Avid Bioservices Inc (CDMO) 2006 Q4 法說會逐字稿

Hello and welcome to the Peregrine Pharmaceuticals fourth-quarter 2006 financial results conference call. All participants will be in a listen-only mode. There will be opportunity for you to ask questions at the end of today's presentation. An operator will give instructions on how to ask your questions at that time. (OPERATOR INSTRUCTIONS). For your information, this conference is being recorded.

I would now like to turn the call over to Ms. Betsy Brod. Ms. Brod, please begin.

Good morning and thank you for joining us on today's call with the management of Peregrine Pharmaceuticals. We are here to discuss the Company's fiscal 2006 results reported this morning. Before I turn the call over to Steven King, President and Chief Executive Officer, I would like to read the cautionary note regarding forward-looking statements.

This conference call may include statements that are not historical facts and are considered forward looking within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect Peregrine Pharmaceuticals' current views about future events and financial performance.

These forward-looking statements are identified by their use of terms and phrases such as believe, expect, plan, anticipate, on target and similar expressions identifying forward-looking statements. These factors include but are not limited to the risk factors detailed from time to time in Peregrine Pharmaceuticals' filings with the Securities and Exchange Commission, including but not limited to the Annual Report on Form 10-K for the year ended April 30, 2006.

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 Peregrine Pharmaceuticals' expectations. Peregrine Pharmaceuticals expressly does not undertake any duty to update forward-looking statements whether as a result of new information, future events or otherwise.

So with these formalities out of the way, I would like to now turn the call over to Steven King. Steve, you may begin.

Good morning and thank you for joining us on this morning's conference call. With me today is Paul Lytle, Chief Financial Officer of Peregrine. On this morning's call, and as we have done on recent calls, we will provide a comprehensive review of the status of our current lead programs, as well as benchmarks to gauge the timing of important milestones going forward.

As this is our year-end call, I also want to place our recent progress in the context of the past year, as I believe we had made significant gains in the last 12 months toward our stated goals. But first, I would like to turn it over to Paul, who will provide a financial overview for the fiscal year. Paul?

Thank you, Steve, and thank you, everyone, for joining us today. I would like to summarize our financial results for the fiscal year ended April 30, 2006, and provide you with some additional financial highlights for this past fiscal year.

For the fiscal year ended April 30, 2006, Peregrine reported a net loss of approximately 17.1 million or $0.10 per basic and diluted share versus a net loss of approximately 15.5 million or $0.11 per basic and diluted share for the prior-year period.

Total revenues this fiscal year were 3.2 million and were primarily generated from our wholly owned manufacturing subsidiary, Avid Bioservices. This compared to total revenues of approximately 5 million for the prior fiscal year, when a greater portion of Avid's capacity was used for third-party contract manufacturing.

Avid continues to be an important strategic asset for Peregrine, as it provides the Company with the internal capabilities to develop and scale up drug production for its preclinical and clinical programs. This fiscal year, the majority of its efforts were focused on process development and product manufacturing to support our three clinical programs we initiated this fiscal year with our lead products, bavituximab and Cotara.

Avid also produced drug product for our ongoing preclinical antiviral and oncology programs while working on a number of strategic fronts, including the development of a commercial-scale manufacturing process for bavituximab, developing a manufacturing process for our second-generation antibodies under our anti-phosphotidylserine technology platform, including a humanized antibody, and developing a manufacturing process for new preclinical candidates that should fuel our future product pipeline. All this was accomplished while Avid still was able to generate meaningful revenues from outside customers to partially offset our R&D expenses.

Now turning to our expenses, we recorded approximately 22.3 million in total operating expenses this past fiscal year, which was approximately 1.6 million greater than our total operating expenses for the same prior-year period. This increase was primarily due to a $1.2 million increase in research and development expenses, primarily directed towards the initiation of our clinical trials and the expansion of preclinical activities for bavituximab in other possible disease indications.

We also saw an increase in SG&A expenses of 1.5 million during the current fiscal year as we continued to build our corporate infrastructure to support our future growth. Included in SG&A were two important management hires -- our VP of Intellectual Property, a key internal position for us, as we have over 400 patents and patent applications, and our VP of Business Development, who is focused on expanding our strategic relationships as we continue to generate important clinical data. These increases in costs were partially offset by a decrease in cost of sales associated with Avid Bioservices' revenues.

We were also able to collect 1.2 million in cash on a note receivable that was previously deemed uncollectible and reserved for, which gain is included as a recovery of note receivable for the current fiscal year.

In addition to the important clinical and preclinical progress we have made this past fiscal year, we are also building a wider awareness of Peregrine within the investment community by expanding our outreach efforts. We have met with a number of potential analysts and investors, as well as presenting at a number of investor and industry conferences and achieving greater coverage in the trade and financial media.

In addition, we have completed several financings, raising $23 million during fiscal year 2006 and subsequently raising an additional $13 million in net proceeds. This infusion of capital has increased our cash position to $26.3 million as of June 30, 2006, sufficient capital to support the development of our product candidates through fiscal year 2007, which we believe have significant clinical and commercial potential.

