Inovio’s (INO) dramatic climb to $30 in June followed by non-stop selling is nothing new in the biotechnology stock investing world. Speculators renewed their interest in the COVID-19 vaccine developer in the last month. Pfizer’s (PFE) declaration of 90% efficacy buoyed the entire stock market, lifted its stock price, and sent BioNTech (BNTX) to all-time highs.
That rally did not last.
Investors still need to decide where Inovio fits in the vaccine deployment space. If Novavax (NVAX), BioNTech, CureVac (CVAC), and Moderna (MRNA) are ahead, then shorts may profit from INO’s stock underperforming next.
Unimpressive Quarterly Results
Inovio posted revenue of just $0.23 million, down 76% from last year. Biotech investors may safely ignore this figure. As an emerging biotech in the field of COVID-19 vaccines, its clinical results and funding received (if any) matter more. Investors will focus on clinical results from its COVID-19 vaccine and VGX-3100. For example, on Nov. 16, the FDA signed off Phase 2 of its planned Phase 2/3 (INNOVATE) trial for the COVID-19 vaccine.
The INO-4800 trial will have around 400 subjects and will evaluate its safety, tolerability, and immunogenicity. Encouragingly, the Department of Defense provided some funding for this study. But the $71 million contract is a small amount. Moderna received $472 million from the U.S. government’s Biomedical Advanced Research and Development Authority (BARDA) and an order from the U.S. worth around $1.5 billion.
Since it received less government funding, Inovio’s cash on hand will matter. In Q3 and as of Sept. 30, 2020, its cash and cash equivalents were $337.2 million. Still, to bring a vaccine to market, it will need to see additional partners to ensure its DNA medicines get to patients.
At a $2.2 billion market capitalization, Inovio trades at a similar size to that of Sorrento (SRNE) at $1.63 billion. Yet investors should not ignore the market’s confidence in BioNTech and its $21B market cap. The market is pricing the risk of Inovio’s reluctance in giving up its patent protection. Subcontractor VGXI Inc. sued Inovio for “breach of contract, unfair competition, misappropriation of trade secrets, and unjust enrichment.” Having supply disruptions and unknown litigation costs are hurting INO’s stock.
The judge’s ruling against Inovio is unsettling. Making a claim that is too speculative to support its injunction puts the company at greater risk of settling and paying VGXI.
After INO’s 51% jump, profit-takers may put pressure on the stock and shorts may double-down on their bearish bet. If Moderna and BioNTech have a vaccine on market in the next few months, investors will lose interest in Inovio.
CEO Joseph Kim did not look at Pfizer’s announcement as a competitive threat. He said that it is “going to take multiple successful safe and effective COVID-19 vaccine to truly help the world control this virus and help us go back to the way things were or maybe even better.”
Investors need to gamble that Inovio is one of several companies selected to distribute a vaccine. INO-4800 has safety and tolerability. It generates neutralizing antibodies and favorable CD8 and CD4 T-cell immune responses. It also has thermal stability at room temperature.
Moderna’s vaccine requires refrigeration temperature for storage and transport. BioNTech’s vaccine needs an even cooler temperature, at -70 degrees Celcius. Despite Inovio’s advantage, the stock is not trading at comparable valuations.
INO-4800 has a clear timeline. Since shares are up four-fold from yearly lows, the stock is already pricing in its accomplishments in the laboratory.
Presentation courtesy of Inovio
As Inovio starts its Phase 2/3 trial, comprehensive data results will help investors evaluate Inovio’s vaccine efficacy next.
According to SA Premium, Inovio still has a strong momentum score, due to the stock’s rise in 2020.
Its value score is better than three months ago, while its B+ score on growth is down. Compared to its peers, Inovio scores highest on growth only:
Chart courtesy of SA Premium
Investors assuming that revenue will double starting in FY 2022 will not get any upside holding INO’s stock.
As shown above, revenue must ramp up in a 5-year discounted EBITDA Exit model. Otherwise, the stock has more downside. It currently trades at close to fair value.
Model courtesy of finbox
Inovio is running out of time. Vaccine developers with more cash resources are ahead. The company needs to share positive data sooner. Then, it may get the government’s approval to distribute its vaccine. Until then, the stock will only give bulls a short-term gain on the temporary spikes higher.
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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.