Avid Bioservices Inc (CDMO) 2015 Q4 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Peregrine Pharmaceuticals fourth-quarter FY15 financial results conference call.

(Operator Instructions)

I will now turn the conference over to Jay Carlson of Peregrine's Investor Relations group. Please go ahead.

Thanks, Karen. 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; Joe Shan, Vice President of Clinical & Regulatory Affairs; and Jeff Hutchins, Vice President of Preclinical Research.

Steve King will begin by providing a brief overview of the Company's progress over the last quarter, and will conclude the call with a more detailed review of recent achievements, upcoming milestones and the Company's strategies for the coming fiscal year. Joe Shan will provide an update on our SUNRISE Phase III clinical trial as well as information on new clinical trials in planning stages. Jeff Hutchins will review recent preclinical and translational data emerging from our immunotherapy program. And Paul Lytle will provide a summary of our financial results for the fourth quarter and FY15, as well as provide our full-year 2016 guidance for our wholly-owned subsidiary Avid Bioservices. After our prepared remarks we welcome your questions.

Before we begin we would like to remind you that during the 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 FY15 ended April 30, 2015, which was filed 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 duties to update forward-looking statements whether as a result of new information, future events, or otherwise.

With that I'll turn the call over to Steve.

Thanks, Jay. And thanks to all of you who have dialed in or will be participating via webcast in this afternoon's Peregrine update.

This past year was marked by clinical progress, scientific validation and business growth for Peregrine. Clinically, our SUNRISE trial in non-small cell lung cancer remains on target to complete patient enrollment by calendar year end. While we continue to advance the SUNRISE trial toward completion, we are also taking important steps to expand the commercial potential of bavituximab in the non-small cell lung cancer and breast cancer indications by initiating new later-stage clinical trials in both areas by calendar year end. These new studies are supported by compelling data from several prior clinical trials showing the potential of bavituximab in combination with chemotherapy in HER2-negative breast cancer, and by exciting preclinical and translational data supporting the potential of bavituximab with anti-PD-1 targeting compounds like Opdivo. We believe supportive data from these new trials, combined with the SUNRISE trial data, will set the stage for commercial success for bavituximab in two very important cancer indications.

In addition to the flurry of activities on the later-stage clinical development front, exciting data from the bavituximab clinical and preclinical programs was consistent and building throughout this past year. Within oncology there is a need almost across the board for new drugs that will improve existing therapies. Whether as chemotherapy, radiation, or immuno-oncology agents, most patients are still not getting the level of anti-tumor activity that is needed to have a significant impact.

We believe bavituximab has the potential to make a difference in patient outcome when used in combination with all of these therapeutic approaches to treating patients. We have already seen across a number of clinical trials that classical immunotherapies survival tail when bavi is given in combination with chemotherapy. Recent preclinical data firmly supports the concept that targeting and blocking the PS signaling pathway with antibodies, like bavituximab, allows more subjects to initiate a T-cell immune response, resulting in longer treatment duration in combination with PD-1 targeting antibodies that resulted in more subjects responding to therapy, and, as a result, statistically significant improvement in anti-tumor activity.

In addition, translational clinical data supports the potential of bavituximab to have an immune stimulating impact on PD-L1 negative tumors. Data presented by a number of investigators at both ASCO and AACR show convincingly that patients with PD-L1 negative tumors did not fare well when treated with either PD-1 or PD-L1 targeting antibodies.

So, bavituximab has shown the potential to help stimulate a T-cell anti-tumor immune response in the tumors that absolutely need a better immune response in order to respond to PD-1 therapy. We recently entered into a collaboration with investigators at Memorial Sloan Kettering Cancer Center to continue expanding on this important work, as well as to explore other potential applications of bavituximab and other agents that target PS signaling pathways.

On the manufacturing front I'm very pleased to acknowledge that our wholly-owned subsidiary Avid Bioservices achieved record revenue this year, growing as a successful business while providing equally important infrastructure that can support commercial launch of bavituximab.

I will continue my comments later but, first, the other members of our team will give a detailed overview of our clinical, preclinical and operational achievements. We'll begin with Joe Shan, Vice President of Clinical & Regulatory. Joe?

Thanks, Steve. I would like to first provide an update on the Company's ongoing Phase III SUNRISE trial which is evaluating the use of bavituximab in the treatment of non-squamous non-small cell lung cancer. SUNRISE continues to progress according to plan with more than 150 active clinical centers spanning 14 countries. We remain on track to complete enrollment by the end of this calendar year.

