ImmunityBio: Amidst Difficulty Is Your Opportunity (NASDAQ:IBRX)

Nothing is worth doing unless it is worth doing right. – Phillip Fischer (Warren Buffett’s second mentor).

In biotech investing, you will see much volatility. Most investors tend to shy away from volatility because it affects your strongest emotion, which is fear. Nevertheless, there are tremendous profits once you learned to “stomach” volatility. And, whether you’d bank profits depends on your outlook and thereby action amid such seeming difficulty.

The stock that epitomizes the aforesaid phenomenon is ImmunityBio, Inc. (NASDAQ:IBRX). After rising several folds in anticipating an FDA approval of Anktiva for non-muscle invasive bladder cancer (NMIBC), the stock crashed over 50% due to a Complete Responses Letter (i.e., CRL) for its Biologic License Application (i.e., BLA). In this research, I’ll feature a fundamental analysis of ImmunityBio and share with you my expectation for this intriguing company.

Figure 1: ImmunityBio, Inc. stock chart.

About The Company

As usual, I’ll present a brief corporate overview for new investors. If you are familiar with the firm, I recommend that you skip to the next section. Headquartered in Culver City, California, ImmunityBio, Inc. is focused on the innovation and commercialization of novel medicine and vaccines to fulfill the unmet needs of cancers and serious infectious diseases.

Powering the pipeline is Anktiva (a cytokine fusion protein) which is a novel IL15 superagonist complex. It already received the FDA Breakthrough Therapy and Fast Track Designations for non-muscle invasive bladder cancer. Aside from NMIBC, ImmunityBio is advancing Anktiva for other cancer indications such as lung, pancreatic, glioma, and Lynch Syndrome. There is also vaccine development for other infectious disease indications.

Figure 2: ImmunityBio, Inc. therapeutic pipeline.

Strong Management

As you can appreciate, the company’s Executive Chairman, CSO/CMO, and Founder (Dr. Patrick Soon-Shiong) is a world-renowned physician with a tremendous track record of success. Despite controversies, Dr. Soon-Shiong has a history of founding and exiting two successful multi-billion dollars companies: American Pharmaceuticals Partners and Abriaxis Biosciences.

Figure 3: ImmunityBio, Inc. management’s stellar track record.

Building A Vertically Integrated Company

From the figure below, you can see that ImmunityBio is not a traditional biotech company, so to speak. Specifically, ImmunityBio runs a vertically integrated operation with a robust R&D platform as well as an expansive manufacturing avenue.

Even as a clinical-stage company, ImmunityBio already has 11 established manufacturing plants in place. As their product gains approval in the future, you can bet that they would ramp up the manufacturing and launch aggressively.

Figure 4: ImmunityBio, Inc. is a vertically integrated company.

Non-Muscle Invasive Bladder Cancer

Before discussing Anktiva, it’s important that you go over the science and medicine of bladder cancer. As a common condition in the U.S., there are 84K patients diagnosed with the disease each year, with men 3X more likely to get it than women. Of that spectrum of cancer, non-muscle invasive bladder cancer is localized to the inner lining of the bladder and has yet to spread to the bladder wall muscle and beyond.

Treatment-wise, patients having either intermediate or high-risk NMIBC are usually managed with a transurethral resection of the bladder tumor (TURBT) followed by the Standard of Care (i.e., BCG vaccine). Unfortunately, 30% to 40% of the patients treated with the BCG vaccine see their cancer return. In that case, patients are given chemotherapies like Keytruda (which was recently approved in 2020).

The last line of treatment is bladder removal (i.e., cystectomy). Now, having your bladder removed is quite cumbersome. After all, you’d have to always wear a urine pouch. Interestingly, research showed that patients with an early cystectomy would have the best chances of being cancer free, rather than suffering from cancer relapses. Hence, you’d expect the cystectomy to remain a key treatment along with other novel treatments like Anktiva.

Anktiva

As an important biological signally molecule, Anktiva (i.e., N-803) boosted the body’s natural defense (i.e., immune) system by recruiting more Natural Killer (i.e. NK) cells and another key immune cell (i.e. “the General”) T-cells. As a ramification, T-cells then coordinate the battles to eradicate cancer. More importantly, T-cells also help with the memory storage/recognition of cancer to ensure victory in subsequent fights.

Figure 5: Anktiva’s mechanism of action.

