Avid Bioservices Inc (CDMO) 2012 Q2 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. And welcome to the Peregrine Pharmaceuticals second quarter and fiscal year 2012 conference call. I would like to remind you that today's call is being recorded.

(Operator Instructions).

I would now like to turn the call over to Jay Carlson, Peregrine's Investor Relations Group. Please go ahead.

Thanks, [Huey]. Good afternoon, and thank you for joining us. On today's call, we have Steve King, President and Chief Executive Officer, Paul Lytle, Chief Financial Officer, and Joe Shan, Vice President of Clinical and Regulatory Affairs. Steve will begin by providing an overview of our significant clinical progress over the last quarter, and highlight our multiple near-term clinical data milestones. Joe will discuss our clinical and regulatory plans, as we advance our 3 Phase II clinical programs for Bavituximab and Cotara. And Paul will wrap up with a review of our financial results for the second quarter, and our increased contract manufacturing revenue guidance for fiscal year 2012, and will discuss our financing strategy. After our prepared remarks, we welcome your questions.

Before we begin, we would like to remind you that during this call, we will be making forward-looking statements that are subject to risks and uncertainties that may cause actual results to differ. These forward-looking statements reflect our current views about future events and financial performance, and are identified by the use of terms and phrases such as believe, expect, plan, anticipate, on target, and similar expressions identifying forward-looking statements. These risks include, but are not limited to, the risk factors detailed from time to time in our filings with the Securities and Exchange Commission, including but not limited to, the annual report on Form 10-K for our fiscal year 2011 ended April 30, 2011, and quarterly reports on Form 10-Q for the second quarter ended October 31, 2011, which will be filed later today.

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 our expectations. And we expressly do not undertake any duty to update forward-looking statements, whether as a result of new information, future events or otherwise. I'll now turn the call over to Steve.

Thanks, Jay. And thank you to all of you who are participating in today's quarterly conference call. In the second quarter, we've seen unprecedented momentum in advancing our clinical programs. We completed patient enrollment in 3 randomized Phase II trials, positioning us for multiple data milestones, starting early in 2012. We reported median overall survival data from 2 prior single arm Phase II trials, showing remarkably consistent, promising data across our Bavituximab oncology trials. And perhaps most importantly, we recently reported our first randomized Phase II data, a 50% increase in overall response rates for patients treated with Bavituximab in combination with chemotherapy, in a preliminary analysis from our front-line non-small cell lung cancer trial. We believe this first randomized data point, the first of multiple clinical data points expected from our 7 ongoing Bavituximab oncology trials over the coming year, is a potentially game-changing early validation of the anti-tumor activity of our PS-targeting antibody platform.

This is the type of data that we, institutional investors, and potential pharmaceutical partners have been waiting to see. In a minute, I'll turn the call over to Joe to discuss our clinical programs in further detail, but I do want to share my thoughts about what these recent developments mean for Peregrine, and touch base on our upcoming milestones. At Peregrine and Avid we have a vision, which is to develop, manufacture, and commercialize our novel monoclonal antibodies to significantly improve the lives of patients with cancer and HCV. And we have several assets in play, that are helping us to achieve these goals.

The backbone of Peregrine is our first-in-class technology platforms, which have a broad intellectual property estate, and remain mostly unencumbered for partnering. Over the past year, we have focused on building the value into our Bavituximab and Cotara programs, executing on randomized clinical trials, and securing clear development and regulatory paths for these products, enhancing the value of these programs for Peregrine as well as for potential partners.

While we have been in close contact with potential partners in the past, many have been waiting to see randomized data. With our initial randomized clinical data in hand, further validating promising early clinical results, we are now in a position to advance and accelerate these discussions. Our goal is to secure regional partners for our Bavituximab oncology program, and we look forward to seeing additional data points from our randomized trials, as we advance these discussions.

In addition to the exciting results from our Bavituximab oncology program, we have opened a dialogue with the FDA to negotiate a pivotal trial design for Cotara, our novel single administration approach to treating deadly recurrent GBM. While other companies also enjoy novel unencumbered technologies, a critical differentiator for us is our strategic asset, Avid Bioservices. This revenue-generating business provides biomanufacturing services for third-party clients, offsetting our overall cash burn rate, while enabling us to be later stage and commercial launch ready for Bavituximab and Cotara, which allows us to avoid, what would be an increase in overall expenditures, as we continue to advance these programs.

