6. LICENSE, RESEARCH AND DEVELOPMENT AGREEMENTS

12 Months Ended

Apr. 30, 2012

Revenue Recognition, Services, Licensing Fees [Policy Text Block]

6. LICENSE, RESEARCH AND DEVELOPMENT AGREEMENTS

The following represents a summary of our key collaborations for the development and commercialization of our products in clinical development under our phosphatidylserine (“PS”)-targeting and Tumor Necrosis Therapy (“TNT”) technology programs: bavituximab, 124 I-PGN650 (“PGN650”), and Cotara. In addition, we do not perform any research and development activities for any unrelated entities.

PS-Targeting Program

During fiscal year 2011, we expensed $114,000 associated with milestone obligations under in-licensing agreements covering our PS-targeting program, which is included in research and development expense in the accompanying consolidated statements of operations. We did not incur any milestone related expenses during fiscal years 2012 and 2010. In addition, no product revenues have been generated from the PS-targeting program to date. The following represents a summary of our current potential milestone obligations under our various agreements covering our bavituximab and PGN650 programs:

Bavituximab

In August 2001 and August 2005, we exclusively in-licensed the worldwide rights to the PS-targeting technology platform from the University of Texas Southwestern Medical Center at Dallas (“UTSWMC”), including bavituximab. During November 2003, we entered into a non-exclusive license agreement with Genentech, Inc., to license certain intellectual property rights covering methods and processes for producing antibodies used in connection with the development of our PS-targeting program. During December 2003, we entered into an exclusive commercial license agreement with Avanir Pharmaceuticals, Inc., (“Avanir”) covering the generation of a chimeric monoclonal antibody. In March 2005, we entered into a worldwide non-exclusive license agreement with Lonza Biologics (“Lonza”) for intellectual property and materials relating to the expression of recombinant monoclonal antibodies for use in the manufacture of bavituximab.

Under our in-licensing agreements relating to bavituximab, we typically pay an up-front license fee, annual maintenance fees, and are obligated to pay future milestone payments based on potential clinical development and regulatory milestones, plus a royalty on net sales and/or a percentage of sublicense income. The applicable royalty rate under each of the foregoing in-licensing agreements is in the low single digits. The following table provides certain information with respect to each of our in-licensing agreements relating to our bavituximab program.

Licensor	Agreement Date	Total Milestone Obligations Expensed To Date		Potential Future Milestone Obligations(1)
UTSWMC	August 2001	$	98,000	$	375,000
UTSWMC	August 2005	$	85,000	$	375,000
Lonza	March 2005	$	64,000		(2)
Avanir	December 2003	$	50,000	$	1,050,000
Genentech, Inc.	November 2003	$	500,000	$	5,000,000
Total		$	797,000		6,800,000

______________

(1) Potential future milestone obligations are generally tied to regulatory progress to gain product approval, which approval significantly depends on positive clinical trials results. In addition, potential future milestone obligations vary by license agreement (as defined in each license agreement) and depend on valid claims under each of these underlying agreements at the time the potential milestone is achieved, however, the following clinical development and regulatory milestones are typical of such potential future milestone events: upon dosing of first patient in a Phase I, Phase II, and/or Phase III clinical trial; completion of patient enrollment in a phase II trial; submission of a biologics license application in the U.S.; and upon FDA approval.

(2) In fiscal year 2011, we incurred a milestone fee of 37,500 pounds sterling ($64,000 U.S.) upon commencement of patient enrollment in our first randomized phase II clinical trial using bavituximab, which amount would continue as an annual license fee thereafter until completion of patient enrollment, at which time the annual license fee would increase to 75,000 pounds sterling per annum. During fiscal year 2012, we completed patient enrollment of the aforementioned phase II clinical trial, which triggered the annual license fee to increase to 75,000 pounds sterling per annum (or approximately $122,000 U.S. based on the exchange rate at April 30, 2012). In addition, in the event we utilize an outside contract manufacturer other than Lonza to manufacture bavituximab for commercial purposes, we would owe Lonza 300,000 pounds sterling per year (or approximately $488,000 U.S. based on the exchange rate at April 30, 2012).