Robust Supporting Trial Data

All the sound underlying science/medicine is meaningless unless Anktiva can demonstrate robust clinical results. Therefore, let us check into Anktiva’s clinical investigation (i.e., QUILT3.032). As a single-arm multicenter trial, QUILT3.032 is assessing the efficacy and safety of Anktiva with BCG in patients afflicted by high-grade NMIBC who are no longer responsive to the Standard of Care (BCG vaccine). The study protocol is as elucidated below,

All patients treated in the study will receive via a urinary catheter in the bladder, BCG plus N-803 or N-803 only weekly for 6 consecutive weeks (initial induction treatment period). After the first disease assessment, eligible patients will receive either a 3-week maintenance course or a 6-week re-induction course (second treatment period) at Month 3. Eligible patients will continue to receive maintenance treatment in the third treatment period at Months 6, 9, 12, and 18. Eligible patients have the option to receive maintenance treatment in the fourth treatment period at Months 24, 30, and 36. The study duration is 60 months.

Figure 6: QUILT3.302.

Remarkably, 58/82 patients on Anktiva/BCG combo enjoyed 71% Complete Response (i.e., CR) at any time during the follow-up. The median Duration of Response (i.e., DOR) also registered at a remarkable 26.6 months. As you’d expect for most cancer treatments, the CR trend is down over time at 12 months (i.e., 62%) and 24 months (i.e., 53%). Additionally, the chances of patients on the combo not needing bladder removal are at 89%. Highly enthused by the robust outcomes, Dr. Soon-Shiong remarked,

The peer review and publication of data in NEJM Evidence highlights the significance of the positive results of the QUILT 3.032 trial in patients with BCG-unresponsive NMIBC. We’re targeting the 10th most commonly diagnosed cancer and the one with the highest lifetime treatment costs per patient as a result of the prolonged course of the disease and the need for repeated surgical and treatment intervention. These data further our understanding of N-803’s unique role in potentially boosting the proliferation of natural killer and T cells while synergistically enhancing BCG efficacy.

Figure 7: Robust Anktiva efficacy.

Complete Response Letter

As you know, ImmunityBio had the May 23 Prescription Drug User Fee Act (PDUFA) date for Anktiva’s BLA for NMIBC. Nonetheless, the FDA issued an early Complete Response Letter (i.e., CRL). The letter indicated that the Agency raised concerns related to the company’s third-party’s manufacturing issue. The FDA also provided specific recommendations about Chemistry, Manufacturing, and Control (i.e., CMC) and assays to be resolved.

You should appreciate that FDA does not request any additional studies. Given that there are no studies are needed, you can anticipate that the manufacturing issues will be resolved in a matter of months rather than years. Based on the company’s filing, ImmunityBio intends to get this issue resolved with the FDA as soon as possible. If so, the stock should get a decent pop.

Financial Assessment

Just as you would get an annual physical for your well-being, it’s important to check the financial health of your stock. For instance, your health is affected by “blood flow” as your stock’s viability is dependent on the “cash flow.” With that in mind, I’ll assess the 1Q2023 earnings report for the period that ended on March 31.

As follows, ImmunityBio procured $360K compared to $14K for the same period a year prior. Like most clinical-stage biotech companies, ImmunityBio has yet to generate significant revenue. You can see that made sense because there is no approved medicine.

That aside, the research and development (i.e., R&D) for the respective periods registered at $79.2M and $55.3M. I viewed the 43.21% R&D increase positively because the money invested today can turn into blockbuster profits tomorrow. After all, you have to plant a tree to enjoy its fruits.

Figure 8: ImmunityBio, Inc. key financial metrics.

About the balance sheet, there was $88.8M in cash and equivalents. On top of the $50M recently raised plus the $30M in financing from the Chairman, the total cash position is boosted to $168.8M. Against the $111.9M quarterly OpEx, ImmunityBio is likely to need to raise capital soon. Simply put, the cash position is weak relative to the burn rate.

Potential Risks

Since investment research is an imperfect science, there are always risks associated with your stock, regardless of its fundamental strengths. More importantly, the risks are “growth-cycle dependent.” At this point in its life cycle, the main concern for ImmunityBio is whether Anktiva can gain FDA approval to treat NMIBC. Moreover, there is a risk that other franchises might post subpar data. In that event, the stock is likely to tumble over 50% and vice versa.

There is also a concern that ImmunityBio is burning cash at an extremely high rate. Though Dr. Soon-Shiong can continue to finance his company, ImmunityBio would need to execute additional public offerings, which will further dilute an already diluted stock. Furthermore, the significantly high ownership of Immunity by Dr. Soon-Shiong might deter institutional ownership.

Concluding Remarks

In all, I issued a highly speculative buy recommendation on ImmunityBio, Inc. with a 4.2/5 stars rating. As a “rollercoaster” stock, ImmunityBio is definitely not for the faint of heart. Nevertheless, if you have a strong appetite for risks/rewards, and you can stomach volatility, ImmunityBio, Inc. may be an ideal stock for you. Fundamentally speaking, ImmunityBio cleared important clinical hurdles. If it can gain Anktiva’s approval for NMIBC, ImmunityBio, Inc. stock can pop much bigger than you’d expected.