Item 9A. Controls and Procedures
Item 9A. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures:
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and in reaching a reasonable level of assurance, management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As of the end of the period covered by this Annual Report on Form 10-K, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level.
(b) Management’s Annual Report on Internal Control Over Financial Reporting:
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2022, based on the framework in Internal Control—Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO. Based on that evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2022.
The independent registered public accounting firm, Ernst and Young LLP, has issued an audit report on our internal control over financial reporting. The report on the audit of internal control over financial reporting is included in this Annual Report on Form 10-K.
(c) Changes in Internal Control Over Financial Reporting:
There has been no change in our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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Item 9B. Other Information
Subsequent Event – Acquisition of Proleukin®
Pursuant to that certain Option Agreement entered into on January 23, 2023 or the Option Agreement, between Iovance and Clinigen Holdings Limited, Clinigen Healthcare Limited and Clinigen, Inc., collectively, Clinigen, we will acquire worldwide rights to Proleukin®, aldesleukin, an IL-2 product used to promote T-cell activity following TIL infusion.
Material terms of the Option Agreement include an upfront payment of £167.7 million, or approximately $200 million, a £41.7 million, or approximately $50 million, milestone payment upon first approval of lifileucel in advanced melanoma, and deferred consideration based on double-digit rates on Proleukin® global net sales payable from Iovance to Clinigen following the completion of the transaction for the applicable deferred consideration term.
Subject to the terms and conditions of the Option Agreement, Clinigen granted us a call option to purchase (i) all issued and outstanding shares of Clinigen SP Limited, the Target, (ii) the business of the Target and Clinigen comprising the manufacturing, supply, commercialization and the generation of income from Proleukin® rights and the undertaking of an active role in the development, maintenance and exploitation of those rights, and (iii) certain specified assets identified in the Option Agreement and we granted Clinigen a put option to sell them.
The Option Agreement is subject to customary termination provisions, and we would be required to pay to Clinigen a reverse termination fee, less certain transaction fees and expenses incurred by us, upon certain events as described in the Option Agreement.
We have provided Clinigen with a parent guarantee in favor of Clinigen, which guarantees that we will promptly fulfill all its obligations under the Option Agreement, subject to the conditions set forth in the Option Agreement.
The closing of the transaction is subject to required regulatory approvals and clearances and other customary closing conditions.
PART III
Certain information required by Part III is omitted from this Annual Report on Form 10-K because we will file a definitive Proxy Statement for the Annual Meeting of Stockholders pursuant to Regulation 14A of the Securities Exchange Act of 1934 (the Proxy Statement), not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K, and the applicable information included in the Proxy Statement is incorporated herein by reference.
Item 10. Directors, Executive Officers, and Corporate Governance
Information required by this Item 10 will be presented in the Proxy Statement “Election of Directors,” “Management Executive Officers,” “Section 16(a) Beneficial Ownership Reporting Compliance” and “Board of Directors and Corporate Governance,” and is incorporated herein by reference.
Item 11. Executive Compensation
The information required by this Item is incorporated herein by reference to the sections entitled “Executive Compensation,” “Executive Compensation—Compensation Discussion and Analysis” and “Directors’ Compensation” in the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this Item is incorporated herein by reference to the sections entitled “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information” in the Proxy Statement.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this Item is incorporated herein by reference to the section entitled “Certain Relationships and Related Transactions” in the Proxy Statement.
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Item 14. Principal Accountant’s Fees and Services
Information required by this Item is incorporated herein by reference to the section of the Proxy Statement entitled “Principal Accountant Fees and Services.”
PART IV
Item 15. Exhibits, Financial Statements Schedules
The Company’s consolidated financial statements and related notes thereto are listed and included in this Annual Report on Form 10-K beginning on page F-1. The following exhibits are filed with, or are incorporated by reference into, this Annual Report on Form 10-K.
EXHIBIT INDEX
Exhibit
Description
2.1
Plan of Conversion (incorporated herein by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on June 2, 2017).
3.1
Articles of Conversion (incorporated herein by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on June 2, 2017).
3.2
Certificate of Conversion (incorporated herein by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed with the Commission on June 2, 2017).
3.3
Certificate of Incorporation (incorporated herein by reference to Exhibit 3.3 to the Registrant’s Current Report on Form 8-K filed with the Commission on June 2, 2017).
3.4
Certificate of Designations of Rights, Preferences and Privileges of Series A Convertible Preferred Stock (incorporated herein by reference to Exhibit 3.4 to the Registrant’s Post-Effective Amendment No. 1 to the Registration Statement on Form S-3 (file no. 333-214073) filed with the Commission on July 31, 2017).
3.5
Certificate of Designations of Rights, Preferences and Privileges of Series B Preferred Stock (incorporated herein by reference to Exhibit 3.5 to the Registrant’s Post-Effective Amendment No. 1 to the Registration Statement on Form S-3 (file no. 333-214073 incorporated by reference into file no. 333-212373) filed with the Commission on July 31, 2017).
3.6
Certificate of Amendment of Certificate of Incorporation (incorporated herein by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on June 27, 2017).
3.7
Certificate of Amendment of Certificate of Incorporation (incorporated herein by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8 K filed with the Commission on June 11, 2019).
3.8
Third Amended and Restated Bylaws (incorporated herein by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on April 29, 2022).
4.1
Specimen of Stock Certificate (incorporated herein by reference to Exhibit 4.2 to the Registrant’s Annual Report on Form 10-K filed with the Commission on March 12, 2018).
4.2
Description of Securities (incorporated herein by reference to Exhibit 4.3 to the Registrant’s Annual Report on Form 10-K filed with the Commission on March 6, 2019).
10.1
Genesis Biopharma, Inc. 2011 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8 K filed with the Commission on October 20, 2011).#
10.2
Form of Incentive Stock Option Agreement under the Genesis Biopharma Inc. 2011 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.4 to the Registrant’s Annual Report on Form 10-K filed with the Commission on February 25, 2020).#
10.3
Form of Non-Qualified Stock Option Agreement under the Genesis Biopharma Inc. 2011 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.5 to the Registrant’s Annual Report on Form 10-K filed with the Commission on February 25, 2020).#
10.4
Lion Biotechnologies, Inc. 2014 Equity Incentive Plan, as amended (incorporated herein by reference to Appendix A to the Registrant’s Definitive Proxy Statement on Schedule 14A filed with the Commission on July 7, 2016).#
10.5
Form of Incentive Stock Option Agreement under the Lion Biotechnologies, Inc. 2014 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.7 to the Registrant’s Annual Report on Form 10-K filed with the Commission on February 25, 2020).#
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10.6
Form of Non-Qualified Stock Option Agreement under the Lion Biotechnologies, Inc. 2014 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.8 to the Registrant’s Annual Report on Form 10-K filed with the Commission on February 25, 2020).#
10.7
Iovance Biotherapeutics, Inc. 2018 Equity Incentive Plan, as amended (incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Quarterly Report on Form 10-Q filed with the Commission on August 4, 2022).#
10.8
Form of Incentive Stock Option Agreement under the Iovance Biotherapeutics, Inc. 2018 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.10 of Registrant’s Annual Report on Form 10-K filed with the Commission on February 25, 2020).#
10.9
Form of Non-Qualified Stock Option Agreement under the Iovance Biotherapeutics, Inc. 2018 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.11 of Registrant’s Annual report on Form 10-K filed with the Commission on February 25, 2020).#
10.10
Form of Stock Unit Notice and Stock Unit Agreement under the Iovance Biotherapeutics, Inc. 2018 Equity Incentive Plan, as amended (June 2021 Retention Equity Awards) (incorporated herein by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on August 5, 2021).#
10.11
Form of Nonqualified Stock Option Award Agreement under the Iovance Biotherapeutics, Inc. 2018 Equity Incentive Plan, as amended (June 2021 Retention Equity Awards) (incorporated herein by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 10-Q filed with the Commission on August 5, 2021).#
10.12
Iovance Biotherapeutics, Inc, 2020 Employee Stock Purchase Plan (incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on June 9, 2020).#
10.13
Iovance Biotherapeutics, Inc. Amended and Restated 2021 Inducement Plan (incorporated herein by reference to Exhibit 10.13 to the Registrant’s Annual Report on Form 10-K filed with the Commission on February 24, 2022).#**
10.14
Form of Stock Option Grant Notice and Stock Option Agreement under the 2021 Inducement Plan (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the Commission on September 23, 2021).#
10.15
Form of Restricted Stock Unit Grant Notice and Restricted Stock Unit Agreement under the 2021 Inducement Plan (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed with the Commission on September 23, 2021).#
10.16
Form of Deferred Stock Unit Notice and Deferred Stock Unit Agreement under the Iovance Biotherapeutics, Inc. 2018 Equity Incentive Plan (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on August 4, 2022).#
10.17
Patent License Agreement by and between Genesis Biopharma, Inc. and the National Institutes of Health effective October 5, 2011 (incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K/A filed with the Commission on December 13, 2011).*
10.18
Cooperative Research and Development Agreement for Intramural-PHS Clinical Research, dated August 5, 2011, by and between the U.S. Department of Health and Human Services, as represented by the National Cancer Institute, and Genesis Biopharma, Inc. (incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K/A (Amendment No. 2) filed with the Commission on November 29, 2011).
10.19
Form of Director Stock Award Agreement (incorporated herein by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the Commission on July 25, 2013).#
10.20
Form of Registration Rights Agreement by and among Lion Biotechnologies, Inc. and the Investors thereunder (incorporated herein by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the Commission on October 31, 2013).
10.21
Cooperative Research and Development Agreement for the Development and Evaluation of the NCI Proprietary Adoptive Cell Transfer Immunotherapy Using Tumor Infiltrating Lymphocytes in Patients with Metastatic Melanoma, Bladder, Lung, Triple-negative Breast, and HPV-associated Cancers, Utilizing Lion Biotechnologies, Inc.’s Business Development Expertise in Adoptive Cell Transfer Immunotherapy, executed by Lion Biotechnologies, Inc. on January 22, 2015 (incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on January 27, 2015).*
10.22
Patent License Agreement, dated February 9, 2015, by and between Lion Biotechnologies, Inc. and the National Institutes of Health (incorporated herein by reference to Exhibit 10.47 to the Registrant’s Annual Report on Form 10 K filed with the Commission on March 16, 2015).*
10.23
Patent License Agreement, dated February 10, 2015, by and between Lion Biotechnologies, Inc. and the National Institutes of Health (incorporated herein by reference to Exhibit 10.46 to the Registrant’s Annual Report on Form 10-K filed with the Commission on March 16, 2015).*
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10.24
First Amendment to Patent License Agreement, effective October 2, 2015, by and between Lion Biotechnologies, Inc. and the National Institutes of Health (incorporated herein by reference to Exhibit 10.47 to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on November 6, 2015).*
10.25
Amended and Restated Patent License Agreement, by and between Iovance Biotherapeutics, Inc. and the National Institutes of Health (incorporated herein by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10 Q filed with the Commission on August 5, 2021).*
10.26
Form of Securities Purchase Agreement, dated June 2, 2016, by and among Lion Biotechnologies, Inc. and the Investors thereunder (incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on June 3, 2016).
10.27
Form of Registration Rights Agreement, dated June 2, 2016, by and among Lion Biotechnologies, Inc. and the Investors thereunder (incorporated herein by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the Commission on June 3, 2016).
10.28
Amendment #2 to the Cooperative Research and Development Agreement #02734, dated August 18, 2016, by and between the National Cancer Institute and Lion Biotechnologies, Inc. (incorporated herein by reference to Exhibit 10.3 to Amendment No. 2 to Registrant’s Registration Statement on Form S 1 filed with the Commission on August 31, 2016).
10.29
Manufacturing Services Agreement, dated November 23, 2015, by and between WuXi Advanced Therapies, Inc. and Lion Biotechnologies, Inc. (incorporated herein by reference to Exhibit 10.36 to the Registrant’s Annual Report on Form 10-K filed with the Commission on March 9, 2017).*
10.30
Strategic Alliance Agreement, effective as of April 17, 2017, between Lion Biotechnologies, Inc. and The University of Texas M.D. Anderson Cancer Center (incorporated herein by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10 Q filed with the Commission on August 3, 2017).*
10.31
First Amendment to the Strategic Alliance Agreement by and between Iovance Biotherapeutics, Inc. and The University of Texas M.D. Anderson Cancer Center, effective as of August 2, 2017 (incorporated herein by reference to Exhibit 10.34 to the Registrant’s Annual Report on Form 10-K filed with the Commission on March 12, 2018).
