Inovio Pharmaceuticals Stock Could See More Downside From $16

by Trefis Team
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After a massive 2.5x rise since the March 23 lows of this year, at the current price of around $16 per share we believe Inovio Pharmaceuticals stock (NASDAQ:INO) has run its course, and any significant upside from these levels is unlikely. INO stock has been very volatile in trade this week, and despite the 2.5x move since Mar 23, it is actually down 50% from the highs of $31 it made in late June. This can be attributed to the company not being selected for the federal funding for vaccine development, and it lagged behind some other players, including Moderna. 

When we look at a slightly wider time horizon, Inovio’s stock has rallied from less than $7 to $16 off the recent bottom compared to the S&P which moved 50%, with the resumption of economic activities as lockdowns are gradually lifted. INO stock is also up about 280% from levels of $4 seen in early 2018, two years ago.

Going by fundamentals, the company’s performance has been lackluster over the recent years, given it doesn’t have a marketable product yet. Its revenue, which primarily consists of license fees and collaborative research and development arrangements, declined 90% from $42.2 million in 2017 to $4.1 million in 2019. This clubbed with a 20% increase in total shares outstanding translated into a 92% decline in its revenue per share from $0.52 to $0.04. It should be noted that INO stock actually declined between 2017 and 2019, and the move it has seen in 2020 can purely be attributed to its Covid-19 vaccine development. Our dashboard, ‘What Factors Drove 279% Change in Inovio Stock between 2017 and now?‘ has the underlying numbers.

While the company has seen a decline in revenues over recent years, its P/S multiple has seen a significant increase from 8x to 376x trailing revenues. Note that a high trading multiple is common for smaller pharmaceutical companies, with a promising pipeline, and that appears to be the case with Inovio as well. 

So what’s the likely trigger for the stock?

The global spread of coronavirus has meant an increased focus on pharmaceutical companies that are developing vaccines, Inovio being one of them. Inovio has been working on its Covid-19 vaccine – INO-4800 – which is soon expected to start phase 2 trials. It is awaiting the U.S. FDA nod for the same. Separately, the company’s management recently confirmed that it will be able to do this trial with external funding, which is great news for Inovio, and it sent the stock surging to over $18 in the mid-week, compared to levels of under $10 late last week.

While the Covid-19 vaccine is surely a big product for the company, Inovio has more drugs and vaccines to look forward to. Before the Covid-19 outbreak, Inovio was working on a an experimental MERS vaccine in phase 2 trials. Another important candidate is VGX-3100, currently being tested for the treatment of cancers caused by the human papillomavirus (HPV) subtypes 16 and 18. Among others are INO-5401 for the treatment of brain cancer and INO-5051 for treating prostate cancer.

While the company reported sales of just $4 million in 2019, as they don’t have a marketable product currently, the estimated combined peak sales of all of the above drugs/vaccines is well over $4 billion, if approved. Despite the upbeat pipeline, we believe that the stock may have a limited upside, due to the fact that the stock has already rallied substantially from levels of $4 earlier in the year, purely on its Covid-19 vaccine development, which still lags behind other players. That said, INO stock will likely remain volatile, reacting to news around its INO-4800. In the near term, the external funding and start of phase 2 trials for a Covid-19 vaccine remain the important developments for the stock, but that is already known to the market, and likely priced in now.

Over the coming weeks we expect continued improvement in demand and subdued growth in the number of new Covid-19 cases in the U.S. to buoy market expectations. Following the Fed stimulus — which set a floor on fear — the market has been willing to “look through” the current weak period and take a longer-term view. With investors focusing their attention on 2021 results, the valuations become important in finding value. Though market sentiment can be fickle, and evidence of a sustained uptick in new cases could spook investors once again.

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