Inovio Pharmaceuticals (NASDAQ:INO) stock is completely dependent on its novel coronavirus vaccine. It’s a binary-event stock. If its effort to make a vaccine succeeds, the stock will skyrocket. If it fails, the stock will crater. There really will be no in-between outcome for INO stock.
Why? The market value of Inovio is now completely unrelated to any other aspect of its business. For example, the stock market value is over $2.3 billion. But Inovio had just $1.3 million in revenue during the first quarter. This was down from $2.8 million last year.
In fact, Inovio stock has already moved up dramatically this year. It ended 2019 at a price of $3.30. As of Monday, May 18, the stock was at $14.17.
Will Inovio’s Experimental Approach Boost INO Stock?
The company’s approach to a Covid-19 vaccine was discussed in a cover article this past week. Barron’s went “Inside the Science and Companies Racing to Develop a Covid-19 Vaccine.”
The article really is a must-read about both the major pharmaceutical companies and smaller names like Inovio racing to develop a vaccine.
The author, Josh Nathan-Kazis, grouped the companies developing vaccines into two groups. He calls them the “hares” and the “tortoises.” Inovio is one of the hares. It is using a novel, unproven approach to develop a vaccine. This general approach is also how Moderna (NASDAQ:MRNA) and Pfizer (NYSE:PFE) are proceeding.
The approach is to teach your body to reject the Covid-19 virus by growing pieces of the virus in your body. The body learns to reject the virus that way. This vaccine approach is nimble and can quickly produce results.
By contrast, the “tortoise” companies, like Sanofi (NASDAQ:SNY) and GlaxoSmithKline (NYSE:GSK), use a traditional lab-grown approach. For example, these companies have an established approach for developing proteins found on the surface of the virus.
Next, they inject the proteins into the body to induce an immune response. For example, this is how they make the typical seasonal flu vaccine.
In addition, these companies also have the capacity to manufacture large amounts of the vaccine. But the drawback is that it will be well into 2021 before their vaccine will be ready.
Fast-Tracking Inovio’s Studies
Inovio will have its Phase 1 study, with 40 volunteers, completed by the end of June. If results prove that INO-4800 vaccine triggers an immune response and that it’s safe, Phase 2 and 3 clinical trials will begin.
That would take the study through the summer months, and make a vaccine possible by the fall. The U.S. Food and Drug Administration might then be willing to give it emergency-use authority.
At that point, the sky would be the limit. First of all, the FDA has yet to authorize any company using this approach, according to Barron’s. Second, there is no indication yet how the company would price the vaccine, if at all. For example, a number of companies are willing to distribute their vaccine for free.
The idea is that there would be reputational advantages to the company. Other drugs in the company’s pipeline will become more valuable, so their pricing and demand will see effects.
It’s not clear yet whether Inovio, a small biotech company that needs the revenue, could follow this pro-bono revenue model.
The Bottom Line: It’s a Binary Event
So, in effect, if the studies this summer are successful, Inovio could be worth a lot of money. That will also depend on its revenue model.
The problem is that with a $2.3 billion valuation right now INO stock is discounting a lot of the upside. Moreover, the stock could easily fall to its prior level if there is no success with INO-4800.
So, at this price, only the most speculative investors should even consider buying INO stock.
As of this writing, Mark Hake, CFA does not hold a position in any of the aforementioned securities. Mark Hake runs the Total Yield Value Guide, which you can review here.
