Investing in penny stocks -- companies with share prices under around $5 apiece -- could lead to monster returns over the long run. The flip side is that these corporations tend to carry above-average risk. It's challenging to determine which penny stocks might go on to deliver excellent performances and which will fade into utter insignificance.
Perhaps looking at the opinion of Wall Street analysts can help. Many who cover a little-known biotech company called Iovance Biotherapeutics (IOVA 11.66%) are bullish on the stock. The drugmaker hit its 52-week low of $1.64 a few weeks ago, although it has rebounded somewhat since. Still, at $2.23 per share as of this writing, Iovance's average price target of $10.70 (according to Yahoo! Finance) implies an upside of almost 380%.
But before you rush to purchase Iovance stock, let's dig in a little more and figure out whether it's worth your money.
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What it would take for Iovance's shares to soar
The biotech industry is volatile: A smaller drugmaker's shares can double -- or more -- in a year if enough things go its way. For Iovance Biotherapeutics, several things would have to happen for the cancer specialist to turn its recent misfortunes around and see its stock price skyrocket.
First, Iovance would need to report better-than-expected financial results -- always a recipe for success for any company. But during its first quarter, Iovance cut its revenue guidance for the fiscal year 2025.
The ramp-up of the company's most important product, melanoma (skin cancer) medicine Amtagvi, isn't going as well as Iovance had hoped. Amtagvi was first approved last year, marking a breakthrough as the first medicine of its kind to receive approval in the U.S. for advanced melanoma. The science behind it is quite impressive: Amtagvi is manufactured from patients' own tumor-infiltrating lymphocytes (TILs), a kind of white blood cells that target and kill cancer cells.
Here's the drawback: Amtagvi can only be administered in authorized treatment centers (ATCs), and the manufacturing process for the medicine takes 34 days. Iovance revised its guidance downward because it had miscalculated the timing of its ATC network expansion. However, if the biotech can report stronger results than Wall Street currently expects over the next year, it would indicate that the launch of Amtagvi is accelerating, sending the company's shares higher.
Second, Iovance is seeking approval for its leading product in other regions, including Canada, Europe, and Australia. Consistent wins on this front might also jolt the stock price.
Third, Iovance is testing Amtagvi across a range of other targets, including non-small cell lung cancer, which represents a large market. If the company can deliver positive mid- or late-stage data in these ongoing clinical trials for its crown jewel, that too could send the stock price soaring.
Finally, Iovance is facing a class-action lawsuit for alleged securities fraud. It's challenging to envision how that could be resolved within the next 12 months. However, if the company can overcome this headwind, it would remove one significant risk it faces.
Consider all the risks
Iovance Biotherapeutics has significant upside potential due to the genius of its TIL platform and Amtagvi's sales trajectory. Although it reduced its guidance, Iovance still expects to generate $275 million (at the midpoint) in product revenue in 2025, almost entirely from Amtagvi. That's not bad for a medicine that was approved just last year. And when we add potential label expansions and launches into new territories, Amtagvi almost looks like a lock to eventually become a billion-dollar-a-year therapy.
Even so, there are significant risks associated with the stock, especially given the challenges of administering Amtagvi. Iovance may face clinical and regulatory setbacks, and the outcome of the lawsuit is uncertain.
With all that going on, it seems unlikely that Iovance Biotherapeutics will get anywhere close to $10 per share in the next 12 months. In fact, it's not clear whether the stock will move in the right direction at all. I believe investors should steer clear of this company.
