I got interested in Iovance Biotherapeutics (IOVA) after attending the management presentation at the Jefferies annual immuno-oncology day in Boston a couple of months back. The management presented interesting preliminary data from its tumor infiltrating lymphocytes, TILs in refractory advanced cervical cancer and also announced that more advanced data will be presented at the annual conference of the American Society of Clinical Oncology, ASCO, in June. The ASCO data met investors' expectations, resulting in the recent run-up in the stock's price.
In this note, I will briefly mention my analysis of the company's pipeline including discussion with the management from the recently concluded Jefferies annual healthcare conference in New York City. Moreover, after the impressive data presented at the ASCO conference, the company is also being rumored as a takeover candidate.
Highly potent and easy to manufacture proprietary Tumor-Infiltrating Lymphocytes cell therapy technology
Iovance's Tumor Infiltrating Lymphocytes (TILs) is a potent, personalized autologous form of adoptive cell therapy. The company isolates the lymphocytes that are infiltrating the tumor (by tumor biopsy) and then expending them to many billions of cells in the lab by stimulating them using interleukin-2. After a sufficient number of cells have a generated, they are infused them back into the patient. When combined with checkpoint inhibitors, for example, anti-PD1 antibodies, TILs has shown excellent efficacy in even tough to treat cancers like cervical cancers.
Iovance's TIL cell therapy technology also has several other advantages, for example, one-time treatment, high potency and persistence, short turnaround time in manufacturing, safety (specific to the target organ) and ability to select more specific TIL, e.g. selection for PD-1 or 4-1BB expression. The management also mentioned that their TILs are active against a wide variety of tumor antigens (including neoantigens), unlike CAR-T which is directed against a single tumor antigen. The technology has its origins from the National Cancer Institute where Steven Rosenberg, Chief of Surgery did the early experiments and found an impressive objective response rate of 56% and complete response rate of 24% in metastatic melanoma.
Iova's proprietary TILs are a breakthrough therapy in treating advanced, refractory cervical cancer
Cervical cancer is the third most common gynecological cancer in the U.S. Human papillomavirus, HPV can be detected in 99.7% of cervical cancers. The annual incidence (new cases) of invasive cervical cancer was 528,000 cases worldwide and 266,000 deaths worldwide in 2012. The annual incidence of invasive cervical cancer in the U.S. is 13,000 cases and approx. 4100 deaths each year. The treatment of early stage disease is surgical resection e.g. cone biopsy, hysterectomy and/or radiation therapy depending on the stage of the disease.
Chemotherapy+radiation are added along with surgical resection in high-risk cases. The ORR is just 14.3% for PD-L1 positive patients who received Keytruda monotherapy as a second line agent in advanced cervical cancer after chemotherapy. Interim data from an ongoing phase 2 trial in advanced cervical cancer showed objective response rate of 44% and complete response rate of 11% (disease control rate of 85%) with a median follow-up of 7.4 months (ASCO data), (in combination with anti-PD1 checkpoint inhibitors).
Median duration of response has not been reached yet. The mean time to first response was also quick at 1.9 months even in these refractory cases. Of note, these patients had refractory disease and had received a mean 2.4 prior number of therapies. 22/27 patients (82%) had even received anti-VEGF agents which are now used as a second line therapy with chemo in advanced cervical cancer and progressed despite that. LN-145 TILs also showed 100% persistence till day 42.
Based on the excellent efficacy shown in refractory advanced cervical cancer, FDA has awarded Breakthrough therapy, Fast track and Orphan drug designations to the company's TILs, LN-145. The company is also conducting another phase 2 basket study testing anti-PD1+TILs combination as a frontline therapy in various solid cancers including cervical cancer (data expected next year). If successful, LN-145 has the potential to change the practice paradigm of cervical cancer as it could even be used as a first line agent in advanced cervical cancer in combination with anti-PD1 antibodies.
A KOL (academic gynecologist) interviewed by the company mentioned the company's LN-145 as 'literally redefining what is treatable and potentially curable in advanced chemo-refractory cervical cancer and the most exciting news in this field in decades.' (from the investor presentation).
Potential for first line therapy in various solid cancers
The company is enrolling patients in a phase 2 basket, multicenter study as a first line therapy in various cancers like non small cell lung cancer, NSCLC, cervical cancer and malignant melanoma of LN-145 in combination with Keytruda. Interim data from this study is expected next year. If successful, this trial has the potential to establish LN-145 as a first line agent in these various solid tumors. Expected target markets are: NSCLC=234,000 new cases/year in the U.S., cervical cancer= 13,000 new cases/year in the U.S., bladder cancer= 82,000 new cases/year in the U.S., malignant melanoma= 92,000 new cases/year in the U.S.
