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Table of Contents

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 September 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 October 26, 2020, the issuer had 146,687,334 shares of common stock, par value $0.000041666 per share, outstanding.

Table of Contents

IOVANCE BIOTHERAPEUTICS, INC.

FORM 10-Q

For the Quarter Ended September 30, 2020

 

Table of Contents

 

Page

PART I FINANCIAL INFORMATION

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

2

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

28

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

35

Item 4.

Controls and Procedures

36

PART II OTHER INFORMATION

Item 1.

Legal Proceedings

36

Item 1A.

Risk Factors

36

Item 2.

Unregistered Sales of Securities and Use of Proceeds

80

Item 3.

Defaults Upon Senior Securities

80

Item 4.

Mine Safety Disclosure

80

Item 5.

Other Information

80

Item 6.

Exhibits

81

SIGNATURES

82

1

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements

IOVANCE BIOTHERAPEUTICS, INC.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share information)

    

September 30, 

December 31, 

    

2020

    

2019

(unaudited)

ASSETS

  

 

  

  

 

  

Current Assets

  

 

  

Cash and cash equivalents

$

68,310

$

13,969

Short-term investments

 

645,838

 

293,112

Prepaid expenses and other assets

 

9,442

 

9,412

Total Current Assets

 

723,590

 

316,493

 

  

 

  

Property and equipment, net

39,112

8,536

Operating lease right-of-use assets

10,682

10,695

Restricted cash

5,525

5,450

Long-term assets

 

3,385

 

3,481

Total Assets

$

782,294

$

344,655

 

  

 

  

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

  

 

  

 

  

 

  

Current Liabilities

 

  

 

  

Accounts payable

$

24,794

$

15,567

Accrued expenses

 

32,400

 

16,265

Operating lease liabilities - current

7,196

7,252

Total Current Liabilities

 

64,390

 

39,084

 

  

 

  

Non-Current Liabilities

 

  

 

  

Operating lease liabilities – noncurrent

 

3,711

 

4,248

Other liabilities

2,352

2,352

Total Non-Current Liabilities

 

6,063

 

6,600

Total Liabilities

 

70,453

 

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 September 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 September 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, 146,581,624 and 126,411,808 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively

 

6

 

5

Accumulated other comprehensive income

 

155

 

220

Additional paid-in capital

 

1,473,472

 

869,354

Accumulated deficit

 

(761,796)

 

(570,612)

Total Stockholders’ Equity

 

711,841

 

298,971

Total Liabilities and Stockholders’ Equity

$

782,294

$

344,655

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

2

Table of Contents

IOVANCE BIOTHERAPEUTICS, INC.

Condensed Consolidated Statements of Operations

(unaudited; in thousands, except per share information)

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

2020

    

2019

    

2020

    

2019

    

Revenues

$

$

$

$

 

 

 

 

Costs and expenses

 

 

 

 

Research and development expenses

 

43,050

 

41,582

 

149,276

 

111,785

General and administrative expenses

 

15,916

 

10,029

 

44,127

 

29,977

Total costs and expenses

 

58,966

 

51,611

 

193,403

 

141,762

 

 

 

 

Loss from operations

 

(58,966)

 

(51,611)

 

(193,403)

 

(141,762)

Other income

 

 

 

 

Interest income, net

 

395

 

2,124

 

2,219

 

7,774

Net Loss

$

(58,571)

$

(49,487)

$

(191,184)

$

(133,988)

Net Loss Per Share of Common Stock, Basic and Diluted

$

(0.40)

$

(0.40)

$

(1.41)

$

(1.08)

Weighted Average Shares of Common Stock Outstanding, Basic and Diluted

 

146,492

 

124,035

 

135,457

 

123,674

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

Nine Months Ended

September 30, 

September 30, 

2020

    

2019

    

2020

    

2019

Net Loss

$

(58,571)

$

(49,487)

$

(191,184)

$

(133,988)

Other comprehensive (loss) / gain:

 

 

 

 

Unrealized (loss) / gain on short-term investments

 

(162)

 

(133)

 

(65)

 

281

Comprehensive Loss

$

(58,733)

$

(49,620)

$

(191,249)

$

(133,707)

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 Nine Months Ended September 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

 

30,655

 

30,655

Vesting of restricted 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

 

680,561

 

 

6,704

 

6,704

Unrealized loss on short-term investments

 

(65)

 

(65)

Common stock sold in public offering, net of offering costs

19,475,806

1

567,042

567,043

Net loss

 

(191,184)

 

(191,184)

Balance - September 30, 2020

 

194

$

 

3,581,119

$

4

 

146,581,624

$

6

$

1,473,472

$

155

$

(761,796)

$

711,841

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

 

18,870

 

18,870

Vesting of restricted shares issued for services

 

21,738

1

(1)

 

Tax payments related to shares withheld for vested restricted stock units

 

(193)

 

(193)

Common stock issued upon exercise of stock options

514,450

 

 

4,236

 

4,236

Common stock issued from preferred stock conversion

(2,273,726)

(2)

2,273,726

2

Unrealized gain on short-term investments

281

 

 

281

Cancellation of common stock from settlement of dispute

(32,500)

(1)

(335)

(336)

Net loss

(133,988)

(133,988)

Balance - September 30, 2019

 

194

$

 

3,581,119

$

4

 

126,192,990

$

5

$

861,859

$

239

$

(507,044)

$

355,063

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 September 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 - June 30, 2020

 

194

$

 

3,581,119

$

4

 

