Iovance Biotherapeutics Inc

NASDAQ:IOVA

Earnings Call Transcript 2024-Q3

[Operator]

Thank you for standby. My name is Mandeep, and I'll be your operator today. I'd like to welcome everyone to the Iovance Third Quarter 2024 Financial results call.

I would now like turn the call over to Sara.

[Sara Pellegrino, executive]

Thank you, operator. Good afternoon, and thank you for joining this conference call and webcast to discuss our third quarter and year-to-date 2024 financial results as well as recent corporate and development program updates.

Dr. Fred Vogt, our Interim Chief Executive Officer and President, will provide an introduction and summarize the latest progress with our U.S. commercial launch of Amtagvi including revenue and revenue guidance, patient demand and market access, an update on our global regulatory submissions at a high-level summary of our key pipeline. Dr. Brian Gastman, our Executive Vice President, Medical Affairs, will highlight adoption and demand at authorized treatment centers or ATC as well as our community outreach initiatives to drive additional growth for the U.S. commercial launch of Amtagvi in advanced melanoma. Dr. Igor Bilinsky, our Chief Operating Officer will cover our commercial manufacturing experience and the status of our ongoing capacity expansion. Jean-Marc Bellemin, our Chief Financial Officer, will review our financial results, including revenue and revenue guidance, gross margin and the strength of our balance sheet; and Dr. c5 Friedrich Graf Finckenstein, our Chief Medical Officer will review key pipeline highlights including recent updates related to our clinical program in frontline non-small cell lung cancer. Dr. Raj Perry, our EVP of Regulatory Affairs and [indiscernible] Senior Vice President, Commercial are also on the call and available for the Q&A session.

Earlier this afternoon, we issued a press release that can be found on our corporate website at iovance.com. Before we start, I would like to remind everyone that statements made during this conference call will include forward-looking statements regarding Iovance's goals, business focus, business plans and transactions, revenue and revenue guidance, commercial activities, clinical trials and results, regulatory approvals and interactions, plans and strategies, research and preclinical activities, potential future applications of our technologies, manufacturing capabilities, regulatory feedback and guidance, payer interactions, licenses and collaboration, cash position and expense guidance and future updates.

Forward-looking statements are subject to numerous risks and uncertainties, many of which are beyond our control, including the risks and uncertainties described from time to time in our SEC filings. Our results may differ materially from those projected during today's call. We undertake no obligation to publicly update any forward-looking statements. With that introduction, I will hand the call to Fred.

[Frederick Vogt, executive]

Thank you, Sara. I'm pleased to host this afternoon's conference call to discuss our financial results for the third quarter and year-to-date of 2024 as well as our recent corporate highlights.

Iovance is nearing the end of a successful year following our first FDA approval and a strong start to the U.S. commercial launch of Amtagvi for patients with advanced melanoma. We are rapidly advancing our robust pipeline of current future generation T-cell therapies across all stages development to expand our commercial opportunities.

I would like to begin by highlighting the exceptional continued demand for Amtagvi. Our third quarter total product revenue was $58.6 million, surpassing the top end of our third quarter total product revenue guidance of $53 million to $55 million. Total product revenue in the third quarter included $41 million for Amtagvi and $16.5 million for Proleukin.

As a reminder, Amtagvi revenue is recognized upon infusion to the patient. Proleukin revenue is recognized upon delivery to distributors or hospitals typically a few months prior to Amtagvi infusion. Year-to-date, total product revenue was $90.4 million to September 30 including $54.9 million for Amtagvi and $35.5 million for Proleukin.

Third quarter and year-to-date revenue reflects robust initial uptake and increasing strong demand and adoption of Amtagvi as well as sales of Proleukin used with Amtagvi. Since the first infusion in April through today, 126 patients have been infused with Amtagvi keeping us on track towards our 2024 guidance at representing about $75 million 2024 revenue from Amtagvi alone with more to come. Infusions over time also reflects an increasing rate of adoption with 25 in the second quarter, 82 in the third quarter and 39 in the fourth quarter to date.

Our team's successful execution as well as the unmet medical need in advanced melanoma, high awareness broad patient access and a motivated and expanding network of authorized treatment centers or ATCs, continue to drive strong adoption and uptake of Amtagvi and Proleukin. With 56 current ATCs, we remain focused on our goal of onboarding approximately 70 total ATCs by year-end. Our community referral initiatives are also driving additional demand as our ATCs continue to scale up to treat more patients.

