As the number of coronavirus cases surge globally, there is a rush to develop a vaccine that protects people against the disease. One of the companies that claims to be developing a DNA vaccine is Inovio Pharmaceuticals (NASDAQ:INO). INO stock has therefore been in the thick of the action in the recent past.
At the end of fiscal 2019, the stock was trading at $3.30. By the first week of March 2020, the stock skyrocketed to $19.36. However, there has been massive profit booking in the last few trading days and INO stock has declined to $6.45.
This volatility, in itself, speaks volumes about the speculative nature of the stock. This column will further discuss the reasons to believe that INO stock is a purely speculative trading option.
Reason for INO Stock Surge
In January 2020, Inovio Pharmaceuticals claimed that it had developed “DNA vaccine INO-4800 in three hours after receiving the genetic sequence using its proprietary DNA medicines platform technology.”
The company is scheduled to begin human clinical trials in April 2020 in the U.S. followed by trials in China and Korea. Further, after presenting the results, Inovio Pharmaceuticals is targeting 1 million doses of INO-4800 COVID-19 DNA vaccine by the end of FY20.
Needless to say that this timeline got the market excited and the stock went ballistic. However, the subsequent correction has been equally sharp and there are reasons to be cautious.
The Concerns on Vaccine Development
The biggest question is on the company’s vaccine testing, development and launch timeline.
When Donald Trump met biotech companies, Stéphane Bancel, the CEO of Moderna (NASDAQ:MRNA) opined that COVID-19 vaccine will be ready in months. However, Anthony Fauci, head of the National Institutes of Allergy and Infectious Disease, believes that it would take a year to a year-and-a-half. It is worth noting that Anthony Fauci has advised six presidents and his statement has more weight and credibility.
Peter Hotez, chief of Baylor University’s National School of Tropical Medicine said in a congressional hearing – “Unfortunately some of my colleagues in the biotech industry are making this inflated claims about vaccines coming in weeks.”
Further, according to Ron Weiss, a synthetic biologist at MIT, the “idea of genetic vaccines—using DNA or RNA—is 30 years old, but tests have revealed unwanted immune reactions and, in some cases, lack of potent enough effects. Those problems have not been entirely overcome.”
Therefore, even with the claims made by Inovio Pharmaceuticals, the following are potential hurdles –
- The timeline of getting vaccines in the market by the end of FY20 is optimistic. Therefore, vaccines are not coming in FY20 even if clinical trial success is achieved. Just as an example, the clinical study completion date for Moderna vaccine is the month of June in FY21.
- The markets have reacted to the company’s claims. It’s too early to conclude that the clinical test will deliver positive results. If the results prove ineffective, the stock is likely to plunge.
- The cost can be a headwind even if a vaccine is developed. If the government decides on a price cap for vaccines, the profitability can be in question.
My Concluding Views on INO Stock
It is worth noting that after climbing to an all-time high of $19.36, INO stock has been sliding lower. The reason is relatively clear. It’s more than just profit-booking.
Inovio Pharmaceuticals has just claimed that it has developed a vaccine. The success in clinical trials will be the real game-changer and the outcome can just be speculated. This is likely to keep INO stock volatile.
Citron Research believes that the Securities and Exchange Commission should “investigate the ludicrous and dangerous claim” that Inovio Pharmaceuticals developed a vaccine in three hours. Therefore, there is skepticism and a big exposure to the stock should be avoided.
Overall, Inovio Pharmaceuticals is a purely speculative stock. While I hope that the company’s claims are true and the world gets a vaccine sooner, hope is unlikely to determine the stock trend.
Faisal Humayun is senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock-specific articles with a focus on the technology, energy and commodities sector. As of this writing, he did not hold a position in any of the aforementioned securities.
