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, 2020

☐	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 28, 2020, the issuer had 146,443,212 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, 2020

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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	37
Item 4.	Controls and Procedures	37
PART II OTHER INFORMATION
Item 1.	Legal Proceedings	39
Item 1A.	Risk Factors	42
Item 2.	Unregistered Sales of Securities and Use of Proceeds	85
Item 3.	Defaults Upon Senior Securities	85
Item 4.	Mine Safety Disclosure	85
Item 5.	Other Information	85
Item 6.	Exhibits	86
SIGNATURES		87

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PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements

IOVANCE BIOTHERAPEUTICS, INC.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share information)


	June 30,		December 31,
	2020		2019
	(unaudited)
ASSETS

Current Assets
Cash and cash equivalents	$	160,614	$	13,969
Short-term investments		611,265		293,112
Prepaid expenses and other assets		10,775		9,412
Total Current Assets		782,654		316,493

Property and equipment, net		18,726		8,536
Operating lease right-of-use assets		7,480		10,695
Restricted cash		5,525		5,450
Long-term assets		3,182		3,481
Total Assets	$	817,567	$	344,655

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities
Accounts payable	$	10,238	$	15,567
Accrued expenses		38,794		16,265
Operating lease liabilities - current		5,873		7,252
Total Current Liabilities		54,905		39,084

Non-Current Liabilities
Operating lease liabilities – noncurrent		2,001		4,248
Other liabilities		2,352		2,352
Total Non-Current Liabilities		4,353		6,600
Total Liabilities		59,258		45,684

Commitments and contingencies (Note 8 and 9)

Stockholders’ Equity
Series A Convertible Preferred stock, $0.001 par value; 17,000 shares designated, 194 shares issued and outstanding as of June 30, 2020 and December 31, 2019 (aggregate liquidation value of $194)		—		—
Series B Convertible Preferred stock, $0.001 par value; 11,500,000 shares designated, 3,581,119 shares issued and outstanding as of June 30, 2020 and December 31, 2019 (aggregate liquidation value of $17,010)		4		4
Common stock, $0.000041666 par value; 300,000,000 shares authorized, 146,434,810 and 126,411,808 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively		6		5
Accumulated other comprehensive income		317		220
Additional paid-in capital		1,461,207		869,354
Accumulated deficit		(703,225)		(570,612)
Total Stockholders’ Equity		758,309		298,971
Total Liabilities and Stockholders’ Equity	$	817,567	$	344,655

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,
	2020		2019		2020		2019

Revenues	$	—	$	—	$	—	$	—

Costs and expenses
Research and development expenses		49,274		39,298		106,226		70,203
General and administrative expenses		14,353		10,867		28,211		19,948
Total costs and expenses		63,627		50,165		134,437		90,151

Loss from operations		(63,627)		(50,165)		(134,437)		(90,151)
Other income
Interest income, net		609		2,614		1,824		5,650
Net Loss	$	(63,018)	$	(47,551)	$	(132,613)	$	(84,501)
Net Loss Per Share of Common Stock, Basic and Diluted	$	(0.47)	$	(0.38)	$	(1.02)	$	(0.68)

Weighted Average Shares of Common Stock Outstanding, Basic and Diluted		133,162		123,567		129,848		123,491

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,
	2020		2019		2020		2019

Net Loss	$	(63,018)	$	(47,551)	$	(132,613)	$	(84,501)
Other comprehensive loss:
Unrealized gain / (loss) on short-term investments		(595)		234		97		414
Comprehensive Loss	$	(63,613)	$	(47,317)	$	(132,516)	$	(84,087)

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

For the Six Months Ended June 30, 2020 and 2019

(unaudited; in thousands, except share information)


	Series A			Series B
	Convertible			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, 2019	194	$	—	3,581,119	$	4	126,411,808	$	5	$	869,354	$	220	$	(570,612)	$	298,971
Stock-based compensation expense											19,949						19,949
Vesting of shares issued for services							13,449		—								—
Tax payments related to shares withheld for vested restricted stock units											(283)						(283)
Common stock issued upon exercise of stock options							533,747		—		5,188						5,188
Unrealized gain on short-term investments													97				97
Common stock sold in public offering, net of offering costs							19,475,806		1		566,999						567,000
Net loss															(132,613)		(132,613)
Balance - June 30, 2020	194	$	—	3,581,119	$	4	146,434,810	$	6	$	1,461,207	$	317	$	(703,225)	$	758,309

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 stock 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

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

For the Three Months Ended June 30, 2020 and 2019

(unaudited; in thousands, except share information)


