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Delaware		95-3698422
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
14282 Franklin Avenue, Tustin, California		92780-7017
(Address of principal executive offices)		(Zip Code)

 

 

 

     

	Large Accelerated Filer o	Accelerated Filer x
	Non- Accelerated Filer o	Smaller reporting company o
(Do not check if a smaller reporting company)

  

 

 

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		Page No.
PART I - FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements.	1
Item 2.	Management’s Discussion and Analysis of Financial Condition And Results of Operations.	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	26
Item 4.	Controls And Procedures.	26
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings.	27
Item 1A.	Risk Factors.	27
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	42
Item 3.	Defaults Upon Senior Securities.	42
Item 4.	[Removed and Reserved]	42
Item 5.	Other Information.	42
Item 6.	Exhibits.	42
SIGNATURES		43

 

 

 

 

		OCTOBER 31, 2010				APRIL 30, 2010
		Unaudited
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	17,268,000			$	19,681,000
Trade and other receivables, net			2,522,000				1,481,000
Government contract receivables			425,000				367,000
Inventories, net			3,555,000				3,123,000
Debt issuance costs, current portion			67,000				122,000
Prepaid expenses and other current assets, net			1,524,000				2,004,000
Total current assets			25,361,000				26,778,000
PROPERTY:
Leasehold improvements			891,000				697,000
Laboratory equipment			4,285,000				4,221,000
Furniture, fixtures, office equipment and software			1,714,000				917,000
			6,890,000				5,835,000
Less accumulated depreciation and amortization			(4,661,000	)			(4,366,000	)
Property, net			2,229,000				1,469,000
OTHER ASSETS:
Debt issuance costs, less current portion			1,000				21,000
Other assets			1,178,000				1,067,000
Total other assets			1,179,000				1,088,000
TOTAL ASSETS		$	28,769,000			$	29,335,000

   

 

 

		OCTOBER 31, 2010				APRIL 30, 2010
		Unaudited
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable		$	3,027,000			$	2,259,000
Accrued clinical trial and related fees			2,699,000				2,666,000
Accrued payroll and related costs			1,081,000				1,623,000
Notes payable, current portion and net of discount			1,961,000				1,893,000
Deferred revenue			2,447,000				2,406,000
Deferred government contract revenue			35,000				78,000
Customer deposits			3,325,000				2,618,000
Other current liabilities			1,123,000				860,000
Total current liabilities			15,698,000				14,403,000
Notes payable, less current portion and net of discount			333,000				1,315,000
Deferred revenue			663,000				-
Other long-term liabilities			450,000				210,000
Commitments and contingencies
STOCKHOLDERS' EQUITY:
Preferred stock-$0.001 par value; authorized 5,000,000 shares; non-voting; none issued			-				-
Common stock-$0.001 par value; authorized 325,000,000 shares; outstanding  – 59,220,742 and 53,094,896, respectively			59,000				53,000
Additional paid-in capital			288,628,000				275,208,000
Accumulated deficit			(277,062,000	)			(261,854,000	)
Total stockholders’ equity			11,625,000				13,407,000
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	28,769,000			$	29,335,000

See accompanying notes to condensed consolidated financial statements

  

PEREGRINE PHARMACEUTICALS, INC.

 

		THREE MONTHS ENDED OCTOBER 31,								SIX MONTHS ENDED OCTOBER 31,
		2010				2009				2010				2009
		Unaudited				Unaudited				Unaudited				Unaudited
REVENUES:
Contract manufacturing revenue		$	3,627,000			$	5,308,000			$	4,610,000			$	7,378,000
Government contract revenue			966,000				1,510,000				3,077,000				6,181,000
License revenue			78,000				78,000				193,000				87,000
Total revenues			4,671,000				6,896,000				7,880,000				13,646,000
COSTS AND EXPENSES:
Cost of contract manufacturing			3,003,000				3,540,000				4,159,000				4,613,000
Research and development			7,344,000				4,132,000				14,411,000				10,206,000
Selling, general and administrative			2,702,000				1,761,000				5,200,000				3,554,000
Total costs and expenses			13,049,000				9,433,000				23,770,000				18,373,000
LOSS FROM OPERATIONS			(8,378,000	)			(2,537,000	)			(15,890,000	)			(4,727,000	)
OTHER INCOME (EXPENSE):
Interest and other income			996,000				34,000				1,014,000				74,000
Interest and other expense			(131,000	)			(284,000	)			(332,000	)			(562,000	)
NET LOSS		$	(7,513,000	)		$	(2,787,000	)		$	(15,208,000	)		$	(5,215,000	)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic and Diluted			56,761,412				48,147,702				55,559,493				47,478,247
BASIC AND DILUTED LOSS PER COMMON SHARE		$	(0.13	)		$	(0.06	)		$	(0.27	)		$	(0.11	)

 

See accompanying notes to condensed consolidated financial statements

  

 

 

		SIX MONTHS ENDED OCTOBER 31,
		2010				2009
		Unaudited				Unaudited
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(15,208,000	)		$	(5,215,000	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization			295,000				228,000
Share-based compensation			1,287,000				320,000
Amortization of discount on notes payable and debt issuance costs			161,000				241,000
Amortization of expenses paid in shares of common stock			956,000				-
Common stock issued for services			30,000				-
Loss on disposal of property			-				51,000
Changes in operating assets and liabilities:
Trade and other receivables, net			(1,041,000	)			(717,000	)
Government contract receivables			(58,000	)			349,000
Inventories, net			(432,000	)			(1,143,000	)
Prepaid expenses and other current assets, net			(476,000	)			417,000
Other non-current assets			59,000				(9,000	)
Accounts payable			625,000				166,000
Accrued clinical trial site and related fees			33,000				(571,000	)
Accrued payroll and related costs			(542,000	)			(217,000	)
Deferred revenue			704,000				484,000
Deferred government contract revenue			(43,000	)			118,000
Customer deposits			707,000				(1,497,000	)
Other accrued expenses and current liabilities			209,000				(423,000	)
Net cash used in operating activities			(12,734,000	)			(7,418,000	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Property acquisitions			(579,000	)			(22,000	)
Increase in other assets			(170,000	)			(96,000	)
Net cash used in investing activities			(749,000	)			(118,000	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net of issuance costs of $314,000 and $469,000, respectively			12,094,000				11,912,000
Principal payments on notes payable and capital leases			(1,024,000	)			(795,000	)
Net cash provided by financing activities			11,070,000				11,117,000
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS			(2,413,000	)			3,581,000
CASH AND CASH EQUIVALENTS, beginning of period			19,681,000				10,018,000
CASH AND CASH EQUIVALENTS, end of period		$	17,268,000			$	13,599,000
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Property acquired under capital lease		$	180,000			$	-
Accounts payable and other liabilities for purchase of property		$	296,000			$	7,000

 

See accompanying notes to condensed consolidated financial statements

 

 

1.    ORGANIZATION AND BUSINESS

 

  

 

 

 

    

 

 

 

 

 

  

 

 

 

 

 

   

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   

	●	Level 1 – Quoted prices in active markets for identical assets or liabilities.
	●	Level 2 – Observable inputs other than quoted prices included in Level 1, such as assets or liabilities whose value are based on quoted market prices in markets where trading occurs infrequently or whose values are based on quoted prices of instruments with similar attributes in active markets.
	●	Level 3 – Unobservable inputs that are supported by little or no market activity and significant to the overall fair value measurement.

