Depending on which facts you choose to focus on, you could have widely varying opinions on Iovance Biotherapeutics (IOVA 0.87%). From one perspective, it's an ailing biotech that's facing down the specter of serious -- potentially existential -- risks inherent to the focus of its scientific platform. In the sunnier view, it's a budding biotech that's on the verge of blasting off as a result of its sensible yet aggressive drug development.
Which narrative will carry the day? Charting a course for this stock over the next couple of years requires appreciating what challenges and opportunities the company is facing, as well as understanding which facts will be the most relevant for its financial performance.
One big risk is now in play
Iovance's shares are down by 82% over the last three years, and it doesn't yet have any internally developed medicines on the market. It may also face a bumpy road in moving at least some of its candidates to the commercial stage as a result of a recent tragedy.
In late December, the company disclosed that the Food and Drug Administration (FDA) had mandated a hold on one of its phase 3 clinical trials investigating the utility of its cell therapy candidate LN-145 in treating non-small cell lung cancer (NSCLC) after a patient in the trial died.
The patients in the study were in a very vulnerable state of health. They were only eligible if they were still not in remission after two rounds of chemotherapy and a round of treatment with a specific modality of immunotherapy. In a press release, the company said the death was "potentially related to the non-myeloablative lymphodepletion pre-conditioning regimen," which means the arduous process of preparing for the infusion may have been too much for the patient who died.
Nonetheless, that is not reassuring. Management says that the clinical hold is not impacting its other late-stage clinical trials, nor its therapy candidate for melanoma, LN-144, which is awaiting an FDA approval decision by late February. But it is difficult to believe that the concerns about LN-145 won't have any impact on the company's other efforts, as most or perhaps even all of Iovance's cell therapies rely on such conditioning regimens.
The consequences of intensified regulatory scrutiny this late in the game could be significant, and negative for shareholders. The biotech is conducting 14 mid- to late-stage clinical trials on cell therapy candidates intended for use in cancer. Each one could in theory be a positive or negative catalyst for the stock, depending on whether it advances through the process or not. And while it is very unlikely that the FDA will put the kibosh on all of Iovance's trials at once due to the risks involved in the conditioning process, it is faintly possible.
What is more likely is that the FDA will eventually allow the trial to continue, but request tighter eligibility criteria for patients being evaluated for treatment, thereby slightly reducing the size of the addressable market for one or all of Iovance's therapies. Investors probably won't be pleased with that outcome, as it would imply a downward revision of the company's projected earnings from sales of any therapies it commercializes. However, if regulators give the thumbs up to the melanoma program, it might not matter, as the stock will soar.
There's an opportunity here, but you aren't obligated to bet on it
However those upcoming FDA decisions turn out, they will have long-lasting consequences for Iovance.
Currently, Iovance has a bit over $361 million in cash, equivalents, and short-term investments on the books. The trouble is that its trailing 12-month operating costs were close to $441 million. The company is in a race against time to commercialize a medicine and start generating cash. If the FDA's process leads to delays, that will mean more money getting burned before Iovance has a chance at making revenue. Under those circumstances, management will have to raise more capital by either issuing new stock, thereby diluting its prior shareholders, or by taking out fresh debt, both of which are viable options in this case.
Getting its melanoma program approved would be huge, as it'd mark the first approval of a cell therapy for a solid tumor indication. The company would start to make sales for the first time, and it might even be profitable by early 2025. On the other hand, it can probably survive a pretty serious regulatory setback and still go on to flourish due to its many pipeline programs and ability to borrow enough to get them out the door.
That means if you're a risk-tolerant investor, there is an opportunity to gain big here. But if you don't think you could stomach taking a 20% haircut overnight as a result of regulatory action, look elsewhere for investment options.
