Business context and reporting period
Lion Biotechnologies, Inc. (the company identified in the filing; not named Iovance in this 2014 report) filed this unaudited Form 10-Q for the quarter ended September 30, 2014. It was a development-stage biotechnology company developing autologous tumor-infiltrating lymphocyte (TIL) therapies, initially focused on metastatic melanoma. It had no commercial products or revenue.
Financial performance and position
| Metric | Three months ended September 30, 2014 | Nine months ended September 30, 2014 |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $2.803 million | $7.172 million |
| Net loss | $2.798 million | $7.168 million |
| Basic and diluted loss per share | $0.11 | $0.30 |
For the comparable 2013 periods, revenue was also zero; net losses were $9.409 million for the quarter and $13.885 million for nine months. No meaningful revenue margin was reported because the company had no revenue.
At September 30, 2014, cash and cash equivalents were $17.190 million, working capital was $15.972 million, total assets were $17.417 million, and stockholders’ equity was $16.158 million. Current liabilities were $1.259 million; the company reported no long-term debt. Cash declined $2.483 million from December 31, 2013.
For the first nine months, operating cash use was $5.318 million (versus $1.409 million in 2013), investing cash use was $166,000 (versus $13,000), and financing cash provided was $3.002 million (versus $1.552 million). Financing proceeds in 2014 came from warrant exercises. The filing reports no off-balance-sheet arrangements.
Changes versus the prior comparable period
- Quarterly operating expenses were broadly unchanged year over year, but included $939,000 of share-based compensation versus $2.140 million in 2013. Management said underlying operating costs excluding that noncash compensation rose with increased activity, staffing, legal work, and the Tampa facility.
- Nine-month operating expenses increased to $6.154 million from $3.673 million, reflecting expanded operations and staffing; research and development expense rose to $1.018 million from $770,000.
- The lower 2014 net losses compared with 2013 primarily reflect the absence of the $6.700 million Lion merger charge. The 2013 nine-month loss also included a $2.296 million noncash exchange-transaction charge and $446,000 of interest expense, neither of which recurred in 2014.
- Common shares outstanding increased to 27,639,688 at September 30, 2014 from 20,023,958 at December 31, 2013. Warrant exercises generated $3.002 million and issued 1,200,730 shares during the nine months.
Outlook, risks, contingencies, and unusual items
- Management anticipated no product-sale or licensing revenue for the remainder of 2014 or in 2015, continuing losses, and higher research, payroll, manufacturing, and facility costs. Its 2015 operating budget anticipated approximately $12 million in expenditures, subject to change.
- Management believed September 30 cash would fund planned operations for at least 12 months, but stated that additional capital would be required to complete development and obtain regulatory approvals. It expected to seek financing, including securities sales and potential strategic alliances.
- The company was establishing a Tampa research facility, expected to be available by year-end 2014, and expected roughly $4 million of costs over two years for its construction, furnishing, and operation. It also planned a centralized TIL manufacturing center with Lonza; the cited statement of work totaled approximately $738,000.
- Under its NCI research agreement, the company owed $250,000 quarterly through August 2016. NIH license terms include sales royalties and milestone payments; the filing cites up to $6.05 million for melanoma and $36.3 million across four licensed indications if all benchmarks are achieved. Management was discussing possible changes to its NIH licenses; outcomes and resulting costs were uncertain.
- The company had received an SEC subpoena in an investigation concerning stock promotions. The subpoena did not establish whether the company was a target. The company said it had completed its document production and was cooperating; further requests, legal expense, management distraction, or enforcement action remained possible.
- A former sublandlord’s lawsuit was settled after quarter-end for $110,000, paid by the company; the amount was accrued at September 30. The filing reports no other pending legal proceedings.
- Management concluded disclosure controls were effective as of September 30, 2014, and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the company’s cash runway against actual subsequent spending, financing, and the stated 2015 budget; the 12-month runway estimate is management’s view, not a guarantee.
- Track TIL clinical and regulatory progress, Lonza manufacturing readiness, and the timing and cost of the Tampa facility build-out.
- Review any updates on NIH license discussions, milestone obligations, and the Moffitt license’s fees, royalties, and milestones.
- Check for developments in the SEC matter, including any additional requests or proceedings, and confirm the settlement payment and dismissal of the Theorem Group lawsuit.
- Assess dilution from outstanding securities: at September 30, 2014, warrants covered 11,172,426 shares, options covered 1,098,750 shares, and preferred stock was convertible into 2,847,000 shares; these were excluded from diluted loss per share as anti-dilutive.