PPHM – More downside expected in Peregrine Pharmaceuticals

We have recently posted on Peregrine Pharmaceuticals (NASDAQ: PPHM) in the forums and decided to further elaborate on the company. There appears to be significant reasons to be cautious with this name.

Upcoming catalysts for Peregrine over the next 12 months

The following catalysts are expected, which are led by the median OS readouts from the two Phase II NSCLC studies with bavituximab in the front and second line settings:

- September 7th, 2012 – Late breaker oral presentation during the plenary session at the Chicago Symposium of Thoracic Oncology. They plan to provide updated results of the randomized double blind Phase II study of bavituximab in 2nd-line NSCLC. Link to abstract placeholder.

- September 28 thru October 2nd, 2012 – Poster presentation at the 2012 European Society for Medical Oncology Congress. They plan to provide present a poster on the randomized double-blind Phase II study of bavituximab in 2nd-line NSCLC.

- Median OS data from their randomized NSCLC first line Phase II

- Preliminary OS data from their randomized pancreatic Phase II

- Commentary on Peregrine and FDA discussions regarding the design of Cotara pivotal program for recurrent glioblastoma.

- End-of-Phase II discussions with the FDA

- Company plans to launch of a Phase III study of Bavituximab in 2nd line NSCLC by mid-2013

Current trials

They have 3 major trials they expect to announce results from in the next 4 months.

(1) Front-Line Non-Small Cell Lung Cancer 
– There are currently two trials evaluating bavituximab in front-line NSCLC. A randomized Phase II trial evaluating bavituximab plus carboplatin and paclitaxel versus carboplatin and paclitaxel alone in 83 evaluable patients with previously untreated Stage IIIb and Stage IV non-small cell lung cancer. The trial completed enrollment in September of 2011 and median OS from this trial is event-driven and anticipated in the fourth quarter of 2012
  • Primary endpoint is overall response rate and was reported in March. Study failed on PFS and ORR. Trial is open-label
  • Secondary endpoint is overall survival
  • NCT01160601 shows study completion in June.
(2) Bavituximab lead indication: Second-Line Non-Small Cell Lung Cancer 
In May, Peregrine announced positive top-line results from its randomized, double-blind, placebo-controlled Phase IIb trial evaluating two dose levels of bavituximab plus docetaxel versus docetaxel plus placebo (control arm) in second-line Stage IIIb/IV non-small cell lung cancer (NSCLC).  Another secondary endpoint, median overall survival (OS), has already been determined in the control arm at less than 6 months, while the median has not been reached in either bavituximab-containing arm. Median OS from this trial is an event-driven secondary endpoint with results anticipated in 2012.
*Note they already reported topline  data, which was not significant and raises serious questions of integrity given they reported no p-values or hazard-ratios(HR). Link here for misleading PR
“Top-line data in 117 evaluable patients demonstrated a doubling of overall response rates (ORR), the primary endpoint, from 7.9% in the control arm to 15.0% and 17.9% in the 1.0 mg/kg and 3.0 mg/kg bavituximab containing arms, respectively. Progression-free survival (PFS), a secondary endpoint, was also improved in the bavituximab arms as compared to the control arm, with the control arm PFS of 3.0 months and the bavituximab arms of 4.2 and 4.5 months in the 1.0 mg/kg and 3.0 mg/kg bavituximab containing arms, respectively.”
  • Primary endpoint listed as overall response rate.
  • NCT01138163 shows study completion around June
  • We suspect the purported OS benefit they saw is not statistically significant. With a 3-arm trial of roughly 40/arm, you need a serious therapeutic benefit in OS to be statistically significant(due to multiple hypothesis testing). The trial has now been unblinded, which is also problematic in interpreting any overall survival data presented. We’re also kind of surprised that no principal investigators in the trial aren’t making a push to get the placebo arm patients on Bavituximab.
(3) Front-Line Pancreatic Cancer
Peregrine is currently running a randomized Phase II trial in 70 previously untreated Stage IV pancreatic cancer patients evaluating bavituximab plus gemcitabine versus gemcitabine alone. They expect to report  interim median overall survival data from the trial by the end of 2012(event-driven).
  • Trial completed enrollment in June
  • Primary endpoint is overall survival
  • NCT01272791 shows primary completion around December
  • With only ~35 patients per arm, reaching statistical significance seems really unlikely. Bavituximab has never been tested in pancreatic patients.

Red Flags

In our opinion, the company has already hinted the trials were not statistically significant, based on the language used during their recent quarterly conference call.

