As the race to develop a vaccine against the novel coronavirus heats up, Inovio Pharmaceuticals (NASDAQ:INO) stock gets plenty of investor attention.
Inovio specializes in DNA-based vaccine technology. In January, before the Covid-19 pandemic had reached our shores, management said that it was working on a vaccine against the deadly virus from China.
That announcement changed the fortunes of shareholders. So far, in the year, INO stock is up 318%.
Now market participants are wondering if they are somewhat late to the party or if the stock could indeed go up any further. Seasoned investors realize that big sums can be made or lost by taking a bet on a potential cure that may be developed by otherwise a small biotechnology company.
In the short run, as it continues the lengthy clinical trials for a potential vaccine, I do not expect INO stock to make new highs. However, if the end result is successful, then it’d be a different story.
Let’s take a closer look.
Potential Tailwinds Behind INO Stock
While its scientific team works on a potential a vaccine, the group has received numerous grants from organizations worldwide, including Oslo-based Coalition for Epidemic Preparedness Innovations (CEPI), the Department of Defense and Bill & Melinda Gates Foundation.
On June 4, the Plymouth, Pennsylvania-based company announced that the company is partnering with the International Vaccine Institute and Seoul National University Hospital. They will run a phase 1/2 clinical trial of Inovio’s Covid-19 vaccine INO-4800 in South Korea.
The announcement stated that “The 2-stage trial … will assess the safety, tolerability, and immunogenicity of the candidate vaccine in 40 healthy adults aged 19-50 years, and will further expand to enroll an additional 120 people aged 19-64 years.”
Over the past several months, INO stock has in general reacted positively to company announcements regarding the vaccine. In early February, the shares were around $3.50. On March 9, they hit a 52-week high of $19.36. Yet after the initial run-up in price, profit-taking has kicked in. Now they are hovering at $13.80.
As of June 16, the number of globally reported Covid-19 infections has passed 8 million. And the outbreak has already killed close to 450,000 people. Devastating health effects compound the adverse economic effects countries, and millions of individuals worldwide are going through.
Therefore, if the company can successfully reach the finish line and develop a vaccine that is accepted by global authorities, then early shareholders are likely to be rewarded even further. In case Inovio Pharmaceuticals is one of those successful companies, then its DNA platform and other potential cures in the pipeline would likely get investor attention as well as financial support.
And needless to say, such a development would benefit investors in INO stock.
What Could Derail INO Stock?
Developing an efficient vaccine takes time and money. According to a recent article published in The British Medical Journal (BMJ), “Vaccine development is a lengthy process that normally takes more than ten years. Huge sums of money are needed.”
Scientists also highlight that there tends to be a “long history of over-optimistic vaccine predictions” and that even if there a vaccine, it’d be rather difficult to predict its efficacy.
And the competition to develop a vaccine is intense. In addition to Inovio, several other companies are currently working on vaccine development. They include AstraZeneca (NYSE:AZN), GlaxoSmithKline (NYSE:GSK), Moderna (NASDAQ:MRNA), Novavax (NASDAQ:NVAX) and Pfizer (NYSE:PFE).
No investor can fully tell when a vaccine will be ready or how any one of them may perform commercially. For example, in recent days, Europe-headquartered pharma major AstraZeneca has agreed with European governments to supply Europe with 400 million doses of the Covid-19 treatment at no profit.
Put another way, even a successful vaccine may not necessarily be a promise to fortunes for these biopharma companies. And that could mean hurdles in the way of a further run-up in INO stock.
Inovio’s Q1 Earnings Were Disappointing
Potential investors may also want to pay attention to Inovio’s fundamentals. It is still a small biotech company that has no approved products.
In the past several quarters, the company has not released earnings that have pleased investors. When it reported first-quarter financial results on May 11, it once again missed estimates. Total quarterly revenue declined year over year from $2.8 million in 2019 to $1.3 million in 2020.
It reported a first-quarter net loss of $32.5 million or 26 cents per share. A year ago, the loss was $29.2 million or 30 cents per share.
At this point, Inovio’s revenue comes from licensing, grant funding and interest income. And that revenue would not be enough to sustain any meaningful rally in INO stock.
InvestorPlace contributor Mark Hake has recently written in detail about why he does not expect INO stock to make new highs right now. I also agree with his conclusion and believe that the $19.36 level hit in March may stay as the 52-week high for some time to come.
The Bottom Line on Inovio
Shares of biopharma companies that are involved in vaccine development are choppy. Both long-term investors and short-term traders flock to these stocks such as INO.
Therefore, potential long-term investors should appreciate analyze risk/return profiles as they remember Inovio is a highly volatile stock. It makes rather substantial moves, both up and down on a daily basis.
If you held INO stock during its bull run in February, it may be time to take your profits. Alternatively, you may consider initiating an ATM covered call position, for example, with a two-month horizon. An August 21-expiry covered call would decrease the volatility in your portfolio, offer some downside protection, and enable you to participate in a potential up move.
Finally, in case the company’s efforts are successful, it could easily find itself a takeover candidate. For example, it already has a long-run partnership with AstraZeneca. It would not be too surprising if the two companies were to take their partnership to a higher level.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education, including a Ph.D. in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation. As of this writing, Tezcan Gecgil did not hold a position in any of the aforementioned securities.