   

 

 

 

 

 

 

 

		Three Months Ended October 31,								Six Months Ended October 31,
		2010				2009				2010				2009
Research and development		$	260,000			$	102,000			$	514,000			$	180,000
Selling, general and administrative			384,000				55,000				773,000				132,000
Total		$	644,000			$	157,000			$	1,287,000			$	312,000
Share-based compensation from:
Stock options		$	644,000			$	157,000			$	1,278,000			$	312,000
Restricted stock awards			-				-				9,000				-
		$	644,000			$	157,000			$	1,287,000			$	312,000

 

  

 

 

 

 

 

 

 

 

 

 

 

 

  

 

 

 

 

 

		October 31, 2010				April 30, 2010
Raw materials		$	1,884,000			$	1,243,000
Work-in-process			1,671,000				1,880,000
Total inventories, net		$	3,555,000			$	3,123,000

  

 

 

 

 

 

 

 

2011		$	1,000,000
2012			1,333,000
Total		$	2,333,000

 

 

 

 

Also on July 14, 2009, we entered into a separate At Market Issuance Sales Agreement (“July 2009 AMI Agreement”) with Wm Smith & Co., pursuant to which we may sell shares of our common stock through Wm Smith & Co., as agent, in registered transactions from our July 2009 Shelf, for aggregate gross proceeds of up to $25,000,000.  Shares of common stock sold under this arrangement were sold at market prices.  During the six months ended October 31, 2010, we had sold 1,925,565 shares of common stock at market prices under the July 2009 AMI Agreement for aggregate gross proceeds of $5,568,000 before deducting commissions and other issuance costs of $133,000.  As of October 31, 2010, we had raised the entire $25,000,000 available under the July 2009 AMI Agreement.

   

The sale of substantial shares of our common stock may depress our stock price.

 

As of October 31, 2010, there were 59,220,742 shares of our common stock outstanding.  Substantially all of these shares are eligible for trading in the public market, subject in some cases to volume and other limitations.  The market price of our common stock may decline if our common stockholders sell a large number of shares of our common stock in the public market, or the market perceives that such sales may occur.

 

We could also issue up to 14,259,082 additional shares of our common stock that are reserved for future issuance under our stock incentive plans, employee stock purchase plan, and for outstanding warrants, as further described in the following table:

 

		Number of Shares Reserved
Common shares reserved for issuance under outstanding option and restricted stock award grants and available for issuance under our stock incentive plans			9,039,115
Common shares reserved for and available for issuance under our Employee Stock Purchase Plan			5,000,000
Common shares issuable upon exercise of outstanding warrants			219,967
Total shares of common stock reserved for issuance			14,259,082

   

 

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In addition, the above table does not include shares of common stock that we have available to issue under an effective shelf registration statement, under which we may issue, from time to time, in one or more offerings, shares of our common stock for remaining aggregate gross proceeds of up to $18,160,000 as of October 31, 2010.

 

Of the total options, restricted stock awards and warrants outstanding as of October 31, 2010, 272,884 would be considered dilutive to stockholders because we would receive an amount per share which is less than the market price of our common stock at October 31, 2010.

 

In addition, we will need to raise substantial additional capital in the future to fund our operations.  If we raise additional funds by issuing equity securities, the market price of our securities may decline and our existing stockholders may experience significant dilution.

 

Current economic conditions and capital markets are in a period of disruption and instability which could adversely affect our ability to access the capital markets, and thus adversely affect our business and liquidity.

 

The current economic conditions and financial crisis have had, and will continue to have, a negative impact on our ability to access the capital markets, and thus have a negative impact on our business and liquidity.  The shortage of liquidity and credit combined with the substantial losses in worldwide equity markets could lead to an extended worldwide recession.  We may face significant challenges if conditions in the capital markets do not improve.  Our ability to access the capital markets has been and continues to be severely restricted at a time when we need to access such markets, which could have a negative impact on our business plans, including our clinical trial programs and other research and development activities.  Even if we are able to raise capital, it may not be at a price or on terms that are favorable to us.  We cannot predict the occurrence of future disruptions or how long the current conditions may continue.

 

Our highly volatile stock price and trading volume may adversely affect the liquidity of our common stock.

 

The market price of our common stock and the market prices of securities of companies in the biotechnology sector have generally been highly volatile and are likely to continue to be highly volatile.

 

The following table shows the high and low sales price and trading volume of our common stock for each quarter in the last fourteen (14) fiscal quarters ended October 31, 2010:

 

		Common Stock Sales Price								Common Stock Daily Trading Volume (000’s omitted)
		High				Low				High				Low
Quarter Ended October 31, 2010		$	2.08			$	1.25				4,997				118
Quarter Ended July 31, 2010		$	4.14			$	1.51				9,520				140
Quarter Ended April 30, 2010		$	4.30			$	2.86				1,278				66
Quarter Ended January 31, 2010		$	3.46			$	2.51				1,384				49
Quarter Ended October 31, 2009		$	4.74			$	2.74				2,243				64
Quarter Ended July 31, 2009		$	5.65			$	1.85				7,345				39
Quarter Ended April 30, 2009		$	2.60			$	1.52				702				14
Quarter Ended January 31, 2009		$	2.35			$	1.10				260				19
Quarter Ended October 31, 2008		$	2.00			$	1.15				263				15
Quarter Ended July 31, 2008		$	2.65			$	1.54				599				21
Quarter Ended April 30, 2008		$	3.63			$	1.75				769				26
Quarter Ended January 31, 2008		$	3.25			$	1.75				622				28
Quarter Ended October 31, 2007		$	3.95			$	2.70				526				34
Quarter Ended July 31, 2007		$	7.00			$	3.60				4,331				47

  

 

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The market price of our common stock may be significantly impacted by many factors, including, but not limited to:

  

	●	announcements of technological innovations or new commercial products by us or our competitors;
	●	publicity regarding actual or potential clinical trial results relating to products under development by us or our competitors;
	●	our financial results or that of our competitors, including our abilities to continue as a going concern;
	●	the offering and sale of shares of our common stock at a discount under an equity transaction;
	●	changes in our capital structure;
	●	published reports by securities analysts;
	●	announcements of licensing agreements, joint ventures, strategic alliances, and any other transaction that involves the sale or use of our technologies or competitive technologies;
	●	developments and/or disputes concerning our patent or proprietary rights;
	●	regulatory developments and product safety concerns;
	●	general stock trends in the biotechnology and pharmaceutical industry sectors;
	●	public concerns as to the safety and effectiveness of our products;
	●	economic trends and other external factors, including but not limited to, interest rate fluctuations, economic recession, inflation, foreign market trends, national crisis, and disasters; and
	●	healthcare reimbursement reform and cost-containment measures implemented by government agencies.

