Tim Brons - IR, Vida Strategic Partners Steve King - President and Chief Executive Officer Joe Shan - VP, Clinical & Regulatory Affairs Jeff Hutchins - VP, Preclinical Research Paul Lytle - Chief Financial Officer

Thomas Yip - FBR

Good afternoon ladies and gentlemen and thank you for standing by. Welcome to the Peregrine Pharmaceuticals second quarter fiscal year 2017 financial results conference call. At this time all participants are in a listen only mode to prevent background noise. [Operator Instructions] We will have a question and answer session later and the instructions will be given at that time. And as a reminder ladies and gentlemen this conference is being recorded. Now I would like to welcome and turn the call to Mr. Tim Brons, Investor Relations. Please go ahead sir.

Thank you. Good afternoon and thank you for joining us. On today's call we have Steve King, President and Chief Executive Officer; Paul Lytle, Chief Financial Officer; Joe Shan, Vice President of Clinical and Regulatory Affairs; and Jeff Hutchins, Vice President of Preclinical Research. Today our team will be providing an overview of the company's operations and progress spanning Avid Bioservices' contract manufacturing business, as well as our clinical, pre-clinical and corporate activities. 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 December 12, 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 the company's filings with the Securities and Exchange Commission concerning these and other matters. With that, I will turn the call over to Steve King.

Thanks, Tim, and thanks to all of you who have dialled in and to all of you who are participating via webcast today. I like to begin by just reminding everyone that we operate two separate but linked businesses under the Peregrine umbrella. These businesses represent our R&D efforts and our contract manufacturing business, Avid, respectively. Taken together our goal is to bring the overall company to profitability within the next 18 months by controlling costs, and growing revenues. Equally important is to make sure that our market cap adequately reflects the value of each of these business units which currently does not seem to be the case. Given our revenue history, current year revenue projections at $50 million to $55 million and backlog of future business at over $70 million, we believe just the value of Avid Bioservices is far greater than our current market cap and is only growing in value. The Avid business is on track to continue its revenue growth this fiscal year. Actually, our two facilities have the potential to generate in excess of $80 million in revenue, leaving additional capacity for revenue growth beyond the current fiscal year and into next year. Even with this available capacity we are moving forward with our plans to construct a third manufacturing facility in order to meet the anticipated commercial needs of our clients while continuing to grow the business by bringing in new projects. As we continue planning the new facility we're keeping a close eye on efficiencies that will reduce the overall cost of construction and once built, the cost of operations. While this may delay the new facility launch until later in calendar year 2017 we currently have adequate existing capacity to continue meeting the needs of our current clients while also bringing in new customers. So we do not expect any delay in construction to impact our near term or long term ability to grow top line revenue as originally planned. Business at Avid is brisk with several process validation campaigns either underway or completed in our Myford facility, continuing commercial and clinical production at our Franklin facility and new projects being initiated. Taken together this gives us great confidence in the future of the business. In addition, another milestone was achieved during the quarter as we successfully completed a pre-approval inspection with Health Canada for a client product that is currently under regulatory review in that country. This adds the Avid’s strong regulatory track record with multiple successful inspections from regulatory agencies in the US, EU, Brazil and Canada. Our regulatory success, our unique ability to provide a wide range of services from cell line development to commercial manufacturing and our reputation for delivering quality products continues to drive demand for Avid capacity. We are also continuing to evaluate other growth opportunities for the business. This includes the evaluation of downstream, high margin services which will allow us to increase our footprint with clients. On the R&D side of the business we announced a series of important findings in recent months, all of which will contribute to our future development of bavituximab. Our ongoing analysis of the Phase III SUNRISE data has revealed a promising biomarker that may give us insight into key patient populations. We are currently evaluating additional biomarkers that we hope will allow us to identify a profile for patients who will receive therapeutic benefit from a bavituximab containing treatment regimen. Concurrent with our internal clinical work, our collaborators at NCCN are in the process of initiating trials for three new bavituximab combination treatments, which we expect to begin enrolling patients in the coming months. What is exciting is that the NCCN studies will help build on developments that we are seeing from our internal scientists, as well as our collaborators at Duke, Rutgers and Memorial Sloan Kettering Cancer Center. Together, we presented compelling data supporting our long-standing belief that bavituximab significantly impacts the tumor microenvironment, creating a more immune active environment in which other therapies, including checkpoint inhibitors, are able to have a greater anti-tumor effect. These findings are highly validating and we look forward to continuing our work with these world-class institutions to help guide clinical development. We believe the data from the new clinical studies being initiated, other clinical opportunities in development and the continuing mechanistic and immune-oncology combination insight provided by our scientists and collaborators can add significant value to our R&D business, including creating partnering opportunities. Even with a tight control of expenditures that will allow us to reach our profitability goal. I'll now turn the call over to the other members of our team who will give a detailed overview of our clinical, pre-clinical and corporate activities, as well as our Avid Bioservices contract manufacturing business. We will begin with Joe Shan, Vice President of Clinical and Regulatory Affairs. Joe?