In addition to robust demand, favorable medical coverage policies and reimbursement are facilitating broad access to Amtagvi. Approximately 75% of Amtagvi patients are covered by private payers. More than 250 million lives or more than 95% of U.S. covered lives currently have access to reimbursement through positive medical coverage policies for pharmacy benefit plans. And positive payer coverage has been consistent with the label of clinical trials and National Comprehensive Cancer Network or NCCN guidelines. As Igor will further summarize, we are manufacturing and delivering Amtagvi to patients at an increasing pace. We can meet current demand while increasing capacity and head count each month to match ongoing growth.

As the launch continues, the treatment journey is also speeding up for patients. Financial clearance currently averages approximately 3 weeks, representing a significant reduction from 4 to 6 weeks of initial launch. ATCs are saving additional time by scheduling in parallel with financial clearance and/or initiating the preconditioning regimen in conjunction with [indiscernible] several days prior to product arrival. We are consistently delivering on our turnaround time of 34 days for manufacturing and release testing and expect this turnaround time to decrease as the launch continues.

Looking ahead, we are reaffirming our full year 2024 total product revenue guidance of $160 million to $165 million. We also reiterate our full year 2025 guidance of $450 million to $475 million in total product revenue. We expect a significant increase in year-over-year growth as ATC's broaden utilization and new ATCs as well as community referral networks contribute to additional demand.

We anticipate significant additional revenue growth in 2026 and beyond. In the currently approved advanced melanoma education alone, Amtagvi and Proleukin represent more than $1 billion peak opportunity in the U.S. market. Globally, Amtagvi represents a multibillion-dollar opportunity to address more than 20,000 previously treated advanced melanoma patients annually in the U.S. and in our initial ex U.S. markets. Gross margin, which Jean-Marc will highlight in a few minutes, is also expected to increase to greater than 70% over the next several years. And our third quarter gross margin is more than halfway towards that target.

With a fully integrated infrastructure and [indiscernible] interest in Amtagvi outside the U.S., Iovance is well positioned to continue scaling globally. Our ex U.S. teams are being built and regulatory dossiers are under review, submitted our plans across multiple international markets with potential for our first ex U.S. approval in the first half of 2025. European Medicines Agency validated and accepted our marketing authorization application, or MAA, for a review for all EU member states with potential approval in the second half of 2025. The Medicines and Healthcare Products Regulatory Agency in the United Kingdom is reviewing a separate MAA submission for potential approval in the first half of 2025.

Our new drug submission is also underway for near-term submission in Canada and will include a prioritized review process for potential approval in mid-2025. Additional regulatory [indiscernible] remain on track for submission in Australia and Switzerland in 2025, and we'll target additional markets with highly concentrated populations of advanced melanoma patients in the future.

Iovance is poised to remain the global leader in innovating, developing and delivering current and future generations of TIL cell therapies for patients with cancer. The first approval, launch in large-scale manufacturing with TIL cell therapy together with our intellectual property position and deep pipeline provide us with distinct competitive advantages. Future growth drivers include global label expansions in the frontline advanced melanoma, other tumor types and next-generation programs that we'll discuss in more detail today.

I'll hand over now to Brian, our Executive Vice President of Medical Affairs, who will summarize our ATC network in U.S. field activities. Brian?

[Brian Gastman, executive]

Thank you, Fred. We're excited about the potential for Amtagvi to improve the lives of thousands of patients with advanced melanoma. Our ATCs continue to share positive feedback and stories about their patients who have benefited from Amtagvi since approval. My objectives today are to highlight: one, demand and adoption and utilization across our expanding ATC network; and two, our field support for ATCs as well as targeted community oncologists.

First, our ATC network is scaling and expanding as planned, and we expect robust demand growth to continue. Amtagvi's early inclusion in the NCCN guidelines, combined with strong clinical data, has supported broad and successful market access. Today, Amtagvi is available at 56 United States ATCs, and our goal is to reach approximately 70 total ATCs by the end of 2024 with more to come in 2025.

Our field medical team is composed of highly experienced medical science liaisons and former health care providers, including oncologists and surgeons. They understand the unique needs of each ATC and proactively provide support, training and peer-to-peer conversations around patient selection and surgical resection to maximize successful outcomes with the Amtagvi treatment regimen.

As we expand our ATC network to bring treatment closer to patients, more than 90% of treat patients are located within 200 miles of an ATC today. Nearly all melanoma patients will be within a 2-hour drive to the closest center by year-end.

Community referrals are also driving patient volume and demand growth across our networks of ATCs. Iovance field teams are currently targeting top community practices and large community-focused professional organizations. The primary objective is to drive early referrals by identifying patients with advanced melanoma who are currently receiving frontline treatment and may be eligible for Amtagvi upon disease progression.

In summary, we are extremely pleased with the early launch performance as our ATCs successfully adopt and broadened utilization of Amtagvi. I will now pass the call to Igor Bilinsky, our Chief Operating Officer, to highlight our manufacturing progress.