Of the total potential future milestone obligation of $6,800,000, we anticipate milestone obligations not to exceed $200,000 during fiscal year 2013. In addition, of the total potential future milestone obligations of $6,800,000, up to $6,400,000 would be due upon the first commercial approval of a drug candidate developed under our PS-targeting program, including bavituximab, with the technologies licensed pursuant to such license agreements. However, given the uncertainty of the drug development and the regulatory approval process, we are unable to predict with any certainty when any of these milestones will occur, if at all.

PGN650

In October 1998, we exclusively in-licensed worldwide rights from UTSWMC, to certain patent families, which was amended in January 2000 to license patents related to aminophospholipid targeting conjugates, such as PGN650. Under the October 1998 license agreement, as amended, we are obligated to pay UTSWMC future milestone payments of up to $300,000 for PGN650 based on the achievement of certain potential clinical development and commercial milestones, plus a low single digit royalty on net sales. Under this agreement, we do not anticipate any milestone obligations during fiscal year 2013.

In addition, during fiscal year 2007, we entered into a research collaboration agreement and a development and commercialization agreement with Affitech A/S (as further discussed below under “Other Licenses Covering Products in Development”) regarding the generation and commercialization of a certain number of fully human monoclonal antibodies under our platform technologies to be used as possible future clinical candidates, including our imaging agent PGN650. Under the terms of the development and commercialization agreement, we have elected to enter into a license agreement for the PS-targeting antibody used to create PGN650, and therefore, are obligated to pay future milestones payments of up to $1,971,000 based on the achievement of certain potential clinical development and regulatory milestones, plus a low single digit royalty on net sales. We anticipate milestone obligations for PGN650 under this agreement to not exceed $101,000 during fiscal year 2013.

Tumor Necrosis Therapy Program (Cotara)

We acquired the patent rights to the Tumor Necrosis Therapy (“TNT”) technology, including Cotara, in July 1994 after the merger between Peregrine and Cancer Biologics, Inc. was approved by our stockholders. To date, no product revenues have been generated from Cotara.

In October 2004, we entered into a worldwide non-exclusive license agreement with Lonza for intellectual property and materials relating to the expression of recombinant monoclonal antibodies for use in the manufacture of Cotara. Under the terms of the agreement, we will pay a royalty (in the low single digits) on net sales of any products we market that utilize the underlying technology. In the event a product is approved and we or Lonza do not manufacture Cotara, we would owe Lonza 300,000 pounds sterling per year (or approximately $488,000 U.S. based on the exchange rate at April 30, 2012) in addition to an increased royalty (in the low single digits) on net sales. In addition, upon completion of patient enrollment in our Cotara Phase II clinical trial during fiscal year 2011, we incurred a milestone payment of 75,000 pounds sterling (or $125,000 U.S.), which amount will continue as an annual license fee thereafter. Unless sooner terminated due to a party’s breach of the license agreement, the license agreement with Lonza will terminate upon the last to occur of the expiration of a period of fifteen (15) years following our first commercial sale of a product or the expiration of the last valid claim within the patents that are the subject of the license agreement; provided that if after the expiration of the last claim but prior to the expiration of the fifteen (15) year period, Lonza has publicly made available certain materials and know how, then the agreement will terminate at such time as the materials and know how are made public.

Other Licenses Covering Products in Development

During August 2001, we entered into an exclusive worldwide license agreement for an anti-VEGF compound from the UTSWMC. During July 2009, we entered into a patent assignment and sublicense with Affitech A/S whereby we licensed exclusive worldwide rights to develop and commercialize certain products under our anti-VEGF intellectual property portfolio as further described in the “Out Licensing Collaborations” section below. Under the UTSWMC license agreement, we paid an up-front license fee and are obligated to pay annual maintenance fees, and future milestone payments based on certain potential clinical development and regulatory milestones, plus a royalty on net sales. Our aggregate future milestone payments under this exclusive worldwide license are $450,000 assuming the achievement of all development milestones under the agreement through commercialization of the product. We do not anticipate making any milestone payments for at least the next fiscal year under the UTSWMC license agreement.

