Avid Bioservices Inc (CDMO) 2016 Q1 法說會逐字稿

Good day ladies and gentlemen and welcome to the Peregrine Pharmaceuticals first-quarter fiscal year 2016 financial results conference call. (Operator Instructions). I would now like to hand the conference over to Tim Brons of Peregrine's Investor Relations Group. Please go ahead.

Thank you. 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 and Regulatory Affairs; and Steve Worsley, Vice President of Business Development. Today, our team will be providing an overview of the Company's operations and progress spanning clinical, preclinical, corporate as well as Avid Bioservices contract manufacturing business. After our prepared remarks we will welcome your questions.

Before we begin, I would like to caution that comments made during this conference call today September 9, 2015, will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 concerning the current belief of the Company which involves a number of assumptions, risks and uncertainties. Actual results could differ from these statements and the Company undertakes no obligation to revise or update any statement made today. I encourage you to review all of the Company's filings with the Securities and Exchange Commission concerning these and other matters.

With that, I will turn the call over to Steve.

Thanks, Tim. Thanks to all of you who have dialed in and to all of you who are participating via webcast today.

Fiscal year 2016 is off to a great and busy start at Peregrine. In May, we announced a research collaboration with leading immuno-oncology researchers at the Memorial Sloan-Kettering Cancer Center. In June we presented in important translational data at ASCO showing the potential of bavi to enhance immune responses in PDL-1 negative tumors.

In July, we reported that our Phase 3 SUNRISE trial in non-small cell lung cancer remained on track for enrollment completion by year-end and as we draw closer to December, we are increasingly confident that we will hit this milestone.

Most recently we announced a collaboration with AstraZeneca to expand our immuno-oncology combination clinical research program.

The Memorial Sloan-Kettering and AstraZeneca collaborations are an important part of our announced plan to expand our bavituximab clinical program. The initial effort is to initiate new lung and breast cancer clinical trials by year-end and then to expand into additional indications by early 2016. Taken together these clinical efforts are meant to expand bavituximab's eventual market opportunity in non-small cell lung cancer by providing important data supporting the combination of bavituximab with those chemotherapy and PD-1 or PDL-1 inhibitors while simultaneously pursuing equally large market opportunities in breast cancer and eventually other indications.

Fueling these efforts our research group remains busy generating clinical, translational and preclinical study results that consistently demonstrate bavituximab's activity in a range of tumor types. In recent weeks we have received very positive responses to findings presented at the International Association for the Study of Lung Cancer, or IASLC World Congress and at the Immunotherapy and Vaccine Summit. At these meetings we presented results from multiple studies demonstrating bavituximab's ability to promote antitumor T cell immediate activity and its potential mechanistic synergies with chemotherapy and checkpoint inhibitors targeting the PD-1, PDL-1 pathway.

Finally, our contract manufacturing business, Avid Bioservices, hit a record high for revenues for any quarter during the first quarter of 2016 putting us on track for another record revenue year.

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

Thanks, Steve. I would like to start with an update on the Company's ongoing Phase 3 SUNRISE trial which is evaluating the use of bavituximab and docetaxel in patients with previously treated locally advanced or metastatic non-squamous non-small cell lung cancer. This global study remains our top clinical priority and I'm happy to say this trial is proceeding according to plan and we continue to stay on target to complete accrual by the end of this calendar year. As a reminder, SUNRISE is designed as a blinded registration trial with two planned interim analyses. The first interim analysis will be conducted when 33% of the targeted survival events are reached and the second will be conducted at 50% of events.

As these events are patient death, we are at this time unable to accurately predict when the interim analyses will occur but we plan to provide updates as soon as possible.

Meanwhile as SUNRISE nears completion of enrollment and we await the trial results, we have begun to expand the bavituximab clinical program and are planning to initiate several new trials in the coming months to identify other clinical settings with the addition of bavituximab might help improve patient outcomes. Our strategy behind this decision is to continue building on our significant clinical experience combining bavituximab with chemotherapy while simultaneously exploring new opportunities with immunotherapy combination.

Let me first address the expansion of our non-small cell lung cancer program beyond combination with docetaxel which we believe will remain a key treatment option in a number of cancers including lung cancer.

