SEC Filing – IOVANCE Biotherapeutics, Inc.

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U. S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File Number 001-36860

IOVANCE BIOTHERAPEUTICS, INC.

(Exact name of issuer as specified in its charter)


Delaware	75-3254381
(State or other jurisdiction of	(I.R.S. employer
incorporation or organization)	identification number)

999 Skyway Road, Suite 150, San Carlos, CA 94070

(Address of principal executive offices and zip code)

(650) 260-7120

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer þ	Accelerated filer ◻
Non-accelerated filer ◻	Smaller reporting company ☐
	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, par value $0.000041666 per value	IOVA	The Nasdaq Stock Market, LLC

At July 25, 2019, the issuer had 123,830,506 shares of common stock, par value $0.000041666 per share, outstanding.

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IOVANCE BIOTHERAPEUTICS, INC.

FORM 10-Q

For the Quarter Ended June 30, 2019

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		Page
PART I FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements (Unaudited)	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35
Item 4.	Controls and Procedures	35
PART II OTHER INFORMATION
Item 1.	Legal Proceedings	36
Item 1A.	Risk Factors	39
Item 2.	Unregistered Sales of Securities and Use of Proceeds	84
Item 3.	Defaults Upon Senior Securities	84
Item 4.	Mine Safety Disclosure	84
Item 5.	Other Information	84
Item 6.	Exhibits	85
SIGNATURES		86

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PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements

IOVANCE BIOTHERAPEUTICS, INC.

Condensed Consolidated Balance Sheets

(in thousands, except share information)


	June 30,		December 31,
	2019		2018
	(unaudited)
ASSETS

Current Assets
Cash and cash equivalents	$	76,912	$	82,152
Short-term investments		327,241		386,371
Prepaid expenses and other current assets		6,785		6,640
Total Current Assets		410,938		475,163

Operating lease right-of-use assets		11,719		—
Property and equipment, net		4,472		2,683
Restricted cash		5,450		—
Long-term assets		3,345		2,975
Total Assets	$	435,924	$	480,821

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities
Accounts payable	$	12,782	$	2,739
Accrued expenses		13,570		11,659
Operating lease liabilities		7,484		—
Total Current Liabilities		33,836		14,398

Non-Current Liabilities
Operating lease liabilities		4,613		—
Other liabilities		53		230
Total Non-Current Liabilities		4,666		230
Total Liabilities		38,502		14,628

Commitments and contingencies (Note 9)

Stockholders’ Equity
Series A Convertible Preferred Stock, $0.001 par value; 17,000 shares authorized, 194 shares issued and outstanding as of June 30, 2019 and December 31, 2018 (aggregate liquidation value of $194)		—		—
Series B Convertible Preferred Stock, $0.001 par value; 50,000,000 shares authorized; 5,854,845 shares issued and outstanding as of June 30, 2019 and December 31, 2018 (aggregate liquidation value of $27,811)		6		6
Common stock, $0.000041666 par value; 300,000,000 and 150,000,000 shares authorized, 123,820,508 and 123,415,576 shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively		5		5
Additional paid-in capital		854,596		838,984
Accumulated other comprehensive income (loss)		372		(42)
Accumulated deficit		(457,557)		(372,760)
Total Stockholders’ Equity		397,422		466,193
Total Liabilities and Stockholders’ Equity	$	435,924	$	480,821

The accompanying notes are an integral part of these condensed consolidated financial statements.

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IOVANCE BIOTHERAPEUTICS, INC.

Condensed Consolidated Statements of Operations

(unaudited; in thousands, except per share information)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018

Revenues	$	—	$	—	$	—	$	—

Costs and expenses
Research and development expenses		39,298		24,551		70,203		44,463
General and administrative expenses		10,867		6,827		19,948		13,792
Total costs and expenses		50,165		31,378		90,151		58,255

Loss from operations		(50,165)		(31,378)		(90,151)		(58,255)
Other income
Interest income, net		2,614		718		5,650		1,080
Net Loss	$	(47,551)	$	(30,660)	$	(84,501)	$	(57,175)
Net Loss Per Common Share, Basic and Diluted	$	(0.38)	$	(0.34)	$	(0.68)	$	(0.65)

Weighted Average Common Shares Outstanding, Basic and Diluted		123,567		90,236		123,491		87,310

The accompanying notes are an integral part of these condensed consolidated financial statements.

