Avid Bioservices Inc (CDMO) 2016 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Peregrine Pharmaceuticals third-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 morning, 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'd like to caution that comments made during this conference call today, March 9, 2016, 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. And with that, I will turn the call over to Steve King.

Thanks, Tim, and thanks to all of you who have dialed in and to all of you who are participating via webcast today. It has certainly been an interesting time at Peregrine since our last regularly scheduled conference call. On the downside was the recent announced discontinuation of our Phase III SUNRISE trial. On the upside was the announcement that we had completed formal commissioning of our new biomanufacturing facility and that the manufacturing in the facility was well underway, giving us a great new revenue source from which to continue growing the business, which this fiscal year will easily reach an all-time revenue high.

So, where do we go from here? First, we continue growing our thriving manufacturing business, where we see the opportunity to grow even beyond the new manufacturing facility. Demand for services is at an all-time high and, importantly, we are seeing significant opportunities for late stage clinical and commercial production that can yield a solid base for future growth. So on this side of our business, it is business as usual: supporting our clients with their developments and commercial production needs.

On the development side, it is a transition time for bavituximab program. While the results of the interim analysis from the SUNRISE study are unfortunate, and it is a setback for our chemotherapy combinations with bavituximab, it is by no means the end of the program. For starters, we have not yet completed patient follow-up in the SUNRISE study with the goal of learning as much as we possibly can from the trial. Important to note is that patients that enrolled in the study and are still active are continuing to receive chemotherapy, and those patients that were on the bavituximab arm have the option to continue receiving bavituximab, and some have already expressed an interest in doing so.

And we will be continuing follow-up on these patients as well as survival follow-up for patients that have already exited the study. At this point, our goal for the study is to obtain data from the trial that can potentially be critical in how we move the chemotherapy combination program forward, and even information that can help guide the overall program. Which patients did particularly well in the study? What were their characteristics? These are just a couple of examples of the many types of questions that we want to attempt to address as we wind down the SUNRISE trial, so that we can tailor patient selection in future studies. As we generate this data, we will be able to share it at the appropriate time in the future.

As for advancing program, we are as excited and confident as ever about the immuno-oncology combination potential of bavituximab. As you may recall, this was already the counterpart to the chemotherapy combinations based on a completely different mechanistic synergy, namely to start an immune response in patients lacking a good immune response and then prolong the immune response by blocking the PD-1/PD-L1 pathway that can counteract a strong immune response in patients. This combination hypothesis is still completely intact. We have generated a significant amount of translational and preclinical data demonstrating that bavituximab has the potential to enhance the activity of checkpoint inhibitors, and our goal for the coming year is to bring many of these concepts into the clinic and to demonstrate the potential of bavi in this important area of cancer therapy.

With our I-O combination program having been underway for some time, long before the SUNRISE results, we have formed collaborations with some of the leading I-O players in the world: a collaboration with AstraZeneca to study bavi with our PD-L1 inhibitor durvalumab; a collaboration with researchers at Memorial Sloan Cancer Center to study novel combinations of bavituximab with I-O agents; a collaboration with the National Comprehensive Cancer Network, or NCCN, to run multiple clinical studies focused on I-O combinations at some of the 26 leading cancer centers in the US that are part of the network, with significant involvement as part of the program from key opinion leaders at those institutions. All in addition to our longtime collaborations at the University of Texas Southwestern Medical Center that will continue to be active in pushing forward I-O combinations.

The main difference for the SUNRISE results in hand is that the I-O combination program has become our major area of clinical focus. And as such, we are working with all of our collaborators to redefine the program in order to have a cohesive and comprehensive strategy that ties together the efforts of all of our collaborators and will allow us to rapidly advance the program. The strategy will involve studies designed to answer specific questions about particular patient populations where we already have evidence that bavi may have the biggest impact, allowing us to more quickly generate data that we can build on as we advance the program. These planning efforts are well underway as we speak and we will look forward to updating you as they are implemented into the clinic.

I will now turn the call over to Joe Shan, Vice President of Clinical and Regulatory. Joe?

Thanks, Steve. I'd like to start by speaking about our Phase III SUNRISE trial, which we discontinued in late February. The decision to stop the trial was based on the recommendation of the study's Independent Data Monitoring Committee, or IDMC, following a prespecified interim analysis. While the interim analysis showed that the bavituximab combination group was performing as expected according to the original trial assumptions in terms of overall survival, it also demonstrated that the docetaxel group had dramatically outperformed overall survival expectations based on the original trial assumptions and as compared to recently published studies.

