+-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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| The |
At July 25, 2022, the issuer had
IOVANCE BIOTHERAPEUTICS, INC.
FORM 10-Q
For the Quarter Ended June 30, 2022
Table of Contents
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 28 | |
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1
Forward-Looking Statements and Market Data
This Quarterly Report on Form 10-Q contains forward-looking statements that are based on management’s beliefs and assumptions and on information currently available to management. All statements other than statements of historical facts contained in this report are forward-looking statements. In some cases, you can identify forward-looking statements by the following words: “may,” “will,” “might,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “aim,” “potential,” “continue,” “ongoing,” “goal,” “forecast,” “guidance,” “outlook,” or the negative of these terms or other similar expressions, although not all forward-looking statements contain these words.
These statements involve risks, uncertainties and other factors that may cause actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. Although we believe that we have a reasonable basis for each forward-looking statement contained in this report, we caution you that these statements are based on a combination of facts and factors currently known by us and our projections of the future, about which we cannot be certain. Forward-looking statements in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:
● | the success, cost, enrollment, and timing of our clinical trials; |
● | the success, cost and timing of our product development activities; |
● | the ability of us or our third-party contract manufacturers to continue to manufacture tumor infiltrating lymphocytes, or TIL, in accordance with our selected process; |
● | our ability to design, construct and staff our own manufacturing facility on a timely basis and within the estimated expenses; |
● | the success of competing therapies that are or may become available; |
● | regulatory developments in the United States of America, or U.S., and foreign countries; |
● | the timing of and our ability to obtain and maintain U.S. Food and Drug Administration, or the FDA, or other regulatory authority approval of, or other action with respect to, our product candidates; |
● | our ability to attract and retain key scientific or management personnel; |
● | the accuracy of our estimates regarding expenses, future revenue, capital requirements and needs for additional financing; |
● | our ability to obtain funding for our operations, including funding necessary to complete further development and commercialization of our product candidates; |
● | the ability and willingness of our third-party research institution collaborators to continue research and development activities relating to our product candidates; |
● | the potential of our other research and development and strategic collaborations; |
● | our expectations regarding our ability to obtain and maintain intellectual property protection for our manufacturing methods and product candidates; |
● | our plans to research, develop and commercialize our product candidates; |
● | the size and growth potential of the markets for our product candidates, and our ability to serve those markets; |
● | our ability to contract with third-party suppliers and manufacturers and their ability to perform adequately; |
● | fluctuations in the trading price of our common stock; and |
● | our use of cash and other resources. |
2
Actual results may differ from those set forth in this Quarterly Report on Form 10-Q due to the risks and uncertainties inherent in our business, including, without limitation: the FDA may not agree with our interpretation of the results of its clinical trials; later developments with the FDA that may be inconsistent with already completed FDA meetings; the preliminary clinical results, including efficacy and safety results, from ongoing Phase 2 may not be reflected in the final analyses of these trials including new cohorts within these trials; the results obtained in our ongoing clinical trials, such as the studies and trials referred to in this Quarterly Report on Form 10-Q, may not be indicative of results obtained in future clinical trials or supportive of product approval; regulatory authorities may potentially delay the timing of FDA or other regulatory authority approval of, or other action with respect to, our product candidates, specifically, our description of FDA interactions are subject to FDA’s interpretation, as well as FDA’s authority to request new or additional information; we may not be able to obtain or maintain FDA or other regulatory authority approval of its product candidates; our ability to address FDA or other regulatory authority requirements relating to our clinical programs and registrational plans, such requirements including, but not limited to, clinical and safety requirements as well as manufacturing and control requirements; risks related to our accelerated FDA review designations; our ability to obtain and maintain intellectual property rights relating to our product pipeline; and the acceptance by the market of our product candidates and their potential reimbursement by payors, if approved.
We caution you that the risks, uncertainties and other factors referenced above may not contain all the risks, uncertainties and other factors that are important to you. In addition, we cannot guarantee future results, level of activity, performance or achievements. Any forward-looking statement made by us in this Quarterly Report on Form 10-Q speaks only as of the date of this Quarterly Report on Form 10-Q or as of the date on which it is made. Except as required by law, we undertake no obligation to publicly update any forward-looking statements, whether because of new information, future events or otherwise, after the date of this Quarterly Report on Form 10-Q.
