Tim Brons - Investor Relations Steve King - President and Chief Executive Officer Paul Lytle - Chief Financial Officer Steve Worsley - Vice President of Business Development Joe Shan - Vice President of Clinical and Regulatory Affairs

Kumara Raja - Noble Capital Market Thomas Yip - FBR & Company

Good day, ladies and gentlemen, and welcome to the Peregrine Pharmaceuticals Third Quarter Fiscal Year 2017 Financial Results Conference Call. At this time, all participants are in a listen only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. I would now like to hand the conference over to Tim Brons, Peregrine’s Investor Relations Group. Please go ahead.

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; Steve Worsley, Vice President of Business Development and Joe Shan, Vice President of Clinical and Regulatory Affairs. 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 March 13, 2017 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. During the quarter, Avid’s revenue growth continued, representing a strong indicator of the increasing value of this contract development and manufacturing organization, or CDMO business. The steady growth of this business over the past five years has been remarkable, at almost 40% compounded annual growth rate. And we are pleased to see the trend continuing, even as we move through a number of process validations for clients, which we believe and expect to further support growth in the future as potentially some or all of these products enter commercialization. Commercial production has been the cornerstone of our revenue growth. And being able to potentially expand the number of commercial products and manufacture while supporting the expansion of the existing commercial products in the territories is a priority. Making these process validation activities along with the recent successful preapproval inspection for a major market, very important milestones and continuing to grow the Company. We already produce drug specimens for several commercial products that are marketed in over 15 countries. Taking together, we are building a solid foundation for future growth of the business through new client introductions and by continuing to support the current customers through clinical development and into commercialization. An important component of our Avid growth strategy is capacity expansion within our Myford facility. We are currently on track to install two 2,000-liter bioreactors in the facility within the next few months with a book of business for the reactors already in place. We believe the total capacity potential of the facility, when operating in campaign mode, can exceed more than $75 million annually bringing us to well over $100 million in total potential revenue between our two manufacturing facilities, providing us with adequate capacity to continue Avid revenue growth through fiscal year 2018. As we look beyond the fiscal year and to the future, based on current operations and projected demand from our clients, we have also recently secured additional space adjacent to our Myford facility, which we already have the use for as part of our growing operations. And additionally, would also allow us to further expand manufacturing capacity based on committed business. While we will only begin converting space into manufacturing capacity once client commitments and other necessary financing is in place, this puts us in an excellent position for continuing to grow the business beyond the coming fiscal year. We already see Avid as a tremendously important asset with solid upside potential that it often overlooked as a value driver for the overall company. With projected revenue of over $60 million for the current fiscal year, this is already a strong business in an industry that is expecting substantial growth over the next decade, and we are excited about future of the Company. We believe the recent improvement of stock price is a growing recognition of the value of Avid, and having the full value of the Avid business reflected in our stock price is a top priority. During the quarter, we also achieved a number of goals on the other side of our business, drug development. While we are moving our development programs forward on a tight budget, we are working with some of the top research institutions in the world to explore the best ways to advance our lead bavituximab program. These efforts are highlighted by the three clinical trials under our collaboration with the National Comprehensive Cancer Network or NCCN, which are advancing as planned. And we expect at least two of the trials to be initiated by mid-year. Also during the quarter, working independently and in conjunction with our collaborators, we had multiple abstract accepted for presentations at AACR in April. These findings reinforce our belief that an immune activating mechanism, like bavituximab, can be an important component of combination in cancer treatment approaches by