This concludes the discussion of the financial results. I would now like to turn the call back over to Steve to provide a business update for the fiscal year. Steve?

Thank you, Paul. I would like to start by saying that I believe this past year was the most exciting year of progress in Peregrine's history. Perhaps the highlight of the year was initiating two separate clinical trials for our first-in-class therapeutic, bavituximab.

Bavituximab falls under our anti-phosphotidylserine, or anti-PS, immunotherapy platform that we believe has broad potential in the treatment of solid tumors and viral infections that extend even beyond the current indications in clinical trials. The bavituximab clinical programs include a cancer therapy clinical trial in which patients with all solid tumors types are eligible for enrollment and a clinical program for the treatment of chronic Hepatitis C viral infections. This marked the first time that the Company had initiated a clinical trial for an indication beyond cancer. These indications each represent major markets and illustrate the broad potential of this technology platform.

Perhaps even more exciting than starting the new trials during the fiscal year was the fact that we have already completed the initial Hepatitis C clinical study and have generated positive data indicating that bavituximab treatment appeared safe and well tolerated while showing signs of anti-viral activity. To obtain these positive initial results in the first in-human study for an innovative new technology platform is extremely encouraging.

While starting these new clinical programs for bavituximab, we were also able to renew our clinical program for Cotara by initiating a new brain cancer therapy trial through a collaboration with the New Approaches to Brain Tumor Therapy clinical consortium, or NABTT, as I will refer to it, we believe Cotara holds tremendous promise for the treatment of this deadly disease based on clinical data generated to date. And we look forward to expanding beyond the NABTT study this year to enable us to fully assess the potential of this drug. Taken together, we believe we have generated significant momentum for our core technologies that we will continue to build upon during the upcoming year.

In addition to the ongoing clinical studies, we have continued to evaluate in preclinical animal models possible bavituximab therapeutic regimens for cancer therapy, and we are also studying its potential for the treatment of viral infections beyond hepatitis C. These preclinical cancer studies have already resulted in encouraging results, showing the potential of bavituximab in combination with chemo and radiation therapy to treat solid tumors, including tumors of the breast, prostate and pancreas, and perhaps more importantly, to stop the metastatic disease that actually kills most cancer patients.

This data has been published in peer-reviewed journals and presented at national scientific conferences and will be instrumental in guiding the future combination therapy clinical trials for the bavituximab oncology program.

The ongoing preclinical programs in antiviral therapy are focused on the treatment of HIV, influenza, cytomegalovirus and other life-threatening viral infections. In order to move these preclinical programs forward, we have recently entered into collaborations with researchers at more than seven top academic and private research centers, including the University of Texas Southwestern Medical Center, Tulane University, Duke University, Utah State University and the Southern Research Institute.

We expect that these collaborations, along with our Scientific Resource Board, will be critical in expediting our evaluation of bavituximab for the treatment of these viral infections. We are optimistic that these collaborations will generate data that will support new clinical indications for bavituximab, and we will provide updates on these programs at appropriate times during the year.

Now let me discuss our bavituximab antiviral program in more detail. At the start of the fiscal year last May, we had only just received FDA clearance to initiate bavituximab treatment of patients with chronic hepatitis C infections in a Phase Ia clinical study. Since that time, we successfully initiated and completed the Phase Ia trial in which four groups of six patients each received escalating doses of bavituximab. By working closely with the clinical site, we were able to complete the study several months ahead of our initial target.

Top-line safety data from the initial trial indicated that bavituximab therapy was safe and well tolerated, and this data was presented at a scientific conference in February. Based on the good safety profile in these patients, we added a fifth group of six patients at a higher dose level, and those patients are currently in the 12-week follow-up period. We are planning on presenting final data from this study in the fall at one of the scientific conferences focused on viral hepatitis.

Building on the safety data reported in February, we announced positive signs of antiviral activity from the Phase Ia study in early June. Patients treated with just a single dose of bavituximab showed signs of antiviral activity at all four dose levels. 50% of patients treated at the highest two dose levels achieved a greater than 75% or 0.6 log reduction in serum HCV RNA levels, with a maximum of 97 or 1.5 log reduction in an average reduction of HCV RNA levels of 0.8 log during the course of the 12-week follow-up.

Signs of antiviral activity were seen at all dose levels, including the initial low dose, where one-third of the patients experienced a greater than 75% reduction in serum HCV levels during the course of the study. Bavituximab also showed signs of durable antiviral activity after a single dose, with some subjects achieving a greater than 80% reduction in viral load by day four and maintaining a greater than 60% reduction in serum HCV levels through the end of the study at week 12.

These initial efficacy findings for a single dose of bavituximab are noteworthy for several reasons. First, the rapid virus production and turnover characterizing HCV infection typically limit the impact of a single dose of any antiviral drug.

Second, preclinical data supports that bavituximab's unique mechanism of action, which mobilizes the body's immune system to attack the hepatitis C virus, is likely to be most effective when administered as part of a multidose regimen.