   

These and other external factors have caused and may continue to cause the market price and demand for our common stock to fluctuate substantially, which may limit or prevent investors from readily selling their shares of common stock, and may otherwise negatively affect the liquidity of our common stock.

 

The liquidity of our common stock will be adversely affected if our common stock is delisted from the NASDAQ Capital Market.

 

Our common stock is traded on The NASDAQ Capital Market.  To maintain inclusion on The NASDAQ Capital Market, we must continue to meet the following six listing requirements:

 

1.

Net tangible assets of at least $2,500,000 or market capitalization of at least $35,000,000 or net income of at least $500,000 in either our latest fiscal year or in two of our last three fiscal years;

2.

Public float of at least 500,000 shares;

3.

Market value of our public float of at least $1,000,000;

4.

A minimum closing bid price of $1.00 per share of common stock, without falling below this minimum bid price for a period of thirty consecutive trading days;

5.

At least two market makers; and

6.

At least 300 stockholders, each holding at least 100 shares of common stock.

 

Although we currently meet all NASDAQ listing requirements, the market price of our common stock has generally been highly volatile and we cannot guarantee that we will continue to maintain compliance with The NASDAQ Capital Market listing requirements.

 

If our common stock is ever delisted, we would apply to have our common stock quoted on the over-the-counter electronic bulletin board.  Upon any such delisting, our common stock would become subject to the regulations of the Securities and Exchange Commission relating to the market for penny stocks.  A penny stock, as defined by the Penny Stock Reform Act, is any equity security not traded on a national securities exchange that has a market price of less than $5.00 per share.  The penny stock regulations generally require that a disclosure schedule explaining the penny stock market and the risks associated therewith be delivered to purchasers of penny stocks and impose various sales practice requirements on broker-dealers who sell penny stocks to persons other than established customer s and accredited investors.  The broker-dealer must make a suitability determination for each purchaser and receive the purchaser’s written agreement prior to the sale.  In addition, the broker-dealer must make certain mandated disclosures, including the actual sale or purchase price and actual bid offer quotations, as well as the compensation to be received by the broker-dealer and certain associated persons.  The regulations applicable to penny stocks may severely affect the market liquidity for our common stock and could limit your ability to sell your securities in the secondary market.

 

Successful development of our products is uncertain.  To date, no revenues have been generated from the commercial sale of our products and our products may not generate revenues in the future.

 

Our development of current and future product candidates is subject to the risks of failure inherent in the development of new pharmaceutical products and products based on new technologies.  These risks include:

 

 

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	●	delays in product development, clinical testing or manufacturing;
	●	unplanned expenditures in product development, clinical testing or manufacturing;
	●	failure in clinical trials or failure to receive regulatory approvals;
	●	emergence of superior or equivalent products;
	●	inability to manufacture on our own, or through others, product candidates on a commercial scale;
	●	inability to market products due to third party proprietary rights; and
	●	failure to achieve market acceptance.

   

Because of these risks, our research and development efforts or those of our partners may not result in any commercially viable products.  If significant portions of these development efforts are not successfully completed, required regulatory approvals are not obtained, or any approved products are not commercially successful, our business, financial condition and results of operations may be materially harmed.

 

Because we have not begun the commercial sale of any of our products, our revenue and profit potential is unproven and our limited operating history makes it difficult for an investor to evaluate our business and prospects.  Our technology may not result in any meaningful benefits to our current or potential partners.  No revenues have been generated from the commercial sale of our products, and our products may not generate revenues in the future.  Our business and prospects should be considered in light of the heightened risks and unexpected expenses and problems we may face as a company in an early stage of development in a new and rapidly evolving industry.

 

We are primarily focusing our activities and resources on the development of bavituximab and depend on its success.

 

We are focusing most of our near-term research and development activities and resources on bavituximab, and we believe a significant portion of the value of our Company relates to our ability to develop this drug candidate.  The development of bavituximab is subject to many risks, including the risks discussed in other risk factors.  If the results of clinical trials of bavituximab, the regulatory decisions affecting bavituximab, the anticipated or actual timing and plan for commercializing bavituximab, or, ultimately, the market acceptance of bavituximab do not meet our, your, analysts’ or others’ expectations, the market price of our common stock could be adversely affected.

  

Our product development efforts may not be successful.

 

Our product candidates have not received regulatory approval and are generally in research, pre-clinical and various clinical stages of development.  If the results from any of the clinical trials are poor, those results may adversely affect our ability to raise additional capital or obtain regulatory approval to conduct additional clinical trials, which will affect our ability to continue full-scale research and development for our antibody technologies.  In addition, our product candidates may take longer than anticipated to progress through clinical trials, or patient enrollment in the clinical trials may be delayed or prolonged significantly, thus delaying the clinical trials.  Patient enrollment is a function of many factors, including the size of the patient population, the nature of the protocol, the proximity of patients to the clinical sites, and the eligibility criteria for the study.  In addition, because our Cotara product currently in clinical trials represents a departure from more commonly used methods for cancer treatment, potential patients and their doctors may be inclined to use conventional therapies, such as chemotherapy, rather than enroll patients in our clinical study.

 

Clinical Trials required for our product candidates are expensive and time consuming, and their outcome is uncertain.

 

In order to obtain FDA approval to market a new drug product, we or our potential partners must demonstrate proof of safety and efficacy in humans.  To meet these requirements, we or our potential partners will have to conduct extensive pre-clinical testing and “adequate and well-controlled” clinical trials.  Conducting clinical trials is a lengthy, time-consuming and expensive process.  The length of time may vary substantially according to the type, complexity, novelty and intended use of the product candidate, and often can be several years or more per trial.  Delays associated with products for which we are directly conducting pre-clinical or clinical trials may cause us to incur additional operating expenses.  Moreover, we may continue to be affected by delays associated with the pre-clinical testing and clinical trials of certain product candidates conducted by our partners over which we have no control.  The commencement and rate of completion of clinical trials may be delayed by many factors, including, for example:

  

 

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	●	obtaining regulatory approval to commence a clinical trial;
	●	reaching agreement on acceptable terms with prospective contract research organizations, or CROs, and trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;
	●	slower than expected rates of patient recruitment due to narrow screening requirements;
	●	the inability of patients to meet FDA or other regulatory authorities imposed protocol requirements;
	●	the inability to retain patients who have initiated a clinical trial but may be prone to withdraw due to various clinical or personal reasons, or who are lost to further follow-up;
	●	the inability to manufacture sufficient quantities of qualified materials under current good manufacturing practices, or cGMPs, for use in clinical trials;
	●	the need or desire to modify our manufacturing processes;
	●	the inability to adequately observe patients after treatment;
	●	changes in regulatory requirements for clinical trials;
	●	the lack of effectiveness during the clinical trials;
	●	unforeseen safety issues;
	●	delays, suspension, or termination of the clinical trials due to the institutional review board responsible for overseeing the study at a particular study site; and
	●	government or regulatory delays or “clinical holds” requiring suspension or termination of the trials.