Unless the context requires otherwise, in this report the terms “Iovance,” the “Company,” “we,” “us” and “our” refer to Iovance Biotherapeutics, Inc.
3
PART I. FINANCIAL INFORMATION
Item 1. | Condensed Consolidated Financial Statements |
IOVANCE BIOTHERAPEUTICS, INC.
Condensed Consolidated Balance Sheets
(unaudited; in thousands, except share and per share information)
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| 2021 | ||
ASSETS |
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Current Assets |
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Cash and cash equivalents | $ | | $ | | ||
Short-term investments |
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Prepaid expenses and other assets |
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Total Current Assets |
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Property and equipment, net | | | ||||
Operating lease right-of-use assets | | | ||||
Long-term investments |
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Restricted cash | | | ||||
Long-term assets |
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Total Assets | $ | | $ | | ||
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current Liabilities |
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Accounts payable | $ | | $ | | ||
Accrued expenses |
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Operating lease liabilities | | | ||||
Total Current Liabilities |
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Non-Current Liabilities |
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Operating lease liabilities – noncurrent |
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Long-term note payable | | | ||||
Total Non-Current Liabilities |
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Total Liabilities |
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Commitments and contingencies |
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Stockholders’ Equity |
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Series A Convertible Preferred stock, $ |
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Series B Convertible Preferred stock, $ |
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Common stock, $ |
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Accumulated other comprehensive loss |
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Additional paid-in capital |
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Accumulated deficit |
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Total Stockholders’ Equity |
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Total Liabilities and Stockholders’ Equity | $ | | $ | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
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, | |||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
Costs and expenses |
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Research and development |
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General and administrative |
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Total costs and expenses |
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Loss from operations |
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Other income |
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Interest income, net |
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Net Loss | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Net Loss Per Share of Common Stock, Basic and Diluted | ( | ( | ( | ( | ||||||||
Weighted Average Shares of Common Stock Outstanding, Basic and Diluted |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
5
IOVANCE BIOTHERAPEUTICS, INC.
Condensed Consolidated Statements of Comprehensive Loss
(unaudited; in thousands)
Three Months Ended | Six Months Ended | |||||||||||
June 30, | June 30, | |||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
Net Loss | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Other comprehensive (loss) income: |
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Unrealized (loss) gain on investments |
| ( |
| ( |
| ( |
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Comprehensive Loss | $ | ( | $ | ( | $ | ( | $ | ( |
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
IOVANCE BIOTHERAPEUTICS, INC
Condensed Consolidated Statements of Stockholders’ Equity