Third, most other investigational drugs for HCV infection have reported initial efficacy results following multiple doses or combination therapy regimens that include standard of care therapies. In this study, bavituximab was administered as a monotherapy to patients who had failed standard treatments.

In view of these factors, the antiviral activity demonstrated in this single-dose study is all the more encouraging, especially since they lasted so long and were not accompanied by dose-limiting or serious adverse events. And based on this distinctive mechanism, we do not expect bavituximab to be subject to the development of viral resistance that ultimately limits the utility of most other antiviral anti-infective drugs.

Now let's talk about next steps. In early June, we initiated a multicenter repeat-dose Phase Ib hepatitis C study designed to evaluate four doses of bavituximab given over a two-week period. Endpoints include safety, pharmacokinetics and impact on HCV RNA levels. Patient treatment has already been initiated and we expect to treat up to four cohorts of six patients each by the end of 2006.

We have also begun designing combination therapy clinical protocols that would allow us to combine bavituximab therapy with current standard-of-care treatments that should begin later this year.

Now turning to bavituximab for the treatment of cancer, during the year, we opened patient enrollment in a multicenter Phase I bavituximab cancer therapy trial at a total of five sites, including the renowned MD Anderson Cancer Center. This clinical trial is a combination single- and repeat-dose study in which groups of six patients with any solid tumor type will receive an initial dose of drug, and then starting 28 days after the initial treatments, weekly doses of bavituximab at the same dose level for three weeks.

Up to four groups of six patients will receive escalating doses of bavituximab, bringing the potential number of patients in the trial to 24. The primary goal of the study is to evaluate the safety, tolerability and pharmacokinetics of bavituximab in patients with solid tumors cancers. Patients will also be monitored for disease progression and will be eligible for continued treatment under an extension protocol if they show signs of tumor regression.

Our goal is to complete patient enrollment in the study by year end. Accelerating enrollment trends at some of our centers are encouraging and increase our confidence that this is an achievable goal.

The potential of bavituximab as a cancer diagnostic and therapeutic was furthered validated when researchers working with Peregrine received a number of new grants from the federal government for further preclinical cancer studies, which should be instrumental in designing clinical trials for specific cancer indications that will follow a successful completion of the ongoing Phase I clinical trial.

I want to note here that we believe that bavituximab has the potential to be a major cancer drug, notwithstanding the many other new and investigational drugs now in development. Its mechanism of action is truly unique and appears to involve multiple mechanisms, including destruction of the tumor blood vessels essential for cancer growth and spread, in addition to blocking cancer's ability to down-regulate the body's normal immune response, allowing a robust immune response to the tumor. We look forward to learning more about bavituximab's activity in human cancer patients over the course of this new fiscal year.

Now turning to Cotara for the treatment of brain cancer, data published last spring suggested that our lead tumor necrosis therapy agent, Cotara, may have unusual promise in this particularly deadly disease, and we are committed to ensuring that this potential is fully evaluated.

During the year, we initiated a dose confirmation and dosimetry clinical trial for Cotara in collaboration with NABTT. This study will provide important data using single doses of Cotara administered directly into the tumor by an optimized delivery method. Data generated during an earlier Phase II clinical trial indicated that the combination of a single larger dose combined with the optimized delivery method may allow us to improve on the promising results seen to date, while in earlier clinical studies [technical difficulty].

The second benefit of this study will be to increase the clinical and commercial potential of the drug by making it easier to administer. We have been working directly with NABTT to speed progress in the trial, which had not been moving forward as quickly as we had hoped. In recent months, we have been working directly with each of the active clinical sites to address the issues that were slowing progress, and we believe that the program is now on track.

In addition, we are in the process of taking new steps to assist NABTT with speeding patient recruitment, such as advertising in key cancer-related journals and conducting targeted local media outreach. We believe that our efforts in working directly with the clinical sites to resolve the individual issues, as well as our other efforts to increase the number of patients being screened, will help keep us on track for completing patient treatment by the end of 2006.

In addition to these efforts, we have independently begun making preparations for an approximately 40-patient clinical trial that would deliver a single administration of Cotara using the optimized delivery method. This trial would allow a more comprehensive evaluation of median survival times and safety, allowing us to appropriately design a larger product registration trial. We are eager to complete treatment of patients in both the NABTT study as well as the expanded patient population. We expect to be able to provide more information related to these clinical trials over the upcoming months.

We are also actively assessing a number of options for using innovative approaches to expediting or accelerating all of our clinical programs. And we will report back to you on these as soon as we have finalized the plans over the course of the year.

Operator, at this time, I would like to open up the floor to questions.

(OPERATOR INSTRUCTIONS). [Robert Brower], private investor.

Great year, great raise-up of cash, which I think is certainly the largest amount of cash the Company has ever had, if I am correct.

That is correct, Bob.

The question I have is with regard to cash. We look like we're going through some warrant exercises here. And I'm just wondering what you anticipate raising from the exercise of warrants?