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IOVANCE BIOTHERAPEUTICS, INC.

Condensed Consolidated Statements of Comprehensive Loss

(unaudited; in thousands)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018

Net Loss	$	(47,551)	$	(30,660)	$	(84,501)	$	(57,175)
Other comprehensive loss:
Unrealized gain / (loss) on short-term investments		234		(3)		414		(3)
Comprehensive Loss	$	(47,317)	$	(30,663)	$	(84,087)	$	(57,178)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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IOVANCE BIOTHERAPEUTICS, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(unaudited; in thousands, except share information)


	Series A Convertible			Series B Convertible						Additional		Accumulated other				Total
	Preferred Sock			Preferred Stock			Common Stock			Paid-In		Comprehensive		Accumulated		Stockholders’
	Shares	Amount		Shares	Amount		Shares	Amount		Capital		Income		Deficit		Equity
Balance - December 31, 2018	194	$	—	5,854,845	$	6	123,415,576	$	5	$	838,984	$	(42)	$	(372,760)	$	466,193
Adoption of ASU 2018-07									—		296				(296)		—
Stock-based compensation expense											12,272						12,272
Vesting of restricted shares issued for services							14,532		1		(1)						—
Tax payments related to shares withheld for vested restricted stock units											(94)						(94)
Common stock issued upon exercise of stock options							422,900		—		3,474						3,474
Unrealized gain on short-term investments													414				414
Cancellation of common shares from settlement of dispute							(32,500)		(1)		(335)						(336)
Net loss															(84,501)		(84,501)
Balance - June 30, 2019	194	$	—	5,854,845	$	6	123,820,508	$	5	$	854,596	$	372	$	(457,557)	$	397,422

Balance - December 31, 2017	1,694	$	—	7,378,241	$	7	73,164,914	$	3	$	394,651	$	—	$	(249,180)	$	145,481
Stock-based compensation expense											9,326						9,326
Vesting of restricted shares issued for services							14,546
Tax payments related to shares withheld for vested restricted stock awards											(122)						(122)
Common stock issued upon exercise of warrants							1,656,510				4,141						4,141
Common stock issued upon exercise of stock options							905,153				6,828						6,828
Common stock sold in public offering, net of offering costs							15,000,000				162,093						162,093
Conversion of convertible preferred stock into common stock	(1,500)			(1,250,548)		(1)	2,000,549		1								—
Unrealized loss on short-term investments													(3)				(3)
Net loss															(57,175)		(57,175)
Balance - June 30, 2018	194	$	—	6,127,692	$	6	92,741,672	$	4	$	576,917	$	(3)	$	(306,355)	$	270,569

The accompanying notes are an integral part of these condensed consolidated financial statements.

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IOVANCE BIOTHERAPEUTICS, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(unaudited; in thousands, except share information)


	Series A Convertible			Series B Convertible						Additional		Accumulated other				Total
	Preferred Sock			Preferred Stock			Common Stock			Paid-In		Comprehensive		Accumulated		Stockholders’
	Shares	Amount		Shares	Amount		Shares	Amount		Capital		Income		Deficit		Equity
Balance – March 31, 2019	194	$	—	5,854,845	$	6	123,395,113	$	5	$	844,789	$	138	$	(410,006)	$	434,932
Stock-based compensation expense											6,426						6,426
Vesting of restricted shares issued for services							7,495		—		(1)						(1)
Tax payments related to shares withheld for vested restricted stock units											(23)						(23)
Common stock issued upon exercise of stock options							417,900		—		3,405						3,405
Unrealized gain on short-term investments													234				234
Net loss															(47,551)		(47,551)
Balance – June 30, 2019	194	$	—	5,854,845	$	6	123,820,508	$	5	$	854,596	$	372	$	(457,557)	$	397,422

Balance – March 31, 2018	1,694	$	—	7,378,241	$	7	89,605,417	$	3	$	568,243	$	—	$	(275,695)	$	292,558
Stock-based compensation expense											5,222						5,222
Vesting of restricted shares issued for services							7,495
Tax payments related to shares withheld for vested restricted stock awards											(62)						(62)
Common stock issued upon exercise of warrants							926,129				2,315						2,315
Common stock issued upon exercise of stock options							202,082		—		1,198						1,198
Conversion of convertible preferred stock into common stock	(1,500)			(1,250,549)		(1)	2,000,549		1		1						1
Unrealized loss on short-term investments													(3)				(3)
Net loss															(30,660)		(30,660)
Balance – June 30, 2018	194	$	—	6,127,692	$	6	92,741,672	$	4	$	576,917	$	(3)	$	(306,355)	$	270,569

The accompanying notes are an integral part of these condensed consolidated financial statements.

