Inovio Pharmaceuticals (SYMBOL: INO) is one of most interesting and potentially revolutionary biotech companies on Wall Street. They are a company on the verge of changing the landscape of future vaccine treatments, utilizing a DNA platform to target specific and designed results.
I had the pleasure of interviewing Dr. J. Joseph Kim, CEO of Inovio Pharmaceuticals, where he addressed the history of Inovio, his personal stake in the company and addressed the many levels to which Inovio Pharmaceuticals is clearly misrepresented and misunderstood.
The transcript of my interview follows:
BRG: Good morning, Dr. Kim, and thank you for taking the time to answer some questions about the history, current focus and direction of Inovio Pharmaceuticals.
BRG: I would like to start by asking you to comment on your history with Inovio. It is often cited by some biotech bloggers that Inovio is a 30 year old biotech with no products and plenty of dilution. However, you came to Inovio in 2009. Can you set the record straight as to where Inovio was 30 years ago and as to where Inovio is positioned now?
Dr. Kim: 30 years ago I was 15 years old. The idea of DNA vaccines had not even been conceived.
In 2000, I formed VGX Pharmaceuticals with my PhD mentor, Professor David Weiner, who is recognized as the father of the field of DNA vaccines, using technology licensed from the University of Pennsylvania. David was instrumental in formulating the concept of DNA vaccines in the early 1990s.
Like any powerful new scientific concept, bringing commercially useful products to fruition is typically a multi-decade process: monoclonal antibodies are a prime example. Apart from their success with cancer drugs like Herceptin, monoclonal antibody technology is today the basis for another new class of medicines called checkpoint inhibitors. But it took a couple of decades for the first FDA approval of a product based on this science.
In the case of DNA vaccines, there were a number of elements that had to be resolved and refined, including: targeting the right antigens and immune system mechanisms, enabling sufficient cellular uptake of the DNA vaccine, and facilitating sufficient production of the antigen by the cells.
Dr. Weiner's lab has made tremendous advancements in DNA vaccine design to refine their immune system targeting and to optimize their ability to generate significant antigen production by cells in the body.
One of the big remaining challenges was delivery. While many scientists focused on other methods such as virus or lipid carriers, these approaches have all faced important unique challenges to their efficacy. In 2006, Dr. Weiner saw the first results of testing he was doing to deliver DNA vaccines using electroporation. The results were exceptional!
VGX subsequently acquired a private company called Advisys, which possessed electroporation technology, in 2007. In 2009 we further strengthened our competitive positioning in electroporation by merging with Inovio Biomedical, which had a leading electroporation patent estate and engineering know-how. These two steps solidified and provide Inovio Pharmaceuticals as you see it today with the broadest and deepest electroporation technology assets and patent estate in the world. Today our electroporation devices are based on the unique attributes of the Advisys CELLECTRA electroporation system.
The history of Inovio Biomedical (previously named Genetronics ), which merged with VGX in 2009, and its predecessor companies does in fact date back to 1983, when that company was formed to develop electroporation devices for use in research labs for ex-vivo applications, i.e. for use outside an organism. In fact, the company at one point became the #2 seller of such devices in the research marketplace. While the original idea of using electroporation to enable cellular uptake of an agent is the same, earlier generations of laboratory electroporation devices, methods and conditions bear no resemblance to the refined and optimized parameters we use today for using electroporation directly in humans.
The fact is that it is DNA vaccines and immunotherapies that are now proving to be the ideal agent to best leverage the delivery capability of electroporation, creating so to speak a higher and more valuable purpose for that delivery technology. At the same time, electroporation has raised the bar of success in terms of resolving one of the multiple parameters that had to be resolved to advance DNA vaccines to the point where they could provide medical utility. This has all materialized in the last 10 years.
Today Inovio continues to apply the greatest amount of R&D and clinical resources to DNA vaccines and electroporation and has by far the greatest data set and expertise relating to the use of these technologies together for medical applications in humans. And we have a clinical and near-clinical pipeline of nine studies for multiple cancers and infectious diseases.
BRG: Touching on electroporation, can you provide a layman explanation to exactly what this technology does and how it benefits delivery of a vaccine?