That is correct, Bob. We do have some warrants that come due here August 8. These were warrants that have been in the overhang since the 2002 financing. There are 4.9 million warrants out there. Their exercise price of $0.71 is on a cash-only basis. And we should receive approximately 3.5 million from those warrant exercises.

Terrific. So a little more cash for the kitty.

Correct.

Keep on raising it.

In addition to that, we have another 1.2 or 1.3 million warrants that come due in November of this year at an exercise price of $1. That should also continue to build our cash position.

[Chris Cara], Newbridge.

Congratulations on the quarter, fellas. I just have a couple of quick questions. You say you have developed or you have had someone develop a fully humanized version of bavituximab. I am wondering what trial that would be used in.

And my other question concerns the outlicensing program for the cancer as well as the viral. Could you outlicense it geographically, in other words, to, say, an Amgen in the States, and an Astra-Zeneca in the UK for the cancer? And also, does the same apply for the viral?

Okay, I will take those questions one at a time. So yes, we do have a fully humanized version of the bavituximab antibody that is currently going through the process of scale-up and manufacturing. And we are evaluating the drug that is coming out of those scale-up efforts.

As far as which clinical trial that would end up going into, I think that will partially be driven by the clinical data we are generating to date. We are monitoring patients for things such as pharmacokinetics, antibody responses to the drug therapy. So depending on those results, that will probably help guide us whether it eventually enters the cancer program first or the viral program first.

At this point, our focus is on evaluating the new clones and making sure that the quality of the product is equivalent to what we are seeing with the bavituximab so that we are ready to introduce it as appropriate in the clinical study.

Would you have to file a new IND for something like that?

That probably would be a new IND because it will have actually a different chemical structure than the original bavituximab antibody. So I do anticipate, however, that data generated during the bavituximab clinical trial will be supportive of that new IND filing. So it won't be the equivalent of starting over basically from scratch, but we'll be utilizing as much as the existing bavituximab data to expedite that trial as possible.

On the licensing front, yes, I think it is quite possible to do geographic type financing or type licensing activities. That has been actually very common recently with companies that are licensing either the Asia-Pacific region independently of Europe or the U.S. and vice versa.

I am looking at Vertex's deal a couple of weeks ago.

Yes, that clearly was a very nice deal for them. And certainly, we think that that is the preferable way to go, is to maintain the U.S. rights if possible and look at outlicensing other parts of the world. But I think that will really and truly depend on the particular partner.

One of the issues in outlicensing these drugs is there are very few companies that are truly great at marketing drugs in every single country in the world. And so that really I think is one of the reasons people have tried the gear more toward these regional type licensing activities. But we will see what opportunities arise in the future and then make judgments based on those opportunities.

One more quick thing. You say you are expanding the outreach efforts. I know you've spoken at a lot of recent conferences and such. But to me, it seems like it is the same names and faces still in the stock. After the early results you guys have posted, this stock should be going up, not down. Today's quote is $1.32 a share.

I know about the warrant exercise. That is putting a lot of pressure on it. But I am wondering when there are going to be some newer, bigger names attracted to this issue. It should be happening by now.

Well, we are certainly out on the road trying to make those efforts to get in front of as many people as possible. And I think we have seen some signs in the acquisition of stock that indicate that some of those efforts have been successful. But clearly we have to keep out on the road, keep generating positive data and hope that we really start to stick with some of the bigger names and it's really going to accumulate significant amounts of stock and hopefully drive the price up to where we certainly think it should be. But those efforts can only go on on an individual basis, and we are certainly out there trying to make that happen.

[Steven Zamborsky], private investor.

I fear I am going to be a bit of a skunk at the tea party here. I have two quick questions. One is -- and a comment -- you fellas sound like President Bush, who is trying to justify his own private war in Iraq. We have heard this all before, and a lot of it is spin. Right now, your Company has an abysmal performance rate with public relations and promoting this stock. And to follow up from your last question, what is going on to ensure the investor that you are aggressively promoting and positioning yourself for what you contend is going to be a blockbuster stock?

And my second question is a very pointed one. Many of the people who are on the raging bull type of network have intimated that there is some collusion on the part of management with offshore hedge managers to keep this stock so low that it will become attractive at a very cheap price for a pharmaceutical. Would you care to comment?

I can go ahead -- this is Paul -- I will comment on the offshore investment. Double U Master Fund, I think, who you are probably referring to, has been a really strong supporter of the Company, and this was recently illustrated with their $13 million infusion of capital into the Company at a very favorable price, a 10% discount to a trailing 30-day VWAP, and that was a 30-day VWAP when we were increasing in price over that 30-day period.

These are very good terms on a stand-alone basis. But when you include that there were no commissions paid and there were no warrants given in connection with this deal, this was a solid market deal. And for Double U Master Fund to invest $13 million at $1.40 and try to push the price down is only hurting themselves. It doesn't make any sense that Double U Master Fund would try to be pushing the price down and invest in the stock at $1.40 and push it down somewhere below that.

