Inovio Pharmaceuticals (NASDAQ:INO) released a recent study showing that its DNA approach for the novel coronavirus works in animals. If the FDA allows Inovio to proceed to a Phase 2 study, INO stock could get a major boost. Or it could tank if the Phase 1 results, due out soon, are not good.
A Phase 2 study involves a larger number of human trials. It could be up to 300 people. If the DNA approach to a vaccine in human cells works, then the FDA could approve it on an emergency basis.
Barron’s recently pointed out that Inovio’s 40-participant Phase 1 study is ongoing. But a report in the journal Nature showed their vaccine worked in mice and guinea pigs. Yes, that is good news, but it’s not enough.
Binary Event for INO Stock
So here is what investors should expect to hear next. Sometime in late June, perhaps as early as this week, Inovio will report the results of that 40-person Phase 1 human vaccine trial.
This is a binary event for INO stock. If the results of the study are successful or promising, INO stock will soar. If not, the stock will tank.
Moreover, with a positive event, the FDA will likely approve a Phase 2 and/or early Phase 3 study in a wider pool, human vaccine trial. I suppose if you have COVID-19, you would want to be in on that study.
The company’s most recent investor slide presentation from June 1 is very powerful. There are two pages, for example, that show all the other diseases that the company is targeting. It has produced similar vaccines or is in various clinical study phases using the same DNA approach as its INO-4800 vaccine (for COVID-19).
As of June 22, industry wide there are more than 140 COVID-19 vaccines in development, with 16 of them in human trial phases.
Financing for the Vaccine
In my last article on Inovio, I made a point about how Inovio has limited cash and securities to finance its cash burn. I also felt that INO stock would probably tread water for a while. I still think that will happen, although, if the binary event is wildly positive, INO stock will skyrocket.
But I’ve changed my mind about financing issues. This will be irrelevant in the end. The money will show up.
For example, its cash burn could increase after the Phase 1 results come out. Inovio may have to do both a Phase 2 and a rushed Phase 3 study. It also might have to manufacture the vaccine on a rushed, emergency basis.
I suspect Inovio will have no problem raising money. It could either sell equity shares or, if it is smart, avoid dilution and sell fixed-income securities. In any case, the money would arrive, since this is such a priority for a COVID-19 vaccine to be produced en masse.
Moreover, analysts could then more precisely assess what its vaccine is worth on a world-wide distribution basis.
Setting a Target Value for INO Stock Isn’t Easy
A recent article in Seeking Alpha showed that Iniovio has previous experience with a MERS vaccine. In other words, even if the INO-4800 vaccine is not used in the U.S., it could be successfully deployed overseas by other countries.
But the article, while acknowledging Inovio’s technical expertise, did not set any target price. The author did not use a model showing how profits would perform in a U.S.-only or a U.S.-and-the-world scenario.
Moreover, the fast-tracking of FDA approved clinical studies has business model ramifications. Recently, The New York Times showed how long a vaccine takes to get FDA approval. This is useful in estimating Inovio’s prospects.
They will need to estimate the probability of success, length of time to manufacture the vaccine, and how the financing will be set up. I have yet to see any research with these factors in mind.
Therefore, it’s not going to be easy to set a target INO stock price. This is true even if the Phase 1 study is successful.
Therefore, use caution with INO stock. The news this week may be a binary event for its prospects.
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.
