IOVANCE BIOTHERAPEUTICS, INC. — 2013 Q2 Form 10-Q Summary
Entity and period: The supplied filing is for the quarter ended June 30, 2013, but identifies the registrant as Lion Biotechnologies, Inc. (then renamed from Genesis Biopharma; it changed its name to Lion Biotechnologies in September 2013). It does not identify Iovance Biotherapeutics as the registrant. Confirm that this is the intended filing.
Business context
The company described itself as a development-stage biopharmaceutical business developing autologous tumor-infiltrating lymphocyte therapies, led by Cōntego for metastatic melanoma. It had no operating revenue and did not expect product or licensing revenue in 2013.
Financial performance and position
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $779,260 (2012: $1,376,425) | $1,214,173 (2012: $3,626,558) |
| Research and development | $250,000 (2012: $270,000) | $520,000 (2012: $1,156,000) |
| Net loss | $3,429,255 (2012: $327,284) | $4,475,784 (2012: $6,099,963) |
Margins are not meaningful because there was no revenue. Q2 net loss increased primarily because of $2,295,868 in non-cash costs to induce the May debt and equity exchange. Six-month loss narrowed year over year, mainly reflecting lower operating and R&D expenses, partly offset by restructuring costs and other changes. Interest expense was $445,743 for the first half, versus $199,282 a year earlier.
At June 30, cash and equivalents were $569,581; total assets were $597,749; current liabilities were $3,369,071; and working capital deficiency was $2,790,355. Stockholders’ deficiency was $2,771,322. No promissory notes or derivative liabilities were reported at quarter-end after the restructuring. Accounts payable were $1,480,851 and accrued expenses were $1,888,220.
The cash flow statement reports $981,929 of cash used in operating activities for the first half, compared with $1,960,728 in 2012, and $1,551,510 provided by financing activities, leaving $569,581 in cash. Elsewhere, the filing says operating cash use was $1,214,173; the filing text does not provide a clear explanation for this discrepancy.
Material changes and unusual items
- In May 2013, creditors exchanged approximately $9.27 million of principal, accrued interest, and penalties for 9,267,641 common shares. The transaction extinguished the notes and related warrants, ended associated future interest obligations, and removed liens on company assets.
- The related share financing was described as $1.35 million gross; the cash flow statement shows $1,240,010 of common-stock proceeds, net of $109,990 in legal fees. Certain investors also received repricing shares, recorded as a $2,173,134 inducement cost, and warrants were exchanged for shares at a recorded cost of $122,734.
- The restructuring substantially changed ownership and board composition. No single holder was reported to own more than 41% of voting shares immediately afterward.
- Subsequent events include a July 2013 merger with a Delaware corporation also named Lion Biotechnologies, for 1.34 million shares valued at approximately $6.7 million, with up to 1.35 million additional shares contingent on milestones. The filing also reports a September name change and 1-for-100 reverse split; share and per-share figures were retrospectively adjusted.
Outlook, risks, and contingencies
Management said available capital was insufficient to fund ongoing expenses, with no credit line, identified funding source, or committed financing. The company expected to need additional debt or equity funding and warned that failure to obtain it could force it to suspend development, abandon Cōntego, or cease operations. The filing and prior auditor report raised substantial doubt about the company’s ability to continue as a going concern.
The company reported $632,292 past due to NIH under its license and said it was in discussions to cure the default; NIH had not issued a termination notice. The license includes royalties and milestone payments, potentially totaling $36.3 million across four indications if all benchmarks are achieved. The company also had ongoing quarterly CRADA funding obligations of $250,000. Management anticipated continued losses and no 2013 revenue.
Disclosure controls were deemed ineffective due to a material weakness involving insufficient segregation of accounting duties and expertise for complex transactions. The filing reported no material pending legal proceedings and no material changes to previously disclosed risk factors.
Most important facts to verify
- Whether this Lion Biotechnologies filing is the intended filing for Iovance Biotherapeutics.
- The correct first-half operating cash-use figure: $981,929 in the cash flow statement versus $1,214,173 elsewhere.
- The cash actually available after quarter-end, and the status and terms of any subsequent financing.
- The amount and resolution of the past-due NIH obligation, and whether the license remained in good standing.
- The accounting and contingent share obligations associated with the restructuring and subsequent merger.
- Whether management remediated the disclosed material weakness in financial reporting controls.