Business context and reporting period
Lion Biotechnologies, Inc. (the registrant named in this filing; ticker LBIO) filed this Form 10-K for the fiscal year ended December 31, 2016. The company was a clinical-stage biopharmaceutical developer with no approved products or operating revenue. Its lead candidate, LN-144, is an autologous tumor-infiltrating lymphocyte (TIL) therapy being studied in a Phase 2 trial for metastatic melanoma; the trial was enrolling at eight sites. The filing also describes development plans for cervical and head-and-neck cancers and research in other solid tumors.
Financial performance and position
| Metric | FY 2016 | FY 2015 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $28.0 million | $15.5 million |
| General and administrative expense | $25.6 million | $12.4 million |
| Net loss | $52.9 million | $27.7 million |
| Net loss attributable to common stockholders | $102.3 million | $27.7 million |
| Basic and diluted loss per share | $1.85 | $0.62 |
| Cash used in operating activities | $32.7 million | $18.4 million |
FY 2016 cash, cash equivalents and short-term investments totaled $166.5 million, versus $103.7 million at year-end 2015. Working capital was $164.5 million; total assets were $171.9 million, liabilities $5.0 million and stockholders’ equity $166.9 million. The balance sheet lists accounts payable and accrued expenses, with no debt reported. Margins are not meaningful given the absence of revenue.
Operating cash flow was negative $32.7 million; investing activities provided $8.9 million, largely from investment maturities, and financing activities provided $96.9 million. The company raised $100 million gross in a June private placement and received $95.7 million net proceeds. It recorded $18.9 million of stock-based compensation in 2016.
Changes versus the prior comparable period
- Net loss widened by $25.2 million year over year, while operating cash use increased by $14.3 million.
- R&D expense rose 81%, principally reflecting higher payroll, manufacturing, clinical-trial costs and PolyBioCept-related expenses. G&A expense rose 107%, largely due to stock compensation, including accelerated vesting upon executive departures, higher headcount, severance, consulting and legal costs.
- The common-stockholder loss includes a $49.5 million non-cash deemed dividend from the beneficial conversion feature of Series B preferred stock. This is why the common-stockholder loss is substantially higher than the $52.9 million net loss.
- At quarter level, Q4 2016 net loss attributable to common stockholders was $15.7 million, or $0.25 per share, compared with $8.4 million, or $0.17 per share, in Q4 2015. The exceptionally high Q3 2016 common-stockholder loss included the preferred-stock deemed dividend.
Outlook, risks and unusual items
Management expected R&D, clinical-trial, staffing and manufacturing spending to increase in 2017, and did not anticipate product-sale or licensing revenue in 2017. It stated that available funds were expected to cover anticipated operating expenses for at least 12 months from the filing date. This runway estimate depends on spending and development plans and does not assure future financing or profitability.
Management planned to report LN-144 Phase 2 updates in 2017 and, if results supported the approach, intended to discuss a potential registration path with the FDA. Trials of LN-145 in cervical and head-and-neck cancers and trials in pancreatic cancer and glioblastoma were also expected to begin in 2017. These are plans, not approvals or guaranteed timelines. Key risks include trial failure or delay, patient enrollment, serious treatment toxicities, regulatory uncertainty, manufacturing scale-up and chain-of-identity controls, reliance on contract manufacturers and research partners, uncertain reimbursement, competition, intellectual-property protection and the need for additional capital.
The company extended its NCI research agreement to August 2021, entered into new manufacturing arrangements with WuXi and Lonza, and licensed technology from PolyBioCept. Reported commitments included $9.8 million in non-cancelable purchase obligations, principally related to contract manufacturers; total contractual obligations were $14.1 million. Potential milestone and royalty payments under licenses were contingent and excluded from that table.
Legal matters include a proposed SEC settlement, not final as of the filing, involving a proposed $100,000 penalty and cease-and-desist order; the company accrued $100,000. A separate lawsuit sought more than $1.5 million, plus interest and attorneys’ fees; the company disputed the claims and filed counterclaims. The filing also identifies possible rescission or damages claims relating to sales of up to 128,500 shares using an ineffective registration statement; the exposure was uncertain and no accrual was made. Management stated it did not expect pending matters to materially affect financial position, results or cash flows.
Important facts for investors to verify
- Review subsequent LN-144 and LN-145 trial progress, safety, efficacy, enrollment and FDA feedback; the filing reports no company-sponsored Phase 2 efficacy results.
- Assess cash burn against the stated 12-month funding runway, planned expansion and the $9.8 million purchase commitments; confirm whether additional financing is required.
- Examine the $49.5 million non-cash preferred-stock deemed dividend and its effect on common-stockholder loss and per-share figures.
- Check manufacturing readiness, costs, capacity and dependence on WuXi, Lonza and other partners, as well as whether the process can be scaled consistently.
- Monitor resolution of the SEC matter and litigation, potential dilution from preferred stock, options and warrants, and the terms and milestones of licensing agreements.