	Series A			Series B
	Convertible			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, 2020	194	$	—	3,581,119	$	4	126,823,156	$	5	$	882,599	$	912	$	(640,207)	$	243,313
Stock-based compensation expense											10,537						10,537
Vesting of restricted shares issued for services							6,176		—
Tax payments related to shares withheld for vested restricted stock units											(165)						(165)
Common stock issued upon exercise of stock options							129,672		—		1,237						1,237
Unrealized loss on short-term investments													(595)				(595)
Common stock sold in public offering, net of offering costs							19,475,806		1		566,999						567,000
Net loss															(63,018)		(63,018)
Balance - June 30, 2020	194	$	—	3,581,119	$	4	146,434,810	$	6	$	1,461,207	$	317	$	(703,225)	$	758,309

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

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,
	2020		2019
Cash Flows from Operating Activities
Net loss	$	(132,613)	$	(84,501)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense		19,949		12,272
Noncash lease expense		3,328		3,031
Depreciation and amortization		512		560
Gain on settlement of dispute		—		(336)
Amortization of premiums on investments		(17)		(2,430)

Changes in assets and liabilities:
Prepaid expenses, other assets, and long-term assets		(1,064)		(515)
Operating lease liabilities (Right-of-use assets)		(3,739)		(2,651)
Accounts payable		(7,096)		9,951
Accrued expenses and other liabilities		18,813		1,734
Net cash used in operating activities		(101,927)		(62,885)

Cash Flows from Investing Activities
Maturities of short-term investments		216,678		263,102
Purchase of short-term investments		(534,717)		(201,129)
Purchase of property and equipment		(5,612)		(2,257)
Net cash (used in) provided by investing activities		(323,651)		59,716

Cash Flows from Financing Activities
Tax payments related to shares withheld for vested restricted stock awards		(283)		(95)
Proceeds from the issuance of common stock upon exercise of options		5,188		3,474
Proceeds from the issuance of common stock, net		567,393		—
Net cash provided by financing activities		572,298		3,379
Net increase in cash, cash equivalents, and restricted cash		146,720		210
Cash, Cash Equivalents, and Restricted Cash Beginning of Period		19,419		82,152
Cash, Cash Equivalents, and Restricted Cash End of Period	$	166,139	$	82,362

Supplemental disclosure of non-cash investing and financing activities:
Unrealized gain on short-term investments	$	97	$	414
Acquisitions of property and equipment included in accounts payable and accrued expense		(5,212)		(92)
Accrued offering costs in accrued expenses		(393)		—

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 cell therapies as 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 an autologous cell therapy platform technology that was originally developed by the National Cancer Institute (“NCI”), which conducted initial clinical trials in diseases such as metastatic melanoma and cervical cancer. The Company has developed a new, shorter manufacturing process for TIL therapy known as Generation 2 (“Gen 2”), which yields a cryopreserved TIL product. This proprietary and scalable manufacturing method is being further investigated in multiple indications. The Company’s lead product candidates include lifileucel for metastatic melanoma and LN-145 for metastatic cervical cancer. In addition to metastatic melanoma and metastatic cervical cancer, the Company is investigating the effectiveness and safety of TIL therapy and peripheral blood lymphocyte therapy for the treatment of squamous cell carcinoma of the head and neck, non-small cell lung cancer, and chronic lymphocytic leukemia through its sponsored trials, as well as in other oncology indications through collaborations. On June 1, 2017, the Company reincorporated from a Nevada corporation to a Delaware corporation.

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, 2020 and 2019 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-X. Accordingly, they do not include all the information and footnotes required by GAAP for audited 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 Company's financial position and 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, 2019, was derived from the audited financial statements included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on February 25, 2020. These interim financial statements should be read in conjunction with that report.

Liquidity

The Company is currently developing therapeutics for the treatment of cancer, including solid tumors and hematological malignancies. 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 significant 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 $132.6 million for the six months ended June 30, 2020 and used $101.9 million of cash in its operating activities during the six months ended June 30, 2020. In June 2020, the Company received net proceeds of approximately $567.0 million from the June 2020 Public Offering (as discussed in Note 5). As of June 30, 2020, the Company had $777.4 million in cash, cash equivalents, short-term investments, and restricted cash ($160.6 million of cash and cash equivalents, $611.3 million in short-term investments and $5.5 million in restricted cash).

