IOVA - Iovance Biotherapeutics: Evaluating Recent Developments And FDA Feedback

2023-07-11 12:15:54 ET

Summary

• Iovance Biotherapeutics has received positive feedback from the FDA for its IOV-LUN-202 trial, which may lead to accelerated approval of its TIL therapy for advanced NSCLC.
• Iovance strengthened its financial position with a public offering expected to generate $150 million, which will support operations until beyond 2024.
• Despite the promising developments and robust financial position, I'm downgrading IOVA stock to "Hold" as the valuation now appears reasonable in light of the inherent uncertainties and risks in the biotech sector.

Iovance Biotherapeutics Overview

Iovance Biotherapeutics ( IOVA ) is a pioneering clinical-stage biopharmaceutical company dedicated to transforming cancer treatment. The company leverages the human immune system's power to recognize and destroy cancer cells via personalized therapies for each patient. It aims to secure U.S. regulatory approval and commercialization of the first autologous T-cell therapy for solid tumor cancer. Iovance's mission is global leadership in developing and delivering tumor-infiltrating lymphocyte ((TIL)) therapies. The company uses a proprietary 22-day manufacturing process to cultivate unique polyclonal T-cells for each patient. Its lead product, lifileucel, is under development for advanced melanoma and other indications.

In my previous analysis of Iovance, I acknowledged the company's struggle in developing potency assays for its TIL therapy, lifileucel, resulting in decreased investor confidence and stock value. Despite this, I believed the negative impact might have been exaggerated, considering Iovance's progress towards potential approval of lifileucel and its strong financial position, with sufficient cash reserves to support operations until H2 2024. I also recognized the significant market opportunity for lifileucel in addressing the unmet needs of patients who have exhausted other treatment options, while acknowledging the investment risks related to assay development, regulatory approval, and market competition. Initially, I recommended a "Hold" rating following a 25% stock decline, but later adjusted my recommendation to a "Buy" due to the stock's affordability and unchanged prospects. However, I advised caution due to the binary outcome of the upcoming FDA decision. Since my "Buy" recommendation, shares of Iovance have increased by approximately 36%.

In recent news , the FDA approved Iovance's application for lifileucel, a melanoma treatment, in April. Additionally, Iovance shares experienced a nearly 20% surge after announcing the FDA's supportive feedback on the IOV-LUN-202 trial, aimed at gaining expedited approval for its TIL therapy for advanced NSCLC in patients who've previously undergone anti-PD-1 therapy. However, a subsequent public offering of 20 million shares at $7.50 each led to a 10%, after-hours, decrease in the stock. The company expects this offering to yield roughly $150 million in gross proceeds.

The following article revises my thesis on Iovance, taking into account these recent developments.

Iovance Q1 2023 Earnings

In Q1 2023, Iovance announced a cash and equivalents balance of $632.7 million, showing an increase from $478.3 million at the end of 2022. This growth was driven by $260.1 million obtained through an equity financing facility. The company anticipates that this cash position will support its operations until H2 2024, encompassing activities such as acquisitions and commercial launch preparations. However, Iovance reported a net loss of $107.4 million, equivalent to $0.50 per share, in Q1 2023, compared to a loss of $91.6 million, or $0.58 per share, in Q1 2022. This rise in losses can be attributed to increased expenses in research and development, as well as general and administrative areas, primarily due to team expansion, clinical trial costs, and pre-commercial activities.

Recently, Iovance disclosed the pricing of a public offering, setting the share price at $7.50 for a total of 20 million shares. The company expects to generate approximately $150 million in gross proceeds from this offering. Furthermore, the underwriters have a 30-day option to purchase an additional 3 million shares at the same offering price. The offering is subject to standard closing conditions and is projected to conclude around July 13, 2023.

Iovance Receives Positive FDA Feedback for IOV-LUN-202 Trial

Iovance received encouraging feedback from the FDA regarding the trial design for its LN-145 TIL therapy in its Phase 2 IOV-LUN-202 trial. This therapy targets advanced Non-Small Cell Lung Cancer (NSCLC) patients who have undergone chemotherapy and anti-PD-1 therapy. This trial may lead to accelerated approval of the TIL therapy. Preliminary analysis showed an Objective Response Rate (ORR) of 26.1% in the 23 treated NSCLC patients. Iovance plans to enroll about 120 patients in total for the trial, with enrollment completion expected by H2 2024.

Iovance's Biologics License Application (BLA) for lifileucel in advanced melanoma is also progressing well under the FDA's Priority Review, with a target action date set for November 25, 2023.

The FDA's positive feedback on the IOV-LUN-202 trial design signifies a significant step towards potential approval for the TIL therapy, which could present a sizable market opportunity. The impressive ORR from the preliminary analysis bodes well for the outcome of the trial. Investors will likely also find encouragement in the progress of the lifileucel BLA, which if approved, could open additional revenue streams for Iovance. However, the inherent risks of clinical trials and regulatory approval processes should not be overlooked. While these developments are positive, the final outcomes remain uncertain until the trials are complete and regulatory decisions are made.

IOVA Strengthens Financial Position for Promising Developments with Additional Funds

From an investment standpoint, Iovance's choice to gather more funding ahead of key events is likely to be seen in a positive light. This action bolsters the firm's fiscal standing, equipping it with the necessary funds to facilitate further studies, manage trials, and plan for prospective market entry.

Share dilution, a consequence of issuing new stocks, might worry current stockholders since it has the potential to decrease their investment's worth. However, this is a typical strategy employed by biotech firms to accrue funds for ongoing research and development. Given the encouraging progress of the IOV-LUN-202 trial and the lifileucel BLA, these additional funds may play a crucial role in seeing these initiatives through to the end.

Nonetheless, it's crucial to remember that the organization's future remains largely contingent on the triumph of these trials and the acceptance of their therapies. While the accumulated funds offer a buffer for operational expenditures, the company's financial well-being largely rides on the market success of these therapies. Hence, though the extra financing offers short-term benefits, enduring success is tied to their therapies earning approval and achieving market adoption.

My Analysis & Recommendation

In conclusion, Iovance continues to show potential as it makes progress in its transformative cancer treatment developments. The company's financial position is robust, as shown by its recent successful funding round, ensuring it has the necessary resources to carry forward its initiatives. The positive feedback from the FDA and promising ORR results for their NSCLC therapy and the ongoing priority review of the lifileucel BLA highlight the potential of the company's innovative cancer therapies.

Investors, however, should remain aware of the inherent uncertainties and risks in the biotech sector. These include clinical trial outcomes, regulatory approvals, and eventual market acceptance of therapies. Furthermore, while the additional funding strengthens Iovance's financial footing, it also brings about dilution of shares.

The company's shares have risen by ~36% since my previous "Buy" recommendation and its current (at writing) market cap near $2 billion appears reasonable, considering the associated risks and potential benefits. As a result, I am updating my recommendation to "Hold." Iovance is on a promising path, and investors should continue to monitor its progress closely as its therapies continue to develop and move through the regulatory pipeline.

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