Nevertheless, enrollment has been stopped and we are now in the process of winding down the trial. As part of this process, patients who are still receiving study treatment are given the option of completing their chemotherapy. And for those patients assigned to the bavituximab arm, they continue to receive bavituximab if the investigator believes that this is in the patient's best interests. Because I-O agents can elicit delayed responses and prolong survival, we are continuing to follow such [indications] to evaluate their outcomes. Such information will certainly be valuable and help inform future decisions for the Company.

As we continue to collect and clean the remaining data, we are also conducting a thorough evaluation of the already available clinical data. While we perform these analyses, we have put a hold on the trials that combine bavituximab with chemotherapy until we have a clearer understanding of the SUNRISE study results. Specifically, we have put our recently initiated Phase II/III breast cancer trial on hold, as well as the startup activities for a Phase II early-stage breast cancer trial. It is our plan to publish our findings from SUNRISE when it is completed, and we will provide an update on this process next quarter.

Looking ahead, our priority is to generate clinical evidence of bavituximab's ability to improve patient outcomes when combined with immuno-oncology agents. To this end, AstraZeneca and we are currently evaluating the trial designs for the two previously announced clinical trials combining bavituximab with AZ's PD-L1 inhibitor, durvalumab. In light of the recent development in the SUNRISE trial, our companies are currently working together to identify the optimal path forward for demonstrating potential mechanistic synergies between bavituximab and durvalumab in different patient populations.

We are particularly interested in combining bavituximab with checkpoint inhibitors because it has been observed that checkpoint inhibitors are most effective when there is a pre-existing T-cell response in tumors. Importantly, we have preclinical evidence that bavituximab-like antibodies trigger CD8-positive T-cell responses, which can be prolonged by the addition of PD-1 checkpoint inhibitors.

Another important observation we've recently made is that our PS signaling pathway inhibitors demonstrate multiple signs of immune activation in low or negative PD-L1 expressing tumors. We believe that this holds great potential to increase the number of patients able to respond to checkpoint therapies. Based on these observations, we believe that, by combining these two approaches, the potential exists for a more complete and lasting antitumor immune response.

Lastly, I'd like to comment on our newest collaboration with the NCCN. The goal of this partnership is to build upon the Company's clinical development program of bavituximab in combination with I-O agents for the treatment of a range of tumors. NCCN is a not-for-profit alliance of 26 of the world's leading cancer centers dedicated to improving the quality, effectiveness, and efficiency of cancer care.

Through this collaboration, Peregrine will have an opportunity to fund multiple investigator initiated clinical and correlative studies with bavituximab in a range of cancers at the NCCN member institutions and their affiliate community hospitals. We believe this relationship will prove to be highly valuable as it will allow Peregrine to expand and augment our bavituximab clinical development program through experienced investigators at world-class institutions.

It would be impossible for a Company of our size and stage to gain access to incredible institutions and clinical thought leaders otherwise. This collaboration remains quite new but we look forward to reporting our progress in the not too distant future. This concludes my comments today. I'll now turn the call over to Steve Worsley to give an overview of the business development and manufacturing activities. Steve?

Thanks, Joe. As Joe provided an update on our collaborations with AstraZeneca and the NCCN, I'd like to provide an update on Peregrine's other I-O focused collaboration with Memorial Sloan Kettering Cancer Center. The goal of this partnership is to evaluate combinations of bavituximab with other checkpoint inhibitors and immune stimulatory agents for the purpose of developing new and increasingly effective anticancer treatment.

This work is advancing well. To date, we have seen initial signs of activity with new combinations with bavituximab and other treatment modalities such as checkpoint blockers, T-cell agonists, and radiation. Our plan is to spend the next year investigating these possible combination potentials. We are also renewing the contract for next year as we've seen exciting results thus far.

I'd now like to discuss our biomanufacturing business. As we announced earlier this week, our new, state-of-the-art commercial biomanufacturing suite, which we call the Myford facility, has been formally commissioned. As part of the commissioning process, all relevant regulatory agencies have been notified and gene preproduction is currently underway. The new facility, which is being operated by Avid Bioservices, will more than double the Company's prior manufacturing capacity.

