Earlier this year, investors in Iovance Biotherapeutics (-5.64%) were thrilled when the U.S. Food and Drug Administration granted accelerated approval for their cell therapy treatment, Amtagvi, designed for advanced melanoma. This approval provides Iovance with a pivotal product around which to develop its business strategy.
Initially, growth investors reacted positively to this development. However, in recent months, the company’s stock has faced challenges. Despite heightened optimism about Iovance’s future, investors should be cautious; the accelerated approval of Amtagvi might not be sufficient to consider Iovance a clear-cut investment at this stage.
There are significant risks that investors should be mindful of before committing to this healthcare company. Here’s a closer look at those risks.
Profitability may be years away
Emerging biotech companies often face prolonged periods before achieving profitability. As these businesses expand and capitalize on new opportunities, their losses may even increase.
In its most recent quarterly report ending in June, Iovance Biotherapeutics recorded $31.1 million in sales, marking the beginning of revenue generation from Amtagvi. Nevertheless, the company posted a substantial net loss of $97.1 million, only a slight improvement from the previous year when it reported a $106.5 million loss despite generating less than $1 million in revenue. The company’s operating expenses are on the rise, and this trend might persist.
A more pressing concern is Iovance’s cash flow. Over the last six months, the company expended $220.7 million on operational activities. Considering it concluded the period with just $235.1 million in cash, this is not an ideal situation. However, Iovance does have some cushion, with short-term investments totaling $183.9 million, offering liquid assets if needed. Without significant cash flow improvement, this could pose challenges for investors.
High dilution risk for Iovance
With insufficient cash flow to support daily operations and its expansion plans for launching Amtagvi in new markets like the U.K., Canada, and Australia, Iovance will need to secure additional funding. This often involves issuing stock through equity markets, which is generally preferable to accruing debt and incurring interest.
By the end of the last quarter, Iovance maintained a relatively clean balance sheet, free of long-term debt. Its total liabilities amounted to $195.8 million, significantly lower than its assets of $964.3 million.
This indicates that share offerings might be Iovance’s favored route, posing a risk of dilution for investors. Issuing more shares can diminish an investor’s stake in the company and increase stock supply, potentially exerting downward pressure on the share price—a concern for a stock already down over 30% in the past six months.
Is Iovance Biotherapeutics stock a good buy today?
While Iovance presents compelling growth opportunities, it remains a risky investment. The company will require additional funds to introduce Amtagvi to new markets, likely leading to significant future stock offerings.
If you’re prepared to hold onto the stock for the long term and can tolerate a likely turbulent journey, Iovance might be a worthwhile investment. However, brace yourself for possible dilution, as stock offerings could become routine.
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