Inovio Pharmaceuticals (NASDAQ:INO) still represents volatility. That’s of course true of many of the candidates racing toward a coronavirus vaccine. And although INO stock has declined in price over the past few months, it does still have a shot.
The simple fact is that the vaccine race is still a guessing game.
Yet, given the total number of potential vaccines in development and their current status, Inovio does face an uphill battle. But recent developments do increase the firm’s capability to overcome those odds.
Researchers are testing 38 vaccines on humans and there are 93 more in preclinical animal trials. There are 3 phases of clinical testing which is followed by limited approval, and finally full use approval. Vaccine development usually requires several years of trials. The coronavirus trials have been expedited due to the scope and scale of Covid-19.
It must be noted that Inovio’s INO-4800 is at stage 1. This is the earliest clinical stage. Scientists look to see that a vaccine produces an immune response, and does so safely, then stage 2 can begin.
A Closer Look at INO Stock
INO-4800 elicited an immune response in 34 of 36 test subjects safely. This caused excitement around the firm and its stock. However, the company still has yet to produce detailed results of those studies. This will clearly not be a boon to share prices.
Further, there are 26 candidate vaccines in phase 2, phase 3, and having limited approval for use.
Pundits for biotech stocks in the race for a Covid-19 cure sometimes argue the point that these stocks may be investment worthy even if they don’t develop a coronavirus vaccine.
This idea seems illogical. INO stock is being keenly watched exactly because it has a horse in this race. This approach should only apply to true biotech investors. Inovio Pharmaceuticals does have a pipeline of other therapeutics. But we should limit our analysis to INO-4800 alone.
Investors who do purchase INO stock on that premise should beware. There are many financial indicators which imply it to be a bad idea.
One that I particularly like is WACC vs. ROIC. This ratio compares the cost of capital to the return of capital invested. It broadly measures the ability of a firm to create value.
Inovio’s WACC is a perfectly normal 5.25%. Its return on invested capital is -170.1%(1). This indicates that Inovio is value destroying, not value creating. But a coronavirus vaccine would completely upend that trend. And that’s where investors must focus.
Fortunately there is some positive news in that direction. Inovio recently announced that it has added more manufacturing capacity for its INO-4800 vaccine.
On Sept. 8 it gave news that Fisher Scientific (NYSE:TMO) signed a letter of intent to manufacture the INO-4800 vaccine. Shares jumped on the news but have been flat since.
There are a few ways to view this development. The increased manufacturing capability may be just another partner added to a list including Inovio’s other two contracted manufacturers. Further, as per the PR release, “INOVIO is in active discussions with additional manufacturers to join the consortium.”
So taken in that light this isn’t the final solution nor should it indicate that the firm is producing anything groundbreaking.
However, this does open another avenue for the company. At least potentially. The company may look more attractive to the Government and Operation Warp Speed as an investment candidate.
I still think INO stock is a hold, but that’s only based on the fact that speculators have little reason to jump ship now. Obviously those investors who are currently underwater with this stock are going to hold on, and those who bought near current prices still have a chance at price appreciation.
But I think that the timeline required almost precludes Inovio from being a champion in this race. I wouldn’t recommend anyone buy at this point.
Consider that Inovio will publish its stage 1 results in a peer reviewed publication sometime in September. It then has to await FDA approval to begin stage 2 clinical trials. That leaves a lot of time until INO-4800 become an FDA approved vaccine, which is itself a long shot.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article.