146,434,810

$

6

$

1,461,207

$

317

$

(703,225)

$

758,309

Stock-based compensation expense

 

10,706

 

10,706

Common stock issued upon exercise of stock options

 

146,814

 

 

1,516

 

1,516

Common stock sold in public offering, net of offering costs

43

43

Unrealized loss on short-term investments

 

(162)

 

(162)

Net loss

 

(58,571)

 

(58,571)

Balance - September 30, 2020

 

194

$

 

3,581,119

$

4

 

146,581,624

$

6

$

1,473,472

$

155

$

(761,796)

$

711,841

Balance - June 30, 2019

 

194

$

 

5,854,845

$

6

 

123,820,508

$

5

$

854,596

$

372

$

(457,557)

$

397,422

Stock-based compensation expense

 

6,598

 

6,598

Vesting of restricted shares issued for services

 

7,206

 

Tax payments related to shares withheld for vested restricted stock units

 

(99)

 

(99)

Common stock issued upon exercise of stock options

91,550

 

 

762

 

762

Common stock issued from preferred stock conversion

(2,273,726)

(2)

2,273,726

2

Unrealized loss on short-term investments

(133)

 

 

(133)

Net loss

(49,487)

(49,487)

Balance - September 30, 2019

 

194

$

 

3,581,119

$

4

 

126,192,990

$

5

$

861,859

$

239

$

(507,044)

$

355,063

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)

Nine Months Ended

September 30, 

    

2020

    

2019

Cash Flows from Operating Activities

Net loss

$

(191,184)

$

(133,988)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

Stock-based compensation expense

30,655

18,870

Noncash lease expense

4,999

4,965

Depreciation and amortization

819

 

875

Gain on settlement of dispute

 

(336)

Accretion (Amortization) of discounts and premiums on investments

359

(3,035)

Changes in assets and liabilities:

Prepaid expenses, other assets, and long-term assets

66

 

785

Operating lease liabilities (Right-of-use assets)

(5,579)

 

(4,314)

Accounts payable

9,168

 

6,625

Accrued expenses and other liabilities

 

8,255

 

4,486

Net cash used in operating activities

 

(142,442)

 

(105,067)

Cash Flows from Investing Activities

Maturities of short-term investments

 

358,493

 

420,580

Purchase of short-term investments

 

(711,643)

 

(353,878)

Purchase of property and equipment

 

(23,456)

 

(3,491)

Net cash (used in) provided by investing activities

 

(376,606)

 

63,211

Cash Flows from Financing Activities

Tax payments related to shares withheld for vested restricted stock awards

 

(283)

 

(193)

Proceeds from the issuance of common stock upon exercise of options

6,704

4,236

Proceeds from the issuance of common stock, net

567,043

Net cash provided by financing activities

 

573,464

 

4,043

Net increase (decrease) in cash, cash equivalents, and restricted cash

 

54,416

 

(37,813)

Cash, Cash Equivalents, and Restricted Cash Beginning of Period

 

19,419

 

82,152

Cash, Cash Equivalents, and Restricted Cash End of Period

$

73,835

$

44,339

Supplemental disclosure of non-cash investing and financing activities:

Unrealized (loss) / gain on short-term investments

$

(65)

$

281

Acquisitions of property and equipment included in accounts payable and accrued expense

 

(8,061)

 

(557)

Conversion of convertible preferred stock to common stock

2

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 metastatic cervical cancer. Lifileucel for metastatic cervical cancer was formerly known as LN-145. 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 nine months ended September 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 $191.2 million for the nine months ended September 30, 2020 and used $142.4 million of cash in its operating activities during the nine months ended September 30, 2020. In June 2020, the Company received net proceeds of $567.0 million from the June 2020 Public Offering (as discussed in Note 5). As of September 30, 2020, the Company had $719.7 million in cash, cash equivalents, short-term investments, and restricted cash ($68.3 million of cash and cash equivalents, $645.8 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 continue the construction of 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 nine months ended September 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 September 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:

    

September 30, 

    

September 30, 

2020

2019

Cash and cash equivalents

$

68,310

$

38,889

Restricted cash (included in non-current assets on the condensed consolidated balance sheets)

 

5,525

 

5,450

Total cash, cash equivalents and restricted cash

$

73,835

$

44,339

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 September 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.

September 30, 

    

2020

    

2019

Stock options

12,768,881

 

9,494,722

Series A Convertible Preferred Stock*

97,000

 

97,000

Series B Convertible Preferred Stock*

3,581,119

 

3,581,119

Restricted stock units

 

34,371

16,447,000

 

13,207,212

* 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.

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

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The Company does not have fair valued assets classified under Level 2 as of September 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 September 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 September 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 September 30, 2020

    

Level 1

    

Level 2

    

Level 3

    

Total

U.S. treasury securities

$

421,155

$

$

$

421,155

U.S. government agency securities

 

224,683

 

 

 

224,683

Total

$

645,838

$

$

$

645,838

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 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.

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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 entities 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 three and nine months ended September 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 September 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.

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.

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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

Nine Months Ended

September 30, 

September 30, 

    

2020

    

2019

    

2020

    

2019

Research and development

$

5,282

$

3,346

$

15,065

$

8,767

General and administrative

 

5,424

 

3,252

 

15,590

 

10,103

Total stock-based compensation expenses

$

10,706

$

6,598

$

30,655

$

18,870

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

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2020

    

2019

    

2020

    

2019

Stock option expenses

$

10,706

$

6,530

$