For the Three Months Ended June 30, 2022 and 2021
(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 (Loss) |
| Deficit |
| Equity | |||||||
Balance - March 31, 2022 |
| | $ | — | | $ | | | $ | | $ | | $ | ( | $ | ( | $ | | |||||||||
Stock-based compensation expense | — | — | — | — | — | — |
| | — | — |
| | |||||||||||||||
Common stock issued upon purchase of employee stock purchase plan | — | — | — | — | 80,203 | — | 582 | — | — | 582 | |||||||||||||||||
Vesting of restricted shares issued for services | — | — | — | — |
| |
| — |
| — | — | — |
| — | |||||||||||||
Tax payments related to shares retired for vested restricted stock units | — | — | — | — | ( | — |
| ( | — | — |
| ( | |||||||||||||||
Unrealized loss on investments | — | — | — | — | — | — | — |
| ( | — |
| ( | |||||||||||||||
Net loss | — | — | — | — | — | — | — | — |
| ( |
| ( | |||||||||||||||
Balance - June 30, 2022 |
| | $ | — |
| | $ | |
| | $ | | $ | | $ | ( | $ | ( | $ | | |||||||
Balance - March 31, 2021 |
| | $ | — |
| | $ | |
| | $ | | $ | | $ | | $ | ( | $ | | |||||||
Stock-based compensation expense | — | — | — | — | — | — | | — | — |
| | ||||||||||||||||
Common stock issued upon purchase of employee stock purchase plan | — | — | — | — | 55,315 | — | 970 | — | — |
| 970 | ||||||||||||||||
Common stock issued upon exercise of stock options | — | — | — | — | | — | | — | — |
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Common stock sold in public offering, net of offering costs | — | — | — | — | | | | — | — | | |||||||||||||||||
Unrealized loss on short-term investments | — | — | — | — | — | — | — | ( | — |
| ( | ||||||||||||||||
Net loss | — | — | — | — | — | — | — | — |
| ( |
| ( | |||||||||||||||
Balance - June 30, 2021 |
| | $ | — |
| | $ | |
| | $ | | $ | | $ | | $ | ( | $ | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
IOVANCE BIOTHERAPEUTICS, INC
Condensed Consolidated Statements of Stockholders’ Equity
For the Six Months Ended June 30, 2022 and 2021
(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’ | |||||||||||||||||||||
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| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Income |
| Deficit |
| Equity | |||||||
Balance - December 31, 2021 |
| | $ | — |
| | $ | |
| | $ | | $ | | $ | ( | $ | ( | $ | | |||||||
Stock-based compensation expense | — | — | — | — | — | — |
| | — | — |
| | |||||||||||||||
Common stock issued upon purchase of employee stock purchase plan | — | — | — | — | 80,203 | — | 582 | — | — | 582 | |||||||||||||||||
Vesting of restricted shares issued for services | — | — | — | — |
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| — |
| — | — | — |
| — | |||||||||||||
Tax payments related to shares retired for vested restricted stock units | — | — | — | — | ( | — |
| ( | — | — |
| ( | |||||||||||||||
Common stock issued upon exercise of stock options | — | — | — | — |
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| — |
| | — | — |
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Unrealized loss on investments | — | — | — | — | — | — | — |
| ( | — |
| ( | |||||||||||||||
Net loss | — | — | — | — | — | — | — | — |
| ( |
| ( | |||||||||||||||
Balance - June 30, 2022 |
| | $ | — |
| | $ | |
| | $ | | $ | | $ | ( | $ | ( | $ | | |||||||
Balance - December 31, 2020 |
| | $ | — |
| | $ | |
| | $ | | $ | | $ | | $ | ( | $ | | |||||||
Stock-based compensation expense | — | — | — | — | — | — |
| | — | — |
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Common stock issued upon purchase of employee stock purchase plan | — | — | — | — | | — | | — | — |
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Common stock issued upon exercise of stock options | — | — | — | — |
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Common stock sold in public offering, net of offering costs | — | — | — | — | | | | — | — |
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Common stock issued from preferred stock conversion | — | — | ( | ( | | — | | — | — |
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Unrealized gain on short-term investments | — | — | — | — | — | — | — |
| | — | | ||||||||||||||||
Net loss | — | — | — | — | — | — | — | — |
| ( | ( | ||||||||||||||||
Balance - June 30, 2021 |
| | $ | — |
| | $ | |
| | $ | | $ | | $ | | $ | ( | $ | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
8
IOVANCE BIOTHERAPEUTICS, INC.