Thanks, Steve. So the SUNRISE Phase 3 trial was discontinued earlier this year. Patient treatment and follow-up on the study, were allowed to continue, and currently a number of patients are still receiving bavituximab maintenance. As we previously reported the study protocol pre-specified the collection of thousands of patient samples for exploratory analyses over a wide range of potential biomarkers. And this analysis has been taking place as patient follow up has continued. Through this biomarker analysis, our team has identified a promising correlation between overall survival and pre-treatment levels of beta-2 glycoprotein-1 (β2GP1), which was presented at ESMO in October. These results were based on a data cut-off after 70% of the targeted overall survival events in SUNRISE have been reached. Interim analysis demonstrated that patients with pretreatment beta-2 levels between 200 and 240 µg/mL representing approximately 30% of randomized patients, achieved a statistically significant 5.5 months improvement in median overall survival from 7.7 months in the control group to 13.2 months in the patients receiving bavituximab and docetaxel. A similar trend was observed with pretreatment beta-2 glycoprotein-1 levels greater than 200 micrograms per mL, representing approximately 50% of randomized patients. We believe that these observations strongly suggest that beta-2 levels may be useful for identifying patients who are more likely to benefit from a bavituximab containing therapeutic regimen. We plan to further evaluate the role of beta-2 glycoprotein-1 levels in response to bavituximab therapy in future clinical trials. And the company has filed a patent application directed to the use of this initial biomarker discovery. And while we are disappointed SUNRISE did not meet the pre-specified clinical endpoints, the data from SUNRISE will be critical in guiding the future clinical development of bavituximab. In a rapidly changing oncology treatment landscape, biomarkers are playing an increasingly important role in helping identify specific patient subgroups characteristics that may predict response to a treatment. This has been seen historically with targeted therapies as well as more recently with checkpoint inhibitors, including PD-1 inhibitors. Numerous additional biomarkers are currently being evaluated with the goal of developing a multi-marker signature that can potentially identify patients that are likely to receive clinical benefit from bavituximab. Ideally these biomarkers can be applied not only to chemotherapy combination approaches but also to I-O combinations, including the checkpoint inhibitors. As you'll hear from Jeff in a minute, we and our research collaborators are generating very exciting data to support the advancement of clinical development of bavituximab with I/O approaches, and we plan to incorporate potential biomarkers identified from SUNRISE into future clinical trials. Meanwhile as Steve mentioned, we're pleased by the NCCN’s award of three grants to investigators for clinical trials of bavituximab in combination with other therapeutics for the treatment of glioblastoma, head and neck cancer and hepatocellular carcinoma. These grants were awarded to researchers at the Moffitt Cancer Center, Mass General Hospital Cancer Center and The Sidney Kimmel Comprehensive Cancer Center at Johns Hopkins. These NCCN studies which we expect to be initiated in the coming months align with our development strategy for bavituximab which is currently focused on small early stage clinical trials evaluating the drug in combination with other cancer treatments, including chemotherapy, radiation and checkpoint inhibitors. Collaborators such as NCCN play a central role in this strategy and we look forward to integrating the valuable clinical data generated by the investigators to expand our knowledge regarding bavituximab focused cancer treatment combinations. That concludes my comments today. I’ll now turn the call over to Jeff Hutchins, Vice President of Preclinical Research. Jeff?