The 40,000 square foot biomanufacturing facility, which is located adjacent to the Company's current campus in Orange County, California, is outfitted with cutting edge, single-use equipment to accommodate a fully disposable biomanufacturing process for late Phase III clinical and commercial production of biologics. Despite its world-class design, the Myford facility was completed for a fraction of the cost of building comparable facilities, something of which we are quite proud.

The suite is capable of operating reactors as large as 2,000 liters in volume. GMP material produced in the new facility can be used either in clinical trials or for commercial sale once Peregrine or its partners make the appropriate regulatory filings. Demand for this new production capacity is high and we already have lot commitments extending well into 2017. As this demand continues to grow, it leads us to consider options for potentially adding more production capacity in the near future.

We are currently evaluating a number of opportunities to meet this demand and are extremely optimistic about the growth of this business. We believe that the Avid business will continue to be a tremendous source of new business for Peregrine, and it is our goal to pursue every opportunity to fill demand and expand capacity. That concludes my comments.

I will now turn the call over to Paul Lytle, Chief Financial Officer, who will discuss the Company's financial performance, including additional details regarding our Avid Bioservices business. Paul?

Thanks, Steve. We are pleased to report that we continue to see significant growth in our contract manufacturing business. Last quarter, we raised our fiscal year revenue guidance from $30 million to $35 million to a range of $35 million to $40 million. And today, we believe we can exceed this guidance and top $40 million in contract manufacturing revenue for the full fiscal year 2016. This represents revenue growth of approximately 50% over the prior fiscal year, in addition to the continued growth we've seen over the last several years.

I would also like to point out that our manufacturing revenue for the full fiscal year 2016 will be solely derived from our existing manufacturing facility. And our newly commissioned facility has the potential to generate an additional $40 million in manufacturing revenue.

Now turning to the current quarter, we generated contract manufacturing revenue of $6.6 million, representing an 18% increase in manufacturing revenue compared to the same prior-year quarter. And year-to-date we recorded manufacturing revenue of $25.6 million or a 47% increase compared to the same prior-year period. Our outlook for this business remains very positive, with our customers continuing to book available production capacity.

Our revenue backlog has grown from $49 million reported last quarter to over $58 million as of February 1, 2016, the beginning of our fourth quarter. Looking ahead, we expect Avid Bioservices to continue to play a critical role in our business. Avid continues to generate non-dilutive income that significantly reduces the amount of capital we need to raise by other means. For this reason, growing the Avid business will remain a high priority for the Company.

Now turning to expenses, R&D expenses for the quarter increased, primarily due to the increased manufacturing costs associated with bavituximab, combined with increased costs associated with the previously planned Phase II trials in breast cancer and lung cancer, while G&A expenses remained relatively flat quarter over quarter.

A more detailed analysis of our statement of operations is included in our Form 10-Q that will be filed later today. This concludes my financial overview and I will now turn the call back over to Steve to discuss some important upcoming milestones. Steve?

Thanks, Paul. As you've heard from our team today, Peregrine remains a strong company with a valuable clinical asset and a rapidly growing biomanufacturing business. The important work of developing bavituximab as an anticancer therapeutic continues. We believe our relationships with AstraZeneca, Memorial Sloan Kettering, UT Southwestern, and with the NCCN will be invaluable as we establish and execute our overall strategy for advancing the bavituximab I-O combination plans in a range of cancer.

And our Avid Bioservices business continues to outpace our initial projections, providing a steady, growing revenue stream. The Avid business grew 20% in fiscal year 2015 to $26.7 million in revenue and is expected to grow to exceed $40 million in revenue in fiscal year 2016, with our new facility now online to help drive further revenue growth in fiscal year 2017. It is fair to say that Avid has experienced significant success and we are evaluating a number of opportunities to continue to expand this important business.

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

(Operator Instructions) Joe Pantginis, ROTH Capital Partners.

A couple of questions, so bear with me if you don't mind. First, with regard to the overall operations of Peregrine, you're obviously looking at increased revenue from Avid. So with that in mind, how are you looking to fund the Company going forward with regard to the Avid revenues, your outstanding ATM, and is there a potential for restructuring following the SUNRISE news?

Good question, Joe. I'm going to say that we're very committed to maintaining a solid cash position to run our business. We've always said in the past that our goal is to maintain a balanced financial approach. So we like to complement our cash position with the revenues that are coming in for Avid. We can utilize potential offerings through the equity markets if we need to, and then obviously looking at other opportunities.

