As with most pre-revenue biotech companies, Iovance Biotherapeutics (IOVA 0.87%) has a lot to prove. With its cash reserves running low and its first therapies approaching their shot at reaching the market, hitting the ball out of the park would delight shareholders. However, striking out is a keen possibility, and there's more than one dimension where things could go awry.
So is Iovance a buy in light of its current opportunities and risks? To answer that question, let's start by mapping out what's on the company's plate and why that matters.
Catalysts abound, but they might not all be positive
The first thing investors should know about Iovance is that it could potentially have more than one drug on the market within the next couple of years, despite currently having none. Right now, the U.S. Food and Drug Administration (FDA) is thinking about whether to give the thumbs-up to its lead cell therapy program for treating melanoma, which is called lifileucel. They'll report back sometime on or before Feb. 24 of this year. That means the company could be reporting the first sales of the therapy as soon as the second quarter. This, along with the news of the approval itself, could be a massive catalyst for the stock.
As melanoma affects around 15,000 people in the U.S. per year, nabbing an approval should grant access to a sufficiently large market for the biotech to become profitable and self-sustaining. But it's also working on three other late-stage programs, which are testing lifileucel in the context of treating different cancers like cervical cancer, and in the context of getting treated with other synergistic medicines at the same time. So there could soon be multiple markets in play, which is a plus.
Manufacturing may be a bugbear
Despite Iovance's promising pipeline and the catalysts it has lined up, there is a significant risk that it will fail to reach profitability either temporarily or persistently after commercializing its cell therapies. The risk, which is common to cell therapy biotech stocks, is that its manufacturing process will be too cumbersome or expensive despite management's overtures to the contrary. Here's why.
Because it's a cell therapy, lifileucel is made of cells. But they aren't just any garden-variety cells. They're the industrially produced clones of a very special and rare type: Tumor infiltrating lymphocytes (TILs). As the name implies, TILs are naturally occurring cells of the immune system that, against all odds, are able to migrate into the inside of the tumor microenvironment, bypassing the tumor's external defenses. Once they're inside, they can fight the tumor more effectively than they might otherwise. But the catch is that under normal conditions, very few cells manage to infiltrate inside, so the overall level of efficacy is quite limited.
Iovance's idea is to take a sample of the patient's tumor via a biopsy, isolate the TILs, and then use its laboratory techniques to culture them into an army of billions. Then, the freshly grown TILs are chemically primed to perform their jobs vigorously, and infused into the patient, where they (hopefully) reinfiltrate the tumor and destroy it. The idea for such a therapy isn't new. But similar attempts have failed because TILs are so uncommon and their typical environment so inhospitable that they're difficult to find alive and healthy in sufficient quantities even for the purpose of cloning.
Iovance claims to have a manufacturing method that can work around those constraints. But the process takes around 22 days, and to administer the therapy, it needs to set up authorized treatment centers (ATCs) across the U.S. Those will be expensive to staff and operate. Patients need to stay in the hospital during the process due to the harsh chemical conditioning regimen necessary to prepare their systems to receive the TILs. And those patients are usually very ill to begin with, which means that there is an even lower chance of finding enough healthy TILs than normal. So in around 10% of cases, the manufacturing process fails, and must be repeated if possible.
Tread if you dare
There are a lot of clinical logistics, a lot of pricey overhead costs, and, at least in the context of pharmaceutical manufacturing, a lot of uncertainty inherent in each run of the manufacturing process for this company. Investors won't know if Iovance has what it takes to attend to those details while also (ideally) becoming profitable until after its first medicine has been on the market for at least a couple of quarters, so the risk will take a while longer to recede in comparison to a traditional drug product.
At the same time, it has more than $361 million in cash, equivalents, and short-term investments, and trailing 12-month (TTM) operating expenses of nearly $441 million. There's a lot riding on its late-stage programs. It'll need to take out more loans or issue more stock to pay for a year of its expenses relatively soon, and the terms for that fundraising will be much more favorable if it has approvals or strong clinical data in hand. So this is a risky investment.
But, given Iovance's exposure to near-term catalysts, the payoff could be significant for the daring investors who buy shares now. If the risk of losing your investment doesn't keep you up at night, invest away.