Dr. Kim: The way a DNA vaccine works is that it provides genetic code for a target antigen relating to a cancer or infectious disease to a cell. The cell's natural machinery for producing useful proteins for the body can then take the code and instead produce the targeted antigenic protein(s), which are then presented to the immune system to induce the desired immune response. For all of these processes to occur productively, the DNA vaccine must be taken up into cells of the body in sufficient quantity to allow the cells to perform this role as a manufacturing facility. This is where electroporation fits in.
Immediately after we inject the vaccine into muscle or skin tissue, our electroporation applicator applies millisecond electrical pulses for a just a few seconds to create pores in the cells' protective membrane. These temporary pores allow an increase in uptake into the cells by 1000 fold or more compared to without electroporation. The electrical pulses do not cause unwanted immune responses or toxicity.
BRG: As revolutionary as electroporation is proving to be, the delivered payload is still the vital piece of the puzzle. Can you discuss the "payload' being delivered through electroporation as it relates to DNA vaccines and your SynCon program?
Dr. Kim: Thanks to the modern science of genomics and fast computing power, today we can take the genetic code for one or more antigens relating to a cancer or infectious disease, build that into a DNA vaccine, and employ that in a very controlled manner to produce enough antigen in the body to induce a desired immune response. This DNA code cannot recreate an organism - it is for the antigen only. The additional benefits of DNA vaccines are that they can be designed in weeks, are readily manufactured using scalable off-the-shelf fermentation technology, and they are more stable at room temperatures than conventional vaccines.
But all DNA vaccines are not created equal. There are proprietary optimization techniques that Inovio has designed to further enhance the production of the antigens by the cells. Furthermore, Inovio's novel SynCon design technique results in antigens that are similar to but do not precisely match those that exist in nature. Using this approach, we can create preventive vaccines able to provide more universal protective capabilities, overcoming the "one bug, one drug" paradigm of today in which the vaccine must match the circulating strains. We can also use the SynCon design to help break the immune system's tolerance of cancer cells that are made by the body, i.e. to more readily recognize and fight the cancer cells. Importantly, all our SynCon product sequences are patentable.
BRG: While discussing payload, it is important to note that phase ll results for your treatment of cervical dyplasia caused by HPV, namely the VGX-3100 study, are scheduled to be released by the middle of 2014. Is there some publicly released data that you can discuss that leads your team to expect positive results?
Dr. Kim: There are two important elements to this forthcoming data. One is obviously the efficacy of this therapeutic vaccine against these cervical pre-cancers. What will be no less important, however, is the immune response data. If we confirm (relative to our earlier data) the excellent characteristics of our T cells in this larger controlled study, this will further build the enthusiasm for our technology. Here is why: cancer cells have the ability to ward off T cells sent to kill them. When checkpoint inhibitors such as PD1 inhibitors achieve compelling results, it is because they are enabling T cells to perform their SWAT team function. So checkpoint inhibitors have shown unequivocally that T cells have a vital role to play in fighting cancers and infectious diseases. When checkpoint inhibitors have not achieved compelling results, anecdotal observations suggest that is because there is not a sufficient level of pre-existing, antigen-specific T cells. While this passive immunotherapy approach releases the brakes that cancer cells can apply to T cells, they don't have the ability to trigger a higher level of T cells. So we need a gas pedal; we need acceleration. That is where Inovio's active immunotherapy comes in. We can actively generate and expand cancer-specific killer T cells.
There are other relevant anecdotal observations. Women who naturally clear cervical dysplasias and HPV have been observed to have high levels of T cells. Similarly, sex workers at high risk of contracting HIV who have not become infected or sick have also been observed to have high levels of T cells.
So, going back to the phase II clinical study, if we show efficacy and confirm strong T cell generation, we will validate the potential of our technology and products as a monotherapy, i.e. a stand-alone therapy, against diseases, where the T cells alone are able to overwhelm and clear pre-cancers and potentially cancers. But industry players and smart investors have also been noting to us that they see important potential of our technology as a combination with complementary technologies such as checkpoint inhibitors: if we confirm the ability of our platform to repeat our previously generated best-in-class T cell responses in this larger controlled study, they will be convinced of the long term potential of our technology and products as the necessary active immunotherapy side of the equation.
The excellent T cell data from our HPV and HIV DNA immunotherapies highlighted in two published studies is what leads our team to be so optimistic about the phase II results fulfilling the above outcomes.
BRG: Biotechs are results driven, however, it is encouraging when large pharmaceutical companies recognize success. Can you discuss what initially brought Roche to the bargaining table and the significance of this partnership through the clinical trials, other than from simply a financial standpoint?