The Company expects to continue its research and development activities, increase pre-commercial activities and initiate the construction on the tenant improvements for its new manufacturing facility, which will increase the amount of cash used during 2020 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 and continuation of pre-commercial activities. Based on the funds the Company has available as of the date these financial statements are issued, the Company believes that it has sufficient capital to fund its anticipated operating expenses and capital expenditures as planned for at least the next twelve months from the date these financial statements are issued.

Impact of COVID-19

In December 2019, a novel (new) coronavirus known as SARS-CoV-2 was first detected in Wuhan, Hubei Province, People’s Republic of China, causing outbreaks of the coronavirus disease, known as COVID-19, that has now spread globally. On January 30,

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2020, the World Health Organization (WHO) declared COVID-19 a pandemic (the "COVID-19 Pandemic"). The Secretary of Health and Human Services declared a public health emergency on January 31, 2020, under section 319 of the Public Health Service Act (42 U.S.C. 247d), in response to the COVID-19 Pandemic. The full impact of the COVID-19 Pandemic is unknown and rapidly evolving. While the potential economic impact brought by and over the duration of the COVID-19 Pandemic may be difficult to assess or predict, the COVID-19 Pandemic has resulted in significant disruption of global financial markets, which could in the future negatively affect the Company's liquidity. In addition, a recession or market volatility resulting from the COVID-19 Pandemic could affect the Company’s business. Given the nature and type of the Company’s short-term investments in U.S. government securities, the Company does not believe the COVID-19 Pandemic has had or will have a material impact on the Company's current investment liquidity.

Concentrations of Risk

The Company is subject to credit risk from its 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 and liquidity of investments sufficient to meet cash flow requirements.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Cash, Cash Equivalents, 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 income. Any impairment losses related to credit losses (if any) are included in an allowance for credit losses with an offsetting entry to net loss. No impairment losses related to credit losses were recognized for the three and six months ended June 30, 2020 and 2019. 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 condensed consolidated statements of operations. Gains and losses on securities sold are recorded based on the specific identification method and are included in net interest income in the condensed consolidated statements 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, except for securities issued by the U.S. government. Currently the Company invests excess cash only in obligations issued by the U.S. government and U.S. government agencies.

The Company maintains a required minimum balance, currently $5.5 million in a segregated bank account in connection with two letters of credit, one for $5.45 million for the benefit of the landlord for its commercial manufacturing facility used as a security deposit for the lease (See Note 9 - Leases), and a second one for $74,685 for the benefit of a utilities service provider. The total amount is classified as Restricted Cash on the Balance Sheet. The original term of the letter of credit expired on May 28, 2020; however, the term was automatically extended for an additional one-year period on May 28, 2020, and will be automatically extended for additional one-year periods, without written agreement, to May 28 in each succeeding calendar year, through at least 60 days after the lease expiration date. 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. The $74,685 letter of credit will expire on February 25, 2021, however, it will be automatically extended, without written agreement, to the expiration date of December 1, 2022. As of June 30, 2020, restricted cash consisted of $5.5 million and this amount has been classified as a non-current asset on the Company’s condensed consolidated balance sheets.

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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 statements of cash flows:


	June 30,		June 30,
	2020		2019
Cash and cash equivalents	$	160,614	$	76,912
Restricted cash (included in non-current assets on the condensed consolidated balance sheets)		5,525		5,450
Total cash, cash equivalents and restricted cash	$	166,139	$	82,362

Loss per Share

Basic net loss per share is computed by dividing the net loss by the weighted average number of shares of common stock 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 shares of common stock issuable upon (i) the exercise of outstanding stock options, (ii) vesting of restricted stock units, 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, 2020 and 2019, 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,
	2020	2019
Stock options	12,594,736	9,205,672
Series A Convertible Preferred Stock*	97,000	97,000
Series B Convertible Preferred Stock*	3,581,119	5,854,845
Restricted stock units	—	45,828
	16,272,855	15,203,345

* on an as-converted basis

The effect of potentially dilutive securities would be reflected in diluted earnings per share of common stock 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.

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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–These are investments where values are based on unadjusted quoted prices for identical assets in an active market that the Company has the ability to access.

Level 2–These are investments where values are based on quoted market prices in markets that are not active or model derived valuations in which all significant inputs are observable in active markets

The Company does not have fair valued assets classified under Level 2 as of June 30, 2020 and December 31, 2019.

Level 3–These are financial instruments where values are derived from techniques in which one or more significant inputs are unobservable.

The Company does not have fair valued assets classified under Level 3 as of June 30, 2020 and December 31, 2019.

