Iovance Biotherapeutics, Inc.

Moat: 1/5

Understandability: 4/5

Balance Sheet Health: 2/5

Iovance Biotherapeutics, Inc. is a clinical-stage biopharmaceutical company focused on developing and commercializing novel cancer immunotherapies, specifically tumor-infiltrating lymphocyte (TIL) therapies for solid tumors, with a pipeline of both autologous and allogeneic cell therapies.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Iovance is a clinical-stage biotechnology company, meaning it does not yet have a commercially approved product. All revenue for now is contingent on them landing a deal or selling some assets. This creates uncertainty and adds to the importance of understanding their future cash flows.

Business Overview

Iovance Biotherapeutics, Inc. is a biotechnology company developing tumor infiltrating lymphocyte (TIL) therapies for solid tumors. The company’s approach centers around using a patient’s own immune cells, specifically T cells, to target and destroy cancer cells. This is achieved through a process of isolating T-cells, modifying them in-vitro, and then infusing them back into the patient. Iovance has two main types of TIL therapies: autologous TIL therapies (made from a patient’s own cells) and allogeneic TIL therapies (made from donor cells). The company has a commercialization plan centered on the melanoma approval.

Autologous TIL Therapies: Iovance’s lead program involves autologous TIL therapies, which are made from a patient’s own tumor-infiltrating lymphocytes. The process involves collecting the patient’s tumor tissue, isolating the T cells, activating and expanding them in a lab, and then re-infusing these cells back into the patient. The company is currently seeking approval for lifileucel for advanced melanoma, and has other autologous candidates in the clinical pipeline targeting several other solid tumors.
Allogeneic TIL Therapies: Iovance is also advancing allogeneic TIL therapies, which are made from a donor’s cells rather than the patient’s own. These therapies are designed to provide an off-the-shelf option for patients, and are aimed to have significant manufacturing and supply advantages.

Industry and Competitive Landscape

The pharmaceutical industry is marked by competition, complexity, and high uncertainty. While this is a very lucrative industry, due to high barriers for entry, companies that cannot create true value for the patients, will struggle to carve a moat for themselves.

Emerging Field: TIL therapies is an emerging field and is still in early stages of adoption. Hence, the number of firms working on it is still relatively small.
Competition: While there are companies working on cell therapies, there aren’t many that focus specifically on the TIL platform like IOVA. Many established biotech and pharma companies may also be interested in developing TIL therapies.
Partnerships: IOVA has entered into partnerships with large players in the health industry. However, those do not involve any licensing deals. They have also partnered with many academic institutions which also create more competition.
Barriers to Entry: Barriers to entry are not especially high in this space, because the manufacturing process of T cells is similar to other cell therapies.

Iovance’s Differentiation

Iovance’s unique focus on TILs, both autologous and allogeneic, for solid tumors sets it apart from some companies that focus on CAR T-cell therapies. They also don’t follow the “buy, then grow” model, but instead they work with patients’ own immune system, and if not their own immune system, it is a different strategy which has the potential to be better than the alternatives.

Focus on Solid Tumors: The majority of other cell therapies are targeted towards blood cancers, which have different challenges in clinical use.
Proprietary Process: While the core concept is similar to other cell therapies, the process and technology that IOVA is using is proprietary. They have made considerable investments in this.

Iovance’s Financials

Iovance is a pre-revenue company. Therefore, their financial position should be analyzed differently than an established company that has significant recurring revenues.

Revenues: The company has not generated significant revenues from product sales and they rely on financing and partnerships to fund their operations. They had zero revenue for 2021, 2022, and the first 9 months of 2023, but had small collaboration revenue in 2022 and 2023.
Expenses: Research and development expenses have historically been very high, given that IOVA is still pre-revenue. They increased in the years 2021-2023.
Cash position: Iovance has had a significant amount of cash in its balance sheet for years, however, this is starting to dwindle and it becomes important for IOVA to start bringing in revenue if it wants to remain a going concern.
Debt Levels: The debt level is low which does give a better outlook compared to its peers.

Iovance’s Moat: 1 / 5

While the technology is a novel one and the company has a strong pipeline of products, its current business model doesn’t lend well to having an economic moat. Here are the points why its moat is not strong and it gets a rating of 1/5.

No Pricing Power: IOVA is not selling anything in the market. However, even the best performing pharma companies do not have meaningful pricing power because governments and insurance companies have a very big say.
No Network Effects: TIL therapies are not really susceptible to network effects, as the treatment of one person will not influence the likelihood that any other person will have better outcomes. The benefit of treating a specific person will not increase with more users.
No Scalable Cost Advantages: Because of complex and individualized manufacturing processes, its unlikely that IOVA could achieve cost advantages which prevent competitors from being able to compete with them. Moreover, the T cell manufacturing and processing have a high cost.
No Switching Costs: There are little to no switching costs for patients, it’s easy for customers to seek other treatments, therefore they can switch from IOVA if it does not suit them well.
Intangible Assets are not Durable: IOVA has some key patents, however, those are not too unique, and other companies can come up with work arounds for the technologies, as has been seen. While the patents may keep other companies from copying exactly, they don’t give IOVA too much protection against others.
No Regulatory Moat: While they do need regulatory approval, which makes it difficult to launch these products, it is not very unique to IOVA.