I know there is a lot of chat going on on the Internet. And I think sometimes people just feed on that. But we believe in Double U Master Fund. They are a good supporter of the Company. There is no collusion going on between Double U Master Fund and management or the Board. They are an independent investor. And we have built a cash position now of 26.3 million, and the goal here is really to push these drugs forward and generate the clinical data that we think is really going to drive shareholder value.

Yes. I think, obviously, anyone who thinks that the management and the Board of Directors is going to keep the price low so we can be bought out at some minimal value is just ridiculous.

We want the Company to be successful. In order to make the Company successful, we want to build on the momentum we have built over the last couple of years. And that includes the current fundraising efforts, future fundraising efforts, and that's just all the more easy if the stock price is going up and we are achieving the additional valuations that we believe we should be at.

I think that is a critical point, actually. One of the problems the Company has had historically is not building on momentum once it has built up the momentum. We now have active clinical programs that have the ability to really steamroll and even pick up more momentum than we have seen over the past year. That is our goal. That is our focus. That is what is going to drive shareholder value. And that is really where we are at.

Again, I think you have to be very careful what you may read out there on the chat rooms. We obviously want the Company to be successful. And we believe we are taking the right steps to make that happen.

I was kind of curious because I have been a shareholder since Techniclone days, when you first went public. So I have been in it a long, long time. Thank you.

Richard [Siracusa], Merrill Lynch.

I have a couple of questions. Is Avid soliciting new outside business now, or is it primarily focused on producing product for Peregrine?

We are actively working on outside contracts. The Company does do things such as attend conferences, advertise. So we are looking to grow the business. The focus over the last year, and certainly that is continuing now, has been on the Peregrine projects. We recognize that from a corporate standpoint that is going to build tremendous value in the future, much more than incremental contracts will at Avid.

In particular, when you look at the scale-up efforts that are taking place, the scale-up efforts are critical in supporting the current clinical trials and will be even more critical in supporting future larger clinical trials and really moving the product toward commercial-scale production, which will be important, obviously, as we move the program forward, but also from a partnering standpoint, it adds tremendous value to each one of the programs.

In addition, we have the humanized antibody I mentioned earlier. That is being produced at Avid and worked on at Avid. We have other second-generation products that are coming through. So we are trying to find the right balance and mix of Peregrine projects versus outside contracts. In this past year, it was somewhat focused on the Peregrine side, but we're actually out looking for business and we will try to grow the business in an opportunistic manner.

Now the second question pertains to the hepatitis C trial, the results of the initial trial. I think before you saw the results, which were exceptionally good, it was perceived that the next step would be a combination therapy. But am I correct in saying that it would be -- the single dose was so efficacious that it's possible that it could be a monotherapy?

Well, I think we're still viewing this as a combination therapy potential. Primarily that is how biologics on the market are used these days -- they provide an excellent safety profile combined with good efficacy, particularly when combined with existing drugs.

We will, of course, evaluate the drug as a monotherapy, as we're doing in the current repeat-dose study, and we anticipate that will continue as we optimize the dosing regimen through the clinical trial process. But we certainly do view this as being a combination therapy, potentially with ribavirin and/or pegylated interferon or potentially other drugs that are coming through in development.

Now Vertex's drug used both ribavirin and interferon?

Correct.

In combination with their drug. The J&J deal was one of the richest I have seen in my career to partner. And Vertex got one of the best deals I have ever seen. How do you think we compare -- our drug compares to Vertex's drug?

Well, I think they are very difficult to compare. They have completely different mechanisms of action, very different dosing regimens. And they are really just very different drugs. Do I think we have the same potential as a drug like Vertex's drug? Well, of course I do. I think given the fact of the long-lasting effects we've seen, the potential we've seen in the preclinical studies, I think the potential is certainly there. Now we have to prove that out in clinical studies.

And of course, that is one of the things that Vertex had going for them, was a significant amount of clinical data. As we complete each one of these trials and treat additional patients, we are adding more and more value to the program. But certainly we are excited about the potential of bavituximab, and who knows, maybe even someday in combination with Vertex's drug.

Is it possible that the Phase Ib trial that's going on now could be completed much faster than anticipated, as was the Ia trial?

I think it is a possibility. We are certainly working toward that goal, working directly with the clinical sites. So far, I would say, based on the two clinical sites we are working with, I am optimistic we can complete that earlier than anticipated.

My last question pertains to the avian flu or the flu program, if you will, the entire flu program that is going on with the government. How is that progressing? Can you give us a little color on that?

Well, as we've previously stated, our goal was really to reach a go/no-go decision in time for the next flu season. I think that the treatment of influenza is a very tricky business, especially with the biologics such as our drug, bavituximab, primarily because drug delivery is such a huge part of treating the influenza virus. And in fact, even influenza A and B are quite different than the avian flu strain.

I think the program has kind of caught some traction, as evidenced by the recent announcement of the activity in the H5N1 in the chicken egg model. And basically, that model allows us to take away some of these delivery methods and just look at -- can the drug be effective at stopping the spread of H5N1? Clearly, those data support the fact that it can be effective.