Condensed Consolidated Statements of Cash Flows
(unaudited; in thousands)
Six Months Ended | |||||||
June 30, | |||||||
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| 2022 |
| 2021 | |||
Cash Flows from Operating Activities | |||||||
Net loss | $ | ( | $ | ( | |||
Adjustments to reconcile net loss to net cash used in operating activities: |
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Stock-based compensation expense | | | |||||
Amortization of right of use asset | | | |||||
Depreciation and amortization | |
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Accretion (amortization) of discounts and premiums on investments | | | |||||
Loss on write-off of fixed assets | | | |||||
Changes in assets and liabilities: | |||||||
Prepaid expenses, other assets and long-term assets | ( |
| ( | ||||
Operating lease liabilities, net of tenant improvement allowance received | |
| ( | ||||
Accounts payable | |
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Accrued expenses and other liabilities |
| ( |
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Net cash used in operating activities |
| ( |
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Cash Flows from Investing Activities | |||||||
Maturities of investments |
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Purchase of investments |
| ( |
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Purchase of property and equipment |
| ( |
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Net cash provided by / (used in) investing activities |
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Cash Flows from Financing Activities | |||||||
Tax payments related to shares withheld for vested restricted stock units |
| ( |
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Proceeds from the issuance of common stock upon purchase of employee stock purchase plan |
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Proceeds from the issuance of common stock upon exercise of options | | | |||||
Proceeds from the issuance of common stock, net | | | |||||
Proceeds from the issuance of debt | | | |||||
Net cash (used in) / provided by financing activities |
| ( |
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Net increase in cash, cash equivalents and restricted cash |
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Cash, Cash Equivalents and Restricted Cash Beginning of Period |
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Cash, Cash Equivalents and Restricted Cash End of Period | $ | | $ | | |||
Supplemental disclosure of non-cash investing and financing activities: | |||||||
Net unrealized (loss) gain on investments | $ | ( | $ | | |||
Acquisition of property and equipment included in accounts payable and accrued expenses |
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Conversion of convertible preferred stock to common stock | | ( | |||||
Lease liabilities arising from obtaining right-of-use asset from new leases | | | |||||
Lease liabilities arising from obtaining right-of-use asset from lease modifications | | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
9
IOVANCE BIOTHERAPEUTICS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1. GENERAL ORGANIZATION, BUSINESS AND LIQUIDITY
General Organization and Business
Iovance Biotherapeutics, Inc. (the “Company”) is a clinical-stage biopharmaceutical company pioneering a transformational approach to cure cancer by harnessing the human immune system’s ability to recognize and destroy diverse cancer cells in each patient. The Company’s T-cell-based immunotherapy technology platforms are potentially applicable to many tumor types and blood cancers. Tumor infiltrating lymphocyte (“TIL”) therapy is an autologous, polyclonal cell therapy platform technology that was originally developed by the National Cancer Institute (“NCI”), which conducted initial clinical trials of this therapy in diseases such as metastatic melanoma and cervical cancer. The Company’s mission is to be the global leader in innovating, developing and delivering TIL therapies for patients with cancer. The Company has developed a new, shorter TIL manufacturing process known as Generation 2 (“Gen 2”), which yields a cryopreserved TIL product. This centralized, proprietary, and scalable manufacturing method is being investigated in multiple indications. The Company’s lead product candidates include lifileucel for metastatic melanoma and metastatic cervical cancer, as well as LN-145 for metastatic non-small cell lung cancer (“NSCLC”). In addition, the Company is investigating the effectiveness and safety of combinations of TIL therapy with immune checkpoint inhibitors (“ICI”), in metastatic melanoma, cervical cancer, NSCLC, and head and neck squamous cell carcinoma (“HNSCC”). The Company also initiated a clinical trial with its first genetically modified TIL therapy, designated IOV-4001, in patients with previously treated metastatic melanoma and NSCLC. The Company is also developing genetically edited TIL products based on the inactivation of genes that encode immune checkpoint proteins and the insertion of genes that encode immunomodulatory proteins. The Company’s lead peripheral blood lymphocyte (“PBL”) therapy, IOV-2001, is being investigated in a clinical study for patients with relapsed or refractory chronic lymphocytic leukemia (“CLL”) and small lymphocytic lymphoma (“SLL”) through its sponsored trials. 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 accompanying unaudited condensed consolidated financial statements of the Company for the three and six months ended June 30, 2022 and 2021 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 that may be expected for the year ended December 31, 2022 or for any other period. The condensed consolidated balance sheet as of December 31, 2021 was derived from the audited consolidated financial statements included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on February 24, 2022. These interim financial statements should be read in conjunction with that report. Certain prior period amounts reported in our condensed consolidated financial statements and accompanying notes have been reclassified to conform to the current period presentation.