Risks to the Moat

While the company’s underlying technology is unique, several risks could limit its moat and ultimately affect its viability. Here are some of the key risks to look out for:

Clinical Trial Failures: The results of clinical trials can be disappointing. Negative or unexpected results could jeopardize the viability of their products. There have been several clinical trial disappointments and failures in IOVA’s past.
Regulatory Delays or Rejection: Regulatory bodies may not approve IOVA’s products or the regulatory process may take a long time to complete. This would have big financial repercussions on the company.
Competition: Competitors with better or similar products are always a threat. While IOVA is a first mover in a novel field, competitors could create better versions of similar treatments.
Manufacturing Challenges: Scaling the manufacturing of cell therapies is extremely complicated and expensive, and any issues related to this could significantly harm the company.
Commercialization Risks: Because they are pre-revenue, there are major questions surrounding commercialization. Will the treatments be priced right? Will the sales efforts be enough?
Financial Risk: This is a high cash burn company which will need more capital, thus potentially leading to dilution.

Business Resilience

Though IOVA is a risky company due to lack of product sales, and the risks described above, it has shown resilience in some ways.

Novel Technology: IOVA’s focus is in a novel technology, and, if they are successful with it, they can command a lot of the market, especially because they are also focusing on solid tumors which are harder to treat.
Good Management: Management seems to have handled past problems well, and has a clear, and concise goal.
Solid Pipeline: The company’s pipeline appears quite good, and it has many treatment prospects that could pay dividends in the future.

Understandability: 4 / 5

Although there is a lot of complicated science involved, IOVA’s overall goal is very easy to understand which is creating and scaling novel therapies. Understanding Iovance’s business is complex and it gets a rating of 4/5 because:

Complex Scientific Processes: The specific scientific processes of TIL therapy are difficult for people to fully grasp.
Clinical Trials Are Complex: Investors are required to understand clinical trials and have expectations for a clinical stage biotechnology company. It also has to be monitored whether the products have shown positive results for their target groups.
Accounting: The accounting for biotechnology companies is inherently confusing, especially because companies at this stage can have volatile results.
Good Management Team: Although the business may seem complex, the management team is competent, and they are quite open about answering the questions.
No Revenue: As a pre-revenue company, there are no sales figures that can be followed which makes understanding the company a little more difficult.

Balance Sheet Health: 2 / 5

The balance sheet of Iovance is not strong, and this gives them a rating of 2 / 5.

High Cash Burn: Iovance is a high cash-burn business and requires a lot of capital. This means that the company may need to raise more debt in the future or dilute shareholders through equity raises.
Dwindling Cash Position: The amount of cash that IOVA has been keeping is going down over time.
Low Debt: The company has a low debt level, which is a good sign, but debt is a double edged sword for an early-stage biotechnology company, as it may bring much needed capital which is crucial for expansion, but may also increase financial risks and strain in cash flows.

The company’s latest quarterly report had shown a total cash and short term marketable securities of around $330.4 million. However, their operating expenses amounted to $123 million, which indicates they have around 2 and a half quarters worth of cash in the bank. There is no guarantee that those cash flows will stay this positive, so the company is always at risk of running out of money, and this uncertainty is reflected in the balance sheet health.

Recent Concerns and Problems

Recent data has shown that the company’s timeline for the approval for their main therapy has been pushed back. Investors have also showed their concerns regarding IOVA’s spending, and their ability to become a successful company. Here’s what management had to say.

Approval Delays: IOVA’s first regulatory approval for the TIL therapy for advanced melanoma has been delayed as the FDA has found some deficiencies in manufacturing practices.
Stock Price Volatility: IOVA’s stock has been quite volatile in the past year, as investors become weary of its profitability, which is a big problem for a company that does not have products on the market.
Burn Rate: Many investors are worried about IOVA’s high burn rate and whether it can make its way to the end goal and start generating meaningful revenue.
Management Comments: The management team has reiterated on multiple earnings calls that they are confident in addressing the deficiencies, and have mentioned that they are expecting product launch by the beginning of 2025. They also expect that costs related to manufacturing will come down in the near future.

Conclusion

Although Iovance is a company working on something promising and is working on the frontier of biotechnology, there are still many uncertainties which makes it an extremely risky investment. They are operating in an emerging field, which while promising, also has its own unique set of problems. The company does not generate significant revenues and relies heavily on outside capital to fund its operations. Even with the current cash balance, there are no guarantees that IOVA will be able to reach profitability which further increases the risk of the company failing.