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IOVANCE BIOTHERAPEUTICS, INC.

Condensed Consolidated Statements of Cash Flows

(unaudited; in thousands)


	Six Months Ended
	June 30,
	2019		2018
Cash Flows from Operating Activities
Net loss	$	(84,501)	$	(57,175)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		560		453
Noncash lease expense		3,031		—
Loss on disposal of assets		—		9
Gain on settlement of dispute		(336)		—
Accretion of discounts on investments		(2,430)		(1)
Stock-based compensation expense		12,272		9,326
Changes in assets and liabilities:
Prepaid expenses, other assets, and long-term assets		(515)		1,604
Operating lease liabilities (Right-of-use assets)		(2,651)		—
Accounts payable		9,951		3,686
Accrued expenses and other liabilities		1,734		326
Net cash used in operating activities		(62,885)		(41,772)

Cash Flows from Investing Activities
Maturities of short-term investments		263,102		—
Purchase of short-term investments		(201,129)		(30,084)
Purchase of property and equipment		(2,257)		(440)
Net cash provided by (used in) investing activities		59,716		(30,524)

Cash Flows from Financing Activities
Tax payments related to shares withheld for vested restricted stock awards		(95)		(122)
Proceeds from the issuance of common stock upon exercise of warrants		—		4,141
Proceeds from the issuance of common stock upon exercise of options		3,474		6,828
Proceeds from the issuance of common stock, net		—		162,093
Net cash provided by financing activities		3,379		172,940
Net increase in cash, cash equivalents, and restricted cash		210		100,644
Cash, Cash Equivalents, and Restricted Cash Beginning of Period		82,152		145,373
Cash, Cash Equivalents, and Restricted Cash End of Period	$	82,362	$	246,017

Supplemental disclosure of non-cash investing and financing activities:
Unrealized gain (loss) on short-term investments	$	414	$	(3)
Acquisitions of property and equipment included in accounts payable		(92)		(278)
Conversion of convertible preferred stock to common stock		—		1

The accompanying notes are an integral part of these condensed consolidated financial statements.

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IOVANCE BIOTHERAPEUTICS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 1. GENERAL ORGANIZATION AND BUSINESS

Iovance Biotherapeutics, Inc. (the “Company”, “we”, “us” or “our”) is a clinical-stage biopharmaceutical company focused on the development and commercialization of novel cancer immunotherapy products designed to harness the power of a patient’s own immune system to eradicate cancer cells. Tumor infiltrating lymphocyte (TIL) therapy is a platform technology that has been licensed from National Cancer Institute (NCI) primarily based on data in metastatic melanoma and advanced cervical cancer. The Company has developed its own proprietary and scalable manufacturing method which is being further investigated in multiple indications. The Company’s lead product candidates include, lifileucel for metastatic melanoma, and LN-145 for advanced cervical cancer. Both product candidates are autologous adoptive cell therapy utilizing TIL, which are T cells derived from patients’ tumors. In addition to metastatic melanoma and advanced cervical cancer, the Company is investigating the effectiveness and safety of TIL therapy for the treatment of squamous cell carcinoma of the head and neck and metastatic non-small cell lung cancer through company sponsored trials, as well as other oncology indications through collaborations. The Company is currently conducting the pivotal cohort of its C-144-01 clinical trial of lifileucel in patients with metastatic melanoma. The Company is also conducting a pivotal trial of LN-145, C-145-04, in patients with advanced cervical cancer. On June 1, 2017, the Company reincorporated to become a company governed by Delaware corporation laws.

Basis of Presentation of Unaudited Condensed Consolidated Financial Information

The unaudited condensed consolidated financial statements of the Company for the three and six months ended June 30, 2019 and 2018 have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Regulation S-K. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. However, such information reflects all adjustments (consisting solely of normal recurring adjustments), which are, in the opinion of management, necessary for the fair presentation of the financial position and the results of operations. Results shown for interim periods are not necessarily indicative of the results to be obtained for a full fiscal year. The balance sheet information as of December 31, 2018 was derived from the audited financial statements included in the Company's financial statements as of and for the year ended December 31, 2018 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on February 28, 2019. These financial statements should be read in conjunction with that report.

