Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    o

 

 

Large accelerated filer  o

Accelerated filer   x

Non-accelerated filer  o

Smaller reporting company  o

 

 

 

 

(1) Excludes 2,976,758 shares of common stock held by directors and officers, and any stockholder whose ownership exceeds five percent of the shares outstanding as of October 31, 2007.

 

 

 

PART I
Item 1.	Business
Item 1A.	Risk Factors
Item 1B.	Unresolved Staff Comments
Item 2.	Properties
Item 3.	Legal Proceedings
Item 4.	Submission of Matters to a Vote of Security Holders
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6.	Selected Financial Data
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk
Item 8.	Financial Statements and Supplementary Data
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
Item 9A	Controls and Procedures
Item 9B.	Other Information
PART III
Item 10.	Directors, Executive Officers and Corporate Governance
Item 11.	Executive Compensation
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13.	Certain Relationships and Related Transactions, and Director Independence
Item 14.	Principal Accountant Fees and Services
PART IV
Item 15.	Exhibits and Consolidated Financial Statement Schedules
	Signatures

 

 

 

 

Our lead TNT technology product candidate, Cotara®, is a monoclonal antibody conjugated to a radioisotope that is being assessed in clinical trials for the treatment of glioblastoma multiforme (GBM), a deadly form of brain cancer.  We have completed a number of clinical trials of Cotara having treated in excess of 85 patients with advanced solid cancers.  Positive data from these prior trials provided the foundation for the two Cotara brain cancer studies currently underway:  A Phase II clinical trial is enrolling patients to assess the safety and anti-tumor activity of Cotara in GBM patients at first relapse.  In addition, we are continuing to enroll patients in a dose confirmation and dosimetry trial in patients with recurrent GBM to further characterize the distribution characteristics of Cotara and to assess safety and anti-tumor activity.

The following table summarizes our current clinical trial programs:

Product	Indication	Trial Design	Trial Status
Bavituximab	Solid tumor cancers	Phase I monotherapy repeat dose safety study designed to treat up to 28 patients.	Patient enrollment is continuing in this study.
Bavituximab plus docetaxel	Advanced breast cancer	Phase II study designed to treat up to 15 patients initially.  Study may be expanded to treat up to a total of 46 patients if six or more objective tumor responses are observed in the initial 15 patients.	Patient enrollment for the first 15 patients is complete and the pre-defined primary endpoint of six or more objective tumor responses was achieved with seven of fourteen evaluable patients achieving objective tumor response at the first eight week evaluation point.  The design of the clinical trial now allows for an additional 31 study patients to be enrolled.  Patients are continuing to be monitored for secondary endpoints.
Bavituximab plus carboplatin and paclitaxel	Advanced breast cancer	Phase II study designed to treat up to 15 patients initially.  Study may be expanded to treat up to a total of 46 patients if promising results are observed in the initial 15 patients.	Patient enrollment is expected to begin shortly in this trial.
Bavituximab plus carboplatin and paclitaxel	Non-small cell lung cancer (NSCLC)	Phase II study designed to treat 21 patients initially. Study may be expanded to treat up to a total of 49 patients if promising results are observed in the initial 21 patients.	Patient enrollment was initiated in June 2008 and enrollment is continuing.
Cotara	Glioblastoma multiforme (GBM)	Dosimetry and dose confirmation study designed to treat up to 12 patients with recurrent GBM.	Study enrollment is continuing in this study.
Cotara	Glioblastoma multiforme (GBM)	Phase II safety and efficacy study to treat up to 40 patients at first relapse.	Study enrollment is continuing in this study.
Bavituximab	Chronic hepatitis C virus (“HCV”) infection co-infected with HIV	Phase Ib repeat dose safety study designed to treat up to 24 patients.	Study enrollment is continuing in this study.

 

 

 

In addition to our clinical programs, we have a number of earlier-stage technologies that are potential candidates for partnering.  These programs include potential new therapeutics, vaccine adjuvants and diagnostic agents.

 

In addition to our research and development efforts, we operate a wholly owned cGMP (current Good Manufacturing Practices) contract manufacturing subsidiary, Avid Bioservices®, Inc. (“Avid”).  Avid provides contract manufacturing services for biotechnology and biopharmaceutical companies on a fee-for-service basis, from pre-clinical drug supplies up through commercial-scale drug manufacture.  In addition to these activities, Avid provides critical services in support of Peregrine’s product pipeline including manufacture and scale-up of pre-clinical and clinical drug supplies.