And our most important asset is our team, that we have put in place in recent years. A team with first-hand experience, developing, manufacturing, and commercializing some of the most successful monoclonal antibodies on the market for patients today. I want to quickly mention that Bavituximab is our lead antibody from our broader PS-targeting technology platform. Since our last conference call, we have presented pre-clinical data at 3 scientific conferences, highlighting both the therapeutic and imaging potential of our antibodies.

Just last week, the inventor of the technology, Dr. Phil Thorpe at the University of Texas Southwestern Medical Center, presented at IBC's Antibody Engineering and Antibody Therapeutics Conference. Phil has been presenting data on our PS-targeting antibody mechanisms for -- mechanisms of action for years. And there's currently more support for Bavituximab than ever, with our new randomized Phase II overall response data in non-small cell lung cancer. Seeing the promising anti-tumor activity in pre-clinical models translate into promising anti-tumor activity for patients in a randomized Phase II clinical setting, is precisely why we are all excited about the future of Bavituximab. And longer term, our goal is to have additional programs either for therapeutic or diagnostic use indications, ready to enter clinical development in response to our internal -- in response to our internal resources and potential partnering activities.

Before turning the call over to Joe, I'd like to remind you of our multiple near-term milestones. We have 3 more data points to talk about in 2012, for our randomized Phase II trial for Bavituximab in front-line non-small cell lung cancer. After meeting our milestone for reporting preliminary ORR data by year-end, we are planning to report final overall tumor response data in the first quarter, and additional timed 2 events, progression free survival, and eventually overall survival must mature in 2012.

We also have 3 more data points to talk about in 2012 for our second line non-small cell lung cancer trial. We expect to report on the primary end point overall tumor response data, once the data are unblinded in the first half of next year. And eventually again, to report on secondary survival end points such as median progression-free survival, and overall survival once reached. We also have multiple milestones for our randomized Phase II pancreatic cancer trial, including the completion of patient enrollment, as well as an interim data analysis in 2012. And we expect to have 12 week EVR primary end point data from our randomized Phase II HCV trial available by early next year.

Looking ahead to our next quarterly conference call in March, we will have reported additional data from our randomized trials. And we expect to have a robust flow of data submitted to AACR, ASCO, as well as to other conferences in the second half of the year from both our Company-sponsored, as well as investigator-sponsored trials. We look forward to updating you on these data milestones as they are reached over the coming six months. With that, I'll now turn the call over to Joe. Joe?

Thanks, Steve. Over the last quarter, we have gained tremendous progress in advancing our Bavituximab program. Since Steve provided an update on recent progress and near-term milestones in our randomized Phase II trials, I'll briefly highlight the positive clinical data for the most recently reported, from our Phase II trial. These recent data points are highly encouraging, and I'm extremely excited to see future data points from our 7 ongoing oncology clinical trials for Bavituximab.

Starting with our first piece of randomized data from our front-line non-small cell lung cancer trial, we reported last week on overall tumor response, which currently shows that 39% of patients responded to treatment with Bavituximab in combination with carboplatin and paclitaxel, compared to 26% of patients who responded on chemotherapy alone, representing a 50% improvement. This analysis of tumor response using RECIST guidelines included all 86 stage IV lung cancer patients randomized, but it is considered preliminary, since not all the patients have completed up to the maximum 6 cycles of therapy, in either the Bavituximab or control arm. In other words, the 86 patient denominator is not subject to change in the top line data analysis, but the numerator of patients responding to therapy may change slightly, as patients complete additional cycles of treatment. However, seeing how the data are currently trending, we believe the final difference between groups should remain similar.

As you may recall, our goal in conducting this randomized trial was to confirm the promising data from our prior signal-seeking single-arm Phase II trial, and provide us with data that could help guide the future development of Bavituximab. And this first piece of randomized data has done just that, providing us with greater confidence that Bavituximab is an active anti-cancer agent. As next steps, we will continue to collect and analyze radiographic scans, both locally and centrally, as patients complete additional cycles of therapy. And we expect to report the top line ORR data in the first quarter of 2012. We will report secondary end points, including median progression-free survival and median overall survival once these data points are reached in 2012.

