MRK - Iovance: Capturing A Lucrative Market

Summary

• Iovance Biotherapeutics, Inc. is poised to complete its rolling Biologic License Application for advanced melanoma this quarter.
• The recent Proleukin acquisition ensures a strong supply of IL2 for its Tumor Infiltrating Lymphocytes.
• Aside from gaining approval for melanoma, Iovance's drugs can capture the gargantuan solid tumor market.

The intelligent investor is a realist who sells to optimists and buys from pessimists - Benjamin Graham (Warren Buffett's mentor).

Author's Note : This is an abbreviated version of an article originally published in advance on January 27, inside Integrated BioSci Investing for our members.

When you see a lead drug gets across the FDA goal life, the feeling is phenomenal. First, your patience is rewarded in the share price appreciation. Second, you contribute to the delivery of hope to countless patients worldwide. The fruits of therapeutic innovations can also come back to assist you and your loved ones, should you ever need them in the future.

After years of conquering the odds, Iovance Biotherapeutics, Inc. ( IOVA ) confirmed that they'll complete the licensing application for a novel lead drug (lifileucel) for the deadly advanced skin cancer (melanoma). If approved, lifileucel would be the first Tumor Infiltrating Lymphocytes approved to treat a solid tumor. Remarkably, the company is undergoing many fundamental improvements like the Proleukin acquisition. In this research, I'll feature a fundamental analysis of Iovance and share with you my expectation of this stellar growth equity.

Figure 1: Iovance chart.

About The Company

As usual, I'll present a brief corporate overview for new investors. If you are familiar with the firm, I suggest that you skip to the subsequent section. I noted in the prior article ,

Operating out of San Carlos, California, Iovance is focused on the innovation and commercialization of stellar medicine to deliver hope in seemingly hopeless cancers. As a therapeutic pioneer, Iovance harnesses the power of Tumor-Infiltrating Lymphocytes ("TILs") to expand its pipeline of "smart medicines." As you will see, leveraging TILs is an ingenious way to ramping up key immune cells in your body to decimate cancers. Interestingly, this novel treatment is applicable to a variety of solid tumors, including melanoma, cervical, head and neck, and non-small cell lung cancers ((NSCLC)).

Figure 2: Therapeutic pipeline.

Proleukin Acquisition

On January 23, Iovance announced that the company entered into a definitive Agreement to acquire aldesleukin (Proleukin) from Clinigen Limited. As a ramification, this deal provides Iovance ample supply of aldesleukin. As interleukin-2 (i.e., IL2), Proleukin is used in the TIL treatment process.

As you can imagine, having an adequate supply of IL2 is important for treating the patient with TILs (i.e., Step 5). After all, the biological signaling molecule (IL2) tells your body to amplify TILs to defeat cancers.

Figure 3: TIL making process.

Regarding the deal terms, Iovance pays Chinigen £166.7M upfront with a £41.7M milestone payment upon first approval of Lifi in advanced melanoma. Moreover, Chinigen receives double-digit Proleukin sales royalty.

In raising capital for the aforesaid deal, Iovance boosted its cash position to $477.0M. Additionally, the company secured a $100M line of credit (i.e., LOC) from Quogue Capital. As such, the robust cash position would enable Iovance to fund operations well into 2024 (which is longer than I anticipated).

Confirmed BLA Filing Completion

Iovance stated in the previous conference call that the company is on track to complete its rolling Biologic License Application (i.e., BLA) for Lifi use in advanced melanoma this quarter. Keep in mind, these patients were already treated with an anti-PD1 therapy like pembrolizumab (i.e., Keytruda).

Now, you can appreciate that Iovance is following through with its promises. Specifically, the company just confirmed in the latest press release that they are set to complete their BLA filing this quarter. And, this resonates with the prior expectations from the interim CEO (Dr. Frederick Vogt):

We continue to make substantial progress with our ongoing BLA submission and remain close to the finish line. The FDA has provided recent valuable feedback to the IND application and remains supportive during the rolling BLA submission process. Iovance is fully committed to securing FDA approval as soon as possible to deliver the first individualized, one-time cell therapy for advanced melanoma patients, who have a significant unmet medical need.

Due to its accelerated filing, you should anticipate an approval decision by either Q3 or Q4 at the latest. Hence, Lifi is positioned to become the first TIL approved for solid tumors. Being the first to enter any market substantially fosters robust sales. Given that Iovance is set to launch the drug in-house, being the first TIL for melanoma would help with boosting sales tremendously. As such, Iovance Biotherapeutics, Inc. stock usually (but not always) responds favorably to this type of development.

Figure 4: TIL's mode of action.

Positive FDA Feedback on Confirmatory Study

As you are aware, Iovance Biotherapeutics, Inc. leverages Phase 2 (C-11-01) study data for its BLA filing. The setback of this cohort study is the lack of a control arm. You simply have the various cohorts (i.e., groups) in the trial. Notwithstanding, it can still yield extremely valuable information about efficacy and safety.

As you know, Lifi demonstrated extremely robust ORR and Duration of Response (i.e., DOR). For advanced melanoma without treatment options, I believe that Lifi's robust efficacy should be more than adequate for the FDA to grant an approval decision.

Figure 5: Strong TIL's efficacy.