Liquidity
The Company is currently engaged in the development of therapeutics to fight cancer, specifically solid tumors. The Company currently does not have any commercial products and has not yet generated any revenues from its business, nor does the Company currently anticipate that it will generate significant revenues from the sale or licensing of any of its product candidates during the twelve months from the date these consolidated financial statements are issued. The Company has incurred a net loss of $
10
The Company expects to continue its research and development activities, increase pre-commercial activities and complete construction of the remaining tenant improvements for the Iovance Cell Therapy Center (the “iCTC”), which are expected to increase the amount of cash used during the remainder of 2022 and beyond. Specifically, the Company expects continued spending on its current and planned clinical trials, continued expansion of manufacturing activities, 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 consolidated 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.
Concentrations of Risk
The Company is subject to credit risk from its portfolio of cash, cash equivalents and investments. Under its investment policy, the Company limits amounts invested in 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 are safety and preservation of principal, diversification of risk, and liquidity of investments sufficient to meet cash flow requirements.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash, Cash Equivalents, and 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 investments are classified as “available-for-sale.” The Company includes these investments in current assets or non-current assets in the Condensed Consolidated Balance Sheets based on the length of maturity from the reporting date and carries them at fair value. Unrealized gains and losses on available-for-sale securities are recorded in accumulated other comprehensive loss. Impairment losses related to credit losses (if any) are recorded as an allowance for credit losses with an offsetting entry to Interest income, net. No impairment losses related to credit losses were recognized for the three and six months ended June 30, 2022 and 2021. 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 Interest income, net 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 Interest income, net 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 commercial paper, and places restrictions on maturities and concentration by type and issuer, except for securities issued by the U.S. government.
Restricted Cash
The Company maintains a required minimum balance in a segregated bank account in connection with its letters of credit for which amounts are restricted as to their use by the Company. Currently, the Company’s letters of credit are primarily comprised of one for the benefit of the landlord for the iCTC used as a security deposit for the lease in the amount $
11
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 (in thousands):
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| June 30, | ||||
| 2022 | 2021 | ||||
Cash and cash equivalents | $ | | $ | | ||
Restricted cash |
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Total cash, cash equivalents and restricted cash | $ | | $ | |
Net 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 equivalents 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, (ii) purchases though the 2020 Employee Stock Purchase Plan (the “2020 ESPP”), (iii) vesting of restricted stock units, and (iv) conversion of preferred stock, are only included in the calculation of diluted net loss per share when their effect is dilutive.
As of June 30, 2022 and 2021, 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, | ||||
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| 2022 |
| 2021 |
Stock options | |
| | |
Employee Stock Purchase Plan | | | ||
Restricted stock units | | | ||
Series A Convertible Preferred Stock* | | | ||
Series B Convertible Preferred Stock* | |
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* 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.
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 expenses during the reporting period. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include assumptions made in the fair value of equity awards and related stock-based compensation, assumptions used in measuring operating right-of-use assets and operating lease liabilities, accounting for potential liabilities, including estimates inherent in accruals related to clinical trials, and the realizability of 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, Iovance Biotherapeutics GmbH, and Iovance Biotherapeutics B.V. All intercompany accounts and transactions have been eliminated. The U.S. dollar is the functional currency for all the Company's consolidated operations.
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Leases
The Company determines if an arrangement includes a lease at inception and thereafter, if modified. Operating leases are included in its Condensed Consolidated Balance Sheets as Operating lease right-of-use assets and Operating lease liabilities as of June 30, 2022 and December 31, 2021. 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 or modification 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 or modification date.
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 and recorded in costs and expenses in the Condensed Consolidated Statements of Operations. The Company has elected not to apply the recognition requirements of Accounting Standards Update (“ASU”) No. 2016-02 and No. 2018-10 (together “Topic 842”) for short-term leases.
For lease agreements entered into by the Company 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 and non-employees as compensation for services rendered. The Company accounts for all stock-based payment awards made to employees, including the employee stock purchase plans, and non-employees in accordance with the authoritative guidance provided by the Financial Accounting Standards Board (“FASB”) where the value of the award is measured on the date of grant and recognized over the vesting period. Forfeitures are recognized in the period in which they occur. 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 term 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 affect compensation expense recorded in future periods.
The Company issues restricted stock units (“RSUs”) from time to time as part of its equity incentive plans. The Company measures the compensation cost with respect to RSUs 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 is based on the closing price of the Company’s common stock on the grant date.