Now it is a matter of how do we get the drug to where it needs to go. Those studies are all ongoing. They essentially have to be done in animals because only there do you have the complexities of the pulmonary delivery and the systemic delivery and all the other technical things that have to be dealt with.

Those studies are ongoing. I would view it a little differently than we want to reach a go/no-go decision in that we are trying to reach a go decision at this point, and that is our goal. But it is a complex process. I can't really hypothesize on exactly when we will have the answers. It could be in the next animal experiment. It could be 10 animal experiments from now.

But we are still very active on the program. We want to really get it into the right hands. And I think we've done that through our collaborations. The program has a lot of momentum; now it's just a matter of getting the right conditions to work.

You just confused me a little bit with the go/no-go. Are we talking about go/no-go for the seasonal flu, or go/no-go for the avian flu?

I think we are looking at both of those independently, so both. And I think there is the possibility it might work in one and not the other also, as is the potential of any antiviral agent in the influenza or respiratory virus area.

[Bob Scott, Ron DeVilles].

Just touching on this, like when you see Vertex, we make our data and everything from the hepatitis C trials, it was just compelling -- absolutely compelling. And I don't understand where Gendel is and where our advertising is and why we are not getting this story out. That is my question. I mean, the results that we have had have just been incredible. It seems to me that we have the best drug in the world and we're not telling that story.

I think, first of all, we are obviously very excited about the clinical results. We didn't necessarily expect to see signs of activity after only a single dose, and we did. And that certainly is a big boost. It is still early clinical studies and we have a lot of work to do. But it is always nice to see some signs of activity right off the bat that you can build on.

As far as the PR efforts go, I know that Barbara Lindheim and Stephen Gendel are working very feverishly on our story, getting the word out there, making sure that we are -- the appropriate media is aware of what we're doing. I think we have seen very much an increased presence of Peregrine's name, particularly associated with the hepatitis C program, in a lot of the trade journals and other ways that the other mechanisms for getting the word about our program out there. So at least we are a known entity in the hepatitis area.

And I think beyond that, it is a matter of timing of news and what the media is looking for. And the rest of it I think just has to come about as the bavituximab moves through additional clinical trials.

So I think the effort is there. And I don't think anyone is kind of shortchanging the importance of what we're doing. It is just a matter of now continuing to hit our clinical milestones, generate the positive data that eventually will catch on.

Yes, all right, Steven. That meeting that we had on May 16 with [Curara] and Dr. Thorpe -- nothing was said about that. What a powerful meeting that must have been, and nothing was said of what was talked about at that meeting. Any reason why that is happening?

I think those types of stories are picked up in a lot of different sources of media. And we certainly get a monthly report. And I think it is showing up a lot of more than people appreciate. Has it been on the front page of the Wall Street Journal? Well, no, not yet. But, you know, again, I think as we generate more clinical data, and clinical data is kind of proof in the pudding, as they say, then eventually it has got to catch on. In the meantime, I think the efforts are going into it and it's just a matter of, again, timing and continuing to hit our milestones.

Well, I'm sure hearing this information. I get it. And it excites the hell out of me. And that is as far as it seems to go. A few days later, a week later, no -- it is old news and it just dies. Nobody is putting the whole story together. That is what I think. We need somebody out there to put the whole story together and promote this stock.

Okay. Note taken.

[Sheldon Trob, Double U Funds].

Great quarter, great progress. Virtually all my questions have been answered, except for a couple minor ones. First, in terms of licensing, when do you think you will be in a position to start actively pursuing agreements?

I think we are already having discussions with most of the major players in the antiviral as well as the cancer worlds who would be interested in product like bavituximab. So those discussions and those relationships and really, you know, just bringing people up to speed on a brand-new technology that they have never heard of, they don't know how it works -- they are intrigued. I don't think we have met with anyone who hasn't really thought, wow, that's a really interesting and novel approach to treating viral infection. Now we would like to see more data.

So those relationships are currently building as we move through the clinical trial process. Our goal as a company is to focus on the clinical development. Every patient we treat adds more value to the program. Every trial we complete adds, again, vastly more value to the program. And it's through those efforts that we will eventually get the type of deal we want to get.

Our goal is to continue, show the drug is safe, well tolerated, answer those questions, begin to answer the efficacy questions -- how do you dose the drug? What is the right treatment regimen? What is the right combination? Every time you can demonstrate and take one of those risk factors off the board, you have added a lot of value to the program from a partnering perspective. And right now, we feel that we can move through that process much more quickly than a large corporate partner could.

So really, that is the purpose of raising the cash. We wanted to really be able to build on momentum we have, quickly move through these next sets of trials, take more of the risk off the table for a potential partner, and really, again, achieve the level of deal that we feel is appropriate for a drug like bavituximab, which has such vast potential.

Where do we stand in terms of current burn rate, and where do you see that burn rate going next year?

We haven't projected, Sheldon, what our projected burn rate is for the fiscal year 2007. We anticipate that that burn rate will be going up, based on the number of clinical trials that are ongoing and that we plan on initiating over the upcoming fiscal year.

