Iovance Biotherapeutics, Inc. — Q2 2017 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2017; filed August 3, 2017. The company changed its name from Lion Biotechnologies, Inc. in June 2017 and reincorporated in Delaware. It is a clinical-stage biotechnology company developing tumor-infiltrating lymphocyte (TIL) therapies and had no commercial products or revenue.
Financial performance and position
- Revenue: $0 for both Q2 and the first half of 2017, unchanged from comparable 2016 periods. The company said it did not expect product-sale or licensing revenue in 2017.
- Q2 results: Research and development expense was $19.7 million, up 340% year over year; general and administrative expense was $3.9 million, down 46%. Net loss was $23.4 million versus $11.6 million; basic and diluted loss per share was $0.37 versus $0.23.
- First-half results: R&D expense was $36.3 million, up 319%; G&A expense was $8.2 million, down 19%. Net loss was $44.1 million versus $18.4 million; loss per share was $0.71 versus $0.37. Interest income was $0.4 million.
- Cash flow: Cash used in operating activities was $36.3 million for the first half, compared with $8.3 million in 2016. Investing activities provided $44.1 million, primarily reflecting investment maturities; financing activities used $0.3 million, versus $96.2 million provided in 2016, largely from equity financing.
- Liquidity: At June 30, cash and cash equivalents were $114.3 million and short-term investments were $14.7 million, totaling $129.0 million. Working capital was $126.6 million. Total current liabilities were $8.9 million; stockholders’ equity was $129.2 million.
- Debt and margins: No debt is reported on the balance sheet. With no revenue, operating and gross margins are not meaningful. Future minimum operating lease payments totaled $2.9 million.
Material changes and business developments
- R&D spending rose substantially as the company expanded clinical trials, manufacturing, staffing, and external research support. Management attributed the first-half increase mainly to higher drug-manufacturing costs ($11.7 million), clinical-trial costs ($4.1 million), payroll and related expenses ($4.9 million), and consultants and outside services ($4.8 million).
- G&A declined primarily because the 2016 period included stock-based compensation related to the former CEO’s separation.
- Lead program LN-144 was in a Phase 2, three-arm metastatic melanoma study enrolling at ten sites. LN-145 studies were active for cervical cancer and head and neck squamous cell carcinoma.
- A strategic alliance with MD Anderson, entered into in April 2017, provides for multi-year clinical and preclinical research, with company funding capped at approximately $14.2 million. The company had paid $1.4 million by June 30.
- Common shares outstanding were 62.7 million at June 30. The company also had 7.9 million Series B preferred shares outstanding, convertible into common stock, and substantial options and warrants; potential shares were excluded from diluted loss per share as anti-dilutive.
Outlook, risks, and unusual items
- Management expected R&D spending and cash use to rise during the remainder of 2017, 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 a $44.1 million first-half net loss and $36.3 million of operating cash use; continued losses are expected as development advances. Trial timing, enrollment, safety and efficacy, manufacturing capability and cost, competition, and commercial viability could affect outcomes.
- On April 10, 2017, the SEC announced settlements involving the company in a stock-promotion investigation. Securities class-action claims followed; one of two complaints was dismissed in July, and a lead plaintiff was appointed in the remaining matter. The company intended to defend the case, but said potential losses could not be estimated.
- A separate lawsuit by Solomon Capital and others seeks an unspecified amount exceeding $1.5 million; the company disputes the claims and has counterclaimed. The filing also describes potential rescission or damages claims related to certain 2016 warrant-share sales, for which no accrual was recorded because the amount could not be estimated.
- Other commitments include the NCI research agreement, requiring quarterly payments of $0.5 million through its extended term to August 2021, and potential PolyBioCept development, regulatory, and sales milestone payments, including cash and shares. Management reported no off-balance-sheet arrangements and no material changes to previously disclosed risk factors other than those described in the filing.
- Disclosure controls were assessed as effective at quarter-end; no material change in internal control over financial reporting was reported.
Key facts for investors to verify
- Current trial enrollment, progress, safety and efficacy data for LN-144 and LN-145, and the pace and cost of manufacturing expansion.
- Cash burn and remaining runway against management’s 12-month funding estimate, particularly as R&D spending increases.
- Potential dilution from preferred stock, options, warrants, and contractual milestone share issuances.
- Developments and possible financial exposure in the securities litigation, Solomon Capital case, and warrant-share matter.
- Timing and cash obligations under the MD Anderson, NCI, Moffitt, PolyBioCept, and Karolinska arrangements.