IBRX - ImmunityBio Can Recover From BLA Dip

2023-06-20 00:48:21 ET

Summary

• The FDA rejected the Anktiva marketing application last month.
• Since the troubles lie with an outside organization, the company has no control over the resolution.
• The drug is good, so resubmission, approval, and partnership are all still in play.

My initial coverage warned that ImmunityBio’s ( IBRX ) inexperience could thwart their lead drug candidate’s approval. So it was unsurprising that on May 9, the FDA delivered a complete response letter (“CRL”) to the company’s Biologics License Application (“BLA”) for intravesical Anktiva (also known as ALT-803, N-803 and nogapendekin alfa inbakicept) in combination with Merck’s ( MRK ) Bacillus Calmette-Guérin (“BCG”) for BCG-unresponsive non-muscle invasive bladder cancer with carcinoma in situ (NMIBC with CIS) with or without Ta or T1 disease. The company is known to be tight on providing information as well as on cash, and they took 2 days to report something as material as the CRL, which led shares to tank 55%. Their corporate presentation remains unchanged from November. Nonetheless, the recent multiple cash infusions of and the seeming absence of clinical problems regarding the BLA provides enough impetus to recommend the stock as a Buy.

Financials

ImmunityBio had a $113.5 million cash position as of March 31, which included $20.8 million in “prepaid expenses and other current assets (including amounts with related parties)”. Q1 operating expenses were $112 million, which was mostly spent on research and development ($79 million) of a deep pipeline in oncology (Figure 1) and infectious diseases (Figure 2). This is a large increase compared to $85 million in Q4 2022 ($58 million in R&D). Without further financing, cash runs out in a quarter. And unfortunately, on February 13, Sorrento Therapeutics’ (SRNEQ) Chapter 11 filing put a roadblock to collecting a minimum $50 million (the difference of 2 judgments) from them.

Figure 1. ImmunityBio Oncology Pipeline

Figure 2. ImmunityBio Infectious Disease Pipeline

To support operations, ImmunityBio entered into several new $30 million non-convertible debt financings on March 31 , May 9, and June 13 (not yet drawn) with mostly similar terms. The March 31 promissory note bears interest at Term Secured Overnight Financing Rate (SOFR) plus 8.0% per annum, with accrued interest payable quarterly on the last business day of March, June, September and December, commencing on June 30. The principal amount and outstanding interest are due on December 31, 2023, unless the company defaults. The May 9 terms are SOFR+8% and also matures on December 31. The company paid $14.9 million in total interest payments for 3 prior separate promissory notes on March 31. ImmunityBio also gained $50 million from a secondary offering of 28 million shares (including warrants) on February 15. These events bought the company another quarter or so.

CRL and other concerns

The CRL requires that the deficiencies found during the FDA’s pre-license inspection of third-party contract manufacturing organizations , among other things, be fixed before the BLA may be reconsidered. The FDA further recommended additional Chemistry, Manufacturing and Controls (“CMC”) issues and assays to be resolved. The Agency didn’t ask ImmunityBio for any new preclinical or Phase 3 studies, but did request for updated duration of response data of the efficacy population, as well as a safety update, to be included in the BLA resubmission. Because the outside parties operate independently, obviously the company can’t give a timeline for when the CMOs will handle their own problems or when the next inspection is.

In addition, ImmunityBio leases 46,330 square feet of office space at a NantWorks facility in Culver City, CA, which they converted last year into a research and development laboratory and a cGMP manufacturing facility. A Form FDA 483 was presented and discussed with firm management on February 10 at the conclusion of an inspection when investigator Jonathan Campos observed conditions at the site that in his judgment may have violated the Food, Drug, and Cosmetic (FD&C) Act and other Acts or regulations. These violations are not related to the BLA, but represent a black eye for a brand-new lab.

Risks and Takeaways

Risks remain the same as mentioned in the previous article, ImmunityBio has no products and no sources of income, which are not qualities looked for in a bear market. Since the company rarely posts any news, investors have to dig through SEC filings for any meaningful information. The company can still mess up CMC or other sections of the BLA, but Anktiva is expected to gain approval based on clinical outcomes alone. Their other programs could yield negative trial results, but the lung cancer February update was ok.

ImmunityBio has confirmed ongoing negotiations with a potential large biopharmaceutical company partner to commercialize Anktiva, the CRL notwithstanding. They hope to close the deal during 2023, but there are no guarantees. The March and May notes suggest they are looking for at least $70 million up front from the partner so they can pay what's due at the end of the year. Anktiva's indication has a 500,000 total addressable market in the U.S. and could be sold for at least a $50,000 yearly tag ($25 billion minimum), so Big Pharma will bite. To conclude, partnership and resubmission will be the biggest price drivers for the stock, and barring further incompetence on the company’s part, the latter will be done relatively quickly. At the Annual Meeting on June 13, management indicated that a Class 1 resubmission with a 2-month review cycle was still possible.

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