We were originally incorporated in California in June 1981 and reincorporated in the State of Delaware on September 25, 1996.  Our principal executive offices are located at 14282 Franklin Avenue, Tustin, California, 92780 and our telephone number is (714) 508-6000.  Our internet website address is www.peregrineinc.com.  Information contained on our website does not constitute any part of this Annual Report.

Our Technology Platforms

Our three products in clinical trials fall under two technology platforms:  Anti-Phosphatidylserine (“Anti-PS”) technology and Tumor Necrosis Therapy (“TNT”) technology.

 

Anti-PS Technology Platform

 

Peregrine’s new class of anti-phosphatidylserine (“anti-PS”) therapeutics are monoclonal antibodies that target and bind to components of cells normally found only on the inner surface of the cell membrane.  This target is a specific phospholipid known as phosphatidylserine (“PS”).  PS becomes exposed on the outside of cells under stress conditions, including on the surface of tumor blood vessels and during certain viral infections.  Our first-in-class anti-PS therapeutic agent, bavituximab, is believed to help stimulate the body's immune defenses to destroy disease-associated cells that have exposed PS on their surface.  In addition to this direct effect, researchers believe that anti-PS therapies also have a secondary mechanism of action that occurs under certain stressful conditions at the cellular level.  This secondary mechanism involves the immunosuppressive effects of PS molecules expressed on the surface of the cell, which act to dampen the body’s normal immune response.  By binding to the PS molecule and blocking its effects, agents such as bavituximab may have the potential to turn-off this immunosuppressive signal, allowing the immune system to generate a robust immune response.

Tumor Necrosis Therapy (“TNT”) Technology Platform

 

Our TNT technology uses monoclonal antibodies that target and bind to DNA and associated histone proteins released by the dead and dying (“necrotic”) cells found at the core of solid tumors.  Most solid tumors develop this core of necrotic cells due to the lack of oxygen and nutrients at their center.   This makes the necrotic center of tumors an abundant but selective target for TNT-based monoclonal antibodies.  Similar to a guided missile, TNT antibodies are also capable of carrying a variety of therapeutic agents into the interior of these tumors, including radioisotopes and chemotherapeutic agents, which then kill the neighboring tumor cells from the inside out, while sparing healthy tissue.  Our most advanced TNT product, Cotara, is an antibody attached to the radioactive isotope, Iodine 131.

 

 

 

Our Products in Clinical Trials

Bavituximab for the Treatment of Solid Tumors

Scientists working with Peregrine have determined that the Anti-PS target for bavituximab becomes specifically exposed on tumor blood vessels.  In pre-clinical cancer studies a bavituximab equivalent (a mouse version of the human antibody) has demonstrated promising anti-tumor activity as a stand-alone treatment for the treatment of breast, prostate and pancreatic tumors.  Researchers have shown in pre-clinical studies that common cancer treatments such as chemotherapy and radiation therapy stress the cells that line the tumor blood vessels and thereby increase the exposure of the PS target on tumor blood vessels and significantly enhanced the anti-tumor effects of either agent alone.

On May 31, 2007, we reported positive top-line results from the Phase Ib open label trial.  This trial, which was conducted in India, was designed to assess the safety and tolerability of up to eight weekly doses of bavituximab given in combination with standard chemotherapy regimens including docetaxel, gemcitabine and carboplatin/paclitaxel in 12 patients with late stage cancer who had failed prior therapy.  Patients in the trial were also assessed for tumor response, although efficacy assessments were not formal endpoints of the study.  Patients were evaluated for tumor response according to Response Evaluation Criteria in Solid Tumors (RECIST) parameters, receiving CT or MRI scans prior to therapy and at the end of the combination treatment course.  In these patients, the safety profile of bavituximab in combination with chemotherapy appeared similar to that seen in advanced cancer patients undergoing chemotherapy alone.  The combination of bavituximab and chemotherapy showed positive signs of clinical activity, achieving objective tumor response or stable disease in 50% of the patients who were evaluable for tumor response.  Patients receiving bavituximab in combination with gemcitabine had positive signs of clinical activity, with 75% achieving an objective tumor response or stable disease, while 50% of patients receiving bavituximab with carboplatin/paclitaxel also achieved an objective tumor response.  Tumor types in the trial included cancers of the breast, lung and ovary, among others.