Liquidity

The Company is currently engaged in the development of therapeutics to treat cancer, specifically solid tumors. The Company currently does not have any commercial products and has not yet generated any revenues from its business. The Company currently does not anticipate that it will generate any revenues from the sale or licensing of any of its product candidates during the 12 months from the date these financial statements are issued. The Company has incurred a net loss of $84.5 million for the six months ended June 30, 2019 and used $62.9 million of cash in its operating activities during the six months ended June 30, 2019. In January 2018, the Company closed an underwritten public offering of 15,000,000 shares of the Company’s common stock at a public offering price of $11.50 per share, before underwriting discounts. The net proceeds from the offering, after deducting the underwriting discounts and commissions and other offering expenses payable by the Company, were $162.0 million. In October 2018, the Company completed an underwritten public offering of 25,300,000 shares of the Company’s common stock at a public offering price of $9.97 per share, before underwriting discounts. The net proceeds from the offering, after deducting the underwriting discounts and commissions and other offering expenses payable by the Company, were $236.7 million. As of June 30, 2019, the Company had $404.1 in cash, cash equivalents and short-term investments ($76.9 million of cash and cash equivalents and $327.2 million in short-term investments).

The Company expects to further increase its research and development activities, which will increase the amount of cash used during 2019 and beyond. Specifically, the Company expects continued spending on its current and planned clinical trials, continued expansion of manufacturing activities, including construction of a manufacturing facility, higher payroll expenses as the Company increases its professional and scientific staff, increased research and development activities and initiation of pre-commercial activities. However, the extent and the timing of these expenditures are under the control of the Company. Based on the funds the Company has available as of the date these financial statements are

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issued, the Company believes that it has sufficient capital to fund its anticipated operating expenses for at least next twelve months from the date these financial statements are issued

Concentrations of Risk

The Company is subject to credit risk from our portfolio of cash equivalents and short-term investments. Under its investment policy, the Company limits amounts invested in such securities by credit rating, maturity, industry group, investment type and issuer, except for securities issued by the U.S. government. The Company does not believe it is exposed to any significant concentrations of credit risk from these financial instruments. The goals of its investment policy, in order of priority, are as follows: safety and preservation of principal and diversification of risk; liquidity of investments sufficient to meet cash flow requirements; and a competitive after-tax rate of return.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Cash, Cash Equivalents, Restricted Cash, and Short-term Investments

The Company’s cash and cash equivalents include short-term investments with original maturities of three months or less when purchased. The Company's short-term investments are classified as “available-for-sale”. The Company includes these investments in current assets and carries them at fair value. Unrealized gains and losses on available-for-sale securities are included in accumulated other comprehensive loss. The cost of debt securities is adjusted for the amortization of premiums and accretion of discounts to maturity. Such amortization and accretion are included in net interest income in the consolidated statements operations. Gains and losses on securities sold are recorded based on the specific identification method and are included in net interest income in the consolidated statement of operations. The Company has not incurred any realized gains or losses from sales of securities to date. The Company’s investment policy limits investments to certain types of instruments such as certificates of deposit, money market instruments, obligations issued by the U.S. government and U.S. government agencies as well as corporate debt securities, and places restrictions on maturities and concentration by type and issuer.

The Company maintains a certain minimum balance, currently $5.5 million in a segregated bank account in connection with a letter of credit for the benefit of the landlord for its commercial manufacturing facility used as a security deposit for the lease (See Note 9 - Leases). This amount is classified as Restricted Cash on the Balance Sheet. The letter of credit will expire on May 28, 2020, however, it will be automatically extended, without written agreement, for one-year periods to May 28 in each succeeding calendar year, through at least 60 days after the lease expiration rate. Further, on the expiration of the seventh year of the lease, and each anniversary date thereafter, the letter of credit may be decreased by $1,000,000, with a minimum security deposit of $1,450,000 maintained through the end of the lease term. As of June 30, 2019, restricted cash consisted of $5.5 million and this amount has been classified as non-current asset on the Company’s consolidated balance sheets.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash, reported within the condensed consolidated balance sheets that sum to the total of the same such amounts shown in the condensed consolidated statement of cash flows:


	June 30,		June 30,
	2019		2018
Cash	$	76,912	$	246,017
Restricted cash (included in non-current assets on the consolidated balance sheets)		5,450		—
Total cash, cash equivalents and restricted cash	$	82,362	$	246,017

Loss per Share

Basic net loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period.

