Iovance Biotherapeutics: Riding The Favorable Moment Could Bring Excellent Results (NASDAQ:IOVA)

Iovance Biotherapeutics (NASDAQ:IOVA) is going through a favorable moment which began in the second half of February following an accelerated FDA approval for its melanoma drug Amtagvi and the pricing of an underwritten offering. By analyzing the company foundations, we can underline that, beyond the approval by the regulator, there is an unsatisfied market demand regarding metastatic melanoma and that the company has developed and integrated its production capacity internally. It is also planning commercial development in a targeted and sustainable manner in the medium term. Significant financial capacity also achieved thanks to the latest capital injection, can also allow operations to be controlled without problems for more than a year. Last but not least, an increase in insider ownership of more than 50% could imply strong confidence in future company results.

Business Overview

Iovance Biotherapeutics (IOVA) is a biopharmaceutical company focused on developing tumor-infiltrating lymphocyte [TIL] -based cancer therapies. This is an innovative approach that uses the patient’s immune system to fight the disease.

Iovance business key point:

• Focus: Develop TIL therapies for different types of solid tumors.

• Technology: Iovance has a property platform called “Iovance TIL” that allows tumor-infiltrating lymphocytes taken from a patient to be isolated and grown, then reinfused into the same patient to enhance their immune response against cancer.

• Approved Product: FDA approval for Lifileucel in advanced melanoma (approved on Feb. 16, 2024).

• Goals: Iovance aims to become a “global leader” in the development and delivery of TIL therapies for cancer patients.

• Founded in 2007 with Headquarters in San Carlos, California, United States.

Investing Buy Thesis

Large Market Opportunity in Unmet Need Cancers

Based on the fact that solid tumors represent more than 90% of all diagnosed cancers in the US and Iovance is the leader in T-cell therapy (a type of immunotherapy that involves taking a patient’s T cells, a type of white blood cell crucial for fighting infection, and modifying them in a lab to make them better recognize and destroy cancer cells), Market data says that there are, on an annual basis, 15k new cases of advanced melanoma in the US.

As said by Jim Ziegler (Executive Vice President, Commercial):

Each year, approximately 8,000 people in the US die from melanoma. Until now, there have been no FDA-approved treatment options for patients with advanced melanoma, whose disease progressed following an immune checkpoint inhibitor and if appropriate, a targeted therapy. For these patients, Amtagvi ushers in a new era for the melanoma treatment landscape as a one-time cell therapy that is manufactured specifically for each patient to address a significant unmet need.

To date, AMTAGVI (lifileucel) is the first and only one-time, individualized T cell therapy approved by the FDA for a solid tumor cancer and this represents an absolute market opportunity to enter a virgin and almost unexplored market.

Proprietary Manufacturing Facility

AMTAGVI and all other T-cell therapy-related products in development are entirely manufactured and engineered through in-house and proprietary manufacturing facilities. Even the entire process involving the collection of T cells from the patient’s body, their multiplication, and new infusion into the patient’s body for treatment is managed within the company.

The company production plant called iCTC (Iovance Cell Therapy Center) has been approved by the FDA for the production of commercial products and this, together with other small producers with production agreements, represents the current production capacity capable of meeting the needs of medical care of several thousand (5000 today which can double in the coming years) patients per year.

The strategy of remaining owners of the production process, at least in this first commercial phase, represents, in my opinion, a high competitive advantage over competitors and a certain favorable element for company profitability.

The company is so committed to the production process that it didn’t wait even a day to begin the first step on the very first day of authorization (as we can read from the last earnings call):

the first tumor resection occurred on the first business day of the approval and commercial manufacturing of Amtagvi is officially underway. We are currently staffed to meet the anticipated needs of our US launch, as well as our ongoing and planned clinical trials.

Commercial strategy is an ongoing implementation

At the beginning of March 2024, shortly after the approval of the drug by the FDA, 20 patients were included in the therapeutic process with 10 of them having a production slot scheduled for all intents and purposes.

In addition, all the activated ATCs (Authorized Treatment Centers) could precisely identify at least one patient eligible to be included in the process. The same ATCs are also activated for the financial settlement relating to the reimbursement, which includes all the prior authorizations (already started) and the timely discussion of each case subject to reimbursement.

The company goal is to double the active ATCs (up to 50 units) by May with a 150% upgrade in just 3 months. This will allow the company to consolidate its active presence in treatment and potentially reach a significant share of patients treated across the entire country.

Concerning the payment and reimbursement methods, as we can read in the latest earnings call:

About three-quarters of our payer mix has strong coverage in reimbursement. This includes 55% commercial and in Medicare, 4% or IPPS exempt where these centers are reimbursed their cost and 70% are Medicare Advantage. So I would say that we have a lot of tailwinds in terms of coverage. And right now, initial indications, granted, we’re very, very early on in launch, is that coverage seems to be appropriate and payers our ensuring access at this moment.

This lays the foundations for a covered start in terms of payments, which in turn allows us to face the economic and financial path of the next quarters with good serenity.

Pipeline being consolidated and developed

The most advanced study concerns the Phase 3 study on front-line advanced melanoma (TILVANCE-301) which obtained accelerated approval from AMTAGVI. It should be underlined that the scope of this study does not only concern the US market but also has Europe, Australia, and Canada as its field of application and this represents a potential expansion of the market beyond the US borders probably starting from 2025 or beyond.

The other program that certainly deserves an honorable mention is the one relating to the single arm IOV-COM-202 on post-anti-PD-1 non-small cell lung cancer which is currently in Phase 2. In this program, the company’s goal is to complete the registration phase with the FDA by 2025. This program could also represent an excellent commercial development opportunity in the medium term

Taking a look at the Next Generation also in this sector, the company is starting a Phase 2 study on post-anti-PD-1 endometrial cancer. At the time it is too early to express a registration lead time but the company planning (in terms of development and research) could be seen as fine and has a good perspective even in the long term.

