Inovio Pharmaceuticals (NASDAQ:INO) has a hard road to tow to get its Covid-19 vaccine to market. Since I last wrote about INO stock on May 20, it has fallen almost 15%. Unless it can overcome some major obstacles, INO stock is likely to fall further.
I pointed out in my last article that INO stock is completely dependent on the outcome of its Covid-19 vaccine, INO-4800. Even today, for example, it has a market value of $1.89 billion. The company has no other potential vaccine that could account for this huge valuation.
The First Hurdle for INO Stock
Last week, Inovio Pharmaceuticals reported that its main manufacturing partner for INO-4800 was not cooperating. The stock took a hit. As a result, the Inovio filed suit against the company.
Inovio’s Phase 1 study for INO-4800 will be reviewed by the Food and Drug Administration by the end of June. Inovio says it wants to be able to produce 1 million doses by the end of 2020, assuming its INO-4800 could be produced.
The problem is the production company does not want to transfer its technology to third-party companies to assist in making INO-4800. So Inovio is suing them.
The Second Hurdle
The White House announced five candidates for its Operation Warp Speed to produce a vaccine by January 2021. Inovio was not one of the five companies.
This means the company will have to raise more capital to get its vaccine to market. It will also need the capital to also have INO-4800 be considered more effective than any of the Warp Speed vaccines.
Granted, Inovio has $270 million in cash and securities on its balance sheet. But it presently runs about $25 million or more each quarter in cash burn, based on its latest 10-Q filing. By the end of this year, its cash pile will be below $200 million or less.
That could still be enough to produce 1 million doses, but not 500 million or 1 billion doses. The company is going to have to raise more capital or get loans or grants. That would be easier to do if the FDA approves its vaccine.
For example, if that occurs, the market value for INO stock will likely rise. That would allow the company to raise more equity. But until then, it is going to have to fund the production, its research and development cash burn, and the new lawsuit using its own resources.
It will also have to find a way to get the doses produced if its manufacturing partner continues to stonewall.
What to Do With INO Stock
Nothing good is going to happen with this stock unless the FDA approves the company’s Phase 1 clinical studies to go into Phase 2. Expect to hear some news on that development by the end of June.
Next, investors will need to hear good news about its manufacturing capabilities to replace its existing partner.
Finally, the stock will continue to tread water until the FDA approves Inovio Pharmaceutical’s clinical studies and allows the vaccine to be used on the U.S. population. These are a lot of important hurdles that the company has to overcome.
I suspect that the market value of INO stock already discounts the upside in these outcomes. The stock is likely to tread water until closer to the end of the year. Wait for a chance to buy INO stock a good deal cheaper, with some sort of margin of safety.
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.
