As the coronavirus from China shook the world and the markets, speculative traders sought ways to capitalize on the unfortunate outbreak. Inovio (NASDAQ:INO) stock, a biotech that’s usually under the market’s radar, was suddenly in the spotlight. Bidders nearly doubled the share price within a matter of days.
During this time, I saw social media pundits comparing Inovio and other biotechnology stocks to cryptocurrency due to their speculation-driven rise.
Sadly, this story appears to have a disappointing ending. And the now-lower share price is, in my humble opinion, no reason to double down on INO stock.
The desire for a fast solution to the coronavirus scare is perfectly understandable, as both the populace and the equities markets are at risk until the disease is under control. However, traders’ enthusiasm for risky biotech stocks can be excessive.
Jared Holz, a healthcare analyst for Jefferies, summed up the misplaced and mistimed hype that often surrounds events like this. “Companies stating their interest in development vaccines for coronavirus are likely too late, as we saw similar commentary around SARS and other similar situations.”
Cautionary notes are seldom read by those who need them the most, unfortunately, as was evidenced on Jan. 27. INO shares gained a stunning 25.5% in value. As it turns out, that was the top. The share price has since coughed up all of those gains — and then some.
With numerous biotech firms scrambling to find a medical solution to the virus, speculators latched onto Inovio. When the Coalition for Epidemic Preparedness Innovations (CEPI) chose Inovio to receive funding, the hype increased further. But investors soon discovered that more funding doesn’t ensure sustained gains in stock prices.
Stop Chasing, Start Winning
The lesson to be learned here is that placing your bets on what I call “headline heroes” –or companies that you hope will come to the rescue when disaster strikes — is not a winning long-term strategy. It might net you a nice profit in some isolated instances, but it’s more akin to gambling than a sensible, sustainable investing strategy.
In any case, the hype-and-hope trading cycle commenced when CEPI announced that it had given Inovio a $9 million grant. CEPI CEO Richard Hatchett remained optimistic in his timeline, stating, “Our aspiration with these technologies is to bring a new pathogen from gene sequence to clinical testing in 16 weeks — which is significantly shorter than where we are now.”
Just a few days later, Inovio announced a collaboration with Beijing Advaccine Biotechnology to develop the INO-4800 anti-coronavirus vaccine in China. Again, a speedy timeline was the key focus, as evidenced by Inovio CEO J. Joseph Kim’s statement:
“Our collaboration with Beijing Advaccine and its Founder, Emeritus Professor Bin Wang from the prestigious Fudan University and China’s premier DNA vaccine expert, will tremendously accelerate our coronavirus vaccine INO-4800 development in China because of its expertise and experience with regulatory authorities and clinical trial management.”
I commend the company’s ambition, but the charts don’t lie. Traders have pushed the INO stock price down toward the $3 level. And most trading days since Jan. 30 have brought sizable share-price losses. A major breakthrough could revive Inovio stock, but that’s a scenario based more on hope than evidence.
My Takeaway on INO stock
My thoughts and prayers go out to the victims of this tragic disease, and I’m certainly rooting for Inovio to make headway in developing an effective solution as quickly as possible. Nonetheless, as an investor I won’t put my chips on INO stock as a news-based wager.
In times like this we can hope for the best, but we must also prepare for the worst.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.