On my discussion with the company's management at the breakout Q&A session, they clearly seemed enthusiastic and confident about the potential of their TILs technology as a first line agent in combination with anti-PD1 checkpoint inhibitors in solid cancers, especially NSCLC, cervical cancer and bladder cancer as their primary focus. NSCLC is especially a huge market and the management believes that testing PD-L1 status is not important before using their combination therapy as it will work even in PD-L1 negative NSCLC patients. Plans are also to expand the use of TILs in bladder cancer (in partnership with Roswell Park Cancer Institute).
Next-generation commercial manufacturing facility
The company has built a 136,000 square foot size manufacturing facility for its TILs in Navy Yard, Philadephia. GMP production is expected to start in 2022. The company has invested $75M in this manufacturing facility and expects to bring down the cost of manufacturing and the turnaround time for its TILs.
Next generation TILs could be genetically modified and use costimulatory molecules
The company has filed patents for costimulatory molecules which can even enhance the tumor-killing action of TILs. The company has licensed the use of 4-1BB agonists (T cell stimulatory) from Moffitt Cancer Center. Patents have also been filed for genetically modified TILs. Genetic modification using TALEN (using existing Cellectis collaboration) may allow possibilities like knocking off PD1 receptor from the surface of T cells or adding a costimulatory domain like 4-1BB to TILs, thus further increasing their potency.
The next generation TILs can be compared to a 'Swat Team' to kill the tumor cells after checkpoint inhibitors have removed the cloak under which the tumor cells are hiding from the body's immune system. The company also has a partnership deal with Genocea (GNCA) to use its ATLAS platform to identify biomarkers (cancer neoantigens) for developing more neoantigen specific TILs.
Rumors are circulating about an acquisition by big pharma
Rumors were circulating at the recent Jefferies healthcare conference about big pharma in negotiations with Iovance's management about a potential takeover deal. My estimate is that any takeover deal will be above $30 (50% premium or more from the current stock price). Jefferies derivatives desk even posted an options trade idea at the conference which supports the rumors of a potential takeover bid (see the figure given below). (Iovance options trade idea from the Jefferies healthcare conference last week)
Strong financials and attractive valuation
The company had $440 million in cash reserves at the end of Q1, 2019 and no debt. Operating cash use was $29 million for Q1 2019 and $101 million in 2018. I don't anticipate any need for capital raise for at least next 12 months.
Target market assessment:
I estimate LN-145 to be priced at approx. $150K per patient very conservatively in a base case (CAR-T is priced much higher= $350,000/patient). The estimated target market size is:
An estimated incidence of all solid tumor new cases is approx. 1.6 million/year in the U.S. alone. 1. NSCLC= 234,000 new cases/year in the U.S. or $35 billion of U.S. revenue opportunity.2. Cervical cancer= 13,000 new cases/year in the U.S. or $1.95 billion of U.S. revenue opportunity.3. Bladder cancer= 82,000 new cases/year in the U.S or $12 billion of U.S. revenue opportunity.
The management also plans to target head and neck cancer, pancreatic cancer and glioma, which could further add to future potential revenue opportunity. I however, expect LN-145 to be priced at at least $300K more realistically. In that more bullish case scenario, the U.S. revenue opportunity will be 2x of that calculated above. The company's current market cap is $2.3 billion. Just considering the cervical cancer opportunity, I consider the shares as undervalued (mean market cap/sales ratio for biotechnology companies is approx. 7 per NYU-Stern data).
The complete R&D pipeline is summarized in the figure given below.
Near-term significant milestones:
- Update on regulatory discussions with FDA for accelerated approval of LN-145 in advanced cervical cancer (2019).
- The management is planning BLA submission in this indication in 2020.
- Interim data from the ongoing Phase 2 basket study of LN-145+Keytruda in various solid tumors is expected in mid-2020.
In conclusion, I rate Iovance common stock a Buy. The company's novel TILs technology is the first cell therapy to show significant efficacy in solid tumors. I expect a takeover bid to be announced within next 3-6 months or even sooner. The stock's recent price action clearly shows investor interest and evidence of accumulation. Investors will be rewarded with a possible 50% or more return in case of a takeover.
Investors should also be aware of the risks of investing in biotechnology companies which are in the developmental stage. The company is not profitable yet and does not have no marketed product. I usually allocate max. 3-4% capital in even high conviction, developmental stage biotechnology ideas and spread my portfolio over at least 30-40 companies to diversify and reduce the risks like unexpected side effects in clinical trials, lower than expected efficacy, FDA not agreeing to an accelerated approval or a takeover bid not materializing. Investing in high reward, high-risk biotechnology sector may not be suitable for investors who are risk averse and cannot handle the volatility in this sector.
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Disclosure: I am/we are long IOVA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: This article represents my own opinion and is not a substitute for professional investment advice. It does not represent a solicitation to buy or sell any security. Investors should do their own research and consult their financial adviser before making any investment. Investing in equities, especially biotech stocks has the risk of significant losses and may not be suitable for all investors. While the sources of information and data in this article have been checked, their accuracy cannot be completely guaranteed.