IOVA - Iovance Biotherapeutics: Good Trade Setup Created By The FDA Delay Gets Even Better

2023-10-19 14:35:36 ET

Summary

• Iovance Biotherapeutics' lifileucel, a tumor infiltrating lymphocyte product, is under FDA review for the treatment of advanced melanoma.
• The FDA decision on the biologics license application for lifileucel has been delayed until February 24, 2024.
• The delay presents a trade setup, and IOVA at 52 week lows makes the trade even more appealing.

Iovance Biotherapeutics' ( IOVA ) tumor infiltrating lymphocyte ((TIL)) product, lifileucel, is already under review by the US Food and Drug Administration ((FDA)), having produced impressive clinical data in melanoma, among other cancers. In fact, a decision on the biologics license application ((BLA)), for lifileucel for the treatment of advanced melanoma, was expected in November. There is a delay in that decision now, until February 24, 2024, due to resource constraints at the FDA. While delays aren't usually good news, this one created a trade setup that I argue has since become better.

The lifileucel for advanced melanoma BLA

Reading about IOVA a month or two ago, I found that the fate of the stock seemed to depend on the outcome of the FDA decision on the lifileucel BLA. The FDA accepted IOVA's BLA in May, 2023 , and so the original PDUFA date was November 25, 2023, a six-month review, as IOVA has a priority review for the BLA.

While I find the clinical data in melanoma to give IOVA a good chance of approval, the possibility of other issues with the BLA exists, such as manufacturing or manufacturing facilities, causing a problem. Chemistry, manufacturing and controls ((CMC)) issues can come up with even New Drug Applications ((NDAs)) for small molecule drugs, causing a delay in approval. For a complex cell based therapeutic, I can see why issues regarding manufacturing facilities might be something that investors are worried about.

An FDA delay

A September 14, 2023 press release not only came with the news that due to a resource constraint the FDA was moving the Prescription Drug User Fee Act (PDUFA) to February 24, 2024, but a few hints on the review itself. I think it is worth getting into some of the language in that press release. Firstly, while the press release notes that successful facility inspections have been completed, and that there are no major review issues, those two statements are separated by a comma.

I see two possibilities from this statement. Firstly, the facility inspections have completed successfully, meaning the inspection was done in full, regardless of whether or not it turned up issues with the facilities that could cause the BLA not to be approved. Secondly, the inspection was done in full and IOVA now knows that if the lifileucel for melanoma BLA isn't approved, it won't be because of the facilities. Going further into the press release, the fact that the phrase "no major review issues" occurs before the addition that the inspections have been successfully completed, makes me think that the first possibility is more likely (the inspections have completed, but we can't guarantee there is no issue).

The FDA reiterated there are no major review issues , and there are no plans to hold an advisory committee meeting. In addition , all pre-approval inspections of clinical sites. internal and external manufacturing and testing facilities have been successfully completed . The FDA is also engaged and has expressed no concerns on the status of the TILVANCE-301 confirmatory trial in frontline advanced melanoma, which remains on track to be well underway by the PDUFA date.

IOVA September 14, press release. Emphasis mine.

Either way, the news that the FDA agreed to work with IOVA to expedite the remaining review for a potentially earlier approval is good in two ways. Firstly, the delay might not end up being until February 24, 2024, we could get approval in January or sooner. Secondly, the FDA having to bring on additional input from IOVA is a great opportunity for IOVA to allay any concerns the FDA does come up with. That latter part increases my confidence that the BLA could be approved, and is a key part of the bull thesis for me.