[Igor Bilinsky, executive]

Thank you, Brian. Today, I'd like to highlight our commercial and clinical manufacturing capabilities the progress of our commercial launch and the status of our ongoing capacity and facility expansion.

Our manufacturing capacity continues its steady ramp up month-over-month to support the growing Amtagvi commercial demand. We continue to actively hire manufacturing and quality control staff as well as supporting functions and have significantly increased our staff capacity at [indiscernible] Therapy Center, or ICTC since launch in February.

We have too many sectoring facilities approved by the FDA for commercial manufacturing of Amtagvi. One is our internal manufacturing facility, Iovance Cell Therapy Center located from the Navy Yard in Philadelphia. It is one of the largest cell therapy manufacturing facilities in the world. In addition, our contract manufacturers facility provides us with further capacity and scheduling flexibility to serve Amtagvi patients.

We are pleased with our commercial manufacturing experience to date, which remains consistent with prior clinical experience. The medical affairs team is doing a tremendous job sharing best practices among ATCs such as optimal tumor selection and sample procurement for manufacturing, which contributed to improving manufacturing success rates.

The turnaround time has been consistent at 34 days from receiving cells at the manufacturing facility to Amtagvi being ready for return shipment to the ATC. As Fred mentioned, we are working on optimizing our processes to further shorten the turnaround time.

As we scale up, we also expect to improve the cost of goods over time through economies of scale and operational efficiencies as well as by leveraging our competitive advantage and unique position as the leader in the TIL cell therapy space. Our manufacturing network is currently running at high capacity utilization while ensuring small availability for our ATCs.

In anticipation of potential regulatory approvals of Amtagvi outside the U.S., we are establishing logistics and distribution to support a successful commercial launch in new markets such as the EU, U.K. and Canada. The ICTC already serves patients in our clinical trials in Europe, Australia and other geographies, and we intend to manufacture global commercial product from our Philadelphia sites as well.

In anticipation of the longer-term growth of global commercial demand in melanoma and other indications, we are expanding our manufacturing network. ICTC is built today has the capacity to provide TIL products for more than 2,000 patients annually. Building out the existing shelf space at ICTC is expected to bring that capacity to over 5,000 patients annually upon completion, which we expect within a couple of years. Further expansion of our manufacturing campus in Philadelphia, along with process optimization and automation is expected to bring the capacity to over 10,000 patients annually.

The Iovance manufacturing supply chain and quality team is committed to operational excellence in providing Amtagvi to patients in the spirit of doing everything right first time every time. I'd like to thank them for their continued dedication, 24/7, 365 in serving out patients who meet this paradigm-changing and potential life-saving therapy.

Importantly, our expertise in TIL cell therapy as well as manufacturing capabilities are protected by a robust intellectual property portfolio. Iovance currently owns more than 230 granted or allowed U.S. and international patents and patent rights for Amtagvi and other TIL-related technologies that are expected to provide exclusivity through at least 2042.

I'm available to answer additional questions during the Q&A, and I will now hand the call to Jean-Marc, our Chief Financial Officer.

[Jean-Marc Bellemin, executive]

Thank you, Igor. Today, I will review our current cash position as well as our results for the third quarter and 9 months ended September 30, 2024. I will also highlight our financial outlook, including revenue and expense guidance as well as our gross margin.

As of September 30, 2024, our unaudited cash position was approximately $403.8 million, including approximately $200 million in net proceeds [indiscernible] the market equity financing facility during the second and early third quarters of 2024. We expect the current cash position and anticipated product revenue to be sufficient to fund current and planned operation into 2026.

I will now transition to our financial results. Net loss for the third quarter of 2024 was $83.5 million or $0.28 per share compared to a net loss of $113.8 million or $0.46 per share for the third quarter ended September 30, 2023. Net loss for the first 9 months of 2024 was $293.6 million or $1.03 per share compared to a net loss of $327.7 million or $1.44 per share for the 9-month period ended September 30, 2023.

Transitioning to revenue, which Fred previously summarized, our total product revenue includes Amtagvi infusion in the U.S. and global sales of Proleukin primarily used in the Amtagvi treatment regimen and other commercial and clinical settings. As previously discussed, Proleukin revenue is recognized upon delivery to distributors and hospitals and generally purchased several months in advance of anticipated infusions and Amtagvi revenue recognition.

Total product revenue was $58.6 million for the third quarter of 2024, including $42.1 million for Amtagvi and $16.5 million for Proleukin. Total product revenue for the first 9 months of 2024 was $90.4 million and consisted of $54.9 million for Amtagvi and $35.5 million for Proleukin. Revenue for the first 3 and 9 months of 2023 was $0.5 million and $0.7 million, respectively, for global sales of Proleukin.