Dr. Kim: It's all about the T cells. All of the explanations prior to this question explain what is attracting industry players to our technology. We have published over 70 peer-reviewed papers covering our preclinical and clinical study results since 2009. In fact, Roche and other Big Pharma suitors first learned about our early development work for the products licensed by Roche from such publications.
While the financial benefit of this deal is very significant, Roche's commitment at this stage of our development simply emphasizes the degree of strategic weight they are applying to an active immunotherapy capable of generating strong T cells.
BRG: Speaking of partnerships, you have alluded to potential additional partnerships during prior conference calls. Can you elaborate on what areas of clinical study that new partners would be interested in developing a deal over? And, is there a particular company that you feel would be the proper fit to your company vision?
Dr. Kim: We have a broad spectrum of cancers and infectious diseases we can target with our products and technology. By the end of this year we will have a complete stable of cancer immunotherapies targeting multiple key antigens that we believe have the greatest potential impact to treat the full spectrum of cancers. We also have DNA vaccines advancing through R&D for other important infectious diseases. What matters to us most is that the partners we commit to have strong competitive positioning in the areas that they wish to partner with us and that they are making a significant commitment to achieving future success in those areas using Inovio technology.
BRG: Even without new partners, you have stated that the year 2014 will dwarf the prior year, which can be classified as a breakout year, at least for the price per share. What do you see as the main catalyst to dwarf the results of 2013?
Dr. Kim: Without question the phase II data will be a key event for us: a first look at efficacy; and T cell immune response data from a larger controlled study. This data could be a significant driver of industry and investor interest. This study data also represents the first opportunity we have to directly link generation of antigen-specific T cells to clinical efficacy. We will also initiate multiple additional clinical studies this year, which will expand the perception of Inovio as having a broad pipeline with multiple shots on goal and additional forthcoming data that in aggregate will all help to continue building our expertise, ideas for further optimization, and potential for success with our DNA vaccines delivered using electroporation.
BRG: Liquidity is often a concern for small and emerging biotech companies; however, you have placed Inovio in a position of comfort from a cash standpoint. Can you elaborate on what you feel is a comfortable level of cash on hand for Inovio even with partnership agreements in place?
Dr. Kim: Capital is a strategic variable for any biotech company like Inovio. We will do our utmost to ensure that we are not relying just on third party grants and cash flow from partnerships and have a strong internal war-chest. We are truly at an important transformational point of our technology development, where we can advance on multiple disease and product fronts. As is visible through recent announcements, we are moving forward on another optimization approach for our DNA vaccines: that is to further refine the immune response with DNA-based cytokines. We also announced our DNA-based monoclonal antibody technology with our first publication of data in this promising field last year. The full potential of Inovio's technology "toolbox" is way beyond the DNA vaccines visible today. We are not standing still.
So capital is good. More capital is great. We don't want to dilute our stock without consideration of shareholders - and I am the largest shareholder - but being well-capitalized allows us to negotiate more strongly with potential partners and advance our technology and product developments at a competitive and advantageous pace. It allows us to build and maintain leadership. As an interesting example, from 1995 - 2005 Gilead raised $1.6 billion in equity capital, with its related dilution. I doubt that any shareholders from that time who continued to hold Gilead are today unhappy with Gilead management's strategic decisions to raise and invest capital and the share price that resulted from those decisions.
BRG: Inovio has zero debt currently on the books. Do you ever see Inovio utilizing debt to further your clinical studies?
Dr. Kim: Debt is an instrument best used when a company is aiming to leverage a proven technology in the marketplace. We have no intention to use debt until Inovio is more advanced in its developmental and commercialization process.
BRG: Speaking of cash and the availability to increase cash reserves, you recently filed a Form-3 which can seek approximately $125 million dollars over the next three year period. Several writers tried to exploit this filing as a weakness for the company and that dilution is on the horizon. Can you explain the reasoning behind the filing and to what extent, if any, you would plan to draw on these available funds?
Dr. Kim: We are striving to build an excellent company and maximize shareholder value over the long term. Only traders looking for short term gains would argue against a company being well-capitalized. Most eligible biotech companies have shelf registrations in place. It is normal course business practice. We will ensure the financial strength of the company in the most opportune fashion.
