Iovance Biotherapeutics (IOVA +1.58%) is a stock that many investors think has a lot of upside. A year ago, regulators approved its cellular therapy, Amtagvi, to treat unresectable (inoperable) or metastatic melanoma.
But although it now has an approved drug in its portfolio, Iovance's stock hasn't exactly taken off. In fact, it's been in free fall this year. And what's worse is that the sell-off may not be over. Here's a look at why investors may be concerned about the stock, and why it may not recover anytime soon.
NASDAQ: IOVA
Key Data Points
Short interest in Iovance has been rising
Pharmaceutical companies that are unprofitable and in the early stages of their development are often risky investments. And where there are high-risk stocks, there are often short-sellers betting against their success. In Iovance's case, the percentage of short-sellers with respect to its float -- the number of shares available for public trading -- has been rising a lot in the past year:
IOVA Percent of Float Short data by YCharts.
Short-sellers hope to profit by borrowing shares, selling them, and repurchasing them at a much lower price for return to the lender. They're betting that the company will do worse in the future and its valuation will deteriorate, dragging the shares lower. And that has indeed been happening; as of April 22, Iovance's stock had declined by about 57% since the start of the year.
And while it may seem like it's a worthy buy on the dip, you shouldn't assume it has bottomed out.
Poor cash flow could result in more dilution for shareholders
Iovance may seem like it should be a relatively safe pharma stock to hold, given that it has an approved drug in Amtagvi. But the problem is that the drug will take time to commercialize. And while it might generate $1 billion in annual revenue, that may not be until 2030.
In the meantime, the company is burning through a lot of cash:
IOVA Cash from Operations (Quarterly) data by YCharts.
Iovance's cash burn hasn't improved in recent years, and the situation may not get better anytime soon. While it did have cash and short-term investments totaling $323.8 million as of the end of 2024, it could chip away at that cushion over time.
The company has relied on issuing stock to fund its operations over the years -- and that's a pattern that may continue for the foreseeable future. As long as Iovance's cash burn remains high, shareholders should brace for the possibility of more dilution and a declining valuation to follow.
Is Iovance Biotherapeutics a stock worth taking a chance on?
Iovance's market cap of just $1 billion could entice you to take a chance on the healthcare stock. But before you consider doing so, you should be aware of the risks. Amtagvi is a promising treatment, but it could take years before it's bringing in a considerable amount of money for the business and enough for it to become profitable; Iovance reported a net loss of $372.2 million last year.
For most investors, Iovance Biotherapeutics may still be too risky to own at this stage. Unless you're willing to hang on for a number of years and can stomach the high volatility that comes with owning the stock, you may be better off passing on Iovance for now.
