Is Lion Biotechnologies Really Worth $320 Million?

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Lion Biotechnologies

Just last week, Lion Biotechnologies, Inc. (NASDAQ:LBIO) reported a second-quarter 2015 loss of $6.4 million. The company is currently trading at $6.80 a share – just shy of 55% down on 2015 highs back in May and more than 90% down on its 2011 IPO. Despite these declines, a number of ratings agencies have the company at a “buy”, and many of these have reiterated this rating just recently. So, with this said, let’s try and figure out what’s going on, and whether this company would make a potentially rewarding allocation to a biotech portfolio.

The science

The best way to go about this is the first look at the company’s treatment, and then try and figure out why it has lost such a considerable portion of its market capitalization over the last few months. Lion is an oncology biotech, which uses what it calls tumor-infiltrating lymphocytes (“TILs”) as therapeutics against (at the moment) metastatic melanoma – or skin cancer. The science behind this one is pretty complicated, but basically, the company takes some of the tumor from a patient, and extracts naturally occurring TILs from the sample. In pretty much all solid tumor incidences, a patient’s body will create natural TILs that target cancerous cells in the early stages, but the cancer cells quickly adapt to “hide” from the immune system, and evade attack. Ex vivo, Lion replicates the naturally occurring TILs to the tune of billions, and then reintroduces them into the patient. The result is a sort of shock and awe treatment as the billions of TILs overcome the immune system evasion and attack tumors.

Clinical progress

The company has a few ongoing clinical trials, but the one that will undoubtedly prove the driver behind any market revaluation over the coming few quarters is the upcoming phase II trial of its lead candidate – LN-144 – targeting metastatic melanoma. The therapy received orphan drug designation back in June for a late stage indication, and the company expects to initiate during second half of this year, with completion targeted for the latter half of 2019.

Some concerns

So, to address the ratings agency element of this company – it remains unclear just what these analysts see in it. We got some phase II data from a study conducted by the National Cancer Institute (NCI) and Lion at the end of last year, targeting stage 4 melanoma under TIL therapy treatment. The report announced “positive” results, but a look at the numbers revealed an overall response rate of 54% (not bad) and a complete response rate of 13% (not great at all). In other words, the treatment looks to be effective to some degree in very late stage melanoma patients, but across 101 patients (which is a very small sample size for this type of cancer), is far from promising. Further, the press release announcing these “promising” results came in December last year – eight months after the company issued an almost identical release outlining the same results, from the same trial. In short, it looks as though the company is reissuing releases to garner investor attention without any real underlying developments. The same pattern of non-news press releases is illustrated at the company’s website, where it has announced the publication of a few articles co-authored by one member of its research team and the leasing of a new research space. Adding to the concern is the resignation of the company’s CEO at the end of last year, and the subsequent revealing of his connection with the Galena and Dream Team Group stock promotions.

Now, it is important to say we are not suggesting in any way that Lion is cause for concern, and its lead candidate (as well its underlying clinical technology) has shown some level of efficacy in the clinic. What we are questioning is the company’s current market capitalization of more than $320 million. Lion has not yet generated any revenues, and has funded its operations to date through numerous stock issues. With the LN-144 trial not set to complete before 2019, there will likely be numerous further issues that add to the 47 million shares currently outstanding, each of which will be dilutive to early investors’ holdings.

All said…

What it comes down to is this: Lion is developing a therapy that has the potential to treat pretty much all solid tumor cancers. The market potential is huge. However, with an already massive number of outstanding shares, lacklustre trial data and a seeming over reliance on one lead candidate (not to mention the dilutive nature of its capitalization methods) the company is a gamble at current rates.

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