 

Clinical data gathered from the Phase Ib study was utilized in the design of three separate Phase II bavituximab studies.  These trials all have a two-stage design. An initial cohort of patients is first enrolled, dosed and evaluated and then the study may be expanded if a sufficient number of patients in the initial cohort meet the primary endpoint and the safety profile is positive.  The primary endpoint of the Phase II studies is to assess overall response rate to the combination of bavituximab and chemotherapy.  Secondary objectives include measuring time to tumor progression, duration of response, overall patient survival and safety parameters.  Tumor responses in all of the studies are being evaluated using Response Evaluation Criteria in Solid Tumors (RECIST) parameters.  The trials are being conducted according to International Conference on Harmonization (ICH) and Good Clinical Practices (GCP) standards.

The first bavituximab Phase II trial was initiated in January 2008 in advanced breast cancer patients.  Patients in this trial are being treated with the combination of bavituximab and the chemotherapeutic agent docetaxel, a chemotherapy drug commonly used in the treatment of breast cancer.  We have completed enrollment in the initial cohort of 15 patients in the Republic of Georgia.  On July 2, 2008, we announced that we met the pre-specified primary endpoint of six or more objective tumor responses in the initial 15 patients.  Fourteen of the 15 patients enrolled in Stage 1 were deemed evaluable for tumor response, with seven achieving partial tumor responses and seven having stable disease at week eight according to Response Evaluation Criteria in Solid Tumors (RECIST) criteria.  Patients may continue to receive bavituximab as long as the cancer does not progress and side effects are acceptable.  The design of the clinical trial now allows for an additional 31 study patients to be enrolled.

Patient enrollment in a second bavituximab Phase II trial was initiated in June 2008 in India using bavituximab in combination with the chemotherapeutic agents carboplatin and paclitaxel in patients with non-small cell lung cancer (NSCLC).  The study is designed to assess the combination therapy in 21 patients initially, and could be expanded to include up to an additional 28 patients if promising results are seen in the first cohort.  Patients may continue to receive bavituximab as long as the cancer does not progress and side effects are acceptable.

 

 

A third bavituximab Phase II trial for advanced breast cancer patients is expected to begin shortly in India.  Patients will be treated with the combination of bavituximab and chemotherapeutic agents carboplatin and paclitaxel.  Fifteen patients will be enrolled in the first cohort and the study can then be expanded to include up to an additional 31 patients if promising results are observed.  Patients may continue to receive bavituximab as long as the cancer does not progress and side effects are acceptable.

In addition to our three Phase II bavituximab cancer trials, we are currently enrolling patients in a multi-center Phase I monotherapy trial in the U.S. for which most solid cancer types are eligible for enrollment.  The clinical trial is designed to enroll up to 28 patients with advanced solid tumors that no longer respond to standard cancer treatments.  The objectives of this open-label, single and repeat dose escalation study are to determine the safety and tolerability of bavituximab administered intravenously to patients with advanced cancer; characterize the pharmacokinetic profile of bavituximab and define the dose-limiting toxicities, maximum tolerated dose and/or maximum effective dose of bavituximab.  Patients who demonstrate an objective response to therapy may be offered continued treatment with an extension protocol.  Patient screening and enrollment are currently ongoing.

We originally experienced delays in enrolling patients for this study, initially due to certain FDA mandated requirements in the study’s protocol which limited the number of cancer patients eligible for the study and the number of patients willing to participate in the study due to the length of time between treatments. We subsequently presented the FDA with data sufficient to allow us to amend the protocol and lessen such requirements as well as make other changes to the protocol in an effort to make it more appealing to both physicians and patients. While we are hopeful that such changes will enable us to increase the rate of patient enrollment, due to the competition with other cancer trials being conducted in the United States, we continue to face enrollment challenges in the United States.

Cotara® for the Treatment of Brain Cancer

Cotara®, our first Tumor Necrosis Therapy (“TNT”) based agent, is a monoclonal antibody targeting agent conjugated to Iodine 131, a therapeutic radioisotope that kills tumor cells near the site of localization.  Cotara binds to DNA and associated histone proteins that become accessible in dead and dying cells found at the core of tumors.  In prior clinical studies, Cotara has demonstrated encouraging results in patients with advanced brain cancer.  One study demonstrated a 58% increase in expected median survival time in a group of patients suffering from recurrent glioblastoma multiforme (“GBM”) who were treated with Cotara at the anticipated therapeutic dose being used in current studies.  This was considered a promising development in this serious and deadly disease.