Revenue increases in both periods of 2024 over the prior year period were primarily attributable to the U.S. commercial launch of Amtagvi and the related strong demand for Proleukin for use with Amtagvi beginning in the second quarter of 2024.

I will now highlight our cost of sales, which includes cost of inventory, overhead and related cash and noncash expenses that are directly associated with sales of Amtagvi and Proleukin as well as manufacturing cost of Amtagvi. Cost of sales for the 3 months ended September 30, 2024, was $39.8 million primarily attributed to $8.3 million in period costs associated with patient drop-off and manufacturing success rates, $6.9 million for noncash expenses including fair market value step-up and intangible asset amortization and $3.9 million in royalties payable on product sales.

Notably, our third quarter cost associated with patient drop-off and manufacturing success rate has decreased over previous quarters report of $8.7 million even though volume and activity greatly increased. In the prior year 3-month period, cost of sales was $4.3 million, primarily related to noncash amortization for [ intangible ] assets. Cost of sales for the 9 months ended September 30, 2024, was $78.5 million primarily related to $17.2 million in certain costs associated with patient drop-off and manufacturing success rates, $20.3 million in noncash expenses including fair market value step-up and intangible assets amortization and $8.2 million in royalty payable on product sales.

In the prior year 9-month period, cost of sales was $6.4 million, primarily related to noncash amortization for intangible assets. The increase in cost of sales in the third quarter and year-to-date 2024 over the prior year period were primarily attributable to the U.S. commercialization of Amtagvi beginning in the first quarter of 2024 as well as related increased sales of Proleukin, including the initiation of product sales, commercial manufacturing and related cash and noncash expenses tied to Amtagvi and Proleukin.

Since the initial launch of Amtagvi, cost of sales is improving as we increase volume and capacity utilization due to continued strong demand and launch ramp up. In addition, as Brian and Igor mentioned, the ongoing support, education and training with ATCs as well as continued focus on operational efficiencies in manufacturing and release testing can further optimize our cost of sales and translate to a higher gross margin over time.

I will briefly comment on our third quarter gross margin. Our cost of sales in the third quarter includes $6.9 million of noncash expenses such as fair market value and amortization related to the Proleukin acquisition, resulting in the third quarter gross margin of $25.6 million against a revenue of $58.6 million. The improvement in gross margin over the second quarter reflects our ongoing focus on profitability and positions us more than [indiscernible] towards our target of a gross margin above 70% in the coming years.

I will now shift to our operating expenses. Research and development expenses were $68.2 million for the third quarter of 2024, a decrease of $19.3 million compared to $87.5 million for the same period ended September 30, 2023. Research and development expense were $210.1 million for the 9 months ended September 30, 2024, a decrease of $46.5 million compared to $256 million for the same period ended September 30, 2023. The decrease in research and development expenses in the third quarter and first 9 months of 2024 over the prior year period were primarily attributable to the transition of Amtagvi to commercial manufacturing and lower clinical costs and lower costs resulting from the completion of pre-commercial qualification activities in 2023. This decrease in research and development were partially offset by increase in head count and related costs, including stock-based compensation.

Selling, general and administrative expenses were $39.6 million for the third quarter of 2024, an increase of $12.6 million compared to $27 million for the same period ended September 30, 2023. Selling, general and administrative expenses were $110.5 million for the first 9 months of 2024, an increase of $33.5 million compared to $77 million for the same 9-month period ended September 30, 2023. The increase in selling, general and administrative expenses in the third quarter and first 9 months of 2024 compared to the prior year period was primarily attributable to increase in head count and related costs, including stock-based compensation to support our overall business and related infrastructure growth as well as legal cost and commercial-related costs.

Looking ahead, I would like to briefly summarize our financial outlook. As Fred mentioned, we reiterate our guidance for total product revenue within the range of $160 million to $165 million for the full year of 2024 and $450 million to $475 million for the full year 2025. Regarding our operating expenses, we reiterate full year 2024 cash burn guidance in the range of $320 million to $340 million, excluding onetime expense. We will also keep leveraging opportunities to optimize spending in the coming quarters.

For additional information, please see the company's selected consolidated balance sheet and statement of operations in this afternoon's press release and our Form 10-Q to be filed later today. I will now hand the call to Frederick, our Chief Medical Officer, to discuss our clinical pipeline.

[Friedrich Graf Finckenstein, executive]

Thank you, Jean-Marc. As my colleagues have conveyed Amtagvi is only the tip of the iceberg for the potential of TIL cell therapy in solid tumors, which represent more than 90% of all diagnosed cancers in the U.S. Today, I will focus on our clinical programs in lung, frontline melanoma and endometrial cancer as well as our exciting next-generation pipeline.