I think different collaborations, different revenue streams, and growing the Avid business I think will be imperative for the Company as we advance that business. Again, we are looking at maintaining and sustaining a very operational business here and to support our customers.

And with regard to the size of the business and any potential restructuring?

Currently, there is no restructuring in terms of the size of the business. Our goal is to continue to grow that business, and we have plans to do that.

Okay. And switching to the I-O combination program. Steve, you made a comment about how the program is going to be redefined now. Can you talk maybe a little more about what that means? Specifically you could start with -- I know you had some certain views about what the AZ protocols might have looked like. Have those changed? And what are your discussions with -- what have your discussions been with AstraZeneca since the SUNRISE news?

Sure, yes. So I think that just -- a little follow-up on your first question. I think one of the things we've done which is prudent is, based on the SUNRISE data and the fact that we really need to understand what happened in that study, why did the control arm way outperform what we expected going into it? As Joe mentioned in his remarks, we have put on hold a couple of the clinical studies that would have been starting otherwise.

It does two things; one, it gives us a chance to get more data from the SUNRISE trial and to make sense out of it. The second is, of course, that it also controls expenditures in those areas, and those were a couple of significant expenditures for the coming year. In addition, our overall strategy I think, and this is -- kind of pertains to both questions -- is really to focus our clinical development efforts on studies that can yield, number one, quick data, or as quick as possible.

But also smaller studies that really allow us to build on early successes and then to grow our knowledge base as we expand into larger trials. But it's a huge benefit to be able to do that based on the tail, if you will, of good clinical data. So, yes, I think we've entered into discussions with AstraZeneca. We're having discussions with NCCN, with our other collaborators at Sloan Kettering, UT Southwestern about how do we put together a cohesive program. Because we don't want a bunch of individual activities that don't fit well together. What we want is a program that allows us to answer critical questions in multiple indications simultaneously, and again then to build on solid clinical data.

Looking at patient populations such as PD-L1 negative, we've already shown in some of our translational work and preclinical studies that that may be where we can have a big impact, so be able to look at that in a clinical setting. But I think taken overall, it also helps to control the burn rate until we can generate good clinical data that's positive. And then that, of course, should help both on the partnering as well as the funding fronts. So I think we're taking this really very stepwise and then, again, continuing to grow the Avid business. Just makes good sense because that again really helps cover the overall business operations.

No, that's helpful, thank you. And then just a quick follow-up on that. Would you say that there has been no change to the tenor of your discussions with AstraZeneca?

Yes. What I would say is that the tenor of the discussions has changed, just because what now makes the most sense. Because the rationale for running the Phase II study in non-small cell lung cancer was a little bit different. It was really meant to augment a positive clinical study in chemo combinations. And so that they'd then have coverage for both the I-O combinations as well as the chemotherapy combinations.

I think now the goal has changed somewhat and I think for both of us into now, how do we now build on good clinical data and find those patient populations that are most likely to respond. So, yes, I think it's sparked a lot of new conversation, all of which I think is very positive. And I think also which will allow us to not just run studies with AZ but also to incorporate what we are doing with NCCN, Sloan Kettering, UT Southwestern, into that overall plan which benefits both Peregrine and AstraZeneca and everyone involved.

Okay. And then my last question, if don't mind, it's a quick one. You mentioned regarding SUNRISE that patients will be able to, if they request, remain on bavi, excuse me. Do you have a sense of how many patients that might be and the potential costs associated with it?

Yes, I think the potential costs would be relatively minimal just because, obviously, it's only going to be a portion of the patients that would be going forward with that. But it was all already captured in the initial intent of running the study. But I think the benefit is far outweighs any expenditures associated with those infusions because, number one, we already have the drug. Number two, it allows patients to stay on and, again, as the data matures, our goal is still to get as much data from this study as possible, which includes which patient population may be doing better; is there a survival tail?

There's just a lot of questions we still want to answer. And the more we are able to keep patients on study, keep them going through, I think the more likely we are to be able to get some really nice data that we can, again, really employ as we continue to advance the program.

Okay. Thanks, guys.

Thomas Yip, FBR & Company.

Just wanted to find out more specifically about your ongoing discussion with AstraZeneca. You mentioned that it involves finalizing the design of two trials. Just wondering whether it's still a Phase II trial for non-small cell lung cancer and then another trial for solid tumors? And if so, which one is the higher priority trial at this point?

