Sell Inovio While You Still Can
Speculators are slowly losing interest in Inovio Pharmaceuticals (NASDAQ:INO). Excluding the spike to over $30.00 last June 2020 on strong volume, INO stock headed mostly lower. It spent most of the last year trading at around $10.00.
Biotechnology investors spent most of their time betting on the winning Covid-19 vaccine suppliers: BioNTech (NASDAQ:BNTX) and Moderna (NASDAQ:MRNA).
Inovio recently enjoyed a short-squeeze last month. That, too, proved short-lived. Short float is still over 25%. Should investors bet on the stock bottoming in the $10 range? Inovio’s prospects depend exclusively on an approval for its vaccine.
Vaccine News Moves INO Stock
Approval and distribution for Johnson & Johnson’s (NYSE:JNJ) DNA-based vaccine offers hope for Inovio. This would build positive momentum for the stock, after it posted Phase 1 clinical trial data in The Lancet on Dec. 23, 2020. In the report, Inovio said it evaluated INO-4800 in two groups of 20 participants. Receiving either 1.0 mg or 2.0 mg of vaccine, the 39 subjects completed both doses.
Inovio found that six subjects experience adverse events after week 8. In the second administration, none of them experienced an increased frequency of adverse events. More importantly, all 38 subjects had cellular and/or humoral immune responses after the second dose.
Investors have two takeaways from the study. First, the immune response suggests that the vaccine is effective in protecting the subject. Second, the study size is very small. Random chance could account for some of the results. Conversely, Moderna’s study involved 30,000 participants. The mRNA vaccine maker also included 196 cases of Covid-19 participants.
Tough Road Ahead
Inovio has very far behind the competition in the vaccine rollout. Plus, AstraZeneca (NYSE:AZN) and JNJ are distributing the vaccine worldwide. By the time Inovio gets approval, the government will already have chosen four or five major vaccine distributors.
Left out, Inovio will get no revenue from vaccine sales. So, this suggests that the bears betting against the company will get a big reward as the stock continues to underperform.
Five analysts who offer a price target averaging $18.25 would disagree with that negative assessment. Yet the stock showed that only momentum traders lifted the stock. That quickly followed with selling in the days ahead, leaving Inovio stock back to past monthly lows in the $8 – $10 range.
Inovio did not reward its shareholders when it took advantage of the stock trading at a bottom. On Jan. 20, it announced an underwriting public offering of 17,700,000 shares at $8.50 a share. The $150.5 million, which excludes underwriting discounts and commissions, dilutes shareholders. Conversely, the company will have the funds needed to continue the development of its clinical pipeline.
Inovio’s dependence on a Covid-19 vaccine will prove fatal. Before this study, the company touted its DNA medicines pipeline for the last decade. So far, its technology to potentially treat and prevent diseases associated with cancer, human papillomavirus, and infectious diseases did not lead to any products.
Bullish investors will point to the HPV-targeted products ahead. For example, VGX-3100, which indicates precancerous cervical dysplasia, precancerous anal dysplasia, and precancerous vulvar dysplasia are at or beyond Phase 2. But its monoclonal antibodies and non-HPV-associated products are still in the early phases. It will take years before the company brings these products to market. Without the government approving INO-4800, INO stock is unlikely to reward its loyal investors.
Investors should continue avoiding the Covid-19 vaccine developer. Moderna, AstraZeneca, JNJ, and BioNTech are more attractive, proven holdings. They all have a vaccine on the market. They will likely win government orders for the Covid-19 vaccine annually. These companies will enjoy a growing recurring revenue. Inovio will continue to get left out as a credible vaccine supplier.
Disclosure: On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article.