This week, we are attending the Society for Immunotherapy and Cancer Conference, or SITC Annual Meeting in Houston. Here, we have a number of invited presentations focused on Amtagvi and our pipeline. In the late-breaking poster, we are presenting updated preliminary results from Cohort 3A and the IOV-COM-202 trial, including additional patients and longer-term follow-up. Cohort 3A is investigating lifileucel plus pembrolizumab in patients with advanced non-small cell lung cancer who are naive to checkpoint inhibitor therapy.

I'll review and analysis of Cohort 3A patients with EGFR wild-type disease regardless of PD-L1 status, who represent the majority of patients in the frontline non-small cell lung cancer setting. The confirmed objective response rate, or ORR, was 64.3% among these patients, including 54.5% ORR in patients who have difficult-to-treat PD-L1 negative disease, which is higher than reported responses in these patients to currently approved therapy.

Remarkably, 5 of the 6 responses in EGFR wild-type tumors were ongoing as of the last follow-up visit, with 4 ongoing for more than 20 months from TIL infusion. In addition, median duration of response was not reached at a median study follow-up of 26.5 months. The robust response rates and meaningful durability for Cohort 3A demonstrate the potential for the lysines regimen to drive meaningful benefit when added to standard of care frontline non-small cell lung cancer treatment. The results are available in the late-breaking poster as well as in our corporate deck at iovance.com.

Based on Cohort 3A data, we plan to open a new Cohort 3D in the IOV-COM-202 clinical trial. Cohort 3D will investigate a regimen that adds lifileucel to the frontline standard of care of chemotherapy and pembrolizumab for patients with EGFR wild-type non-small cell lung cancer. Cohort 3D results will inform the design of a planned confirmatory trial in frontline non-small cell lung cancer. We expect that the integration of the lifileucel regimen into current frontline standard of care with chemo and pembrolizumab will further augment the strong efficacy seen in Cohort 3A and has the potential to establish a new frontline regimen in non-small cell lung cancer.

To address unmet medical need among patients with advanced non-small cell lung cancer in the post anti-PD-1 setting, we're investigating lifileucel monotherapy in the single-arm registrational Phase II IOV-LUN-202 clinical trial. Single-agent chemotherapy, the current standard of care in this setting provides limited rate and duration of responses. Investigators are excited about the opportunity to advance the first cell therapy for patients with non-small lung cancer and the IOV-LUN-202 trial. [indiscernible] and enrollment continue to accelerate. We are also confident in our approval strategy based on the positive preliminary data and prior FDA feedback for IOV-LUN-202.

We expect to report additional data for the registrational cohorts in 2025, and achieve a potential accelerated U.S. approval for lifileucel in non-small cell lung cancer in 2027.

Expanding the commercial opportunity for Amtagvi into frontline advanced melanoma is also a top priority at Iovance. Our global registrational Phase III trial TILVANCE-301 remains on track to support accelerated and full approvals of Amtagvi in combination with pembrolizumab in frontline advanced melanoma as well as regular approval of Amtagvi and post anti-PD-1 melanoma. We continue to see strong momentum with enrollment and high enthusiasm among clinical sites. Nearly 50 sites are currently active across 11 countries in North America, Europe and Australia. And more than 50 sites -- across 50 new sites across 15 additional countries are lined up to join TILVANCE-302. As a reminder, TILVANCE-301 is supported by results from IOV-COM-202 Cohort 1A in patients with advanced melanoma naive to immune checkpoint inhibitors.

In the most recent Cohort 1a data presentation at ASCO, lifileucel plus pembrolizumab demonstrated an unprecedented rate, depth and durability of responses, including a 30% confirmed complete response rate as well as a safety profile that is differentiated from combination checkpoint inhibitor therapies.

In addition, we are exploring a potential best-in-class frontline alternative for physicians and patients in the U.S. Cohort 1D in the IOV-COM-202 trial will investigate lifileucel in combination with nivolumab and relatlimab in patients with frontline advanced melanoma.

Moving along the pipeline. We are excited about our first clinical trial in advanced endometrial cancer. Recent approvals of immune checkpoint inhibitors in combination with chemotherapy for frontline endometrial cancer have created an unmet need for patients who progress. There are no currently approved therapies after anti-PD-1, which represents a significant new opportunity for TIL cell therapy. Patient enrollment has commenced in our IOV-END-201 Phase II trial to investigate lifileucel after frontline standard of care of chemotherapy and anti-PD-1 therapy in patients with both mismatch repair or MMR-deficient and proficient tumors. This trial is supported by published preclinical and manufacturing success data as well as positive feedback from gynecological oncology experts.