Financial

As stated in the last Quarter the unaudited cash position is equal to $485.2M and this figure also includes $197.1M for underwriting and other offering expenses from the financing in Feb 2024.

Again from the data of the latest form 10-K, we can record that Research and development expenses were $344.1M while Selling, general, and administrative expenses were $106.9M for a total of operating costs of approximately $451M.

This data provides us with the input that the company can operate for more than a year without having to resort to further capital injections.

About Revenue, it should also be underlined that the launch of Amtagvi together with the sales of Proleukin should bring significant positive momentum starting from the end of 2024 and throughout 2025 and this could allow the company to operate with sufficient capital until 2025.

Ownership and Insider trading

As we can see from the following graph, insiders own 10.4% with 29.16M shares of the equity, but the most interesting thing concerns the share purchases that occurred in the last 3 and 6-9 months equal to 10.29M shares. This identifies that insiders have increased their net position by more than 50% in recent months. This data allows us to understand how insiders’ belief in the possible appreciation of the stock can be very strong.

Share Price Valuation

Using the P/B ratio to compare IOVA (P/B equal to 6.5) with the reference average of the Biotech industry (P/B equal to 2.3) we can see how the company could be seen as expensive. The P/B ratio is almost triple when compared to the industry. A similar result is obtained by restricting the comparison with the closest peers (P/B equal to 3.1) in terms of the reference market. In this case, IOVA represents almost double. According to the P/B comparison, the share price appears to be expensive.

EPS Growth Model

Assuming a possible future growth in revenue in the next few years, an achievable goal of the order of $400M could be defined, assuming a 10% adoption of Amtagvi on 8K potential patients. This figure could be achieved within 12 months and could lead to positive EPS growth starting from 2026 or 2027. Based on these parameters and assuming an EPS close to zero but positive in 2027 and growth of 50% per year (which is in line with what has been recorded in the past and forecasted by analysts) we could use a formula by popular investor Benjamin Graham:

Intrinsic value per share = EPS x (8.5 + 2 g)

Where

EPS = earnings per share

g = EPS growth rate = 50%

Example of calculation for 2027:

Intrinsic value per share = EPS x (8.5 + 2 g) = 0.1x(8.5+2×50) = $10.85

Based on these hypotheses, the share price currently incorporates a value that can be reached in 2028. If the trend continues in subsequent years, we can hypothesize a double-digit return on investment.

Peer comparison

The main listed companies operating in markets similar to IOVA are listed below.

1. Adaptimmune Therapeutics (ADAP) company focused on the development of cell and gene therapies for the treatment of cancer with a focus on chimeric antigen receptor T cell (CAR-T) therapy for the treatment of synovial sarcoma.

4. Fate Therapeutics (FATE): Develops iPS cell therapies for the treatment of cancer and autoimmune diseases with a focus on induced pluripotent stem (iPS) cell therapy for the treatment of multiple myeloma.

5. Precision BioSciences (DTIL) develops CRISPR base-publishing nuclease therapies for the treatment of cancer and genetic diseases with in vivo CRISPR therapy for the treatment of liver cancer.

6. Y-mAbs Therapeutics (YMAB) develops and commercializes monoclonal antibodies for the treatment of cancer with a focus on anti-CD38 monoclonal antibodies for the treatment of multiple myeloma.

Using Seeking Alpha’s Quant Rating, we can see how IOVA’s rating (“strong Buy”) is significantly higher than peers who remain in red or yellow territory.

The main reason for this difference in terms of ratings is mainly due to an EPS revision and momentum effect. Iova is going through a particularly favorable moment due above all to the recent approval of its core product.

SA’s rating is also fully reflected in the share price trend, if analyzed over the last 6 months, where we can see how IOVA with a +223% is also experiencing a good moment in terms of appreciation by the market.

If we compare IOVA with its peers in terms of insider ownership, we also note how 10.44% is significantly higher and this, in addition to the fact that the figure has grown by 50% in recent months, identifies a further “attention” to the possible future growth of the share price.

Potential Risks

We can certainly define the investment in IOVA as potentially high risk.

The first risk I underline is that inherent to the share price, which appears to be very high as it already incorporates the benefits of an optimal launch on the Amtagvi product. This element represents a potentially high risk as further safety problems may emerge at the time of launch given the very complex nature of TIL therapy and possible costs that are currently not budgeted for. All this could undermine the hypothesis of the correct functioning of the commercial proposal and therefore consequently also the share price.

Another risk is represented by the market need since if it is true that on the one hand, there could be 15,000 new cases of advanced melanoma it is also true that since it is a completely new therapy and has never been tested by other pharmaceutical industries, this represents a very challenging in an unexplored territory that could bring results very far away from the set objectives.

Finally, the pipeline exists but may not be so robust as to make up for any defaults referred to in the previous points. If the company encounters serious problems in the Amtagvi business development process, there may be no valid alternatives to support company growth.

Conclusion

Today, Iovance is the first company to market with a newly approved T-cell therapy for the treatment of solid tumors. According to market research carried out by the company, there is a high unmet market need that requires a new commercial proposal that could potentially bring positive benefits to patients. On the other hand, the company is quite integrated with home-made production and with a commercial development that is taking its first steps in a very complex and difficult-to-govern territory.

The share price, although it appears overvalued, is going through a very favorable moment as are the forecasts of future earnings. These elements, combined with a possible positive launch of Amtagvi, could push the share price further higher. The risk is, in my opinion, very high, but the chances of success could be even higher given the conviction of Insiders in purchasing shares.