Peregrine Pharmaceuticals Inc (NASDAQ:PPHM) Will Recover

Last week's news from Peregrine Pharmaceuticals Inc (NASDAQ:PPHM) was bad, but not a death blow. Peregrine "announced that it is discontinuing the company’s Phase III SUNRISE trial of bavituximab in patients with previously treated locally advanced or metastatic non-squamous non-small cell lung cancer (NSCLC). The decision to stop the trial was based on the recommendation of the study's Independent Data Monitoring Committee (IDMC) following a pre-specified interim analysis performed after 33% of targeted overall events (patient deaths) in the study were reached. Results of the analysis demonstrated that the bavituximab plus docetaxel group did not show a sufficient improvement in overall survival as compared to the docetaxel group to warrant continuation of the study. The interim analysis showed that the bavituximab combination group is performing as expected according to the original trial assumptions in terms of overall survival, while the docetaxel group is dramatically outperforming overall survival expectations based on the original trial assumptions and as compared to recently published studies."The key for investors to understand is that not all hope is lost. Peregrine now knows that it needs to regroup and develop a clear understanding of the SUNRISE study results. In the meantime, the company plans to put its other chemotherapy combination studies on hold. This is a smart move by management and will allow the company to save resources and plan its next course of action. Furthermore, Peregrine benefits from its Avid Biosciences division, which is not affected. As of February 1, 2016, Avid Bioservices had a revenue backlog in excess of $58 million under committed contracts from existing clients. In addition, Peregrine had $67.5 million in cash and equivalents as of January 31, 2016.This is quite impressive for a company with a market cap of just $93 million after Friday's selloff. Peregrine has a revenue generating business and over two-thirds of its market cap covered by cash. This does not take into account the potential of Bavituximab. For those not familiar with Peregrine, Bavituximab is an investigational chimeric monoclonal antibody that targets phosphatidylserine (PS). Signals from PS inhibit the ability of immune cells to recognize and fight tumors. Bavituximab is believed to override PS mediated immunosuppressive signaling by blocking the engagement of PS with its receptors as well as by sending an alternate immune activating signal. PS targeting antibodies have been shown to shift the functions of immune cells in tumors, resulting in multiple signs of immune activation and robust anti-tumor immune responses.Now no doubt this news is a setback for the company. There is good news and bad news here. The bad news is that it lessens the value of Bavituximab on its own. The good news is that the best course of action is for Peregrine to be bought out by a big pharma player that can develop the right formula/combination for Bavituximab. The key here is that if Bavituximab can turn PD1 non responders into responders as it has shown in animals then Peregrine has accomplished a major breakthrough. AstraZeneca PLC (NYSE:AZN) will know this in the next several months with their combo trial with Bavituximab.The one problem for Peregrine is that the ambulance chasing lawyers have already started circling the company. This is a distraction for the board and management as lawsuits always are. We don't believe management in any way mislead shareholders and on the conference call they were as shocked as anyone that this happened.Overall, we still see potential for shares of Peregrine, but not as much had the trial not been discontinued. The good news is that unlike other early stage biotechs, PPHM is well-funded and generates revenue. The company just raised $20 million to fund its operations well into next year and beyond. Lastly and something we always like to look for in a stock is whether smart money is getting involved. With PPHM, we’re in luck as billionaire Kenneth Dart’s Eastern Capital owns 30 million shares, or 13.1% of the company. We will be updating Insider Financial as soon as we know more. For continuing coverage on PPHM and our other hot stock picks, sign up for our free newsletter today and get our next hot stock pick!Disclosure: We have no position in PPHM and have not been compensated for this article.