IBRX - ImmunityBio: The CRL Makes It Riskier Than Ever

2023-10-24 14:38:06 ET

Summary

• ImmunityBio, Inc.'s drug Anktiva received a Complete Response Letter, or CRL, from the FDA, delaying its approval for the treatment of NMIBC.
• The CRL was related to deficiencies in the FDA's inspection of the company's third-party contract manufacturing organizations.
• ImmunityBio's financial situation, including a large debt owed to its founder, raises concerns about its ability to succeed and prioritize shareholder interests.

ImmunityBio, Inc. ( IBRX ) had an approval slated for May when I covered it in March. The approval was for Anktiva in NMIBC. The company had good data in that indication, and I noted that approval looked likely.

However, I also underlined the company’s strange financial situation. The company is founded, funded and owned by billionaire Dr. Patrick Soon-Shiong, to whom the company owes a $700mn+ debt. This, for an early-stage company with no drugs in the market, looks like overkill. Earlier this year, the stock fell 60% after raising just $50mn from institutional investors. This was a major concern for me, and while I had nothing negative to say about Anktiva, I decided to stay on the sidelines.

Looks like I was right for more reasons than I considered. In May, the FDA handed Anktiva a Complete Response Letter, or CRL. The relevant 8-K said the following:

The deficiencies relate to the FDA’s pre-license inspection of the Company’s third-party contract manufacturing organizations. Satisfactory resolution of the observations noted at the pre-license inspection is required before the BLA may be approved. The FDA further provided recommendations specific to additional Chemistry, Manufacturing and Controls (“CMC”) issues and assays to be resolved.

No new preclinical studies or Phase 3 clinical trials to evaluate safety or efficacy were requested by the FDA. The FDA requested that the Company provide updated duration of response data of the efficacy population as identified by the FDA in the Company’s resubmission, as well as a safety update.

A few things from this communication stand out. One, the FDA did a pre-license inspection of the facilities of the CMO of IBRX. This, we know, was done in February. The FDA issued a form 483, which is basically a list of things that need to be corrected. It appears that these things were not corrected up until the month of May.

Two, this is not a simple manufacturing issue with a quick resolution. Note that part about the additional “issues and assays.” The word “assay” is especially concerning. This was not some fly or ‘roach found in a corner of the lab. This relates to data. Although the company quickly clarifies in the next sentence that no trial is required, I am still not convinced this was an ordinary, easily resolvable issue - whatever it was.

Third, my worry seems to be borne out by the very last sentence of this communication. While the FDA requested no new trials, they asked for safety and efficacy updates. The efficacy update is for duration of response.

Note what I said about the solid data in my previous report:

There's a 71% complete response rate, better than the 41% historical response rate seen for Keytruda, and way better than the 18% response rate seen for valrubicin. Both of these are FDA-approved for this indication.

Last year, Adstiladrin was approved for BCG-unresponsive NMIBC in situ. Adstiladrin is a gene therapy developed by Ferring Pharmaceuticals. Trials saw a 51% CR rate for this molecule after 3 months of therapy, and 46% of these patients continued to remain free of high-grade recurrence at 12 months. Median duration of response for Anktiva was 26.6 months, while 24-month OS was 100%. Keytruda mDOR was 16.2 months.

The DOR here was 26.6 months, and it looks like even that early DOR was better than competing drugs. It is difficult to believe that an updated DOR would be a reason to hand over a CRL. It could well be that the CDMO issue was the reason for the CRL, and while they were at it, the FDA was just curious to know if patients produced a longer mDOR on follow-up.

In my earlier articles, I also noted the strange financial situation of IBRX. The company has a heavy debt to its founder Mr. Soon-Shiong, and as I noted in an earlier article :

I have reservations about investing in any company where a high net worth individual has a high stake….My reservation stems from the presumption that the prospects of companies such as ImmunityBio, Inc. are suited towards the interests of the HNI owner.

In that same 8-K, the company mentions two other things. One, without directly naming him, the company said that its “Executive Chairman and Global Chief Scientific and Medical Officer” is loaning them another $30mn on pretty much the same terms as before, with a maturity date of Dec 31, 2023. This is, of course, none other than Dr. Patrick Soon-Shiong, and with this loan, the company becomes even more beholden to him, the only way out of which would be if they find a big pharma buyer.

That is referenced in the same 8-K, when they say they are negotiating with a big pharma buyer for commercialization of N-803 for intravesical administration, and the transaction could be completed by 2023. N-803 is, of course, Anktiva. So, here’s IBRX trying to sell some rights of their lead candidate. This is the only way Mr Soon-Shiong will get any of his loaned amount back.

In September, some of the company's debt was converted into equity:

• Exchange of $270 million of debt held by Nant Entities into ImmunityBio equity resulting in deleveraging of the company’s balance sheet.
• $200 million of a new 3-year term debt financing from Nant Capital convertible at a 50 percent premium to provide capital sufficient to support the company’s ongoing operations.

While this sounds good, dilution at these low prices is not so good, actually. We are now back to where my problem always has been with a company like IBRX. IBRX is a billionaire’s pet project. It is not going to be run like an ordinary company, with shareholder interest at heart. Shareholder interest will only be incidental here; the billionaire’s interest will get first priority because, after all, $730mn+ of his money is invested in this project, and he stands to lose the most if the company doesn’t make it. This specific fact is both the most important positive for IBRX, and also its most detrimental factor as an investment. The billionaire has a huge stake, so he will want to make sure that the company is successful. If that success exceeds whatever the company needs to repay the billionaire’s loans and so on, then retail interest may get a chance. I will not gamble my miniscule funds on such a bet.

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