Now, with these first randomized data in hand, how do we see Bavituximab fitting into the treatment options for non-small cell lung cancer? Well, today, the majority of front-line metastatic lung cancer patients are treated with chemotherapy containing regimen, with carboplatin and paclitaxel as a commonly prescribed regimen. We believe Bavituximab has broad potential to be combined with many chemotherapy regimens, including carboplatin and paclitaxel, as well as other treatments. We also recognize new targeted treatments are being developed, but these represent small segments within the NSCLC space, so we are developing Bavituximab to treat the largest possible population of patients. With 220,000 new patients expected to be diagnosed with lung cancer this year in the US alone, and with less than 4% surviving five years, the opportunity to develop new therapeutic options for this deadliest form of cancer is significant.

Turning to our second line non-small cell lung cancer program. In October, we completed the enrollment of 121 patients in our randomized double blinded placebo-controlled Phase II trial. This puts us in a position of unblinding the trial results, once all patients complete all treatment cycles, and the primarily end point overall response rate is determined in the first half of next year, and reporting on secondary survival end points once reached. We're pursuing this second line indication, as the fastest potential regulatory approval path as current therapies only show single digit overall response rates, and progression-free survival of roughly 3 months. And a third indication of significant unmet medical need, we are exploring metastatic pancreatic cancer, and we're eager to complete enrollment in our randomized Phase II trial in up to 70 patients, and report data during 2012.

While the first randomized data point has supported the anti-tumor activity of Bavituximab in our PS-targeting antibody technology, what has also been encouraging to us is the consistency of data, that we've seen across all our trials to date. At last year's ASCO annual meeting, we reported promising overall response rates in median PFS from our 3 single-arm Phase II trials, which looked at Bavituximab in combination with chemotherapy for non-small cell lung cancer and metastatic breast cancer. This year with additional follow-up, we were pleased to see the initial data translate to positive overall survival. To recap these data, in our front-line non-small cell lung cancer trial treating 49 patients with Bavituximab in combination with carboplatin and paclitaxel, ORR was 43% for a median PFS of 6.1 months, and median overall survival of 12.4 months.

In our metastatic breast cancer trial, we saw a median survival of 23.2 months for patients treated with Bavituximab in combination with carboplatin and paclitaxel, which exceeded the 16 months reported for chemotherapy only, in a separate published study in a similar patient population. As for our breast cancer trial using Bavituximab combination with docetaxel, median overall survival was 20.7 months, nearly double the 11.7 months reported in a published reference study. We continue to be interested in studying Bavituximab in future breast cancer trials, as these results compel us to do more for these patients who are need of better, safer therapeutic options. Our investigator-sponsor trial in HER-2 negative metastatic breast cancer continues to enroll patients, and we will consider future development options for Bavituximab in breast cancer and other cancers, as our resources permit.

Next, I'd like to briefly mention our Phase II HCV program. When we began the current trial less than a year ago, pegylated interferon alpha was projected to remain an essential part of the treatment backbone for HCV patients for the foreseeable future. Since then, new direct-acting antivirals have shown promise and potential in patients in all-oral pan-genotype treatment option for HCV. However, regardless of the dynamic competitive landscape, we continue to view our Phase II HCV trial as a proof of concept study for Bavituximab as an immunotherapy component in this disease, and plan to report initial results in the near future.

Switching gears to Cotara, you may recall we saw in our 41 patients Phase II trial, the median overall survival was 9.3 months for recurrent GBM patients treated with a single administration of Cotara. Over the last several months, we have worked diligently on a regulatory and development strategy for this novel approach to treating recurrent GBM. We have requested a meeting with the FDA, and we have opened a dialogue with the agency. In our most recent discussions, the FDA has agreed to provide specific feedback to us in writing on our proposed pivotal trial design that we submitted to them. From our end, we're looking for a study that can be enrolled in 2 years or less, in this orphan indication. And as Steve mentioned, having an FDA reviewed protocol is critical to advancing partnering discussions or initiating a pivotal trial.

As you can see, 2012 is shaping up to be an eventful year for our clinical programs. Pending FDA feedback, we may be in a position to initiate a pivotal trial for Cotara. Also, Bavituximab continues to show great promise with clinical development now spanning 12 clinical trials, which have enrolled over 500 patients. We're excited to share the first randomized data out of our Phase II trials, and look forward to reporting on multiple additional data points next year. I'll now turn the call over to Paul.

Thanks, Joe. Since our financial results for the second quarter of fiscal year 2012 can be found our press release, let me spend the next few moments on a key financial metric. And I'll conclude with our financial goals and strategy. Our team just reviewed the significant progress we've made in executing our clinical and regulatory strategies, and this has generated some of the most promising data we've announced to date. And in executing this strategy, we have historically seen our quarterly operating cash burn rate range between $6 million and $9 million over the last 6 quarters, which represents our reported net loss, minus non-cash expenses.

