Inovio (NASDAQ:INO) stock has been a hot name this year. The company has been one of the leaders in the race for a novel coronavirus vaccine. The winner of that sprint is likely to reap huge rewards. Understandably, traders have flocked to Inovio in the hopes of hitting it big.
However, I’ve been concerned about Inovio’s ability to come up with the goods. In March, I detailed Inovio’s unproven track record and warned that the stock could slump as coronavirus fears begin to fade.
That’s exactly what’s starting to play out. For one thing, the political events and popular unrest since the tragic death of George Floyd have caused people to start paying less attention to the coronavirus. The national media has moved on from the virus, and traders are turning to other themes as well.
Secondly, Inovio’s vaccine candidate has suffered some setbacks lately. As a result, Inovio’s shares have slumped over 20% in the last week. And their fall may be just getting started.
The Government Snubbed Inovio’s Vaccine
Earlier this week, the U.S. government announced that it would be fast tracking five potential coronavirus vaccine candidates. Among the companies working on those candidates are Moderna (NASDAQ:MRNA), Astrazeneca (NYSE:AZN), Pfizer (NYSE:PFE), Merck (NYSE:MRK), and Johnson & Johnson (NYSE:JNJ).
Reportedly, there had been around a dozen firms in the running for this designation, but many — including Inovio — were left out. The fortunate five will have access to billions of dollars of direct government aid, along with logistical help with things such as manufacturing capabilities. As we’ll see in a minute, Inovio could use some help on that front.
More broadly, Washington’s decision emphasizes the difficulty a small firm like Inovio faces in trying to commercialize a vaccine that will be in huge demand. Coronavirus isn’t some obscure disease.
We need a vaccine as quickly as possible, and the government is naturally going to put its trust in firms with decades of success in developing pharmaceutical products. Inovio, with a minimal track record of developing successful vaccines, now appears in danger of failing to develop a viable coronavirus vaccine.
Inovio’s Supply Chain Headaches
One of the reasons to be skeptical of a small, unproven vaccine developer is that it doesn’t necessarily have the same resources as an established player. A recent development has brought this concern to the forefront.
On June 3, Inovio filed a legal complaint in Pennsylvania against VGXI. The latter firm is the primary supplier of DNA plasmids for Inovio, and Inovio needs more of the plasmids to expedite production of its INO-4800 vaccine candidate.
Unfortunately, VGXI has informed Inovio that it isn’t capable of meeting its demand. Thus, Inovio is trying to obtain VGXI’s proprietary technology for manufacturing these plasmids so that the vaccine maker can obtain plasmids from other companies. However, VGXI does not want to divulge its trade secrets.
It’s unclear how this legal situation will play out. Given the severity of the coronavirus, hopefully there will be some way for the two parties to come to an acceptable agreement quickly. But it’s possible that this legal dispute could slow down Inovio’s vaccine development considerably.
The Bottom Line on INO Stock
InvestorPlace columnist Dana Blankenhorn recently suggested that Inovio may be the next Theranos. That’s a harsh claim, but it does highlight the risk posed by Inovio.
Moreover, well-known short seller Citron Research has raised some serious questions about Inovio’s scientific expertise. It’s too early to judge Inovio’s work at this point, as the vaccine is still in clinical trials. However, there are reasons to be skeptical about it.
The government’s decision to avoid fast tracking Inovio’s vaccine candidate adds to those worries. At the end of the day, Inovio is still a small biotech firm with a limited history of success, a rather undersized research & development budget, and some significant questions about its scientific capabilities.
While Inovio may still succeed, its stock is quickly losing its appeal. Other plays, such as economic reopening trades, hold far more appeal.
And there’s still not enough scientific evidence indicating that Inovio’s vaccine candidate will be viable. Inovio will need to show more signs that it can top the government’s five vaccine finalists.
With that in mind, Inovio’s $2 billion market capitalization is rather lofty. The company had just $270 million of cash and short-term investments as of last quarter, after all.
And its operating costs are burning around $30 million per quarter. Thus, the stock could tumble quickly if traders lose hope in its coronavirus vaccine’s prospects.
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 JNJ stock.