Cotara is currently in a dose confirmation and dosimetry clinical trial for the treatment of recurrent GBM at several clinical sites in the U.S.  The multi-center open label study is designed to treat up to 12 GBM patients who have recurrent disease.  Patients are receiving Cotara by convection-enhanced delivery (CED), a National Institute of Health (NIH)-developed technique that delivers the agent to the tumor with great precision.  The study’s main objectives are to confirm the dose limiting toxicities and maximum tolerated dose and to characterize the biodistribution and radiation dosimetry of Cotara.

On August 2, 2007, Peregrine announced first patient dosing in a Phase II trial in India to assess Cotara in up to 40 GBM patients who have experienced a first relapse.  This study, which is ongoing, is expected to be an integral part of the overall Cotara brain cancer development program.  Patients receive a single infusion of the drug using the CED delivery method, and the study’s primary objective is to confirm the maximum tolerated dose of Cotara in these patients.  Secondary objectives include estimates of overall patient survival, progression-free survival and the proportion of patients alive at six months post-treatment.  The study is being conducted according to internationally accepted ICH (International Conference on Harmonization) and GCP (Good Clinical Practices) guidelines at multiple clinical centers.  Patient enrollment and dosing are ongoing.

 

 

Taken together, the study results from Peregrine’s two ongoing Cotara trials should provide the safety, dosimetry and initial efficacy data needed to support the design of the Phase III study.  Cotara has been granted FDA orphan drug status and fast track designation for the treatment of GBM.

We have experienced delays in both these studies for reasons outside our control.  The dose confirmation and dosimetry trial was originally co-sponsored and primarily managed by the NCI-funded New Approaches to Brain Tumor Therapy (NABTT) consortium.  Due to funding reductions at NABTT, within the last year, we have assumed full sponsorship and control of the trial and initiated several additional clinical trial centers.  The phase II India study initially experienced regulatory delays due to the serial nature of manufacturing and clinical trial approvals as well as changes in key personnel at the Drug Controller General office.  Additionally, we have had to invest in institutional infrastructure and coordination at the clinical site level in order to enroll patients.  While we are hopeful that such changes will enable us to increase the rate of patient enrollment in both of these studies, we expect to continue facing enrollment challenges.

 

Bavituximab for the Treatment of HCV Infection

Bavituximab is a monoclonal antibody that targets and binds to PS.  Our researchers and collaborators have discovered that PS, the target for bavituximab, becomes exposed on the surface of a broad class of viruses known as enveloped viruses, as well as on the cells they infect.  These pathogens are responsible for about half of all human viral diseases, including hepatitis C virus (HCV), influenza, human immunodeficiency virus (HIV), cytomegalovirus (CMV) and other virus strains that cause serious and life-threatening conditions.  Scientists studying bavituximab believe the drug’s mechanism of action may help stimulate the body's natural immune defenses to destroy both the virus particles and the cells they infect.  Since the target for bavituximab is only exposed on diseased cells, healthy cells should not be affected by bavituximab.

We filed the first Investigational New Drug (“IND”) application for bavituximab for the treatment of chronic hepatitis C virus (“HCV”) infection in April 2005.  Peregrine initiated and completed a Phase Ia single dose escalation study in thirty (30) patients chronically infected with HCV who had failed prior therapies.  The primary goal of the Phase Ia study was to assess the safety and pharmacologic profile of bavituximab in patients with chronic HCV infection.  Changes in viral load, measured as serum HCV RNA levels, were also monitored.  In the study, 30 patients with chronic HCV infection were administered one of five doses of bavituximab including 0.1, 0.3, 1, 3 and 6 milligrams per kilogram (mg/kg) of body weight.  After a single dose of bavituximab, among the patients administered 1, 3 and 6 mg/kg doses, 50% achieved a maximum peak reduction in serum HCV levels of greater than 75% (0.6 log), with one patient having a maximum peak 97% (1.5 log) reduction.  In this study, approximately 90% of the subjects were infected with the genotype 1 form of HCV, which is the most common and difficult-to-treat strain of the virus.  At all five dose levels, bavituximab appeared to be safe and well tolerated with no dose-limiting toxicities or serious adverse events.  Reported adverse events were mostly mild, infrequent, transient and likely not drug-related.  We reported initial results of this study on June 7, 2006 and final results were presented at the annual meeting of the American Association for the Study of Liver Diseases in Boston, MA on October 30, 2006.

