Inovio Pharmaceutical’s FDA Plight Makes It a Highly Risky Bet

The shares of Inovio Pharmaceuticals (NASDAQ:INO) were on fire this spring after the company had become one of the leaders of the Covid-19 vaccine race. INO stock soared 860% in the first half of the year, comfortably beating the majority of its peers.

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However, due to the lack of detail in the company’s report on the Phase 1 trial of the vaccine and the FDA’s partial hold on the shot, the stock is down more than 60% since July.

The owners of INO stock are looking to the FDA to assess the company’s arguments regarding the hold and end the turmoil. Therefore, November could potentially be a make-or-break month for Inovio.

A potential positive response by the FDA could spur another winning streak by Inovio’s shares. Though it may be challenging for the stock to return to its June highs, it could recover a significant portion of its value.

Whatever happens, though, it’s clear that the company has fallen way behind the competition in the race to launch a vaccine for the coronavirus. Though management is planning for the next stages of the company’s vaccine effort, it will be virtually impossible for Inovio to meet its initial targets. But the company can still eventually launch an effective, robust Covid-19 vaccine.

At the same time, Inovio continues to make progress on other elements of its product pipeline. However, its Covid-19 vaccine is its major catalyst, and it needs a green light from the FDA to keep the shot afloat.

Worrying Third Quarter Results

Inovio recently reported its third-quarter results and addressed the FDA’s partial hold on the Phase 2/3 trial of its COVID-19 vaccine candidate INO-4800. Its Q3 financial results were unimpressive, as its revenues tumbled 114.4% year-over-year to $236,000. Inovio’s operating expenses increased by 38.4% YOY to $36.6 million.

Perhaps the most impressive aspect of the results was Inovio’s cash and short-term investments, which rose by 116% to $337.2 million since December. The company will need whatever resources it can muster, considering the lack of external funding it has received.

Furthermore, Inovio responded to the FDA’s concerns regarding the Phase 2/3 trials of the INO-4800. The company is confident of a positive response from the agency and is already preparing for the trials.

A Few Red Flags

Let’s face it; Inovio is not the safest biotech name by any stretch of the imagination. Actually, INO stock has a few red flags that make it one of the riskiest bets in the sector.

Firstly, the FDA’s partial hold on the vaccine is quite a big deal, even though it’s being downplayed by the company. The FDA can seek further clarification from the company or create other complications, putting the future of the vaccine in jeopardy. Additionally, there’s no set date for the trials of the vaccine to resume.

The interim Phase 1 data showed that 94% of the trial participants exhibited an immune response. However, Inovio provided few specifics about the neutralizing antibodies of the vaccine and other details that could have strengthened its case. And it has not yet to publish its results in any peer-reviewed scientific journal.

Furthermore, even if the vaccine reaches the advanced approval stages, its revenue potential remains a key concern. That’s because, unlike a number of other companies, the firm has not yet received any pre-orders for its vaccine candidate.

Over 5.7 billion pre-orders have been placed for other companies’ vaccine candidates that are still undergoing trials. Therefore, the lack of pre-orders for Inovio’s vaccine is a significant setback for the company.

The growing monetary losses don’t help either, and management recently disclosed that the company would “continue to incur substantial additional operating losses for at least the next several years for research and development (R&D) purposes.”

A Final Word on INO Stock

Inovio has run into a few roadblocks which have crippled its stock price in the past few months. For the shares to make a comeback, Inovio needs to get past the FDA’s hurdle and provide a timeline for its advanced trials.

Moreover, for investors to feel confident about its prospects, it needs to get a sizeable number of pre-orders. For now, though, it’s best to wait for the FDA’s response to Inovio’s newest efforts before investing in INO stock.

On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.

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