significantly impacting the tumor microenvironment, creating a more favorable environment for checkpoint inhibitors. We look forward to further emphasizing the value of this research as the presentations are made and as the new trials get underway. Needless to say, we are excited to be working together with the world class researchers and clinicians at Memorial Sloan Kettering, UT Southwestern and the NCCN. Additionally during the quarter our collaboration at the University of Texas Southwestern Medical Center, published the positive proof-of-content data for our recently licensed exosome-based cancer detection platform, which could have broad potential for patients with cancer. Results of the study showed that researchers were able to distinguish between healthy subjects and patients with ovarian tumors, based on the level of exosomes containing phosphatidylserine found in their blood. Further analysis of the PS positive exosome levels allowed researchers to further distinguish between malignant and benign tumors. While the work in this program is early, we are highly encouraged by the observed cancer detection capability of this platform, and we are actively seeking a partner to advance this diagnostic. As a whole, even though we have reduced our R&D expenditures, we are pleased that collaboration, such as those with Memorial Sloan Kettering, NCCN and UT Southwestern, are allowing us to continue the advancement of our therapeutic and diagnostic programs as we continue to evaluate the best ways for advancing bavituximab and other PS targeting agents. The combined effort of the Avid bio-manufacturing business and these important collaborations are allowing us to make great strides in all fronts. I will now turn the call over to the other members of our team who will give you a detailed overview of our 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. During the quarter, we continue to wrap-up patient treatment and follow-up with our SUNRISE trial. While the study was discontinued in February of last year, follow-up data collection continues. And patients assigned to bavituximab containing arm were allowed to continue receiving study drugs, if the investigators determined it was in the patients’ best interest. This has been a valuable effort and we are very pleased with the amount of data that has been collected over the past year. It is important to mention that we are now working diligently to transition the remaining patients still receiving bavituximab to compassionate use programs. We have recently concluded data collection and are now working towards day-to-day slot and beginning our final analysis, and hope to present results later in the year. We’re in the meantime evaluating ways to advance bavituximab with immune stimulating therapies as resources permit, while supporting the stated corporate profitability goals. Concurrently, we’re completing patient sample testing from the comprehensive SUNRISE biomarker program. Biomarkers play an increasingly important role in helping identify specific patient characteristics that correlate with or even potentially predict response to a treatment. For this reason, our SUNRISE study protocol pre-specified the collection of thousands of patient samples for exploratory analyses over a wide range of possible biomarkers. Through this effort, our team identified a correlation between pre-treatment levels of beta-2 glycoprotein-1 and overall survival, which was presented at ESMO last October. In early April, at the upcoming AACR Annual Meeting, we will present data from an analysis of pre-treatment interferon gamma. As the remaining SUNRISE patient samples are tested, we plan to correlate these data with the final clinical data, and plan to share these results as they become available later this year. Now turning to new trials, I’m happy to report that the three clinical trials to be funded through our collaboration with the NCCN are advancing as expected. The first study expected to begin patient enrolment shortly, is being conducted by Dr. Jessica Frakes, at the Moffitt Cancer Center. This study, which builds upon prior investigator sponsor trial, will evaluate the combination of Stereotactic Body Radiation Therapy, sorafenib and bavituximab, for the treatment of Unresectable Hepatocellular Carcinoma. We are interested in this trial design as radiation has been shown to increased PS expression on the surface of tumor cells, induced immunogenic tumor cell depth, and increase tumor specific T-cell activity. In addition, NCCN has recently communicated that both the study of bavituximab, temozolomide and radiation in newly diagnose glioblastoma and the trial of bavituximab and temozolomide in recurrent head and neck cancer, which has progressed on checkpoint inhibitor treatment, are on track to be initiated by mid-year. This concludes my comments today. I’ll now turn the call over to Steve Worsley, Vice President of Business Development. Steve?