These results supported the initiation and completion of a Phase Ib repeat dose HCV trial during fiscal year 2007.  In November 2007, at the 58th Annual Meeting of the American Association for the Study of Liver Disease (AASLD), we presented results from the Phase Ib repeat dose HCV trial.  The primary objective of the Phase Ib study was to determine the safety, distribution and pharmacokinetic properties of multiple doses of single agent bavituximab in patients with chronic HCV infection.  Changes in viral load, measured as serum HCV RNA levels, were also monitored.  Twenty-four patients (four cohorts of six patients each) were enrolled in the study, with each cohort scheduled to receive four doses of bavituximab over a 14-day period.  Patients received twice-weekly doses of bavituximab at escalating dose levels of 0.3, 1, 3 or 6 mg/kg of body weight.  Patients in all cohorts were followed for 12 weeks.  The results indicate that bavituximab was generally safe and well-tolerated, with no dose-limiting toxicities or serious adverse events reported.  Anti-viral activity (decline of greater than or equal to 0.5 log10 reduction in HCV RNA) was observed at all dose levels.  In the study, 83% of patients at the 3 mg/kg dose level demonstrated a maximum peak reduction in HCV RNA levels of at least a 75% (0.6 log), with an average of an 84% (0.8 log) peak reduction for those patients.

 

 

Based on the data from these earlier HCV clinical studies and on pre-clinical data indicating the potential of bavituximab to bind to HIV and HIV-infected cells, Peregrine advanced bavituximab into a trial in HCV patients co-infected with HIV.  On October 10, 2007, Peregrine announced the dosing of the first patient in this trial.  Patient enrollment and dosing is currently ongoing.  The study is an open-label, dose escalation study designed to assess the safety and pharmacokinetics of bavituximab in up to 24 patients chronically infected with HCV and HIV.  Patient cohorts are receiving ascending dose levels of bavituximab weekly for up to 8 weeks.  HCV and HIV viral titers and other biomarkers are being tracked, although they are not formal study endpoints.  In the U.S. alone, an estimated 300,000 individuals are co-infected with HIV and HCV, representing up to 30% of all HIV-infected patients.  Co-infected patients have been shown to have a lower response to current HCV regimens and the adverse effects of these regimens can be especially problematic for some HIV patients.

We also have worked with top academic researchers and research organizations to study the potential use of bavituximab to treat other viral infections.  These pre-clinical programs have primarily focused on evaluating the potential of bavituximab and other anti-PS antibodies in viral infections with significant economic impact including HIV, influenza and CMV, as well as biodefense applications.  The promising results of these pre-clinical studies have contributed to Peregrine’s understanding of the mechanism of action of bavituximab and its broad potential in viral indications.

Government Contract With The Defense Threat Reduction Agency

On June 30, 2008, we were awarded a five-year contract worth up to $44.4 million to test and develop bavituximab and an equivalent fully human antibody as potential broad-spectrum treatments for viral hemorrhagic fever infections.  The initial contract was awarded through the Transformational Medical Technologies Initiative (TMTI) of the U.S. Department of Defense's Defense Threat Reduction Agency (DTRA).  In pre-clinical animal models, bavituximab has demonstrated encouraging anti-viral activity as a potential treatment for viral hemorrhagic fevers.  This federal contract is expected to provide us with up to $22.3 million in funding over a 24-month base period, with $5 million appropriated immediately for the current federal fiscal year ending September 30, 2008.  The remainder of the $22.3 million in funding is expected to be appropriated over the remainder of the two-year base period ending June 29, 2010.  Subject to the progress of the program and budgetary considerations in future years, the contract can be extended beyond the base period to cover up to $44.4 million in funding over the five-year contract period.  Work under this contract commenced on June 30, 2008.

Earlier-Stage Technologies / Pre-Clinical Studies

We have historically developed several earlier stage technologies including Vasopermeation Enhancement Agents (“VEAs”) that are intended to be used as an adjuvant to improve the performance of standard cancer drugs, Anti-Angiogenesis Agents, and Vascular Targeting Agents (“VTAs”), that complement our other anti-cancer platforms.  In order to focus our efforts and resources on our current clinical programs, we have curtailed our efforts in developing these pre-clinical programs and we are actively seeking partners to further develop these technologies.

In addition, we also conduct pre-clinical studies relevant to bavituximab and our anti-PS technology platform.  Positive scientific results were reported on a number of these programs in fiscal year 2008.

In September 2007, a study published in Clinical Cancer Research confirmed the potential of bavituximab combined with radiation in lung cancer, showing that a bavituximab equivalent combined with radiation reduced tumor growth by 80% in a mouse lung cancer model. The study also confirmed key aspects of bavituximab's mechanism of action in combination with radiation therapy.