Diluted net loss per share is computed by dividing the net loss by the sum of the weighted average number of shares of common stock outstanding and the dilutive common stock equivalent shares outstanding during the period. The Company’s potentially dilutive common stock equivalent shares, which include incremental common shares issuable upon (i) the exercise of outstanding stock options and warrants (ii) vesting of restricted stock units and restricted stock

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awards, and (iii) conversion of preferred stock, are only included in the calculation of diluted net loss per share when their effect is dilutive.

At June 30, 2019 and 2018, the following outstanding common stock equivalents have been excluded from the calculation of net loss per share because their impact would be anti-dilutive.


	June 30,
	2019	2018
Stock options	9,205,672	6,837,817
Warrants	—	4,644,706
Series A Convertible Preferred Stock*	97,000	97,000
Series B Convertible Preferred Stock*	5,854,845	6,127,692
Restricted stock units	45,828	91,665
	15,203,345	17,798,880

* on an as-converted basis

The dilutive effect of potentially dilutive securities would be reflected in diluted earnings per common share by application of the treasury stock method. Under the treasury stock method, an increase in the fair market value of the Company's common stock could result in a greater dilutive effect from potentially dilutive securities.

Fair Value Measurements

Under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosures, fair value is defined as the price at which an asset could be exchanged, or a liability transferred in a transaction between knowledgeable, willing parties in the principal or most advantageous market for the asset or liability. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or parameters are not available, valuation models are applied.

Assets and liabilities recorded at fair value in the Company’s financial statements are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities, are as follows:

Level 1—Inputs are unadjusted, quoted prices in active markets for identical assets at the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2—Are inputs, other than quoted prices included in Level 1, that are either directly or indirectly observable for the asset or liability through correlation with market data at the reporting date and for the duration of the instrument’s anticipated life.

The fair valued assets the Company holds that are generally assessed under Level 2 are corporate bonds and commercial paper. The Company utilizes third party pricing services in developing fair value measurements where fair value is based on valuation methodologies such as models using observable market inputs, including benchmark yields, reported trades, broker/dealer quotes, bids, offers and other reference data. The Company uses quotes from external pricing service providers and other on-line quotation systems to verify the fair value of investments provided by its third-party pricing service providers. The Company reviews independent service auditor’s reports from its third-party pricing service providers particularly regarding the controls over pricing and valuation of financial instruments and ensure that its internal controls address certain control deficiencies, if any, and complementary user entity controls are in place.

The Company does not have fair valued assets classified under Level 2 as of June 30, 2019 and December 31, 2018.

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities and which reflect management’s best estimate of what market participants would use in pricing the asset or liability at the reporting date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

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The Company’s financial instruments consist of cash and cash equivalents, short-term investments, and accounts payable, all of which are reported at their respective fair value on its consolidated balance sheets.

The Company does not have fair valued assets classified under Level 3 as of June 30, 2019 and December 31, 2018.

As of June 30, 2019 and December 31, 2018, financial assets measured at fair value on a recurring basis are categorized in the table below based upon the lowest level of significant input to the valuations (in thousands):


	Assets at Fair Value as of June 30, 2019
	Level 1		Level 2		Level 3		Total
U.S. treasury securities	$	187,695	$	—	$	—	$	187,695
U.S. government agency securities		139,546		—		—		139,546
Total	$	327,241	$	—	$	—	$	327,241


	Assets at Fair Value as of December 31, 2018
	Level 1		Level 2		Level 3		Total
U.S. treasury securities	$	265,393	$	—	$	—	$	265,393
U.S. government agency securities		120,978		—		—		120,978
Total	$	386,371	$	—	$	—	$	386,371

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include valuation of short-term investments, accounting for potential liabilities, the valuation allowance associated with the Company’s deferred tax assets, the assumptions made in valuing stock instruments issued for services and used in measuring operating lease right-of-use assets and operating lease liabilities.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Iovance Biotherapeutics, Inc. and its wholly-owned subsidiary, Iovance Biotherapeutics GmbH. All intercompany accounts and transactions have been eliminated. The U.S. dollar is the functional currency for all the Company's consolidated operations.