And during the current quarter, we saw an increase in R&D spending, as we completed enrollment in 3 of the 4 randomized Phase II Bavituximab studies. And was primarily this momentum and enrollment, that resulted in a current quarter increase in R&D costs of $2.5 million, increasing to $9.8 million for the quarter, compared to the same period last year. And this increase in R&D spend contributed to a cash burn rate of $11 million for the current quarter.

That being said, it's important to re-emphasize that we completed enrollment in 3 of the 4 Phase II randomized studies. And as a result, we expect to see our quarterly cash burn to be more in line with the historical range over the next few quarters, based on our current assumptions. Looking ahead, we will continue to closely manage our business, our cash position and our sources of capital, as we continue to advance our later stage clinical programs. Our stated goal over the last several quarters has been to match our investments in research and development, with various sources of capital, as we continue to build value in these programs.

We ended the current quarter with $18.1 million in cash and cash equivalents, compared to $16.5 million we reported at the end of July 2011. And we will continue to use our various sources of capital to advance our programs, starting with our first source of capital, our revenue-generating business, Avid Bioservices. Avid generated $4.2 million in contract manufacturing revenue during the second quarter, by providing biomanufacturing services to it's third-party clients.

Looking ahead at Avid's pipeline of committed projects scheduled for the second half of our fiscal year, we are increasing our guidance for contract manufacturing revenue to between $12 million and $14 million for fiscal year 2012, compared to our previous guidance of between $10 million and $12 million. While Avid remains focused on servicing and growing it's base of clients, it is also a strategic asset, allowing us to be Phase III ready, for both Bavituximab and Cotara.

Another source of capital comes from the equity market. During the second quarter, we raised $12.5 million, including $6.9 million in gross proceeds received from 3 institutional investors. And since the end of the October quarter, we raised an additional $4.6 million in gross proceeds under our at-the-market or ATM program, representing shares sold at market prices.

Another important source of capital may come from our unencumbered product pipeline that continues to advance. And it's important to mention that potential pharmaceutical partners have been waiting for the randomized Phase II data, and we are excited to see interest increase since reporting our first randomized data points, one of many such data points expected over the coming year. We look forward to keeping you updated on our progress. And we will now open the call up for your questions. Operator?

Thank you, sir.

(Operator Instructions).

Our first questioner in queue is Joe Pantginis with ROTH Capital Partners. Your line is open. Please go ahead

Okay. Good afternoon. Can you hear me okay?

Yes, just fine.

Great. Thanks. Okay. Just at the ASH conference, I just wanted to make sure there's not a lot of background noise. Well, thanks for taking the question. Have a couple quick related questions on Bavi in lung, and then a follow-up on Cotara, if you don't mind. When we are viewing the second line lung data that are upcoming, how do you think we should view it, when you have the data you'll release it, or do you think you'll be holding on to the data for a conference, such as ASCO? And then secondly, the related -- if I could fast forward a little bit -- when you have presumably or hopefully positive data from these two randomized studies, how quickly could you look to determine a, or define a pivotal lung program?

Sure. I think as far as the second line non-small cell lung cancer data, of course, we're projecting to unblind the data in the first half of 2012. And I think it's our intention that we would release that data, as the analysis is completed. So I think we want to be in a position to report on that right away. While it will be ideal, to be able to present that at a conference, generally the -- kind of the time lapse between when abstracts are due and the actual timing of when you would make a presentation, just probably makes it a little bit difficult to hold onto the information for a conference like that.

I think that -- obviously one of the reasons that we wanted to take the preliminary look at the data from the front line study, is really to start to gauge how we're viewing non-small cell lung cancer program. Of course, we're really trying to cast a wider net, with the pancreatic cancer studies, the ISTs we're running, in other indications. So I think we're already, kind of starting to think about what those future trials might look like. I think the upcoming data points are extremely important in that, particularly progression-free survival and overall survival eventually. Because really as we think about in front-line setting, you're going to be looking at either progression-free survival or overall survival as probably primary end points.

Of course, the data in the second line setting, where it's such a much higher unmet medical need, may allow us to move on some earlier clinically relevant time points for that particular program. So I think we're already starting to think about it, I think, prospectively. I think as we get more data then, of course Joe and Rob and the regulatory and clinical groups, can start to put together the thinking of what that pivotal trial might look like. And what the plan would be from a regulatory standpoint, would it be an end of Phase II meeting at that time point, or exactly what direction would we go.