Accrued Research and Development Costs
Research and development costs are expensed as incurred. Clinical development costs compose a significant component of research and development costs. The Company has a history of contracting with third parties, including contract research organizations (“CROs”), independent clinical investigators, and contract manufacturing organizations (“CMOs”) that perform various clinical trial activities on the Company’s behalf in connection with the ongoing development of the Company’s product candidates. The financial terms of these contracts are subject to negotiations and may vary from contract to contract and may result in uneven payment flow. The Company accrues and expenses costs for clinical trial activities performed by third parties based upon estimates of work completed to date for each clinical trial in accordance with agreements established with CROs, hospitals, and clinical investigators. Accruals for CROs and CMOs are recorded based on estimates of services received and efforts expended pursuant to agreements established with CROs, CMOs and other outside service providers. The Company determines its estimates through discussions with internal clinical stakeholders and outside service providers as to the progress or stage of completion of clinical trials or services and the contracted fee to be paid for such services.
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Included in the Company’s clinical development costs are investigator costs, which are costs associated with treatments administered at clinical sites as required under each clinical study protocol. The Company’s estimates for clinical investigator costs and timing of expense recognition will depend on a number of factors that include, but are not limited to, (i) the overall number of patients that enroll in the trial at each individual site, (ii) the length of study enrollment period, (iii) discontinuation and completion rates of patients, (iv) duration of patient safety follow-ups, (v) the number of sites included in the clinical trial, and (vi) the contracted fee of each participating site for patient treatment while on study, which can vary greatly for several reasons including, but not limited to, geographic region, medical center or physician costs, and overhead costs. In addition, the Company’s estimates for per patient trial costs will vary based on a number of factors that include, but are not limited to, the extent of additional treatments that may be administered by investigators as a result of patient health status, recoverability of patient costs through insurance carriers of patients, and unanticipated cost of injuries incurred as a result of the study treatment. The Company accrues for estimated expenses resulting from obligations under investigator site agreements as the timing of payments does not always timely align with the periods over which the treatments are administered by the clinical investigators. These estimates are typically based on contracted amounts, patient visit data, discussions with internal clinical stakeholders and outside service providers, and historical look-back analysis of actual payments made to date.
The Company makes judgements and estimates in determining the accrual balance in each reporting period.
In the event advance payments are made to a CRO, CMO or other outside service provider, the payments are recorded within prepaid expenses and other current assets in the Condensed Consolidated Balance Sheets and subsequently recognized as research and development expense in the Condensed Consolidated Statements of Operations when the associated services have been performed. As actual costs become known, the Company adjusts its estimates, liabilities and assets. Inputs used in the determination of estimates discussed above may vary from actual, which will result in adjustments to research and development expense in future periods. Changes in these estimates that result in material changes to the Company’s accruals could materially affect its results of operations. The Company’s historical estimates have not been materially different from actual amounts recorded.
Segment Reporting
The Company operates in
NOTE 3. CASH EQUIVALENTS, INVESTMENTS AND FAIR VALUE MEASUREMENTS
The amortized cost, fair value measurements, and fair value of cash equivalents and investments as of June 30, 2022 and December 31, 2021 were as follows (in thousands):
| Gross | Gross | ||||||||||
| Amortized | Unrealized | Unrealized | |||||||||
As of June 30, 2022 |
| Cost |
| Gains |
| Losses |
| Fair Value | ||||
U.S. treasury securities | $ | | $ | — | $ | ( | $ | | ||||
U.S. government agency securities |
| |
| — |
| ( |
| | ||||
Corporate securities | | — | ( | | ||||||||
Commercial paper | | — | ( | | ||||||||
Money market funds | | — | — | | ||||||||
Total investments | $ | | $ | — | $ | ( | $ | |
| Gross | Gross | ||||||||||
| Amortized | Unrealized | Unrealized | |||||||||
As of December 31, 2021 |
| Cost |
| Gains |
| Losses |
| Fair Value | ||||
U.S. treasury securities | $ | | $ | — | $ | ( |