There's a lot of excitement around Iovance Biotherapeutics (IOVA -0.78%) as its shares are up over 40% year-to-date. Investors and analysts both see even more upside for this mid-cap biotech stock in the long run. Today, however, the company remains deeply unprofitable, only recently obtaining approval from regulators for one of its treatments.
Below, I'll look at what the business may look like five years from now, whether it could be profitable, and if it's worth investing in the stock today.
Could more approvals be coming?
Iovance investors got great news in February when the Food and Drug Administration approved Amtagvi (lifileucel), the company's cell therapy for unresectable or metastatic melanoma. It's an important milestone for the business to have an approved treatment in its portfolio, and there could be more to come for Iovance.
The company has many ongoing trials involving lifileucel and another drug, LN-145, for other types of cancers; these include cervical, head and neck, and non-small cell lung cancer. Iovance has more than a dozen trials underway, and while many of them are in phase 1, within five years the company could have more approved treatments in its portfolio.
Investors, however, should be careful not to assume that as a given. Cancer drugs and treatments have much lower success rates in clinical trials than those in other therapeutic areas. This means that while obtaining one approval for Iovance is positive and encouraging, it doesn't necessarily suggest that more will follow.
Will Iovance's fundamentals look better in five years?
In its most recent earnings release, which covered the last three months of 2023, Iovance reported a net loss of $116.4 million. And while it has started to generate revenue (of $0.5 million), the company has a long way to go to get out of the red. Research and development (R&D) costs totaled $87.5 million last quarter while selling, general, and administrative expenses came in at roughly $30 million.
The challenge for the business is in scaling up its operations and advancing clinical trials, which get more expensive as they become larger and move into later stages. In 2023, for example, Iovance incurred R&D costs of $344 million versus $295 million in the previous year.
Now that Amtagvi has obtained approval, help is on the way. Analysts project that by 2029, the treatment may generate $846 million in revenue, and that eventually it will become a blockbuster drug. In those next five years, the company could become profitable, depending on how aggressively it spends on R&D and on how well the rollout of Amtagvi goes.
One concern, however, may be cash flow. Over the past three years, Iovance has burned through more than $882 million just over the course of its day-to-day operating activities. And last year, it used up $362 million, which was 24% more than in the previous year. Iovance finished 2023 with cash and short-term investments totaling just under $280 million, which clearly isn't enough to support that high rate of cash burn. The company announced a stock offering earlier this year, and it's likely that more offerings will be needed over the next five years.
Is Iovance stock a buy today?
I'm optimistic that Iovance's financials will look much stronger in five years, with the possibility that it will have another approved treatment by then. But getting to that point may be a bumpy ride, given the company's high cash burn and the likelihood that it may need to do multiple stock offerings during that time.
While this looks to be a promising healthcare stock, you may want to hold off on buying shares of Iovance until there's a realistic path to profitability and positive cash flow. At a hefty $3 billion valuation, there's already a bit too much optimism priced into the stock right now.