10.32
Second Amendment to the Strategic Alliance Agreement by and between Iovance Biotherapeutics, Inc. and The University of Texas M.D. Anderson Cancer Center, effective February 16, 2018 (incorporated herein by reference to Exhibit 10.35 to the Registrant’s Annual Report on Form 10-K filed with the Commission on March 12, 2018).
10.33
Executive Employment Agreement, effective as of June 1, 2016, by and between Maria Fardis and Lion Biotechnologies, Inc. (incorporated herein by reference to Exhibit 10.3 of the Registrant’s Quarterly Report on Form 10 Q filed with the Commission on August 9, 2016).*#
10.34
Severance Agreement and General Release, effective as of July 8, 2020, between Iovance Biotherapeutics, Inc. and Timothy Morris (incorporated herein by reference to Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on August 6, 2020).*#
10.35
Executive Employment Agreement, effective as of September 30, 2016, by and between Frederick G. Vogt and Lion Biotechnologies, Inc. (incorporated herein by reference to Exhibit 10.32 to the Registrant’s Annual Report on Form 10 K filed with the Commission on March 12, 2018).#
10.36
Executive Employment Agreement effective as of July 18, 2019, by and between Friedrich-Reinhard Graf Finck von Finckenstein, M.D. and Iovance Biotherapeutics, Inc. (incorporated herein by reference to Exhibit 10.1 of the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on August 1, 2019).
10.37
Executive Employment Agreement, effective as of December 14, 2020, by and between Jean-Marc Bellemin and Iovance Biotherapeutics, Inc. (incorporated herein by reference to Exhibit 10.30 of the Registrant’s Annual Report on Form 10-K filed with the Commission on February 25, 2021).#+
10.38
Executive Employment Agreement, effective as of March 15, 2021, by and between Igor Bilinsky, Ph.D. and Iovance Biotherapeutics, Inc. (incorporated herein by reference to Exhibit 10.4 of the Registrant’s Current Report on Form 10-K filed with the Commission on May 6, 2021).#+
10.39
Office Lease, effective as of August 4, 2016, by and between Lion Biotechnologies, Inc. and Hudson Skyway Landing, LLC (incorporated herein by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8 K filed with the Commission on August 8, 2016).
10.40
Office Lease, effective as of October 19, 2018, by and between Iovance Biotechnologies, Inc. and Hudson Skyway Landing, LLC (incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8 K filed with the Commission on October 25, 2018).
10.41
First Amendment to the Office Lease, effective as of June 19, 2019, between Iovance Biotherapeutics, Inc. and Hudson Skyway Landing, LLC (incorporated herein by reference to Exhibit 10.1 of the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on November 4, 2019).
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10.42
Second Amendment to the Office Lease, effective as of February 8, 2021, by and between Iovance Biotherapeutics, Inc. and Hudson Skyway Landing, LLC (incorporated herein by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K filed with the Commission on February 9, 2021).
10.43
First Amendment to the Office Lease, effective as of February 8, 2021, by and between Iovance Biotherapeutics, Inc. and Hudson Skyway Landing, LLC (incorporated herein by reference to Exhibit 10.3 of the Registrant’s Current Report on Form 8-K filed with the Commission on February 9, 2021).
10.44
Lease Agreement, effective as of May 28, 2019, by and between Iovance Biotherapeutics, Inc. and 300 Rouse Boulevard, LLC (incorporated herein by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the Commission on June 3, 2019).
10.45
First Amendment to the Lease Agreement, effective as of August 20, 2019, between Iovance Biotherapeutics, Inc. and 300 Rouse Boulevard, LLC (incorporated herein by reference to Exhibit 10.2 of the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on November 4, 2019).
10.46
Second Amendment to the Lease Agreement, effective as of June 30, 2020, between Iovance Biotherapeutics, Inc. and 300 Rouse Boulevard, LLC (incorporated herein by reference to Exhibit 10.3 of the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on August 6, 2020).
10.47
Third Amendment to the Lease Agreement, effective as of November 1, 2021, between Iovance Biotherapeutics, Inc. and 300 Rouse Boulevard, LLC (incorporated herein by reference to Exhibit 10.46 to the Registrant’s Annual Report on Form 10-K filed with the Commission on February 24, 2022).
10.48
Lease Agreement, effective as of February 8, 2021, by and between Iovance Biotherapeutics, Inc. and ARE-San Francisco No. 63, LLC (incorporated herein by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the Commission on February 9, 2021).
10.49
Option Agreement, dated January 23, 2023, by and among Iovance Biotherapeutics, Inc., Iovance Biotherapeutics UK Ltd, Clinigen Holdings Limited, Clinigen Healthcare Limited, and Clinigen, Inc. (incorporated herein by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K/A filed with the Commission on January 27, 2023).
21.1
Subsidiaries of the Company.**
23.1
Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm. **
23.2
Consent of Marcum, LLP, Independent Registered Public Accounting Firm.**
24.1
Power of Attorney (included on the signature page of this Annual Report).
31.1
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer. **
31.2
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer. **
32.1
Section 1350 Certification of Chief Executive Officer (furnished herewith). **
32.2
Section 1350 Certification of Chief Financial Officer (furnished herewith). **
101
The following financial information from the Annual Report on Form 10-K of Iovance Biotherapeutics, Inc. for the year ended December 31, 2022, formatted inline XBRL (eXtensible Business Reporting Language): (1) Balance Sheets as of December 31, 2022 and 2021 (2) Statements of Income for the years ended December 31, 2022 and 2021; (3) Statements of Shareholders’ Equity for the years ended December 31, 2022 and 2021; (4) Statements of Cash Flows for the years ended December 31, 2022 and 2021; and (5) Notes to Financial Statements.
104
Cover Page Interactive Data File – the cover page interactive date file does not appear in the Interactive Date File because its XBRL tags are embedded within the Inline XBRL document.
*
Certain portions of the Exhibit have been omitted based upon a request for confidential treatment filed by us with the Commission. The omitted portions of the Exhibit have been separately filed by us with the Commission.
** Filed herewith.
#
Indicates a management contract or compensatory plan or arrangement.
+ Certain portions of the Exhibit have been redacted pursuant to Item 601(b)(10)(iv) of Regulation S-K.
Item 16. Form 10-K Summary
We may voluntarily include a summary of information required by Form 10-K under this Item 16. We have elected not to include such summary information.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
IOVANCE BIOTHERAPEUTICS, INC.
Date: February 28, 2023
By:
/s/ Frederick G. Vogt
Name:
Frederick G. Vogt, Ph.D., J.D.
Title:
Interim Chief Executive Officer and President, and General Counsel
POWER OF ATTORNEY
Know all persons by these presents, that each person whose signature appears below constitutes and appoints Frederick G. Vogt, and Jean-Marc Bellemin, and each of them, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place, and stead, in any and all capacities, to sign any and all amendments to this Annual Report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming that all said attorneys-in-fact and agents, or any of them or their or his or her substitute or substituted, may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Frederick G. Vogt
Interim Chief Executive Officer and President, and
February 28, 2023
Frederick G. Vogt, Ph.D., J.D.
General Counsel (Principal Executive Officer)
/s/ Jean-Marc Bellemin
Chief Financial Officer and Treasurer
February 28, 2023
Jean-Marc Bellemin
(Principal Financial Officer and Accounting Officer)
/s/ Merrill A. McPeak
Director
February 28, 2023
Merrill A. McPeak
/s/ Michael Weiser
Director
February 28, 2023
Michael Weiser, M.D., Ph.D.
/s/ Ryan D. Maynard
Director
February 28, 2023
Ryan D. Maynard
/s/ Iain Dukes
Director
February 28, 2023
Iain Dukes, D.Phil.
/s/ Wayne Rothbaum
Director
February 28, 2023
Wayne Rothbaum
/s/ Athena Countouriotis
Director
February 28, 2023
Athena Countouriotis, M.D.
/s/ Wendy L. Dixon
Director
February 28, 2023
Wendy L. Dixon, Ph.D.
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IOVANCE BIOTHERAPEUTICS, INC.
Index to Financial Statements
Contents
Page
Report of Ernst & Young LLP, Independent Registered Public Accounting Firm (PCAOB ID: 42 )
F-1
Report of Ernst & Young LLP, Independent Registered Public Accounting Firm (PCAOB ID: 42)
F-3
Report of Marcum LLP, Independent Registered Public Accounting Firm (PCAOB ID: 688 )
F-4
Consolidated Financial Statements
Consolidated Balance Sheets
F-6
Consolidated Statements of Operations
F-7
Consolidated Statements of Comprehensive Loss
F-8
Consolidated Statements of Stockholders’ Equity
F-9
Consolidated Statements of Cash Flows
F-10
Notes to Consolidated Financial Statements
F-11
Table of Contents
REPORT OF ERNST & YOUNG LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Iovance Biotherapeutics, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Iovance Biotherapeutics, Inc. (the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 28, 2023 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
F-1
Table of Contents
Accrued clinical development costs
Description of the Matter
During 2022, the Company incurred $294.8 million of research and development expenses and accrued $14.8 million of clinical development costs as of December 31, 2022. As described in Note 2 to the Financial Statements, the Company determines accruals for clinical development costs based on the various clinical trial activities performed pursuant to contracts with third-party contract research organizations (“CROs”), which comprise a significant component of the Company’s research and development expenses. Clinical development costs are accrued and expensed based on the percentage of work completed in accordance with agreements established with CROs. The timing and amount of payments required under each individual arrangement are often different from the pattern of costs actually incurred. The Company accrues clinical development costs under its contracts with third-party service providers based on the progress or stage of completion of trials or services completed by vendors over the life of the individual trial, number of subjects enrolled, and number of sites activated.
Auditing management’s accounting for accrued clinical development costs is especially challenging because the evaluation is dependent on a high volume of data exchanged between third-party service providers, internal clinical personnel, and the Company’s finance team. Determining accrued amounts is based on an evaluation of the unique terms and conditions set in each respective CRO agreement. Additionally, due to the duration of clinical trial activities and the timing of invoices received from third parties, the determination of the accrual for services incurred requires management to ensure they have complete and accurate information from vendors.
How We Addressed the Matter in Our Audit
To test accrued clinical development costs, our audit procedures included, among others, testing the accuracy and completeness of the inputs used in management’s analysis to determine costs incurred. We also inspected terms and conditions for selected CRO contracts and change orders and compared these to the cost models management used in tracking the progress of service agreements. We met with internal clinical personnel to understand the status of significant clinical activities. We evaluated services provided by third parties by understanding the terms and timeline of significant projects, evaluated management’s determination of work performed, subjects enrolled, sites activated and costs incurred, and obtained external confirmation of the direct cost, and contracts and change orders executed by the Company for selected CROs as well as key terms and conditions of those contracts. Further, we inspected selected invoices received from third parties after the balance sheet date and evaluated whether services performed prior to the balance sheet date had been properly included in costs accrued.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2021.
San Mateo, California
February 28, 2023
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REPORT OF ERNST & YOUNG LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Iovance Biotherapeutics, Inc.
Opinion on Internal Control over Financial Reporting
We have audited Iovance Biotherapeutics, Inc.’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Iovance Biotherapeutics, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the balance sheets of the Company as of December 31, 2022 and 2021, the related statements of operations, comprehensive loss, stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2022, and the related notes, and our report dated February 28, 2023 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
San Mateo, California
February 28, 2023
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
Iovance Biotherapeutics, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Iovance Biotherapeutics, Inc. (the “Company”) as of December 31, 2020, the related consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for the year ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020, and the results of its operations and its cash flows for the year ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Incremental Borrowing Rate (Leases)
Description of the Matter
As discussed in Note 10 to the 2020 consolidated financial statements, the Company’s reported right-of-use assets, current lease liabilities and long-term lease liabilities, utilize discount rates to calculate the estimated present value of future lease payments. Since the Company’s leases do not provide an implicit rate, management utilized a third-party valuation specialist to assist in estimating the incremental borrowing rates used in its present value calculation, which required subjectivity. The incremental borrowing rate is the rate of interest that a lessee would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. As of December 31, 2020, the weighted average incremental borrowing rate used to determine the operating lease liability is 8.3%.
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Table of Contents
Auditing management’s assessment of its incremental borrowing rate is highly subjective and judgmental as the Company has no outstanding debt nor committed credit facilities, secured or otherwise, that would have comparable collateral or similar terms as their underlying leases. Further, changes in the incremental borrowing rate may have a material impact on the measurement of the Company’s right-of-use assets, current lease liabilities and long-term lease liabilities. Based on the level of management judgment, we have determined the incremental borrowing rate to be a critical audit matter. This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our valuation specialists, when performing audit procedures to evaluate the reasonableness of management’s estimation of the incremental borrowing rate.
