Last year, Iovance Biotherapeutics (IOVA -3.52%), a small-cap biotech, made a major breakthrough. The company earned approval for Amtagvi, which became the first medicine of its kind to receive regulatory approval for advanced melanoma.
However, Iovance's shares have been southbound ever since. And in this year alone, the stock has declined 69%. The company is hoping that clinical and regulatory progress can help it recover, but how likely is that to happen? Let's find out.
The Amtagvi problem
At first glance, Iovance appears fairly valued. Its market cap is $832 million, while it expects to bring in between $250 million and $300 million in revenue this year. Assuming it will generate $300 million over the next 12 months, and using the company's market cap of $832 million, we arrive at a forward price-to-sales ratio of around 2.8, which is reasonable for a small-cap, unprofitable biotech company.
How reasonable is this sales forecast? Very, considering Amtagvi just earned approval in Canada as well. Even in the U.S. alone, the medicine still has plenty of room to grow, considering it was only launched last year, and there are 8,000 patients who die every year from melanoma in the country. Even though they aren't all eligible for Amtagvi, the medicine has recently surpassed the mark of 100 patients treated per quarter. There's certainly more room for growth for the therapy, given its progress over the past and its recent approval in Canada.
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Despite Iovance's prospects with Amtagvi, though, the company's shares remain southbound. One major problem with the therapy is that it's complex to administer: Amtagvi is manufactured from patients' own tumor-infiltrating lymphocytes (TILs, a type of cell that can recognize, attack, and kill cancer cells). The manufacturing process for the medicine typically takes 34 days. Even with strong revenue prospects, the market may be worried that Amtagvi's economics will make it challenging for the company to become profitable.
It's also worth noting that earlier this year, Iovance revised its guidance due to an error in estimating the timing of activating authorized treatment centers (ATCs) where Amtagvi is administered. Similar challenges could continue plaguing the company for the foreseeable future.
Iovance's prospects look bleak
Iovance Biotherapeutics has more potential catalysts on the way. First, Amtagvi could earn approval in even more countries. Beyond the U.S. and Canada, the company is also seeking to launch its crown jewel in the U.K. and Australia. That would expand Amtagvi's addressable market.
Second, the medicine could also receive some label expansions. Amtagvi is being investigated in clinical trials across several other forms of cancer, including cervical, endometrial, and non-small cell lung cancer, among others. These new indications could be significant.
Iovance is already establishing a network of ATCs for Amtagvi. Once the medicine can be prescribed for additional uses, it will be easier and less expensive for the company to ramp up commercialization efforts across new indications. That could lead to strong revenue growth while keeping the company's expenses in check, thereby boosting the bottom line.
But is that enough for Iovance's shares to bounce back? A lot would have to go right for the company to execute this plan near-flawlessly. And if it encounters further setbacks -- such as regulatory or clinical roadblocks, or downward guidance revisions -- the stock will likely plunge.
For what it's worth, Wall Street thinks Iovance Biotherapeutics is currently undervalued relative to its prospects. Analysts' average price target of $9.10 (according to Yahoo! Finance) implies an upside of about 295% from its current levels. Iovance's shares could soar if everything goes right for the company.
However, there's significant risk associated with the stock, enough that only those with a large appetite for volatility should consider initiating a position in the biotech today. I think the company is unlikely to bounce back, but if it does, it could deliver outstanding returns along the way.