The actual burn rate that we incurred over the last fiscal year, our cash used in operating activities was $16.9 million. So you can see it's a little over $4 million a quarter over the last fiscal year. And that includes the changes in operating assets and liabilities. But we do expect that to increase.

We haven't really put a number on it over the next fiscal year. I believe we have budgeted for every trial that's in our financial forecast, and we have the capital in place now to run these trials and additional trials over the next fiscal year, which we believe should create significant potential value for the Company.

Michael Anthony, private investor.

I've been studying your stock since '98, or '96/'97 -- I know you all went up as high as 17, and you're more advanced today. And you also have an FDA-approved plant. My question is why has your stock went down when the news is so positive and the research, and I'm thinking -- my brother died of cancer -- and if it wasn't for a biotech company, it added nine years to his life. He inherited these genes. And if you have a brain tumor and the tumor is too big [to the optic] nerve, and you inject your drug into the tumor, where the doctor can remove the tumor, is that a possibility?

Well, as far as the stock performance and reaching $17 or whatever it was in 2000, I think that was really more of an artifact of the actual market conditions at the time. If you look at virtually any biotech company, their all-time high was right around March of 2000. And that was really a market condition.

I think what we can do is really try to spread the word about the Company, the exciting products we have in development, the fact that we are making progress. We now have clinical programs. And again, that is adding true long-term value to the Company. And then as the market conditions change, hopefully we'll be in a good position to take advantage of that. But I think we are adding tremendous value to the Company as we move programs forward.

As far as the -- obviously, I am sorry to hear about your loss to brain cancer. Certainly we are looking at the various options for delivery of Cotara, both in nonoperable as well as the operable cancer setting. Typically the patients we have treated to date were third- and fourth-line patients, so many of those patients had had tumors surgically removed and then the tumor had come back.

We do view this current trial as being a really critical trial, because what we really learned during the earlier Phase II study is really how to use the drug, and that is that you really have to cover the entire tumor with radiation. If you don't irradiate the entire tumor or deliver an adequate amount of radiation to the entire tumor, then you are limiting your antitumor effects.

So we feel that by the optimized delivery method we have developed now, using two catheters along with a single dose, and we are trying to give as large of a dose as we can safely, that we have a great chance. Our treatment is a very aggressive treatment for a very aggressive disease. And I think that that is really the key to success.

And my second question -- I know Philip Morris gave you all $454,000 for lung cancer research over in China. How is that occurring now? I haven't heard any new news about that also.

Actually, that funding went into the University of Southern California, I believe, to support those studies. We're not actively involved in those studies, and so I really can't comment.

And my third question, and I also have one fourth -- but I know that one company had took your drug and combined it with their drug to make their drug perform better.

We have a number of preclinical programs ongoing to combine bavituximab in particular with existing therapies, both for the cancer and viral indications. In particular in the cancer area we have had some extremely encouraging results, where we have combined gemcitabine, which is the current standard of care for pancreatic cancer, with bavituximab, as well as radiation plus bavituximab.

In both cases, we have been able to show that the existing drugs up-regulate our target, allowing our drug to work even better. We certainly view, in the cancer area, that that is how the drug will be used, and that is how all biological therapies are currently used for cancer. So those results are extremely encouraging, and we look forward to taking advantage of those once the current safety study is out of the way.

Yes, sir. And one of your directors, he has been buying a large portion of shares at $1.75 and $1.87. Is he buying them at option or the open market?

Eric Swartz, yes, one of our members of the Board of Directors, is a true believer in the Company. He has been buying all that stock in the open market at prices significantly higher than where we stand today. So he is a true believer in the Company. He owns over 2.5 million shares and he continues to buy in the open market.

Yes, sir, thank you. I am a true believer and that is why I am in it. My broker is like, this stock hasn't done nothing for two years, but it takes time and research and development. And you want to be safe for people. I understand that. Thank you for your comments and more -- and I hope everything goes forward.

Roger Adams, private investor.

Steve, congratulations on a great 12-month period. My question concerns the preclinical data that you have developed with bavituximab in the viral area. Could you comment on what you have seen in the difference between repeat dosing in animals and single dosing? What order of magnitude, improvement and efficacy results have you see when you move from single dosing to repeat dosing in animal studies?

Certainly, first of all, thank you for your kind comments. We, essentially, in some of the models we have been looking at for -- particularly in the hemorrhagic fever area, we did compare single dosing versus multiple dosing of the drug. In those studies, it was a lethal animal model -- or a lethal viral model, rather. So, basically, either animals survive the infection or they die from the infection.

In the case of single-dose therapy, we saw no increase in survival. So none of the animals actually survived after only a single dose. But only after multiple doses did we see increased survival, and in fact, in those studies we were able to save 50% of the animals from a very active viral infection.