As the leader in TIL cell therapy, Iovance is also at the forefront of next-generation approaches to optimize TIL until treatment regimen. We are investigating a next-generation PD-1 inactivated TIL cell therapy, IOV-4001 in the IOV-GM1-201 clinical trial. Genetic modification using the talent technology to inactivate PD-1 may enhance the efficacy of IOV-4001 in place of systemic anti-PD-1 therapy, which is associated with short- and long-term systemic adverse events or AEs. IOV-GM1-201 has cleared the Phase I safety reason and is currently enrolling 2 Phase II cohorts of patients with previously treated advanced melanoma or non-small cell lung cancer with high interest by investigators to contribute to this trial. The pace of enrollment is increasing, and this trend is expected to continue through 2025.

Building on our successful Proleukin franchise, IOV-3001 as a second-generation modified IL-2 analog designed to enhance TIL survival and cellular proliferation. IOV-3001 favorable pharmacodynamic and pharmacokinetic characteristics may result in a better safety profile and may support less frequent dosing compared to Proleukin. An investigation on new drug or IND application was allowed to proceed for a Phase I/II clinical trial of IOV-3001 for use in the TIL therapy treatment regimen and clinical enrollment is expected to begin soon.

Lastly, IND-enabling studies are proceeding for IOV-5001, a genetically engineered inducible and tethered IL-12 TIL cell therapy. The prior generation IL-12 TIL product demonstrated an impressive ORR of [ 63% ] in advanced melanoma patients at doses 10 to 100-fold lower than conventional TIL products. However, the product secreted IL-12, which resulted in adverse events. IOV-5001 design includes inducible IL-12 expression restricted to the tumor and tethering of IL-12 to the cell surface, which prevents IL-12 secretion. [indiscernible] IOV-5001 to allow higher cell doses over the prior generation product and improve TIL efficacy while ensuring safety, potentially allowing for expansion into a wide range of common solid tumor cancers beyond our current pipeline with significant market opportunity.

Preclinical results supporting IOV-5001 will be featured in a poster at SITC on Saturday, November 9. We plan to submit a pre-IND meeting request to FDA this year to support clinical development of IOV-5001 in many common solid tumor cancers with large populations and unmet need in 2025. Preclinical results for IOV-5001 will be featured in a post-trade SITC on Saturday, November 9.

Additional details about our development programs are included in today's press release as well as the corporate slide deck, and the data presentations I mentioned are currently available to view on the scientific presentations and publications page on our website. I'm happy to address questions about these programs and additional trials during the Q&A session.

I would like to acknowledge the significant progress we have made in advancing our clinical and preclinical pipelines this year and thank our talented multidisciplinary team and research partners. I'm excited to see what's next as we continue to develop and deliver TIL cell therapy to cancer patients in additional therapeutic settings and with additional tumor types. I'll now turn the call over to the operator to begin the question-and-answer session.

[Operator]

[Operator Instructions] Our first question comes from the line of Tyler Van Buren with TD Cowen.

[Tyler Van Buren, analyst]

Congratulations on the quarter and all the progress. So the 39 patients treated to date are 30% above the 30 infusions reported at the same time point last quarter. And so if you just simply apply that to Q3 sales to Q4 and Proleukin sales are stable, you should obviously meet your annual guidance. However, there are significant holidays coming up next quarter. So can you talk about the potential impact of the holidays? And have you seen any infusion scheduled around those holidays yet?

[Frederick Vogt, executive]

Yes, Tyler, we can talk about that a bit. We actually project infusions out over to the entire quarter, and we can see them far in advance. And yes, of course, during the holidays, there's going to be some patients that either put their -- try to get their infusion or carryovers to try to get to infusion ahead of the holidays or after the holidays for family reasons as well as the physicians wanting to take time off. So there is a bit of a lull during that period, but I think what you've calculated there is a fair estimate regardless of any law. I think we'll still perform quite well in the quarter. We've accounted for that when we do our projections.

[Operator]

Our next question comes from the line of Peter Lawson with Barclays.

[Peter Lawson, analyst]

I guess just a question around the IL-2 stocking level. Kind of how does that change over time? I assume there's kind of going to be less stocking each quarter, but just if you can kind of walk through the dynamics of what you think IL-2 number will look like for both use and then the stocking level?

[Frederick Vogt, executive]

Thanks, Peter. The level -- we're currently stocking of 3 specialty distributors, which represent the 3 large distributors in the United States, [indiscernible] we primarily focused on 1 in Q2, another 1 in Q3, and there'll be another 1 we expect in Q4. I think, as I said before, the numbers will be steady. They could go down, up 10% or so. You see we did more last quarter, we did less this quarter. I would strongly advising anyone thinking we can't do more. We can do more for Proleukin in the fourth quarter, and that may be the case, we'll see. But after that, we'll have all the main distributors stocked up. And as I've said on the last earnings call, we expect after that, growth to then start in 2025 and go up more traditionally quarter-over-quarter.