  

Even if we obtain positive results from pre-clinical or initial clinical trials, we may not achieve the same success in future trials.  Clinical trials may not demonstrate statistically sufficient safety and effectiveness to obtain the requisite regulatory approvals for product candidates employing our technology.

 

Clinical trials that we conduct or that third-parties conduct on our behalf may not demonstrate sufficient safety and efficacy to obtain the requisite regulatory approvals for any of our product candidates.  We expect to commence new clinical trials from time to time in the course of our business as our product development work continues.  The failure of clinical trials to demonstrate safety and effectiveness for our desired indications could harm the development of that product candidate as well as other product candidates.  Any change in, or termination of, our clinical trials could materially harm our business, financial condition and results of operations.

  

We rely on third parties to conduct our clinical trials and many of our preclinical studies.  If those parties do not successfully carry out their contractual duties or meet expected deadlines, our drug candidates may not advance in a timely manner or at all.

 

In the course of our discovery, preclinical testing and clinical trials, we rely on third parties, including universities, investigators and clinical research organizations, to perform critical services for us. For example, we rely on third parties to conduct our clinical trials and many of our preclinical studies. Clinical research organizations and investigators are responsible for many aspects of the trials, including finding and enrolling patients for testing and administering the trials.  Although we rely on these third parties to conduct our clinical trials, we are responsible for ensuring that each of our clinical trials is conducted in accordance with its investigational plan and protocol.  Moreover, the FDA and foreign regulatory authorities require us to comply with regulations and stan dards, commonly referred to as good clinical practices, or GCPs, for conducting, monitoring, recording and reporting the results of clinical trials to ensure that the data and results are scientifically credible and accurate and that the trial subjects are adequately informed of the potential risks of participating in clinical trials.  Our reliance on third parties does not relieve us of these responsibilities and requirements.  These third parties may not be available when we need them or, if they are available, may not comply with all regulatory and contractual requirements or may not otherwise perform their services in a timely or acceptable manner, and we may need to enter into new arrangements with alternative third parties and our clinical trials may be extended, delayed or terminated.  These independent third parties may also have relationships with other commercial entities, some of which may compete with us.  In addition, if such third parties fail to perform their obligations in compliance with our clinical trial protocols, our clinical trials may not meet regulatory requirements or may need to be repeated.  As a result of our dependence on third parties, we may face delays or failures outside of our direct control.  These risks also apply to the development activities of our collaborators, and we do not control our collaborators’ research and development, clinical trials or regulatory activities.  We do not expect any drugs resulting from our collaborators’ research and development efforts to be commercially available for many years, if ever.

  

 

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In addition, we have prepaid research and development expenses to third parties that have been deferred and capitalized as pre-payments to secure the receipt of future preclinical and clinical research and development services.  These pre-payments are recognized as an expense in the period that the services are performed.  We assess our prepaid research and development expenses for impairment when events or changes in circumstances indicate that the carrying amount of the prepaid expense may not be recoverable or provide a future economic benefit, including the risk of third party nonperformance.  If there are indicators that the third parties are unable to perform the research and development services, we may be required to take an impairment charge.

 

We do not have experience as a company conducting large-scale clinical trials, or in other areas required for the successful commercialization and marketing of our product candidates.

 

Preliminary results from clinical trials of bavituximab may not be indicative of successful outcomes in later stage trials.  Negative or limited results from any current or future clinical trial could delay or prevent further development of our product candidates which would adversely affect our business.

 

We have no experience as a Company in conducting large-scale, late-stage clinical trials, and our experience with early-stage clinical trials with small numbers of patients is limited.  In part because of this limited experience, we cannot be certain that planned clinical trials will begin or be completed on time, if at all.  Large-scale trials would require either additional financial and management resources, or reliance on third-party clinical investigators, clinical research organizations (“CROs”) or consultants.  Relying on third-party clinical investigators or CROs may force us to encounter delays that are outside of our control.  Any such delays could have a material adverse effect on our business.

 

We also do not currently have marketing and distribution capabilities for our product candidates. Developing an internal sales and distribution capability would be an expensive and time-consuming process.  We may enter into agreements with third parties that would be responsible for marketing and distribution.  However, these third parties may not be capable of successfully selling any of our product candidates.  The inability to commercialize and market our product candidates could materially affect our business.

 

Failure to recruit, enroll, and retain patients for clinical trials may cause the development of our product candidates to be delayed or development costs to increase substantially.

 

We have experienced, and expect to experience in the future, delays in patient enrollment in our clinical trials for a variety of reasons. The timely completion of clinical trials in accordance with their protocols depends, among other things, on our ability to enroll a sufficient number of patients who remain in the study until its conclusion. The enrollment of subjects depends on many factors, including:

  

	●	the patient eligibility criteria defined in the protocol;
	●	the size of the patient population required for analysis of the trial’s primary endpoints;
	●	the proximity of patients to study sites;
	●	the design of the trial;
	●	our ability to recruit clinical trial investigators with the appropriate competencies and experience;
	●	our ability to obtain and maintain patient consents;
	●	the risk that patients enrolled in clinical trials will drop out of the trials before completion; and
	●	competition for patients by clinical trial programs for other treatments.

    

Our clinical trials compete with other clinical trials for product candidates that are in the same therapeutic areas as our product candidates, and this competition reduces the number and types of subjects available to us, because some patients who might have opted to enroll in our trials opt to enroll in a trial being conducted by one of our competitors. Since the number of qualified clinical investigators is limited, we conduct some of our clinical trials at the same clinical trial sites that some of our competitors use, which reduces the number of subjects who are available for our clinical trials in such clinical trial site. Delays in patient enrollment in the future as a result of these and other factors may result in increased costs or may affect the timing or outcome of our clinical trials, which could preven t us from completing these trials and adversely affect our ability to advance the development of our product candidates.

 

 

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Our International Clinical Trials may be delayed or otherwise adversely impacted by social, political and economic factors affecting the particular foreign country.

 

We have in the past conducted, are currently conducting and intend in the future to conduct, clinical trials in India and other countries.  Our ability to successfully initiate, enroll and complete a clinical trial in either country, or in any future foreign country in which we may initiate a clinical trial, are subject to numerous risks unique to conducting business in foreign countries, including:

  

	●	difficulty in establishing or managing relationships with clinical research organizations and physicians;
	●	different standards for the conduct of clinical trials and/or health care reimbursement;
	●	our inability to locate qualified local consultants, physicians, and partners;
	●	the potential burden of complying with a variety of foreign laws, medical standards and regulatory requirements, including the regulation of pharmaceutical products and treatment; and
	●	general geopolitical risks, such as political and economic instability, and changes in diplomatic and trade relations.