So it certainly does support the fact that multiple dosing is going to give the best results with the drug. And I think that is really -- I think what is extremely encouraging for me is the fact that so far, what we have seen in the guinea pig hemorrhagic fever model mirrors extremely well what we have seen in the patients treated to date. And that is that you seem to have some initial direct antiviral activity, and then something that really takes place several days later, which then hopefully can lead to longer-term effects. Again, that certainly held true in a portion of the patients were treated in the Phase I study.

So so far, I would say what we have seen in the preclinical models mirrors extremely well what we've seen in the clinical studies. And again, we will see what happens during the course of this current repeat-dose studies. But hopefully, we will be able to build on the earlier signs of activity.

In a prior press release, you said that that drug seems to be working, if anything, better in humans than in animals. Would that remark -- are you hopeful that that remark will apply to the difference in the order of magnitude of efficacy from repeat dosing in the HCV arena as compared to single dosing?

Yes, we certainly are. I think one of the things to keep in mind is that during the earlier preclinical studies, we were actually working with this chimeric antibody which is partially human in a guinea pig system. So you would expect the interactions with the immune system and what have you to be somewhat less optimal than we would have in the clinical studies.

So here we are now dealing with a human antibody in a human, which is obviously going to be a much better fit. So we are certainly hopeful that the results we see in the animal models we can improve on in clinical studies. And again, we will see what happens during this upcoming next few months.

Well, thank you very much. That is encouraging. And final question regards the possibility of initiating clinical trials in India, cancer or otherwise. Could you comment on the -- give us an update on where that is?

We're looking at quite a number of options for expediting each one of these clinical programs, the hepatitis program maybe a little less so, because it is actually progressing quite nicely, and patient availability at this point has not been issue. But for the cancer indications, there is a lot of competition for patients in the cancer area.

We're looking at options overseas at places such as India, China, Eastern Europe, really primarily for accessing patient populations that we just can't get to in the U.S. And that could be the numbers of patients or patients with a certain treatment history.

So those efforts are ongoing. We do expect being able to provide some updates over the upcoming months. I think you will see some good activity taking place with these efforts to really expedite the clinical programs. I do want to say that our goal in going overseas is not to do something kind of quick and something with less quality. Or goal by going overseas is to access an expanded patient population and provide the exact same quality data that we are able to generate here in the U.S. And so I think that can be a win-win for everyone involved in the process.

Well, thank you very much. Actually, if I may, I just have one further question about the new viral indications that you start. Will you be able to start with repeat dosing in a Phase Ib based on the good data you have already generated in your HCV Ia?

Well, I think that is going to depend on the particular viral indication and whether or not single or multiple dosing is more desirable. We do anticipate that all the safety data we are generating during this Phase Ia and Phase Ib and continuing on in clinical trials will be extremely supportive of other viral indications.

So I think we will look at it on a case-by-case basis. I think it could certainly expedite moving directly into repeat-dose studies, based on the safety profile we have seen to date. And of course, we are in the process of the repeat-dose study. So I don't want to go any further than that. But certainly should significantly expedite basically treatment of other viral infections.

And I think one of the key things I want to point out here is it may not even be, for instance, let's assume for a second that we are successful in treating HIV -- we are not necessarily looking at HCV trials and then completely separate HIV trials. We could be, for instance, treating patients that are co-infected with both HIV and HCV. Approximately 40% of HCV patients are HIV-positive as well. So I think there is a lot of interesting combinations we could be looking at in the future as far as moving the other viral indications forward.

[Richard Siracusa], Merrill Lynch.

Yes, just a follow-up. Regarding the Vertex/J&J transaction, the CEO of Vertex during the conference call mentioned that J&J was not selected because it was the highest bidder, as rich as it was; it was selected for other reasons, which obviously tells you that big pharma is out there shopping with deep pockets for hep C participation. And I agree with you that you are not going to partner until you have compelling data, but have any of these other big pharma companies talked to you about hepatitis C?

Yes, I mean, without getting into the specifics, we have spoken with, I would say, all of the major players who are interested in the hepatitis arena, including big biotech and big pharma.

Thank you. Mr. King, do you have any closing comments?

Yes, I do. In summary, this past fiscal year has been a momentous time for Peregrine. We initiated two major clinical programs for our first-in-class drug, bavituximab, which we believe has the potential to represent a breakthrough in therapy for possibly two major disease areas.

We generated our first human data for bavituximab, which was more positive than we or other researches thought possible for such a preliminary trial. We observed that in these first patients, bavituximab looks safe and well tolerated, as it has in many animal studies.

We also able to enroll top brain cancer centers in working with us to assess whether the outstanding early data for Cotara can be replicated and extended in larger studies to treat a terrible disease for which there is little hope today.

These are all very encouraging developments. And we are eager to progress all of our clinical programs, both existing and new, in the year ahead.

I want to acknowledge the commitment, vision and hard work of our employees and advisors in helping us to reach this exciting stage, and also to thank our shareholders for their continued support. We believe that continued progress in our clinical programs will ultimately help create shareholder value that is commensurate with the clinical and commercial promise of our unique technologies.

Thank you for attending today's conference call.

Thank you. That concludes today's presentation. You may now disconnect your lines.