The decision to initiate another lung cancer trial supported by the considerable amount of preclinical data demonstrating that treatment effects of CTLA-4 or PD-1 inhibitors is greatly enhanced when combined with bavituximab. This is very timely as anti-PD 1 agents such as nivolumab and pembrolizumab are starting to enter the market as single agent therapies. Thus we are planning to initiate around the end of this year an open label randomized Phase 2 trial of nivolumab versus nivolumab plus bavituximab in patients with previously treated metastatic non-small cell lung cancer who have not received a prior PD-1 or PDL-1 inhibitor.

The primary endpoint of this trial is expected to be overall response rate with secondary endpoints to include duration of response, progression free survival, overall survival and safety.

Importantly as transitional studies have demonstrated that bavituximab enhances multiple markers of immune activation even in tumors that express low levels of PDL-1, we plan to look at patient outcomes by pretreatment PDL-1 expression levels to better understand which patients benefit most from bavituximab's effects.

Now beyond lung cancer, we are also compelled to initiate additional clinical trials in breast cancer based on the totality of our clinical experience in advanced breast cancer to date. Data from our Phase 1 IST of bavituximab plus paclitaxel in patients with HER2 negative metastatic breast cancer published in Cancer Medicine earlier this year demonstrated an impressive 85% response rate. Data from this IST together with two prior Peregrine sponsored trials of bavituximab with taxane base chemotherapy which yielded between 61% to 74% overall response rate and a median overall survival of over 20 months in advanced or metastatic breast cancer patients, provides strong rationale to advance this indication.

Additionally taxanes continue to be a key standard treatment option for many stages of breast cancer. Accordingly, we plan to initiate a seamless Phase 2/3 trial in patients with HER2 negative metastatic breast cancer with all patients receiving physician's choice of paclitaxel or docetaxel either alone or in combination with bavituximab. The primary endpoint for Phase 2 is overall response rate while the Phase 3 part of the trial has a primary endpoint of progression free survival.

Furthermore we are planning a trial evaluating neoadjuvant paclitaxel with or without bavituximab in the hopes of further elucidating bavituximab's immune modulating mechanism and look for clinical signals in early stage HER2 negative breast cancer. As with the Phase 2 lung cancer trial described earlier, we plan to initiate the phase 2/3 breast trial before the end of this year. The open label nature of these trials may provide us the opportunity for data updates and our goal is to generate as much clinical data as possible prior to SUNRISE unblinding.

Now last but not least I would like to finish up with a few words about our recent collaboration and announcement with AstraZeneca. Under this clinical collaboration agreement, we will be combining bavituximab with chemotherapy and AstraZeneca's durvalumab or MEDI4736 in a Phase 1/1b trial in multiple solid tumors. The Phase 1 part of the trial will confirm the tolerability of the two I/O agents and establish the recommended dose regimen of the Phase 1b part of the trial which will assess the safety and activity of the triple investigational combination which includes standard chemotherapy.

We are particularly excited about the collaboration because we believe that these three drugs have different and potentially complementary mechanisms. Chemotherapy is known to kill tumor cells, increase phosphatidylserine exposure and generate tumor antigens. Bavituximab, by targeting exposed PS, a highly immunosuppressive molecule exposed on the surface of cells and the tumor microenvironment has been shown to trigger macrophage repolarization and tumor specific T cell activation.

Durvalumab is a monoclonal antibody directed against program cell death ligand 1, PDL-1 and signals from PDL-1 help tumors avoid detection by the immune system. We believe that by combining these three approaches the potential exists for a more complete and lasting antitumor immune response and look forward to testing this hypothesis in the clinic.

Now to provide more context regarding the AZ collaboration and Peregrine's ongoing business development effort, I will turn the call over to Steve Horsley. Steve?

Thanks, Joe. All of our foundational science and positive clinical results consistently pointed to bavituximab's potential as a high-value next-generation anticancer agent and in the last three months, these achievements have compelled others to align with us as we continue to develop bavituximab. In May Peregrine announced an exciting collaboration with Memorial Sloan-Kettering Cancer Center to evaluate combinations of bavituximab with other checkpoint inhibitors and immune stimulatory agents for the purpose of developing new and increasingly effective anticancer treatments.

Only three months later we announced a new collaboration with AstraZeneca to evaluate bavituximab in combination with AstraZeneca's investigational anti-PDL-1 immune checkpoint inhibitor, durvalumab, also known as MEDI4736 in multiple solid tumors.

By aligning with these world leaders to develop novel immuno-oncology combination therapies, we are positioning ourselves to maximize the potential role that bavituximab can play in this new era of innovative immuno-oncology treatments. We believe these collaborations validate the promise of bavituximab and are indicative of the well validated science we are conducting at Peregrine.