Meanwhile, we continue to receive positive feedback from investigators who are excited by both the safety profile and immuno-modulating properties of bavituximab. As a reminder, SUNRISE is designed as a Phase III registration trial and has two planned interim analyses. The first interim analysis, which will be conducted when 33% of the targeted overall survival events are reached, is for futility, and the second interim analysis for futility or predictive success will be conducted at 50% of events.

To protect the integrity of this double-blind trial, an independent data monitoring committee has been established to evaluate safety data on an ongoing basis and make recommendations to Peregrine as to when the trial should be unblinded. As the interim analyses are triggered after prespecified numbers of trial events are reached -- in this case deaths -- we cannot at this point guide to when these might be reached, but we will be sure to provide updates as soon as we can.

Let me now discuss the expansion of our clinical programs in non-small cell lung cancer and breast cancer. As we announced last month, while we wrap up enrollment in SUNRISE we are planning a few new clinical trials which we expect to initiate before year end. Peregrine's decision to launch these new trials is driven by the considerable and growing body of data supporting bavituximab's therapeutic potential when combined with chemotherapeutic drugs or immunotherapeutic agents such as checkpoint inhibitors.

One of these trials will build on the foundation we are laying in the non-small cell lung cancer setting with the SUNRISE trial. The decision to initiate another lung cancer trial is supported by recent robust preclinical data supporting the combination of bavituximab with immune checkpoint inhibitors, which is very timely as the anti-PD-1 agent nivolumab has recently been approved in previously treated squamous non-small cell lung cancer.

To that end, we are planning to initiate an open-label multi-center randomized Phase II trial of nivolumab, which is marketed as Opdivo, versus nivolumab plus bavituximab in patients with previously treated locally advanced or metastatic non-small cell lung cancer who have not received a prior PD-1 or PD-L1 inhibitor. The primary endpoint of this trial is expected to be overall response rate, with secondary endpoints including duration of response, progression-free survival, overall survival and safety. Importantly, as translational studies have demonstrated that bavituximab enhances multiple markers of immune activation, even in tumors that express low levels of PD-L1, we plan to retrospectively examine patient outcomes based on pre-treatment PD-L1 expression level to better understand bavituximab's effects on this potential biomarker. With regard to our overall lung cancer clinical development strategy, our goal is to have the opportunity for preliminary readout from this new trial prior to the unblinding of the SUNRISE trial.

In addition, based on the totality of our clinical experience in advanced breast cancer to date, we're also compelled to advance the program by initiating a late-stage trial in breast cancer. Promising data from an investigator-sponsored Phase I trial of bavituximab plus paclitaxel in patients with metastatic HER2-negative breast cancer were published during the quarter in the peer-reviewed journal Cancer Medicine. Results demonstrated that 85% of the evaluable patients achieved an objective tumor response, including a complete response rate of 15% by resist. Data from this IST, combined with two prior Peregrine-sponsored trials of bavituximab plus taxane-based combination treatment, which yielded between 61% to 74% overall response rate and median overall survival of over 20 months in advanced or metastatic breast cancer patients, provide strong rationale to advance this indication. Thus, we are planning a seamless Phase II/III trial in patients with metastatic HER2-negative breast cancer, with all patients receiving physician's choice of paclitaxel or docetaxel alone, or in combination with bavituximab.

When the primary endpoint of overall response rate in the Phase II is reached, the Phase III part of the trial will be activated, which has a primary endpoint of progression-free survival. As with our planned lung cancer trial, we expect to initiate this breast cancer trial before the end of the calendar year. And the open-label nature of the trial may provide us the opportunity for data updates prior to SUNRISE unblinding. Additionally, a randomized trial of neoadjuvant paclitaxel with or without bavituximab is also planned to further elucidate bavituximab's immune modulating mechanism in early-stage HER2-negative breast cancer.

Beyond lung and breast cancers, bavituximab has shown promise in several additional oncology indications. Data from an investigator-sponsored trial evaluating bavituximab plus sorafenib in patients with advanced hepatocellular carcinoma has demonstrated promising signs of activity and acceptable safety profile in multiple signs of immune activation as measured by pre- and post-treatment tumor samples.

Finally, two investigator-sponsored trials continue to enroll patients, evaluating bavituximab combination treatment regimen in patients with advanced melanoma or rectal adenocarcinoma. While it's important to note that these studies are being conducted independently under investigator health INDs, and thus we do not have control over the timing of the data, with that said, data from the rectal adenocarcinoma trial will be presented at the American Society for Radiation Oncology's annual meeting in October.

I look forward to providing you an update on our future clinical advancements. I will now turn the call over to Jeff Hutchins to discuss our preclinical program. Jeff?

