Inovio Pharmaceuticals (NASDAQ:INO) is an emerging biopharmaceutical company that develops futuristic synthetic vaccine technologies. The company has roughly a $592 million market cap, and is listed on the NYSE MKT. In order to gain more insight on this investment opportunity, I conducted an email interview with Dr. J. Joseph Kim, Chief Executive Officer of Inovio.
In layman's terms, what is Inovio all about?
Inovio's goal is to unlock the full capabilities of our immune system, enhancing its ability to fight cancers and infectious diseases.
Could you provide a technical explanation?
Our immune system is already the best tool we have against disease. But sometimes, diseases emerge stealthily or mutate too frequently for the body to keep up. What scientists are trying to accomplish is to help direct the immune system to better recognize disease and mount stronger immune responses. The Holy Grail is T cells, which are the therapeutic arm of the immune system. Inovio's approach has been able to raise the bar with technology and even measurement techniques that have confirmed the best T cells in terms of magnitude, durability, and killing effect compared to alternate technologies. We are in the process of creating products using our core technology across the full spectrum of cancers and infectious diseases.
Are you encouraged by the institutional presence in Inovio?
We are very pleased with the increased institutional shareholdings and new institutional shareholders that stepped into the stock in Q1. Some of these are among the largest and smartest biotech investors in the world. These buy-side investors obviously want to have exposure to the stock prior to our forthcoming Phase II data. Along the lines of Roche stepping in at an early stage to work very closely with Inovio, for these investors to have this perspective is another positive statement about the credibility and potential of Inovio's technology.
Inovio has established numerous collaborations with various institutions and pharmaceutical companies. Which of these collaborations is paramount to the long-term value of the stock?
We view all of our collaborators as adding value to Inovio's R&D and clinical development efforts. Clearly, however, the relationship that is most commercially-oriented, has the most resources being applied to it, and has by far the greatest possible economic impact for the company and its shareholders is our partnership with Roche (OTCQX:RHHBY). Beyond just the straight economic consideration, we consciously chose to work with arguably the best oncology company in the world to achieve the best strategic positioning and committed effort for our high-potential immunotherapies for prostate cancer and hepatitis B.
Is there any aspect of Inovio that is being overlooked by Wall Street?
I don't think anything is being overlooked. We are being recognized for the potential of our HPV immunotherapy, based on the upcoming Phase II efficacy data. I also think many, if not all, investors recognize that apart from the efficacy data, the T cell immune response data itself will play a very important role in helping define the potential of our technology and products and the next steps in our path to commercialize them. Today, we simply don't yet have from our large, controlled Phase II study, the efficacy, immune response, and correlation data. Many media and investors await the greater clarity that will emerge with this data regarding this potentially very transformational and powerful new immunotherapy mechanism.
The recent announcement of a reverse split appears to have had a negative impact on the stock price as of late. Could you please explain the strategy behind it?
The impact of the reverse split is debatable. The Nasdaq Biotech Index (NBI) corrected 25% from top to bottom in the drop that started in February. Obviously, for that to happen, some companies had to fall far more than 25%. I'll let you find the examples, but there are many companies that fell just as much or more than Inovio - and none of them announced reverse splits. The fact is that from 2011, the NBI tripled. Inovio was one of the top-performing biotech stocks in 2013 and, like other strong biotech performers, it suffered harder profit-taking.
That being said, I am not saying that the reverse split proposal did not create fear, and it likely limited the bounce from the lows in the last six weeks. I do have one observation, however - Inovio's share price decline has occurred with lower average volume, which was a good sign in technical terms. To answer your question, the reason for the reverse split was to achieve a share structure and price more in line with biotech peers, and that would enable a broader spectrum of both institutional and retail investors to invest. It was not about just getting over the $5 line; the fact is that many investors generally dismiss low-priced stocks. With all the positives in our company, we wanted to remove that one negative.
You have stated in an earlier interview that you view yourself as the "largest retail shareholder of Inovio." Could you please explain what makes you so confident in the stock?
What makes me confident about Inovio is that I have been studying and working with immunology for over 20 years, and I believe absolutely in the many enabling discoveries and industry knowledge that have helped position Inovio for success today. Professor David Weiner, a mentor, friend, company co-founder, and chairman of our scientific advisory board, is considered to be the father of the field of DNA vaccines. Look at the stellar people on our board of directors, scientific advisory board, and management team. Look at our partnership with Roche and all the collaborations we've secured.
The growing brain trust surrounding Inovio is tremendous - that is what gives me confidence in our science and the potential to build this company. Inovio is on a unique path. We've raised the bar of T cell immune responses. We are aiming to show for the first time among ANY immunotherapy technologies, the ability to generate strong efficacy against a disease, and show correlation of our strong immune responses to this efficacy. Our goal is nothing short of building another of the world's largest, eminent biotechnology companies.
Am I correct in stating that you have never sold a share of Inovio stock? If so, that is very impressive, but wouldn't you agree that it is a pretty bold move?