Sure, yes. So I think that -- just to remind everyone, so the original collaboration -- we had actually two separate collaborations. The first one we entered into was for a quote-unquote basket-type study, in which we look at multiple solid tumor indications. The idea in that study was to combine bavituximab with durvalumab plus chemotherapy. And then the second study was as part of our Phase II study in non-small cell lung cancer to combine bavi with durvalumab versus durvalumab alone.

And I think the -- again, as I just said in the last question -- basically I think what we want to do now is take a step back. Okay, we've got data from SUNRISE; what is that telling us? Obviously, it's giving us a good reason to consider the trial design for the basket study. Do we at this point want to just simplify it and have it just simply be a bavituximab plus durvalumab study? Those are the kind of discussions that are ongoing.

Then the second is to -- on the Phase II study in non-small cell lung cancer. And what I would say is we're just taking a look at both of those studies and determining what is the right studies to run. Again, my goal for the clinical program is run studies in which we can quickly answer questions, ask questions and answer questions, and use that to guide the overall program.

I think that what we want to do is make it the most efficient program. I think AstraZeneca really sees the value in that. And, again, also to tie it in with what we are doing with NCCN. Again, with UT Southwestern, Sloan Kettering, so that we get the value of a global program, not just a couple of clinical studies which will answer some questions but maybe leave others unanswered.

I think that's -- I think we're having very good discussions with AstraZeneca and we just want to come out with the best program overall that really allows us, again, to rapidly generate data and to rapidly move the program forward.

Sure, that makes sense. In parallel, can you tell us a little bit more detail about your NCCN collaboration? Just wondering specifically what is the selection process of potential immuno-oncology combinations?

So, the process with NCCN, which is pretty much kicking off, is that the NCCN is responsible for reviewing, putting together a proposal and working with us to try and answer questions that are of interest to us. But at the end of the day, they are running the program. And I think what's important is NCCN is some of the leading cancer institutions in the US. In addition, it's really key opinion leaders at those institutions who will be involved in our particular program.

And so, we couldn't be in better hands than working with the key thought leaders to select and run clinical studies that will add the most value to our I-O combinations. So they are responsible for it. We provide them with all the information we have to date, where we see the gaps in the program, and then they basically take it and run with it. And so, operationally it's great for us. It's great to be, again, be involved with these leading institutions. So it's really just a win-win for us and for the investigators to be able to run these studies.

Sounds good. One last question, this one's about Avid, about the $58 million in manufacturing backlog. So, just want to make sure that this manufacturing is committed for the last fiscal quarter of 2016 and also over the four quarters in fiscal year 2017, is that correct?

Yes, Thomas, this is Paul. That is correct. So that will be revenue to be reported in Q4 of this fiscal year and into fiscal year 2017.

Great. Thank you again for taking my questions and looking forward to hearing more progress with bavituximab.

George Zavoico, JonesTrading.

Sorry about the SUNRISE. That was quite a surprise. And the better than expected behavior of the control of docetaxel; that's killed a bunch of Phase III trials already in the last several months. Very unsettling patterns. But anyway, it will be interesting to see how it plays out with those patients that you're still treating as well, though, however.

So basically, a couple of fairly quick questions. On the NCCN program, you mentioned in your press release that you're committing $2 million of a research grant to the program. Can you give us an idea of the scope of what that can cover in terms of how many collaborations, how large of trials, how many trials you might be able to do? And also what the cost sharing aspect of it is. How much of it are you paying and how much of it, if any, is the NCCN contributing?

Yes, so I think overall, George, the funding we're committing is really our commitment to the program. Obviously providing bavituximab as part of that will be our other piece of the commitment. But clearly, that's not an issue because we manufacture it here. But yes, no -- I think the beauty of the NCCN -- again, as I mentioned earlier -- is that, number one, we've gotten really key opinion leaders involved in it, leading institutions who can help guide the program. The idea is that they will put out requests for proposals. We expect the funding will fund three, four, five different clinical studies.

It's going to depend on the scope of studies and the proposals that come through, but basically for us it's great because they're operationalizing and running the studies. They obviously are picking sites that have a good track record and quick patient enrollment, good patient enrollment, and really adhering to what they've proposed in their proposals. And so, for us, it's really a way to run multiple studies all under one umbrella at the same time to really, again, involve some of the key people that we want to be excited about the program as we go forward.

Okay. I presume that because of the ongoing SUNRISE -- or the SUNRISE trial that was ongoing, I suspect you probably don't have to make anymore bavituximab for a while. So that cost is pretty much covered already for these programs?