During fiscal year 2007, we entered into a research collaboration agreement and a development and commercialization agreement with Affitech A/S regarding the generation and commercialization of a certain number of fully human monoclonal antibodies under our platform technologies to be used as possible future clinical candidates, including our lead imaging agent PGN650. These agreements also incorporate a binding term sheet we entered into with Affitech A/S in September 2010. Under the terms of the development and commercialization agreement, if we elect to enter into a license agreement for a clinical candidate, we are obligated to pay future milestones payments based on the achievement of certain potential clinical development and regulatory milestones, plus a low single digit royalty on net sales. Our potential aggregate future milestone payments range from $1,971,000 to $2,975,000 per fully human antibody generated by the unrelated entity upon the achievement of certain development milestones through commercialization. In addition, under the terms of the research collaboration agreement, we paid a research fee for each human antibody project initiated. During fiscal years 2011 and 2010, we expensed $956,000 and $239,000, respectively, under the research collaboration agreement, the amounts of which are included in research and development expense in the accompanying consolidated financial statements. We did not incur any expenses under the research collaboration agreement during fiscal year 2012. We do not expect to incur any additional license fees or milestone payments under these agreements during fiscal year 2013 except as mentioned above under PGN650.

Out-Licensing Collaborations

In addition to our in-licensing collaborations, the following represents a summary of our key out-licensing collaborations.

During October 2000, we entered into a licensing agreement with Merck KGaA to out-license a segment of our TNT technology for use in the application of cytokine fusion proteins. During January 2003, we entered into an amendment to the license agreement, whereby we received an extension to the royalty period from six years to ten years from the date of the first commercial sale. Under the terms of agreement, we would receive a royalty on net sales if a product is approved under the agreement. Merck KGaA has not disclosed the current development status of its program to Peregrine.

During July 2009, we entered into a patent assignment and sublicense (collectively, the “Affitech Agreements”) with Affitech A/S (“Affitech”) whereby we licensed exclusive worldwide rights to develop and commercialize certain products under our anti-VEGF intellectual property portfolio, including the fully human antibody AT001/r84. In consideration for the rights granted under our anti-VEGF antibody technology platform, we received non-refundable up-front license fees of $250,000. In addition, we received aggregate milestone payments of $1,000,000 associated with the delivery of two preclinical development packages as defined in the Affitech Agreements. We could also receive up to $16,500,000 in future milestone payments based on the achievement of all clinical and regulatory milestones for product approval by Affitech or an affiliate, plus a royalty on net sales, as defined in the Affitech Agreements. These potential future milestone payments payable under the Affitech Agreements entail no performance obligations on our part and, accordingly, these payments will not be accounted for under the provisions of ASU No. 2010-17. Therefore, we expect to recognize revenue on the future potential milestone payments in accordance with the authoritative guidance for revenue recognition, either when the milestone is achieved, if our future obligations are considered inconsequential, or recognized as revenue on a straight-line basis over a performance obligation period, if continued performance or future obligations exist. To date, no clinical or regulatory milestones as defined in the Affitech Agreements have been achieved by Affitech or an affiliate. In addition, in the event Affitech enters into a sublicense agreement with a non-affiliate for the anti-VEGF technology platform before the treatment of the first patient in a Phase I study, we shall receive forty-five percent (45%) of all payments received under any such sublicenses after Affitech deducts fifty percent (50%) of its incurred development costs under the program. Under the Affitech Agreements, we also granted Affitech a research license in the ocular field with an option to grant sub-licenses in the ocular field. If Affitech exercises this option to grant sub-licenses in the ocular field, we could receive pre-defined up-front fees, milestone payments, and a royalty on net sales. In accordance with the authoritative guidance for revenue recognition, the license includes multiple elements that are not separable and, accordingly, are being accounted for as a single unit of accounting. In addition, we determined that our obligations would be up to a four year period and therefore, we are recognizing the non-refundable up-front license fees of $250,000 and the additional $1,000,000 associated with other deliverables, as defined in the Affitech Agreements, on a straight-line basis over a four year period. However, we will continue to reassess the length of our obligation period, and accordingly, our estimated obligation period may change based on future events. We recognized revenue of $350,000 during fiscal years 2012 and 2011 and $243,000 during fiscal year 2010 under the Affitech Agreements, which amounts are included in license revenue in the accompanying consolidated financial statements. Amounts received prior to satisfying our revenue recognition criteria are recorded as deferred revenue in the accompanying consolidated financial statements.