So okay. Thank you --

Sorry --

No, go ahead, I'm sorry.

I was going to ask Joe Shan if he wanted to add anything to that.

No, I think what Steve said is right. If it's a material event, we will obviously announce that. And I think at the medical conferences, we can add more color to the story with more subgroup analyses and such. But -- and as far as Phase III planning, like Steve mentioned, that's something we're thinking about already, but honestly won't pull the trigger, until we have some more mature data points.

Sure. Sorry to interrupt too. There's a lot of Joes on the call so. (Laughter). And just maybe a quick follow-up on Cotara. I was just wondering if you could provide a little extra color, with regard to the process that you've been through to date. So you requested a meeting, but the FDA is providing you a written response at this point. I was just wondering maybe, if you could describe that process, and that -- the written response will be sufficient? Or if this is still going to be a iterative process, how detailed was the written response with regard to, say, agreement or questions regarding a pivotal study? But basically, any more color you can provide? Thank you.

Yes, certainly. So the general process is that you put in a meeting request. Then, before you would plan on actually having the meeting, approximately 30 days in advance, you would provide the FDA with a package of information that would support your meeting request. So those steps took place. I think after seeing the package, the FDA opted to basically respond to us in writing at this time.

I think that, that had some real positives to it, in that when we get their written response, and we are still waiting for that. We do expect it in the very near future, but we haven't received it yet. But I think it really gives us the opportunity to take a look at what their response was to our trial design, and what we viewed as a pivotal trial that we could run and execute, and meet all of our primary goals, as we laid out earlier on, on earlier calls and presentations. So I think the dialogue is under way. It is an iterative process. I think once we have their written responses, then of course it's up to us to respond to those questions they may have. And hopefully to come to a quick conclusion on a pivotal trial design that we could then -- I think from an internal planning standpoint look at -- but also maybe equally important, get that information out to partners who have a high level of interest in what that trial would look like, and what the execution of that would look like.

Okay. Great. Thanks a lot, guys.

Okay. Thanks, Joe.

Thank you, sir. All right. Our next questioner in queue is Steven Dunn with LifeTech Capital. Your line is open. Please go ahead.

Hi. Good afternoon. Couple quick questions. Housekeeping. On the Avid Biosciences, the upward guidance, could you give us just a little bit more color on -- is that increasing demand from existing customer, new customer, or some candidate advancing in clinical trials? Or could you give a little color around why you're increasing the guidance there?

Yes, certainly. It's a combination, I think, of pretty much everything you mentioned. Obviously, our existing customers are very important to the overall growth of the business. So I think we're seeing some increased activity from those existing clients. Also, we've been able to bring on some new clients that we're currently working for. But really, it's the -- I think while it's a good mix right now, obviously it's the success of our clients that will lead to our eventual success at Avid. I think what you see, is we have clients now that are already on the market, that are expanding those potential indications and uses for those marketed products, as well as some new product lines they have. We have European client who's nearing their BLA filing equivalent for their product, so it's really a nice mix. And I think it fits in very well with, what Paul mentioned earlier is, there's becoming more and more of a focus on commercial production at Avid, and later stage clinical development support at Avid. And I think that fits in very nicely with where we're at, with both Bavituximab and Cotara programs. So yes, it's been a nice mix for the Company, and we're obviously, looking to continue to try and grow that business.

All right. You've done a very detailed job on Bavituximab development and Cotara Phase III, getting a handle on the Phase III design and costs. What do -- what should investors make out of Peregrine's other projects, like the imaging use of -- and Bavituximab and we're still seeing antiviral outside HCV. You just presented the [lipastis] data. Should investors be looking for something in imaging, or additional infectious diseases, or are these just projects just to let people know you're still looking at things?

Yes. No, I think that we want to advance both of those programs. As you mentioned, we still have an active, very active program in infectious diseases. Of course, we're looking for the Phase II data from the HCV trial, but also looking at still the applications of the technology platform. And that's both as we think about it today, as kind of a monoclonal antibody un-conjugated approach, but also as a delivery platform, in which we expand into antibody drug conjugates utilizing the PS-targeting platform.

Imaging, I think is something we're all pretty excited about. I mean, I think that's something we want to see in the clinic. It is something that we would like to look, at from a number of different standpoints. Of course, there's just further validating the technology platform, through imaging and showing the specificity of the target itself. There's the potential for companion diagnostic type applications. And those are types of things we could look at potentially in ISTs as we go forward.

