PPHM’s Clandestine Capital Raise Provides Great Exit Opportunity; Sell Into Strength

In a move of self-preservation, Peregrine Pharmaceuticals (NASDAQ:PPHM) announced Wednesday that it raised $14.3 million in gross proceeds through an ATM (At The Market) agreement with MLV & Co. We find it interesting that the company reported “gross” proceeds and not “net” proceeds, once again demonstrating a lack of complete transparency with investors. Until the company actually reports what net proceeds were, we will assume a 6% fee for the ATM services provided by MLV, hence NET proceeds estimated at $13.4 million.

According to the company’s press release, the additional financing extends the ability to fund operations by 2 quarters. So while the press release highlights the company’s contract manufacturing business, Avid Bioservices, as an integral part of PPHM’s strategy, and cites what looks like reasonable revenues, management also stated that, “Based on current financial projections for ongoing clinical trials and operations including cash inflows under signed contracts with Avid's existing customers, and assuming the company does not receive additional proceeds from other potential sources of capital, this funding should provide the company with sufficient capital to reach potential upcoming clinical and development milestones through the third quarter of calendar year 2013.”

An investment in PPHM, now more than ever, relies on the company being crystal clear with investors, particularly given the prior hype on “great” bavituximab data that turned out to be bogus. We do not believe the capital raise announced today changes the story for the better, and in fact, suggests that the company could continue to sell shares to stay alive while no one is looking. Hence, more pressure on the stock. After PPHM fully reflects the additional two quarters of cash that the ATM has brought in (calculates to an additional $0.13 per share that of course will be used), we believe investors that were holding on to PPHM for a bounce now have an opportunity to cash out of their PPHM at much better prices. Expect shares to weaken after this morning’s initial bounce, with a NASDAQ de-listing still an overhang should the shares remain below $1.00.