If you’re a short-term trader, Inovio Pharmaceuticals (NASDAQ:INO) has been a dream stock. In January, shares doubled to $5 on the first wave of coronavirus vaccine excitement. Soon, the stock catapulted to as high as $15 as coronavirus fears spread. Then traders dumped INO stock back to $5 as short sellers began to question the company, and additionally, Inovio launched a dilutive $400 million mixed shelf offering.
Over the past couple of weeks, Inovio has calmed down a bit, with shares settling in the $6 to $8 range. But while INO stock has been a fantastic ride for traders, it could be significantly less appealing for long-term investors. The company has a checkered track record, and shares could fall sharply once the coronavirus pandemic reaches its peak.
An Unproven Track Record
I last covered INO stock exactly a month ago. In that article, I gave a lot of history and context to the Inovio story. For example, despite operating for more than 20 years, the company has struggled to obtain FDA approvals for its products and has never generated consistent profits. It is still working on vaccines for diseases such as Ebola that are no longer pressing medical matters or that excite investors.
When a company has a track record of putting out lots of press releases but not achieving substantial results, investors are right to be skeptical. In general, if you trade stocks like that, be sure not to overstay your welcome. Not only do these companies tend to slide once the publicity fades, they often attract spirited short sellers as well. Which brings us to the next piece of Inovio news.
Citron Research Amplifies Concerns
Earlier this month, notorious short-selling firm Citron Research blasted Inovio on Twitter, saying that: “[The] SEC should immediately HALT this stock and investigate the ludicrous and dangerous claim that they designed a vaccine in 3 hours. This has been a serial stock promotion for years. This will trade back to $2. Investors have been warned.”
Say what you will about Citron. They’ve gotten a lot of high-profile calls wrong over the years. But they’ve exposed a bunch of corporate misdoings as well. Therefore, it’s risky to ignore their warnings.
What to make of this particular claim about Inovio? The company responded, saying that it had in fact come up with the vaccine prototype in just three hours and that Citron didn’t understand the science behind creating new vaccine formulations.
In addition to doubling down on its previous claims, Inovio suggested that it will be ready to start human trials by April and if successful, deliver commercial quantities of vaccines later this fall. Short sellers, however, could easily retort that Inovio made similar claims about Ebola in 2014 and Zika in 2016, and neither of those have amounted to meaningful revenue streams for the firm.
What’s Next for Inovio?
I tend to side with the skeptics as far as INO stock goes. But the company does have some merits to support the story as well. For example, Inovio participated in a U.S. presidential task force on the coronavirus that included a bunch of reputable firms such as Gilead Sciences (NASDAQ:GILD) and Pfizer (NYSE:PFE) earlier this month.
Adding to that, Inovio received a big dose of publicity last weekend as 60 Minutes featured the company in a segment about the hunt for a coronavirus vaccine. According to the company, things are still progressing on its previous timelines. Thus, we should get more updates in April as human trials kick off.
Inovio also has several other long-standing products that are advancing in clinical trials. Its VGX-3100 candidate, for example, is in Phase 3 trials for treating cervical dysplasia, which can be a precursor to cancer. On top of that, the company has numerous products in Phase 2 trials. Still, don’t forget that Inovio was a $3 stock before coronavirus emerged. If an effective coronavirus cure emerges, or if quarantine efforts are successful and the pandemic eases, INO stock could tumble.
The Verdict on INO Stock
Given Inovio’s dismal track record as a public company, my call on the stock remains a firm avoid. The company’s financial situation remains lackluster, and shareholders are likely to see more dilution in coming months.
Now, however, the shorter-term trading and technical pictures are turning more negative as well. Even pure speculators should look to bail on Inovio. Far larger and more credible players are advancing drugs for the treatment of this strain of the coronavirus. And the Trump administration is advancing already-existing products, such as an anti-malaria drug, to try to combat the virus as well.
As such, the demand for unproven products from less well-known firms such as Inovio is fading. When there were no other options on the table for fighting the coronavirus, something like Inovio may have made sense for a trade. But as concrete solutions arrive from other corners, look for traders to dump INO stock and move on to more promising opportunities.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek. At the time of this writing, he owned Gilead stock.