    

Because some of the trial sites for our recently announced Phase IIb non-small cell lung cancer trials will be in India and potentially other foreign countries, any disruption to our international clinical trial sites could significantly delay our product development efforts.

  

Success in early Clinical Trials may not be indicative of results obtained in later trials.

 

A number of new drugs and biologics have shown promising results in initial clinical trials, but subsequently failed to establish sufficient safety and effectiveness data to obtain necessary regulatory approvals.  Data obtained from pre-clinical and clinical activities are subject to varying interpretations, which may delay, limit or prevent regulatory approval.

 

Data from our pre-clinical studies and Phase I and initial Phase II clinical trials should not be relied upon as evidence that later or larger-scale clinical trials will succeed.  The Phase I studies we have completed to date have been designed to primarily assess safety in a small number of patients.  In addition, the limited results we have obtained in the Phase II trials may not predict results for any future studies and also may not predict future therapeutic benefit of our drug candidates.  We will be required to demonstrate through larger-scale clinical trials that bavituximab and Cotara are safe and effective for use in a diverse population before we can seek regulatory approval for their commercial sale.  There is typically an extremely high rate of attrition from the failure of drug candidates proceeding through clinical trials.

 

In addition, regulatory delays or rejections may be encountered as a result of many factors, including changes in regulatory policy during the period of product development.

 

If we successfully develop products but those products do not achieve and maintain market acceptance, our business will not be profitable.

 

Even if bavituximab, Cotara, or any future product candidate is approved for commercial sale by the FDA or other regulatory authorities, the degree of market acceptance of any approved product candidate by physicians, healthcare professionals and third-party payors and our profitability and growth will depend on a number of factors, including:

  

	●	our ability to provide acceptable evidence of safety and efficacy;
	●	relative convenience and ease of administration;
	●	the prevalence and severity of any adverse side effects;
	●	availability of alternative treatments;
	●	pricing and cost effectiveness;
	●	effectiveness of our or our collaborators’ sales and marketing strategy; and
	●	our ability to obtain sufficient third-party insurance coverage or reimbursement.

   

In addition, if bavituximab, Cotara, or any future product candidate that we discover and develop does not provide a treatment regimen that is more beneficial than the current standard of care or otherwise provide patient benefit, that product likely will not be accepted favorably by the market.  If any products we may develop do not achieve market acceptance, then we may not generate sufficient revenue to achieve or maintain profitability.

 

In addition, even if our products achieve market acceptance, we may not be able to maintain that market acceptance over time if new products or technologies are introduced that are more favorably received than our products, are more cost effective or render our products obsolete.

 

 

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Healthcare reform measures and other statutory or regulatory changes could adversely affect our business.

 

In both the United States and certain foreign jurisdictions, there have been a number of legislative and regulatory proposals to change the healthcare system in ways that could impact our business. In March 2010, the U.S. Congress enacted and President Obama signed into law the Patient Protection and Affordable Care Act, which includes a number of healthcare reform provisions. The reforms imposed by the new law will significantly impact the pharmaceutical industry, most likely in the area of pharmaceutical product pricing; however, the full effects of new law cannot be known until these provisions are implemented and the relevant federal and state agencies issue applicable regulations or guidance.

 

The pharmaceutical and biotechnology industries are subject to extensive regulation, and from time to time legislative bodies and governmental agencies consider changes to such regulations that could have significant impact on industry participants. For example, in light of certain highly-publicized safety issues regarding certain drugs that had received marketing approval, the U.S. Congress has considered various proposals regarding drug safety, including some which would require additional safety studies and monitoring and could make drug development more costly. We are unable to predict what additional legislation or regulation, if any, relating to safety or other aspects of drug development may be enacted in the future or what effect such legislation or regulation would have on our business.

 

The business and financial condition of pharmaceutical and biotechnology companies are also affected by the efforts of governments, third-party payors and others to contain or reduce the costs of healthcare to consumers. In the United States and various foreign jurisdictions there have been, and we expect that there will continue to be, a number of legislative and regulatory proposals aimed at changing the healthcare system, such as proposals relating to the reimportation of drugs into the U.S. from other countries (where they are then sold at a lower price) and government control of prescription drug pricing. The pendency or approval of such proposals could result in a decrease in our share price or limit our ability to raise capital or to obtain strategic collaborations or licenses.

  

If we cannot license or sell Cotara, it may be delayed or never be further developed in the U.S.

 

We have completed initial Phase I and Phase I/II studies with Cotara for the treatment of brain cancer.  In addition, we previously announced the completion of patient enrollment in a dose confirmation and dosimetry clinical trial in patients with recurrent GBM.  We are also currently conducting a Phase II safety and efficacy study using a single administration of the drug through an optimized delivery method.  Taken together, the dose confirmation and dosimetry clinical trial along with data collected from the Phase II safety and efficacy study may provide the safety, dosimetry and efficacy data that will support the final design of the registrational study.  Once we complete enrollment and collect data from the two Cotara st udies for the treatment of GBM, substantial financial resources will be needed to complete any additional supportive clinical studies necessary for potential product approval.  We do not presently have the financial resources internally to complete the larger registrational study.  We therefore intend to continue to seek a licensing or funding partner for Cotara, and hope that the data from our clinical studies will enhance our opportunities of finding such partner.  If a partner is not found for this technology in the U.S., we may not be able to advance the project past its current state of development.  Because there are a limited number of companies which have the financial resources, the internal infrastructure, the technical capability and the marketing infrastructure to develop and market a radiopharmaceutical-based oncology drug, we may not find a suitable partnering candidate for Cotara.  We also cannot ensure that we will be able to find a suitable l icensing partner for this technology in the U.S.  Furthermore, we cannot ensure that if we do find a suitable licensing partner, the financial terms that they propose will be acceptable to us.

 

Our dependency on our radiolabeling suppliers may negatively impact our ability to complete clinical trials and market our products.

 

We have procured our antibody radioactive isotope combination services (“radiolabeling”) for our Cotara Phase II study with Iso-tex Diagnostics, Inc. (for patients enrolled in the U.S.) and with the Board of Radiation & Isotope Technology (“BRIT”) (for patients enrolled in India).  Although we order radiolabeling services on an as needed basis through an agreed upon purchase order, we do not have any arrangements with either Iso-tex Diagnostics, Inc. or BRIT that would require either supplier to radiolabel our product.  In the event that either supplier was unable to provide the radiolabeling services, we would have to temporarily shift patient enrollment to the country (U.S. or India) able to continue providing the radiolabeling services which could significantly dela y patient enrollment.  If both of these suppliers is unable to continue to qualify its respective facility or radiolabel and supply our antibody in a timely manner, our current clinical trials using radiolabeling technology could be adversely affected and significantly delayed.  While there are other suppliers for radioactive isotope combination services in the U.S. and India, our clinical trial would be delayed for up to twelve to eighteen months because it may take that amount of time to certify a new facility under current Good Manufacturing Practices and qualify the product, plus we would incur significant costs to transfer our technology to another vendor.  In addition, the number of facilities that can perform these radiolabeling services is very limited.  Prior to commercial distribution of any of our products, if approved, we will be required to identify and contract with a company for commercial antibody manufacturing and radioactive isotope combination servic es.  An antibody that has been combined with a radioactive isotope, such as Iodine-131, cannot be stored for long periods of time, as it must be used within one week of being radiolabeled to be effective.  Accordingly, any change in our existing or future contractual relationships with, or an interruption in supply from, any such third-party service provider or antibody supplier could negatively impact our ability to complete ongoing clinical trials conducted by us or a potential licensing partner.