Thanks, Joe. Our group is working to further to delineate bavituximab's unique immunostimulating mechanism of action and find the most promising immune-activating treatment combination for bavituximab by a series of preclinical studies that have also recently lead into translational studies utilizing human lung tumor samples. I am pleased to say that the results of these studies have been impressive.

Data from these studies presented at the ASCO annual meeting in June demonstrate the ability of the Company's PS-targeting antibodies to significantly increase the prevalence of tumor infiltrating CD8-positive T-cells and immune-activating cytokines, while decreasing tumor promoting macrophages and myeloid cells, thereby enhancing the anti-tumor effects of chemotherapy as well as immune checkpoint inhibitors.

Measurements of cellular immune activation markers and cytokine profiles in multiple tumor models consistently support the potential of our PS-targeting antibodies' ability to work synergistically with approved and investigational immunotherapies. Our preclinical results and studies show that the combination treatment with an anti-PD-1 antibody yields superior growth inhibition in a large percentage of subjects while also exhibiting multiple immunostimulatory changes associated with an anti-immune response as compared to anti-PD-1 alone. Taken together, these results support the potential of bavituximab to increase the number of subjects susceptible to respond to immune checkpoint blockade treatments, and provide rationale for the clinical evaluation of bavituximab with PD-1 or PD-L1 targeting drugs in lung cancer and other indications.

Data from additional studies presented at the ASCO annual meeting measured changes in immune parameters in human lung tumor samples treated with a combination of bavituximab and the chemotherapeutic drug docetaxel. These clinical translational studies demonstrated that bavituximab alone and in combination with docetaxel activates tumor infiltrating CD8-positive T-cells, as demonstrated by increases in immune stimulatory cytokines and cellular activation markers.

Interestingly, these positive results were correlated with low PD-L1 expression in the tumor lung tissue, a measurement common to the majority of non-small cell lung cancer patients and which is typically associated with poor response to checkpoint therapies. This further increases our enthusiasm regarding the Phase III SUNRISE trial which is evaluating the same treatment combinations used in these promising translational studies. We are excited to see these data and the consistency in which we see superior tumor growth inhibition with bavituximab alone and in combination with other therapies.

We are not alone. As Peregrine has generated and presented more data in recent months there has been growing interest in the PS-signaling pathway and bavituximab.

This interest is evidenced by the research agreement that Peregrine recently signed with Memorial Sloan Kettering Cancer Center. This research, which will be conducted in the lab of Doctor Jedd Wolchok, a leader in the field of cancer immunotherapy, will examine the combination of bavituximab alongside models of checkpoint blockade that are unresponsive to inhibition or co-stimulation. This is not only a collaboration that is validating but it will also create a better understanding of how PS-targeting agents may enhance immune activation and anti-tumor responses combined with other immunotherapies.

We look forward to providing an update on this collaboration as well as the translational work we continue to conduct at Peregrine. I will now turn the call over to Paul Lytle, Chief Financial Officer, who will discuss the Company's financial performance and our Avid Bioservices business. Paul?

Thanks, Jeff. Turning to our financials, it's important to note that we continue to closely manage our operations in line with our cash position while balancing our various sources of capital.

One important source of capital is derived from our contract manufacturing business Avid Bioservices which generated $9.3 million in revenue this quarter and $26.7 million for the full FY15. This represents a 44% increase in quarter-over-quarter revenue and a 20% increase in year-over-year revenue. As we look to the future, I would also like to emphasize that we currently have a strong backlog for future services. Over the recent periods, our backlog has ranged from $20 million to $30 million, and today the backlog has grown to approximately $40 million.

As a result of this growing backlog we expect contract manufacturing revenue for FY16 to increase to a range of $30 million to $35 million. This projected revenue growth is primarily due to two reasons. First, we've seen an increase in demand from existing and new customers. And, second, we now have new manufacturing capacity to offer our customers that is already being booked.

This is an exciting time for our contract manufacturing business so let me take a few more moments to share with you our plans and progress in building this new facility. Last December we laid out strategic plans to expand our manufacturing capacity to help support the revenue growth of Avid, as well as creating sufficient manufacturing capacity for the potential commercial launch of bavituximab. We also mentioned that growing this revenue-generating business is very important to us as it reduces the amount of capital and funding we would need to raise by other means.

This strategy is coming to fruition very quickly. I'm excited to say that the new facility is close to being ready for production. The core manufacturing suite has been built, equipment has been installed, and it is now undergoing some final testing to ensure all systems are operating effectively. We remain on track to commence production in this new facility in the very near future.

