Shares in biotechnology company Inovio Pharmaceuticals (NASDAQ:INO) have been soaring in the past few weeks. On March 3, INO stock hit a 52-week high of $7.48. And year-to-date, the share price has increased more than 150%.
The company which specializes in DNA-based vaccine technology has had a pipeline of clinical candidates. Furthermore, in January, to the delight of investors, management released several updates that highlighted that group was working on a novel vaccine against the deadly coronavirus from China.
On March 3, the company revealed in a new press release that it is now accelerating the timeline for the vaccine.
Biotech investors as well as speculators tend to react to such news rather fast. Yet, investing on the premise of a potential drug or cure comes with a high level of risk. With that said, let’s examine the prospects for the company so that you can better decide if it should have a place in your portfolio.
Vaccine Development Could Push INO Stock Higher
According to an editorial article in the New England Journal of Medicine by Stanley Perlman, M.D., Ph.D. “for the third time in as many decades, a zoonotic coronavirus has crossed species to infect human populations. This virus, provisionally called 2019-nCoV, was first identified in Wuhan, China, in persons exposed to a seafood or wet market.”
The research points out that “like outbreaks caused by two other pathogenic human respiratory coronaviruses (severe acute respiratory syndrome coronavirus [SARS-CoV] and Middle East respiratory syndrome coronavirus [MERS-CoV]), 2019-nCoV causes respiratory disease that is often severe. As of January 24, 2020, there were more than 800 reported cases, with a mortality rate of 3%.”
In a matter of weeks, the outbreak has reached many countries and the number of infections have skyrocketed. And as of March 4, the number of globally reported infections is fast approaching 100,000. And the outbreak has already killed over 3,000 people. In addition to the human cost of the illness, there will likely be adverse economic effects due to the spread of the virus.
The Organisation for Economic Co-operation and Development believes that “the coronavirus Covid-19 presents the global economy with its greatest danger since the financial crisis.”
As we get more coronavirus infection numbers globally, the hype surrounding Inovio’s coronavirus vaccine could propel INO stock much higher. When considering how much room the stock has left to run, consider that earlier in December, ROTH Capital Partners covered the company with a “buy” rating and a 12-month target price of $13 per share. Despite the recent run up in the share price, there is still over $5 to reach that price target.
What Could Derail Inovio?
Any biopharma company that plays a substantial role in finding a cure, such as a vaccine, for the novel virus, will be a winner on many fronts. In addition to Inovio, other companies that are currently working on vaccine development include Gilead Sciences (NASDAQ:GILD), Moderna (NASDAQ:MRNA) and GlaxoSmithKline (NYSE:GSK).
However, many experts warn that a full vaccine may take well over a year to be ready and deployable. Even if the biotech company were successful in developing the vaccine that got the approval of the Food and Drug Administration, INO management would need to commercialize it successfully.
Thus, it is hard to analyze the potential impact of such a vaccine on INO stock. It is not clear how much sales there would be and how the sales would translate in profits. After all, such a fast development of the vaccine will likely be rather costly.
The group may also face competition from other drug companies that may be ready to launch their own drugs against coronavirus. At this point, no investor can fully tell how any of these vaccines or drugs may perform commercially.
Inovio Pharmaceuticals is expected to report Q4 earnings on March 12. When the group last released Q3 earnings in November, investors were not impressed.
One of the biggest question marks was funding. As of the end of the quarter, the group only had about $94 million in the bank.
In Q4, the Street expects the company to post a loss of 23 cents a share. Any unexpected news in the quarterly release will be noted by investors. And the share price would react accordingly. Therefore, we can expect further volatility in INO stock around the earnings report.
Biotech stocks can be tremendous growth vehicles for risk-tolerant investors. However, they also come with a high dose of risk.
Therefore, depending on your own risk/return profile, you may want to study INO stock further to see if you should buy into the shares.
The company currently has a market cap around $750 million. And it could still increase in valuation if any of its pipeline of drugs were to get through the clinical trial process and become approved.
Meanwhile, it could also find itself as a takeover candidate.
Since the price has skyrocketed in a matter of weeks, there is likely to be some profit-taking around the corner. If you believe in the prospects of the company, you may regard any potential dip in INO stock price as an opportunity to go long the company.
Yet if you feel it may be a risky investment on its own, you may also consider buying an exchange-traded fund (ETF) that has Inovio as a holding. Examples of such ETFs would include the ARK Genomic Revolution ETF (BATS:ARKG), iShares NASDAQ Biotechnology ETF (NASDAQ:IBB) and iShares Micro-Cap ETF (NYSEARCA:IWC).
As of this writing, Tezcan Gecgil did not hold a position in any of the aforementioned securities.