 

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Our manufacturing facilities may not continue to meet regulatory requirements and have limited capacity.

 

Before approving a new drug or biologic product, the FDA requires that the facilities at which the product will be manufactured be in compliance with current Good Manufacturing Practices, or cGMP, requirements.  To be successful, our therapeutic products must be manufactured for development and, following approval, in commercial quantities, in compliance with regulatory requirements and at acceptable costs.  Currently, we manufacture all pre-clinical and clinical material through Avid Bioservices, Inc., our wholly owned subsidiary.  While we believe our current facilities are adequate for the manufacturing of product candidates for clinical trials, our facilities may not be adequate to produce sufficient quantities of any products for commercial sale.

 

If we are unable to establish and maintain a manufacturing facility or secure third-party manufacturing capacity within our planned time frame and cost parameters, the development and sales of our products, if approved, may be materially harmed.

 

We may also encounter problems with the following:

  

	●	production yields;
	●	quality control and quality assurance;
	●	shortages of qualified personnel;
	●	compliance with FDA or other regulatory authorities regulations, including the demonstration of purity and potency;
	●	changes in FDA or other regulatory authorities requirements;
	●	production costs; and/or
	●	development of advanced manufacturing techniques and process controls.

      

In addition, we or any third-party manufacturer will be required to register the manufacturing facilities with the FDA and other regulatory authorities, provided it had not already registered.  The facilities will be subject to inspections confirming compliance with cGMP or other regulations.  If any of our third-party manufacturers or we fail to maintain regulatory compliance, the FDA can impose regulatory sanctions including, among other things, refusal to approve a pending application for a new drug product or biologic product, or revocation of a pre-existing approval.  As a result, our business, financial condition and results of operations may be materially harmed.

   

We currently depend on a government contract to partially fund our preclinical research and development efforts.  if our current government funding is reduced or delayed, our drug development efforts may be negatively affected.

 

On June 30, 2008, we were awarded a government contract (the “Government Contract”) to test and develop bavituximab and an equivalent fully human antibody as potential broad-spectrum treatments for viral hemorrhagic fever (VHF) infections.  The Government Contract was awarded through the Transformational Medical Technologies (“TMT”) of the U.S. Department of Defense’s Defense Threat Reduction Agency.  This Government Contract provides for up to $24.7 million in funding over the contract’s base period ending March 2011.  Subject to the progress of the program and budgetary considerations in future years, the Government Contract can be extended by the TMT beyond the base period to cover up to $36.3 million in funding through the exercise of two option p eriods not to exceed the government’s maximum five-year period for contracts.  However, due to the uncertainty regarding the extension of the Government Contract beyond the base period, there is no guarantee we will receive additional funding beyond the $24.7 million that has been allocated to the base period ending March 2011.  If we do not receive the expected full funding under this Government Contract, we may not be able to develop therapeutics to treat hemorrhagic fever virus infection nor otherwise receive the other indirect benefits that may be derived from receipt of the full funding under this contract.

  

 

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Federal Government Contracts contain provisions giving government customers a variety of rights that are unfavorable to us, including the ability to terminate a contract at any time for convenience.

 

Federal government contracts, such as our contract with the TMT, contain provisions, and are subject to laws and regulations, that give the government rights and remedies not typically found in commercial contracts. These provisions may allow the government to:

  

	●	Reduce, cancel,  or otherwise modify our contracts or related subcontract agreements;
	●	Decline to exercise an option to renew a multi-year contract;
	●	Claim rights in products and systems produced by us;
	●	Prohibit future procurement awards with a particular agency as a result of a finding of an organizational conflict of interest based upon prior related work performed for the agency that would give a contractor an unfair advantage over competing contractors;
	●	Subject the award of contracts to protest by competitors, which may require the contracting federal agency or department to suspend our performance pending the outcome of the protest;
	●	Suspend or debar us from doing business with the federal government or with a governmental agency; and
	●	Control or prohibit the export of our products and services.

      

If the government terminates our contract for convenience, we may recover only our incurred or committed costs, settlement expenses and profit on work completed prior to the termination. If the government terminates our contract for default, we may not recover even those amounts, and instead may be liable for excess costs incurred by the government in procuring undelivered items and services from another source.  If the TMT were to unexpectedly terminate or cancel, or decline to exercise the option to extend our contract beyond the base period (as extended), our revenues, product development efforts and operating results would be materially harmed.

 

We may have significant product liability exposure because we maintain only limited product liability insurance.

 

We face an inherent business risk of exposure to product liability claims in the event that the administration of one of our drugs during a clinical trial adversely affects or causes the death of a patient.  Although we maintain product liability insurance for clinical studies in the amount of $3,000,000 per occurrence or $3,000,000 in the aggregate on a claims-made basis, this coverage may not be adequate.  Product liability insurance is expensive, difficult to obtain and may not be available in the future on acceptable terms, if at all.  Our inability to obtain sufficient insurance coverage on reasonable terms or to otherwise protect against potential product liability claims in excess of our insurance coverage, if any, or a product recall, could negatively impact our financial positi on and results of operations.

 

In addition, the contract manufacturing services that we offer through Avid expose us to an inherent risk of liability as the antibodies or other substances manufactured by Avid, at the request and to the specifications of our customers, could possibly cause adverse effects or have product defects.  We obtain agreements from our customers indemnifying and defending us from any potential liability arising from such risk.  There can be no assurance that such indemnification agreements will adequately protect us against potential claims relating to such contract manufacturing services or protect us from being named in a possible lawsuit.  Although Avid has procured insurance coverage, there is no guarantee that we will be able to maintain our existing coverage or obtain additional coverage on commercially reasonable terms, or at all, or that such insurance will provide adequate coverage against all potential claims to which we might be exposed.  A partially successful or completely uninsured claim against Avid would have a material adverse effect on our consolidated operations.

  

If we are unable to obtain, protect and enforce our patent rights, we may be unable to effectively protect or exploit our proprietary technology, inventions and improvements.

 

Our success depends in part on our ability to obtain, protect and enforce commercially valuable patents.  We try to protect our proprietary positions by filing U.S. and foreign patent applications related to our proprietary technology, inventions and improvements that are important to developing our business.  However, if we fail to obtain and maintain patent protection for our proprietary technology, inventions and improvements, our competitors could develop and commercialize products that would otherwise infringe upon our patents.

