Business context and reporting period
This Form 10-Q covers the quarter and nine months ended September 30, 2016. The filing issuer is Lion Biotechnologies, Inc. (the company identified in the request as Iovance Biotherapeutics). Lion was a clinical-stage biotechnology company developing autologous tumor-infiltrating lymphocyte (TIL) therapies; it had no commercial products or revenue.
Financial results and liquidity
Amounts below are in millions of dollars, except per-share data. Revenue was zero in both the 2016 and 2015 periods, so profit margins are not meaningful.
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Research and development expense | $8.5 | $5.0 | $17.2 | $11.4 |
| General and administrative expense | $10.5 | $2.7 | $20.5 | $8.0 |
| Net loss | $18.8 | $7.6 | $37.2 | $19.3 |
| Net loss attributable to common stockholders | $68.2 | $7.6 | $86.7 | $19.3 |
| Loss per common share, basic and diluted | $1.15 | $0.16 | $1.64 | $0.44 |
The greater loss attributable to common stockholders includes a one-time, non-cash $49.5 million deemed dividend tied to the Series B Preferred conversion feature. Operating losses and expenses also increased. Stock-based compensation was $15.8 million for the first nine months of 2016, versus $5.8 million a year earlier, including $14.0 million in general and administrative expense.
At September 30, 2016, cash and cash equivalents were $92.9 million, short-term investments $86.4 million, working capital $177.4 million, and stockholders’ equity $179.1 million. The company reported no material debt balance in the presented balance sheet. Nine-month operating cash use was $20.5 million, compared with $11.8 million in 2015; investing cash use was $16.9 million, compared with $80.3 million; and financing provided $96.7 million, primarily from the 2016 private placement. Cash and cash equivalents increased $59.3 million during the period.
Material changes and business developments
- R&D expense rose 71% in the quarter and 51% for the nine-month period, reflecting expanded development activity, facility expansion, initiation of a Phase 2 trial, and $2.4 million of PolyBioCept-related expense in the quarter.
- G&A expense rose 291% in the quarter and 157% year to date, driven in part by increased staffing, executive departure-related costs, and higher stock-based compensation.
- In June, the company completed a private placement of common and Series B preferred shares for $100 million gross proceeds and approximately $95.7 million net proceeds. Series B became convertible at $4.75 per share after shareholder approval in August; 3.42 million shares had converted to common by September 30, leaving 7.95 million Series B shares outstanding.
- The NCI collaboration was extended through August 2021, with quarterly payments of $0.5 million. A September PolyBioCept license included an upfront payment and potential additional cash and share milestones.
Outlook, risks and contingencies
Management anticipated no product or licensing revenue in 2016 and expected continued losses and higher R&D spending, particularly in 2017 as clinical trials, staffing, manufacturing, and NCI collaboration work expanded. Management stated that available funds were expected to cover anticipated operating expenses for at least 12 months from the filing date. Planned programs included a Phase 2 TIL trial in cervical cancer and one in head and neck cancer in 2017, plus Karolinska Phase 1 trials in glioblastoma and pancreatic cancer.
Key uncertainties include clinical efficacy and safety, trial enrollment and costs, manufacturing capability, regulatory approval, and future financing needs. The filing describes a proposed SEC settlement involving the company’s former CEO; terms and SEC approval were not final. A separate lawsuit seeks an unspecified amount exceeding $1.5 million, plus interest and fees; the company is defending the claims and pursuing counterclaims. The company also disclosed potential rescission or damages claims related to sales of up to 128,500 shares using an ineffective registration statement; no loss accrual was recorded because the amount could not be estimated. Future minimum operating lease payments totaled $2.6 million.
Important facts for investors to verify
- Progress, enrollment, safety, and results for LN-144 and other planned TIL trials, including timing of the 2017 studies.
- Cash burn relative to the $179.3 million of cash and short-term investments, and whether management’s stated funding horizon remains valid as spending rises.
- Potential dilution from outstanding Series B preferred stock, options, warrants, and restricted stock units, including the terms and timing of conversions or exercises.
- Milestone, payment, and termination obligations under the NCI, PolyBioCept, and Karolinska arrangements.
- Resolution and potential financial impact of the SEC matter, Solomon Capital litigation, and possible claims tied to the 128,500 share sales.