Now, turning to expenses, we saw an expected increase in R&D spending this quarter and fiscal year as we continued to invest in the Phase III SUNRISE trial. This resulted in an increase in our reported cash burn rate, representing our reported net loss minus noncash expenses to approximately $10.5 million for the fourth quarter. This cash burn rate has been consistent over the past four quarters of FY16, leading to a burn rate of $42.6 million for the full fiscal year. A more detailed analysis of our statement of operations is included in our Form 10-K that will be filed shortly.

In conclusion, let me say that our financial goals are centered on maintaining a solid cash position and investing these proceeds into our novel immuno-oncology program led by bavituximab and our revenue-generating manufacturing business. We will continue to closely manage our operations in line with our cash position while balancing our various sources of capital.

Let me turn the call back over to Steve to discuss some important upcoming milestones. Steve?

Thanks, Paul. I started today's call by stating that we have continued to make progress across our entire business. As Joe, Jeff, and Paul have detailed, these achievements are significant. We are more confident than ever in the potential of bavituximab to help other cancer treatments work better. And we are expanding our clinical programs to capture the value that we believe exists in new therapeutic combinations and indications.

Specifically, as Joe detailed, we will be initiating a Phase II study in non-small cell lung cancer combining bavituximab with Opdivo, an FDA-approved PD-1 inhibitor, while also initiating a Phase II/III clinical trial in breast cancer combining bavituximab with chemotherapy. The intent of these trials and all future trials with bavituximab is to expand the utility to ultimately address multiple cancers and to improve the lives of cancer patients worldwide by improving upon current and evolving standard of care.

As discussed by Jeff, the compelling preclinical data we have been presenting, as well as a growing body of nonaffiliated research into the PS-signaling pathway and how it is exploited by tumors for survival and growth, has greatly heightened interest in bavituximab from the scientific community. As a result, we recently entered into a collaboration with established immuno-oncology experts at Memorial Sloan Kettering Cancer Center to continue expanding the potential of the PS-targeting platform.

Beyond our therapeutic platforms, the Avid Bioservices business has been growing steadily, achieving record revenue of over $26 million this year. And with a $40 million backlog we anticipate our revenue next year to grow to between $30 million to $35 million. This business is strong and gaining momentum. And the revenue generated by Avid provides a firm foundation for its continued success.

With that I'll outline a number of upcoming milestones. Regarding our SUNRISE Phase III second-line non-small cell lung cancer study -- on track. We are on track for completing patient enrollment by year end 2015 with planned IDMC interim analysis at 33% and 50% of targeted overall survival events as those are reached, with estimated unblinding of the trial to occur approximately near the calendar year end of 2016.

Regarding our planned Phase II second-line non-small cell lung cancer, bavituximab plus nivo, and our planned Phase II/III HER2-negative breast cancer trial evaluating docetaxel or paclitaxel with bavituximab, we estimate trial initiation for both of those studies during the second half of 2015., And in these open-label studies we will have the potential for interim data from both studies as early as 2016.

For the ongoing Phase 1 rectal adenocarcinoma IST evaluating bavituximab in combination with capecitabine and radiation, the investigator is continuing to enroll and treat patients. And we do expect interim data to be presented at the ASTRO meeting coming up in October.

And at Avid we expect launch of production in our new facility to happen in the immediate future. And this launch will be a pivotal event as we continue to grow the Avid business and to prepare for bavituximab commercialization.

This concludes our prepared remarks and we'd now like to open the line for questions.

(Operator Instructions)

Charles Duncan from Piper Jaffray.

This is Roy in for Charles. Thanks for taking my question. Nice top-line results, by the way. On the Phase II with nivolumab, do you guys plan to screen for PD-L1 expression on enrollment and to balance between the arms for that expression?

At this point we are not planning to select patients based on that status but we will be collecting that information for retrospective.

Okay. Then just a quick one. Have you guys applied for breakthrough? And do you intend to for SUNRISE?

SUNRISE, as you know, we have fast track designation, so that's, I think, the current strategy. That will afford us the regulatory benefits prior to review, et cetera.

To expand on that, I think as we learn more about bavituximab, particularly through these upcoming studies, that certainly is a possibility for the future. I think it will depend, really, on the target indication or set of patients. That can be very interesting, as you mentioned earlier, to take a look at the PD-L1 negative patients or low patients and see how the outcome of those patients is compared to the PD-L1 high or positive patients because certainly there appears to be a developing need for better treatments or better combinations in those PD-L1 negative patients. So, that's an example of a potential indication that could trigger some additional regulatory strategy beyond the fast track.