   

 

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Our patent position is generally uncertain and involves complex legal and factual questions.  Legal standards relating to the validity and scope of claims in the biotechnology and biopharmaceutical fields are still evolving.  Accordingly, the degree of future protection for our patent rights is uncertain.  The risks and uncertainties that we face with respect to our patents include the following:

  

	●	the pending patent applications we have filed or to which we have exclusive rights may not result in issued patents or may take longer than we expect to result in issued patents;
	●	the claims of any patents that issue may not provide meaningful protection;
	●	we may be unable to develop additional proprietary technologies that are patentable;
	●	the patents licensed or issued to us may not provide a competitive advantage;
	●	other parties may challenge patents licensed or issued to us;
	●	disputes may arise regarding the invention and corresponding ownership rights in inventions and know-how resulting from the joint creation or use of intellectual property by us, our licensors, corporate partners and other scientific collaborators; and
	●	other parties may design around our patented technologies.

    

We may become involved in lawsuits to protect or enforce our patents that would be expensive and time consuming.

 

In order to protect or enforce our patent rights, we may initiate patent litigation against third parties.  In addition, we may become subject to interference or opposition proceedings conducted in patent and trademark offices to determine the priority and patentability of inventions.  The defense of intellectual property rights, including patent rights through lawsuits, interference or opposition proceedings, and other legal and administrative proceedings, would be costly and divert our technical and management personnel from their normal responsibilities.  An adverse determination of any litigation or defense proceedings could put our pending patent applications at risk of not being issued.

 

Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation.  For example, during the course of this kind of litigation, confidential information may be inadvertently disclosed in the form of documents or testimony in connection with discovery requests, depositions or trial testimony.  This disclosure could have a material adverse effect on our business and our financial results.

  

We may not be able to compete with our competitors in the Biotechnology Industry because many of them have greater resources than we do and they are further along in their development efforts.

 

The pharmaceutical and biotechnology industry is intensely competitive and subject to rapid and significant technological change.  Many of the drugs that we are attempting to discover or develop will be competing with existing therapies or new therapies that may be approved.  In addition, we are aware of several pharmaceutical and biotechnology companies actively engaged in research and development of antibody-based products that have commenced clinical trials with, or have successfully commercialized, antibody products.  Some or all of these companies may have greater financial resources, larger technical staffs, and larger research budgets than we have, as well as greater experience in developing products and running clinical trials.  We expect to continue to experience significant and increasi ng levels of competition in the future.  In addition, there may be other companies which are currently developing competitive technologies and products or which may in the future develop technologies and products that are comparable or superior to our technologies and products.

 

Bavituximab is currently in clinical trials for the treatment of non-small cell lung cancer (NSCLC) and other solid tumors.  Although we are not aware of any other products in clinical development targeting PS as a potential therapy for advanced solid tumors, there are a number of possible competitors with approved or developmental targeted agents used in combination with standard chemotherapy for the treatment of cancer, including but not limited to, Avastin®, Rituxan® and Herceptin® by Roche/Genentech, Inc., Gleevec® by Novartis, Tarceva® by OSI Pharmaceuticals, Inc. and Roche/Genentech, Inc., Erbitux® by Eli Lilly and Company/ImClone Systems Incorporated and Bristol-Myers Squibb Company,  Vectibix® by Amgen. Specifically for NSCLC, there are experimental compounds including but not limited to afatinib by Boehringer Ingelheim, crizotinib by Pfizer, ARQ-197 by ArQule  and Daiichi Sankyo, and iniparib by Sanofi-Aventis, Stimuvax® by Merck Serono and Oncothyreon, and astuprotimut-r by GlaxoSmithKline in late stage development that are possible competitors to bavituximab.  Other experimental compounds in development that are possible competitors to bavituximab  include, but are not limited to therapeutics designated as angiogenesis inhibitors, EGFR inhibitors, c-Met receptor inhibitors, IGFR inhibitors, HSP inhibitors, and apoptosis inducers. A direct comparison of these potential competitors will not be possible until bavituximab advances to later-stage clinical trials.

  

 

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In addition, we are evaluating bavituximab for the treatment of HCV.  We are aware of no other products in development targeting PS as a potential therapy for HCV.  There are a number of companies that have products approved and on the market for the treatment of HCV, including but not limited to:  Peg-Intron® (pegylated interferon-alpha-2b), Rebetol® (ribavirin), which are marketed by Merck & Co., Inc./Schering-Plough Corporation, Pegasys® (pegylated interferon-alpha-2a) and Copegus® (ribavirin USP) , which are marketed by Roche Pharmaceuticals, and Infergen® (interferon alfacon-1)  marketed by Kadmon Pharmaceuticals, LLC.  First-line treatment for HCV has changed little since interferon alpha was first introduced in 1991.  The current standard of care for HCV includes a combination of pegylated interferon alpha with ribavirin.  This combination therapy is generally associated with considerable toxicity including flu-like symptoms, hematologic changes and central nervous system side effects including depression.  It is not uncommon for patients to discontinue interferon therapy because they are unable to tolerate the side effects of the treatment.

 

Future treatments for HCV are likely to include a combination of these existing products with products currently in development.  Later-stage developmental treatments include improvements to existing therapies, such as PEG-Interferon Lambda, in development by Bristol-Myers Squibb, and Locteron in development by Biolex Therapeutics.  Other developmental approaches include, but are not limited to, compounds that may or may not be administered in combination with other antiviral drugs or current standard of care, including but not limited to protease inhibitors, such as telaprevir from Vertex Pharmaceuticals Incorporated and boceprevir from Merck & Co., Inc./Schering-Plough Corporation, and polymerase inhibitors, entry inhibitors, cyclophilin inhibitors, immunomodulators, TLR agonists, caspace inhibitors, thiazolides, and vaccines.

 

We are developing our novel brain cancer therapy Cotara in a Phase II clinical trial for the treatment of recurrent GBM, the most aggressive form of brain cancer.  Approved treatments for brain cancer include the Gliadel Wafer® (polifeprosan 20 with carmustine implant) from Eisai, Inc., Temodar® (temozolomide) from Merck & Co., Inc./Schering-Plough Corporation and Avastin® (bevacizumab) from Roche/Genentech, Inc.  Gliadel is inserted in the tumor cavity following surgery and releases a chemotherapeutic agent over time.  Temodar is administered orally to patients with brain cancer.  Avastin is a monoclonal antibody that targets VEGF to prevent the formation of new tumor blood vessels.

 

Since Cotara targets destroying brain tumors from the inside out, it is a novel treatment dissimilar from other drugs in development for this disease.  Some products in development may compete with Cotara should they become approved for marketing.  These products include, but are not limited to:  131I-TM601, a radiolabeled chlorotoxin peptide being developed by TransMolecular, Inc., CDX-110, a peptide vaccine under development by Celldex, cilengitide, an integrin-targeting peptide being evaluated by Merck KGaA, and cediranib, a VEGFR tyrosine kinase inhibitor being developed by AstraZeneca.  In addition, approved oncology products marketed for other indications are being evaluated for the treatment of brain cancer, and include Gleevec® (Novartis), Tarceva (Roche/Genentech/OSI Pharmaceuticals Inc.), and Nexavar® (Bayer/Onyx Pharmaceuticals).