Raluca Pancratov – Roth Capital Partners, LLC, Research Division
Right. I see, I see. So I’m guessing the data is still maturing. And then probably at a medical conference, you could also provide some analysis of subgroups?
Joseph S. Shan ( Vice President of Clinical & Regulatory Affairs )
Sure. And certainly in the meantime, we feel the way its trending give us a high degree of confidence to advance our plans going forward going straight into Phase III.
Steven W. King ( President and CEO, Director)
I think — just to pop on that side, I think that is the key here is that we will be able to talk more about some of the statistics behind the results as we, again, the data matures somewhat. Especially, for the most meaningful endpoints, overall survival, progression-free survival.
I think what has come through with this is I think there is a very nice trend toward the overall survival and the meaningfulness of that data. I think that’s really what’s driving the partnering interest, as well as our going into our internal planning on designing the Phase III study, which we do anticipate would have overall survival as primary endpoint.
So I think that in addition, I think on the — as far as the geography goes — I mean a few things. As we’ve looked at the data, there is nothing standing out about any geography or subset of patients. They all seem to be favoring at this point the bavituximab treatment arms and that’s held true throughout the study.

These comments lead us to believe the OS is just a trend. Even in their own press release, VP Joseph Chan says,

“The compelling results from this rigorously designed trial clearly demonstrate that the combination of bavituxmab and docetaxel is more active than docetaxel alone in treating second-line non-small cell lung cancer. We saw twice as many patients demonstrating an objective tumor response, increased progression-free survival, and already promising survival trends in this refractory setting.”

We also suspect there is something going on with their control arm(unequal baseline characteristics across arms?), since they’ve reported the control-arm’s median overall survival is less than 6 months. This strikes as unusually low based on recent, large Phase 3 studies utilizing docetaxel. For example,  Hanna et al(2004) reported median overall survival of 7.9 months and Kim et al(2008) reported 8 months for second-line NSCLC patients receiving docetaxel. For example, Herbst et al (2010) (“Vandetanib plus docetaxel versus docetaxel as second-line treatment for patients with advanced NSCLC (ZODIAC): a double-blind, randomised, phase 3 trial”) reported median overall survival of 10 months. The authors’ were surprised by this, but offered a reasonable explanation,

However, in the present study, the median overall survival of 10 months for patients receiving placebo plus docetaxel is longer than that reported in the earlier studies. This difference might be explained by differences in the availability or use of first-line and post-progression therapies, as well as general improvements in standards of care over time.

Another problem is the fact that Bavituximab failed PFS and ORR in 1st-line NSCLC with very little numerical difference in PFS. This raises some substantial doubt about the prospects of the drug working in 2nd-line NSCLC patients. If the drug were truly active in NSCLC, we’d expect to see a hint of efficacy in 1st-line. We also note that in their press release for the 2nd-line study, Peregrine does not outline the percentage of complete and partial responses, since ORR = CR + PR. Last, we are skeptical of the drug’s purported uses in hepatitis C; we find this to be an extremely unlikely scenario.

Conclusion

Peregrine’s finances could certainly be better. They currently have less than $18M in cash. Peregrine thought it wise to raise capital the past few month by quietly diluting shareholders via backdoor at the market issuances, bloating the outstanding shares to well over 100M from 60M last year. From their recent 10-K, “Historically, we have funded a significant portion of our operations through the issuance of equity. During fiscal year 2012, we raised $34,330,000 in gross proceeds (as described in Note 7 to the accompanying consolidated financial statements). Subsequent to April 30, 2012 and through June 30, 2012 we raised an additional $1,496,000 in gross proceeds under an At Market Issuance Agreement (as described in Note 7 to the accompanying consolidated financial statements). As of June 30, 2012, additional shares of our common stock for aggregate gross proceeds of up to $185,886,000 remained available under our current effective shelf registration statements on Form S-3.” Scary prospect, huh? Peregrine claims they will seek a $20-30M loan against their Avid Biosciences manufacturing business in order to move into Phase 3 trials. We suspect management will continue to dilute shareholders via the at the market issuances.

All in all, we’re shocked at the current marketcap of Peregrine’s shares given the weak finances and clinical data to date. We see no reason to hold the stock at current levels given the significant risks to the Bavituximab program. We currently ascribe very little value to the Cotara program; it’s been a complete bust ever since they touted reaching agreement with the FDA on a pivotal study way back in late December 2001 but nothing ever came of it. To make things worse, the company has been testing Bavituximab for many years; they changed the name from Tarcavin to Bavituximab in 2006. Peregrine has a long history of touting drug candidates, but the data never seem to match.

Disclosure: No position currently, but considering September $2.50 puts.

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