Okay. Very good. Thank you.

Thomas Yip from MLV & Co.

Thank you so much for taking my question. Congratulations on this very nice corner for Avid. My first question pertains to your preclinical collaboration with Memorial Sloan Kettering regarding the development of checkpoint inhibitor combinations. It may be a little bit early, but just wondering whether you guys have explored any specific oncology indications that you're going after while you're screening, perhaps indications such as melanoma?

Certainly. This is Jeff. Melanoma is in their lab specialty, and they are heavily invested in that. So, that certainly will be our first look, and then expanding that based on the results. But, clearly, what we're really looking for is what are the contributions of each of the combination partners and that sort of thing. The Wolchok lab has become just world-renowned in understanding those dynamics and, so, that's what we are really anticipating the benefit from.

I think in addition to that, obviously there's a lot of interest now in a number of indications outside of just simply non-small cell lung cancer as well as melanoma. The collaboration at Memorial Sloan Kettering is definitely broader than just melanoma but really we wan to look at other potential indications.

A lot of interest is coming to the top with ovarian cancer, bladder cancers and other prime targets. So, we will be looking at a number of different indications, and some of those may end up being things we do on the preclinical front to set the stage for clinical studies, and some may be more even potentially moving forward with collaborators right into clinical trials. All that thinking is currently being discussed with the people from Memorial Sloan Kettering, so I do think we will have collaborations at different levels, which will include both preclinical as well as eventual clinical studies.

For sure. That sounds good. I'm going to switch gears, going to talk about Avid a little bit. As you mentioned, the new facility is very close to being completed. What does the additional capacity -- what does it mean to the backlog? It's very nice that you guys have grown the backlog from just a couple of months ago $29 million, now to $40 million, and you upped the revenue target. Everything sounds very good. But what is the extra capacity? Will that bite into the backlog or do you expect more new customers and more orders from existing customers, as well?

I think that almost all the backlog is really related to the current facility because as the new facility comes online obviously we have a lot of additional activities for bavituximab plans for there in the early parts of the opening of the facility. But we do have a lot of expressed interest from clients in moving into the space and actually being able to utilize that, and that's particularly for later-stage and commercial products.

Right now it's a nice mix. Again, a lot of the backlog is just related to the existing facility but some of that backlog is now starting to be associated with the new facility that's coming online, and we do expect that to grow as time goes by and again as we really reach full capacity over in that facility.

And, Thomas, just a little more information on the new facility. It actually more than doubles what our current capacity is in terms of space and bio-reactor space that we have over there. So, we do have an opportunity here to really grow the business even much larger than what our current backlog is, so we are excited about the new facility.

Okay. Sounds wonderful. Thank you for clarifying. Thank you once again for taking my question.

George Zavoico from JonesTrading.

Congratulations on a good quarter. I guess if you build it they will come. The number of antibodies and other biologics that are being developed now by multiple potential customers is -- I think it's growing quite rapidly. It seems like you're there to capitalize on it. That's great. We expect to see that backlog increase but also the revenue increase as you fill the orders.

My first question is for Joe. Joe, you mentioned in your prepared remarks that some of the physicians you were talking to that were involved in SUNRISE, participating in SUNRISE, have been impressed by the immuno-modulatory properties that they've seen. Could you expand on that a little bit? What exactly are they measuring? What are they seeing that you might be able to talk about that they're relating to? Or you can't disclose that?

I think it's more of a general impression. I think they've been briefed on the data that were presented at ASCO. The consistency across different systems and species that was looked at all pointing to the same immune-stimulating properties, that's what I was referring to in terms of being impressed with the potential.

So, you weren't speaking specifically to the patient?

Not SUNRISE. It's still double blinded.

That's what I thought. It was a little confusing when you mentioned that. Sorry about that. I misunderstood.

George, actually if I could spend on that, I've had a chance to meet with a number of the physicians and I think in general a lot of the enthusiasm is -- yes, obviously, it is a blinded study so they can't relate to their direct experience in the SUNRISE trial, other than how the trial is going overall, but I do think there's a lot of enthusiasm because of bavituximab's mechanism of action, its safety profile and potential for combinability, even outside the docetaxel combination. I think that's also driving a lot of interest because we've had a lot of great data over the last six months, including the translational data, which is really important because it really ties together what we've seen in the preclinical models with what we expect to see in the clinic, and now it's really matching up very nicely. And that consistency, I think, is very exciting to them.

