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Iovance Biotherapeutics' Amtagvi: Innovative Therapy, Financial Strain (Rating Downgrade)

May 13, 2024 11:06 AM ET网页链接{Iovance Biotherapeutics, Inc. (IOVA) Stock}

网页链接{Stephen Ayers}

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Summary

网页链接{}Iovance's new TIL therapy, Amtagvi, has launched but with modest Q1 revenue amidst substantial operational costs.Enrollment has reached over 100 patients, showing a promising start, although logistical challenges persist.Financially, Iovance has a short-term cash runway, risking future capital raises and possible dilution.Recommendation: Hold Iovance shares; suitable for speculative segment of a diversified, conservative portfolio.

Evaluating Iovance Amidst Amtagvi's Launch and Financial Pressures

Iovance Biotherapeutics' (NASDAQ:IOVA) stock continues its rollercoaster ride. Its stock traded down 18% on Friday, the day after it reported 网页链接{Q1 earnings}.

My 网页链接{last update}, in February, focused on the market prospects of their TIL therapy for advanced melanoma, named Amtagvi ($515,000 price tag). Amtagvi achieved 网页链接{FDA accelerated approval} in February, making it the first approved T cell therapy for solid tumor cancer. I applauded the medical breakthrough but expressed some caution concerning immediate revenue expectations, noting the "high costs, the intricate nature of TIL therapy, and safety concerns underscored by a boxed warning." As expected, Iovance raised ~$211 million after Amtagvi's achievement, bolstering its cash reserves ahead of what figured to be a costly launch.

In its Q1 update, Iovance elected to reveal the latest (extending to May) Amtagvi data. They noted "100+" patients enrolled in therapy, with some currently receiving treatment. Notably, 40 authorized treatment centers are active. This is not a bad start, in my view. TIL is a new therapy (commercial-wise) and there is a learning curve involved (e.g., training and authorizing treatment centers). As such, Iovance did not have much revenue to report for Q1—just $715,000. The cost of sales was $7.261 million. R&D expenses were $79.7 million, down from $82.7 million in the previous year. SG&A expenses only crept up to $31.39 million from $28.1 million. Subsequently, Iovance reported a hefty net loss of $112.976 million.

According to treatment recommendations, TIL therapy (Amtagvi) is offered to metastatic melanoma patients who have received a PD-1 inhibitor and are deemed healthy enough to tolerate intensive therapy such as TIL. Given the limited number of treatment centers, some patients may opt instead for combination therapy (two PD-1 inhibitors) or clinical trials.

It's probably reasonable to think of TIL therapy as a 3L treatment. If Amtagvi is able to reach half of this population (accounting for logistical issues and the necessity for excellent performance status), this would imply a peak annual revenue potential of ~$1.24 billion. Although I think this is an optimistic estimate, it also seems plausible.

Iovance plans to expand its geographical reach later this year, with regulatory submissions in the United States, United Kingdom, and Canada. Importantly, Iovance is currently conducting a registrational Phase 3 trial to support accelerated and full FDA approvals for Amtagvi in combination with a PD-1 inhibitor for the treatment of metastatic melanoma. If this is successful, frontline use of Iovance's TIL therapy may be supported. This would greatly increase their target population, as the slide above illustrates.

All in all, Q1 provided some positive updates but also reminded investors about the complexity and significant investments involved in launching TIL therapy.

Apart from melanoma, Iovance is advancing TIL therapy in advanced endometrial cancer after PD-1 inhibitor (planned Phase 2 initiation in Q2) and NSCLC after PD-1 inhibitor (registration-enabling Phase 2 trial). Iovance, on the other hand, is starting to test its "next generation TIL pipeline" on humans in an effort to "potentially improve efficacy."

Financial Health

As of 网页链接{March 31}, Iovance reported $134.18 million in cash and cash equivalents. Short-term investments were $222 million. Total current assets add up to $385.5 million, while total current liabilities are $83.2 million. This gives us a current ratio over 4.0, which indicates the company is able to cover its short-term obligations.

As Iovance is not yet profitable, I will estimate the cash runway based on historical data. If we divide their cash equivalents and short-term investments by their Q1 net loss, this suggests a cash runway of just over three quarters.

The company provided their forward-looking estimate,

The current cash position and anticipated revenue from Amtagvi and Proleukin are expected to be sufficient to fund current and planned operations well into the second half of 2025.

It is highly likely that Iovance will need to raise more capital in the upcoming year—whether through debt, equity financing, or some other means.

Risk Reward Analysis and Investment Recommendation

In assessing risk and reward, investors may be rightly concerned about Iovance's limited cash runway. The company just did an equity raise earlier this year. Subsequently, its outstanding common stock jumped from 213,694 to 266,220. Dilution has a negative impact on return potential. It's puzzling that the company did not raise more (I estimated "upwards of $300 million") in February on the heels of a rallying stock. At $3 billion, Iovance appears reasonably priced in light of its potential. Remember that Amtagvi's conditional approval was 网页链接{based on overall response rate} [ORR] and the therapy will have to prove beneficial in terms of survival endpoints. But I believe this is reasonably assured. Moreover, based on the extended history of TIL therapy, its venture into melanoma was, arguably, the lowest hanging fruit. Prospects in NSCLC and endometrial cancer may not be as certain.

In conclusion, I believe that this is a good time to temper expectations and hold off on making any decisions until we have more clarity regarding the launch and Iovance's financing plans. So, I am downgrading Iovance to hold. Having said that, Iovance might still be a suitable choice for a barbell portfolio, in which 90% of the money is invested in safe assets like Treasuries and the remaining 10% is used in speculative, high-alpha investments like Iovance.

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