And then there's just imaging and our ability to show the effectiveness of therapy, and that was something that you saw at AACR last year. We continue to expand on that at some recent conferences. So, yes, that's one I think we want to see in the clinic moving forward. As always, we have to monitor our internal resources with our ability to continue to push forward those programs. So you may see some of them move forward in our hands, some in partners' hands, as resources are permitting. So --

All right. Thanks very much, Steve. I'll jump back in the queue.

Okay. Thanks, Steve.

Thank you, sir. Our next questioner in queue is George Zavoico with MLV. Your line is open. Your question please.

Hi. Thank you. And congratulations on the quarter, and the results for the randomized trial. I think that's really exciting results as well. I just want to follow up a little bit on Steve's question about the imaging. We saw that at, I guess, it was AACR. And there -- it was interesting data you showed there. And when can we expect some more data from that. Steve, you mentioned that you're going to do -- you're going to go on that, as resources permit. Have you been able to advance those projects at all?

Yes, actually we've been able to very nicely, move those programs forward. I think we most recently had some data at the overall Congress on Imaging. And really I think, there's been a lot of enthusiasm, obviously not just internal enthusiasm, but actually we won a nice award at AACR, and really received a lot of good, positive feedback, on just the quality of the imaging, as well as the potential application of the technology. So we've actually been able to advance this very nicely. I think made some great progress based on some prior work that had been done on some of the targeting antibodies in support of our government contract, as well as our other pre-clinical programs. So, yes, we're moving it forward very nicely. Again, like I said, we always have to watch our internal resources, and not get too far ahead of ourselves. But it's basically a technology that is pretty close to being clinic-ready, and we certainly want to see that move forward.

In that regard, might we see some more data, imaging, say, at the AACR? And the next question after that, is regarding the strategic view of what Avid provides. Because you're doing manufacturing, I would imagine speak a little bit to the advantages to you, of maintaining manufacturing in any sort of regional partnership. I imagine that might be one of the -- that you might want to retain that ability.

Yes. Yes, sure. So you'll definitely see some more data coming through the imaging program. Again, very active. We're looking to publish data in peer-reviewed journals, as well as of course at some of the upcoming conferences. And again, so I think you'll hear more about the imaging program in 2012 even than you did in 2011, when we really I think, pretty much first started talking about it from a more concerted effort standpoint.

As far as the manufacturing, yes. I mean, I think that we view that as one of our core competencies. We certainly view Avid as the facility out of which we will launch Bavituximab and Cotara. And probably for Cotara, long term manufacturing, I think we could handle that world-wide out of this existing facility. I think for Bavituximab, if it's as successful as we certainly hope it can be, then we're probably going to need to expand beyond our current manufacturing facility. And so I think while we want to maintain manufacturing rights, I do think that we're going to need to expand on what we do, certainly if we're successful in multiple indications in the oncology applications of Bavituximab. So, yes, I think we view that as again our expertise.

I think we want to partner with people, but partnering for manufacturing purposes at this point, is not at the top of the list, I guess something where we can expand, and it'd even go beyond that. Jeff Masten, who is head of quality here, and of course, Rob Garnick, while they were at Genentech were successful setting up multiple manufacturing sites for their products. And those could eventually be worldwide, but certainly something we want to look to continue to grow that business as a cornerstone of what we're accomplishing.

Great. Thank you very much, and congratulations again.

Thanks, George.

Thank you, sir. Our next questioner in queue is Charles Duncan with JMP Securities. Your line is open.

Hi. This is [Gina Wong] on behalf of Charles Duncan. I basically have two questions. And the first one is basically a follow-up on the randomized Phase II of Bavituximab trials. So just wondering in your -- will you share the breakdown for overall response rate, for example like partial response rate versus complete response rate? And my second question, again, related to the manufacturing revenue. You raised the guidance to $12 million to $14 million. So I'm wondering, given the first half year, you already generated like over close to $10 million. So does that mean the second half of the -- of fiscal 2012, the revenue actually will be less than $4 million? Okay. That's my two questions. Thank you.

Okay, great. Thank you. I'll turn it over to Joe for the -- to address the clinical part of the question about the tumor response rates, any additional breakout or what have you, between complete responses and partial responses. And before I turn it over, I will just re-emphasize that this was a preliminary analysis of the data, that I think as we get into the top line data coming in the first quarter of next year, and certainly, as we think about a potential presentation at conferences like ASCO and AACR, then we'll be able to give you more of a breakdown of the particulars of a clinical trial. I'll turn it over to Joe for that part of the question, and then we'll turn it over to Paul for the financial question.

