The monster rally in shares of Inovio Pharmaceuticals (NASDAQ:INO) did not last at all. INO stock traded as high as $5.95 at the end of January, but closed Feb. 12 at $3.34. Investors sought any drug company that would promise a vaccine or treatment for the coronavirus from China. But when the reality that getting a drug to market would take months at the very least, speculators sold off INO stock.
What should investors do next, especially if they bought the stock at the peak?
On Jan. 30, Inovio announced a collaboration with Beijing Advaccine to advance the INO-4800 vaccine against the coronavirus. INO-4800’s development would go through Phase 1 human testing in the U.S. The purpose of the study is to evaluate the drug’s safety and immunogenicity — its ability to provoke a specific immune response. With a vaccine, one would want a strong immune response, which typically means that it would trigger the body to get rid of the virus. The Coalition for Epidemic Preparedness Innovations (CEPI) will provide up to $9 million in support. In effect, Inovio stock rose by more than $300 million in market capitalization on news of just $9 million of funding.
Still, the safety testing will let the company determine the drug’s toxicity and risks to the patient relative to the dangers of the virus itself.
Inovio’s Competition
Inovio’s INO-4800 may come too late if Gilead’s (NASDAQ:GILD) Remdesivir proves to be an effective treatment for those infected in Wuhan. The study will involve 761 patients in two trials. Just under half of the patients have mild or moderate infection levels. Another 453 of the severely infected patients will be studied.
AbbVie’s (NYSE:ABBV) HIV drug Aluvia — a combination of lopinavir and ritonavir — will also be used to treat those infected with the new virus.
On Jan. 31, Inovio took advantage of the surge in its stock price in an offering of 8,014,201 shares. This will raise up to $34 million. The money raised is a double-edged sword for investors. The cash gives the company the financial flexibility to fund its next stage of clinical studies. If management did not increase its cash levels now, that opportunity may not come again. But the flip side is that it may run low on cash and would not have enough funds to support its studies.
The bad news for existing shareholders is that the stock sale dilutes the current holding value.
Valuation and My Takeaway on INO Stock
As a drug discovery firm, Inovio does not make money. In fact, it lost money in the last seven years.
| Q1 | Q2 | Q3 | Q4 | Year | |
| 2020 | E ($0.23) | ||||
| 2019 | ($0.30) | ($0.30) | ($0.25) | E ($0.24) | ($1.20) |
| 2018 | ($0.36) | ($0.07) | ($0.27) | ($0.34) | ($1.05) |
| 2017 | ($0.31) | ($0.13) | ($0.39) | ($0.24) | ($1.08) |
| 2016 | ($0.11) | ($0.26) | ($0.28) | ($0.35) | ($1.01) |
| 2015 | ($0.17) | ($0.09) | $0.08 | ($0.25) | ($0.43) |
| 2014 | ($0.20) | ($0.18) | ($0.12) | ($0.12) | ($0.61) |
| 2013 | ($0.23) | ($0.24) | ($0.64) | ($0.30) | ($1.43) |
Chart courtesy of StockRover.com, “E” denotes estimate, all numbers from Inovio’s annual 10-K filings
Although the company is not profitable, investors may use an enterprise value-to-sales ratio to extrapolate a $4.16 fair value on Inovio stock.
Inovio was last week’s hot stock. Prior to its surge, shares traded in the $2.00 to $2.50 range for much of the last half-year. Investors who want to hold a company that develops DNA-based immunotherapies and vaccines should watch Inovio. Have a small weighting in this stock at best, since this is a speculative play.
As of this writing, Chris Lau did not hold a position in any of the aforementioned securities.