How We Addressed the Matter in Our Audit
Our audit procedures included, amongst others:
● We obtained an understanding, evaluated the design, and tested the operating effectiveness of management’s controls with
regards to the methodology, inputs, and assumptions used to determine the incremental borrowing rate, including those over management’s review of its third-party specialist valuation report.
● We obtained an understanding of the factors considered and assumptions made by management and the valuation specialists in developing the estimate of the incremental borrowing rate, the sources of data relevant to these factors and assumptions and the procedures used to obtain the data, and the methods used to calculate the estimate.
● We reviewed the contractual terms of the lease agreements to ensure the commencement dates, any lease term extensions and/or early termination clauses were properly considered in determining the appropriate lease term for calculating the incremental borrowing rates.
● With the assistance of our valuation specialists, we performed an independent estimate of the incremental borrowing rate and compared the results to the Company’s estimate.
● We evaluated the reasonableness of the valuation methods and assumptions used by management and the Company’s valuation specialist to estimate the incremental borrowing rates for borrowing amounts and terms comparable to their outstanding leases by:
o Developing an independent estimate of the incremental borrowing rates with the assistance of our valuation specialists by utilizing third party data related to comparable company borrowings with comparable payment terms.
o Performing a sensitivity analysis on incremental borrowing rates used to determine the impact rate changes could have on the present value calculation of the Company’s operating lease right-of-use assets and operating lease liabilities.
/s/ Marcum LLP
Marcum LLP
We served as the Company’s auditor from 2016 to 2021.
New York, NY
February 25, 2021
F-5
Table of Contents
IOVANCE BIOTHERAPEUTICS, INC.
Consolidated Balance Sheets
(In thousands, except share and per share information)
December 31,
December 31,
2022
2021
ASSETS
Current Assets
Cash and cash equivalents
$
231,731
$
78,229
Short-term investments
240,114
426,181
Prepaid expenses and other assets
7,271
3,546
Total Current Assets
479,116
507,956
Property and equipment, net
105,232
100,938
Operating lease right-of-use assets
73,015
68,983
Long-term investments
—
91,588
Restricted cash
6,430
6,084
Long-term assets
189
1,784
Total Assets
$
663,982
$
777,333
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable
$
26,603
$
27,377
Accrued expenses
52,295
56,766
Operating lease liabilities
12,587
5,057
Total Current Liabilities
91,485
89,200
Non-Current Liabilities
Operating lease liabilities – non-current
71,859
65,474
Long-term note payable
1,000
1,000
Total Non-Current Liabilities
72,859
66,474
Total Liabilities
164,344
155,674
Commitments and contingencies
Stockholders’ Equity
Series A Convertible Preferred stock, $ 0.001 par value; 17,000 shares designated, 194 shares issued and outstanding as of December 31, 2022 and December 31, 2021
—
—
Series B Convertible Preferred stock, $ 0.001 par value; 11,500,000 shares designated, 2,842,158 shares issued and outstanding as of December 31, 2022 and December 31, 2021
3
3
Common stock, $ 0.000041666 par value; 300,000,000 shares authorized, 187,812,072 and 157,004,742 shares issued and outstanding as of December 31, 2022 and December 31, 2021, respectively
8
7
Accumulated other comprehensive loss
( 902 )
( 601 )
Additional paid-in capital
2,068,867
1,794,695
Accumulated deficit
( 1,568,338 )
( 1,172,445 )
Total Stockholders’ Equity
499,638
621,659
Total Liabilities and Stockholders’ Equity
$
663,982
$
777,333
The accompanying notes are an integral part of these consolidated financial statements.
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Table of Contents
IOVANCE BIOTHERAPEUTICS, INC.
Consolidated Statements of Operations
(In thousands, except per share information)
Years Ended December 31,
2022
2021
2020
Costs and expenses
Research and development
$
294,781
$
259,039
$
201,727
General and administrative
104,097
83,664
60,210
Total costs and expenses
398,878
342,703
261,937
Loss from operations
( 398,878 )
( 342,703 )
( 261,937 )
Other income
Interest income, net
2,985
451
2,356
Net Loss
( 395,893 )
( 342,252 )
( 259,581 )
Net Loss Per Share of Common Stock, Basic and Diluted
$
( 2.49 )
$
( 2.23 )
$
( 1.88 )
Weighted Average Shares of Common Stock Outstanding, Basic and Diluted
159,259
153,406
138,301
The accompanying notes are an integral part of these consolidated financial statements.
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IOVANCE BIOTHERAPEUTICS, INC.
Consolidated Statements of Comprehensive Loss
(in thousands)
Years Ended December 31,
2022
2021
2020
Net Loss
$
( 395,893 )
$
( 342,252 )
$
( 259,581 )
Other comprehensive loss:
Unrealized loss on investments
( 301 )
( 620 )
( 201 )
Comprehensive Loss
$
( 396,194 )
$
( 342,872 )
$
( 259,782 )
The accompanying notes are an integral part of these consolidated financial statements.
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IOVANCE BIOTHERAPEUTICS, INC.
Consolidated Statements of Stockholders' Equity
(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 - January 1, 2020
194
$
—
3,581,119
$
4
126,411,808
$
5
$
869,354
$
220
$
( 570,612 )
$
298,971
Stock-based compensation expense
—
—
—
—
—
—
40,775
—
—
40,775
Vesting of restricted stock shares issued for services
—
—
—
—
13,449
—
112
—
—
112
Tax payments related to shares withheld for vested restricted stock units
—
—
—
—
—
—
( 284 )
—
—
( 284 )
Common stock issued upon exercise of stock options
—
—
—
—
973,854
—
9,663
—
—
9,663
Common stock sold in public offering, net of offering costs
—
—
—
—
19,475,806
1
567,042
—
—
567,043
Unrealized loss on investments
—
—
—
—
—
—
—
( 201 )
—
( 201 )
Net loss
—
—
—
—
—
—
—
—
( 259,581 )
( 259,581 )
Balance - December 31, 2020
194
$
—
3,581,119
$
4
146,874,917
$
6
$
1,486,662
$
19
$
( 830,193 )
$
656,498
Stock-based compensation expense
—
—
—
—
—
—
69,765
—
—
69,765
Common stock issued upon purchase through employee stock purchase plan
—
—
—
—
94,148
—
1,586
—
—
1,586
Common stock issued upon exercise of stock options
—
—
—
—
2,822,617
—
33,526
—
—
33,526
Common stock sold in public offering, net of offering costs
—
—
—
—
6,474,099
1
203,155
—
—
203,156
Common stock issued from preferred stock conversion
—
—
( 738,961 )
( 1 )
738,961
—
1
—
—
—
Unrealized loss on investments
—
—
—
—
—
—
—
( 620 )
—
( 620 )
Net loss
—
—
—
—
—
—
—
—
( 342,252 )
( 342,252 )
Balance - December 31, 2021
194
$
—
2,842,158
$
3
157,004,742
$
7
$
1,794,695
$
( 601 )
$
( 1,172,445 )
$
621,659
Stock-based compensation expense
—
—
—
—
—
—
84,022
—
—
84,022
Common stock issued upon purchase through employee stock purchase plan
—
—
—
—
262,701
—
1,655
—
—
1,655
Vesting of restricted shares issued for services
—
—
—
—
894,760
—
—
—
—
—
Tax payments related to shares retired for vested restricted stock units
—
—
—
—
( 342,703 )
—
( 2,649 )
—
—
( 2,649 )
Common stock issued upon exercise of stock options
—
—
—
—
203,579
—
1,642
—
—
1,642
Unrealized loss on investments
—
—
—
—
—
—
—
( 301 )
—
( 301 )
Common stock sold in public offering, net of offering costs
—
—
—
—
29,788,993
1
189,501
—
—
189,502
Net loss
—
—
—
—
—
—
—
—
( 395,893 )
( 395,893 )
Balance - December 31, 2022
194
$
—
2,842,158
$
3
187,812,072
$
8
$
2,068,867
$
( 902 )
$
( 1,568,338 )
$
499,638
The accompanying notes are an integral part of these consolidated financial statements.
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IOVANCE BIOTHERAPEUTICS, INC.
Consolidated Statements of Cash Flows
(In thousands)
Years Ended December 31,
2022
2021
2020
Cash Flows from Operating Activities
Net loss
$
( 395,893 )
$
( 342,252 )
$
( 259,581 )
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense
84,022
69,765
40,887
Amortization of right of use asset
11,825
10,869
7,572
Depreciation and amortization
9,310
3,111
1,140
Accretion of discounts and premiums on investments
474
6,013
1,865
Loss on write-off of fixed assets
397
—
—
Changes in assets and liabilities:
Prepaid expenses, other assets and long-term assets
( 2,130 )
2,775
( 6,688 )
Operating lease liabilities, net of tenant improvement allowance received
( 1,942 )
( 5,882 )
( 11,474 )
Accounts payable
5,883
6,976
( 2,964 )
Accrued expenses and other liabilities
( 4,703 )
20,684
24,109
Net cash used in operating activities
( 292,757 )
( 227,941 )
( 205,134 )
Cash Flows from Investing Activities
Maturities of investments
522,696
762,914
676,601
Purchase of investments
( 245,816 )
( 725,208 )
( 947,663 )
Purchase of property and equipment
( 20,425 )
( 37,574 )
( 46,791 )
Net cash provided by / (used in) investing activities
256,455
132
( 317,853 )
Cash Flows from Financing Activities
Tax payments related to shares withheld for vested restricted stock units
( 2,649 )
—
( 284 )
Proceeds from the issuance of common stock under employee stock purchase plan
1,655
1,586
—
Proceeds from the issuance of common stock upon exercise of options
1,642
33,526
9,663
Proceeds from the issuance of common stock, net
189,502
203,156
567,043
Proceeds from the issuance of debt
—
1,000
—
Net cash provided by financing activities
190,150
239,268
576,422
Net increase in cash, cash equivalents and restricted cash
153,848
11,459
53,435
Cash, Cash Equivalents and Restricted Cash Beginning of Period
84,313
72,854
19,419
Cash, Cash Equivalents and Restricted Cash End of Period
$
238,161
$
84,313
$
72,854
Supplemental disclosure of non-cash investing and financing activities:
Net unrealized loss on investments
$
( 301 )
$
( 620 )
( 201 )
Acquisition of property and equipment included in accounts payable and accrued expenses
5,985
12,410
5,094
Conversion of convertible preferred stock to common stock
—
1
—
Lease liabilities arising from obtaining right-of-use asset from new leases
553
17,275
45,968
Lease liabilities arising from obtaining right-of-use asset from lease modifications
15,304
7,800
826
The accompanying notes are an integral part of these consolidated financial statements.
F-10
Table of Contents
IOVANCE BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 treating cancer by harnessing the human immune system’s ability to recognize and destroy diverse cancer cells using therapies personalized for each patient. The Company’s mission is to be the global leader in innovating, developing and delivering tumor infiltrating lymphocyte (“TIL”) therapies for patients with solid tumor cancers. The Company’s autologous TIL therapy platform uses a centralized, scalable, and proprietary 22-day manufacturing process to grow polyclonal T-cells unique to each patient and yields a cryopreserved, individualized therapy. The Company is currently conducting clinical trials to investigate multiple TIL therapies for multiple indications, including its lead product candidate, lifileucel, for advanced, or metastatic or unresectable melanoma. The Company initiated a rolling Biologics License Application (“BLA”) submission to the U.S. Food and Drug Administration (“FDA”) for lifileucel in August 2022 and expects to complete the rolling BLA submission in the first quarter of 2023. The Company is also pursuing registrational strategies for lifileucel in advanced cervical cancer and for its TIL therapy LN-145 in metastatic non-small cell lung cancer (“NSCLC”). In addition, the Company is investigating next generation approaches to optimize TIL products, manufacturing processes and treatment regimens, including a first-in-human clinical trial of its lead genetically modified TIL therapy, IOV-4001. The Company is also exploring a 16-day manufacturing process, tumor tissue procurement via core biopsy, additional genetically modified TIL therapies including multiple immune checkpoint gene edits and cytokine-tethered TIL therapies, as well as, a novel interleukin-2 (“IL-2”) analog, designated IOV-3001, as potential avenues to improve manufacturing timelines, sample collection and supportive treatments involved in the overall TIL therapy process and treatment regimen.
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 any 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 $ 395.9 million for the year ended December 31, 2022 and used $ 292.8 million of cash in its operating activities during the year ended December 31, 2022. As of December 31, 2022, the Company had $ 478.3 million in cash, cash equivalents, investments, and restricted cash ($ 231.7 million of cash and cash equivalents, $ 240.1 million in short-term investments and $ 6.4 million in restricted cash).
The Company expects to continue to incur significant expenses to support its research and development activities, on-going pre-commercial activities and completion of the construction of tenant improvements for the Iovance Cell Therapy Center (the “ i CTC”) facility during 2023 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 consolidated 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.