Yes, absolutely. We are ready have adequate stocks of bavituximab to support all of these studies we're talking about. Because we don't expect any of them to be huge studies to start with, but certainly we have more than adequate supplies on hand.

And I'd imagine that the $2 million is just a start. If things go pretty well, I'm sure that $2 million is not the ceiling here, right?

I think we can always adjust it. I think that's what the original agreement is for. And so, that covers all the initial scope of what we are trying to do with them. But certainly, again, I think if things go as we expect and we generate data, we think it will help drive the program forward. We want to continue to work with NCCN and our other collaborators. Joe?

Yes, I was just going to say, George, this is -- basically it's a research contract, research agreement, for $2 million I think over a course of two years. So maybe that gives you a sense of time. And as Steve mentioned, I think typically it ends up being between four and six investigator initiated trials. So, these are smaller studies, but I think the key is that, like Steve mentioned, if it's in our strategy of (technical difficulty) smaller quick studies so we can get (technical difficulty).

Yes, absolutely. You're tapping into an existing infrastructure at minimal cost. It's (multiple speakers).

Correct.

Given where you are now, that's probably the best strategy to take. What about in terms of timing? You said you were going to be entertaining RFPs. When do you think you might get the first trials underway?

I don't think we have total clarity on that. We are starting that process of developing the RFP with the NCCN. Again, this is a program that they administer, that they oversee. And that two-year period, I think, it basically starts pretty soon. As soon as the RFP is developed, they'll put it out. And they are under contract to deliver study results and publications in a two-year time frame.

Cool. Now, with regard to MSKCC, you mentioned a couple of tantalizing -- you made a bunch of tantalizing comments about you're already seeing some interesting data. Can you comment -- maybe it's too early -- on whether an abstract has been submitted for the ACR meeting, perhaps, or ASCO, or later on in the fall? When will we start seeing some of the MSKCC data, in other words?

I think that we have -- it's obviously an ongoing collaboration in a number of different areas. And I think that so far we've been very happy with the way it's progressing. I think some of the data is coming through on that. I can't comment on what they've submitted at this point. But certainly I think the goal of both of our groups is to generate data that we can not only go out and present at major conferences like AACR but also to publish and really help guide the clinical program.

And I think along those lines, it's important to note that Memorial Sloan Kettering is one of the institutions within the NCCN. So obviously, that's another nice fit of how we're kind of putting everything together from a cohesiveness standpoint. So, clearly we need like nothing better than to see some of the great ideas from our collaborators end up in clinical studies and driving the program forward.

Okay. And then finally regarding Avid. You're working with certain margins on your existing facility, the pre-existing facility, without the disposables. The disposables are -- enable much less expensive manufacturing. And therefore, you might be able to spin off some more revenue from those contracts into the bavi program. Can you speak a little bit, Paul, about how you might expect the margins to change with the new facility?

Yes, just in terms of our manufacturing contracts, the manufacturing fees are fairly consistent, whether it's in stainless steel or it's in single-use bioreactors. So we expect the revenue to be very similar. And in terms of the cost structure, a significant portion of the cost structure is really built into labor. And whether you're doing it with our traditional facility or with the single use, the cost structure is fairly similar from a human resource standpoint.

The one key thing here is that the changeover time between stainless steel and single-use is much quicker. So, we can shrink the amount of time in between manufacturing runs and potentially generate a lot more output out of a single-use facility.

And I think just to follow-up on that, George, I think the other nice thing about the Myford facility is that it really was built for late-stage clinical and commercial production; meant to operate in campaign mode, which means that you will have multiple reactors going simultaneously for a given product and then have a change over to the next product. So actually the throughput of the facility could be even greater than what we have in our existing facility as we get more and more commercial production.

And I think that's -- as I said in earlier prepared remarks, we've seen a lot of interest from late-stage clinical and commercial clients, and that's really going to be instrumental in building a nice solid base for continuing to grow the business. Because that's really what you want, is to constantly produce those materials, make as many batches as you need, and then switch over. Because now the client has what they need from a production standpoint and allows us to move on to the next client and continue our production lines in a continuous way.

So. I think that's really a model for how we see the commercial facilities. And we've also seen a nice -- because we want to continue to grow the business, a really big need for additional clinical production as well. So that's another area of potential growth for the business as we continue to move forward. So I think we're continuing to respond to the market needs, but building on a nice solid base of existing clients that will have long-term need.