Financial Overview

IOVA reported Q2'23 earnings on August 8, 2023. As of June 30, 2023, the company had cash, cash equivalents and short-term investments of $250.9M. The company had a further $66.4M in restricted cash , $60M of which is related to a payment required by the Proleukin agreement that must be made by IOVA on first approval of lifileucel in melanoma. Beyond that, the company raised gross proceeds of $172.5M (for estimated net proceeds of ~$161M) following an offering of 23M shares (at $7.50 per share) which closed on July 13, 2023. That brings pro-forma cash, cash equivalents and short-term investments to $411.9M (I have not included the $66.4M in restricted cash in this calculation). The company has current operating lease liabilities of $10.9M and non-current operating lease liability of $68.8M. Net loss for Q2'23 was $106.5M, with R&D expenses of $86.3M and SG&A expenses were $21.9M. Net cash used in operating activities was $193.8M in the first six months of 2023, meaning the company would burn through $411.9M in just under 13 months at that rate. That being said, expenses could kick up if lifileucel was approved. The company has no shortage of plans to scale up the number of patients it can treat.

IOVA's September Corporate Presentation notes that cash runway is sufficient into the end of 2024, whereas I've only calculated runway into H2'24, the company can of course delay the initiation of other clinical trials if funds are running short, and I expect current cash to last until an FDA decision on the BLA anyway.

There were 247,776,653 shares of IOVA's common stock outstanding as of August 3, 2023, corresponding to a market cap of $827.6M. There were also 19,438,306 stock options outstanding as of June 30, 2023, with a weighted average exercise price of $18.77. Further, there were 4,153,569 restricted stock units and performance restricted stock units outstanding as of June 30, 2023.

Rating IOVA a buy, and timing the trade

Prior to the September 14 press release announcing the FDA delay, the stock closed on September 13 at $5.44, but now on October 18, closed at $3.34. The sell-off may simply be due to the catalyst of potential BLA approval moving past year-end, triggering tax loss selling. While I think the FDA delay created a good trade setup, because it came with information increasing my confidence that the BLA would be approved, the trade has gotten even better with IOVA at 52-week lows.

Further selling might make IOVA even cheaper, so IOVA could be an even better entry in November. I've rated the name a buy now, however, because I expect IOVA to be trading higher when the FDA makes a decision in February on the BLA, or perhaps January or even December, if the FDA beats expectations on timing. Nonetheless, it is worth noting, I think one could get an even cheaper entry in November. If I was playing this one, and I still might, although I have no position currently, I would probably look to enter around then. I wouldn't wait longer because I would worry that the FDA might not need all the extra time it has allowed itself, and I could miss out on the catalyst. Further Q3 earnings (which IOVA reported on November 2 last year) could come in early November and come with further hints on the BLA and the timeline.

Risks

Firstly, while I think the potential downside on IOVA should the BLA not be approved is a little less in percentage terms now than it was a month ago, the FDA decision is still a major binary catalyst. If the BLA isn't approved, the size of any drop would depend on why the BLA isn't approved. As such, the value of lifileucel wouldn't be written off completely in many scenarios where the BLA isn't approved, and the stock might still trade well above cash, but there could still be a substantial drop.

Secondly, based on my analysis of the September 14 press release, I don't think we have clarity on the facility inspections. I think they completed successfully, but that doesn't mean there were no issues. If I'm wrong, and IOVA clarifies that with Q3'23 earnings, then the stock could rally. IOVA could also clarify prior to that via a press release, or corporate presentation or similar. However, IOVA could clarify, such as in response to a question on an earnings call, that while the inspections completed successfully they can't guarantee there were no issues found. In the latter scenario, the stock could react negatively.

Lastly, competitors making progress with potential melanoma therapeutics could cause IOVA to trade down. I wrote recently about Agenus ( AGEN ) that has a next generation anti-CTLA4 antibody called botensilimab. Such a therapeutic can allow a response where current immuno-oncology agents have failed, and doesn't require the more complex process of producing a cell therapy. AGEN expects to complete enrollment of its phase 2 ACTIVATE melanoma study of botensilimab by the end of 2023 and has a data update planned in 2024. Seeking Alpha's Jonathan Faison notes that a 30% overall response rate in the data so far is respectable and in range of what IOVA has seen. While I think AGEN probably won't provide that 2024 data update before IOVA's February 24, 2024, PDUFA date, other competitors in melanoma could.

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