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Inovio Stock Is a Great Long Setup for an Overreaction Trade

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Biotech traders have been monitoring Inovio (NASDAQ:INO) closely as the firm competes with major competes with large companies like Moderna (NASDAQ:MRNA) and Johnson & Johnson (NYSE:JNJ) to develop a successful Covid-19 vaccine. No one knows which company will get an approved vaccine to market first. So, it’s somewhat risky to own INO stock.

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In the realm of biotechnology stocks, the government is all-powerful. I’ve seen biotech stocks get cut in half or even worse in a single trading session. This can happen due to an adverse action by the U.S. Food and Drug Administration (FDA).

On the other hand, I’ve also seen biotech stocks double in a matter of days. When the FDA gives the green light to a particular drug, stock prices can explode to the upside.

The stakes are particularly high when it comes to INO stock because the competition to develop a successful novel coronavirus vaccine is so intense. Moreover, there’s a piece of unfavorable news that’s shaken some folks out of the long side of the trade. But does this mean it’s time to give up on Inovio altogether?

A Closer Look at INO Stock

As we will explore soon, Sept. 28 was not a wonderful day for INO stock holders. On that day, the INO share price plunged from nearly $17 to $12 and change.

This event was a major setback for INO stock bulls. It took them weeks to build INO up, only to watch it get pushed back down in a single day.

The good news here is that INO stock didn’t just keep falling after that horrendous day. On Oct. 9, INO shares traded at $12.31. So, it could be said that the stock has traded sideways since the big fall.

What the bulls need to do now is make a statement by pushing INO stock back to $15 with strong trading volume. The idea is to restore confidence in INO traders and bring them back into the fold. After all, INO has been much higher, so reclaiming the $17 level shouldn’t be an impossible dream.

The Big Halt

Prior to Sept. 28, things were going pretty smoothly for Inovio on the vaccine development front. Indeed, the company had already planned Phase 2/3 trials of INO-4800, Inovio’s Covid-19 vaccine candidate.

However, as I alluded to earlier, the government is all-powerful and can make or break a company. I’m not saying that the FDA broke Inovio, but they did construct a rather frustrating roadblock for the company.

To be more specific, the FDA has placed a partial clinical hold on the Phase 2/3 trials for INO-4800.

According to Inovio, the FDA has “additional questions about the company’s planned Phase 2/3 trial of its COVID-19 vaccine candidate INO-4800, including its CELLECTRA® 2000 delivery device to be used in the trial.”

A Rational Response

Inovio stated that this partial clinical hold won’t affect the development of the company’s other product candidates. But let’s be honest here. Traders aren’t obsessed with Inovio’s other drug candidates. They want to see a Covid-19 vaccine moving quickly to the finish line.

So, there’s no denying that the INO-4800 development halt is a problem for Inovio. Yet, let’s not ignore the good news here, as reported by Inovio:

“This partial clinical hold is not due to the occurrence of any adverse events related to INOVIO’s ongoing expanded Phase 1 study of INO-4800, the conduct of which may continue and is not impacted by the FDA’s notification.”

So, let’s be rational about this and put the trial halt into perspective. Inovio can still proceed with its clinical research. Plus, nothing terrible happened with INO-4800. The government just has some questions, that’s all.

Benchmark analyst Aydin Huseynov asserts that the delay most likely is not related to safety concerns, and I tend to concur with this assessment of the situation. Furthermore, if and when the FDA issue is resolved, INO stock could easily pop right back up to $17, where it was before this event happened.

The Bottom Line

Some folks freaked out when the FDA placed a halt on the Phase 2/3 trials for INO-4800. It’s entirely possible that they overreacted and if this issue is resolved, INO stock could potentially return to its much higher price point.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.

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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.

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