While I have shifted some of my shareholding into a family trust and gifted some to our kids, I have never sold a share of stock. Bold? I grew up in a family that relied on self-reliance and perseverance to build our livelihood. I apply this ethic every day - with a long-term view. Every successful entrepreneur that has successfully built a company has relied on these traits and acted no differently. Steve Jobs didn't sell shares after Apple designed its first printed circuit board. The owner of a football team doesn't sell shares after winning one game or even after winning the Super Bowl.
I'm not a CEO for hire that was brought in for a few options. I co-founded the core of this company. While I now share ownership of this company with roughly 40,000 other shareholders, my passion and commitment are absolute and as strong as ever.
In your opinion, is Inovio receiving appropriate media coverage, and do you think the investment community is optimally aware of your current developments?
I think Inovio has done a great job communicating its story. Our communication team has made a great effort to create new content that explains our story effectively. We have had some great media coverage. We continue to access new institutional and individual investors, as well as journalists.
With about 40,000 shareholders, we must be doing something right! I think the bulk of our followers are not being distracted with "noise", and are focused on all the new clinical studies we are starting this year and the important data that will be coming out. It is good data that will characterize the potential clinical and commercial value of our products and the value of the company. Good data will further build the credibility of and confidence in Inovio as an important long-term player in the immunotherapy space.
Inovio is expected to produce a top line data read-out for its experimental HPV immunotherapy, VGX-3100, very shortly. How crucial is this to Inovio's future?
The upcoming data will help define the potential clinical utility of this HPV immunotherapy for late-stage cervical pre-cancers. But the efficacy and immune response data together are going to help define the broad potential of the products based on our expansive DNA immunotherapy and electroporation technologies as monotherapies and as combinations with complementary technologies, such as checkpoint inhibitors.
We don't know whether the data is going to equate to a first down in the first quarter or a completed Hail Mary pass in the dying seconds of the Super Bowl. But we are optimistic that we are going to see a constructive outcome that will help define our path forward.
What are the primary risks facing the company?
If you are defining risk as what might negatively impact the company's market valuation, I think the obvious risk is that our upcoming Phase II efficacy data does not meet our primary goal and the market looks at the data simplistically and says INO is a sell. However, smart investors are going to be looking closely at our T cell data and making investment decisions with that as well. We have tremendous confidence that we can ultimately see clinical utility of one of our products as a monotherapy, either with one of our immunotherapies by itself or possibly with an immune activator included. But cancer is complex, and it may very well be the case that different mechanisms need to be used in conjunction to achieve the desired impact against cancer.
Industry and investors have been excited about but are nevertheless seeing the possible boundaries of checkpoint inhibitors by themselves. Inhibiting cancer cells' ability to cloak themselves against T cells hunting them down is by itself not going to be enough. So the potential for our active immunotherapy technology to complete the picture is looking very promising. There will be many analytical angles and interpretations from this data. We are excited, and look forward to the reporting of this data.
What currently makes Inovio a compelling stock to buy or sell?
With all the positive elements to our story, the reduction of unexercised warrants from 5.25 million to about 1.6 million in the last year, a 50% correction in the stock, and a much tighter share structure, I think that with good data, INO has the potential for a notable valuation and price bump. Again, remember that while some immunotherapies have shown good signs of efficacy - which is why the immuno-oncology space has become so hot - none are reporting well-characterized T cell generation that is remotely similar to Inovio's. Others face the challenge of concurrently generating unbridled inflammatory responses with often serious adverse events, including death.
There are numerous examples of companies focused on vaccines, immunotherapies, and genetic therapies without approved products that are trading at multi-billion dollar valuations with the de-risking of good Phase II data. So while there remains uncertainty in the outcome of our Phase II data, there is certainly a very compelling risk/reward scenario at this juncture.
What part or aspect of the business is giving you the most difficulty now?
Our biggest challenge will be continuing to recruit employees with the same level of intelligence, creativity, experience, and passion, who fit into our corporate culture and can help Inovio grow.
Could you briefly go over Inovio's financial position?
Based on having almost $117M as of March 31st, we have an operating runway through 2017. That is a very nice position to be in. We have no debt.
What is Inovio's funding relative to its goals?
Our cash position allows us to confidently plan longer term for various R&D programs and to directly fund clinical studies for cancer immunotherapies that we're excited about. Our current funding does not cover a Phase III clinical study if the Phase II data justifies taking that next step, and if we were to fund that program internally rather than partner that program.
Do you have anything else that you want our readers to know?
To continue the football metaphor, I will just say that while I can get just as excited as the next sports fan about a completed Hail Mary pass or fantastic punt return, I'm not here for just a play, a game, a season, or even a Super Bowl. I want to build a football dynasty, so to speak.
We designed our team and our strategy for success. We don't expect to cross the goal line with every drive. But we will continue to evolve and execute a strategy that puts together the right management, team, plays, and execution to win the yards, touchdowns, games, seasons - and hopefully, Super Bowls - that may achieve that dynasty.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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