We are in the fortunate position to have full rights to this valuable Phase 3 asset. We believe with the substantial scientific support and compelling data, bavituximab will continue to bring world leading organizations to the partnering table.

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, Steve. Let me shift gears now and give you a brief overview of our financials. Peregrine continues to carefully weigh its opportunities and expenditures with its current cash and financing options. Our strategic investment in the Avid Bioservices businesses is already starting to pay dividends. Our clients are reserving manufacturing spots in the new facility which has increased our revenue backlog to approximately $42 million. In addition to our backlog, current quarter revenue hit an all-time high at $9.4 million representing a 71% increase in revenue compared to the same prior year quarter.

For the full fiscal year 2016, we expect manufacturing revenue to increase to a range of $30 million to $35 million. We also believe this business has more opportunity to grow as our second manufacturing facility has the capacity to generate approximately $40 million in new revenue.

The new manufacturing suite is fully built and the first internal pilot run is currently underway to verify all systems and equipment are properly functioning. The clients will announce the official launch of the facility in the near-term which meets both our internal manufacturing timelines and those of our clients.

As mentioned on previous calls, the non-dilutive income generated from our manufacturing operations continues to offset the amount of capital we need to raise by other means plus it is important to note that preparing bavituximab for commercial production is a significant financial endeavor and this strategic asset saves us millions of dollars each year in manufacturing costs.

Now turning to expenses, R&D expenses for the quarter increased as we continue to invest in our Phase 3 SUNRISE trial while SG&A expenses remained flat quarter over quarter. A more detailed analysis of our statement of operations is included in our Form 10-Q that was filed today.

This concludes my financial overview. I will now turn the call back over to Steve to discuss some important upcoming milestones. Steve?

Thanks, Paul. It has only been eight weeks since we last reported our financial results and development progress yet in the short time, much has been done. We remain on track to complete enrollment in our cornerstone SUNRISE trial and based on the compelling data we have seen to date from other clinical, translational and preclinical research, we are deep into planning for our next set of trials in non-small cell lung and breast cancers.

Our preclinical work continues to provide an ever-expanding understanding of bavituximab's mechanism of action and importantly it is leading us to identify the most promising therapeutic combinations with other immune-stimulatory agents ensuring that bavituximab will play a critical role in the treatment of cancer regardless of which protocols were used.

These study results particularly as they relate to the potential synergies between bavituximab and checkpoint inhibitors creates great excitement for us as we begin and continue work with our new collaborators at Memorial Sloan-Kettering Cancer Center and AstraZeneca while we continue our long-standing relationship with the University of Texas Southwestern Medical Center where this technology was originally developed.

We look forward to initiating new collaborations, completing enrollment of our SUNRISE trial, beginning dosing in our new non-small cell lung cancer and breast cancer studies, and announcing the opening of Avid's new manufacturing site, all in the next few months. These are exciting times at Peregrine and we will continue to keep you posted on all these projects as we make progress.

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

(Operator Instructions). Joe Pantginis, ROTH Capital Partners.

Good afternoon, thanks for taking the question. I guess I would like to focus first on the lung cancer area. So first, with SUNRISE I know I have asked this question previously several calls ago, but have you seen any impact with regard to the recent approval of Opdivo for enrollment in this study?

Yes, I think I'll take the first stab at that and Joe can jump in. But yes, basically we haven't really seen any impact of it in the enrollment itself. Obviously these drugs are either just now coming on the market or even aren't yet available for reimbursement. So at this point it has not been much of an issue. Of course on the other side of it, it opens up in our new studies the combination potential in those indications where now insurance can help pay for those drugs as a standard of care. So I think based on the timing of when we anticipate completing the study, the fact that this is a worldwide study including it is not just sites in the US but actually the majority of our sites are in Europe and in the Asia-Pacific region. So we don't anticipate this will be a hindrance for us completing enrollment on the schedule timeframe.

That's helpful, thanks. The second part of the lung question is obviously the treatment landscape with the Opdivo approval, lung cancer treatment landscape is evolving pretty quickly so how do you see bavi fitting into that landscape?