But also I think as physicians want to treat their patients, they want to see their patients treated better, a lot of the enthusiasm is fueled by the fact that bavituximab really has potential in chemotherapy, which is going to continue to be an important part of how patients are treated in lung cancer and breast cancer. But also, as new and emerging treatments such as, obviously, Opdivo and Keytruda come into the marketplace, bavituximab has a place there, as well. I think they like the fact that they are working on a drug that really does have a potential to be used throughout the continuum when they think about how their patients might get treated in the future.

Okay. Thanks. That's helpful. With regard to breast cancer, since you brought it up, you're combining it with chemotherapy, not with an immune checkpoint inhibitor. And breast cancer has been notably absent from most immune checkpoint studies. Can you comment on that? Are there emerging immunotherapies in breast cancer?

I think that obviously the focus from an immunotherapy standpoint has been on the, obviously, melanoma., more recently lung cancer, bladder cancer. I think there's a number of indications which historically have been hot spots for immunotherapies. I think breast cancer is relatively unexplored. It's one of those tumor types that tends to have less of the mutations that would generate some robust immune responses.

But I think, again, what's needed is really changing that tumor microenvironment and getting those immune responses started, and that's where we see a role for bavituximab. So, I think as we continue to move forward, while our initial focus, because of our great clinical data to date in chemotherapy combinations is going to be chemotherapy, we are evaluating immunotherapy combinations in breast cancer. You'll just have to stay tuned to see how that evolves.

Also, George, what we saw at ASCO was the T-cell CD8-positive immune cell infiltrate is becoming a key marker in breast cancer for a positive prognosis. So, certainly the underlying value clinically for bavituximab for immune stimulation in breast cancer is certainly there.

In that regard, are you reconsidering pancreatic cancer? You had good results in that before.

It's interesting. We've had a lot of interest from collaborators in pancreatic cancer because, even if you go back and look at our data, we had nice tumor responses, but we didn't see the survival tail in the overall survival curve. And I think that that is really something that drives interest because if we can combine that with a downstream checkpoint inhibitor like PD-1, PDL-1 inhibitor we think that's absolutely an indication where we potentially could have some impact.

It's one on the list, along with, as you mentioned, breast and a few others. But there's definitely a lot of interest in pancreatic cancer, not just from Peregrine but from others in the immuno-oncology space.

Okay. And then, finally, a couple of questions, perhaps, about cost. The MSKCC collaboration -- any terms that you can disclose how that might increase your R&D spending?

George, this is Paul. Good question. We haven't really disclosed the details of all of our collaborations, but it's a typical sponsored research agreement where we provide drug and funding and they perform research for us. That's about all I can say about that because we don't detail it out specifically within our filings.

I think in the whole scheme of things, with all the clinical trials going on, and what have you, it's not --.

It's an insignificant portion of our R&D spend.

Which brings me to my final question -- the significant spend of your upcoming Phase II, Phase II/III and continuing SUNRISE trial. Part of it seems to be offset by the Avid revenue. And, Paul, you mentioned how you're managing the various resources of capital. Do you want to talk about the expected burn rate? Do you want to talk a little bit about how you might consider partnering any of these programs in the near future to help offset some of those costs?

We are very common with other biotech companies in that we operate in a fairly capital-intensive industry. That being said, we are actually a very unique company in that we actually generate revenues. And as I mentioned earlier, we're increasing our revenue guidance this year to $30 million to $35 million with a $40 million backlog. We have our bavituximab program which is an IO compound in Phase III development that we own 100% of the rights to. That brings tremendous partnering opportunities to the table.

That's one of our goals here internally, is to partner ex-US and to drive the value here in the US ourselves. So I think we're going to be looking at a lot of those things to balance our financial resources. And these are just a couple of sources that we have available to us that not all companies have.

I think, George, in addition to that, If you look at it from a timing standpoint, as we are completing enrollment in the SUNRISE trial, so as that moves more and more toward completion of that study, we will actually be ramping up these other studies. And that's important for a couple of reasons but also from an expenditure standpoint, that as we expect to see the costs associated with SUNRISE go down we'll see the cost of these other trials go up to replace it, but to add potential value as we go forward.

That's a good point, Steve -- that we actually strategically align the completion of enrollment with the current SUNRISE trial with the initiation of these other Phase II trials.

And then I suppose the additional trials also act as leverage in any partnering discussions you might be engaged in right now.

Absolutely.

Okay. Thank you very much, everyone.

(Operator Instructions)

Rahul Jasuja from Noble Life Science Partners.

