Less than six months since investors issued a public statement calling for Peregrine Pharmaceuticals Inc. to cease clinical development activities of its cancer drug and focus on growing its biologics manufacturing business, the company is well on its way to completing the transition.
It will operate as a pure-play contract development and manufacturing organization, or CDMO, providing compounds and other drug development services to pharmaceutical companies. The manufacturing division operates as Avid Bioservices Inc.
Roger Lias was appointed president of Avid in September, replacing Chief Executive Steven King, who still leads Peregrine. Lias has more than 20 years of CDMO management experience and served most recently as a principal of executive biopharmaceutical consulting firm Stone Spring Partners. The company hasn’t formally announced taking on the Avid name, but the change is likely, according to sources familiar with the company.
Tustin-based Peregrine was previously a biopharmaceutical company that focused on research and development of its immunotherapy cancer drug bavituximab. It funded clinical development of its drug candidate through its cash-generating biologics manufacturing subsidiary. While Avid reported $57 million in revenue for the fiscal year ended April 30, up 30% from a year ago, Peregrine incurred losses—$28 million this year and $56 million last year—spending on research and development.
Peregrine has discontinued a phase-three study of bavituximab and “at this point is not investing any of their funding and time on clinical development activities,” according to a company spokesperson.
Shares of the company traded upwards in response to Peregrine becoming a full-service ingredients provider for biotech companies, currently trading at $5 per share for a $228 million market cap.
New Board
Peregrine hasn’t disclosed a strategy for divesting its research and development assets. King said on its most recent earnings call the company will consider “licensing or asset sale,” but it’s clear that drug development is out of the picture with its new board appointments.
Former directors King, Carlton Johnson, Eric Swartz and David Pohl resigned from the seven-member board, and those vacancies were filled by four new members, three of whom were nominated by investors led by Ronin Trading LLC and SW Investment Management LLC, according to a company press release last week.
Ronin and SW led the investor battle against Peregrine’s management. Together the two represent Peregrine’s largest stockholder, owning approximately 9.6% of Peregrine.
Ronin and SW made CDMO experience a priority of the reconstitution of the board.
New directors include one independent appointee, Joseph Carleone, who is chairman of the board of AMPAC Fine Chemicals LLC in Rancho Cordova, a manufacturer of pharmaceutical active ingredients, and previously president and chief executive of Las Vegas-based American Pacific Corp., a maker of specialty chemicals and propulsion products.
The Ronin-SW appointees are Richard Hancock, who has over 30 years of biologic CDMO experience and most recently served as president and chief executive of Althea Technologies Inc. in San Diego; Joel McComb, chief executive and chairman of molecule profiling company BioSpyder Technologies in Carlsbad; and Gregory Sargen, executive vice president of corporate development and strategy at Cambrex Corp. (NYSE:CMB) in East Rutherford, N.J., a global manufacturer and provider of small molecule active ingredients.
The four, along with Avid President Lias, Mark Bamforth and Patrick Walsh—all with CDMO experience—make up the board that will be voting at the company’s upcoming annual stockholder meeting on Jan. 18 at its Tustin headquarters.
Ronin and SW pointed out that directors Lias, Bamforth and Walsh were appointed over the past three months in response to their push for change. The four who resigned, Johnson, Swartz, Pohl and King, made up the entirety of Peregrine’s board from December 2008 to September of this year. “[They] have carefully composed the board to retain control among themselves,” said Ronin and SW, pointing out that shareholders’ stock sank 66% over the period.
Stephen White, founder of SW, said Ronin and SW are pleased with the new board and are “confident they … will be able to successfully lead the company forward and deliver value for stockholders.”
The recent change is limited to the board. But White said that given the company’s new direction and board restructuring, he “would expect significant changes in management offices, as well … [but] it’s the board of directors that make these decisions.”
This month, Joseph Shan resigned as vice president of clinical and regulatory affairs.
Performance History
Ronin and SW have been vocal in their criticism of the management team, citing grievances, including “poor corporate governance, interest misalignment with shareholders, equity dilution [and] financial losses.”
They said that under King’s leadership as chief executive since March 2003, Peregrine hasn’t reported a single quarterly net profit, and received three separate NASDAQ delisting notices and one notice of default from lenders. It also enacted reverse stock splits on two occasions—including a 1-for-7 in July, increasing shares outstanding by 1,252% cumulatively.
“We would like the Board … to publicly justify Mr. King’s continued employment as Peregrine’s CEO and his compensation of over $1 million annually in recent years,” according to Securities and Exchange Commission filings.
Swartz, Pohl and Johnson were each paid on average over $520,000 annually over the past five years, according to SEC filings. Their compensation is significantly higher than other directors at large pharmaceutical firms, such as Pfizer Inc., Merck & Co., Johnson & Johnson, Eli Lilly & Co. and AbbVie Inc., which average approximately $300,000, the Business Journal previously reported.
King and the other former board members decline to comment on compensation or other issues raised by Ronin and SW.
Manufacturing
“We will focus on securing new customers and diversifying our customer base,” Lias told the Business Journal when he took over Avid. The company issued revenue guidance between $50 and $55 million for 2018, including a manufacturing backlog of $33 million to be recognized under committed contracts.
Peregrine’s footprint is comprised of 196,000 square feet of leased space in six adjacent buildings, including Franklin and Myford manufacturing facilities totaling 54,000 square feet. Avid is an early adopter of single-use bioreactor technologies, a growing trend among CDMOs. Its new Myford facility is equipped with two new 2,000-liter, single-use bioreactors.
