SEC Filing Summary
Entity note: The supplied filing is Lion Biotechnologies, Inc.’s Form 10-Q for the quarter ended September 30, 2013, not a filing under the name Iovance Biotherapeutics, Inc. The company changed its name to Lion Biotechnologies on September 26, 2013.
Business context and reporting period
Lion was a development-stage biopharmaceutical company developing autologous tumor-infiltrating lymphocyte therapies for cancer. Its lead candidate was Cōntego for metastatic melanoma. It reported no revenue from inception through September 30, 2013 and did not expect product revenue in 2013. The statements are unaudited and cover the three and nine months ended September 30, 2013, with 2012 comparisons.
Financial performance and position
- Revenue: None in the third quarter or first nine months of 2013 or 2012.
- Net loss: Third-quarter loss was $9.409 million versus $0.674 million in 2012. Nine-month loss was $13.885 million versus $6.774 million.
- Expenses: Third-quarter operating expenses were $2.459 million versus $1.378 million; research and development was $250,000 in both periods. The quarter also included a $6.7 million noncash expense for the Lion transaction. Nine-month operating expenses were $3.673 million versus $5.004 million, and R&D was $770,000 versus $1.406 million.
- Loss per share: Reported basic and diluted loss was $0.66 for Q3 2013 versus $0.86 in Q3 2012, and $1.97 for the first nine months of 2013 versus $8.66 in 2012. Per-share figures reflect the 1-for-100 reverse split.
- Cash flow: Operating activities used $1.409 million in the first nine months of 2013 versus $2.241 million in 2012. Cash at September 30 was $129,804.
- Liquidity and liabilities: Current assets were $138,682 and current liabilities $3.509 million, producing a working-capital deficit of approximately $3.370 million. Total assets were $168,626; reported stockholders’ deficiency was $3.340 million, including an accumulated deficit of $44.569 million.
- Debt: A May 2013 restructuring converted approximately $9.268 million of principal, interest and penalties into 9,267,641 common shares. The balance sheet showed no promissory-note debt or derivative liabilities at September 30. Accounts payable and accrued expenses totaled approximately $3.509 million.
Material changes and significant transactions
- The May restructuring exchanged defaulted debt for equity, issued additional shares for cash, and included repricing and warrant-related issuances. The company reported that the restructuring extinguished its outstanding interest-bearing instruments.
- In July, the company acquired a non-operating Lion Biotechnologies entity for 1.34 million shares valued at $6.7 million, recorded as a third-quarter expense. A further 1.35 million shares were contingent on milestones; 675,000 were issued after the reporting date following the November financing.
- On September 26, the company changed its name, effected a 1-for-100 reverse stock split, and amended its articles, including increasing authorized common shares to 150 million and authorizing preferred shares.
- Third-quarter loss increased substantially, principally reflecting the $6.7 million Lion transaction expense and higher noncash compensation. Nine-month loss also increased year over year. The filing’s MD&A contains apparent numerical inconsistencies in its discussion of the year-over-year loss and transaction costs; the financial statements are the clearer source for reported totals.
Outlook, risks and contingencies
- Subsequent financing: On November 5, 2013, the company raised $23.291 million gross, or approximately $21.985 million net, through common stock, Series A convertible preferred stock and warrants. Management said the proceeds were expected to fund planned operations for at least 12 months, but estimated development and regulatory costs exceed available funds and additional financing may be needed.
- Going concern: The company had no revenue, a substantial working-capital deficit and ongoing losses. Its 2012 audit report raised substantial doubt about its ability to continue as a going concern; the filing states that continued operations depend on obtaining capital and eventually achieving sustainable revenue and profitability.
- Research and licensing commitments: The NCI CRADA requires $1 million annually in quarterly installments; $250,000 was due at September 30. NIH milestone payments could total $6.05 million for melanoma and $36.3 million across all four licensed indications if all milestones are achieved. The company reported $632,292 past due to NIH and said it was in default on that amount.
- Financing terms: The post-quarter preferred stock and warrants include conversion and exercise features, ownership limitations, and registration obligations. The filing estimated a $15.594 million deemed dividend associated with the preferred-stock conversion feature and warrants. Late registration could trigger cash payments to investors.
- Other risks: Management concluded disclosure controls were ineffective due to a material weakness involving insufficient segregation of accounting duties and expertise for complex transactions. The company reported no material change in that weakness during the quarter. It disclosed no material pending legal proceedings and no material changes to previously disclosed risk factors.
Investor verification points
- Confirm the issuer and filing identity: this is Lion Biotechnologies, Inc.’s 2013 Form 10-Q.
- Reconcile the reported loss comparisons and apparent MD&A errors against the financial statements and notes.
- Verify cash available after the November financing, offering costs, and subsequent share issuances, including the 675,000 earn-out shares.
- Review the preferred-stock conversion and warrant terms, potential dilution, registration deadlines and any related payment obligations.
- Confirm the status and payment plan for the $632,292 NIH past-due amount and the $250,000 CRADA obligation.
- Assess the company’s funding runway against planned clinical development, regulatory costs and the disclosed material weakness in financial reporting controls.