This is the biggest risk with Iovance Biotherapeutics stock

Iovance Biotherapeutics (IOVA 0.09%) investors received great news earlier this year when the US Food and Drug Administration granted accelerated approval for the company’s cell therapy treatment for advanced melanoma, Amtagvi. It provides the business with a crucial product to build their operations.

Growth investors were initially bullish on the news, but in recent months, stocks have begun to struggle. While there is much more optimism surrounding the company, investors should be aware that Amtagvi’s accelerated approval may not be enough to make Iovance a slam-dunk buy at this point.

There is significant risk that investors should understand before investing in the healthcare company. Here’s why.

It could take years to turn a profit

For emerging biotech businesses, the challenge is that it can take a long time for them to become profitable. Losses could even increase as a business expands, expands its operations and looks to take advantage of new opportunities in the future.

Iovance Biotherapeutics generated $31.1 million in sales in its most recent quarterly results (which ended in June) as it has already started generating revenue from Amtagvi. However, it still reported a sizeable net loss of $97.1 million. This was only slightly better than the year-ago period, when it suffered a loss of $106.5 million, despite generating much less revenue (less than $1 million). Operating expenses have increased for Iovance, and this trend may continue.

What can be even more of a problem is cash flow. In the past six months, the company used $220.7 million to fund its day-to-day operating activities. That’s not a great situation when you consider that the company ended the period with just $235.1 million in cash on the books. However, he has a bit of a buffer as his short-term investments total $183.9 million. This gives Iovance some liquid assets, should she need to use them. But without a significant improvement in cash flow, this could be a problem for investors.

The risk of dilution is high for Iovance

Without sufficient cash flow to fund its day-to-day operations addition its expansion efforts as it launches Amtagvi in ​​new markets (the UK, Canada and Australia are among those it is focusing on in the near future), Iovance will need to raise money. Often this means going through the equity markets and issuing shares. This may be preferable to raising money through debt, which carries interest costs.

At the end of last quarter, Iovance had a fairly clean balance sheet, with no long-term debt. Its total liabilities of $195.8 million were far less than its assets, which totaled $964.3 million.

This suggests that equity offerings may be the preferred option for Iovance, and if so, investors should be aware of the dilution risk. As more shares are issued, this will reduce the investor’s stake in the business and increase the supply of shares, often leading to downward pressure on the share price. That’s not great news for a stock that’s already down more than 30% in just the last six months.

Should you buy Iovance Biotherapeutics stock today?

Iovance has some attractive growth prospects, but this is still a risky investment overall. The company will need more cash to launch Amtagvi in ​​new markets, and that could lead to some significant stock offerings in the future.

If you’re prepared to hold onto your stock for the long term and are willing to deal with what’s likely to be a bumpy ride, this can be a potentially good investment to hang on to. But you should expect and prepare for dilution as stock offers could be a regular occurrence.