[Operator]

Our next question comes from Andrea [ Newkirk ] with Goldman Sachs.

[Unknown Analyst]

Fred, I was wondering if you could provide more color on your comment that preconditioning is happening sometimes in parallel or before Amtagvi actually arrives at the ATC. Just curious how common this is. And does this suggest that your manufacturing out of spec rates are improving sufficiently such that ATCs are willing to do this at risk?

[Frederick Vogt, executive]

Yes, that's right, Andrea. The ATCs that have a lot of experience with both our manufacturing process and are out of specs as well as if their patients are getting more and more comfortable doing this. So yes, I think you're correct that does reflect that kind of confidence. I can't tell you exactly how common it is. What I can tell you is that it's more common at the larger ATCs that are more sophisticated that have more experience, I think many quarters in the launch, we'll probably see that for a good number of patients. I don't know. I can't really guess, but either a majority are significant minority as we go out of time because what we know is that everybody is getting the message [indiscernible] this product into the patients better. So I think there's a lot of the full confidence they'll want to do this more generally.

[Operator]

Our next question comes from the line of Yanan Zhu with Wells Fargo.

[Yanan Zhu, analyst]

Congrats on the quarter. I was wondering about the 82 infusions in the last quarter. How are they -- how are they distributed across the months? And is there a clear trajectory of growth and going into fourth quarter, -- how do you feel about the month-to-month prospects? And if I may, also wondering like the month-to-month growth, is that mainly from demand growth and ATC center number increase? Or are there any elements of improved manufacturing and logistics that makes you comfortable about forecasting growth?

[Frederick Vogt, executive]

[indiscernible] infusions in the third quarter, there was month-over-month growth that basically [indiscernible] up month-over-month, and we expect that to continue through Q4 with the [ 39 ] we've already reported. With respect to your question about whether that's driven by ATC growth, meaning growth in demand of the ATCs or adding new ATCs, Yes, that's a big factor in driving that, and the availability of slots above all, what drives that. So the fact that we're scaling up manufacturing is really what's driving that growth, it links up with the manufacturing capacity.

Now I can add since you asked, yes, I think we're getting better and better with our out-of-spec rate. I can't say it's a month over month, but quarter-over-quarter, I think that's what's happening. And I expect that to continue into 2025 and beyond. So yes, month-over-month, you see growth, and we expect it to continue. It's largely driven by capacity, but I'm sure there's an element of -- element of approved out of spec rate and stuff like that also adding some wins to the sales.

[Operator]

Our next question comes from the line of Ben Burnett with Stifel.

[Benjamin Burnett, analyst]

Just a question on just the profitability and kind of the gross margin goals, where you think you mentioned getting to 70%. It sounds like you're halfway there. How are you realizing that? And I guess what are the operational levers that will get you to that 70% goal?

[Frederick Vogt, executive]

Maybe I can start, Ben, and then Jean-Marc can jump in and help here a little bit. So as we scale up the launch, especially using our ICTC facility, COGS goes down very quickly just on the capacity utilization. So that's a big factor in improving gross margin at the end of the day because that's a major component of cost, a major component of cost of sales and that will drive margins up from where they are right now, which is in the mid-40s to somewhere up closer to 70%. We've got all sorts of other initiatives, including operational excellence, type work that we use to conduct projects to also improve margins. This includes some things that are quite confidential, obviously, the things that we do to improve our manufacturing process things that we do scale things up. A lot of those things have to be filed with the FDA and takes some time to go through, but they're all in progress right now.

And then I think we have pretty good management of our expenses, too. We try to bring those down and keep those steady at least even as we expand our clinical portfolio. Jean-Marc, may be able to add a little bit more on the accounting side of that as well.

[Jean-Marc Bellemin, executive]

Yes. Thank you, Fred. No, I think you said it all. And then if you think about the margin, I mean, we do expect the cost of sales -- I mean the cost of goods sold in general to improve over time. We are only in the second quarter of launches. So obviously, there is a lot of optimization, which is currently happening. And as you have seen in terms of the significant jump of our improved gross margin between Q3 and Q2, we know that in the future by -- as mentioned by Fred, with automation, optimization, also working on some of the costs even related to raw materials, the cost of goods sold from -- [indiscernible], that's the beauty of having our own ICTC and being in charge and control of the cost. So that's why we are confident and expect the gross margin to go into the 70% -- above 70% in the future years.

[Operator]

Our next question comes from the line of David Dai with UBS.

[Unknown Analyst]

[indiscernible] improve drop our rate?

