IOVANCE BIOTHERAPEUTICS, INC. annual report, FY2015

Business context and reporting period

This is Lion Biotechnologies, Inc.’s Form 10-K for the fiscal year ended December 31, 2015, filed March 11, 2016. The filing identifies the issuer as Lion Biotechnologies, not Iovance Biotherapeutics. The company was a clinical-stage biotechnology business developing tumor-infiltrating lymphocyte (TIL) cell therapies; it had no approved products or product revenue.

Its lead candidate, LN-144, was in a company-sponsored Phase 2 study for refractory metastatic melanoma, with enrollment opened in the second half of 2015. The filing describes LN-145 development for cervical and head-and-neck cancers; the FDA allowed its IND in February 2016, after the reporting year.

Financial results and position

Amounts below are in millions of dollars except per-share data. The filing reports annual results for 2015 and comparable periods, and quarterly results for Q4.

Q4 2015 net loss was $8.360 million, or $0.18 per share, versus a $4.651 million loss, or $0.17 per share, in Q4 2014. No quarterly revenue was reported.

At year-end, cash and cash equivalents were $13.642 million, money market funds $19.945 million, and short-term investments $70.113 million, totaling $103.700 million. Working capital was $102.3 million; total assets were $105.653 million and stockholders’ equity $104.023 million. Total liabilities were $1.630 million, all current; the contractual-obligations table reports no long-term debt. No operating margin is meaningful because the company had no revenue and incurred operating losses.

Investing cash outflow was $91.153 million, largely reflecting purchases of short-term investments; financing provided $78.267 million, including $68.307 million net proceeds from a March 2015 public offering and $9.705 million from warrant exercises. Year-end common shares outstanding were 48,547,720. Stock-based compensation was $8.523 million in 2015, including $6.275 million in G&A and $2.248 million in R&D.

Material changes versus the prior comparable period

• Net loss more than doubled from $12.035 million to $27.660 million as R&D spending expanded and corporate costs increased.
• R&D expense rose substantially, associated with the expanded NCI research agreement, the company’s research facility, and initiation of the LN-144 Phase 2 trial.
• Operating cash use increased to $18.381 million from $8.633 million. Financing proceeds and investment of the raised capital materially increased the year-end liquid-asset balance.
• Common shares outstanding increased from 33,750,188 at year-end 2014 to 48,547,720 at year-end 2015, reflecting equity issuance, warrant exercises, and other share activity.

Outlook, commentary, risks and unusual items

Management expected higher 2016 spending on clinical trials, research, staffing, and the NCI agreement, and did not expect product or licensing revenue in 2016. It believed available funds would cover anticipated operations for at least 12 months from year-end 2015, while stating that additional financing would be needed to complete development and commercialization. This was a liquidity estimate, not earnings guidance.

• The NCI CRADA was due to expire in August 2016; renewal was anticipated but not assured. The agreement required quarterly payments of $500,000, and the filing lists $8.0 million of CRADA minimum obligations assuming renewal and continuation for three years.
• A December 2015 MedImmune collaboration contemplated two Phase 2a combination trials using durvalumab with TIL, expected to begin in 2016. The company would fund and conduct the trials.
• Management cited clinical efficacy and safety uncertainty, patient enrollment, personalized manufacturing and supply risks, regulatory uncertainty, competition, and dependence on third-party manufacturers and collaborators. TIL treatment can involve serious toxicities associated particularly with lymphodepletion and high-dose IL-2; fatal complications were described as possible.
• LN-144 received U.S. orphan drug designation in 2015, which could provide seven years of exclusivity if approved for the designated indication, but does not expedite regulatory review.
• The SEC had issued a subpoena in 2014 in an investigation concerning stock promotions. The company said it had cooperated and completed its document production; the investigation remained ongoing, with scope and outcome unknown. The filing reported no other pending legal proceedings.
• The company reported that prior internal-control weaknesses had been remedied; management and the auditor concluded internal control over financial reporting was effective as of December 31, 2015. The financial statements and internal-control audit opinions were unqualified.

Important facts for investors to verify

1. Confirm the issuer identity and corporate-name context: this filing is for Lion Biotechnologies, Inc., although the request identifies Iovance Biotherapeutics.
2. Reconcile the filing’s liquidity figures: audited statements and multiple disclosures report $103.7 million of cash, money market funds, and short-term investments, while one MD&A passage states $103.2 million.
3. Track LN-144 Phase 2 enrollment, safety, feasibility, and response data; the NCI results cited in the filing are from externally conducted studies and are not company-trial results.
4. Verify progress and funding commitments for LN-145 and the MedImmune combination trials, and whether the NCI CRADA was renewed after its August 2016 expiry.
5. Assess cash burn, financing needs and dilution, including outstanding options and warrants, against management’s stated 12-month runway.
6. Monitor the SEC investigation and any subsequent developments, as the filing states its status and consequences were unresolved.