Leases

The Company determines if an arrangement includes a lease at inception. Operating leases are included in its condensed consolidated balance sheet as Operating lease right-of-use assets and Operating lease liabilities as of June 30, 2019. Operating lease right-of-use assets represent our right to use an underlying asset for the lease term and operating lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. In determining the net present value of lease payments, the Company uses an estimated incremental borrowing rate that is applicable to the Company based on the information available at later of the lease commencement date or the date of adoption of Accounting Standard Update (ASU) No. 2016-02 and ASU No. 2018-10, Leases (together “Topic 842”). The operating lease right-of-use assets also include any lease payments made less lease incentives. The Company’s leases may include options to extend or terminate the lease, which is considered in the lease term when it is reasonably certain that the Company will exercise any such options. Lease expense is recognized on a straight-line basis over the expected lease term. The Company has elected not to apply the recognition requirements of Topic 842 for short-term leases.

For lease agreements entered into after the adoption of Topic 842 that include lease and non-lease components, such components are generally accounted for separately.

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Prior period amounts continue to be reported in accordance with our historic accounting under previous lease guidance, Topic 840. See “Recently Adopted Accounting Pronouncements - Leases” below, for more information about the impact of the adoption on Topic 842.

Stock-Based Compensation

The Company periodically grants stock options to employees and non-employees in non-capital raising transactions as compensation for services rendered. The Company accounts for stock option grants to employees based on the authoritative guidance provided by the FASB where the value of the award is measured on the date of grant and recognized over the vesting period. Upon the adoption of ASU No. 2018-07, Compensation-Stock Compensation (“Topic 718”), the Company accounts for stock option grants to non-employees in the similar manner as stock option grants to employees, therefore no longer requiring a remeasurement at the then-current fair values at each reporting date until the share options have vested. The nonemployee awards that contain a performance condition that affects the quantity or other terms of the award are measured based on the outcome that is probable.

The fair value of the Company's common stock option grants is estimated using a Black-Scholes option pricing model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the common stock options, and future dividends. For non-employee stock option awards, an option term is used in the Black-Scholes option pricing model in lieu of expected life of the common stock options. The stock-based compensation expense is recorded based upon the value derived from the Black-Scholes option pricing model. The assumptions used in the Black-Scholes option pricing model could materially affect compensation expense recorded in future periods.

The Company has in the past issued restricted stock units (RSU) and restricted stock awards (RSA) as part of its share-based compensation programs. The Company measures the compensation cost with respect to RSU and RSA issued to employees based upon the estimated fair value of the equity instruments at the date of the grant, which is recognized as an expense over the period during which an employee is required to provide services in exchange for the award.

The fair value of restricted stock units is based on the closing price of the Company’s common stock on the grant date.

Total stock-based compensation expense related to all of the Company’s stock-based awards was recorded on the statements of operations as follows (in thousands):


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
Research and development	$	2,720	$	2,381	$	5,421	$	4,381
General and administrative		3,706		2,841		6,851		4,945
Total stock-based compensation expenses	$	6,426	$	5,222	$	12,272	$	9,326

Total stock-based compensation expenses broken down based on each individual instrument were as follows (in thousands):


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
Stock option expenses	$	6,359	$	5,155	$	12,138	$	9,192
Restricted stock award expenses		—		—		—		—
Restricted stock unit expenses		67		67		134		134
Total stock-based compensation expenses	$	6,426	$	5,222	$	12,272	$	9,326

Preferred Stock

The Company applies the accounting standards for distinguishing liabilities from equity when determining the classification and measurement of its preferred stock. Preferred shares subject to mandatory redemption are classified as liability instruments and are measured at fair value. Conditionally redeemable preferred shares (including preferred shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the

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occurrence of uncertain events not solely within the Company’s control) are classified as temporary equity. At all other times, preferred shares are classified as stockholders’ equity.

Convertible Instruments

The Company applies the accounting standards for derivatives and hedging and for distinguishing liabilities from equity when accounting for hybrid contracts that feature conversion options. The accounting standards require companies to bifurcate conversion options from their host instruments and account for them as free-standing derivative financial instruments according to certain criteria. The criteria include circumstances in which (i) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (ii) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (iii) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. The derivative is subsequently marked to market at each reporting date based on current fair value, with the changes in fair value reported in results of operations.

Conversion options that contain variable settlement features such as provisions to adjust the conversion price upon subsequent issuances of equity or equity linked securities at exercise prices more favorable than that featured in the hybrid contract generally result in their bifurcation from the host instrument.