Okay. I think Steve pretty much summed it up, at this early stage, we have not shared the breakout. And as we mentioned, there are still patients on therapy, so that can slightly change. However, it is pretty rare to get CRs in non-small cell lung cancers. So that's something we'll continue to monitor, and we'll be able to provide maybe more color as the top line and additional analyses are available.

Hi, Gina. With response to the Avid revenues, the guidance between $12 million and $14 million is our current guidance. If you look at the Company historically, record revenue year was about $13.5 million. So we're very excited to potentially be on a year, where we could generate a record revenue year for Avid Bioservices. And with respect to activity of the Company, we do have a significant amount of business in the pipeline. It takes generally, just for a little background information between three and four months, from start of a manufacturing run to completion and shipping of a manufacturing run. So we have an increased demand in those services, and we're just really building up the pipeline for fiscal year '13 too, at the same time -- where we -- in which that year starts May 1, 2012. So we have a significant backlog of services that are currently in the pipeline for manufacturing. That being said, we're going to -- our goal is to have a record year for Avid this fiscal year, 2012.

Thank you. I will jump back to the queue. Thank you.

Thank you, ma'am. Next questioner in queue is Boris Peaker with Oppenheimer. Your line is open.

Hello. I have a question, one question regarding clinical trials, and the other one regarding manufacturing. So I'll start off with clinical trials. Are you or are CRO running these studies?

I'll let Joe answer that. It's obviously a combination, but I'll let him give a little more flavor to it.

Yes, we, I mean, obviously, some of these are global studies, so we do supplement our internal trial management with some outsourcing.

I see. So the -- I'm just curious, specifically regarding the breast cancer study. Is that done through a CRO?

The prior ones were managed primarily through a CRO. We have our IST, of course, that's ongoing. That's basically managed by the investigator.

Got it. And on the manufacturing side, I'm just curious, how long are your contracts with your customers?

Yes, so we have a number of different types of arrangements with our clients. So we have clients that are like, (inaudible) that is currently on the market. And, of course, we have commercial supply agreements with them for longer term contracts. Some of the new contracts may just be for a few runs, and so very limited in their scope. But typically as patients -- as our clients get toward marketing, then commercial supply agreements become very important. Those are typically longer term agreements that may be for as long as 5 years, with different terms and conditions. So really depends on the clients. There's no one particular size fits all here. It's really based on their needs. But as they get into later stage development, of course, they're more keen to tie up longer term manufacturing capacity.

I see. And if that does happen, or your customer scale increases or they tie up manufacturing faster over a longer period of time, how scalable are the margins? I mean do you anticipate them to increase significantly or is it mostly variable costs?

I think that it's -- it depends again, on the particular project. I think if you look at historically, where most of the revenues are generated for the Company, it is in the reactor time, if you will. So it's an actual manufacturing process, not so much in development efforts. So certainly, where we can I think, improve on our margins, is through consistent manufacturing of the same product over and over again.

Of course, it's an interplay between us and our clients. And what they want to see is also some better finances behind that same benefit that we're getting from -- for instance, being able to order raw materials in bulk and what have you. So, yes, I mean I think it is a global business. Of course, the margins for contract manufacturing are never going to be quite what they are for novel drug development. So truly, really the interplay between those two, making sure that we can meet all of our own internal needs and still be able to meet all of our client needs as well.

And I guess lastly, what utilization would you estimate you currently -- for your manufacturing capacity, I just want to get a sense of how much of reserve you have for your own products?

Yes. So I think there's a few ways to look at that. Historically, we've -- as far as the total facility output, have been as high as around $30 million in total output from the Avid biomanufacturing business, that included both third party, as well as work for Peregrine, and as part of a government contract. Probably in the existing facility, again, it depends on the mix of services we're providing, but probably $30 million to $40 million is a reasonable range. I think that production from that manufacturing facility, particularly as we start to look at ways of optimizing the operations. But beyond that we do have the ability for expansion of the facility.

Probably I would say, at least roughly doubling that sort of output. And again, with some of the systems we've been working with, particularly the -- many of the disposable systems, and the single use bioreactors, really replicating our facility even in a nearby warehouse, is now much more practical even than it was a few years ago. And we've been through the exercise of, really qualifying both types of production systems. So I think the more business we have, the more expansion we can consider, and continue to grow. But really grow in relationship to the -- that demand from the clients. And then of course, what we hope will be our own eventual larger demand. Okay. Well, congratulations on progress, and thank you for taking my questions. Okay. Thank you very much.