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Table of Contents
IOVANCE BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES
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 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 years ended December 31, 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 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 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 i CTC used as a security deposit for the lease in the amount $ 5.45 million (See Note 10 - Leases) and one for $ 0.6 million for the benefit of the landlord for the Company’s current headquarters’ lease. The total amount of the Company’s letters of credit is classified as Restricted Cash on the Consolidated Balance Sheets. The letter of credit for $ 5.45 million originally expired on May 28, 2020, however, it automatically extends 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 $ 1.0 million with a minimum security deposit of $ 1.5 million maintained through the end of the lease term. The letter of credit with the landlord for the Company’s current headquarters’ lease expires on February 1, 2032, however, it will be automatically extended, without written agreement, for one-year periods to February in each succeeding calendar year. As of December 31, 2022 and December 31, 2021, restricted cash consisted of $ 6.4 million and $ 6.1 million, respectively. This amount has been classified as a non-current asset in the Company’s Consolidated Balance Sheets.
The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the Consolidated Balance Sheets that sum to the total of the same such amounts shown in the Consolidated Statements of Cash Flows (in thousands):
December 31,
2022
2021
2020
Cash and cash equivalents
$
231,731
$
78,229
$
67,329
Restricted cash
6,430
6,084
5,525
Total cash, cash equivalents and restricted cash
$
238,161
$
84,313
$
72,854
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Table of Contents
IOVANCE BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Property and Equipment, net
Property and equipment are stated at cost, net of accumulated depreciation and amortization. The cost of property and equipment is depreciated or amortized on the straight-line method over the following estimated useful lives. The depreciation or amortization of capitalized construction in progress costs, a component of property and equipment, net, begins once the underlying asset is placed into service and is recognized over the estimated useful lives:
Computer equipment
2 years
Computer software
5 years
Office furniture and equipment
5 years
Lab, process, and validation equipment
5 years
Machinery and equipment
5 – 7 years
Utility equipment
Lesser of the remaining economic life of the asset or the lease-term
Leasehold improvements
Lesser of the remaining economic life of the asset or the lease-term
Expenditures for maintenance and repairs are charged to operations as incurred while renewals and betterments are capitalized. Gains and losses on disposals are included within operating expenses in the Consolidated Statements of Operations.
Management assesses the carrying value of property and equipment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. If there is an indication of impairment, management prepares an estimate of future undiscounted cash flows expected to result from the use of the asset and its eventual disposition. If these cash flows are less than the carrying amount of the asset, an impairment loss is recognized to write down the asset to its estimated fair value. For the years ended December 31, 2022, 2021, and 2020, the Company did not recognize any impairments for its property and equipment.
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 equivalent 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 (vi) conversion of preferred stock, are only included in the calculation of diluted net loss per share when their effect is dilutive.
As of December 31, 2022, 2021, and 2020, the following outstanding common stock equivalents have been excluded from the calculation of net loss per share because their impact would be anti-dilutive.
As of December 31,
2022
2021
2020
Stock options
15,240,197
12,520,865
12,615,638
Employee Stock Purchase Plan
260,859
85,227
37,259
Restricted stock units
2,436,764
1,110,010
—
Series A Convertible Preferred Stock*
97,000
97,000
97,000
Series B Convertible Preferred Stock*
2,842,158
2,842,158
3,581,119
20,876,978
16,655,260
16,331,016
*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.
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IOVANCE BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fair Value Measurements
Under 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.
- Level 3—These are financial instruments where values are derived from techniques in which one or more significant inputs are unobservable.
The Company’s financial instruments consist of cash, cash equivalents, short and long-term investments, and long-term notes payable, all of which are reported at their respective fair value or approximate fair value on its Consolidated Balance Sheets.
A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Where quoted prices are available in an active market, securities are classified as Level 1.
When quoted market prices are not available for a specific security, the Company estimates the fair value by using quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs obtained from various third-party data providers, including but not limited to, benchmark yields, interest rate curves, reported trades, broker/dealer quotes, and market reference data. Level 2 assets consist of commercial paper, corporate securities and government agency securities. Level 2 inputs for the valuations are limited to quoted prices for similar assets or liabilities in active markets and inputs other than quoted prices that are observable for the asset.
The Company’s financial instruments consist of Level 1 and Level 2 assets.
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 .
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IOVANCE BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Principles of Consolidation
The accompanying 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.
Leases
The Company determines if an arrangement includes a lease at inception and thereafter, if modified. Operating leases are included in its Consolidated Balance Sheets as Operating lease right-of-use assets and Operating lease liabilities as of December 31, 2022 and 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 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. In addition to RSUs that have time-based vesting requirements, from time to time the Company may issue RSUs that include certain performance vesting criteria based upon the satisfaction of stated objectives (“PRSUs”). The Company measures the compensation cost with respect to PRSUs issued to employees based upon the estimated fair value of the equity instruments at the date of grant, which is recognized as an expense over the period that achievement is determined to be probable through the stated service period associated with the award.
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IOVANCE BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 the 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 services received and efforts expended pursuant to agreements established with CROs, CMOs and other outside service providers. The Company determines its costs 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.
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 trial 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 clinical trial 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 clinical trial, 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 clinical trial treatment. The Company accrues 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 Consolidated Balance Sheets and subsequently recognized as research and development expense in the 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.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation, for personnel in executive, finance, procurement, legal, investor relations, facilities, business development, marketing, commercial and human resources functions. Other significant costs include facility costs not otherwise included in research and development expenses, sublicense royalty expenses, legal fees relating to corporate matters, insurance, public company expenses relating to maintaining compliance with Nasdaq listing rules and Securities and Exchange Commission (“SEC”) requirements, investor relations costs, and fees for accounting and consulting services. General and administrative costs are expensed as incurred.
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 or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
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IOVANCE BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ASC Topic 740, Income Taxes , 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 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.
Concentrations
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 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 Company maintains cash, cash equivalents and investment balances at four financial institutions. Management believes that the financial institutions which hold its cash are financially sound and, accordingly, minimal credit risk exists. As of December 31, 2022 and 2021, respectively, the Company’s cash balances were in excess of insured limits maintained at the financial institutions.
Segment Reporting
The Company operates in one segment, focused on developing and commercializing therapies using autologous TIL for the treatment of metastatic melanoma and other solid tumor cancers.
NOTE 3. CASH EQUIVALENTS AND INVESTMENTS
The amortized cost and fair value of cash equivalents and investments as of December 31, 2022 and December 31, 2021 were as follows (in thousands):
Gross
Gross
Amortized
Unrealized
Unrealized
As of December 31, 2022
Cost
Gains
Losses
Fair Value
U.S. treasury securities
$
118,570
$
—
$
( 850 )
$
117,720
U.S. government agency securities
11,272
—
( 7 )
11,265
Corporate securities
7,230
—
—
7,230
Commercial paper
148,299
8
( 53 )
148,254
Money market funds
88,001
—
—
88,001
Total investments
$
373,372
$
8
$
( 910 )
$
372,470
Gross
Gross
Amortized
Unrealized
Unrealized
As of December 31, 2021
Cost
Gains
Losses
Fair Value
U.S. treasury securities
$
247,287
$
—
$
( 520 )
$
246,767
U.S. government agency securities
5,104
—
( 7 )
5,097
Corporate securities
35,627
—
( 39 )
35,588
Commercial paper
235,352
10
( 46 )
235,316
Money market funds
56,250
—
—
56,250
Total investments
$
579,620
$
10
$
( 612 )
$
579,018
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IOVANCE BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The fair value of cash equivalents and investments as of December 31, 2022 and December 31, 2021 are classified as follows in the Company’s Consolidated Balance Sheets (in thousands):
December 31,
December 31,
Classified as:
2022
2021
Cash equivalents
$
132,356
$
61,249
Short-term investments
240,114
426,181
Long-term investments
—
91,588
Total investments
$
372,470
$
579,018
Cash equivalents in the tables above exclude cash demand deposits of $ 99.4 million and $ 17.0 million as of December 31, 2022 and 2021, respectively. Unrealized gains and losses are included in accumulated other comprehensive (loss) income, and as of December 31, 2022 and 2021 no unrealized losses on available-for-sale securities have resulted from credit risk. All available-for-sale securities held as of December 31, 2022 and December 31, 2021 had contractual maturities of less than one year. No significant available-for-sale securities held as of the periods presented have been in a continuous unrealized loss position for more than 12 months. The Company determined that it has the ability and intent to hold all marketable securities that have been in a continuous loss position until maturity or recovery. To date, the Company has not recorded any impairment charges on its marketable securities.
Recurring Fair Value Measurements
The following table summarizes the Company’s available-for-sale investments by contractual maturity (in thousands):
December 31, 2022
Amortized Cost
Fair Value
Within one year
$
373,372
$
372,470
Total investments
$
373,372
$
372,470
As of December 31, 2022 and 2021, the fair value of the Company’s financial assets that are measured at fair value on a recurring basis, which consist of cash equivalents and short-term and long-term investments classified as available-for-sale securities, 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 December 31, 2022
Level 1
Level 2
Level 3
Total
U.S. treasury securities
$
117,720
$
—
$
—
$
117,720
U.S. government agency securities
—
11,265
—
11,265
Corporate securities
—
7,230
—
7,230
Commercial paper
—
148,254
—
148,254
Money market funds
88,001
—
—
88,001
Total
$
205,721
$
166,749
$
—
$
372,470
Assets at Fair Value as of December 31, 2021
Level 1
Level 2
Level 3
Total
U.S. treasury securities
$
246,767
$
—
$
—
$
246,767
U.S. government agency securities
—
5,097
—
5,097
Corporate securities
—
35,588
—
35,588
Commercial paper
—
235,316
—
235,316
Money market funds
56,250
—
—
56,250
Total
$
303,017
$
276,001
$
—
$
579,018
Level 2 assets consist of commercial paper and government agency securities. Level 2 inputs for the valuations are limited to quoted prices for similar assets or liabilities in active markets and inputs other than quoted prices that are observable for the asset.
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IOVANCE BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. PROPERTY AND EQUIPMENT, NET
Property and equipment, net consists of the following (in thousands):
December 31,
December 31,
2022
2021
Leasehold improvements
$
74,305
$
57,817
Lab, process, and validation equipment
22,136
8,686
Utility equipment
5,951
4,179
Office furniture and equipment
2,927
1,244
Computer software
6,736
1,163
Computer equipment
695
674
Machinery and equipment
82
82
Construction in progress
9,118
35,782
Total property and equipment, cost
121,950
109,627
Less: Accumulated depreciation and amortization
( 16,718 )
( 8,689 )
Property and equipment, net
$
105,232
$
100,938
Depreciation expense for the years ended December 31, 2022, 2021, and 2020 was approximately $ 9.3 million, $ 3.1 million and $ 1.1 million, respectively. During the years ended December 31, 2022 and 2021, the Company placed $ 27.2 million and $ 62.4 million of assets related to the i CTC in service and initiated depreciation of these assets. The depreciation expense related to these assets for the years ended December 31, 2022 and 2021 was $ 2.7 million and $ 1.6 million, respectively.
NOTE 5. ACCRUED EXPENSES
Accrued expenses consist of the following (in thousands):
December 31,
December 31,
2022
2021
Accrued payroll and employee related expenses
$
19,407
$
21,513
Clinical related
14,812
18,167
Manufacturing related
4,652
6,566
Facilities related
6,510
4,857
Legal and related services
3,015
1,907
Other accrued expenses
3,899
3,756
Total accrued expenses
$
52,295
$
56,766
NOTE 6. STOCKHOLDERS’ EQUITY
Common Stock
The Company’s certificate of incorporation, as amended, authorizes the issuance of up to 300,000,000 shares of the Company’s common stock, par value $ 0.000041666 . As of December 31, 2022, 187,812,072 shares of the Company’s common stock were issued and outstanding .
Public Offerings
In June 2020, the Company closed an underwritten public offering of 16,935,484 shares of the Company’s common stock at a public offering price of $ 31.00 per share, before underwriting discounts, which included 2,540,322 shares issued upon the exercise in full by the underwriter of its option to purchase additional shares at the public offering price less the underwriting discount (the "June 2020 Public Offering"). The gross proceeds from the offering, before deducting the underwriting discounts and commissions and other offering expenses payable by the Company, were $ 603.7 million, with net proceeds to the Company of $ 567.0 million.
