It seems that many shorts have a bear thesis about Inovio Pharmaceuticals (NYSEMKT:INO) but it is not logical to have these thoughts. Inovio had a 52-week low of $0.44 per share, and had recently reached a 52-week high of $3.03 per share. Currently Inovio trades at $2.16 per share, and I believe upcoming catalysts could take the stock price higher in the coming months.
There is a big opportunity for investors with the catalysts going forward, but the risk is whether these catalysts will be enough to raise the share price higher with the large amount of outstanding shares issued by the company. Inovio has a total of 180 million shares outstanding, so it may be a challenge for the share price to rise immediately. With positive phase 2 results of the lead product candidate VGX-3100, this obstacle shouldn't be that difficult to overcome.
Cash Position Is Golden
As reported most recently by the management team of Inovio in a 10-q statement, and at the BioInvestor Forum 2013 Conference slides, Inovio will have $35 million in cash. The company estimates that the cash will be enough to last them until the third quarter of 2015.The short thesis is that Inovio will have to dilute shareholders again in the near future, because of lack of cash to run the trials. To the contrary, the company has plenty of cash, because it is still receiving cash from multiple entities. What many investors should know is that Inovio has received $60 million in non-dilutive funding since 2009. With all these investments from various government and non-government entities, Inovio should have enough cash until the third quarter of 2015.With the technology the company has created I wouldn't be surprised to see continued funding interest from other partners. One such partnership has already taken place, when Inovio inked a deal with Roche (OTCQX:RHHBY).
Partnership with Roche
In the partnership deal, Roche agreed to pay an upfront milestone payment of $10 million. Initially it is a good start, but the bulk of the money comes at later milestones. Eventually, Inovio will receive total milestone payments of $412.5 million if Inovio is finally able to get the products to market it is eligible to receive double-digit royalty sales. The two products tied to the partnership deal with Roche are INO-1800 for hepatitis B and INO-5150 for prostate cancer. Both compounds showed to boost the T-cells in preclinical testing, so it shows confidence that Roche has taken interest in these vaccines candidates at this early stage of testing.
The strengths of electroporation technology
Many investors bearish on Inovio will mention the fact that the company has been around for 30 years and hasn't had a single product approved on the market. I would say that it is not proper to dwell on the past, but rather what the results thus far have shown. Also the technology has improved significantly over the years, along with a new management team. A lot of new advances have been made at Inovio in terms of their technology for vaccines. Let's discuss two parts of Inovio's technology that are equally important. First let's talk about Electroporation, which is used to briefly open up T-cells so the Syncon DNA vaccine can enter inside quickly. This is done by the electroporation device giving off an electric pulse, so that the vaccine can quickly enter into the T-cells of the body.
The electroporation technology has been improved significantly by Inovio over the years. The latest electroporation technology is the CELLECTRA, which is now being used for the latest candidates for Inovio's pipeline.
Syncon DNA vaccines: A second part of the equation
The technology of Electroporation is only half the equation for Inovio's success. The other component is the Syncon DNA vaccine that is being injected into patients to combat certain diseases. It is important to know about this component, because it is an important part of the equation.The Syncon DNA vaccine is very unique for 2 reasons. For starters it is probably one of the most safest formulations for patients. The reason for this is that Inovio doesn't create toxic vaccines, nor does it have a viral lab. Many investors will not believe it, but Inovio uses water (H2O). That is the pure golden opportunity if Inovio is successful, because patients won't have to deal with chemotherapy, or toxicity. Water is the safest formulation for patients, so this is a golden opportunity for Inovio. The way Inovio's Syncon DNA vaccine design works, is that the company use genome sequences that have been developed by other companies, and put out to the public for research. Inovio gets those genomic sequences for free, and incorporates them as code into the computer. The codes that are put into the computer are genomic sequences that closely resemble the diseases. Remember Inovio is only replicating code that is similar to the targeted diseases. So the formulated code from the computer is then put into the Electroporation devices. Then the vaccine is injected into the skin so that it can give those genomic instructions to the T-cells. What makes this form of immunotherapy from Inovio unique, is that the antigens inside the T-cells only tell the body to attack the targeted antigens and nothing else in the human body. This form of immunotherapy can revolutionize vaccines if it is proven to be successful in later stage trials.
DNA technology is still fairly new, so whether the patients in phase 2 trials respond to treatment remains to be seen. The Electroporation technology has been improved upon over the years, and may require more fine tuning to improve the electric pulses needed to penetrate the cells more adequately. Whether the phase 2 trials are set up properly for dosing regimens, and will ultimately be successful remains to be seen. Although according to the phase 1 results of the HIV study seen so far, it seems that trials at Inovio are running smoothly. The most important aspect of the results, is that they were published in a prestigious medical journal "Oxford Journals"!A lot of trials have been started, and Inovio needs a lot of cash to continue to run its operations. The risk here is that Inovio will need to continue to form new partnerships before Q3 of 2015, otherwise dilution will be necessary. It is still an early stage development company, but the fact remains that Inovio was able to ink a deal with Roche. This early deal seems very bullish for Inovio on future partnerships.
Lead Candidate VGX-3100
The lead vaccine candidate from Inovio is VGX-3100, which is currently enrolling patients for the treatment of CIN 2/3 lesions (cervical dysplasia). The vaccine targets the E6 and E7 proteins of the human papillomavirus. These proteins are common on HPV types 16, and 18 respectively. The trial will give three 6 mg doses to 148 women to assess cervical tissue change, using Inovio's CELLECTRA electroporation delivery device. In the phase 1 study 18 patients were administered with VGX-3100. Of those 18 patients, 100% showed a positive antibody response to at least two of the vaccine antigens. Around 78% of the trial patients showed a positive antibody response to at least one of the vaccine antigen. Not only did VGX-3100 provide positive antibody responses to the HPV antigens, but the vaccine showed a killing effect on the cancerous cells. The killing effect of the cancerous cells were shown in a prestigious medical journal, known as Science Translational Medicine. This data seems promising for VGX-3100, and there may possibly be a vaccine that can finally be used a therapeutic against HPV.
We believe that the current sufficient cash position, along with future catalysts should take the stock to a higher share price in the coming months. There are many trials that are going to be starting in 2014:
- Initiate phase I/IIa prostate cancer-1st half 2014
- Initiate phase I/IIa malaria vaccine-1st half 2014
- Prepare phase I/IIa hepatitis B vaccine-1st half 2014
All these trials that will start, will create shareholder value as the pipeline progresses. The most important catalyst going forward will be the VGX-3100 vaccine candidate. VGX-3100 is currently in a phase II trial for Cervical dysplasia. There are products out on the market for the prevention of Cervical dysplasia, but the problem is that there are no therapeutic vaccines for cervical dysplasia. So positive results from this trial, should send the share price much higher. The Results for VGX-3100 are expected to be presented in the middle of 2014, and that will be the first phase II trial to be reported by Inovio. It will be an important milestone for the company, because that will prove how well the technology from Inovio works against diseases.
Disclosure: I am long INO. 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.