The coronavirus from China has been dominating headlines for weeks now as countries around the world brace for what seems like an inevitable pandemic. While the response has largely centered around containment, President Trump claims a vaccine is on its way.
A vaccine would be a game-changer for the coronavirus and that has helped drug companies such as Inovio Pharmaceuticals (NASDAQ:INO) and Gilead (NASDAQ:GILD) rally significantly. However, buying based solely on potential coronavirus vaccines could be a risky strategy.
Vaccine Hype is Overblown
On Thursday, INO stock spiked after the firm announced an accelerated timeline for its coronavirus vaccine development. The new expedited time line suggests that Inovio will start testing the drug on humans as early as April.
That kind of rapid turnaround is impressive to say the least. But it might not translate into the gains Inovio’s current share price suggests.
On February 24, we saw similar enthusiasm surrounding Moderna (NASDAQ:MRNA), which was able to start manufacturing a potential coronavirus vaccine in just over a month. Gilead also saw a bump when it was cleared to test remdesivir in Phase 3 studies in March.
The moral of the story here is that while biotechs’ rush to the rescue is commendable, it may not be as lucrative as investors are expecting.
Don’t Hold Your Breath on A Coronavirus Vaccine
AstraZeneca (NYSE:AZN)’s Mark Esser pointed out that developing a vaccine will take a considerable amount of time.
It’s a tough road and a lot of practical considerations are things like manufacturing. If you can’t scale, it won’t be a product.
Indeed, that will likely be a challenge for Inovio if the company makes it to that stage. Dr. Joseph Kim, President and CEO of Inovio Pharmaceuticals said as much when he announced the accelerated timeline for the vaccine.
“We plan on delivering one million doses by year end with existing resources and capacity. However, we will need additional resources to scale up to make enough doses to help protect Americans from COVID-19 as well as to lead global efforts to curtail this virus.”
Scale isn’t the only reason investors should be wary of a vaccine-related spike. Needham’s Alan Carr noted that a coronavirus vaccine may not fly off the shelves the way investors are expecting it to. The SARS epidemic is an example of how vaccine development doesn’t necessarily translate into future profits— in that case the virus was eventually wiped out and the drugs never made it to market.
Inovio Enthusiasm is Overboard
There’s a dangerous rally happening among biotechs such as Inovio as investors try to bet on the winning vaccine maker. That makes INO stock a poor choice amid the coronavirus chaos. Not only are we likely to see a great deal of volatility in the weeks ahead as the virus continues to spread, but the healthcare sector itself will be under fire as the 2020 Presidential Election heats up.
A meteoric rise like Inovio has just seen probably isn’t sustainable. At this point, shareholders will likely be considering some profit-taking. That means they’ll use any excuse to abandon INO stock as the vaccine race continues.
Using Coronavirus for Profits
Instead of chasing a flimsy rally like we’re seeing in the biotech space, investors could instead look to quality blue chip stocks that have been beaten down but the coronavirus scare. Bond Guru Mark Vaselkiv said it best when he advised, “It is time to start thinking about favoring value. The market is daring you to buy value today.”
If you’re dying to play the coronavirus vaccine trend, there are other, safer options to consider. Pfizer (NYSE:PFE) is also working to find a treatment for the virus, and the firm’s financials look much more stable than Inovio’s.
Pfizer has seen its share price fall significantly over the past month as its dependence on China weighed on investor sentiment. Plus, Pfizer’s debt to equity ratio is just 57% compared to Inovio’s 208.
The Bottom Line on INO Stock
It’s difficult to make a case for Inovio at its current valuation, especially if you’re hesitant to chase a rally that looks unlikely to pan out. If I was holding INO stock, I’d probably be taking profits right now. But if it isn’t already a part of your portfolio, now isn’t the time to start buying.
As of this writing Laura Hoy did not hold a position in any of the aforementioned securities.