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IOVANCE BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At the Market Offering Program
On February 8, 2021, the Company entered into an Open Market Sale Agreement (the “First Sales Agreement”) with Jefferies LLC (“Jefferies”) with respect to an “at the market” offering program, under which the Company may, from time to time, in its sole discretion, issue and sell through Jefferies, acting as sales agent, up to $ 350.0 million of shares of the Company’s common stock (the “Common Shares”). On November 18, 2022, the Company entered into a new Open Market Sales Agreement (the “Second Sales Agreement”), which superseded and replaced the First Sales Agreement dated February 8, 2021. Under the terms of the Second Sales Agreement, the Company may, from time to time, in its sole discretion, issue and sell up to $ 500.0 million of shares of the Company’s Common Shares. The issuance and sale, if any, of the Common Shares by the Company under the First Sales Agreement and Second Sales Agreement (together, the “Sales Agreements”) will be made pursuant to a prospectus supplement, dated February 8, 2021 and November 18, 2022, to the Company’s Registration Statement on Form S-3ASR, which became effective immediately upon filing with the Securities and Exchange Commission on May 27, 2020.
Pursuant to the Sales Agreements, Jefferies may sell the Common Shares by any method permitted by law deemed to be an “at the market” offering as defined in Rule 415 of the Securities Act of 1933, as amended. Jefferies will use commercially reasonable efforts consistent with its normal trading and sales practices to sell the Common Shares from time to time, based upon instructions from the Company (including any price or size limits or other customary parameters or conditions the Company may impose). The Company will pay Jefferies a commission of up to 3.0 % of the gross sales proceeds of any Common Shares sold through Jefferies under the Sales Agreements.
The Company is not obligated to make any sales of Common Shares under the Sales Agreements. The offering of Common Shares pursuant to the Sales Agreement will terminate upon the earlier to occur of (i) the issuance and sale, through Jefferies, of all Common Shares subject to the Sales Agreement and (ii) termination of the Sales Agreements in accordance with its terms.
For the years ended December 31, 2022 and 2021, the Company received $ 189.5 million and $ 203.2 million in net proceeds, net of offering costs, through the sale of 29,788,993 shares and 6,474,099 shares of its common stock through the Sales Agreements at a weighted average price per share of $ 6.52 and $ 32.12 , respectively.
Preferred Stock
The Company’s certificate of incorporation authorizes the issuance of up to 50,000,000 shares of “blank check” preferred stock. As of December 31, 2022, 17,000 shares were designated as Series A Convertible Preferred Stock and 11,500,000 shares were designated as Series B Convertible Preferred Stock.
Series A Convertible Preferred Stock
A total of 17,000 shares of Series A Convertible Preferred Stock have been authorized for issuance under the Company’s Certificate of Designation of Preferences and Rights of Series A Convertible Preferred Stock. The shares of Series A Convertible Preferred Stock have a stated value of $ 1,000 per share and are initially convertible into shares of common stock at a price of $ 2.00 per share, subject to adjustment. Each share of Series A Preferred Stock is initially convertible into 500 shares of common stock.
The Series A Convertible Preferred Stock may, at the option of each investor, be converted into fully paid and non-assessable shares of common stock. The holders of shares of Series A Convertible Preferred Stock do not have the right to vote on matters that come before the Company’s stockholders. In the event of any dissolution or winding up of the Company, proceeds shall be paid pari passu among the holders of common stock and preferred stock, pro rata based on the number of shares held by each holder. The Company may not declare, pay or set aside any dividends on shares of capital stock of the Company (other than dividends on shares of common stock payable in shares of common stock) unless the holders of the Series A Convertible Preferred Stock shall first receive an equal dividend on each outstanding share of Series A Convertible Preferred Stock.
No shares of Series A Convertible Preferred Stock were converted to common stock during the year ended December 31, 2022 and 2021. As of December 31, 2022, and 2021, 194 shares of Series A Convertible Preferred Stock (that are convertible into 97,000 shares of common stock) remained outstanding.
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IOVANCE BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Series B Convertible Preferred Stock
A total of 11,500,000 shares of Series B Convertible Preferred Stock are authorized for issuance under the Company’s Series B Certificate of Designation of Rights, Preferences and Privileges of Series B Convertible Preferred Stock. The shares of Series B Convertible Preferred Stock have a stated value of $ 4.75 per share and are convertible into shares of the Company’s common stock at an initial conversion price of $ 4.75 per share. Each share of Series B Preferred Stock is initially convertible into 1 share of common stock.
The Series B Convertible Preferred Stock may, at the option of each investor, be converted into fully paid and non-assessable shares of common stock. The holders of Series B Convertible Preferred Stock do not have the right to vote on matters that come before the Company's stockholders. In the event of any dissolution or winding up of the Company, proceeds shall be paid pari passu among the holders of common stock and preferred stock, pro rata based on the number of shares held by each holder. Holders of Series B Convertible Preferred Stock are entitled to dividends on an as-if-converted basis in the same form as any dividends actually paid on shares of the Series A Convertible Preferred Stock or the Company’s common stock. So long as any Series B Convertible Preferred Stock remains outstanding, the Company may not redeem, purchase or otherwise acquire any material amount of the Series A Convertible Preferred Stock or any securities junior to the Series B Convertible Preferred Stock.
No shares of Series B Convertible Preferred Stock were converted to common stock during the year ended December 31, 2022. During the year ended December 31, 2021, 738,961 shares of Series B Convertible Preferred Stock were converted to common stock. At December 31, 2022 and 2021, 2,842,158 shares of Series B Preferred Stock (that are convertible into 2,842,158 shares of common stock) remained outstanding.
Equity Incentive Plans
The Company has multiple equity incentive plans under which it grants awards. As of December 31, 2022, there are 38,298 shares available to grant under the 2014 Equity Incentive Plan (the “2014 Plan”).
On April 22, 2018, the Company’s board of directors (the “Board”) adopted the Iovance Biotherapeutics, Inc. 2018 Equity Incentive Plan (the “2018 Plan”), which was approved by the Company’s stockholders in June 2018. The 2018 Plan as approved initially authorized the issuance up to an aggregate of 6,000,000 shares of common stock in the form of incentive (qualified) stock options, non-qualified options, common stock, stock appreciation rights, restricted stock awards, restricted stock units, other stock-based awards, other cash-based awards or any combination of the foregoing. On June 8, 2020, the Company's stockholders approved an amendment to the 2018 Plan to increase the number of shares available for issuance upon the exercise of stock options under the 2018 Plan from 6,000,000 to 14,000,000 shares, which became effective immediately. Additionally, on June 10, 2022, the Company’s stockholders approved an amendment to the 2018 Plan to increase the number of shares available for issuance upon the exercise of stock options under the 2018 Plan from 14,000,000 to 20,700,000 shares, which became effective immediately. As of December 31, 2022, 6,881,610 shares of common stock were available for grant under the Company’s 2018 Plan.
On September 22, 2021, the Board adopted the Iovance Biotherapeutics, Inc. 2021 Inducement Plan (the “2021 Inducement Plan”). The 2021 Inducement Plan provides for the grant of non-qualified options, common stock, stock appreciation rights, restricted stock awards, restricted stock units, other stock-based awards, other cash-based awards, or any combination of the foregoing. The 2021 Inducement Plan was recommended for approval by the Compensation Committee of the Board (the “Compensation Committee”), and subsequently approved and adopted by the Board without stockholder approval pursuant to Rule 5635(c)(4) of the rules and regulations of The Nasdaq Stock Market, LLC (the “Nasdaq Listing Rules”).
The Board initially reserved 1,000,000 shares of the Company’s common stock for issuance pursuant to equity awards granted under the 2021 Inducement Plan, and the 2021 Inducement Plan is administered by the Compensation Committee. On January 12, 2022, the Compensation Committee approved an amendment to the 2021 Inducement Plan solely to increase the number of shares reserved for issuance under the 2021 Inducement Plan from 1,000,000 shares of the Company’s common stock to 1,750,000 shares of the Company’s common stock without stockholder approval pursuant to Rule 5635(c)(4) of the Nasdaq Listing Rules.
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IOVANCE BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In accordance with Rule 5635(c)(4) of the Nasdaq Listing Rules, equity awards under the 2021 Inducement Plan may only be made to an employee if such employee is granted such equity awards in connection with his or her commencement of employment with the Company or a subsidiary and such grant is an inducement material to his or her entering into employment with the Company or such subsidiary. In addition, awards under the 2021 Inducement Plan may only be made to employees who have not previously been an employee or member of the Board (or any parent or subsidiary of the Company) or following a bona fide period of non-employment of the employee by the Company (or a parent or subsidiary of the Company). As of December 31, 2022, 55,925 shares of common stock were available for grant under the Inducement Plan.
Stock Options
A summary of the status of stock options as of December 31, 2022, and the changes during the three years then ended, is presented in the following table:
Weighted
Weighted
Average
Aggregate
Number
Average
Remaining
Intrinsic
of
Exercise
Contract
Value
Options
Price
Life
(in thousands)
Outstanding at January 1, 2020
9,494,712
$
12.00
Issued
4,981,001
28.17
Exercised
( 973,854 )
9.92
Expired/Cancelled
( 886,221 )
18.67
Outstanding at December 31, 2020
12,615,638
$
18.08
Issued
5,528,724
38.05
Exercised
( 2,822,617 )
11.88
Expired/Cancelled
( 2,800,880 )
32.58
Outstanding at December 31, 2021
12,520,865
$
25.05
Issued
3,455,027
13.31
Exercised
( 203,579 )
8.06
Expired/Cancelled
( 532,116 )
29.65
Outstanding at December 31, 2022
15,240,197
$
22.45
7.27
$
245
Ending vested and expected to vest at December 31, 2022
15,240,197
$
22.45
7.27
$
245
Options exercisable at December 31, 2022
9,639,339
$
22.82
6.34
$
243
As of December 31, 2022, there was $ 58.9 million of total unrecognized compensation expense related to unvested employee stock options, which the Company expects to recognize over a remaining weighted average period of 1.81 years.
The weighted average grant date fair value for employee options granted under the Company's stock option plans during the years ended December 31, 2022, 2021, and 2020 was $ 8.29 , $ 22.28 , and $ 17.32 per option, respectively.
The aggregate intrinsic value in the table above reflects the total pre-tax intrinsic value (the difference between the Company’s closing stock price on the last trading day of the year ended December 31, 2022 and the exercise price of the options, multiplied by the number of in-the-money stock options) that would have been received by the option holders had all option holders exercised their options on December 31, 2022. The intrinsic value of the Company’s stock options changes based on the closing price of the Company’s common stock.
The aggregate intrinsic value of stock options exercised during the year ended December 31, 2022, 2021, and 2020 were $ 0.04 million, $ 21.3 million, and $ 21.4 million, respectively.
Employee Stock Purchase Plan
In June 2020, the Company adopted the 2020 ESPP upon its approval by the Company’s shareholders at its Annual Stockholders Meeting on June 8, 2020. The Company reserved 500,000 shares of its common stock for issuance under the 2020 ESPP.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Under the 2020 ESPP, employees of the Company can purchase shares of our common stock based on a percentage of their compensation subject to certain limits. The purchase price per share is equal to the lower of 85 % of the fair market value of its common stock on the offering date or the purchase date with a six-month look-back feature. The 2020 ESPP purchases are settled with common stock from the 2020 ESPP’s previously authorized and available pool of shares.
The compensation expense related to the 2020 ESPP for the years ended December 31, 2022, 2021 and 2020 was $ 1.3 million, $ 1.2 million and $ 0.1 million, respectively. Under the 2020 ESPP, for the years ended December 31, 2022, and 2021, the Company received proceeds of $ 1.7 million for the issuance of 262,701 shares, and $ 1.6 million for the issuance of 94,148 shares, respectively. As of December 31, 2020, no shares were issued un the 2020 ESPP. As of December 31, 2022, there was $ 0.5 million of unrecognized compensation cost associated with the 2020 ESPP, which is expected to be recognized over 5.33 months.
Restricted Stock Units and Performance Restricted Stock Units
In addition to RSUs that have time-based vesting requirements, from time to time the Company may issue RSUs that include certain performance vesting criteria based upon the satisfaction of stated objectives (“PRSUs”). Compensation expense related to PRSUs is based on the grant date fair value of the award and recorded from the period that achievement is determined to be probable through the stated service period associated with the award.
A summary of the RSU and PRSU activity during the years ended December 31, 2022, and 2021 is presented in the following table:
Weighted
Number
Average
of
Grant Date
RSUs and PRSUs
Fair Value
Outstanding, non-vested as of December 31, 2020
—
$
—
Granted
1,253,540
23.87
Vested
—
—
Canceled/Forfeited
( 143,530 )
23.87
Outstanding, non-vested as of December 31, 2021
1,110,010
$
23.87
Granted
2,391,203
14.13
Vested/Released
( 894,760 )
23.87
Canceled/Forfeited
( 169,689 )
17.77
Outstanding as of December 31, 2022
2,436,764
$
14.74
Ending vested and expected to vest at December 31, 2022
2,267,659
$
14.06
During the year ended December 31, 2022, 2.4 million restricted units were granted, of which only 100,000 were PRSUs. No PRSUs were granted during the year ended December 31, 2021.