Yes, that is a great question. We really view that chemotherapy is still going to be a major part of the way cancer patients are treated and that's in non-small cell lung cancer as well as other indications. So I think while the order in which drugs are used may change over time, eventually the immuno-oncology agents may end up in a front-line setting. We really feel like bavituximab is in an excellent position because we will have the data coming from the SUNRISE study supporting the effectiveness with docetaxel which again is one of the standard treatment paradigms in second-line non-small cell lung cancer but also the new study we are initiating by year-end which we are combining with Opdivo will then give us really we think a nice set of data coming in the immuno-oncology combination.

So I think as everything sorts itself out and new agents come into the marketplace that we will be in a good position for combining with either one of those treatment modalities. Gentlemen, do want to expand on that?

Yes, I think much like in the melanoma space, the initial approvals of immuno-oncology agents or single agent therapies that you can see there is obviously a lot of combination work being done and I think as bavituximab is really uniquely positioned mechanism can really complement a host of different other mechanisms and the tolerability of the compound in (inaudible) lends itself to be combined with different therapies. So I think it is going to be -- there is going to be a lot of opportunities for making other products work better.

Okay, cool. Thanks. The second question I have is in addition to AstraZeneca, what additional types of partnerships or collaborations are you targeting at this point?

Sure, this is Steve Worsley. Again, what we are looking to do is to do fundamentally more of the collaborations that we formed with AstraZeneca. Partnering which we cannot speculate on right now due to the forward projection is certainly within the wheelhouse of the organization. We will and have seen quite an uptick with regards to the activities in companies looking at us because of these initial collaborations that we have set up this year so we anticipate more of the same.

I think to expand on that a little bit so obviously our stated goals have been ex-US partnering primarily keep as much of a US rights as we can and that remains intact. I think really the reason obviously at this point of partnering is to allow us to expand what we are doing with the bavituximab program. We have obviously got a number of new clinical studies we have identified as being important to start over the coming months so we can have a data from those studies by the time we unblind the SUNRISE study.

But also to be able to run additional studies in other combinations and other indications because clearly that is where the value of the program can be driven upwards is through additional indications and detailed utilization of bavituximab across many different treatment paradigms.

Okay, great. Thanks a lot, guys.

Charles Duncan, Piper Jaffray.

First of all, congratulations on some of the recent research collaborations. And secondly, thanks for taking my questions.

My first question is regarding SUNRISE perhaps for Joe. Thanks for the update on being on track for enrollment by year-end. Any chance that you could give us now or plan to in the future give us any sense of blinded patient characteristics and geographic backdrop in terms of where those patients came from, any sense of how the enrollment is going with regards to previous lines of therapy, etc.?

Yes, I think we are probably going to wait until we pass the first interim analysis and completion of enrollment before we announce any kind of demographics on the trial.

And then Joe, I know it is an event driven trial but can you gauge at all when your sense is that you might get to that first interim of 33% of the event?

I can't really guess right now.

Yes, I think Charles, we have been projecting probably first half of next year for the first interim data look and then probably midyear on for the second interim data look and for the final unblinding. Of course that is based on sort of just general projections of how we expect patients to do in the study overall. So I think as we get further along we will be able to give a little bit better guidance as we see more events take place and feel like we are getting closer to those actual interim data looks.

Okay, that makes sense to me and I appreciate the added color. Good execution thus far.

I wanted to ask perhaps a little bit about AstraZeneca deal recently. The level or types of diligence that they conducted and the motivation was the publication that came out roughly midyear or earlier this year as a key driver to that deal, that collaboration?

I will let Steve and Joe talk a bit more about it but I think in general I think it is great to have a partner like AstraZeneca who is essentially associated with us and wants to see how bavituximab may be able to impact the treatment paradigm with their particular PDL-1 inhibitor. I think of course before any big company enters into those sort of collaborations there is a significant amount of work that they do on their side to pick the right partners also because there's lots and lots of opportunities for these big companies to collaborate with people and so they want to make sure that they utilize their resources wisely as well.

So I think it was a great process. I think it was really driven by I think a combination of some of the publications as you mentioned that have come out but also some of the data we have been presenting since last fall showing the real potential of bavituximab to enhance the potential number of patients that will respond to PD-1 or PDL-1 inhibitor. So I think it has really been a combination of the constant news flow we have had that has really driven that interest.

So Joe, I don't if you or Steve want to add to that?

I think the thing with regards to due diligence is they take these types of collaborations very seriously, there is a series of significant investment that they make in terms of investigating combination therapies out there and again, don't think that there is anything out of the ordinary but it was definitely a very exhaustive process they have conducted.

