Small-capitalization firm Inovio Pharmaceuticals (NASDAQ:INO) is one of several biotechnology stocks that soared as the coronavirus from China spread. In three sessions beginning on Jan. 23, INO stock gained some 55%.
Most of those gains, however, already have reversed: Inovio stock is down more than 1% from its $3.44 close on Jan. 22. And the quick selling does make some sense.
After all, Inovio has soared in the past on similar hopes that it could cure or provide a vaccine for dangerous viruses. Each time, INO stock not only gave the gains back, but continued to decline. Shares in fact touched a seven-year low in October before rallying.
To be fair, there is a bull case for Inovio, which has a broad portfolio and several drugs in clinical trials. But there’s also a long history of disappointment — and little reason to see coronavirus developments as a game-changer for INO.
The Inovio Pipeline
Unlike many small-cap biotechs whose hopes rest on one or two products, Inovio does have a broad pipeline at the moment. The lead candidate is VGX-3100, which is enrolling for a Phase 3 trial. The initial indication is for high-grade squamous intraepithelial lesions (HSIL) in cervical cells caused by human papilloma virus (HPV). If successful, VGX-3100 would treat the roughly 70% of cervical cancers and precancers caused by HPV.
That compound could target vulvar and anal HSIL as well. Other compounds in earlier testing target prostate and head and neck cancers, while INO-5401 is in Phase 2 trials for glioblastoma, an aggressive form of brain cancer.
Inovio also has been active in searching for vaccines against common, deadly viruses. Human immunodeficiency virus (HIV) vaccine candidate PENNVAX-GP has shown promise in early tests. And the company long has worked to develop immunotherapies for diseases that have seen significant outbreaks, like Ebola, Middle East Respiratory Syndrome (MERS), and Zika.
The Risk of Chasing Headlines
It’s the latter effort that perhaps best informs near-term trading in INO stock. This is not the first time shares have soared based on speculative hopes that Inovio could ride to the rescue during a worrisome outbreak.
During the Zika crisis in 2016, for instance, INO stock went from under $9 to over $11 in less than three weeks. The company launched a test of a Zika vaccine in June of that year. By July the gains were gone; by the end of that year shares were below $7.
In the first quarter of 2019, Inovio did dose its first patient with a Zika treatment, according to the Form 10-K filed with the U.S. Securities and Exchange Commission. Results should arrive this year from a broader trial. But so far there’s been little progress, and with INO stock now below $4, no help for shareholders.
Much the same is true elsewhere. A MERS vaccine candidate will enter Phase 2 trials this year, but still has a long way to commercialization. INO stock jumped 30% on hopes for an HIV vaccine back in 2017, and those gains too have faded.
Chasing the headlines here simply hasn’t been a solid strategy. And that’s been true elsewhere with stocks that soared on hopes for coronavirus treatments. Nano-cap NanoViricides (NYSE:NNVC) went from $4 to $18 last month, and has faded back to $8. Novavax (NASDAQ:NVAX) saw similar trading. Even established Gilead Sciences (NASDAQ:GILD) has seen a bit of a reversal after a smaller pop, with analysts questioning its ability to profit off the new virus from China.
It’s possible that coronavirus treatments wind up being a legitimate business for Inovio. But its history and that of its industry suggest it’s unlikely.
The Case for INO Stock
That doesn’t mean there’s no bull case for INO stock. This isn’t some fly-by-night promotional company looking to score a few days of good press and positive trading. The company has been around in some form since at least 2000, when chief executive officer Joseph Kim founded VGX Pharmaceuticals, which merged with Inovio Biomedical in 2009. And, again, the pipeline is broad and has some promise.
But investors considering INO stock need to consider it as they might have in December. Even with a market capitalization under $400 million, the odds of success in coronavirus seem too thin to materially change valuation. Again, the history of other outbreaks like Zika and MERS is instructive. Some traders see an opportunity for quick profits; eventually, and relatively quickly, the market moves on.
What will determine the success — or failure — of INO stock going forward is the existing platform and pipeline. And as Josh Enomoto wrote this week, there is a bull case for the stock based on its existing assets. But there are plenty of reasons for caution as well.
After all, Inovio hasn’t made enough in the way of progress so far. The stock hit a multi-year low less than five months ago. Well-publicized partnerships with AstraZeneca (NYSE:AZN) and Roche (OTCMKTS:RHHBY) both were ended, leading to the discontinuation of a bladder cancer program.
Funding is a concern: the company closed the third quarter of 2019 with about $93 million in cash and burned $84 million in the first nine months of last year. Dilution of existing shareholders is a strong possibility.
The risks here are myriad, as is always the case with small-cap biotech. And the core concern is that Inovio hasn’t yet done enough to drive investor confidence. That may well change, and if it does, INO stock is going to soar. But that change most likely will require a win with the existing pipeline; investors betting on coronavirus to be a catalyst are likely to be disappointed.
As of this writing, Vince Martin has no positions in any securities mentioned.