 

Avid Bioservices, Inc., our subsidiary, is exposed to risks resulting from its small customer base.

 

A significant portion of Avid Bioservices’ revenues have historically been derived from a small customer base.  These customers typically do not enter into long-term contracts because their need for drug supply depends on a variety of factors, including the drug’s stage of development, their financial resources, and, with respect to commercial drugs, demand for the drug in the market.  Our results of operations could be adversely affected if revenue from any one of our primary customers is significantly reduced or eliminated.

 

If we lose qualified management and scientific personnel or are unable to attract and retain such personnel, we may be unable to successfully develop our products or we may be signific antly delayed in developing our products.

   

 

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Our success is dependent, in part, upon a limited number of key executive officers, each of whom is an at-will employee, and also upon our scientific researchers.  For example, because of his extensive understanding of our technologies and product development programs, the loss of Mr. Steven W. King, our President & Chief Executive Officer and Director, would adversely affect our development efforts and clinical trial programs during the six to twelve month period that we estimate it would take to find and train a qualified replacement.

 

We also believe that our future success will depend largely upon our ability to attract and retain highly-skilled research and development and technical personnel.  We face intense competition in our recruiting activities, including competition from larger companies with greater resources.  We do not know if we will be successful in attracting or retaining skilled personnel.  The loss of certain key employees or our inability to attract and retain other qualified employees could negatively affect our operations and financial performance.

 

Our Governance Documents and State Law provide certain anti-takeover measures which will discourage a third party from seeking to acquire us unless approved by the Board of Directors.

 

We adopted a shareholder rights plan, commonly referred to as a “poison pill,” on March 16, 2006.  The purpose of the shareholder rights plan is to protect stockholders against unsolicited attempts to acquire control of us that do not offer a fair price to our stockholders as determined by our Board of Directors.  Under the plan, the acquisition of 15% or more of our outstanding common stock by any person or group, unless approved by our board of directors, will trigger the right of our stockholders (other than the acquiror of 15% or more of our common stock) to acquire additional shares of our common stock, and, in certain cases, the stock of the potential acquiror, at a 50% discount to market price, thus significantly increasing the acquisition cost to a potential acquiror. 
60;In addition, our certificate of incorporation and by-laws contain certain additional anti-takeover protective devices.  For example,

  

	●	no stockholder action may be taken without a meeting, without prior notice and without a vote; solicitations by consent are thus prohibited;
	●	special meetings of stockholders may be called only by our Board of Directors; and
	●	our Board of Directors has the authority, without further action by the stockholders, to fix the rights and preferences, and issue shares, of preferred stock. An issuance of preferred stock with dividend and liquidation rights senior to the common stock and convertible into a large number of shares of common stock could prevent a potential acquiror from gaining effective economic or voting control.

    

Further, we are subject to Section 203 of the Delaware General Corporation Law which, subject to certain exceptions, restricts certain transactions and business combinations between a corporation and a stockholder owning 15% or more of the corporation’s outstanding voting stock for a period of three years from the date the stockholder becomes a 15% stockholder.

 

Although we believe these provisions and our rights plan collectively provide for an opportunity to receive higher bids by requiring potential acquirers to negotiate with our Board of Directors, they would apply even if the offer may be considered beneficial by some stockholders.  In addition, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our Board of Directors, which is responsible for appointing the members of our management.

 

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  ITEM 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

 

None

 

 

  ITEM 3.    DEFAULTS UPON SENIOR SECURITIES.

 

None

 

 

  ITEM 4.    [REMOVED AND RESERVED]

 

 

  ITEM 5.    OTHER INFORMATION.

 

None

 

 

  ITEM 6.    EXHIBITS.

 

(a)

Exhibits:

 

31.1

Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.  *

 

31.2

Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.  *

 

32

Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.  *

 

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  *      Filed herewith

    

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

	PEREGRINE PHARMACEUTICALS, INC.
Date: December 9, 2010	By:	/s/ STEVEN W. KING
		Steven W. King
		President, Chief Executive Officer, and Director
Date: December 9, 2010	By:	/s/ PAUL J. LYTLE
		Paul J. Lytle Chief Financial Officer (signed both as an officer duly authorized to sign on behalf of the Registrant and principal financial officer and chief accounting officer)

 

 

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Exhibit 31.1

 

Certification of Chief Executive Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

I, Steven W. King, certify that:

 

1.    I have reviewed this quarterly report on Form 10-Q of Peregrine Pharmaceuticals, Inc.;

 

2.    Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.    Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.    The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a)    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b)    Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c)    Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the periods covered by this report based on such evaluation; and

 

d)    Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.    The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a)    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

  

Date: December 9, 2010	By:	/s/ STEVEN W. KING
		Steven W. King
		President, Chief Executive Officer, and Director

   

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Exhibit 31.2

 

Certification of Chief Financial Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

I, Paul J. Lytle, certify that:

 

1.    I have reviewed this quarterly report on Form 10-Q of Peregrine Pharmaceuticals, Inc.;

 

2.    Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.    Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.    The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a)    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b)    Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c)    Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the periods covered by this report based on such evaluation; and

 

d)    Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.    The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a)    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

   

Date: December 9, 2010	By:	/s/ PAUL J. LYTLE
		Paul J. Lytle Chief Financial Officer

 

  

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Exhibit 32

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Steven W. King, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Peregrine Pharmaceuticals, Inc. on Form 10-Q for the quarter ended October 31, 2010 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report of Peregrine Pharmaceuticals, Inc. on Form 10-Q fairly presents in all material respects the financial condition and results of operations of Peregrine Pharmaceuticals, Inc.

  

	By:	/s/ STEVEN W. KING
	Name:	Steven W. King
	Title:	President, Chief Executive Officer, and Director
	Date:	December 9, 2010

      

I, Paul J. Lytle, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Peregrine Pharmaceuticals, Inc. on Form 10-Q for the quarter ended October 31, 2010 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report of Peregrine Pharmaceuticals, Inc. on Form 10-Q fairly presents in all material respects the financial condition and results of operations of Peregrine Pharmaceuticals, Inc.

  

	By:	/s/ PAUL J. LYTLE
	Name:	Paul J. Lytle
	Title:	Chief Financial Officer
	Date:	December 9, 2010

    

A signed original of this written statement required by Section 906 has been provided to Peregrine Pharmaceuticals, Inc. and will be retained by Peregrine Pharmaceuticals, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

 

This Certification is being furnished pursuant to Rule 15(d) and shall not be deemed “filed” for purposes of Section 18 of the Exchange Act (15 U.S.C. 78r), or otherwise subject to the liability of that section. This Certification shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.