It's an exciting time to be a shareholder of Iovance Biotherapeutics (IOVA 0.16%). Thanks to the recent launch of its flagship medicine, it's now accruing sales revenue for the first time ever, and there's plenty of growth on the way.
Still, the upstart biotech has to answer a couple of prickly questions about how viable its therapy will be to produce and distribute over the long term. There's a risk that it won't be able to do so. But within that same risk, there's also an opportunity for it to impress the market and its industry.
Let's take a look at how it might falter or succeed, and why.
This manufacturing risk can't be neglected
Iovance's line of business is developing cell therapies to treat cancers like melanoma, which it aims to treat with its first commercialized product, Amtagvi. In the second quarter, Amtagvi brought in $12.8 million in sales, and management expects a haul of up to $165 million in total revenue this year; it's just getting started with the commercialization process.
At the moment, its pipeline is packed with mid-stage programs testing its interventions against different conditions and in combination with other medicines. In their present iteration, its cell therapies require patients to donate some of their own native cancer-fighting cells to use as the starting material for manufacturing the treatment.
The donated cells are then cultured in one of its facilities until there are enough to constitute a dose, at which point they're shipped back to an authorized treatment center (ATC) and reinfused into the patient. Hopefully, the treatment works and the patient recovers afterward.
From an investment perspective, that process carries a handful of significant risks. The big-picture risk is that manufacturing the therapy this way will simply be too expensive for the company to be profitable. It incurred net losses of $97.1 million in the second quarter.
Building out the sterile manufacturing facilities and setting up ATCs across the country will not be cheap, nor will it be inexpensive to maintain the labor force and flow of raw materials necessary to operate the facilities. Shipping costs won't be cheap either, as cells need to be kept alive and reasonably healthy with specialized containers, and perhaps also equipment like freezers or incubators along the way.
And there simply aren't many places to realize cost savings; cutting any corners would imperil the quality of the cell-therapy product, which would be sure to draw the ire of regulators in short order.
Investors won't have any assurances that these issues can be handled profitably for at least a few quarters as Amtagvi continues to roll out. But the company will be making big capital expenditures anyway, in the hopes of getting enough cash flow later on. So that could dash some hopes for the stock climbing in the near term.
This manufacturing opportunity can't be denied
Just as the need for substantial specialized manufacturing resources is a risk for Iovance, it could be a big opportunity under the right conditions.
At first glance, the kind of cell-therapy manufacturing the biotech is doing doesn't seem to present any possibility of economies of scale. Each patient's sample must be handled individually so as to avoid contamination. Still, the more patients Iovance can treat at the same facilities, the lower the cost per dose will become. At its goal of being able to treat more than 10,000 patients per year, it would be getting a lot of mileage out of its investments in productive capital.
And it's hard to believe that the company wouldn't learn some rare techniques for juicing the most growth out of the cells it intakes at that point. While there's already a library of best practices for cell-therapy manufacturing, what Iovance is doing is far more scale- and operations-intensive than a series of manufacturing protocols executed in sequence, and that's where it could realize value.
The opportunity here is for it to essentially rewrite the book for being a cell-therapy manufacturer, gaining prestige and perhaps some new collaboration partners along the way.
In other words, Iovance could become a patient-derived cell-therapy manufacturing powerhouse in a way that no other business has succeeded in doing thus far. That's plausible because it's already effectively the world's leading expert at mass-scale manufacturing of the specific type of cells that it uses as its therapies, which are traditionally quite difficult to isolate and expand.
And, needless to say, if the company succeeds in realizing this opportunity, investors will likely see a significant upside. Keep an eye on its gross margin over the next year or so, as that will be the first sign of Iovance exhibiting a competitive advantage in biomanufacturing.