Okay, then with regard to that current interaction, does that in any way put them in a pole position for further interactions with you or is it simply let's do this experiment together?

I think it positions them as an organization that is going to get used to working with our compound. By no means are they going to pole position for future partnering activities.

But certainly they know you folks, they know what bavituximab could do and its mechanism and then how it interacts with their compounds.

Yes, I think that is definitely the main advantage from their standpoint because we will be working very closely with them in this clinical trial as well as also discussing other potential types of collaborations, other trials and what have you. So clearly that proximity creates something of an advantage but it is a wide-open race.

Last question is for Paul regarding the Avid Biosciences Division. You spoke about increasing capacity substantially here soon. Could you project any new collaborations, partnerships, customers, signings in the next 12 months or so?

I think right now what we have said publicly is our current guidance is $30 million to $35 million for this fiscal year and obviously Halozyme is one of our key anchor customers and they represent a good portion of our revenue and that supports both their Baxter collaboration and their Roche collaboration. So that obviously has opportunity to grow as they are successful too.

But the new facility obviously will support the bavituximab commercial launch in addition to providing growth for Avid's business so we are excited about having that business there. We have had a number of customers come through and inspect the operations and inspect the facility and everybody believes it is a world-class facility so we are excited to launch that here shortly.

Just a little more color on that. I think really the new facility a lot of the interest comes from the existing client base even as much as we have had new central customers coming through. So we are very happy with the response to the new facility and I think it really opens the door even for future additional expansion if that is the direction we want to move. So I think it is exciting, it is a real nice showpiece and it is really showing in the interest that it has generated from again the existing client base.

Thanks, Steve.

George Zavoico, JonesTrading.

Good afternoon, thanks for taking my question and good quarter (inaudible) progress you have made in a collaboration.

This question kind of follows up on what Joe said in the beginning, the rapidly changing landscape with Opdivo and Keytruda in lung cancer, certainly probably multiplies the possibility for a combination but it also begs the question of the patients that are enrolled in SUNRISE. Will you know retrospectively or prospectively perhaps patients that are still being enrolled, what their PD-1, PDL1 status may be if that is part of the. Is that something that you are now starting to do now that those assays are becoming available?

That is something we are looking at in an exploratory fashion, George. We are not requiring pretreatment biopsy specimens to get onto the study. It is on a long-term basis and we are collecting a significant portion of patient samples. So we will see at the end of the day if it is enough to give us a hint at how predictive the (inaudible) specimens are at predicting outcomes.

How about in terms of going forward, like for example when the patients begin disease progression and the subsequent therapies that the patients will then undergo after they quit bavi and docetaxel, some of those patients might be tested for [GL-1] and go on to the immuno-oncology drugs, Opdivo especially and they may end up doing or perhaps biasing somehow those sets of patients in survival post SUNRISE. How do you look at that potential possibility?

So we definitely collect what was subsequent treatment patients go on, that is standard for a survival primary endpoint trial and we plan multi variant analysis based on variables like that.

Obviously a lot of this bias should be handled by the fact that it is a placebo-controlled study so you would think those patients would equally fall into either of the arms of the study post being on the treatment in the SUNRISE study.

I think it is as we go forward, I think there's a lot of interesting things that we want to do I think with regard to the PDL-1 status because some of the translational data we were able to show at ASCO around that time period this year really highlighted the fact that it may be actually PDL-1 negative tumors that could have a significant impact in. And so I think as we continue to go forward with the planned studies as well as other studies that are sort of more in the development phase, the ability to look at PDL-1 negative tumors and actually select for those patients take a look at how they do on treatment with bavituximab or again we think we can enhance the effectiveness of a PD-1 or a PDL-1 inhibitor is one trial design that has gotten a lot of interest.

In addition, there is the potential of kind of the other way around eventually taking maybe PDL-1 or PD-1 refractory patients and actually then adding bavituximab as a treatment regimen assuming if you can convert those into responding patients. So we will certainly being doing as much analysis as we can in the SUNRISE trial sort of retrospectively and looking for any imbalances from what we can tell in the PD-1 and PDL-1 status.

And a question regarding the collaboration, you are planning to increase the number of program trials that you have got going. This adds cost. Do any of the collaborations, what is AstraZeneca contributing in terms of cash to this? Memorial Sloan-Kettering and MSKCC, are they providing any funds or is this going to be mainly funded by Peregrine? How much non-dilutive cash might come in to help you with the AstraZeneca and the other trials that you are starting?