Due to the aforesaid study, you can bet that Iovance would need to do a confirmatory Phase 3 trial for full approval. That being said, the firm already cleared with the FDA to commence its Phase 3 (TILVANCE-301) investigation for Lifi plus Keutruda use as a frontline treatment for advanced melanoma.

Being a high-quality randomized controlled trial, TILVANCE-301 would assess a total of 670 patients. Accordingly, the treatment arm would be the combo drug that is compared to the control arm (i.e., Keytruda monotherapy). Notably, the FDA agreed to have two primary study endpoints: Objective Response Rate (i.e., ORR) and Progression-Free Survival (i.e., PFS).

Though I prefer Overall Survival as the primary endpoint, the FDA already gave its blessing to the two aforesaid endpoints for full approval. By Q3 or Q4 (i.e., approval timeline), you can expect this study to be well underway. If you recall, Cohort 1A of the IOVA-COM-202 study of Lifi plus Keytruda also assessed 20 patients. The updated results are excellent with strong ORR and long Durability of Response. Hence, you can expect similar results for TILVANCE-301.

Figure 6: Foretelling TIL's data.

Future Label Expansion

As you can appreciate, Lifi's first potential indication for advanced melanoma is only the beginning. As you know, the company is investigating Lifi's for other label expansions. They include anti-PD1-naive non-small cell lung cancer (i.e., NSCLC) and cervical cancer.

Notably, Iovance is making great strides here. That is to say, the company recently disclosed strong data for the IOV-COM-202 Cohort 3A for NSCLC. Precisely speaking, there was a 47% ORR (8/17) for patients who took the Lifi/Keytruda combo. Moreover, the responses were observed regardless of the PD-L1 status. The drug was also well tolerated.

Riding excellent study outcomes, Iovance is eager to meet with the FDA this year to start a registrational study. You can expect the study to pit Lifi/Keytruda to Keytruda alone for frontline advanced NSCLC. As you can imagine, the frontline setting for NSCLC would ensure that Lifi would become a blockbuster.

Figure 7: Expanding TIL's label.

Potential Acquisition

Through being a remote possibility, the robust data positioned Iovance to get acquired by larger companies like Merck ( MRK ). That way, the larger company can strengthen its oncology pipeline. Over the years, many stocks that I covered have been acquired. And, my intuition is positive about Iovance being an excellent buyout candidate. For a deal negotiation talk to commence, I believe that Lifi has to first gain FDA approval.

Figure 8: Acquired stocks under coverage.

Estimated Market

When you view the solid tumor market as a whole, you can expect it to be vast. After all, over 90% of all cancer cases are solid tumors. I previously elucidated ,

In the USA, there are 1.7M new cases each year. Due to an increasingly sedentary lifestyle and rising longevity, you should see cancer incidence on the rise. For Lifi's first indication (i.e., metastatic melanoma), there are only 325K new cases each year. Other first and second-line drugs already exist. Despite that Lifi gives patients the best chance of survival, being the last-line drug put it at a marketing disadvantage. Unless Iovance prices Lifi at a huge premium (i.e., at least $150K), it'll be difficult to generate meaningful sales. However, Lifi can gain additional label expansions to aggressively ramp up blockbuster sales.

Figure 9: Solid tumor market.

Financial Assessment

Just as you would get an annual physical for your well-being, it's important to check the financial health of your stock. For instance, your health is affected by "blood flow" as your stock's viability is dependent on the "cash flow." With that in mind, I'll analyze the Iovance Biotherapeutics, Inc. 3Q2022 earnings report for the period that concluded on September 30.

As I already went into detail about the finances in the previous article, I'll briefly summarize key findings here. First, the research and development (i.e., R&D) registered at $72.5M compared to $65.3M for the same period a year prior. Second, there were $99.6M ($0.63 per share) net losses compared to $86.1M ($0.55 per share) net declines for the same comparison. And due to the recent equity raise and the $100M LOC, the cash position is now increased to $577.0M which is comprised of $477.0M in cash. Minus the £166.7M used to finance the Proleukin deal, there should be plenty of cash to fund Iovance Biotherapeutics, Inc. operations into 2024.

Potential Risks

Since investment research is an imperfect science, there are always risks associated with your stock regardless of its fundamental strengths. More importantly, the risks are "growth-cycle dependent." At this point in its life cycle, the biggest risk for Iovance Biotherapeutics, Inc. is whether Lifi would gain approval for advanced cancer in either Q3 or Q4 this year. Regulatory delay is also a possibility. There is also a small concern that Dr. Fardis' departure might signal unknown risks.

Final Remarks

In all, I maintained my strong buy recommendation of Iovance Biotherapeutics, Inc. As the dust is settling after Dr. Fardis' departure, Iovance is well on its way toward a successful turnaround. The esteemed management is successfully picking up the missing pieces. Voted their confidence with $65M, you can see that they are gamed in proving TILs' therapeutic merits. Moreover, they must have great faith in the high investment grade of Iovance. As more signs of progress, the management recently confirmed that the ongoing rolling BLA of Lifi would be completed this quarter.

On that timeline, Iovance Biotherapeutics, Inc. should get an approval decision for advanced melanoma in Q3 this year. The manufacturing facility build-out is finished. And Lifi launch preparations are well underway. The recent acquisition of Proleukin ensures an adequate supply of IL2 for use along with TILs. Beyond melanoma, Iovance Biotherapeutics, Inc. is positioning Lifi for other labels.

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