 

 

On April 15, 2008 at the 2008 Annual Meeting of the American Association for Cancer Research (AACR), Peregrine reported that pre-clinical study results confirmed a unique mechanism by which bavituximab is thought to affect the tumor microenvironment and contribute to its anti-tumor efficacy.  The research showed similar effects for bavituximab and for PGN635, a fully human version of the bavituximab antibody.  In the in vitro and in vivo studies, Peregrine researchers showed that both bavituximab and PGN635 cause the destruction of targeted cells. They demonstrated that by blocking the anti-inflammatory signals of the phosphatidylserine found on the surface of targeted cells, these anti-PS antibodies could create a unique tumor microenvironment, by enhancing production of pro-inflammatory cytokines and decreasing production of anti-inflammatory cytokines.  In addition, the studies showed that similar to bavituximab, PGN635 localizes to tumors but not to healthy tissue.

At the 2008 AACR meeting, Peregrine also reported pre-clinical study results demonstrating the vaccine-like ability of immunocytokine proteins combining its anti-PS antibodies and cytokines, such as IL-2, to generate robust and protective immune responses in a highly aggressive mouse brain cancer model.  Eighty percent of the mice receiving prophylactic pre-treatment with irradiated breast cancer and immunocytokine cells did not develop any tumors and remained tumor-free through 270 days post-treatment, while all of the control animals receiving irradiated breast tumor cells alone developed lethal tumors.

Peregrine also reported pre-clinical study results at the 2008 AACR meeting demonstrating that a mouse equivalent of Peregrine's bavituximab, administered in combination with the chemotherapeutic agent docetaxel, demonstrated excellent signs of efficacy in a model of hormone-refractory prostate cancer.  This data confirmed and extended the results of previous studies of Peregrine's anti-PS antibodies in models of prostate cancer.  Researchers reported that in a mouse model of hormone-refractory prostate cancer, the combination of the bavituximab equivalent antibody and docetaxel significantly decreased the growth of tumors, eliminated detectable metastases and prevented tumor re-growth.  Survival time was more than doubled in animals receiving combination therapy compared to controls, and was substantially longer than the survival of animals treated with either therapy alone. This increase in anti-tumor efficacy and anti-metastatic activity was achieved with no apparent increase in toxicity compared to docetaxel alone.

In-Licensing Collaborations

The following discussions cover our collaborations and in-licensing obligations related to our products in clinical trials:

Tumor Necrosis Therapy (“TNT”)

We acquired the rights to the TNT technology in July 1994 after the merger between Peregrine and Cancer Biologics, Inc. was approved by our stockholders.  The assets acquired from Cancer Biologics, Inc. primarily consisted of patent rights to the TNT technology.  To date, no product revenues have been generated from our TNT technology.

In October 2004, we entered into a worldwide non-exclusive license agreement with Lonza Biologics (“Lonza”) for intellectual property and materials relating to the expression of recombinant monoclonal antibodies for use in the manufacture of Cotara®.  Under the terms of the agreement, we will pay a royalty on net sales of any products we market that utilize the underlying technology.  In the event a product is approved and we or Lonza do not manufacture Cotara®, we would owe Lonza 300,000 pounds sterling per year in addition to an increased royalty on net sales.

 

 

Anti-PhosphatidylSerine (“Anti-PS”) Immunotherapeutics

In August 2001, we exclusively in-licensed the worldwide rights to this technology platform from the University of Texas Southwestern Medical Center at Dallas.  During November 2003 and October 2004, we entered into two non-exclusive license agreements with Genentech, Inc. to license certain intellectual property rights covering methods and processes for producing antibodies used in connection with the development of our Anti-PS Immunotherapeutics program.  During December 2003, we entered into an exclusive commercial license agreement with an unrelated entity covering the generation of the chimeric monoclonal antibody, bavituximab.  In March 2005, we entered into a worldwide non-exclusive license agreement with Lonza Biologics for intellectual property and materials relating to the expression of recombinant monoclonal antibodies for use in the manufacture of bavituximab.

