IOVA - Iovance Biotherapeutics: The Easiest Money May Have Been Made But Approval Does Seem Likely

2023-12-12 13:25:35 ET

Summary

• IOVA's marketing application for lifileucel is still awaiting approval from the FDA, with a new decision date set for February 24, 2024.
• Despite the delay, IOVA suggests a possible early approval in January 2024.
• IOVA expects its current cash to last it until 2025, although an offering or use of an at-the-market facility could still come with any potential approval.

When I wrote about Iovance Biotherapeutics (IOVA) in October, I rated the company a buy. An update from the FDA, while creating a delay in potential marketing approval of IOVA's tumor infiltrating lymphocyte product (lifileucel), created a trade setup with the stock at 52-week lows. In this article, I take a look at where IOVA's marketing application, and the long trade, stands now.

IOVA's application is still not approved

While the US Food and Drug Administration (FDA) has not yet approved IOVA's marketing application (for lifileucel for the treatment of advanced melanoma), this isn't a surprise. The original Prescription Drug User Fee Act (PDUFA) goal date, by which the FDA aims to hand down a decision on marketing approval or otherwise, was November 25, 2023. Since the FDA shifted that date three months, to February 24, 2024, due to resource constraints, it isn't surprising that the FDA hasn't ended up only needing a few more weeks.

An early decision (before February 24, 2024) could still come, but if the FDA needs all the extra time it allowed itself, then I won't read into that myself. That is to say, just because approval hasn't come early, doesn't mean it won't be approved. Indeed I still find the fact that IOVA said the FDA had agreed "to work with Iovance to expedite the remaining review," to be pretty bullish. Going beyond that, with the Q3'23 earnings call, IOVA estimated that a January approval could be possible.

... we are expecting that our BLA would be approved perhaps before the PDUFA date in January, sometime in January, the PDUFA date is February 2024.

... So the FDA likes to approve products with the unmet medical need, at least 4 to 6 weeks prior to PDUFA date, as they have done with -- on all CAR-T products and other products as well. So with that, keeping that in mind FDA will like to -- they like to approve the product sooner before the PDUFA date. So we are expecting the same for the Lifileucel.

Raj Puri, EVP Regulatory Strategy and Translational Medicine, IOVA, November 7, 2023, earnings call .

Financial Overview

IOVA reported Q3'23 earnings on November 7. Cash, cash equivalents, investments and restricted cash were $427.8M as of September 30, 2023. R&D expenses were $87.5M for Q3'23 and SG&A expenses were $27M in Q3'23. Revenues of $0.5M in Q3'23 came from product sales of Proleukin. Net loss was $113.8M in the quarter and net cash used in operating activities was $277.9M in the first nine months of 2023. Taking out restricted cash of $66.4M, yields cash of $361.4M which can be used for a cash burn calculation, suggesting 3.9 quarters of cash remaining at the current rate. Normally launching a drug would be associated with an uptick in expenses, but IOVA does seem to make some claims to the contrary in the Q3'23 earnings call.

We have recently completed headcount growth and significant onetime investments in commercial manufacturing readiness activities to prepare for launch and expand our pipeline. Following these onetime investments in strategic portfolio prioritization, we can reduce quarterly and annual operating expenses in the remainder of 2023 and full year 2024, while continuing all key clinical programs and internal manufacturing capabilities.

Frederick Vogt, Interim CEO, President, General Counsel & Corporate.

IOVA's conference call also came with the guidance that its September 30 cash position would fund it into 2025. In any case, IOVA doesn't need to raise cash this month, of course, if approval comes and the stock rallies, IOVA could choose to do an offering or use its at-the-market facility.

There were 255,918,448 shares of IOVA's common stock outstanding at October 30, 2023, giving IOVA a market cap of $1.6B ($6.25 per share). There were 19,274,301 options outstanding as of September 30, 2023, with a weighted average exercise price of $18.59. There were also 3,788,605 restricted stock units outstanding as of September 30.

Conclusions, ratings, and risks

IOVA seems quite confident in its odds of approval, even predicting approval could come before the February PDUFA goal date. While the name is up about 90% since the time of my last article, I would still predict the stock could rally on approval based on the current valuation and market potential of lifileucel. Even if the company only had the treatment capacity for 2,000 patients per year currently (not including its third party), at $0.5M per patient, we'd be looking at $1B in revenues. In a previous article on IOVA, Edmund Ingham noted a potential $4.5B in revenues to be had by players in the advanced melanoma market (using an estimated price of $0.3M and 15,000 patients with advanced melanoma). Ingham noted if IOVA grabbed just 20% of that market, that would imply lifileucel is a potential blockbuster (>$1B)

Since I view IOVA as potentially just a month away from beginning to tap into this multi-billion dollar market, I don't think approval is really built into the current price. All of this doesn't consider the potential of IOVA's therapy in other indications, such as lung cancer and ovarian cancer. As such, I still rate IOVA as a buy, while the price has increased, the company seems to be even more confident of lifileucel being approved in advanced melanoma.

There are several risks to any long position in IOVA, a few of which I'll mention here. Firstly, despite the company's upbeat statement of expecting early approval for lifileucel (in January rather than February 2024), if there are delays or a larger issue, then the stock could fall.

Secondly, if IOVA reports updated data from any of its studies, such as in non-small cell lung cancer (NSCLC), that doesn't look as impressive as previously, the stock could tumble.

Lastly, if IOVA doesn't rally on approval, due to the expectation of approval, a sell the news reaction could take place, especially if the company announces an offering.

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