Thanks Joe. As Joe's team mentioned and the important clinical progress they've made during the quarter, the pre-clinical group has also reported findings that further illuminate bavituximab’s role in treating cancer. In recent months, we have announced results from studies conducted with collaborators at Memorial Sloan Kettering Cancer Center, Duke University and Rutgers University College of Medicine, as well as our own internally conducted pre-clinical research. The presented results of this work reinforced our belief that bavituximab plays an important role in transforming what we call cold tumor microenvironments which are characterized by immunosuppression and an inability to generate an effective tack on tumors in to hot tumor microenvironments that exhibit high immune activity and are pronged with specific cells to fight tumors. During the past quarter we have presented data from several studies showing that meaningful tumor microenvironment shifts occurred when a bavituximab like anti-body was administered as part of a combination treatment regime with checkpoint inhibitors such as anti-PD-1, anti-PD-L1 and anti-LAG3 as well as with radiation and/or chemotherapy. This shift in tumor microenvironment from cold to hot as was evidenced by greater increases in the activity of several critical immune activating pathways, including presentation and processing of antigens and signaling an activation of T cells. We believe that these immune activating mechanisms can be an important component of combination treatment approaches to cancer. Currently it is estimated that 40% to 70% of cancer patients don't respond to available anti-cancer therapies due primarily to the immunosuppression impacting their tumors. Our pre-clinical work suggests that bavituximab can help reverse this immunosuppression creating an immune active environment that can potentially convert these non-responders to responders. Importantly we think that this priming of the tumor marker environment is not only relevant for enhancing response to immunotherapies but also for more traditional cancer treatments such as radiation and chemotherapy. While we are excited by the data we've generated, it is important that we also demonstrate the practical impact that this activity can have on tumors. To this end, we have presented promising data from a study in a triple negative breast cancer model at the Second International Cancer Immunotherapy Conference in September. These findings showed that 80% of animals receiving a pre-clinical bavituximab equivalent combined with anti-PD1 and anti-LAG3 therapies experienced complete tumor regression. This is in contrast to findings that showed no complete regression among the animals in the treatment group that received a combination of anti-PD1 and anti-LAG3 alone, without the equivalent of the bavituximab. In a follow-up presentation from the same study at the SITC annual meeting in November, we reported these complete regressions for long, durable and suggestive of immune system memory and adaptive immune responses. This is just one example of the type of preclinical work that has generated the excitement at Peregrine about the potential of bavituximab in combination cancer therapy. But we recognize that this work needs independent outside validation from the academic community. To this end, we are thrilled to highlight our ongoing collaboration with scientists at the Memorial Sloan Kettering Cancer Center which is being led by doctors Taha Merghoub and Jedd Wolchok, two of the world's most famous experts -- foremost experts in the field of cancer immunotherapy. Their work in a mouse model of B16 melanoma, also presented at the SITC meeting, showed that PS targeting antibodies synergized with both anti-PD1 and radiation therapy to improve anticancer activity for tumor burden and survival. As well, this combination uniquely led to a change in the tumor microenvironment shifting it from immunosuppressive in tumors which are protected to immune active in which tumors are more susceptible to immune related treatments. We recognize that these research results while exciting are in preclinical cancer models and must be translated into human studies. This is a key objective of the three NCCN clinical trials that Joe just mentioned that are expected to be initiated in the coming months. We look forward to continuing our research activities on bavituximab treatment combinations with our collaborators and present new findings as they are available. That concludes my comments today. I'll turn over the call to Paul Lytle, Chief Financial Officer, who will discuss the company's financial performance, including additional details regarding our Avid Bioservices business. Paul?

Thanks, Jeff. Before I begin, I’d like to reiterate our financial goal of becoming profitable on an overall basis 18 months from this past quarter end. Our strategy for achieving this goal is built on growing revenue from our contract manufacturing business, Avid Bioservices while reducing our overall spending on research and development. We have made great strides over the past two quarters in both growing revenue and reducing our R&D spend, thereby reinforcing our commitment to this goal. I’ll first address our contract manufacturing revenue. During the second quarter of fiscal year 2017 we achieved all time high revenue of $23.4 million and while we expected to have a very strong quarter as some revenue shifted from Q1 to Q2 due to an outside testing delay we discussed last quarter, I am pleased to say that those delays have been resolved and we have recognized to date $21 million in revenue over the past six months. This represents revenue growth of 53% compared to last fiscal year. Given the performance, we are able to reaffirm our full fiscal year 2017 revenue guidance of $50 million to $55 million. We also have a strong revenue backlog of $73 million under signed contracts that supports this revenue growth. This backlog mostly covers services to be completed during the remainder of fiscal year 2017 and fiscal year 2018. I’ll address the second part of our strategy which is to reduce our overall spending on R&D. As we announced last June, Peregrine has made a decision to focus our internal drug development efforts on small, cost effective, early stage clinical trials designed to attract potential partners to further advance our products. We believe the strategy will not only help us achieve profitability sooner but it could also create significant potential upside for our shareholders. As we execute on the strategy, our R&D expenses decreased 51% this quarter compared to the same prior year quarter and for the current six month period our R&D expenses declined 45% over the same period last year. The result of the strategy has translated into a reduction in our net loss by 69% for the quarter and 44% for the six month period versus the same prior year periods. And if you deduct non-cash expenses from our net loss this quarter, we saw our net cash burn rate for the quarter decline 78% to $2.6 million compared to $11.7 million for the same quarter last year. As I mentioned before we're making great progress towards reaching our goal of profitability. A more detailed analysis of our statement of operations is included in our Form 10-Q that will be filed shortly. This concludes my financial overview. I will now open the call up for questions. Colleen?