Under our in-licensing agreements relating to the Anti-PS Immunotherapeutics technology, we typically pay an up-front license fee, annual maintenance fees, and are obligated to pay future milestone payments based on development progress, plus a royalty on net sales and/or a percentage of sublicense income.  Our aggregate future milestone payments under the above in-licensing agreements are $6,850,000 assuming the achievement of all development milestones under the agreements through commercialization of products, of which, $6,400,000 is due upon approval of the first Anti-PS Immunotherapeutics product.  In addition, under one of the agreements, we are required to pay future milestone payments upon the completion of Phase II clinical trial enrollment in the amount of 75,000 pounds sterling, the amount of which will continue as an annual license fee thereafter, plus a royalty on net sales of any products that we market that utilize the underlying technology.  In the event we utilize an outside contract manufacturer other than Lonza to manufacture bavituximab for commercial purposes, we would owe Lonza 300,000 pounds sterling per year in addition to an increased royalty on net sales.

During fiscal years 2008 and 2006, we expensed $50,000 and $450,000, respectively under in-licensing agreements covering our Anti-PS Immunotherapeutics technology platform, which is included in research and development expense.  We did not incur any milestone related expenses during fiscal year 2007.

Out-Licensing Collaborations

In addition to internal product development efforts and related licensing collaborations, we remain committed to our existing out-licensing collaborations and the pursuit of select partnerships with pharmaceutical, biopharmaceutical and diagnostic companies based on our broad intellectual property position.  The following represents a summary of our key out-licensing collaborations:

During September 1995, we entered into an agreement with Cancer Therapeutics, Inc., a California corporation, whereby we granted to Cancer Therapeutics Laboratories, Inc. (“CTL”) the exclusive right to sublicense TNT to a major pharmaceutical company solely in the People’s Republic of China.  In addition, we are entitled to receive 50% of the distributed profits received by Cancer Therapeutics, Inc. from the Chinese pharmaceutical company.  Cancer Therapeutics, Inc. has the right to 20% of the distributed profits under the agreement with the Chinese pharmaceutical company.  During March 2001, we extended the exclusive licensing period granted to Cancer Therapeutics, which now expires on December 31, 2016.  In exchange for this extension, Cancer Therapeutics, Inc. agreed to pay us ten percent (10%) of all other consideration received by Cancer Therapeutics, Inc. from the Chinese pharmaceutical company, excluding research funding.  During January 2007, we filed a lawsuit against CTL alleging various breaches of contract under the agreement.  The lawsuit is currently in the discovery phase as further discussed in Part I, Item 3 under “Legal Proceedings” of this Annual Report.  Through fiscal year ended April 30, 2008, we have not received any amounts under the agreement.

 

 

During October 2000, we entered into a licensing agreement with Merck KGaA to out-license a segment of our TNT technology for use in the application of cytokine fusion proteins.  During January 2003, we entered into an amendment to the license agreement, whereby we received an extension to the royalty period from six years to ten years from the date of the first commercial sale.  Under the terms of the agreement, we would receive a royalty on net sales if a product is approved under the agreement.  Merck KGaA has not publicly disclosed the development status of its program.

During February 2007, we entered into an amended and restated license agreement with SuperGen, Inc. (“SuperGen”) revising the original licensing deal completed with SuperGen in February 2001, to license a segment of our VTA technology, specifically related to certain conjugates of vascular endothelial growth factor (“VEGF”).  Under the terms of the amended and restated license agreement, we will receive annual license fees of up to $200,000 per year payable in cash or SuperGen common stock until SuperGen files an Investigational New Drug Application in the United States utilizing the VEGF conjugate technology.  In addition, we could receive up to $8.25 million in future payments based on the achievement of all clinical and regulatory milestones combined with a royalty on net sales, as defined in the agreement, as amended.  We could also receive additional consideration for each clinical candidate that enters a Phase III clinical trial by SuperGen.  As of April 30, 2008, SuperGen has not filed an Investigational New Drug Application in the United States utilizing the VEGF conjugate technology.

During December 2002, we granted the exclusive rights for the development of diagnostic and imaging agents in the field of oncology to Schering A.G. under our VTA technology.  Under the terms of the agreement, we received an up-front payment of $300,000, which we amortized as license revenue over an estimated period of 48 months through December 2006 in accordance with SAB No. 104.  Under this license agreement, the obligation period was not contractually defined and we exercised judgment in estimating the period of time over which certain deliverables will be provided to enable the licensee to practice the license.  The estimated period of 48 months was primarily determined based on the historical experience with Schering A.G. under a separate license agreement.  In addition, under the terms of the agreement, we could receive up to $1.2 million in future payments for each product based on the achievement of all clinical and regulatory milestones combined with a royalty on net sales, as defined in the agreement.  Under the same agreement, we granted Schering A.G. an option to obtain certain non-exclusive rights to the VTA technology with predetermined up-front fees and milestone payments as defined in the agreement.  Schering A.G. has not publicly disclosed the development status of its program.

