Iovance Biotherapeutics, Inc. — Q2 2018 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2018. Amounts below are in U.S. dollars; financial statement figures are converted from thousands to millions where appropriate.
Business context
Iovance was a clinical-stage biopharmaceutical company with no commercial products or business revenue. Its lead program, lifileucel (LN-144), is tumor-infiltrating lymphocyte (TIL) therapy for metastatic melanoma. The company was also developing LN-145/TIL for cervical and head and neck cancers, and pursuing TIL studies in lung cancer and other indications.
Financial results and liquidity
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development | $24.6m | $18.6m | $44.5m | $34.2m |
| General and administrative | $6.8m | $4.9m | $13.8m | $10.2m |
| Net loss | $30.7m | $23.4m | $57.2m | $44.1m |
| Net loss per share, basic and diluted | $0.34 | $0.37 | $0.65 | $0.71 |
| Net interest income | $0.7m | $0.2m | $1.1m | $0.4m |
Operating cash use was $41.8m for the first half of 2018, versus $36.3m a year earlier. Investing activities used $30.5m, chiefly for short-term investments; financing provided $172.9m, primarily from the January equity offering. Cash and cash equivalents were $246.0m at June 30, 2018, with another $30.1m in short-term investments. Working capital was $265.6m; stockholders’ equity was $270.6m. The filing reports no off-balance-sheet arrangements and no debt balance.
There is no meaningful operating margin to assess because the company had no revenue. The filing does not provide a clear gross-margin measure.
Changes versus prior year and notable items
- Q2 R&D expense rose 32% and first-half R&D rose 30%, reflecting greater clinical-trial activity, enrollment and sites, increased staffing and outside services. Higher manufacturing costs in 2017 and a research-alliance refund partly offset the increases.
- Q2 G&A expense increased 38% and first-half G&A increased 35%, largely from payroll and stock-based compensation, with higher professional and legal fees also contributing.
- First-half net loss increased by $13.1m year over year as development programs and corporate infrastructure expanded. Loss per share was lower than in 2017, alongside a larger weighted-average share count.
- In January 2018, the company sold 15.0m common shares at $11.50 per share, raising approximately $162.0m net. First-half common shares outstanding rose to 92.7m from 73.2m at year-end 2017. Series A and Series B preferred shares also converted into common shares.
- A $1.6m refund from Karolinska following termination of its clinical-trial agreement generated a $0.4m credit to the Q2 and first-half statement of operations. The filing also reports $9.3m of stock-based compensation for the first half.
Outlook, trials and risks
Management expected R&D and G&A spending to rise as clinical trials, manufacturing capacity and staffing expanded. The company did not expect product-sale or licensing revenue during 2018 or the following 12 months. It believed available funds would cover anticipated operating expenses for at least seven quarters from the filing date; this is management’s estimate, not a guarantee.
The Phase 2 C-144-01 melanoma trial had dosed its first patient in Europe, moved new enrollment to the Gen 2 manufacturing-process cohort, and increased planned enrollment to 85. The company reported preliminary results from head and neck and cervical trials in January; these were early, small-sample findings and subject to change. An investigator-sponsored NSCLC study was underway, and a company-sponsored study with MedImmune allowed LN-145 alone or with durvalumab. The company emphasized risks including trial enrollment and timing, safety and efficacy uncertainty, manufacturing consistency and scale-up, reliance on contract manufacturers and collaborators, regulatory approval, reimbursement, competition, and the need for future financing.
Material legal matters included securities class and derivative litigation related to the SEC stock-promotion investigation, the Solomon Capital dispute, and litigation with a former executive. The company said possible losses in several matters could not be estimated; it had not accrued a loss for certain uncertain claims. Management stated it did not believe pending matters would materially affect financial position, results or cash flows, but outcomes remain uncertain.
Most important facts for investors to verify
- Whether clinical-trial enrollment, response durability, safety and timelines support the company’s development plans; distinguish preliminary findings from mature data.
- Whether Gen 2 manufacturing can deliver consistent, timely, cost-effective supply and meet regulatory requirements as trials expand.
- Actual cash burn and runway relative to management’s seven-quarter estimate, including planned increases in trial and manufacturing spending and any need for additional capital.
- Potential dilution from outstanding options, warrants and convertible preferred stock, in addition to future financing; common shares outstanding were 95.6m at July 31, 2018.
- Developments and potential financial exposure in the disclosed litigation, for which some losses were not estimable.