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

As of June 30, 2020 and December 31, 2019, 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, 2020
	Level 1		Level 2		Level 3		Total
U.S. treasury securities	$	340,698	$	—	$	—	$	340,698
U.S. government agency securities		270,567		—		—		270,567
Total	$	611,265	$	—	$	—	$	611,265


	Assets at Fair Value as of December 31, 2019
	Level 1		Level 2		Level 3		Total
US treasury securities	$	242,249	$	—	$	—	$	242,249
US government agency securities		50,863		—		—		50,863
Total	$	293,112	$	—	$	—	$	293,112

Use of Estimates

The preparation of financial statements in conformity with 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 the assumptions made in valuing stock instruments issued for services and used in measuring operating right-of-use assets and operating lease liabilities, valuation of short-term investments, accounting for potential liabilities, and the valuation allowance associated with the Company’s deferred tax assets.

Principles of Consolidation

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

Income Taxes

The Company accounts for income taxes using the asset and liability method whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a

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valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

ASC Topic 740-10-30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740-10-40 provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The Company will classify as income tax expense any interest and penalties. The Company has no material uncertain tax positions for any of the reporting periods presented.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted and signed into law, and GAAP requires recognition of the tax effects of new legislation during the reporting period that includes the enactment date. The CARES Act, among other things, includes changes to the tax provisions that benefits business entities and makes certain technical corrections to the 2017 Tax Cuts and Jobs Act. The tax relief measures for business include a five-year net operating loss (“NOL”) carrybacks, suspension of annual deduction limitation of 80% taxable income from net operating losses generated in a tax year beginning after December 31, 2017, changes in the deductibility of interest, acceleration of alternative minimum tax credit refunds, payroll tax relief, and technical correction to allow accelerated deductions for qualified improvement property. The CARES Act also provides other non-tax benefits to assist those impacted by the pandemic. The Company evaluated the impact of the CARES Act and determined no material tax provision impact for the quarter ended June 30, 2020.

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, 2020 and December 31, 2019. Operating lease right-of-use assets represent the Company’s right to use an underlying asset for the lease term and operating lease liabilities represent the Company’s 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 the 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.

Stock-Based Compensation

The Company periodically grants stock options to 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 a similar manner as stock option grants to employees except for the term used in the grant date fair value, therefore no longer requiring a re-measurement at the then-current fair values at each reporting date until the shares underlying the options have vested. The non-employee 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. 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.

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The Company has in the past issued restricted stock units (“RSUs”) and restricted stock awards (“RSAs”) as part of its share-based compensation programs. The Company measures the compensation cost with respect to RSUs and RSAs 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 awards.

The fair value of RSUs and RSAs 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,
	2020		2019		2020		2019
Research and development	$	5,465	$	2,720	$	9,783	$	5,421
General and administrative		5,072		3,706		10,166		6,851
Total stock-based compensation expenses	$	10,537	$	6,426	$	19,949	$	12,272

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,
	2020		2019		2020		2019
Stock option expenses	$	10,492	$	6,359	$	19,837	$	12,138
Restricted stock unit expenses		45		67		112		134
Total stock-based compensation expenses	$	10,537	$	6,426	$	19,949	$	12,272

Preferred Stock

The Company applies the accounting standards for distinguishing liabilities from equity when determining the classification and measurement of its preferred stock. Preferred stock subject to mandatory redemption are classified as liability instruments and are measured at fair value. Conditionally redeemable preferred stock (including preferred stock that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) are classified as temporary equity. At all other times, preferred stock is 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.

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Recent Accounting Standards

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, ASU 2019-05, ASU 2019-11, and ASU 2020-03 (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 requires 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 adopted this guidance on January 1, 2020, however, the adoption of this new guidance did not have any material impact on its condensed 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). The guidance requires a customer in a cloud computing arrangement that is a service contract to follow the internal use software guidance to determine which implementation costs to defer and recognize as an asset. It therefore requires a customer to defer potentially significant implementation costs incurred in a cloud computing arrangement that were often expensed as incurred under the legacy GAAP and recognize them as expense over the term of the hosting arrangement. ASU 2018-15 is effective for fiscal years beginning subsequent to December 15, 2019. The Company adopted this guidance on January 1, 2020. There was no impact on the Company's condensed consolidated balance sheets and statements of operations as of and for the three and six months ended June 30, 2020. However, the Company believes it will have a material impact on its condensed consolidated balance sheets and statements of operations in the future by deferring recognition of costs as it prepares to invest in information technology infrastructure for its commercial manufacturing build-out.

Subsequent Events

The Company’s management evaluates events that have occurred after the balance sheet date but before the financial statements are issued. See Note 11 Subsequent Event.