IOVANCE BIOTHERAPEUTICS, INC. (then Lion Biotechnologies, Inc.) — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017; filed May 3, 2017. The company was a clinical-stage biotechnology business developing autologous tumor-infiltrating lymphocyte (TIL) therapies for cancer. Its lead program, LN-144, was in a Phase 2 metastatic melanoma trial. The filing reports no commercial products or biopharmaceutical revenue.
Financial performance and position
Amounts below are in U.S. dollars; financial statement figures are converted from thousands to millions where appropriate.
| Metric | Q1 2017 / March 31, 2017 | Comparable period / prior year-end |
|---|---|---|
| Revenue | $0 | $0 in Q1 2016 |
| Research and development expense | $16.6 million | $4.2 million in Q1 2016; up 297% |
| General and administrative expense | $4.3 million | $2.8 million in Q1 2016; up 51% |
| Operating loss | $20.9 million | $7.0 million in Q1 2016 |
| Net loss | $20.7 million | $6.9 million in Q1 2016 |
| Net loss per share, basic and diluted | $0.33 | $0.14 in Q1 2016 |
| Net cash used in operations | $18.8 million | $4.6 million in Q1 2016 |
| Cash and cash equivalents | $107.1 million | $106.7 million at December 31, 2016 |
| Short-term investments | $40.1 million | $59.8 million at December 31, 2016 |
| Total assets | $155.4 million | $171.9 million at December 31, 2016 |
| Current liabilities | $5.5 million | $5.0 million at December 31, 2016 |
| Stockholders’ equity | $149.9 million | $166.9 million at December 31, 2016 |
Cash, cash equivalents and short-term investments totaled $147.2 million; reported working capital was $147.1 million. The balance sheet reports no debt. Operating cash use was partly offset by $18.8 million of net investing cash inflow, mainly investment maturities; financing activities provided $0.4 million. Cash increased $0.4 million during the quarter. With no revenue, profit margins are not meaningful.
Material changes and business developments
- R&D expense rose $12.4 million, primarily from higher manufacturing costs ($5.6 million), payroll and related costs ($2.4 million), clinical trial costs ($1.7 million), consultants and outside services ($2.0 million), and stock-based compensation ($0.8 million).
- G&A expense increased $1.4 million, reflecting increased stock-based compensation, consulting and legal costs, and payroll.
- Stock-based compensation totaled $3.3 million, versus $1.8 million in Q1 2016. Weighted-average common shares outstanding increased to 62.3 million from 48.5 million.
- After quarter-end, the company agreed to fund multi-year clinical and preclinical research with M.D. Anderson, with funding capped at approximately $14.2 million. It also entered into a three-year manufacturing services agreement with PharmaCell to expand TIL manufacturing capacity and support European trial expansion.
Outlook, risks and contingencies
- Management expected no product sale or licensing revenue in 2017 and anticipated continued losses and increased R&D spending, including for trials, staffing and manufacturing. It believed available funds would cover anticipated operating expenses for at least 12 months from the filing date.
- The company reported that its ongoing Phase 2 LN-144 study was enrolling patients at ten sites. Development timing and costs remain subject to enrollment, trial duration, safety and efficacy, manufacturing capability and other uncertainties.
- On April 10, 2017, the company settled an SEC investigation without admitting or denying the findings, agreed to a cease-and-desist order and a $100,000 civil penalty, and agreed to adopt controls for investor-relations and public-relations activities. The filing warns that the order may hinder future capital raising, including by disqualifying the company from certain Regulation D exemptions.
- Two securities class actions were filed in April 2017 regarding alleged misstatements or omissions connected to former management and an investor-relations firm. The company said it would defend the cases; potential losses could not be estimated at this early stage.
- A separate New York lawsuit seeks more than $1.5 million, plus interest and attorneys’ fees; the company disputes the claims and asserts counterclaims. The court stayed the case after plaintiffs’ counsel withdrew. The filing also discusses possible claims relating to certain 2016 warrant-share resales; no loss accrual was recorded because the amount could not be estimated.
- Other commitments include operating lease payments of $2.6 million in total and potential license and collaboration milestone payments. The filing reports no off-balance-sheet arrangements and no material change to previously disclosed risk factors other than the SEC order and securities litigation.
Important facts for investors to verify
- Trial enrollment, clinical results, safety and efficacy, and the timing and costs of the LN-144 and expanded TIL programs.
- Cash runway assumptions against the company’s stated plan for rising R&D, clinical, staffing and manufacturing spending.
- Potential dilution: 7.9 million Series B preferred shares were convertible into common stock, in addition to options, warrants and other awards; these potential shares were excluded from diluted loss per share as anti-dilutive.
- Developments and potential financial exposure in the SEC-related class actions and the Solomon Capital litigation, including legal costs and any insurance coverage.
- Funding obligations and deliverables under the M.D. Anderson alliance, as well as the operational impact of the PharmaCell manufacturing agreement.