[Operator Instructions] And our first question is from the line of Thomas Yip [FBR].

Hey everyone. Congrats on a very good quarter and good to see bavituximab continues to move forward. First, a couple of questions about Avid. As you mentioned, as Avid becomes a more important part of Peregrine, obviously we would like to learn more about Avid. So first, can you just remind us what’s the magnitude of the delayed revenue recognition between the first and second quarter?

The overall delay that last quarter we mentioned that we had an outside testing lab that is responsible for performing certain tests. And that testing lab was backloged with certain activities and therefore we couldn’t recognize a certain amount of revenue last quarter that was shifted from Q1 into Q2. Well the delays have now been resolved and we’re back on track and recognizing revenue as we routinely do as we release lots. So and everything has been resolved.

Okay, so what -- approximately how much was that amount?

If you look at – if you straight line our revenues, our projections are about $50 million to $55 million over the fiscal year. So you figure at $12.5 million a quarter you could assume that last quarter was about $5.5 million in total revenue and it could have been on a straight line basis of about $12 million.

Okay, that makes sense. Second, if I recall correctly the cost of your -- [indiscernible] new facility is also included in cost of contract manufacturing as well. So how much of the new facility cost is included in the fiscal second quarter ’17 to that contract manufacturing costs.

So yeah, I think so if we're talking about the Myford facility which we commissioned in January of this year that cost would be included in those numbers. Obviously we're just kind of moving toward the third facility. That would primarily be used for clinical production at least initially, could eventually be commercial as well, but it’s really designed to be a clinical production facility. So those numbers other than where we spent on planning up to this point are not reflected as in the current numbers.

Okay, thanks for clarifying. I guess one more question about bavituximab. Now that we’ve seen some positive pre-clinical data in combination with checkpoint inhibitors and as you outlined earlier there are a number of collaboration of academic partners. –Can you tell us what else is needed to move any potential combination to clinic and would any of these upcoming trials involve existing academic collaborators? A –Steve King: Yeah, so I think that one of the nice things about the NCCN collaboration just to remind everybody was based on a $2 million grant from Peregrine a lot of which has already been put into the program. But basically then NCCN will oversee all of those three clinical studies that will be completed. One of those is in an I/O combination, so it gives us one opportunity already to start looking at kind of an extension if you will of the work we're doing with our collaborators into the clinic and so they start to validate some of that. And I think in addition we have interest from other academic collaborators in I/O combinations. So we're currently evaluating those and how those would move forward. So we're hopeful to have some news in the not too distant future on some of those developments as well. Then I think beyond that I think we're really in the process of just looking through -- again the SUNRISE data identifying what's the best way to identify patients. In addition some of the other data we can learn from SUNRISE are changes on therapy. So again the primary hypothesis being that we can take, if you will, immunologically cold tumors and make them hot tumors by breaking down the immunosuppression. Then that's some of the things again that we have an option is to learn from the SUNRISE study. So I think overall the data from SUNRISE taken together with the work at Sloan Kettering and our other collaborators I think all really build the story very nicely to eventually potentially starting more company sponsored studies. But again that's where the balance of our R&D spend versus our revenue comes into play. And so whatever studies we start we anticipate would be smaller studies but ones that will be rich in biomarker type analysis which we think will be the key to number one identifying those successful combinations. But secondly to eventual partnering where we can actually help some of the other drugs that are in development to do better.

Okay, sounds good. Thank you again for taking my questions. And looking forward to learn more about these trials in coming months.

[Operator Instructions] And I'm not showing any questions in the queue, I would like to turn the call to the president and CEO Steve King for final remarks.

Thank you very much. I'd like to thank all of you again 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. Looking ahead we are confident in our ability to achieve profitability through cost reduction and revenue growth while continuing to work with our collaborators to generate the data required to drive partnering and build shareholder value. With that we will now conclude the call. Thank you again.

Ladies and gentlemen thank you for participating in today's conference. This concludes the program and you may call disconnect. Have a wonderful day everyone.