fail, in the process making it one of Wall Street's biggest disappointments.
Could a similar fate be awaiting Peregrine's bavituximab? No one knows for sure, but Peregrine currently has no marketable products, leading me to believe its marketing staff might be very green behind the ears.
Should you avoid Peregrine Pharmaceuticals?
As you can see, Peregrine could face substantial headwinds in the upcoming months or years. Data from SUNRISE is expected in late 2016 or early 2017, and that will give investors much of the guidance they want.
Should you avoid Peregrine Pharmaceuticals?
As you can see, Peregrine could face substantial headwinds in the upcoming months or years. Data from SUNRISE is expected in late 2016 or early 2017, and that will give investors much of the guidance they want.
Because Peregrine is so all-in on PS-targeting, my personal opinion is that it might be best, even for the most optimistic investors, to remain on the sidelines until after the SUNRISE data is revealed. Remember, if SUNRISE fails then the entirety of Peregrine's pipeline could be called into question. If SUNRISE succeeds, you'll likely miss the initial pop in Peregrine's stock, but you'll be able to take advantage of additional indications being tested for bavituximab, as well as the potential for Peregrine to land a licensing partner or benefit from actual sales of the drug.
In short, there's no need to rush into Peregrine, but I'd certainly welcome investors adding this exciting company to their watchlist.
[url] http://www.investopedia.com/stock-analysis/063015/3-reasons-peregrines-stock-could-fall-pphm.aspx?partner=YahooSA [/url]
Peregrine Pharmaceuticals (NASDAQ: PPHM)
The first small cap stock to watch is cancer immunotherapy vaccine developer Peregrine Pharmaceuticals, which is currently sporting a valuation of around a quarter of a billion dollars and a stock price of a little over $1 per share. With no approved products on pharmacy shelves, those metrics alone are enough to scare away most investors.
However, there could be some significant value here if the company's phosphatidylserine (PS)-targeting technology actually pays off. Under normal circumstances, PS receptors are located on the inside of a cell, acting as an immunosuppressant that protects a cell from destruction by the immune system. In cancer cells PS receptor location is reversed; they're found instead on the outside of the cell. This causes the immune system to overlook these cells, allowing them to proliferate.
Peregine's lead product is bavituximab, a PS-targeting monoclonal antibody that interrupts this immunosuppressant quality of cancer cells and enhances the body's ability to fight cancer. Bavituximab is currently being tested in a late-stage study known as SUNRISE as a second-line therapy for non-small cell lung cancer. In mid-stage studies it hit the mark with a median overall survival of 11.7 months compared to the control group's median overall survival of just 7.3 months.
Peregrine does generate some revenue from its contract manufacturing subsidiary Avid Bioservices, but make no mistake about it -- Peregrine's valuation revolves almost entirely around Bavituximab and the potential for Peregrine's PS-targeting vaccines to crush cancer. SUNRISE is going to go a long way towards validating Peregrine's platform, and investors should have a measure of its efficacy by as soon as late 2016 or early 2017.
[url] http://www.fool.com/investing/small-cap/2015/06/30/small-cap-stocks-to-watch-in-biotech.aspx [/url]
Peregrine Pharmaceuticals (NASDAQ:PPHM)
I swear that I'm not purposely trying to pick on cancer immunotherapies developers, but Peregrine Pharmaceuticals is another company guilty of compromising shareholder value by issuing shares of its common stock. By the end of 2010, Peregrine had nearly 51.9 million shares of common stock outstanding. As of September 4, 2015, Peregrine had more than 202.1 million shares outstanding.
Why such a huge increase in its outstanding share count? Simply put, Peregrine has burned through a lot of cash while attempting to develop its pipeline. Its accumulated deficit (basically an addition of all quarterly losses since inception) topped the $453 million mark in Q4 2015 (which ended April 30, 2015).
But, like Galena above, there's hope for Peregrine shareholders with experimental non-small cell lung cancer drug bavituximab. Peregrine is currently running a pivotal phase 3 study on bavituximab, known as SUNRISE, after the second-line NSCLC therapy led to a statistically significant improvement in overall survival of 4.4 months in a phase 2 study (11.7 months versus 7.3 months for the placebo). The release of top-line results from SUNRISE will all depend on the event timeline of the study, but data is widely expected in late 2016 or the first-quarter of 2017.