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Since early 2020, biopharma businesses such as Inovio Pharmaceuticals (NASDAQ:INO) have been making headlines and making new highs. Year-to-date, INO stock is up over 250%.
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In January, even before the novel coronavirus pandemic had reached our shores, Plymouth, Pennsylvania-based Inovio’s management said that it was working on a vaccine against the deadly virus from China.
That announcement has changed the fortunes of shareholders. In early February, the shares were around $3.50. In March, they topped $15. On June 26, INO stock hit a 52-week high of $33.79. But since then, profit-taking pushed the stock down and shares are now hovering around $12.70.
As of Aug. 26, the number of globally reported Covid-19 infections has passed 24 million. The outbreak has already killed close to 850,000 people. In the coming weeks, while the race to produce a treatment continues, Inovio shares are likely to be volatile. Therefore, today, we’ll discuss the bull and the bear cases for the firm, highlighting that INO stock is a high risk/high return investment.
The INO Stock Long-Term Bull Case
Inovio specializes in DNA-based vaccine technology. While its scientific team works on a potential a vaccine, the group has received numerous grants from organizations worldwide, including Oslo-based Coalition for Epidemic Preparedness Innovations (CEPI), the Department of Defense and the Bill & Melinda Gates Foundation. Scientists highlight that DNA vaccines can typically be developed quickly.
On June 4, the company announced it would partner with the International Vaccine Institute and Seoul National University Hospital to run Phase 1 and 2 clinical trials of Inovio’s Covid-19 vaccine INO-4800 in South Korea. By June 30, management announced positive interim Phase 1 data, yet, since then, the INO stock price has nearly halved.
The firm is expected to begin a Phase 2/3 study in in early fall. If it can successfully develop a vaccine, then early shareholders will possibly be rewarded even further. In case Inovio Pharmaceuticals is one of those successful companies to get a vaccine approved by the U.S. Food & Drug Administration (FDA), its DNA platform and other potential cures in the pipeline would then likely get investor attention as well as financial support.
Finally, if the company’s efforts are successful, it could easily find itself a takeover candidate, too. For example, it already has a long-run partnership with AstraZeneca (NYSE:AZN). It would not be too surprising if the two companies were to take their partnership to a higher level. Such a development would benefit investors in INO stock.
The Bear Case for INO Stock
Recent research led by Tung Thanh Le, Portfolio Officer at Oslo’s Coalition for Epidemic Preparedness Innovations (CEPI), found:
“A striking feature of the vaccine development landscape for COVID-19 is the range of technology platforms being evaluated … Many of these platforms are not currently the basis for licensed vaccines.”
The authors continue:
“The approaches being applied for COVID-19 development … are likely to increase the risks associated with delivering a licensed vaccine, and will require careful evaluation of effectiveness and safety at each step. Finally, strong international coordination and cooperation between vaccine developers, regulators, policymakers, funders, public health bodies and governments will be needed to ensure that promising late-stage vaccine candidates can be manufactured in sufficient quantities.”
Developing an efficient vaccine takes science, time and money. In addition to Inovio, many other biopharma companies are currently working on either a vaccine or another type of treatment against the coronavirus.
These include Amgen (NASDAQ:AMGN), AstraZeneca, BioNTech (NASDAQ:BNTX), Gilead (NASDAQ:GILD), GlaxoSmithKline (NYSE:GSK), iBio (NYSEAMERICAN:IBIO), Moderna (NASDAQ:MRNA), Novavax (NASDAQ:NVAX), Pfizer (NYSE:PFE), Sanofi (NASDAQ:SNY), and Sorrento Therapeutics (NASDAQ:SRNE).
No scientist, government official, or investor can fully predict when a treatment will be ready or how any one of them may perform commercially. For example, in recent days, UK-headquartered pharma major AstraZeneca has agreed with European governments to supply Europe with 400 million doses of the Covid-19 treatment at no profit.
Thus, even a successful vaccine may not necessarily be a promise to fortunes for these biopharma shares, such INO stock.
Inovio’s Q2 Results Raised Eyebrows
If you are a potential investor in INO stock, you should also pay attention to Inovio’s fundamentals. It is still a small biotech company with no approved products.
The company reported second-quarter financial results on Aug. 10. Net loss for the quarter ended June 30 was $128.7 million, or 83 cents per basic and diluted share, compared to $29.4 million, or 30 cents per basic and diluted share, for the quarter ended June 30, 2019.
At this point, Inovio’s revenue comes from licensing, grant funding and interest income. And that revenue is not enough to sustain any meaningful rally in INO stock. InvestorPlace contributor Mark Hake has written in detail about why he does not expect INO stock to make new highs. I also agree with his conclusion and believe that the INO stock will likely trade in a range between $10-$15 in the coming weeks.
The Bottom Line
Several biopharma firms, such as Inovio, have delivered quite astronomical gains since March. Yet markets are always forward-looking. We have potentially entered an environment where investors want to see finished and approved vaccines from these firms. But not all of them will likely be successful.
In the short run, as it continues the lengthy clinical trials for a potential vaccine, I do not expect INO stock to make new highs. However, if the end result is successful, then it’d be a different story.
If you held INO stock during its bull run in February, it may be time to take your profits. Alternatively, you may consider initiating an ATM covered call position, for example, with a six-week horizon. An Oct. 16-expiry covered call would decrease the volatility in your portfolio, offer some downside protection, and enable you to participate in a potential up move.
Long-term investors should remember Inovio is a highly volatile stock. It makes rather substantial moves, both up and down on a daily basis.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, including a Ph.D. degree, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation. She also publishes educational articles on long-term investing. As of this writing, Tezcan did not hold a position in any of the aforementioned securities.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.