Thank you, sir. Our next questioner in queue is Roger Adams who is a private investor. Your line is open. Please go ahead.

Thanks very much, and congratulations on the great randomized results. I'm hoping you can give us more guidance on the prospects for partnering transactions in the HCV program? In the September conference call, you indicated HCV is an arena where the Company would consider an outright license of the technology. And since that time, the HCV arena has only gotten hotter with the Inhibitex transaction. So my two questions are first, if you could give us a little guidance on the data that will be released early next year. What kind of EVR percentage would be a successful response in that, that like do you need greater than 50% or 70% of the patients to achieve the 2 log EVR response for this to be hot data? And secondly, assuming you do get good data out of these results, can you give us a ballpark idea how long it might take to consummate such an outright license in the current dynamic market?

Sure. Yes, I think I'll probably let Joe answer the kind of the specific EVR questions. But just from an overall strategy standpoint, I think what you said is right. I mean, we view this as a proof of principle study, showing that Bavituximab can be an effective immunotherapy in the HCV space. There's -- it's obviously, a dynamic -- dynamically changing environment within the HCV treatment area. With many companies really starting to gear toward, can they even completely remove immunotherapy from the treatment regimen? Now what I will say is in the market analysis we've looked at, it does indicate that immunotherapy will continue for the foreseeable future to be a significant proportion of the overall marketplace within HCV treatment.

And we really view it again, this validating study, the proof of principle that we can be a player in that marketplace. So I think strategically, because we do have quite an oncology focus. And the oncology programs, of course, are getting better and are bigger. And now we've got some great data to start to look at. And since that program's ever expanding, and because we have a natural focus on oncology, I think we view the HCV program as one we would outsource, or outlicense to someone for continued development.

As far as timing goes, I mean, it's impossible to guess timing. I think it's obviously, we have interested parties. This is exactly again the type of data, randomized clinical data that really establishes the proof of principle. So I think once we have the data in hand we'll push forward if that's positive, and try to consummate a partnership in a reasonable time frame. Because we do want to see the program not lose momentum, certainly if we build in the program with some positive data. So but again, we expect that data toward the end of this year, beginning part of next year. And I think that -- once we have that data, we can give a little bit more guidance on kind of next steps. Joe, I don't know if you want to expand on the EVR data, what expectations --.

Sure. A few years ago, I think most people talk about SVRs as the primary end point for evaluating whether something's working. And you probably are aware with all these new small molecule targeted protease (inaudible) inhibitors, we're seeing a highly potent, fast-acting drugs that are shifting sort of the time frame for evaluation. So now we talk about EVRs. Some studies talk about even 4 week RVRs, rapid viral response or even 2 week readouts. So it's difficult to say how partners would view, what percentage EVR value you would need to demonstrate from a valuation standpoint. But I think the opportunity is still there. The current immunotherapy of pegylated interferon is still quite toxic, and a major reason why patients don't respond is because they can't tolerate the full course of treatment. So anything that can sort of reduce that, and get more treatment, I think still has opportunity. But ultimately -- it's I think the potential partners, sort of total risk/benefit equation has to come in play.

Do we know what the percentage is for interferon, if we were just to match?

Yes, I mean, I think it depends on the genotype of the virus. But I think the genotype I, it's been well established that you can get about two-thirds of the patients, about almost 70% on average can respond. But again, really depends on the specific patients, whether or not they can tolerate the course.

I think to expand, again, I think the importance of the fact that this is a randomized study. So ultimately in this study it comes down to what happens in the interferon containing arm versus the Bavituximab arm, and kind of a head to head. So but I think the numbers Joe's talking about are what you expect to see, and we'll see where we come out.

Thank you very much.

Thanks, Roger.

Thank you, sir. That concludes our time for questions and answers. I'd like to turn the program over to Steve King for any closing remarks.

Okay. I'd like to again thank all of you for taking the time today to participate in our quarterly conference call. We certainly look forward to keeping you updated on our multiple expected clinical data reports over the coming quarter, as well as for this coming year. Thank you again for your support.

Thank you, sir. Ladies and gentlemen, this does conclude today's program. Thank you for your participation, and have a wonderful day. Attendees, you may log off at this time.