Thanks Joe. As previewed by Steve, our Avid business is strong and we are taking steps to establish sustained growth in the near-term and in the future. In the near-term, we are aggressively working to expand our client base, and in the third quarter, we signed another new client for a late-stage clinical product. We are currently in discussions with a number of prospective new clients, and we expect to sign additional clients in the coming months. In the long-term, it is essential that we read the market appropriately and respond to the existing needs. At last year’s ISPE/FDA/PQRI Quality Meeting in Washington DC, industry leaders gathered to address the most important trends and pressing needs of the CDMO industry with several key takeaways. First, the industry is set for a biologics boom. Today, amongst all pharmaceuticals segment, the oncology market is experiencing the fastest growth at 11% annually. Biosimilars are expected to grow to 25 billion by 2020. And biologic sales, which currently represent 45% of the top 100 drugs, are expected to increase to 52% by 2020. It is important to note that a majority of our clients are focused on the fast-growing biologics segment of the oncology market. One of the most serious points made by industry leaders was the need to address drug shortages, which, according to Janet Woodcock, Director of the FDA CDER poses a huge risk to patients. According to the FDA, drug shortages peaked in 2011 with 251 shortages reported. Since then, 117 new drug shortages were reported in 2012 with another 44 reported in 2013. A large portion of drug shortages have been and continue to be sterile injectable and other acute drugs, including oncology drugs. Two of the major reasons for such shortages are quality manufacturing problems and a lack of production capacity. In consideration of the CDMO industries’ greatest needs, including biologics production expertise, continuous manufacturing, quality and capacity, Avid is uniquely positioned to thrive in the future. Myford is a state-of-the-art model facility capable of providing our customers with the expertise, capacity and quality required to support the drug supply demand of the pharmaceutical industry. Our quality standards are among the highest in the industry, and we just successfully completed another FDA preapproval inspection in February 2017, receiving zero 483 citations. With our current and planned facilities, we believe Avid is well positioned to respond to the needs of this industry and take advantage of this growing global market. This concludes my comments today. I’ll 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. Before I begin, I’d like to reiterate our financial goal of achieving profitability on an overall basis, starting 15 months from this current quarter-end. Our strategy for achieving this goal is to grow revenue from our contract manufacturing business, while reducing our overall spending on research and development. During the first nine months of fiscal year 2017, we have made excellent progress toward both of these goals. I’ll first address our contract manufacturing revenue. During the third quarter of fiscal 2017, we reported revenue of $10.7 million, and we’ve recognized $39.7 million in revenue over the past nine months. This represents revenue growth of 61% for the quarter and 55% for the nine months compared to the same prior year period. Now looking ahead, we are increasing our full fiscal year 2017 revenue guidance from $50 million to $55 million to $60 million to $65 million that is supported by our current revenue backlog of $70 million under committed contracts. This new revenue guidance translates into potential revenue growth of between 35% and 47% over fiscal year 2016. I’ll now address our efforts to reduce overall spending on research and development. As we announced last July, our R&D strategy has changed. Our goal was to reduce R&D spending by 50% this fiscal year, and 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. As we executed on this plan, our R&D expenses for the quarter and nine month period decreased 60% and 50% respectively compared to the same prior year period, confirming we are on track with this significant decrease in R&D spending. The result of the strategy has translated into a reduction in our net loss by 54% for the quarter and 48% for the nine month period versus the same prior year periods. And while we have achieved a significant decrease in our net loss this fiscal year, our cash position has also decreased by approximately $20 million since the beginning of the fiscal year. Therefore, we want continue to be diligent and thoughtful in our capital raising efforts. To maintain a stable and growing manufacturing business, we must continue to raise sufficient capital to support this business. During the current nine month period, we carefully raised $11.6 million in net proceeds from the sale of common stock versus $43.4 million we raised during the same period last year. Our manufacturing business is not only valued based on the quality of the operations, but is also based on our ability to sustain our operations. As the business expands, our cash on hand should also increase to support this growing operation. Switching gears now, I’d like to address our plans to preserve our NASDAQ listing. At a backdrop, last April, we were notified by the NASDAQ that our share price did not meet the $1 minimum bid price for 30 consecutive days, which is a requirement for continued listing on the NASDAQ capital market. At that time, we were automatically afforded an initial compliance period of 180 days or until October 10, 2016 to regain compliance. At the end of the initial compliance period, we requested and were granted a 180 day extension to regain compliance. This second extension period will end on April 10, 2017. Let me discus our strategy and future steps we plan to take over the next few months. First and foremost, we have determined that it is not in the best interest of our stockholders to affect a reverse stock split prior to April 10, 2017. If our share price does not trade above a dollar for 10 consecutive trading days by April 10th, we expect to receive a notice of delisting. If we received this notice, we will appeal this decision within the required seven days and this appeal will stay any delisting actions by NASDAQ. At that point, NASDAQ will schedule a hearing, which is typically held within 45 days and we will present our plan to regain compliance. We are considering several paths to regain compliance, including having additional time to continue to allow the market to adjust -- to reflect the current value of Avid as evidence with the recent movement in our share price. The hearing panel could afford us up to 180 additional days to regain compliance; although, this additional time is not guaranteed and this decision is at the discretion of the NASDAQ’s hearings panel. If we are not afforded additional time from this panel, it is important to note that our stockholders approved the Board’s ability to implement a reverse stock split at a ratio of up to 1: 7 as a means to regain compliance and to preserve our listing on NASDAQ. During this entire process, Peregrine will continue to be listed on that NASDAQ capital market as it does today. We will keep you informed on any material developments through our SEC filings on Form 8-K as we execute on this plan. With that, this concludes my financial overview. And I will now open the call up for questions, operator?