And finally two just really quick questions about the Avid as well. Are you considering at all expanding into fill and finish? Number one. And number two, can you comment on whether you've increased the number of clients you're actually working with now or will be working with?

Yes, no, we definitely have new clients that have come on board. And that's what's helping to drive, again, some of the work we are seeing over in the Myford facility. The nice backlog of business we're now building up over there. So that's been great. Because when you build a facility you never quite sure what the response is going to be, but it's been pretty overwhelming right now, which is good.

Yes on the fill-finish side, I think it is something we do have an interest in. I think particularly to support our clinical plants. So those in clinical stages of development. Because it is a -- it would be a big benefit for them and I think another draw for bringing in that early-stage business.

Commercial manufacturing is a different beast altogether. And so that's one that I think as we get experience at fill-finish and see that there is a good track record we've built up, then I think moving into commercial production might be something down the road. But right now, quite frankly, we're so busy with the bulk drug substance manufacturing and we want to continue to do what we do well and continue to grow that business.

Okay, great. Good luck going forward. Thank you very much.

Rahul Jasuja, Noble Life Science Partners.

A couple of questions. One on the immuno-oncology program, then one on the SUNRISE trial. Let me start with the SUNRISE trial. So, we discussed this a little bit on the last call and today as well. In looking at what you can -- the remnants of what you can salvage in terms of data here. You talked about looking at the immunotherapy effect in the remaining patients that are on bavi, or choose to stay on bavi. So, can you discuss in terms of timeline and the immunological metrics that you would be looking for? Are you looking for clearly just tumor reduction or are you looking for particular immune metrics in the tumor microenvironment that you are collecting as well?

I think it's a combination of all of the above. So, what we had built into the SUNRISE study was a lot of collection of samples and specimens from patients throughout the study that would allow us then, of course, when it was blinded, we could do analysis but we wouldn't really be able to make sense out of it. Now that the study is unblinded, we can actually do the analysis of those samples and then, again, start to put that together with the actual patient outcomes.

And I think that this is one of the things, again, that we can really work closely with our collaborators. Again, through NCCN or through certainly our collaborations with Sloan Kettering and UT Southwestern, is what all do we want to learn now? And in particular focus on those patients that really did well in the study. Because the ultimate goal is to be able to select patients for future studies that are more likely to respond to therapy.

And there's every likelihood that within the SUNRISE study that that information could be available. And I think we just want to be very methodical in how we generate that data, the testing we do to make sure that we get the maximum use of those samples that have been collected.

So I think that a lot of work is going on right now was to finalize the plan. And then over the coming months we can complete the analysis, and then at that time we should have a much clearer picture. Number one, we'll have more patient follow-up, so we'll know how more patients did. Then to combine that with the data from the analysis we think can yield some really valuable information.

Okay, that's very helpful. And then let me move to my immuno-oncology question. So, this really is a question about indications in combination with the bavituximab. So, we did see pretty good data with AstraZeneca's combination with PD-L1. It was the same one that you guys are using, monoclonal antibody, and their own CTLA-4 in mesothelioma and non-small cell lung cancer.

In fact, they actually do have, I think, orphan disease status and fast-track from the FDA, combining a CTLA-4 and a PD-L1; and these are PD-L1, low expressing tumors. So, extending into the rationale behind bavituximab also showing efficacy in PD-L1 and PD-L1 low tumors, is there a plan -- given that the data, looking at the PD-L1 approaches, and I think that some of the work was done by Scott Antonia, who is also an advisor to you guys. Is there a plan to move beyond just non-small cell lung cancer in combination with PD-L1 and other PD-L1-low expressing tumors?

Yes. I think absolutely, and I think that's really part and parcel of what we think we can do, again, through all of our collaborators -- AstraZeneca, but also through the NCCN and, again, with Sloan Kettering and UT Southwestern -- is to look at other indications. We've obviously generated some interesting data earlier in liver cancer and other solid tumor types. So the opportunity to go into some of those indications where there's still clearly a high unmet medical need and patients were not responding as well as everyone would like to the immunotherapy.

So we see a lot of opportunity in, again, multiple indications outside of lung cancer. Because we also recognize that lung cancer is becoming a crowded space. And as you put more and more drug and drug combinations into the system, where is that approvable indication? Now, I think the one benefit we think we will have in a durva or any other PD-1, PD-L1 inhibitor combination with bavi, is potentially on the safety side. And that really I think could pay dividends, because you can keep patients on treatment longer and you may be able to enhance that activity even further. So I think that's some of the things we want to explore.

