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ANNUAL REPORT 2012 a time of Transformatıon 238038_Peregrine_Cov.indd 3 8/23/12 8:38 PM Transforming Our Business · Two Phase III-Ready Drug Candidates: Bavituximab and Cotara® · Compelling Bavituximab Proof-of-Concept Clinical Data in Non-Small Cell Lung Cancer · Broad Bavituximab Oncology Program with Multiple Indications Under Clinical Evaluation · Integrated and Growing Commercial Manufacturing Business Transforming Patients’ Lives · Treating Diseases with High Unmet Medical Needs Including NSCLC and GBM · Comprehensive Development Strategy Exploring Broad Potential of Bavituximab in Oncology · Developing New Diagnostics with Potential Applications in Many Life-threatening Diseases · Helping Bring Important New Treatments and Diagnostics to the Market through our Manufacturing Capabilities and Expertise Peregrine’s Advancing Oncology Pipeline PRECLINICAL PHASE I PHASE II PHASE III Bavituximab NSCLC Second-Line NSCLC Front-Line Pancreatic Front-Line Advanced Liver Cancer (HCC) IST Prostate Cancer (CRPC) IST NSCLC Front-Line IST Breast (HER!-Negative) IST Rectal Adenocarcinoma IST PGN!"# PS-Targeted Tumor Imaging Cotara® Recurrent GBM Transforming Our Future With two Phase III-ready programs, an expanding pipeline and a successful commercial manufacturing business, Peregrine is transitioning from an early-stage to a late-stage development company. The company is in a unique position of strength on several fronts with multiple partnering, development and revenue-generating opportunities. These opportunities can help not only transform the company, but potentially the lives of patients with life-threatening diseases. Dear Stockholders, This is a truly transformative time for Peregrine. We are transitioning from an early-stage research organization to a late-stage drug development company, thanks to an expanding product pipeline that now includes two Phase III-ready programs, exceptional proof-of-concept clinical data for our lead product candidate bavituximab and a record-breaking revenue year for our contract manufacturing business. Taken together, this has been an exciting year of growth that has set the stage for success now and into the future. By diligently executing our strategy, today we are positioned with two advanced programs from our oncology- focused pipeline ready for Phase III development. Over the last year, we made great strides in exploring the potential of our proprietary phosphatidylserine (PS)-targeting platform including our lead PS-targeting antibody bavituximab and in advancing our other business goals. Achievements over the past year included: U Exceptional clinical proof-of-concept data from our robustly designed Phase II trial of bavituximab in second-line non-small cell lung cancer (NSCLC), our lead indication U Expansion of the bavituximab clinical program to include seven clinical trials across a wide range of oncology indications U Advancement of ongoing discussions with the FDA surrounding the next steps in the development of Cotara® for the treatment of brain cancer U Launch of our PS-Imaging program that expands our PS-targeting platform into a new and exciting area with broad potential across many diseases U Record-breaking revenue for our commercial manufacturing subsidiary, Avid Bioservices Bavituximab: Positioned for Phase III Development Our clinical developmental strategy for bavituximab was based around establishing a lead indication in an area of high unmet medical need, while simultaneously exploring multiple additional indications and drug combinations for this compound with broad potential. The results of this strategy are now coming to fruition with the recent unblinding of data from our proof-of-concept second-line NSCLC clinical trial and the expansion of the bavituximab clinical program that now includes eight ongoing clinical trials in multiple indications with early results from those studies already showing promise. At the heart of this strategy was the robustly designed randomized, double-blind, placebo- controlled Phase IIb trial evaluating two dose levels of bavituximab plus chemotherapy agent, docetaxel, versus docetaxel plus placebo (control arm) in 117 patients with refractory second-line NSCLC. The exceptional data from the trial included improvements in overall response rates (ORR), progression-free survival (PFS) and a significant trend in median overall survival (OS) improvement. In this three arm trial that was designed to remove all clinical bias, both high and low dose bavituximab-containing arms performed almost identically with superior results as compared to the control arm. These results were transformational for the bavituximab program and potentially even better news for patients with refractory NSCLC. We are actively