IBRX - ImmunityBio: Approval Likely Priced In Yielding Mostly Risk For Would-Be Buyers

2023-12-22 04:16:14 ET

Summary

• ImmunityBio is a late-stage biotech company focused on developing immunotherapy approaches for cancer treatment.
• The company's main product of interest is Anktiva, a fusion protein designed to stimulate an antitumor response in bladder cancer patients.
• ImmunityBio is facing cash issues and its valuation is VERY hyped up, making it a risky investment despite the potential FDA approval for Anktiva.

Topline Summary and Update

ImmunityBio, Inc. ( IBRX ) is a late-stage developmental biotech trying to bring novel immunotherapy approaches for cancer treatment to market. Their first and biggest shot on goal is a combination therapy with BCG in patients with bladder cancer, with an FDA decision coming in April 2024. While there's a lot worth getting excited over, the market appears to be feeding into a situation looking more and more overhyped, with valuation well above $3 billion. I don't think this is likely to hold, even with an FDA approval. That and the ongoing cash issues make this a stock I cannot recommend at this time, and one that I would definitely recommend taking some gains off the table while you still can.

Why the Change in Rating?

An FDA approval is coming, and the hype machine is in full swing, driving the valuation of IBRX to the multiple billions of dollars. This makes it more valued than the likes of Syndax Therapeutics (SNDX) and other companies that have recently gotten an FDA approval. I downgraded to a sell because I think there are not many scenarios where further upward movement is justified.

Pipeline Updates

Anktiva

The main product of interest for IBRX is Anktiva, a fusion protein designed to stimulate an IL15 response, with intention of stimulating an antitumor response. It's a concept with a long and storied track record, using pro-inflammatory cytokines to non-specifically ramp up the immune system .

Right now, the main therapeutic area for Anktiva is early-stage bladder cancer, specifically non-muscle invasive bladder cancer (NMIBC). By combining Anktiva with weakened bacteria called BCG , 71% of patients achieved an objective complete response. Note that these patients were enrolled after being shown to have BCG-unresponsive disease, a setting where pembrolizumab monotherapy has previously shown a 41% complete response rate .

Take those comparisons with a huge grain of salt, but it appears clear that Anktiva plus BCG is not doing worse than a therapy that has been previously FDA approved in this setting.

A complete response letter from the FDA back in May 2023 scuttled the first attempt at approval for IBRX, setting a decision back almost a year. But because this was related to manufacturing questions, no issues with respect to efficacy and tolerability have been brought up. Now, after a resubmission, we're awaiting a final decision from the FDA, with a PDUFA of April 23, 2024 .

Personally, I don't see any strong reasons why Anktiva would not get this approval, based on the results from their study. At least those findings justify an approval contingent on conducting a larger, randomized trial, I would think. It is possible that the FDA would demand a study with more power (the NEJM Evidence publication was open label and had only 171 patients spread among 3 different treatment cohorts).

IBRX have also presented some early findings for Anktiva in other indications. Combining it with the company's allogeneic NK cells showed early evidence of tolerability and efficacy in head and neck cancer. Out of 10 patients with recurrent or metastatic head and neck squamous cell carcinoma, some tumor regression was noted, apparently associated with persistent "cytokine-induced memory-like" NK cell expansion.

Financial Overview

Per their Q3 2023 filing , IBRX held $215.1 million in total current assets, with $178.0m in cash and equivalents and another $11.8 million in marketable securities. Their operating expenses were $80.2 million for the quarter, and the net loss after interest expense and other line items came out to $95.6 million.

They have noteworthy liabilities including $480 million in promissory notes, $165 million in convertible notes and accrued interest, and another $28 million in convertible notes payable at fair value. In sum, IBRX has $843 million in liabilities.

It is also worth noting that this is almost all related-party debt from Nant Capital, founded by the founder of IBRX, Dr Soon-Shiong. Therefore, shareholders maintain that he isn't likely to take hostile moves to devastate shareholder value to recoup. However, you have to keep in mind that even this friendly debt is expensive to service, with $35.5 million of the quarter's net loss coming from interest expense alone.

Strengths and Risks

Stocks that have a popular following like this one are very much worthy of considering and reconsidering on a frequent basis. Is the investment thesis playing out? In my previous article, I recommended a hold, which would have worked out very well for then-current shareholders. The stock has since doubled, to a valuation of over $3 billion. This easily prices in good news with respect to approval, and it also prices in a successful launch and good news with respect to the opening salvo of sales figures.

Then there's the cash crunch that IBRX finds itself in. This company is certainly unique in that the founder will not let the lights go out, but it's required extraordinary commitment after extraordinary commitment, and the cash is still not solved. I remain convinced that this is something that's going to hang on shareholders' necks at some point, and you should not consider the liabilities faced by the company moot just because it's a major supporter who holds those liabilities. At some point he's most likely going to want to recoup.

Bottom-Line Summary

I like the story IBRX is telling, and I think their products have a strong chance of approval and at least reasonable success in the marketplace. However, as the valuation has increased so much, it's clear that a lot of hype is bubbling up, and to me that says that if and when that positive approval decision comes, we may see shareholders retreat and the price decline, despite the good news. It's just baking in so much already.

And if there is any bad news with the FDA? That would burst the bubble altogether. Overall, right now IBRX represents an equity that I would tell my brother not to buy, and any shareholders sitting on these significant gains I would recommend taking some of those gains off the table. If you feel there's still upside, then by all means remain a holder. I think their product candidate looks like a good contender. But don't fall into the trap of thinking this is going to go to the moon on an FDA decision at this point.

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