Yes, I think in general as part of the AstraZeneca collaboration, we are providing the drug itself which is a huge cost benefit in this sort of trial because it allows us number one full flexibility to start the study as quickly as we can but also that it takes the need to purchase any of the PD-1, PDL-1 inhibitors off the table. So that is a significant benefit for their participation in the current collaboration. And again, I think for us one of the key drivers was the ability to get these studies started as soon as we can because our bigger goal here is to be able to generate data again by the time that we unblind the SUNRISE study and the reason for that is planning for success is with good SUNRISE data and with the additional combination therapy data in hand, it gives our regulatory group a lot more to work with when it comes to closely working with the FDA toward eventual label claims and what have you as we look toward approval.

So I think for us right now time is of the essence. I think as we go forward we will be wanting to find probably more partners that can bring additional funding to the table and help us to run studies either from an operational standpoint because again we have a relatively small internal group. So we are also going to be somewhat limited in the number of studies that we can run simultaneously but also some of the funding to take care of patient costs and what have you.

But at this early stage, the most important thing for us was to really have control of the study and be able to get it up and running because we feel the real value is getting this data in a timely fashion because of the value we can add on the backend.

And then in regards to the AZ study, did you guide at all when the first AstraZeneca study might start?

Not yet. We are working with the teams very closely to finalize the protocol and trial design right now and so when we have I think a better handle on the operational timelines we will provide that.

And the Memorial Sloan-Kettering that is mainly preclinical translational studies, correct?

Correct.

That is the research collaboration that was announced. Of course they are very active in the clinical space and they've got lots of good ideas for clinical studies. They have also got good relationships with a lot of the key players in the immuno-oncology space, within the PDL-1 space specifically so we think that down the road they will be very active in both our clinical and preclinical research programs.

Okay, great. Look forward to seeing some of the data in upcoming conferences. Thank you very much.

Rahul Jasuja, Noble Life Science Partners.

Thanks for taking my question and I'm glad to hear that (inaudible) that PS is now being recognized by big pharma and the immunology mafia so to say.

So a couple of questions mainly pertaining to how PS checkpoint inhibitors is differentiated from the conventional checkpoint inhibitors, I guess, CTLA-4 and PD-1, PDL-1 pathways.

So obviously from the data that has been presented at (inaudible) and also even discussions I've had with you guys, besides blocking just PS blinding to its receptors and immune cells there is an FcFc gamma-based factor function leading to ADCC and so and so forth. So there is an immune factor function that other checkpoint inhibitors do not have blocking PD-1 or blocking (inaudible).

So you've got a component here that is beyond other checkpoint inhibitors that brings in the factor function that others do not. So looking at that aspect and looking at some of the translational data do you think that beyond the PD-1, PDL-1 non-immunogenic tumors there is a possibility that PS blockade will have far more effect potentially driving (inaudible) energy presentation. Any comments on that?

Yes, I think it is a very important point you are bringing up because we are blocking an inhibitor, you still need an activating function to get an immune response started and it is a little bit different with PDL-1, PD-1 inhibitors because there you have basically brought up a marker to stop an active immune response. So taking away the stopping of that immune response actually allows that continuing immune response to take place.

But for the more upstream checkpoints, it is important to have that activating event and in fact it is taking away the negative PS signal but then activating this T cell response which we think is such a great fit with the PD-1 and PDL-1 inhibitors.

You are right, it is absolutely that activating event when you are taking off sort of the brakes if you will upstream because you still now need that trigger point for getting the immune response started and so we are providing that with as you said the FcFc gamma receptor interaction.

And also the other question sort of stems from the fact that there is much said about connecting adaptive with innate (inaudible) cells strategies in play as well. From the Styofied] profile and looking at the translation for it that you guys presented in actually lung cancer, so you are seeing interferon-gamma IL-12 and other cytokines and also converting M-2 to M-1 macrophages, how significant do you think your approach would be because you could be connecting innate with adaptive where other strategies do not really do that. I guess some of the other strategies look like listeria monocytogenes that (inaudible) has or [Vax] does that. But no other checkpoint does that. Any color on that aspect where you could be connecting both the arms of the new system having deciding which tumors you are going to attack and how the combination approaches may pan out?

