Peregrine Pharmaceuticals (NASDAQ:PPHM) Just Proved Yet Again It's Undervalued

Peregrine Pharmaceuticals (NASDAQ:PPHM) is one of the handful of companies that we've been trying to get our readers to pay attention to all year. The company took a serious hit back in March, when it announced it was discontinuing its SUNRISE trial of Bavituximab in patients with previously treated locally advanced or metastatic non-squamous non-small cell lung cancer (NSCLC). We noted back then that the discontinuation was a setback, but not a death blow, and on numerous occasions since, we've highlighted the fact that R&D represents only one part of this company's operations. Peregrine also runs a contract manufacturing business, and generates substantial revenues from this side of its operation.The company just put out its second quarter 2017 data, and we're going to try and hammer this one home again: Peregrine is undervalued based on its manufacturing operations alone. The R&D potential is large, and real, but right now is just a bonus for shareholders and the company. If it comes to fruition, and Bavituximab reaches the revenues generating stage as either a biomarker driven mono (we'll get to this in more detail shortly) or as a combination therapy with one or more third party assets, it will be a windfall for shareholders. Even if the whole program collapses, however (and given the progress the company is touting, we don't think this is particularly likely), Peregrine will be a profitable operation generating hundreds of millions of dollars annually.For those not familiar with this one, Peregrine operates its R&D pipeline under the Peregrine moniker, through which it runs the above mentioned Bavituximab studies and a number of other preclinical programs. It runs its contract manufacturing operations through an entity called Avid Bioservices, and it's this side of the company that is the real near term value driver.To illustrate, take a look at the numbers.During the second quarter of fiscal year 2017, the company logged all time high revenue of $23.4 million. full fiscal year 2017 revenue guidance sits at $50 million to $55 million. There's a backlog of $73 million in signed contracts, which will mature throughout late 2017 and in to 2018. There are two manufacturing facilities in operation right now, and there's another one that should be ready to go mid next year. Revenues are growing, operational capacity is increasing, and – just as importantly – costs (proportionate to top line) are shrinking quickly. As such, net loss is tightening and – and here's the important part – Peregrine expects to be a profitable operation within eighteen months. This isn’t just the Avid side of things (which would be profitable on its own if Peregrine wasn’t spending the sales revenue on its R&D) but the whole entity.So, what's the picture on the R&D Bavituximab side of things?Well, many have written it off as a mono, and some of our competitors over at The Street took a swipe at the drug recently, but they don't understand the full picture. Peregrine is conducting a biomarker analysis on the data right now, a large portion of which it presented at ESMO, and there's some real promise for a path forward. Biomarker analysis has proven pivotal in development programs like Merck & Co., Inc. (NYSE:MRK)'s Keytruda. Then there's the combination studies, which are largely funded by NCCN, and as such, Peregrine barely has to lift a finger to carry these forward.So there's potential for the program heading forward, and the cost to Peregrine is minimal despite the raft of programs under investigation, because of the outside funding. But, and we'll say it one more time, that's not important right now. The company has a market capitalization of $89 million at latest count. That's $16 million more than its current order backlog. It had cash on hand of $49 million at October 31. There's upside here on Avid alone, and it's only a matter of time before markets finally catch on to that fact.We will be updating our subscribers as soon as we know more. For the latest updates on PPHM, sign up below!Disclosure: We have no position in PPHM and have not been compensated for this article.