BRG: Other than the science, cash is king for any biotech company. Pending successful results of the VGX-3100 trial, would you entertain a partnership or would Inovio rather keep the prize at hand and use funds from the S-3 filing?
Dr. Kim: If the results of the phase II warrant advancing to a phase III, I would expect Inovio to be well-positioned from a valuation perspective to secure incremental capital to fund such a study, but we would also be willing to partner. It all comes down to valuation and terms.
BRG: Back to the science. The pipeline at Inovio has showed tremendous early stage results. What trials and studies are you most excited to move into the next trial phase?
Dr. Kim: We look forward to taking VGX-3100 and starting two new clinical studies for HPV-related diseases: cervical cancer and head and neck cancer. We will be adding a DNA-based cytokine, IL-12, and look forward to assessing this approach in a clinical setting.
I am also very excited about our planned initiation of a human study with our therapeutic vaccine encoded for hTERT, an antigen whose over-expression is seen in over 85% of cancers. In this first exploratory study, we will be treating patients with breast, lung and pancreatic cancers. These results will help guide future combinations and clinical studies.
In the end, I am excited about everything we are doing. We have the potential to generate important medical results in all the disease areas we are targeting and the cumulative knowledge from all these applications will continue to guide our R&D efforts.
BRG: After mid year results are published for the VGX-3100 trial, what is the next focus for you and your team to progress to a Phase lll trial?
Dr. Kim: We are already laying the groundwork with respect to designing a phase III trial design. This will not be completed until we analyze the data and confer with the FDA in an "end of phase II meeting."
We are also planning for scaled up manufacturing.
Post-data we will also consider prospects for a partnership.
BRG: On a personal level, 2013 was a special year for you, earning several honors and accolades. How does it feel to be honored by your peers and do you think that they smell success for Inovio as well?
Dr. Kim: Naturally, it always feels good to be acknowledged for your effort and accomplishments and our whole team deserves to be recognized with these honors and accolades. Whether it is awards, the partnership with Roche, or the positive feedback we get through the frequent dialog we have with industry people and very knowledgeable institutional investors, we are clearly seeing their recognition of the importance and potential of active immunotherapies alone or in combination with other technologies including passive immunotherapies such as checkpoint inhibitors. Much of their recognition of the potential of active immunotherapies is being driven by the important outcomes achieved by DNA vaccines delivered using electroporation. Do they smell success? People may think large pharma have lots of resources to spread around. And they do - but they are no more motivated to fail or waste time on useless endeavors than we are.
On the investor side, you can see that a fundamental investor, a fund called Candriam Luxembourg, established an initial position in Q3 last year. They are a $100B fund out of Belgium. With the latest institutional shareholding report, we have seen First Eagle step in. I expect to see other new positions established by fundamental investors.
So do industry players and smart investors smell success? You and your readers can be the judge of that.
BRG: If you could tell the investment community one thing about the direction of Inovio in 2014, what would it be?
Dr. Kim: There is only one thing that matters: Inovio is working to build a great immunotherapy company with the potential to become the next Gilead or Amgen.
BRG: To your critics who simply will not leave the year 1986 alone as their focal reference point for Inovio, how would you advise them to view Inovio since 2009?
Dr. Kim: I think all the pertinent information has been provided in the prior answers. Let's call a spade a spade: there is risk in biotechnology development. And yes, there are steps forward and backward. But anyone that chooses to be a naysayer with respect to Inovio and its progress has typically not referenced the positive steps that Inovio has taken that show the accomplishment and potential of its immunotherapy technology. So they are either incapable of recognizing our progress or they choose not to recognize our progress. We are clearly seeing the evidence that industry players and fundamental investors are acknowledging Inovio's capabilities and accomplishments. Their credentials are simply so far beyond the credentials of the critics that it should be obvious to any purposeful reader which opinion and "vote" really matters.
BRG: Finally, you are the largest shareholder in Inovio. Do you see yourself buying additional shares in the near future, barring quiet and prohibited periods?
Dr. Kim: Clearly, I have chosen in the past to vote my confidence with my wallet. I added almost half a million shares with purchases in the open market over about 12 - 18 months. In fact, my financial net worth is about 99.9% concentrated in Inovio stock. While I don't comment on my future purchases, I do feel that INO's valuation today is very attractive relative to the potential of our technology and the many products that may be advanced based on this technology.