IBRX - ImmunityBio: On The Verge But With Many Questions Remaining

2023-10-28 03:41:28 ET

Summary

• ImmunityBio is seeking approval for their vaccine Anktiva, which is being assessed for non-muscle invasive bladder cancer.
• The company faced setbacks with their FDA submission, but recently announced a resubmission that was accepted.
• ImmunityBio's financial reserves are dwindling, but they secured financing from their founder, giving them a cash runway of around 3 quarters, which will likely be addressed again early next year.

Topline Summary

ImmunityBio ( IBRX ) is a biotech company in the final stages of seeking an approval for their first compound. They've been marred in 2023 by bad news relating to said FDA submission, but now they're in the home stretch, with a PDUFA date set in April 2024. Their financial reserves are dwindling, but they've bought some more time to see their project to fruition with a recent deal. For now, they're showing promise, and there is speculative potential, but there's still a lot of risk. Let's have a look.

Pipeline Overview

IBRX's one and only developmental product is a vaccine branded Anktiva, a fusion protein designed to stimulate an IL-15 response. This agent is being assessed in a wide variety of cancers, most importantly, bladder cancer.

Specifically, IBRX is currently seeking approval in the setting of non-muscle invasive bladder cancer (NMIBC), which is early-stage disease that nevertheless can carry a high risk of recurrence and progression. Currently, the standard of care after resecting the tumor for these high-risk patients is the local delivery of a weakened bacterium called BCG .

But patients who do not respond to BCG therapy have substantial challenges with respect to follow-up therapy. This is where Anktiva has been tested most thoroughly, with the vaccine plus BCG delivering a 71% complete response rate in patients with carcinoma in situ, with median duration of complete response of 24.1 months. Patients with papillary disease had favorable disease-free survival, as well, and the vast majority of patients in the pivotal trial were able to avoid a more extensive bladder surgery.

That's all well and good, but nothing new by any stretch. Those pivotal trial results were first reported at ASCO 2022, and then published in NEJM Evidence later that year.

Since then, all eyes have been on the inevitable FDA submission, which was first accepted back in July 2022 before finally getting a complete response letter in May 2023 . This letter conveyed that the FDA rejected the BLA due to issues relating to the third-party manufacturing organizations that IBRX used, with these deficiencies, as well as issues relating to CMC, needing to be resolved.

After almost half a year, IBRX announced resubmission of the BLA, which was accepted by the FDA on October 26. The PDUFA date has been set for April 23, 2024.

Financial Overview

Per their latest quarterly filing, IBRX held $43.5 million in cash and equivalents, with total current assets reaching $66.8 million. Total current liabilities were $613 million, with $481.9 million of that being related to promissory notes.

The company recognized negligible revenue in Q2 2023 ($41,000), with total operating expenses of $85 million. Beyond that, the company incurred $32.2 million in interest expense. Net losses reached $138.2 million.

At the end of the quarter, IBRX had a cash runway of maybe a half a quarter's runway left. In September, however, the company announced $470 million in financing from their founder, exchanging $270 million in debt for IBRX equity and infusing another $200 million in cash from debt financing.

This financing arrangement brings the cash runway closer to around 3 full quarters, assuming that non-operating expenses have been reduced, and operating expenses hold steady.

Strengths and Risks

I can't mince words: the current financial state of IBRX is a huge risk, and the biggest red flag facing the company. Yes, this financing is coming from the founder of company, so he has more skin in the game to keep the ball in the air, but these are terms that are going to need to be met at some point, and we're seeing that dilution is not off the table for meeting these obligations.

That said, as shareholders have pointed out (convincingly), Dr Soon-Shiong being the main deliverer of this financing as well as the main holder of IBRX gives him incentive to somehow make this work. If Anktiva is a drug worth pursuing, we won't be seeing IBRX die before a decision has been leveled, the drug given a chance.

Still, we're not talking about whether current shareholders are really just bagholders. I don't think that's the case. This article comes from the standpoint of investing today. If Anktiva gets approved in April, we're still dealing with massive operational expenditures (for a company that has one drug, albeit looking into many areas that were not covered in this article), and yet one that is valued at around $1.5 billion at the time of writing.

That's a lot of expectation already baked into the stock price for the near term. Long-term, if Anktiva plays out well, then $1.5 billion will be moved past, but it will take further development and commercialization in different indications, something we just don't have enough evidence to speak to with confidence.

And don't forget that acceptance of the BLA resubmission is not an indication that the FDA is satisfied with the issues they detailed back in May. One has to imagine that IBRX would be diligently dotting i's and crossing t's on that front, but it remains a risk.

Bottom-Line Summary

IBRX has a strong data readout to hang its hat on, despite the challenges to its first drug approval. If they get that approval, I would expect a significant move up, possibly doubling or tripling. But then reality will set in as the company moves toward sales of their drug. The company could well move in the direction of an Exelixis (EXEL), whose one drug across many indications has yielded a valuation 4x of where IBRX currently sits.

To me, this makes IBRX most attractive to current shareholders likely to recoup losses or make gains in the short term (assuming an approval), or for speculators looking to trade on a very unknown FDA decision coming in April. Therefore, as an investment, IBRX is a hold for me at this time, since there is no indication that we will get interesting clinical readouts before April, putting them in a holding pattern that gives you time to assess your level of risk and make a sober decision.

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