Seeking Alpha
Brian Nichols, NicholsToday (505 clicks)
Value, research analyst, biotech, author
Profile| Send Message| ()  

[Editor's Note: This article covers a micro-cap stock. Please be aware of the risks associated with these stocks.]

Inovio Pharmaceuticals' (INO) long investors have discussed, pleaded, and informed the public of this company's upcoming catalysts for the last year. Unfortunately, The Street, retail investors, and myself included, brushed these longs to the side, ignored the tweets, and wrote it off as yet another macro-cap value trap. However, much of that premise is rapidly changing as Inovio Pharmaceuticals has rallied 115% in the last month, and The Street is finally starting to take notice.

What's Going On?

For a brief rundown of what has created Inovio's recent rally and its now one-year 200% return, let's look at a timeline of events for the last month. Because, after all, the developments surrounding this company have been quite plentiful to say the least.

  • June 14 - The company announces that its vaccine, H7N9 (Avian Flu), produced an antibody response in 100% of the animals that were vaccinated, and is now ready for testing on humans.
  • July 1 - The Center for Infectious Disease Research and Policy at the University of Minnesota issued a report identifying the three drivers of the H7N9 flu outbreak in China, which further validated the preclinical study results from Inovio's H7N9 vaccine.
  • July 8 - Inovio presents new data, showing that all animals vaccinated with its H7N9 drug were "fully protected" after receiving a "lethal dose" of the virus. The fact that a lethal dose was given was viewed as a positive and a testament to the vaccine's effectiveness. It also showed a strong T-cell response, and that the vaccine could curb the spread of the virus.
  • July 10 - Inovio disclosed that its Cellectra device improved the effectiveness of its Pennvax-B HIV vaccine in a Phase I study. The study showed that Cellectra boosted the CD4 and CD8 T-cell responses for an increased number of patients.

How Is Inovio Succeeding?

The combination of data from Inovio over the last month also adds to the belief of many that its therapeutic approach does, in fact, work! While Phase I and preclinical trials are small, Inovio is trying to treat diseases and viruses that lack options-- meaning the regulatory path could be faster than normal if success continues to be shown.

Inovio's most advanced product is a Phase II vaccine, VGX-3100, to treat cervical dysplasia and cancer caused by HPV. The data is expected in the first quarter of 2014, and this data would completely support the therapeutic approach of this company.

Inovio is a company that has several early phase clinical and preclinical studies in the works. It currently has a market capitalization of $260 million, which you might think is too expensive, but let's not forget the market cap over $2 billion that Clovis has earned following early clinical data.

In my opinion, the stock has room to move higher and has stayed cheap for the mere fact that it uses an unorthodox approach, one that is rather confusing. For one, it is using synthetic vaccines that it manufactures, which isn't common among biotechnology companies in today's market. But most importantly, is the company's delivery technology, electroporation, which is being validated on Wall Street.

Electroporation is "how" Inovio's synthetic vaccines are delivered. The idea is that by using electroporation, many of the roadblocks that exist with drug delivery can be bypassed, and a better immune response can be observed.

According to Inovio, human cells are designed to resist the entry of foreign materials through the outer membrane, which is the primary challenge to achieving a powerful immune response. Therefore, Inovio's device uses electrical pulses to create a temporary pore in the cell membrane. Once these pores are created, anywhere in the body, Inovio can directly administer the vaccine to the targeted area. Due to bypassing the natural resistance of human cells, less of a vaccine is needed to produce a greater effect, and with fewer side effects.

If, in fact, Inovio's statement regarding human cells resisting foreign materials is accurate, then the idea of electroporation makes sense. After all, if you can overcome this defense roadblock and effectively direct a therapeutic to a particular area, then it seems obvious that a drug would be more effective. Hence, Inovio only has to produce an effective vaccine, and then its electroporation approach gives it an edge over the competition.

Further Support of Electroportation

Back on February 25, I wrote an article that looked at five speculative biotech stocks ahead of catalysts; one of those companies was OncoSec Medical (OTCQB:ONCS). Since that article, the stock has rallied 40%, including 11.5% on Wednesday.

So, why did OncoSec Medical rally on Wednesday? The answer is because of electroporation. Both companies use the same delivery technology, and with Inovio proving its technology on several diseases, the market is beginning to take notice of the space. The only notable difference is that OncoSec is injecting directly into tumors and able to achieve a potent systemic immune response from delivery of a DNA plasmid encoding a cytokine instead of an antigen specific response for an infectious disease target Inovio achieves by injecting into muscle or skin.

The idea is that OncoSec uses the most potent of drugs that produce the best of results, without the unpleasant side effects. With the use of electroporation, the company can maximize those results, but can eliminate the side effects by using less of the drug and targeting it specifically to the trouble area, allowing it to bypass the delivery systemically.

Aside from both Inovio and OncoSec using the same technology, they directly validate each other's effectiveness. For example, we already know that Inovio has produced positive results for H7N9, HIV, and in treating cervical dysplasia and cancer caused by HPV, but OncoSec is succeeding in a different industry not related to viruses: Cancer.

OncoSec is using its electroporation system, which it calls the OncoSec Medical System (OMS) to treat metastatic melanoma and Merkel cell carcinoma. In these studies, it is using IL-12 with its OMS in hopes of producing a clinical benefit without the harsh side effects of IL-12. The company is currently in an ongoing Phase II trial for the treatment of late-stage melanoma, but in a recent update, presented a 45% local response (so far). In terms of relevance, OncoSec is attempting to treat the same disease as Vical's (VICL) Allovectin, and Allovectin produced a local response of just 19% in its previous study. In the coming months, OncoSec will present preliminary data for this study, which could further validate the effectiveness of electroporation if successful.

Then, there is the Phase II study on Merkel cell carcinoma with data expected later this year, or early next year. This orphan indication does not have any other treatment alternatives and is extremely deadly to patients. However, in Phase I, a 53% objective response was observed, and much like the company's trial on melanoma, no safety issues were observed.

Final Thoughts

So, what's valuable about data from OncoSec and Inovio, collectively, is that it shows that electroporation does work. Like any delivery technology, from vaccines to swallowing a pill, a delivery should have the capabilities to work efficiently at treating a number of indications or multiple diseases. The fact that OncoSec and Inovio's data is so broad is a true testament that The Street's newfound level of enthusiasm might be real, and that companies such as OncoSec, Inovio, and Angiodynamics' (ANGO) FDA approved NanoKnife could be the beginning of a larger trend in healthcare. As a result, we must recognize the fact that this space has underperformed its potential for several years. And now that this space is on The Street's radar, strong data should no longer go unnoticed, and substantial gains could be created.

Source: Finally! Electroporation Is Being Noticed By The Street