Thank you [Operator Instructions]. And our first question comes from Kumara Raja with Noble Capital Markets. Your line is open.

On the Exosome-based cancer detection platform, you presented some positive data on the ovarian cancer. What other cancers, there is expression of possible serum and what kind of trials are you guys conducting there? And what is the next step for collaboration for this platform, like what needs to be done in terms of trials that need to be done and the state of offset? And also, in terms of the SUNRISE trials, what are you seeing in patients who are continuing on bavituximab? What kind of benefits are you seeing there? And you’ve talked about Compassionate Use Program, what needs to be done for that in different countries? And then, in terms of cost of contract mfg., it looks like that there has been an increase during Q3 compared to the similar time frame last year. What is the reason for that? And what should we expect in terms of cost of manufacturing going forward?

I’ll take a stab at the first piece of this, and then turn it over to Joe to answer the questions on the SUNRISE study, and then Paul on the cost of mfg. question. I think it's important on the PS-exosome diagnostics that this is a simple blood test. And so what we’ve been focusing our efforts on is really refining the assay into a format that would be easily implemented at a number of different sites vs. if you’re just doing it in a research-type setting. And that’s all being really done with internal expertise we already have in-house. As far as validating other tumors, we do believe this really could be a good marker across many different tumor types. So, while the initial effort has been focused on ovarian cancer, we do have an interest in implementing this into all of our future clinical studies as a simple blood collection; so including potentially the NCCN studies, for instance, and other collaborations. But also there are sample sources of serum that we can obtain, as well as working with our collaborators at UTSW and Memorial Sloan Kettering to look at other tumor types. So although our primary interests are breast cancer, lung cancer, and expanding into the other tumor types, liver cancer, which we looked at before, and really validating it across the board, because one of the bigger goals would be if this could potentially be a prognostic for the treatment of bavituximab - we’re a long way from that, but at least we have a tool and we can look at it in the conjunction of the tumors [ph]. We think there’s very broad potential for this technology. As far as running any actual clinical studies, our goal is really to bringing the program forward to do the proof-of-concept based on our collaborations and then to find a partner to move forward to be further advancement and take on both the cost of the future development, as well as the commercialization with us receiving some downstream royalties & milestones to most of these types of agreements. For the question regarding patients that are still on bavi and how are they doing, and the Compassionate Use, I’ll turn it over to Joe.

For SUNRISE overall, while there was no significant difference between the bavituximab/docetaxel arm and the docetaxel alone arm, there are of course patients still as we mentioned still receiving bavituximab, so that gives you an indication that there are patients that are not only, what we call long-term survivors but there are diseases that stabilized. That’s why it's was important that the trial is formally concluded that we allow the patients the opportunity to continue receiving bavituximab under compassionate use. The biomarker analysis is still ongoing, and we’re also hoping to wrap that up in the next few months. Those data will be presented as they’re become available, but the first observation that we’ve reported on already, we mentioned the correlation between beta-2glycoprotein-1 [B2GPI] levels, which is an important protein for bavituximab to bind, so that’s important confirmation of a biomarker for drug activity. And, like I mentioned, there will be a presentation on other cytokine biomarker, interferon gamma [IFN-y], in about 2 weeks time. Regarding the compassionate use, the procedure varies from country-to-country, but basically, investigators that have patients still receiving bavituximab need to file an IND or expanded access to application in the U.S. It’s a single patient IND, and in Europe it's under the expanded access. It’s a bit of paper work, but we’re assisting where we can, but basically the investigator takes responsibility from that point on, and the approvals are pretty quick.

That’s one of the things that we see with bavituximab is, while we’re all disappointed that the overall trial results weren’t what we expected, certainly, you see these anecdotal signs where we obviously see a number of patients that are still on therapy who are then coming in for quite now very long extended period of time, we feel like they’re getting benefit. You see these anecdotal signs activity in those patients that have been on therapy, and for us that’s one of the reasons we’re still very happy and actually excited about the collaborations at Sloan Kettering and UTSW, in particular, where there’s not just an interest in studying bavituximab in preclinical models, but actually taking some of that data and eventually turning that into clinical indications where the drug excels. We look forward to keeping everyone updated on those activities at AACR, ASCO, and beyond. Then the other question on the cost of mfg, I’ll turn it over to Paul.

Let me just say the backdrop we’re really excited about Avid, and what we’ve done so far. We have great projections this year hitting $60-65mm in potential revenue. And it's just a phenomenal year that could be anywhere from 35% to 47% increase over the previous FY. Last FY, we did about $44mm in revenue, and that represented about 66% growth over the previous FY. So, as Steve Worsley mentioned, I think this industry is set for a boom, and we're feeling the impact of that and it's great part of the business. On the costing side, as we mentioned on previous calls, our Franklin facility, generally have a higher gross margin, because of the lower cost structure. That particular facility is smaller, it has lower overhead costs, and is running at a higher capacity. Whereas our Myford facility currently is a much larger facility, has a higher cost structure. It absorbs depreciation and also it's not utilized fully right now as we're in the process of doing process validation runs. And these particular runs are done in a series, so they're not done in campaign mode where you can maximize the usage of the facility, and that just causes a higher burden for those runs and higher costs for those runs, causing the gross margins on an overall basis to decline. But as Myford becomes more fully utilized, we expect the margins to get back in place where we’ve seen them before, between the 40% and 48% range. And we think, as Steve Worsley mentioned, there’s the opportunity to get there based on where the industry is going and what the demand is.

