Speculative Investors Can Be Rewarded Handsomely Due To Immunity Bio's New Cancer Drugs

A cure for cancer...

Investment Case  

• Speculative and patient investors who can tolerate volatility and execution risk can be rewarded handsomely 

• ImmunityBio’s new bladder cancer and lung drug could generate between 1B and 4B revenue by 2030 at a 10% EPS margin. 

• Based on my projections, this could result in a share price of between $14.7(25x)1and $23.53(40x) 

What you need to know to get up to speed?(Business Description) 

Immunity Bio is a clinical-stage biotech company focused on developing new immunotherapies. The American Cancer Society defines Immunotherapy as " a treatment that uses a person's immune system to fight cancer. Immunotherapy can boost or change how the immune system works to find and attack cancer cells(American Cancer Society).” ImmunityBio’s product activates the innate and adaptive immune systems together to eliminate rogue cells.  For bladder cancer , N-803(ANKTIVA ), Immunity Bio's main molecule, is administered through a tube in the bladder along with BCG(2023 10k). BCG is used in immunotherapy to help stimulate the body’s immune response(American Cancer Society).  In April 2022, the FDA approved ANKTIVA + BCG for the treatment of BCG-unresponsive non-muscle invasive bladder cancer (NMIBC) with carcinoma in situ (CIS), with or without papillary tumors. ImmunityBio has priced ANKTIVA at $38500 and is expected to be available in May 2024. (ImmunityBio).  

How do the financials look? 

Since Immunity Bio is a pre-revenue clinical-stage biotech company, projecting  revenue is quite tricky.  Despite the difficulty, I would like to work through some numbers so that folks understand what kind of risk they are taking and possible scenarios that could play out. With this, I’ll try to perform revenue projections for their bladder and lung cancer drugs. As reported by Immunity Bio, their facility has completed the drug substance for about 170,000 doses of ANKTIVA. Eventually, they will have a new facility capable of manufacturing 1 million doses of ANKTIVA  a year(ImmunityBio Website).  

Revenue - Let’s begin by estimating the potential yearly revenue for bladder cancer drugs. According to the Investor presentation on 6/2024, a total dose of ANKTIVA comprises about 21 doses. The actual number of doses depends on the effectiveness of the treatment. In one year, a patient taking ANKTIVA + BCG for cancer would take 15 doses. At $38,500, a treatment would bring in 577,500 per patient yearly (Immunity Bio Investor Presentation). There are about 82,000 new cases of bladder cancer a year in the US, and of these, most of the patients present with NMBIC. 40% of these patients will become unresponsive(Urology Times). Based on these figures from Urology times there would be approximately 16,728 new cases a year. I am assuming that Immunity Bio can capture about 10% of the market, and so ANKTIVA would be able to treat 1673 cases of bladder cancer a year.  My estimate for revenue would be 577500 * 1673 = 996,157,500 million. Another way to calculate the income would be to take ImmunityBio’s drug substance capacity and multiply it by the price per dose. This would result in a yearly revenue of 170000*38500= 6545000000. Based on these estimates, the annual revenue for ImmunityBio could be between 1 billion and 6.5 billion. 

In total, ANKTIVA has about 15 drugs in its pipeline. The discussion is around the bladder drug since the FDA has approved it. I also want to discuss the potential revenue for the lung cancer drug since it is in Phase 3. As more data on the other drugs is released, I may have follow-up articles to discuss them. 

ImmunityBio has another drug in stage 3 called Non-Small Cell Lung Cancer (NSCLC), 1st Line in phase 3 of clinical trials, and I would also like to discuss the potential revenue from this drug (June Investor Desk).  According to this article from Yale Medicine, there are approximately 230,000 new cases of lung cancer a year in the United States. Overall, 85% of the latest cases are non-small cell lung cancer. By the time NSCLC is diagnosed, about 40% of cases will spread beyond the lungs. I assume that those cases won’t be a good fit for ANKTIVA to be conservative. I assume that ImmunityBio can capture 10% of the market share and that the price and dosage schedule are the same as those of bladder cancer drugs. Based on these facts, the NSCLC lung cancer drug could bring in 230000*.85*.6*.1*385000*15 = 6.77 billion in the first year in the United States. Please keep in mind that these are back-of-the-envelope calculations, and a lot can change in 6 years.  

Margin Profile - Now that we have talked about the revenue potential of some of these drugs, I would like to take some time to discuss the potential margins.  First, analyze how many doses have been produced so far. During an investor relations call, Richard Addcock, President and CEO, stated they have “20,000 doses of ANKTIVA available. So, we have -- and beyond that, we also have multiple backup options. So I'm very happy to say that we have at least 12 months' worth of inventory, but we have the ability to produce even more than that because we have all the drug substance already created, and we have the ability to convert that into drug product quite rapidly(Investor Call).” 

20,000 doses could bring in about 770M in revenue. I assume these doses were produced sometime in the last 12 months. According to the Seeking Alpha TTM tool in the valuation section of SA Immunity Bio lost 601.4 million in the last trailing 12 months (SA Financials tool). Using these calculations, ImmunityBio may have a net income margin somewhere south of 21%(770-604/770). I say south of because when Immunity Bio makes begins to become profitable, they will have to pay income tax, and they have quite a few RIPA agreements, which can dilute the top-line growth. Also, as the company scales, it could also have significant marketing and other costs. Because I want to be conservative in my projections, I am roughly adjusting the margin downward. As such, I assume about a 10% EPS margin.  

Can you discuss their valuation? Don’t they have an outrageous EV/Revenue ratio?  

Valuing such an early-stage company is challenging, so I will cast a wide net of potential revenue scenarios 5-6 years out.  I have made the following assumptions about ImmunityBio in 2030 to reach these price targets. 1. IBRX will be able to have between 500 million and 6 billion in revenue from its bladder and cancer immunotherapy drugs. 2. IBRX will have an approximately 10% EPS margin. 3. IBRX will be able to capture about 10% of the market share. 3. IBRX will have about a 5% yearly dilution in the share count. Please see the table below for possible share prices based on various scenarios. I can also share my model so that you can plug in your assumptions. Please DM me if you would like it, and if you have different assumptions, feel free to put them in the comments section below.  

How can I get hurt?  

1. Key Man Risk—Dr. Soon-Shiong is a well-known entrepreneur and physician. He plays an active role in the company and seems involved in the day-to-day operations. Although there is no public concern about his own health, he is 71. Dr. Soon-Shiong owns 79.4% of the common stock.  

2. Dilution of Equity holder’s claims. – There are many financial contracts that could dilute your equity claim. These include a RIPA agreement, warrants, and convertible securities.   

3. FDA approval – This is a highly regulated industry, and it hinges on if ImmunityBio can receive the correct regulatory approvals.  

4. Competition—In my projection, I assumed that ImmunityBio could capture about 10% of the market share. However, there are other options for treating bladder cancer. Dr. Passarelli and Dr. Packiam describe some of these treatments in their article in the Urology Times, “There are 3 FDA-approved options for patients who are unwilling or unfit to undergo radical cystectomy with this diagnosis: intravesical valrubicin (Valstar), systemic pembrolizumab (Keytruda), and most recently nadofaragene firadenovec (Adstiladrin).^13-15 A variety of other agents are used off-label or are under evaluation.(Urology Times).” 

Overall, I would recommend ImmunityBio to investors with a long-term horizon and the ability to stomach significant volatility and execution risk. 

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