Yes, I think you are bringing up a great point because what we are doing to this activating event in starting this immune response is basically taking away that natural defense the tumor has for stopping all immune responses so that is both innate and adaptive killing of the tumors. So we are really basically reversing probably equally on both sides of the equation and we have good data that supports that. And I think as you are pointing out, it really brings up a lot of new different types of combinations that we can pursue and it is one of the reasons over the long run our goal is outside of PD-1, PDL-1 to combine with other immune modulating technologies and that could even include dendritic cell vaccines, some other types of vaccine approaches as well as again the litany of different checkpoints that play a role downstream of our target.

So I think it really opens a lot of doors for us and again I think as Joe Shan alluded to earlier, one of the great things about bavituximab has been that it seems really very combinable so far with these other agents and so by having this good safety profile really allows us a lot of opportunity on the combination front.

Great. Then one final question on the SUNRISE trial and I guess the answer may be yes but I'm not sure. On the SUNRISE trial, are you guys actually measuring all the cytoclines that were measured in the translation work with the microspheres, like IL-12, gamma, IL-10 or are those not being measured for each patient?

That is part of our exploratory endpoint so we have a number of testing and blood-based plus -- those are both blood-based of course. So yes, we do plan to look at cytokine, changes in cytokine levels and working with some labs to develop ultra-sensitive assays.

That will also be a major part of a lot of the new studies we are starting as well. Because again as we've learned more even since we started the SUNRISE trial, we now have the ability with all of the new translational data in hand to really design some of these new studies with some of these additional endpoints sort of in mind of looking at cytokine profiles, changes in microphage3 profile, MDSC levels, all those things.

Great. Thank you. That is all I had.

Thomas Yip, FBR.

Good afternoon, guys. Thank you so much for taking my question and congrats on a nice quarter. Good to see Avid continues to grow. So I just have two quick questions so I am just wondering what will be considered a successful outcome for the Phase 1/1b trial that has been partnershipped with AstraZeneca?

First we need to establish the tolerability of two agents, so success obviously means we can move into the triple combo setting and then there (inaudible) kind of a basket design where we are going to look at several different tumor types combining with the standard chemotherapy as well. And so there, it is Phase 1, so they are uncontrolled studies but these likely will be heavily pretreated patients. So I if we see good responses then that would we consider signal and we can always expand each cohort or the trials to additional tumor types.

As (inaudible) studies, one of the nice things here is that we will have the ability to take a look at the PDL-1 status of the tumors as they go into treatment. Do we see differences between PDL-1 negative and PDL-1 positive? So a lot of exploratory work can be done in this sort of trial design that we are looking at. And I think particularly for me it is exciting because obviously we have gotten a lot of good clinical data combining bavituximab with chemotherapy and this is a great opportunity to now expand that into that nice combination with now some of the -- really a nice novel PDL-1 inhibitor to take a look at what a triple combination can do.

So I think that is a huge benefit here because particularly as we think about how the treatment landscape is going to change in various indications, still the majority of patients in most indications are not getting cured and so the more we can figure out how to fit bavituximab in the different treatment regimens we think the more value it will have overall on the program.

Okay, that sounds good. I want to shift gears a little bit and talk about Avid. I see that the backlog has now increased, ballooned to $42 million. Just wondering, this may be accounting specific but what is the accounting treatment of that backlog increase, does it go to customer deposits or does it increase deferred revenue?

Our typical contracts require an upfront deposit to secure that manufacturing slot. That would actually go into customer deposits and then once we kick off that manufacturing run, it gets booked into deferred revenue until that run is shipped and then it moves into revenue. That is the overall. $42 million in backlog right now covers work to be completed during this fiscal year and also into fiscal year 2017 so it is a combination of both years in terms of timing.

Okay, sounds good. Like I said again great to see Avid continue to grow and also while expanding bavituximab clinical trend at the same time. So thank you.

I'm showing no further questions at this time. I would like to hand the call back over to Mr. Steve King for any closing remarks.

I'd like to thank all of you again for participating in today's phone call. In closing I would like to again express our enthusiasm around the bavituximab program and our growing bio manufacturing business. We are already helping other companies treat patients worldwide through our manufacturing services and we look forward to the potential that our own product, bavituximab could play in helping the countless patients battling cancer worldwide by helping them to 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 our patients and their families that are participating in our bavituximab clinical trials.

With that we will conclude the call.

Ladies and gentlemen, thank you for participating in today's conference. That does conclude today's program. You may all disconnect. Have a great day, everyone.