Contract Manufacturing Services

During January 2002, we commenced the operations of our wholly owned subsidiary, Avid Bioservices, Inc. (“Avid”), which was formed from the facilities and expertise of Peregrine.  Avid provides an array of contract manufacturing services, including contract manufacturing of antibodies and proteins, cell culture development, process development, and testing of biologics for biopharmaceutical and biotechnology companies under current Good Manufacturing Practices (“cGMP”).  Avid’s current manufacturing capacity includes the following four bioreactors:  1,000 liter, 300 liter, 100 liter and 22.5 liter.

 

Operating a cGMP facility requires highly specialized personnel and equipment that must be maintained on a continual basis.  Prior to the formation of Avid, we manufactured our own antibodies for over 10 years and developed the manufacturing expertise and quality systems to provide the same service to other biopharmaceutical and biotechnology companies.  We believe Avid’s existing facility is well positioned to meet the growing needs of the industry.  Avid is also well positioned to increase its capacity in the future in order to become a significant supplier of contract manufacturing services.

 

 

Avid provides an array of services for Peregrine as well as working with a variety of companies in the biotechnology and pharmaceutical industries.  Even though much of the process is very technical, knowledge of the process should assist you in understanding the overall business and complexities involved in cGMP manufacturing.  The manufacturing of monoclonal antibodies and recombinant proteins under cGMP is a complex process that includes several phases before the finished drug product is released for clinical or commercial use.  The first phase of the manufacturing process is to receive the production cell line (the cells that produce the desired protein) and any available process information from the client.  The cell line must be adequately tested according to FDA guidelines by an outside laboratory to certify that it is suitable for cGMP manufacturing.  This testing generally takes between one and three months to complete, depending on the necessary testing.  The cell line that is used may either be from a master cell bank (base cells from which all future cells will be grown), which is already fully tested or may represent a research cell line.  In the case of a research cell line, Avid can use the research cell line to produce master and working cell banks.  Clients often request further development through media screening and adaptation followed by small scale bioreactor process development in 1 to 5 liter bioreactor systems.  In parallel to the production of the master and working cell banks, the growth and productivity characteristics of the cell line may be evaluated in the process development labs.  The whole manufacturing process (master cell bank characterization, process development, assay development, raw materials specifications, test methods, downstream processing methods, purification methods, testing methods and final release specifications) must be developed and documented prior to the commencement of manufacturing in the bioreactors.  The second phase of the process is in the manufacturing facility.  Once the process is developed, pilot runs are generally performed using smaller scale bioreactors, such as the 22.5 liter bioreactor, in order to verify the process.  Once the process is set, a pilot run or full scale runs will be performed to finalize manufacturing batch records.  Material produced during these runs is often used for toxicology studies.  After completing the pilot batch run(s), full-scale cGMP manufacturing is typically initiated.  Once the cGMP run(s) is completed, batch samples are sent to an outside lab for various required tests, including sterility and viral testing.  Once the test results verify that the antibodies meet specifications, the product is released for clinical or commercial use.

Each product manufactured is tailored to meet the specific needs of Peregrine or the client.  Full process development from start to product release can take ten months or longer.  Research and development work can take from two months to over six months.  All stages of manufacturing can generally take from one to several weeks depending on the manufacturing method and process.  Product testing and release can take up to three months to complete.

Given its inherent complexity, necessity for detail, and magnitude (contracts may be into the millions of dollars), the contract negotiations and sales cycle for cGMP manufacturing services can take a significant amount of time.  Our anticipated sales cycle from client introduction to signing an agreement will take anywhere from between three to six months to over one year.  Introduction to Avid’s services will usually come from exhibiting at trade shows, exposure from attending conferences and through word of mouth.  The sales cycle consists of the introduction phase, the proposal phase, the audit phase, the contract phase and the project initiation phase.

To date, Avid has been audited and qualified by large, small, domestic and foreign biotechnology companies interested in the production of monoclonal antibodies for clinical trials and, as discussed below, commercial use. Additionally, Avid has been audited by the European Regulatory authorities, the United States Food and Drug Administration (“FDA”) and the California Department of Health.

In 2005, Avid was inspected by the FDA in a Pre-Approval Inspection (“PAI”) supporting a New Drug Application for commercial application by a client company.  The Los Angeles District FDA office recommended to Washington that the facility be approved as a site for the Active Pharmaceutical Ingredient (“API”) for the client company.  The client’s New Drug Application w