As of December 31, 2022, there was $ 20.6 million of unrecognized stock-based compensation expense associated with unvested RSUs and PRSUs, which the Company expects to recognize over a remaining weighted-average period of 1.72 years. The aggregate intrinsic value of the unvested RSUs and PRSUs outstanding as of December 31, 2022 and 2021, was $ 14.5 million and $ 21.2 million, respectively.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock-Based Compensation
Total stock-based compensation expense related to the Company’s stock-based awards was recorded on the Consolidated Statements of Operations as follows (in thousands):
Years Ended December 31,
2022
2021
2020
Research and development
$
50,242
$
40,833
$
19,727
General and administrative
33,780
28,932
21,160
Total stock-based compensation expense
$
84,022
$
69,765
$
40,887
Total stock-based compensation expense by type of award was as follows (in thousands):
Years Ended December 31,
2022
2021
2020
Stock option expense
$
58,308
$
56,305
$
40,714
Restricted stock expense
24,436
12,247
112
ESPP expense
1,278
1,213
61
Total stock-based compensation expense
$
84,022
$
69,765
$
40,887
The following table summarizes the assumptions relating to options granted pursuant to the Company’s equity incentive plans for the years ended December 31, 2022, 2021, and 2020:
Stock Option
ESPP
Years Ended December 31,
Years Ended December 31,
Assumptions:
2022
2021
2020
2022
2021
2020
Expected term (years)
4.94 - 5.12
4.94 - 5.28
5.18 - 6.19
0.50
0.50
0.50
Expected volatility
73.73 % - 83.90 %
70.35 % - 73.88 %
69.99 % - 70.99 %
73.02 % - 137.42 %
52.04% - 94.56%
54.90 %
Risk-free interest rate
1.25 % - 4.05 %
0.36 % - 0.97 %
0.28 % - 1.83 %
1.98 % - 4.78 %
0.06% - 0.13%
0.09 %
Expected dividend yield
0 %
0 %
0 %
0 %
0 %
0 %
- Expected Term (Years) —The expected term of the stock option grants was calculated based on historical exercises, cancellations, and forfeitures of stock options and outstanding option shares
- Expected Volatility —The expected volatility is based on the historical volatility for the Company's stock over a period equal to the expected terms of the options.
- Risk-Free Interest Rate —The risk-free interest rate was based on the market yield currently available on United States Treasury securities with maturities approximately equal to the option’s expected term.
- Expected Dividend Yield —The Company has never paid dividends and does not expect to pay dividends in the foreseeable future.
- Forfeiture Rate —The Company recognizes forfeitures as they occur.
Each of the inputs discussed above is subjective and generally requires significant management judgment.
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IOVANCE BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. EMPLOYEE BENEFIT PLAN
The Company maintains a defined contribution plan covering substantially all U.S. employees under Section 401(k) of the Internal Revenue Code of 1986, as amended (the “IRC”). The Company's matching contribution to the defined contribution plan was $ 3.0 million, $ 2.2 million, and $ 1.2 million for the years ended December 31, 2022, 2021 and 2020, respectively.
NOTE 8. INCOME TAXES
The Company did not record a provision or benefit for income taxes for the years ended December 31, 2022, 2021 or 2020.
The significant components of the Company’s net deferred tax assets and liabilities are summarized as follows (in thousands):
As of December 31,
2022
2021
Deferred income tax assets:
Net operating loss carryforwards
$
225,904
$
203,298
Stock-based compensation
24,920
18,319
Tax credit carryforwards
46,957
40,851
Lease liabilities
18,017
14,970
Capitalized R&D
47,755
—
Depreciation and amortization
—
228
Reserves and accruals
3,997
4,445
Deferred tax assets before valuation allowance
367,550
282,111
Less: valuation allowance
( 350,418 )
( 267,469 )
Net deferred income tax assets
17,132
14,642
Deferred tax liabilities:
Depreciation and amortization
( 17,132 )
( 14,642 )
Net deferred tax assets (liabilities)
$
—
$
—
The reconciliation of the effective income tax rate to the U.S. statutory rate is as follows:
Years ended December 31,
2022
2021
2020
Federal statutory tax rate
21
%
21
%
21
%
Orphan drug and research credits
1
2
3
Permanent and other differences
( 1 )
—
( 1 )
Stock Based Compensation
( 1 )
—
—
State tax, net of federal benefit
1
—
—
21
%
23
%
23
%
Valuation allowance
( 21 )
%
( 23 )
%
( 23 )
%
Effective tax rate
—
%
—
%
—
%
The Company had net operating loss carryforwards (“NOLs”) for federal and state income tax purposes of approximately $ 1.0 billion and $ 158.1 million, respectively, as of December 31, 2022. $ 142.4 million of federal NOLs will expire beginning in 2027, while $ 898.9 million generated after the recently enacted tax reform will have an indefinite life under the Tax Cuts and Jobs Act of 2017 (the “Tax Act”). The state NOLs will expire if unused in years 2030 through 2042.
The Company’s utilization of NOLs is subject to an annual limitation due to ownership changes that have occurred previously or that could occur in the future as provided in Section 382 of the Internal Revenue Code (“Section 382”), as well as similar state provisions. Section 382 limits the utilization of NOLs when there is a greater than 50% change of ownership as determined under the regulations. Since its formation, the Company has raised capital through the issuance of capital stock and various convertible instruments which, combined with the purchasing shareholders’ subsequent disposition of these shares, has resulted in multiple ownership changes as defined by Section 382, and could result in ownership change in the future upon subsequent disposition. The Company’s utilization of NOLs may also be adversely affected by future changes in federal and state tax laws and regulations.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon future generation for taxable income during the periods in which temporary differences representing net future deductible amounts become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. After consideration of all the information available, management believes that significant uncertainty exists with respect to future realization of the deferred tax assets and has therefore established a full valuation allowance. For the years ended December 31, 2022, 2021 and 2020, the change in the valuation allowance was approximately $ 82.9 million, $ 78.1 million, and $ 60.7 million, respectively.
The Company evaluated the provisions of ASC 740 related to the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. ASC 740 prescribes a comprehensive model for how a company should recognize, present, and disclose uncertain positions that the Company has taken or expects to take in its tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. Differences between tax positions taken or expected to be taken in a tax return and the net benefit recognized and measured pursuant to the interpretation are referred to as “unrecognized benefits.” A liability is recognized (or amount of net operating loss carry forward or amount of tax refundable is reduced) for unrecognized tax benefit because it represents an enterprise’s potential future obligation to the taxing authority for a tax position that was not recognized as a result of applying the provisions of ASC 740.
If applicable, interest costs related to the unrecognized tax benefits are required to be calculated and would be classified as income tax expenses in the Consolidated Statements of Operations. Penalties would be recognized as a component of “General and Administrative Expenses” in the Consolidated Statements of Operations.
A reconciliation of the beginning and ending balances of the unrecognized tax benefits during the years ended December 31, 2022, 2021 and 2020 is as follows (in thousands):
Years Ended December 31,
2022
2021
2020
Unrecognized benefit - beginning of period
$
18,171
$
14,432
$
10,038
Gross decreases - prior period tax positions
—
( 159 )
—
Gross increase current period tax positions
3,474
3,898
4,394
Unrecognized benefit - end of period
$
21,645
$
18,171
$
14,432
No interest or penalties on unpaid tax were recorded during the years ended December 31, 2022, 2021, or 2020. The Company does not anticipate any significant changes within 12 months of this reporting date of its uncertain tax positions.
The Company files tax returns in the U.S. federal and state jurisdictions. The U.S. federal and U.S. state taxing authorities may choose to audit tax returns for tax years beyond the statute of limitation period due to significant tax attribute carryforwards from prior years, making adjustments only to carryforward attributes. The Company is not currently under examination by income tax authorities in federal, state or other foreign jurisdictions.
The Inflation Reduction Act of 2022 (the "Act"), which includes certain new tax measures, was signed into law in August 2022. The Act contains two main tax provisions, a new corporate alternative minimum tax imposed on certain corporations meeting average annual financial statement income of more than $1 billion during a three-year tax period, and an excise tax imposed upon share repurchases by certain publicly traded corporations. The Act is effective for tax years beginning after December 31, 2022; the Company is evaluating the provisions of the Act but currently does not believe these provisions will have a material impact on its consolidated financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. LICENSES AND AGREEMENTS
National Institutes of Health (the “NIH”) and the National Cancer Institute (the “NCI”)
Cooperative Research and Development Agreement (the “CRADA”)
In August 2011, the Company signed a five-year CRADA with the NCI to work on the development of adoptive cell immunotherapies that are designed to destroy metastatic melanoma cells. The CRADA was amended in 2015 and 2016 to, among other things, extend the term of the CRADA through August 2021, include new indications such as the development of TIL therapy for the treatment of patients with bladder, lung, triple-negative breast, and Human Papilloma Virus (“HPV”)-associated cancers, and modify the focus on the development of unmodified TIL as a stand-alone therapy or in combination. The parties have continued the development of improved methods for the generation and selection of TIL with anti-tumor reactivity in metastatic melanoma, bladder, lung, breast, and HPV-associated cancers.
In August 2021, the NCI and the Company entered into a third amendment to the CRADA. The third amendment, among other things, extended the term of the CRADA by three years to August 2024. The research plan in this amendment includes the evaluation in clinical trials of strategies for development of more potent TILs, such as selection of CD39/69 double negative cells and the use of certain inhibitors or other reagents in TIL expansion cultures.
Pursuant to the terms of the CRADA, as amended, the Company is required to make quarterly payments of $ 0.5 million to the NCI for support of research activities. To the extent the Company licenses patent rights relating to a TIL-based product candidate, the Company will be responsible for all patent-related expenses and fees, past and future, relating to the TIL-based product candidate. In addition, the Company may be required to supply certain test articles, including TIL, grown and processed under Current Good Manufacturing Practice (“cGMP”) conditions, suitable for use in clinical trials. The extended CRADA has a three-year term expiring in August 2024. The Company or the NCI may unilaterally terminate the CRADA for any reason or for no reason at any time by providing written notice at least 60 days before the desired termination date. The Company recorded costs associated with the CRADA of $ 2.0 million for each of the years ended December 31, 2022, 2021 and 2020, respectively, as research and development expenses.
Patent License Agreement Related to the Development and Manufacture of TIL Therapies
The Company entered into an Exclusive Patent License Agreement (the “Patent License Agreement”) with the NIH, an agency of the U.S. Public Health Service within the Department of Health and Human Services, in 2011, as amended in 2015. Pursuant to the Patent License Agreement, as amended, the NIH granted the Company licenses, including exclusive, co-exclusive, and non-exclusive licenses, to certain technologies relating to autologous tumor infiltrating lymphocyte adoptive cell therapy products for the treatment of metastatic melanoma, lung, breast, bladder and HPV-positive cancers.
Effective May 6, 2021, the Company entered into an Amended and Restated Patent License Agreement with NIH, which included the grant of additional exclusive, worldwide patent rights in the indications to interleukin-15 and interleukin-21 cytokine-tethered TIL technology, and expanded the non-exclusive, worldwide field of use to all cancers. Effective August 1, 2022, the Company entered into a Second Amended and Restated Patent License Agreement with NIH to include additional exclusive, worldwide patent rights to TIL products expressing interleukin-12, expanded rights to TIL selection technologies previously licensed under the Exclusive Patent License Agreement below, and additional non-exclusive, worldwide patent rights to certain technologies related to enhancing TIL potency.
The Second Amended and Restated Patent License Agreement requires the Company to pay royalties based on a percentage of net sales in jurisdictions where patent rights exist, which percentage can fall into a tier that may be less than one percent to mid-single digits depending upon certain events, including the exclusivity of the rights, and the Company expects lower overall royalty payments as a result. The Company also agreed to potential milestone payments on the achievement of certain clinical, regulatory, and commercial sales milestones for each of the indications and other direct costs incurred by the NIH pursuant to the Second Amended and Restated Patent License Agreement. The Company anticipates making payments that could range from several hundred thousand dollars to the mid-single-digit millions of dollars in conjunction with certain development milestones, the approval of a BLA or its foreign equivalent, or the first U.S. and foreign commercial sales of any of our product candidates covered by the Second Amended
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IOVANCE BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
and Restated Patent License Agreement. The term of the Second Amended and Restated Patent License Agreement continues until the expiry of the last-to-expire patent rights licensed thereunder, and the agreement contains standard termination provisions.
