Inovio Pharmaceuticals Shares Drop, Get a Downgrade

High-flying Inovio Pharmaceuticals Inc (NASDAQ:INO) is one of many biotech companies chasing a novel coronavirus vaccine. Inovio is taking a unique, DNA-based approach with its INO-4800 vaccine and reported promising results early in its trials. The company landed a Department of Defense contract to supply portable vaccine applicators, along with a high-profile grant from the Bill & Melinda Gates Foundation. The fervor around its efforts pushed INO stock up nearly 890% in 2020. 

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On Aug. 10, Inovio reported its second quarter earnings. Wider than expected losses and questions about its INO-4800 vaccine spooked investors. INO stock closed at $18.99, after taking a 6% hit on the day.

In its second quarter, Inovio reported a loss of $128.7 million, or 83 cents a share. That’s a big increase over the $29.4 million the company lost during the same quarter last year. Revenue of $267,000 was up 96% year-over-year, but Wall Street was looking for revenue in the $2.6 million dollar range.

The miss hit INO stock, which dropped to May levels. It closed at an all-time high of $31.69 at the end of June.

Questions About the DNA Approach

Uncertainty around Inovio and its INO-4800 vaccine continues. Focusing on DNA therapy instead of a traditional approach helped Inovio stand out from pharmaceutical giants also pursuing vaccines. However, the Pennsylvania biotech company’s unique, DNA-based approach raised questions.

For one, this approach requires a proprietary device to apply the vaccine. Health workers can’t simply inject it with a syringe. The grant and DoD contract are tied to ramping up manufacturing of the applicators. If Inovio succeeds, providing applicators on a national scale becomes a financial and logistical issue.

As a feature in The New York Times points out, the data related to its INO-4800 vaccine trials has been limited. In addition, Inovio is in courts with a manufacturing partner (that accuses the company of stealing its technology). In another legal battle, shareholders claim its stock price was inflated by exaggerated vaccine progress reports. The company is not on the list of those slated to receive government funding to mass-produce a vaccine, if successful.

Perhaps the most damning issues with Inovio’s DNA approach? The New York Times notes that despite working on vaccines for a range of illnesses including malaria and the Zika virus, the company never brought a vaccine to market.  

INO Gets a Downgrade

After Inovio’s Q2 earnings, investment firm Stifel dropped its price target for INO from $24 to $16. Stifel analyst Stephen Willey noted the lack of government funding support for vaccine mass-production:

“The absence of that funding, coupled with their ongoing litigation, coupled with the need to scale a device, coupled with the absence of complete Phase 1 data, makes people skeptical.”

Bottom Line on INO Stock

Inovio shares soared in 2020 based on the progress of its INO-4800 vaccine for Covid-19.

However, the questions are growing about how effective INO-4800 has actually been. And even if it is a success, the logistical issues involved in distributing the vaccine – a lack of government funding for mass-production combined with the need to use a proprietary device – raise more questions.

Add investor and partner lawsuits along with a disappointing financial quarter, and the high-flying days for INO stock may have come to an end.

Brad Moon has been writing for since 2012. He also writes about stocks for Kiplinger and has been a senior contributor focusing on consumer technology for Forbes since 2015. As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.

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