Thanks for taking my question. Just a few remaining questions from me and some clarifications. Looking at PS as immune checkpoint, and comparing that to the other immune checkpoints PD-1 and CTLA-4 and so on, could you comment on the fact that you're getting such a broad repertoire of immune response versus blocking just PD-1 or CTLA-4. You're probably connecting innate and adapt immunity. One, comment on that differential. And, two, how does that affect your opportunity for clinical development?

I think I'll start off and then turn it over to Jeff. I really view the immune system as a balance, right? What is happening is that patients whose balances tip toward immune activation, typically T-cell activation, are the patients who are now responding well to PD-1, PDL-1 therapy. And it's because those agents now have an immune system, an immune active component to work with, namely the T-cell.

And I think what bavituximab does is it helps create that same balance in patients that otherwise might not have it by changing the tumor micro-environment, activating T-cells, and now of course you've got a perfect environment for these downstream checkpoint inhibitors to work. So, we really view it as a nice synergistic relationship with these downstream checkpoint inhibitors because they're helping keep going what bavituximab can get started. So, it can really get that immune system kicked off and now we can keep that going with PD-1 and PDL-1 therapy. I think, effectively, anywhere PD-1, PDL-1 are, I think there's still going to be a need for converting more patients over to responders, so we see that as very broadly in the IO combinations really where the potential is from a development standpoint in the clinic.

The same can be said for chemotherapy. Chemotherapy effectively, by killing cells and causing more PS exposure, inhibits the immune system from being able to respond to those tumors adequately. So, again, anywhere where chemotherapy is effective, we think we have a great potential to combine with that and drive the immune component to go along with the direct tumor killing of the chemotherapy, particularly like taxanes, of course. And we've seen very clinical data so we're following that lead. And I think that's what we've learned from our own clinical experience.

I'll turn it over to Joe maybe or Jeff to expand on that.

Sure. Thanks, Steve. I like to think of PS targeting as a catalyst or an enzyme catalyst. It's not necessarily the enzyme itself but it lowers the barrier to activation. And you can think of that in the tumor microenvironment terms, is that there's such a high barrier to activation in this local micro-environment. And by coming in and blocking the PS signaling, sending activation signals through FCR gamma, now you're turning the tables and, as Steve said, reestablishing that balance to an immune activation balance. And now you have an environment that's capable of recognizing tumor cells and killing them.

I'll just add some of the clinic. This phenomenon really seems to be, again, localized, the tumor micro-environment. We see, really, a great safety profile. And, again, the excitability of bavituximab with virtually any kind of anti-neoplastic treatment including immunotherapies is certainly an advantage and how we hope to be able to really capitalize on this.

It's tempting to say that maybe comparing with PD-1, CTLA-4 where it seems like you really need to have tumors that have tails out there, you probably are getting [deeno] antigen presentation and really getting [ampicil] spreading and so on because of the way your antibody works. Is that okay to say?

Absolutely.

Okay. Good. Let me move on to the next question. We talked about obviously combination checkpoint inhibitors. You've got a medimmune OX40 which is a co-stimulatory in the pipeline. 4-1BB is getting a lot of traction. What about in combination with co-stimulators? Is that on the cards with the Wolchok lab or is that not on the cards?

Absolutely. That is some of our main intent. We've looked at the checkpoint inhibitors quite extensively internally. That's the kind of data that attracted this kind of collaboration. The logical follow-on now is to look at the agonists or the immune stimulator, co-stimulators in that realm.

Okay. That makes sense. Then, a question on kinase inhibitors. There's tons of tumors and cancer subtypes, and many of them are genetically defined that are based on kinase inhibitors. You've talked about sorafenib and I know that sorafenib treatment also flips PS. Is that another area or subset of tumors that you could look at combination approaches with kinase inhibitors?

Absolutely. Again, anything that stresses the tumor micro environment out I think will work nicely with PS blockade. We're not excluding patients who have known, for example, EGFR mutations or ALK rearrangements in the SUNRISE trial, for example. We'll have an opportunity at the end of the study to look into the patients who have those genetic mutations, [dropping] mutations, if they fare better on the bavi-containing arm.

Okay, good. One clarification that I have, I want to discuss that a bit. Using PD-L1 as a biomarker, as I understand it, you're going to look at PD-L1 prior to therapy. I think you talked about that in the breast cancer. Is it breast cancer? I think it's breast cancer. Or is it non-small cell lung cancer? You're going to look at PD-L1. And then post-treatment you're going to look for increased PD-L1. That would then indicate a positive anti-PS therapy. Is that right?

Yes, effectively, retrospectively we will look at this and see if we see the same results of CD8 activation and therefore PD-1 increase, along with a PD-L1 increase that we've seen in our liver cancer translational data, as well as our ex-vivo microsphere project. And, of course, the preclinical.

