In March last year, we highlighted Peregrine Pharmaceuticals (NASDAQ:PPHM) as a potential recovery play. The company had had a pretty rough start to the year but our analysis suggested that it was undervalued and that – as a result – was primed for a resurgence against its then-current pricing.
At the time, the company went for around $2.80 a piece.
Fast forward twelve months, to March this year, and Peregrine hit $5.32. Jump forward another few months to the end of last week and the company traded just shy of $5.80 a piece. That’s a more than 107% run. After hours on Friday, however, Peregrine put out earnings and the numbers missed on estimates. The company has taken a close to 20% hit premarket and – as the bell rings for a fresh session on Monday – will likely continue to dip as standard participation gets underway.
We are looking at this dip as an opportunity to load up on cheap shares ahead of a recovery.
Peregrine is a two layered company. On the surface, it’s a development stage biotech stock that has a promising pipeline and a focus on oncology. With this pipeline comes all of the usual binary events associated with this end of this space – data, trial progress, partnerships, etc.
Look a little deeper, however, and the company is also a contract manufacturer. Through an arm of its operations that it calls Avid, Peregrine manufactures a whole host of drug types under contract for other organizations, ranging from study asset provision to for-market production.
It’s Avid that makes this one interesting to us. Why? Because the company is valued at just $200 million. It’s got a phase III asset called bavituximab that just read out with some pretty strong data in patients with previously treated locally advanced or metastatic non-squamous non-small cell lung cancer (NSCLC), meaning its valuation is in line with a number of its peers (biotechnology companies with late stage oncology assets under investigation).
Said peers, however, don’t manufacture drugs to bring in tens of millions of dollars quarterly, however. In other words, markets are essentially completely ignoring the manufacturing arm. Not lonely that, but as per the latest development, are actually selling off on Peregrine if said ignored manufacturing arm doesn’t perform against analyst expectations.
Based on the latest numbers, Peregrine generated $17.9 million for the fiscal fourth quarter this year. For the full year, this number rises to $57.6 million. Analyst expectations had the quarterly figure at $22.6 million, meaning the company missed out on the estimate by a little less than $5 million.
Putting the estimates aside, these numbers represent year over year top line expansion of more than 30%. Expectations for the coming year are similar, having been revised down slightly based on a customer being delayed in picking up regulatory approval for an asset it wants Avid (Peregrine) to manufacture. As management highlighted, this is a temporary lull that will resolve with time and get the company back on track towards cash flow positivity.
How ever markets respond to the latest numbers as and when markets open, the bottom line here is this: that Peregrine is a one of a kind proposition in this sector, offering investors a moonshot type exposure to a potential blockbuster oncology asset (and a late stage one at that) while also serving to offer a dramatically reduced risk side of the picture through its revenue generating operations and –by proxy – its ability to meet a large portion of its own operational and R&D costs without having to dilute shareholders.
As such, regardless of short term fluctuations, there remains a strong buy argument for Peregrine and any dips (like the one we are seeing right now) give investors the chance to pick up cheap stock.
Get the whole picture: check out our previous coverage of this one here.
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Disclosure: We have no position in PPHM and have not been compensated for this article.