Biotech stocks like Iovance Biotherapeutics (IOVA) often look appealing because they could experience enormous growth in relatively short periods of time. Plus, over the long term, successful biotech companies have the opportunity to blossom into larger and larger versions, sometimes eventually joining the ranks of big pharmaceutical companies. And if a patient investor can get in on the ground level, it might just be possible to turn a small investment into millions.
Is there such an opportunity with Iovance? Let's sketch out the path it would need to take.
Here's what would need to happen
Given its market cap of about $2.4 billion, the path for Iovance to make investors into millionaires is, at best, a very long one. Let's lay out a few assumptions about how much it needs to grow, then test to see if those assumptions are realistic.
First, let's assume that for many investors, committing about $25,000 in capital to this stock is the most that would be possible. With some dedicated dollar-cost averaging, it's feasible to build up a position of that size within a few years and still have enough money left over for investing in other things, not to mention paying expenses. Still, for an investment of that size to reach a value of $1 million, it would need to grow by 4,000%, which would occur if Iovance hit a market cap of $86.1 billion.
On its face, this market cap requirement isn't unattainable for a biopharma company, as many today are even larger than that. It would, however, imply that Iovance would become a major player among big pharma companies, almost as big as than Gilead Sciences is today. If we assume that its valuation metrics would be close to those of Gilead -- in the first quarter, a trailing-12-month (TTM) price-to-earnings (P/E) ratio of 16.2, and a price-to-sales (P/S) multiple of 3.1 -- we'll have guidelines for the earnings and revenue that would be needed.
In Gilead's case, for 2023, it reported revenue of $27.1 billion, and net income of $5.6 billion. As Iovance is just now in the process of launching its first medicine, its TTM sales were only $1.9 million, and it isn't profitable yet so it has no net income or P/E.
So the chance is close to zero that Iovance can grow enough to make its investors millionaires in the near term, even if its revenue and profits grow amazingly fast.
Zooming out doesn't help much
But what about the long term, say, 20 years from now? Right now, the biotech has seven phase 3 clinical trials that are either underway or planned, and an additional two that are in planning stages to enter phase 1. All of its programs pertain to treating various cancers.
It might indeed be possible for Iovance to increase its revenue by a tremendous amount during the next two decades, to the scale it would need to make investors into millionaires -- if 100% of those programs succeed and get commercialized, and they manage to penetrate all of their target markets, and Iovance's competitors pose no major threat to its market share. It would also need to develop and commercialize at least one or two more medicines that haven't currently been conceived.
But there is very little chance of that sequence of events happening.
Oncology medicines are among the most difficult to develop, and failure rates are high, even when testing medicines that are already approved to treat other cancers, as would be the case with Iovance's candidates. And there is speculation that the biotech is looking to develop medicines for non-small cell lung cancer (NSCLC) and melanoma, both of which are popular targets in the biopharma sector. There's simply no way there wouldn't be competition in these markets over a period as long as 20 years.
So Iovance Biotherapeutics probably isn't a millionaire-maker stock. Still, its first medicine is just starting to gain traction, and it has many opportunities to pick up additional indications for it along the way. If you're generally tolerant of the risks associated with biotech stocks, it could be a decent investment.