Exclusive Patent License Agreement Related to TIL Selection
On February 10, 2015, the Company entered into an exclusive patent license agreement (the “Exclusive Patent License Agreement”) with the NIH under which the Company received an exclusive, worldwide license under the selected TIL patents. This license was superseded and replaced by the Second Amended and Restated Patent License Agreement.
H. Lee Moffitt Cancer Center
Research Collaboration and Clinical Grant Agreements with Moffitt
In June 2020, the Company entered into a Sponsored Research Agreement with the H. Lee Moffitt Cancer Center (“Moffitt”), with a term that ends either upon completion of the research thereunder or on July 1, 2022, whichever is sooner. In June 2022, this agreement was extended until the later of December 19, 2022, or a mutually acceptable completion of the Research Agreement, which is expected in mid-2023. The Company recorded research and development costs of $ 0.6 million, $ 0.3 million and $ 0.2 million for each of the years ended December 31, 2022, 2021 and 2020, respectively.
In December 2016, the Company entered into a clinical grant agreement with Moffitt to support an ongoing clinical trial at Moffitt that combines TIL therapy with nivolumab for the treatment of patients with metastatic melanoma. In June 2017, the Company entered into a second clinical grant agreement with Moffitt to support a new clinical trial at Moffitt that combines TIL therapy with nivolumab for the treatment of patients with non-small cell lung cancer, under which the Company obtained a non-exclusive, royalty-free license to any new Moffitt inventions made in the performance of the agreement. Under both clinical grant agreements with Moffit, the Company has non-exclusive rights to clinical data arising from the respective clinical trials. For the years ended December 31, 2022 and 2021 the Company recorded research and development costs of $ 0.1 million, and for the year ended December 31, 2020 the company recorded $ 0.4 million of research and development costs, in connection with the research collaboration and clinical grant agreements with Moffitt.
Exclusive License Agreements with Moffitt
The Company entered into a license agreement with Moffitt (the “First Moffitt License”), effective as of June 28, 2014, under which the Company received a worldwide license to Moffitt’s rights to patent-pending technologies related to methods for improving TIL for adoptive cell therapy using toll-like receptor agonists. Unless earlier terminated, the term of the license extends until the earlier of the expiration of the last issued patent related to the licensed technology or 20 years after the effective date of the license agreement.
Pursuant to the First Moffitt License, the Company paid an upfront licensing fee in the amount of $ 0.1 million, which was recorded as research and development expense. A patent issuance fee will also be payable under the First Moffitt License, upon the issuance of the first U.S. patent covering the subject technology. In addition, the Company agreed to pay milestone license fees upon completion of specified milestones, customary royalties based on a specified percentage of net sales (which percentage is in the low single digits) and sublicensing payments, as applicable, and annual minimum royalties beginning with the first sale of products based on the licensed technologies, which minimum royalties will be credited against the percentage royalty payments otherwise payable in that year. The Company will also be responsible for all costs associated with the preparation, filing, maintenance and prosecution of the patent applications and patents covered by the First Moffitt License related to the treatment of any cancers in the U.S., Europe and Japan and in other countries designated by the Company in agreement with Moffitt. No expenses were recorded for the First Moffitt License for the year ended December 31, 2022, 2021, and 2020.
The Company entered into a second license agreement with Moffitt effective as of May 7, 2018 (the “Second Moffitt License”), under which the Company received a license to Moffitt’s rights to patent-pending technologies related to the use of 4-1BB agonists in conjunction with TIL manufacturing processes and therapies. Pursuant to the Second Moffitt License, the Company paid an upfront licensing fee in the amount of $ 0.1 million in 2018. An annual license maintenance fee is also payable commencing on the first anniversary of the effective date. The Company agreed to pay an annual commercial use payment for each indication for which a first sale has occurred, which in the aggregate amounts to up to $ 0.4 million a year. The Company recorded $ 0.2 million for the year ended
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IOVANCE BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022, and $ 0.1 million for each of the years ended December 31, 2021 and 2020, respectively, as research and development expenses in connection with this agreement.
The Company subsequently exercised an option to exclusively license Moffitt’s rights to patent pending technologies related to the use of tumor digests in conjunction with TIL manufacturing processes and therapies and entered into an amended and restated Second Moffitt License in October 2021 (the “Amended & Restated Second Moffit License”), to include these rights. Pursuant to the Amended & Restated Second Moffitt License, the Company paid an upfront licensing fee in the amount of $ 0.2 million in 2021, which was recorded as research and development expense. In addition, the Company agreed to pay an annual commercial use payment for each indication for which a first sale has occurred for products relating to the use of 4-1BB agonists and for products relating to the use of tumor digests covered by the license.
The University of Texas M.D. Anderson Cancer Center
Strategic Alliance Agreement
On April 17, 2017, the Company entered into a Strategic Alliance Agreement (the “SAA”) with The University of Texas M.D. Anderson Cancer Center (“MDACC”) under which the Company and MDACC agreed to conduct clinical and preclinical research studies. The Company agreed in the SAA to provide total funding not to exceed approximately $ 14.2 million for the performance of the multi-year studies under the SAA, of which approximately $ 5.3 million has been funded cumulatively through December 31, 2022 and has been recorded as research and development expense. In return, the Company acquired all rights to inventions resulting from the studies and has been granted a non-exclusive, sub-licensable, royalty-free, and perpetual license to specified background intellectual property of MDACC reasonably necessary to exploit, including the commercialization thereof. The Company has also been granted certain rights in clinical data generated by MDACC outside of the clinical trials to be performed under the SAA. The SAA’s term shall continue in effect until the later of the fourth anniversary of the SAA or the completion or termination of the research and receipt by the Company of all deliverables due from MDACC thereunder. The Company recorded $ 0.2 million, $ 0.5 million and $ 1.1 million associated with the SAA for the year ended December 31, 2022, 2021 and 2020 as research and development expenses, respectively.
WuXi Advanced Therapies, Inc.
First WuXi Manufacturing and Services Agreement
In November 2016, the Company entered into a three-year manufacturing and services agreement (the “First Wuxi MSA”) with WuXi Advanced Therapies, Inc. (“WuXi”) pursuant to which WuXi agreed to provide manufacturing and other services, which has since been amended and assigned to its subsidiary Iovance Biotherapeutics Manufacturing LLC. Under the First WuXi MSA, the Company entered into two statements of work for two cGMP manufacturing suites to be operated by WuXi for the Company. Both of the suites are expected to be capable of being used for the commercial manufacture of the Company’s products. The terms of one of these statements of work was extended to December 2022. The Company recorded costs associated with agreements with WuXi of $ 14.2 million, $ 17.5 million, and $ 20.6 million for the years ended December 31, 2022, 2021, and 2020 respectively, as research and development expenses.
Second WuXi Manufacturing and Services Agreement
In October 2022, the Company’s subsidiary Iovance Biotherapeutics Manufacturing LLC entered into an additional three-year manufacturing and services agreement (the “Second WuXi MSA”) with WuXi and its parent company WuXi Apptec, Co, Ltd pursuant to which WuXi agreed to provide commercial and clinical manufacturing services and related testing services. Under the Second WuXi MSA, the Company entered into a statement of work for the two cGMP manufacturing suites to be operated by WuXi for the Company. Both suites are expected to be capable of being used for the commercial and clinical manufacture of the Company’s products. The Second WuXi MSA and its related statement of work will supersede the statements of work under the First WuXi MSA with respect to commercial and clinical manufacturing and the two manufacturing suites. Certain other statements of work for related services will also be covered by the Second WuXi MSA. The First WuXi MSA will continue to address development services provided by WuXi to the Company. Prior to regulatory approval, or if the Company experiences a material adverse event, the Company may unilaterally terminate the statement of work for commercial and clinical manufacturing under the Second WuXi MSA at any time by providing written notice of at least 120 days . Post regulatory approval, the Company may unilaterally terminate the statement of work for commercial and clinical manufacturing with written notice of 15 month in year 1 of the term, written notice of 9
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
months in year 2 of the term, and written notice of 6 months in year 3 of the term. If WuXi fails a Pre-Licensing Inspection and does not address any related issues within 90 days of receipt of the FDA response letter, the Company may either terminate the statement of work for commercial and clinical manufacturing under the Second WuXi MSA immediately or shorten the term of this statement of work to June 30, 2024.
Cellectis S.A .
On December 31, 2019, the Company entered into a research collaboration and exclusive worldwide license agreement whereby the Company will license gene-editing technology from Cellectis S.A. (“Cellectis”), a clinical-stage biopharmaceutical company, to develop TIL therapies that have been genetically edited, including a PD-1 inactivated product that the Company refers to as IOV-4001. Financial terms of the license include annual license payments and development, regulatory and sales milestone payments from the Company to Cellectis, as well as royalty payments based on net sales of TALEN®-modified TIL products. The Company recorded costs associated with the license agreement with Cellectis of $ 0.4 million for each of the years ended December 31, 2022, 2021 and 2020 respectively as research and development expense.
Novartis Pharma AG
On January 9, 2020, the Company obtained a license from Novartis Pharma AG (“Novartis”) to develop and commercialize an antibody cytokine engrafted protein, which the Company refers to as IOV-3001. Under the agreement, the Company paid an upfront payment to Novartis and may pay future milestones related to initiation of patient dosing in various phases of clinical development for IOV-3001 and approval of the product in the U.S., EU and Japan. Novartis is also entitled to low-to-mid single digit percentage royalties from commercial sales of the product. The Company recorded costs associated with the license agreement from Novartis of $ 10.0 million as research and development expenses for the year ended December 31, 2020. No expenses were recorded for the years ended December 31, 2022 and 2021.
NOTE 10. LEASES
Operating Leases
The Company leases corporate office space in California, including 49,918 square feet for its current corporate headquarters’ office space in San Carlos, California, manufacturing, research and development lab facilities and office space in Philadelphia, Pennsylvania, including 136,000 square feet of commercial manufacturing and lab space at the i CTC, and research and development lab facilities in Tampa, Florida. The determination if an arrangement is a lease occurs at inception, and for leases with terms greater than 12 months , the Company records a related right-of-use asset and lease liability at the present value of lease payments over the term. Many leases include fixed rental escalation clauses, renewal options and/or termination options that are factored into the determination of lease payments when appropriate. The Company’s leases do not provide an implicit rate, and thus the Company estimated the incremental borrowing rate in calculating the present value of the lease payments.
The Company’s leases have remaining lease terms that range from less than one year to approximately 20 years . Some of our leases include one or more options to renew with renewal terms that can extend the lease for additional years, or options to terminate the leases, both at the Company’s discretion. 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 for minimum lease payments is recognized on a straight-line basis based on the fixed components of a lease arrangement.
Variable lease cost is determined based on performance or usage in accordance with the contractual agreements, and not based on an index or rate. Such costs that are not fixed in nature are recognized as incurred.
The Company also leases certain furniture and equipment that has a lease term of 12 months or less. Since the lease agreement do not include an option to purchase the underlying asset, the Company elected not to apply the recognition requirements of Topic 842 for short-term leases, however, the lease costs that pertain to the short-term leases are disclosed in the components of lease costs table below.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Manufacturing Contracts
The Company uses contract manufacturing organizations (collectively the “CMOs” and each a “CMO”) to manufacture and supply TILs for clinical and commercial purposes. The CMO contractual obligations consist of the use of manufacturing facilities and minimum fixed commitment fees, such as personnel, general support fees, and minimum production or material fees. In addition to the minimum fixed commitment fees, the CMO contractual obligations include variable costs such as production and material costs in excess of the minimum quantity specified in each CMO agreement. During the term of each CMO agreement, the Company has access to and control of the use of a dedicated suite in each of the CMOs’ facilities for manufacturing activities. The contracts with CMOs generally contain embedded operating leases based on the fact that the suites are used for the Company’s production are implicitly identified, are used exclusively by the Company during the contractual term of the arrangements, and the CMOs have no substantive contractual rights to substitute the facilities used by the Company.
Further, the Company controls the use of the facilities by obtaining all of the economic benefits from the use of the facilities and direct the use of the facilities throughout the period of use. The terms of the CMO contracts include options to terminate the lease with advance notice of five to six months. The termination clauses and extension clauses are included in the calculation of the lease term for each of the CMOs when it is reasonably certain that it will not exercise such options.
For contracts with multiple deliverables, Topic 842 requires the Company to first identify a lease deliverable and non-lease deliverable included in the arrangements, and then allocate the fixed contractual consideration to the lease deliverable(s) and the non-lease deliverable(s) on a relative standalone selling price basis to determine the amount of operating lease right-of-use assets and liabilities. The Company identified the use of a dedicated suite as a single lease deliverable, and related labor services as a single non-lease deliverable in each of the CMO arrangements. Judgment is required to determine the relative standalone selling price of each deliverable as the observable standalone selling prices are not readily available. Therefore, management uses estimates and assumptions in determining relative standalone selling price of lease of a suite and labor service using information that includes market and other observable inputs to the extent possible.