During September 2010, Peregrine and Affitech amended certain terms of the Affitech Agreements for sublicenses entered into by Affitech with non-affiliates for the territories of Brazil, Russia and other countries of the Commonwealth of Independent States (“CIS”) (“September 2010 Amendment”). Under the amended terms, Peregrine agreed to forego its aforementioned sublicense fee equal to forty-five percent (45%) of the payments received by Affitech (after Affitech deducts fifty percent (50%) of its incurred development costs under the program) for the territories of Brazil, Russia, and the CIS, provided however, that Affitech reinvests such sublicense payments toward the further development of AT001/r84 in those territories. In the event Affitech enters into a licensing transaction for AT001/r84 with a non-affiliate in a major pharmaceutical market (defined as U.S., European Union, Switzerland, United Kingdom and/or Japan), Affitech has agreed to reimburse us the aforementioned sublicense fees we agreed to forego that were applied to the AT001/r84 program while Affitech will be eligible to be reimbursed for up to 50% of their development costs in Brazil, Russia and CIS territories. The remaining terms of the Affitech Agreements remain unchanged, including milestone and royalty payments. To date, we have not received any payments from Affitech under the September 2010 Amendment.

During May 2010, we entered into an assignment agreement and a license agreement (collectively, the “Agreements”) with an unrelated entity to develop our Tumor Necrosis Therapy (“TNT”) technologies in certain Asia-Pacific Economic Cooperation (“APEC”) countries.  Under the terms of the Agreements, we licensed certain non-exclusive and exclusive rights and assigned certain exclusive development and commercialization rights under our TNT program in certain APEC countries.  We have retained exclusive rights to our TNT program in the U.S., European Union countries, and other select countries internationally.  Under the terms of the Agreements, aggregate fees in the amount of $500,000 are to be paid over a period of two years plus annual maintenance fees ranging from $100,000 to $250,000, as defined in the Agreements beginning May 2011 through 15 years following the date of the first commercial sale.  In addition, we could also receive low double digit royalties on net sales, as defined in the Agreements.  In accordance with the terms of the Agreements, we are obligated to deliver certain purchased patents, know-how and materials (the “Purchased Assets”), and we are obligated to supply certain quantities of research materials as defined in the Agreements.  In addition, we have also agreed to provide certain manufacturing services, provided such manufacturing services are requested by the unrelated entity within a certain period of time and for certain agreed upon fees as defined in the Agreements.  We have determined that, pursuant to the authoritative guidance for revenue recognition for multiple element arrangements, there was objective and reliable evidence of fair value of the undelivered elements (manufacturing commitment services) in the arrangement, but no such evidence of fair value for any other element in the arrangement.  Therefore, we utilize the residual method to allocate the consideration received under the arrangement.  Under the residual method, the amount of consideration allocated to all other elements in the arrangement (delivered and undelivered) equals the total arrangement consideration less the aggregate fair value of the undelivered elements with stand-alone fair value (manufacturing commitment services).  To date, we have allocated the total arrangement consideration, excluding annual maintenance fees, to the undelivered elements with stand-alone fair value (manufacturing commitment services) since the fair value of these undelivered elements exceeded the total consideration received to date under the arrangement.  As such, we will recognize revenue associated with the Purchased Assets and manufacturing commitment services we agreed to under the Agreements upon delivery of these manufacturing services based on the relative fair value of the services.  However, during fiscal year 2012, we received a non-refundable annual maintenance fee of $100,000 in accordance with the terms of the Agreements, which amount is included in license revenue in the accompanying consolidated financial statements. Any amounts received prior to satisfying our revenue recognition criteria are recorded as deferred revenue in the accompanying consolidated financial statements.