The Company also records, when necessary, deemed dividends for the intrinsic value of the conversion options embedded in preferred stock based upon the difference between the fair value of the underlying common stock at the commitment date of the transaction and the effective conversion price embedded in the preferred stock.

Recent Accounting Pronouncements

Leases

On January 1, 2019, the Company adopted Topic 842, which establishes a new lease accounting method for lessees. The updated guidance requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases, along with additional qualitative and quantitative disclosures. The Company elected the package of practical expedients requiring no reassessment of whether any expired or existing contracts are or contain leases, the lease classification of any expired or existing leases, or initial direct costs for any existing leases. The standard had a material impact on its consolidated balance sheets by recognizing Operating lease right-of-use assets and Operating lease liabilities for operating leases but did not have an impact on our consolidated statement of operations or cash flows. The adoption of the Topic 842 resulted in recognition of Operating lease right-of-use assets of $10.4 million, $4.9 million of Operating lease liabilities – current, and $5.8 million of Operating lease liabilities – noncurrent as of January 1, 2019, the date of adoption.

Improvements to Nonemployee Share-Based Payment Accounting

On January 1, 2019, the Company adopted Topic 718, which eliminates the separate accounting method for nonemployee share-based payment awards and generally requires companies to account for share-based payment transactions with nonemployees in the same manner as share-based payment transactions with employees. Under the new guidance, nonemployee share-based payment transactions are measured at the grant-date fair value and are no longer remeasured at the then-current fair values at each reporting date until the share options have vested. The guidance requires a modified-retrospective approach in transition. The Company compared the cumulative amounts that were recorded for its nonemployee share-based payments through December 31, 2018 immediately preceding the date of adoption to the cumulative amounts that should be recognized at the adoption date and recognized a cumulative effect of the transition adjustment of $0.3 million to retained earnings as of the date of adoption, January 1, 2019.

Presentation of Stockholders’ Equity

In August 2018, the Security Exchange Commission (SEC) adopted the final rule under SEC Release No. 33-10532, “Disclosure Update and Simplification,” amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. In addition, the amendments expanded the disclosure requirements on the analysis of stockholders’ equity for interim financial statements. Under the amendments, an analysis of changes in each caption of stockholders’ equity presented in the balance sheet must be provided in a note or separate statement. The

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Company has included its presentation of changes in stockholders’ equity in this Quarterly Report on Form 10-Q for the three and six months ended June 30, 2019 and 2018.

Fair Value Measurements Disclosure

In August 2018, the FASB issued ASU No. 2018-13 Fair Value Measurement (Topic 820): Disclosure Framework- Changes to the Disclosure Requirements for Fair Value Measurement, which eliminates disclosure requirement regarding transfers between level 1 and level 2 of the fair value of hierarchy, however, adds disclosure requirements on the range and weighted average used to develop significant unobservable inputs for level 3 fair value measurements. The Company adopted the guidance on January 1, 2019, however, there was no adjustment required to its disclosures as it did not have fair value assets classified under level 2 or 3 as of June 30, 2019 and December 31, 2018.

Financial Instruments

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses, and also issued subsequent amendments to the initial guidance, ASU 2018-19, ASU 2019-04, and ASU 2019-05 (collectively, Topic 326), to introduce a new impairment model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses (CECL). Under Topic 326, an entity is required to estimate CECL on available-for-sale (AFS) debt securities only when the fair value is below the amortized cost of the asset and is no longer based on an impairment being “other-than-temporary”. Topic 326 also requires the impairment calculation on an individual security level and requires an entity use present value of cash flows when estimating the CECL. The credit-related losses are required to be recognized through earnings and non-credit related losses are reported in other comprehensive income. In April 2019, the FASB further clarified the scope of Topic 326 and addressed issues related to accrued interest receivable balances, recoveries, variable interest rates and prepayment. Topic 326 will be effective for public entities in fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The new guidance will require modified retrospective application to all outstanding instruments, with a cumulative effect adjustment recorded to opening retained earnings as of the beginning of the first period in which the guidance becomes effective. The Company does not believe the adoption of this new guidance will have any material impact on its consolidated financial statements.

Cloud Computing Arrangements

In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40) Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (ASU 2018-15), to help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement (hosting arrangement) by providing guidance for determining when the arrangement includes a software license. The guidance provided generally means that an intangible asset is rec