I think first and foremost, which patients are going to respond the best? And then I think it's which indications or which tumor types we think then there's areas of opportunity. But we want to simultaneously approach those two questions, and again, piece this together through small studies, generate good data, and then really expand it out from there. And I think that really creates our value opportunity. Because, yes, the CTLA-4 plus durva results are very good. But as with all the other CTLA-4 combos of PD-1/PD-L1 inhibitors, there is significant toxicities. And we think that's where there could be an opportunity in the marketplace for safer combinations that have at least the same or maybe a greater activity.

So my final question here. Is there -- are there discussions in conjunction with AAC or others to address other tumors that are PD-L1-low that puts dimensional checkpoint inhibitors [to] work? Or is this just an innate preferred and driven effort?

Yes, no, I think there's definitely the interest. Clearly in, again, some of the other tumor types that haven't historically responded as well to the I-O agents. Breast cancer, for instance, but there are other examples where we think bavi does have activity and we want to see if we can take advantage of that from a priming the system, if you will, to be able to keep that immune response going with the PD-1/PD-L1 inhibitors.

So, yes, that's definitely a big topic of interest, is how do we not just continue to add on and add on and add on in lung cancer but how do we actually get more and more tumor types to respond. And again, we think we can have a good role there. And that's one of the things to explore either through the AZ basket study or even through, again, some of the other collaborations we have ongoing.

Okay, very good. That's all I had. Thanks.

Joe Pantginis, ROTH Capital Partners.

Thanks for the follow-up. To George's question before, I just wanted to go back and ask, how much bavi you have in your stores right now and what is the shelf life?

I don't think we have any particular public information there. But we have, again, more than enough in supply to basically be able to run all the studies we're talking about through NCCN with our other collaborators, with AZ. So the drug supply will not be an issue, which is good, because then that opens up more capacity for other clients over in the Myford facility. So I think that's all positive at this point.

I think the -- just with regard to the shelf life, our goal, as with any commercial product, is multiple years of stability in the bulk stage and then multiple years in the final vials, so you end up with a lot of shelf life at the end of the day. And that's obviously -- it's helpful now. Obviously, it's very helpful once you get to the commercial sales.

No, that's helpful, thank you. And then just this last quick thing. Can you just remind us with regard to the current terms, if you will, with AstraZeneca. Are they supplying durvalumab free of charge?

Yes, they are.

Okay, great. Thanks, guys.

Joseph Castelluccio.

Hello, thank you for taking the question. This is a follow-up to Mr. Pantginis' question. Is there a plan in place to possibly restructure expenses to more closely align with the Avid revenues? Because it would certainly appear, with a stock price at $0.40, that the ATM is no longer a viable option.

Yes. So I think that, as I said earlier, I think what we're doing is where looking at the overall program, right. So number one, we want to continue to grow revenues on the Avid side of the business. So that's good, right? That's more money that's coming in. I think on the expense side of things, again, we've already put on hold the other chemotherapy combination studies, which were planned to be a significant part of our go-forward strategy. And that still maybe in the future; we need just more data from the SUNRISE study then we can reevaluate.

But I think in the meantime, really, again, the concept is we want to be very efficient. Obviously, the collaboration such as NCCN are very efficient from a cash utilization standpoint. The types of studies we run with AZ, again, we want to really gear those toward answering specific questions. Maybe in a smaller format, which does two things. One, it allows us to quickly generate data but then to grow those studies, if you will, based on positive results. And obviously, positive results are going to have an impact on the market perception of the drug and what our value is.

And so, I think we want to really take a stepwise approach. But I think we can generate good positive data without running huge, hundreds and hundreds of patient studies. But really do it through small studies, build on success, and then use that as a springboard to even bigger studies, with the idea being that obviously at that point partners can jump in to help us run those studies. But also, again, I think the market will respond to positive data and showing that we have a good potential with the PD-1/PD-L1 inhibitor class of drugs.

Okay. Thank you. Thank you for that.

And I'm not showing no further questions at this time. I would like to hand the call back over to Mr. Steve King for any closing remarks.

Yes, I'd like to thank again all of you for participating in today's phone call. As always, I want to thank our stockholders for their continued support. And I would like to especially thank our patients, their families, and the investigators 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. This concludes the program and you may all disconnect. Have a wonderful day, everyone.