The balance sheet classification of the Company’s right-of-use asset and lease liabilities was as follows (in thousands):
December 31,
December 31,
2022
2021
Operating lease right-of-use assets
$
73,015
$
68,983
Operating lease liabilities
Current portion included in current liabilities
12,587
5,057
Long-term portion included in non-current liabilities
71,859
65,474
Total operating lease liabilities
$
84,446
$
70,531
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IOVANCE BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes components of lease expenses, which were included in Total expenses in the Company’s Consolidated Statements of Operations, and other information related to our operating leases as follows (in thousands, except weighted-average remaining lease terms and discount rates):
For the Year
For the Year
Ended
Ended
December 31, 2022
December 31, 2021
Operating lease cost
$
17,657
$
15,341
Variable lease cost
5,447
4,649
Short-term lease cost
154
119
Total lease cost
$
23,258
$
20,109
Other information
Cash paid for amounts included in the measurement of lease liabilities included in cash flows from operations
$
14,209
$
12,316
Tenant improvement allowance received for amounts included in the measurement of lease liabilities included in cash flows from operations
6,432
—
Right-of-use assets obtained from entering new leases
$
553
$
17,617
Increase in right-of-use assets from lease modifications
$
15,304
$
7,796
Weighted-average remaining lease terms (years)
12.90
15.38
Weighted-average discount rates
7.5
%
7.3
%
As of December 31, 2022, maturities of the Company's operating lease liabilities were as follows (in thousands):
CMO
Facility
embedded
Year Ending December 31,
leases
leases
Total
2023
$
8,304
$
10,235
$
18,539
2024
8,424
1,454
9,878
2025
8,240
—
8,240
2026
7,989
—
7,989
2027
8,186
—
8,186
Thereafter
83,827
—
83,827
Total lease payments
$
124,970
$
11,689
$
136,659
Less: Present value adjustment
( 51,468 )
( 745 )
( 52,213 )
Operating lease liabilities
$
73,502
$
10,944
$
84,446
For its corporate headquarters’ office, the lease agreement includes a tenant improvement allowance of $ 8.2 million. For the years ended December 31, 2022, and 2021, the Company has received reimbursement associated with this tenant improvement allowance of $ 6.4 million and $ 1.6 million, respectively. The Company does not expect to receive additional reimbursements associated with this tenant improvement allowance.
NOTE 11. LEGAL PROCEEDINGS
Derivative Lawsuit. On December 11, 2020, a purported stockholder derivative complaint was filed by plaintiff Leo Shumacher against the Company, as nominal defendant, and then current directors, as defendants, in the Court of Chancery in the State of Delaware (the “Court”). The complaint alleges breach of fiduciary duty and a claim for unjust enrichment in connection with alleged excessive compensation of certain non-executive directors of the Company and seeks unspecified damages on behalf of the Company. The parties have agreed to a proposed settlement, which was submitted to the Court on June 15, 2022. After a hearing on November 17, 2022, the Court required the parties to take additional steps before it would approve the settlement. The Company, as nominal defendant, and its current directors, as defendants, answered the complaint on Feb. 3, 2023.
Solomon Capital, LLC. On April 8, 2016, a lawsuit (“the First Solomon Suit”) titled Solomon Capital, LLC, Solomon Capital 401(K) Trust, Solomon Sharbat and Shelhav Raff v. Lion Biotechnologies, Inc. was filed by Solomon Capital, LLC, Solomon Capital
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401(k) Trust, Solomon Sharbat and Shelhav Raff (“Solomon Plaintiffs”) against the Company in the Supreme Court of the State of New York, County of New York (index no. 651881/2016). The Solomon Plaintiffs allege that, between June and November 2012, they provided the Company $ 0.1 million and that they advanced and paid on behalf of the Company an additional $ 0.2 million.
The complaint further alleges that the Company agreed to (i) provide them with promissory notes totaling $ 0.2 million, plus interest, (ii) issue a total of 1,110 shares to the Solomon Plaintiffs (after the 1-for-100 reverse split of the Company’s common stock effected in March 2013) (the “Equity Claim”), and (iii) allow the Solomon Plaintiffs to convert the foregoing funds into its securities in the next financing of the Company on the same terms offered to other investors, which Solomon Plaintiffs allege, should have given them the right to convert their advances and payments into shares of the Company's common stock in the restructuring that took effect in May 2013. Based on the foregoing, the Solomon Plaintiffs allege causes for breach of contract and unjust enrichment and demand judgment against the Company in an unspecified amount exceeding $ 1.5 million, plus interest. On June 3, 2016, the Company filed an answer and counterclaims in the lawsuits. The Company has asserted counterclaims for fraudulent inducement, fraudulent misrepresentation, fraudulent concealment, breach of fiduciary duty, and breach of contract, alleging principally that the counterclaim defendants misrepresented their qualifications and failed to disclose that Solomon Sharbat was the subject of an investigation by the Financial Industry Regulatory Authority (“FINRA”) that resulted in the loss of his FINRA license.
In its counterclaims, the Company is seeking damages in an amount exceeding $ 0.5 million and an order rescinding any and all agreements that the Solomon Plaintiffs contend entitled them to obtain shares of Company stock. On May 12, 2020, the court granted the Company’s motion for summary judgment limiting the Solomon Plaintiffs’ damages for the Equity Claim to $ 47,420 . The Solomon Plaintiffs filed a notice of appeal of this summary judgment on June 9, 2020. On July 2, 2020, the court granted the Company’s motion to dismiss the First Solomon Suit for want of prosecution. On January 4, 2021, the court granted the Solomon Plaintiffs motion for reconsideration, and reinstituted the case. On January 15, 2021, the Company filed a notice of appeal of the court’s grant of the Solomon Plaintiffs motion for reconsideration. On May 11, 2021, the Appellate Division upheld the court’s grant of the Solomon Plaintiffs’ motion for reconsideration of the dismissal of the First Solomon Suit for want of prosecution.
On September 27, 2019, the Solomon Plaintiffs filed a new lawsuit (through new legal counsel) (“the Second Solomon Suit”) titled Solomon Capital, LLC, Solomon Capital 401(K) Trust, Solomon Sharbat and Shelhav Raff v. Iovance Biotherapeutics, Inc., f/k/a/ Lion Biotechnologies Inc. f/k/a/ Genesis Biopharma Inc., and Manish Singh in the Supreme Court of the State of New York, County of New York (index no. 655668/2019). In the Second Solomon Suit, the Solomon Plaintiffs allege that they are third party beneficiaries of a “finder’s fee agreement” that prior management entered into with a third party unlicensed entity in 2012 in connection with seeking financing, that an agreement or understanding existed between the Company and the plaintiffs that the plaintiffs would be paid fees and commissions (in cash and stock) if they obtained financing for the Company, and that they directly and indirectly introduced investors to the Company who invested in the Company, or were willing to invest in the Company. Finally, the Solomon Plaintiffs allege that they were promised a license to use the Company’s technology in Israel. The plaintiffs claim that the Company breached the foregoing understandings, promises and agreements and, as a result, they are entitled to certain damages. The Solomon Plaintiffs also allege that Manish Singh, the Company’s former Chief Executive Officer, committed fraud and took shares belonging to them. On February 18, 2020, the Company filed a removal petition and removed the Second Solomon Suit to the U.S. District Court for the Southern District of New York, where the case has been assigned case no. 1:20-cv-1391. On May 22, 2020, the Company moved to dismiss the Second Solomon Suit for lack of personal jurisdiction. On March 26, 2021, the Court denied the Company’s motion to dismiss for lack of personal jurisdiction. The Company filed a response to the complaint in the Second Solomon Suit on April 30, 2021. On May 26, 2021, the Company and Singh filed motions for judgment on the pleadings with respect to the second and third claims asserted against the Company and all claims asserted against Singh, respectively, in the Second Solomon Suit. On January 5, 2022, the Court granted the Company’s motions for judgement on the pleadings, dismissing the second and third claims against the Company and dismissing all claims against Singh. On January 4, 2023, the Court granted in part the Company’s motion for sanctions against Plaintiffs for violating Rule 11 of the Federal Rules of Civil Procedure, in a decision and order that dismissed Plaintiffs’ first claim against the Company, denied Plaintiffs’ motion for leave to amend the complaint, and ordered Plaintiffs to pay the Company’s attorneys’ fees incurred in connection with the Rule 11 motion. Following the Court’s decision and order on the Rule 11 motion, only Plaintiffs’ fifth and sixth claims, for unjust enrichment and indemnification, respectively, remain pending against the Company.
The Company intends to vigorously defend these complaints and pursue its counterclaims, as applicable. At the current stage of the litigation, in both the First Solomon Suit and the Second Solomon Suit, it is not possible to estimate the amount or range of possible loss that might result from an adverse judgment or a settlement of these matters.
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The Company may be involved, from time to time, in legal proceedings and claims arising in the ordinary course of its business. Such matters are subject to many uncertainties and outcomes are not predictable with assurance. The Company accrues amounts, to the extent they can be reasonably estimated, that it believes are adequate to address any liabilities related to legal proceedings and other loss contingencies that it believes will result in a probable loss. While there can be no assurances as to the ultimate outcome of any legal proceeding or other loss contingency involving the Company, management does not believe any pending matter will be resolved in a manner that would have a material adverse effect on its financial position, results of operations or cash flows.
NOTE 12. LONG-TERM NOTE PAYABLE
On January 26, 2021, the Company entered into a Loan Note and accompanying Economic Stimulus Program Loan Agreement with PIDC – Local Development Corporation, a Pennsylvania nonprofit corporation (the “Lender”), pursuant to which the Lender agreed to make a loan (the “Job Creation Loan”) to the Company in a principal amount of $ 1.0 million. The Job Creation Loan will be for a term of five years starting on February 18, 2021, the date of the issuance of a final certificate of occupancy for the Company’s leased premises in Philadelphia, Pennsylvania. The Job Creation Loan is unsecured, bears no interest, and will be forgiven by the Lender in the amount of $ 2,000 per full-time or “full time equivalent” (defined as two or more part time employees whose working hours total at least 35 hours a week) employee with an average salary of at least $ 80,000 (“FT Employees”), up to a maximum amount equal to the amount of the Job Creation Loan, as calculated based on the average number of FT Employees employed at the Company’s premises during the period of the 5-year term beginning on the date that is nine months prior to the maturity date and ending on the maturity date. If the Job Creation Loan is not forgiven in full by the maturity date, the remaining balance of the loan not forgiven will become payable on the maturity date. The Loan Note includes customary events of default. Upon the occurrence of an event of default, the Lender will have the right to exercise remedies against the Company, including the right to require immediate payment of all amounts due under the Loan Note.
The Company concluded that it is not reasonably assured that all or a portion of the loan will be forgiven as of December 31, 2022, and therefore accounted for the Job Creation Loan as debt in accordance with ASC Topic 470, Debt , as opposed to an in-substance government grant, and classified as a long-term debt in its Consolidated Balance Sheets as of December 31, 2022 and 2021.
NOTE 13. SUBSEQUENT EVENTS
Acquisition of Proleukin ®
Pursuant to that certain Option Agreement entered into on January 23, 2023 (the “Option Agreement”) between the Company and Clinigen Holdings Limited, Clinigen Healthcare Limited and Clinigen, Inc. (collectively, “Clinigen”), the Company will acquire worldwide rights to Proleukin® (aldesleukin) (the “Product”), an interleukin-2 product used to promote T-cell activity following TIL infusion.
Material terms of the Option Agreement include an upfront payment of £ 167.7 million, or approximately $ 200 million, a £ 41.7 million, or approximately $ 50 million, milestone payment upon first approval of lifileucel in advanced melanoma, and deferred consideration based on double-digit rates on global net sales of the Product payable from the Company to Clinigen following the completion of the transaction for the applicable deferred consideration term.
Subject to the terms and conditions of the Option Agreement, the Company will purchase (i) all issued and outstanding shares of Clinigen SP Limited (the “Target”), (ii) the business of the Target and Clinigen comprising the manufacturing, supply, commercialization and the generation of income from the Product rights and the undertaking of an active role in the development, maintenance and exploitation of those rights (the “Operations”), and (iii) certain specified assets identified in the Option Agreement.
The Option Agreement is subject to customary termination provisions, and the Company would be required to pay to Clinigen a reverse termination fee (less certain transaction fees and expenses incurred by the Company) upon certain events as described in the Option Agreement. The closing of the transaction is subject to required regulatory approvals and clearances and other customary closing conditions.
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