And our next question comes from Thomas Yip with FBR and Company. Your line is open.

I actually see Avid continues grow and with a higher revenue guidance, I am glad to hear some new progress on exosome program as well. So, my first question, looking at your new revenue guidance, it looks like the fourth quarter, the coming fourth quarter, will be the big quarter. So, should we expect to see similar seasonality fluctuations from quarter-to-quarter for the next fiscal year 2018?

There are a number of variables that go into the revenue recognition. Some of it is driven by the timing of doing runs, and remember that these runs typically from beginning to end, are around 4-5mos time periods. So, you’re going to have the natural variability there as to how many actually started in a given time period that could end in a qtr. The 2nd is, in the past we’ve had some issues, which recently seem to have been resolved with some of the testing labs and the ability to get test results, which impacted lot release and the timing of shipping, and when the clients were ready to accept the material. So given that, there’s going to be some natural variability. Hopefully, as we get the Myford facility really up and running and it converts over into a more consistent flow of business going through there, which we expect over time as some of those process validations turn into commercial production, then hopefully, we’ll have a pretty good level of stabilization. But, by the nature of the business, you’re going to have a little bit of lumpiness. It may be a bit exaggerated between Q3 and Q4, but overall we think as Myford comes into constant production then naturally the number is going to grow, and therefore, the amount of variability we’ll see should decrease. But the key thing is that we’re bringing in new customers and aligning ourselves up for that future business, because that’s where the real value is going to come from.

So, regarding your manufacturing backlog now at $70 million, are they selling type contracts or do they have a period of time that you need to fulfill these orders?

We typically get a rolling forecast from our clients, which covers generally 9-15 month periods, with a committed period, and then we get a viewpoint of their future business after that. We talk about our backlog, it is all committed business from a number of clients for production that they need. The production schedule then flows off of those projections of when they need the material delivered. We start it months in advance so we’re in a position to deliver it during those quarters in which they projected they need the material.

Another question related to Avid, so you outlined your progress and the facility expansion for the Myford plant that will happen in a couple of months, so that will put us towards the first half of fiscal year ’18. How should we account for the expansion costs? Will that be reflected primarily in the first half between now to your first half of ’18, I suppose, in cost of goods sold or will that be an underlying item?

When we talk about expansion, Thomas, we’re talking about the installation of two 2,000 liter bioreactors which will be installed in our existing Myford facility, and will allow us addl. capacity at a higher scale to meet some of our customers’ demands that are currently adhere the book of business work. And the cost of those bioreactors is nominal compared to the overall cost of facility, and it will be negligible compared to the opportunity that we can generate from those bioreactors.

So we shouldn’t project higher costs for the next couple of quarters?

Yes. Correct.

So one final question, this one is related to bavituximab. I don’t see any new NCCN trials specifically for lung cancer. Should we expect future Phase I, Phase II trials to focus primarily on exploring other solid tumor indications or do you plan to re-address non-small cell lung cancer in the future?

The NCCN process is relatively independent from us. It's a competitive process in which the investigators from any of the NCCN institutions can submit their proposals for clinical studies. None of the studies are happening in lung cancer, but that was just part of their overall competitive process. As we’re evaluating and looking at the rest of the data from SUNRISE, which gives us more insight into the lung cancer potential of bavituximab, then we will consider, addl. lung cancer studies in the future. Right now, we’re just evaluating where we’re at and what those studies could potentially look like. But, as has been the overall goal of the Company, which is continue to take control our R&D expenses and to move toward profitability for the next 15mos now. But yes, we still have an interest in lung cancer. It’s obviously a complicated space, maybe getting more complicated with expected approvals and PDUFA dates and what have you coming up that could further change the landscape. The bottom line is there are still patients who are not getting cured. The research community and clinical community is focused on the tumor microenvironment as the potential root cause, and as we have these collaborations that have results coming up at AACR and beyond, they’re indicating that that could be Bavi’s sweet spot. So, as we put together our data set with what the market needs, our lung cancer is still attractive. It’s a huge indication and still lots of need there. While we’re happy to see the great progress in treating those patients, there’s still lot of patients who still need lot more options.

Thank you again for taking my questions. Looking forward to seeing these new trials in second half this year and looking to be more frequent Avid’s continued growth.

Thanks Thomas.

Thank you. And I’m showing no further questions, at this time. I’d like to hand the call back over to Mr. Steve King for any closing remarks.

Yes. I’d like to thank you all 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. With that, we will now conclude the call.

Ladies and gentlemen, thank you for your participation in today’s conference. This does conclude the program and you may all disconnect. Everyone, have a great day.