preparing for an End-of-Phase II meeting with the FDA by the end of calendar year 2012 that should allow us to initiate Phase III by mid-2013. For patients with NSCLC who have exhausted their primary treat- ment options, we believe that bavituximab’s unique mechanisms of action can work synergistically with standard chemotherapeutic agents to stimulate powerful anti-tumor immune responses. These activities, combined with the potential for additional positive data over the coming year from seven additional ongoing trials, have set the stage for another important year ahead for the bavituximab program. Casting a Broad Net in Bavituximab’s Development Peregrine’s commitment towards discovering the full potential of bavituximab is evident with the recent advances in our company-sponsored Phase II randomized trials in front-line NSCLC and front-line pancreatic cancer, as well as the Phase I/II investigator-sponsored trials (ISTs) in liver, NSCLC, breast, rectal and prostate cancers. Across these programs, we are seeing encouraging clinical data and positive trends that further strengthen bavituximab’s potential to be combined with numerous approved cancer therapies in multiple oncology indications. Interest within the scientific and medical communities continues to build and we are grateful, that based on data from our many trials, numerous top-tier oncologists are recognizing the broad potential of the PS-targeting platform as a viable approach to treating these diseases. We look forward to sharing more data from these studies during the coming year that could help further shape the broad bavituximab program. 238038_Peregrine_Letter_R2.indd 1 8/28/12 11:13 PM Cotara®: Advancing Discussions Focused on Future Development Our second drug candidate ready for Phase III development is Cotara®, an antibody-guided radiopharmaceutical based on our Tumor Necrosis Therapy (TNT) technology platform. Cotara® is being developed as a potential treatment for glioblastoma multiforme (GBM), the deadliest form of brain cancer. Encouraged by results from an open-label Phase II trial including a 9.3 month median OS and current long-term survivors, we continue to have advancing and very positive discussions with the FDA regarding the next steps for this potentially novel treatment. As both Peregrine and the FDA understand the importance of combating such a terrible disease, it is our hope to provide greater clarity on the next steps towards a pivotal Phase III trial design in the near future. PS-Imaging: Expanding Our Possibilities We are pioneers in the area of PS-targeting technology and our passion to explore its full potential has led to the launch of our proprietary PS-Imaging program. This program represents a logical extension to the bavituximab oncology program and one that presents multiple opportunities. The formal launch of this novel program was based upon very encouraging preclinical data showing that PGN650, our lead PS-targeting imaging agent, accumulates in tumor vasculature and provides exceedingly clear in vivo tumor images. We are conducting an exploratory clinical trial with the hope that results from this trial may open the door for multiple applications, including development of antibody drug conjugates, the ability of PGN650 to monitor the effectiveness of current standard cancer treatments, and the ability to potentially select patients that may benefit from bavituximab-based treatments. Avid Bioservices: A Record Year and Readying for Commercialization Peregrine has differentiated itself from the field of other biotechnology companies with its integrated biomanufac- turing subsidiary, Avid Bioservices. This revenue generating asset provides fully-integrated manufacturing services to Avid’s third party clients, while also enabling Peregrine to be Phase III-ready for its products in development. For fiscal year 2012, Avid had a record year reporting $14.8 million in contract manufacturing revenues, driven by the success of its clients. It is a very exciting time for Avid as our continued commitments from our long-standing clients are ramping up their activities in advance of late-stage trials or potential commercial launch. Becoming a Late-Stage Development Company Our recent success has triggered our evolution from a mid-stage clinical development company to a late-stage development company. We have maintained a steady course, basing decisions on strong scientific rationale, engaging strategic consultation with leading industry experts and have followed proven approaches to drug development that have led us to where we are today. Looking ahead, here are some near-term key milestones for the company: U Median OS data from two bavituximab Phase II trials in NSCLC U Preliminary median OS data from bavituximab Phase II trial in front-line pancreatic