[Frederick Vogt, executive]

We got -- we only caught part of that, David. Could you please repeat that question? .

[Unknown Analyst]

My apologies. So just curious about the dropout rate. What are some of the activities you did to improve the dropout rate that you saw this quarter compared to last quarter?

[Frederick Vogt, executive]

I don't think we really did anything in particular. We are optimizing the launch as we go. We're teaching ATCs how to get patients through better. We're teaching them how to do better quality surgical resections. You heard a lot of that in the script from all of us include Brian's part of the script. But we are, I think, just seeing the benefits of the launch that's ongoing. It's only really only 2 quarters in the launch. So I think you can expect to see this improve quarter-over-quarter, and we'll eventually get up to what we think will be the manufacturing success rate that we had or at least manufacturing experience that we had during the clinical studies.

So no, there's nothing I can really point to that we did specifically. We're just optimizing across the board.

[Operator]

Our next question comes from the line of Michael Yee with Jefferies.

[Michael Yee, analyst]

Fred, can you remind us about reimbursement. I know that since launch, it's been sort of coverage by patient in single case deals. Can you remind how does it work for commercial, if you wanted a more broad-based contract where you can get approval very quickly days or weeks rather than a month. I'm just wondering how that's going and if that's -- it could be a significant accelerator of the business?

The second question relates to the lung cancer. Can you just remind us draw ongoing pivotal study in second line, is that something that could possibly read out next year, maybe just rightsize my expectations?

[Frederick Vogt, executive]

Yes. So on the point of reimbursement, like we did -- we noted during the prepared remarks there that we have cut the average reimbursement time for 4 to 6 weeks, down to 3 weeks. That's the financial clearance time that includes prior authorization as well as a single case agreements. That's probably, we think, the sweet spot going forward. That's really realistically what the ATCs can do. The good news is they can select the manufacturing site parallel schedule the operating room time and bring the patient pack back in, which takes typically about 3 weeks, even at high speed, given their operating room capacity and stuff like that.

So it really -- I don't think it's a drag at all. We don't anticipate really needing to further optimize that. If you take a look at our corporate deck that we posted today, you'll see a new slide that summarizes this I think that really helps highlight where we're going and where other areas we can optimize, but that's not really [indiscernible]. We're already there, I think, on that one. [indiscernible]. Our press release today talked about us having data out next year 2025 and us getting approval in 2027, that's what we think can happen baseline data based on the study as it's running right now.

[Operator]

Our next question comes from the line of Asthika Goonewardene with Truist Securities.

[Unknown Analyst]

[indiscernible]. I wanted to double quick on to the improvement of the out-of-spec rate. And now that you've had several centers treat a good number of patients, are you seeing that there -- any trends or factors that influence [indiscernible], I'm particularly wondering is it just a factor of centers having more experience? Or are you now getting new centers coming online that are just getting better and just much better outperforming the resections and producing the product right out the case?

[Frederick Vogt, executive]

Well, it's both. We're trying -- at the beginning, we had centers come along that were good and some that struggle to do resections and select patients. We help them out. They got better. And now we learned from that as well and are teaching the new ATCs as they come on the benefits of all that early learning so that they don't make the same mistakes. We plan out actual run charge for each ATC to see what they did. -- look patient-by-patient for ATC, give them a scorecard as to how they're performing, and help them with our peer-to-peer team that Brian's team oversee -- Brian oversees the team, the Fred's team that does that and others, they go out and they talk to the surgeons, and they make sure the patient selection is correct and they work with them on resection quality. And now I think -- I would just say that we're just gaining momentum and building momentum here. It's been a big rush and is stepping up and up and going faster and faster.

There's nothing really magical to it. It's hard work. But once it's [indiscernible] get the experience, and I think what we're seeing is that any ATC can really get these skills to do Amtagvi therapy.

[Operator]

Thank you. That does conclude today's Q&A session. I would now like to turn the call over to Fred Vogt, Interim CEO, for closing remarks.

[Frederick Vogt, executive]

Thank you again for joining the Iovance Biotherapeutics Third quarter and year-to-date 2024 financial results and corporate update conference call. We're pleased to provide an update on our launch of the first commercial TIL cell therapy and look forward to providing further Amtagvi launch updates as well as continued developments in our pipeline in the near future.

It's already been a transformative year for Iovance, and we continue to be motivated as we hear frequent feedback from ATCs about advanced melanoma patients benefiting and finding hope with Amtagvi in the commercial setting.

As always, we're thankful to the patients, health care and advocacy communities, our partners and our exceptional Iovance team. I would also like to thank our shareholders and covering analyst for their support. Thank you.

[Operator]

This does conclude today's call. You may now disconnect.