Yes. That's actually a component we've been building into a lot of these studies. It's also built into the melanoma IST as well as the rectal adenocarcinoma IST. It's going to be built into all these studies going forward because we recognize that's an important validation point for each of these studies.

It's one of the data points that can come from these studies, which is nice because they are open-label studies we'll have [surrogate in]. We will have the regular endpoints but also we will have these translational data points that will be coming from those trials, as well. We think each of these studies can be rich with data points. It's all basically validating for this mechanism of action and for these particular combinations.

And it's not just PD-L1 tat we're looking at. We're really just building an immune profile in these pre and post tissues in these patients to look at the condition of the lymphocytes, the myeloid cells and the dendritic cells.

Okay. Then, for the non-small cell lung cancer, the second line, the SUNRISE trial, obviously these metrics prospectively were not studied or measured for each patient. Or is there any way you can look at retrospectively these metrics?

Yes, we are collecting, if available, archival tissues of pretreatment. At least we should have some kind of hint, a prognostic, if you will -- I use the term loosely -- value.

I think that while we may get some data from the SUNRISE trial, we also recognized early on that that's Phase III. The goal there is to get it through and execute and hopefully get to an a provable endpoint at the end of the study. The more complicated you make it the more difficult it is to enroll a study like that. It's one of the reasons that's nice about these upcoming studies is they're a little more amenable to this analysis and planned data analysis right up front.

Okay. And then one last question. This is probably for -- well, for everybody but maybe more for Jeff or maybe Joe. You're talking about not having any autoimmunity with PS blockade versus the fact that there is the risk of autoimmunity with PD-1 and CTLA-4. Just trying to understand the mechanism, is it because maybe the bigger effect of blocking PS really comes from not just preventing or reversing the immunosuppression but actually because of the Fc-FcR [calm] or mediated effect, [ADCC] and so on, revitalized the immune system. And that really only effects immunosuppressive pathway that is the case in PD-1 and CTLA-4.

Yes, Rahul, this is Jeff. That is certainly our view. And we're engaging in preclinical and ex vivo experiments to look at that closer. But certainly the dogma around FCR gamma activation is that it's a very cross-linked dependent, concentration dependent event. So, if there aren't enough cells there, apoptotic cells that are expressing PS, then that activation won't take place. And you also need a lot of myeloid cells there at the same time.

So, we believe that it is very cell and receptor concentration dependent. And that's why we are not seeing the autoimmunity in a systemic type of way in our animal models. And we haven't seen it, as Joe mentioned, clinically manifest itself on the safety profile.

I think another point there is that, with blocking PS, we're simply, I think, restoring what should be the normal immune response to the tumor. So, we're not actually pushing the tumor beyond what it's normally supposed to do or pushing the immune system beyond what it's normally supposed to do. We're actually just re-creating that balance that allows the immune system to activate.

I think if you look at other checkpoints, you're basically pushing the immune system beyond what it's actually supposed to be doing. You're supposed to have those checks in place to protect the body. And when you take them all off, then, of course, you are going to have these complications. And I think it's one of the very promising things about bavituximab combination therapy, is we're simply restoring the right balance of immune response to the tumor that allows that immune response to take place. We're not pushing it beyond its limits.

But if we can then take these downstream checkpoints and push that immune response as far as their safety will allow, then we shouldn't be adding to that toxicity because it's already there in those patients that are probably responding the best. I think that's one of the things, again, when you talk to physicians, they really liked the concept, that -- hey, we've got basically a pretty safe drug we can start to combine with these other things. Versus just adding two toxic things together, and what happens? -- we've seen some of the clinical data that you just get double the toxicity. And that's getting to the edge of I think what patients want to see at the end of the day.

That makes sense. Thank you, guys. And congratulations on the Avid revenue. That was a pleasant surprise.

Thank you. That concludes our question-and-answer session for today. I would like to turn the conference back over to Steve King for any closing comments.

I'd like to start by thanking all of you again for participating in today's phone call. In closing, I would like to say that Peregrine's preclinical, translational and clinical programs are contributing significantly to the promise of the immuno-oncology and the impact it will have on millions battling cancer. More than ever we believe bavituximab can help standard and emerging cancer treatments overcome the immune suppression so commonly found in the tumor environment.

In closing, as always, I want to thank our stockholders for their continued support. And I would like to especially thank the patients and their families that are participating in our bavituximab clinical trials. With that, we will conclude the call.

Thank you. Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program and you may now disconnect. Everyone have a good day.