Peregrine Pharma: Not Good Enough to Own, Too Risky to Short

NEW YORK (TheStreet) -- Last week, investigators for Peregrine Pharmaceuticals (PPHM) presented dramatic results from a Phase II study of bavituximab in second-line non-small cell lung cancer (NSCLC). The results, presented at a scientific conference in Chicago, sent Peregrine shares soaring another 47% on Friday, on top of a five-fold jump in value over the preceding few months.

My colleague Adam Feuerstein has been skeptical about bavituximab for some time, but Peregrine's heretofore microcap valuation -- less than $75 million only two months ago -- kept the company off of my radar screen until recently. Given the tumult surrounding last week's data, I felt compelled to take a closer look.

My conclusion: Feuerstein's skepticism is warranted but the stock might not be a short just yet. Peregrine shares could trade sideways -- or even up -- over the next few months due to the lack of a near-term negative catalyst. Even the results from another trial in first-line NSCLC, due later this year, may not provide much clarity. Initial data from this study suggest the drug has little effect, so confirmation of that view might not drive shares lower. Bears should also consider the possibility that inconclusive data from the first-line study could be fed through a statistical meat grinder to produce a positive interpretation. That would be a disaster for the shorts.

Let's dig deeper.

Peregrine's randomized, double-blinded Phase II trial enrolled 121 patients with second-line NSCLC -- disease that has relapsed after, or not responded to, initial treatment -- to receive one of two bavituximab doses, in combination with the chemotherapy agent docetaxel, compared to chemotherapy alone. In May, the company reported progression free survival (PFS) data from this study that slightly favored bavituximab; patients in the high (3.0 mg/kg) and low dose arms (1.0 mg/kg) demonstrated PFS of 4.5 months and 4.2 months, respectively, compared to the control group PFS of 3.0 months.

Patients in the pooled bavituximab arms had a median overall survival (OS) of 12.1 months, far longer than the 5.6 months observed for the control group and statistically significant. Investigators reported a hazard ratio (HR) of 0.524, indicating that the addition of bavituximab reduced the risk of death by nearly 50% relative to chemotherapy alone. If these results are real, the drug will be an immediate blockbuster commercially and a rare exception to the Feuerstein-Ratain rule.

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