Down 40% From Recent Highs Can Inovio Pharmaceuticals Stock Rebound?

We believe that Inovio Pharmaceuticals (NYSE: INO), a biotechnology company focused on synthetic DNA products for treating cancers and infectious diseases, is a good buying opportunity at the present time. INO stock trades near $10 currently and it is, in fact, down 27% from its pre-Covid high of around $14 in early March 2020 – before the coronavirus pandemic hit the world. INO stock has had a volatile ride over the last year or so. It rallied from levels of under $7 in March 2020, when broader markets made the bottom, to levels north of $30 in mid June 2020. However, the stock saw a decline to levels of under $10 by the end of December 2020, before rising back to $17 in February 2021. The stock currently trades around $10. The recent decline can be attributed to the company’s announcement of a delay in ending the phase 2 trial of INO-4800, a Covid-19 vaccine candidate, to Q2 of 2021, with investors now concerned Inovio will be too late in the market. In fact, the developments around the Covid-19 vaccine has largely resulted in volatility in INO stock.

However, the selling now appears to be overdone. There are multiple positive triggers for the company. Inovio recently announced that VGX-3100, an immunotherapy developed as a non-surgical treatment for high-grade cervical dysplasia, met the primary and secondary endpoints in a late-stage study. VGX-3100 has a potential of over $600 million in peak sales if approved. The company is also evaluating the impact of new coronavirus variants on INO-4800. Now, given that the stock has already corrected from levels of $17 seen last month to $10, it now looks attractive. In this note we focus on a comparative analysis of Inovio Pharmaceuticals stock performance during the current financial crisis with that during the 2008 recession in our interactive dashboard.

Timeline of 2020 Coronavirus Crisis:

• 12/12/2019: Coronavirus cases first reported in China
• 1/31/2020: WHO declares a global health emergency.
• 2/19/2020: Signs of effective containment in China and hopes of monetary easing by major central banks helps S&P 500 reach a record high
• 3/23/2020: S&P 500 drops 34% from the peak level seen on Feb 19 2020, as Covid-19 cases accelerate outside China. Doesn’t help that oil prices crash in mid-March amid Saudi-led price war
• Since 3/24/2020: S&P 500 recovers 75% from the lows seen on Mar 23 2020, as the Fed’s multi-billion dollar stimulus package suppresses near-term survival anxiety and infuses liquidity into the system.

In contrast, here is how INO stock and the broader market fared during the 2007-08 crisis

Timeline of 2007-08 Crisis

• 10/1/2007: Approximate pre-crisis peak in S&P 500 index
• 9/1/2008 – 10/1/2008: Accelerated market decline corresponding to Lehman bankruptcy filing (9/15/08)
• 3/1/2009: Approximate bottoming out of S&P 500 index
• 12/31/2009: Initial recovery to levels before accelerated decline (around 9/1/2008)

INO and S&P 500 Performance Over 2007-08 Financial Crisis

INO stock plummeted from from levels of about $6 in October 2007 (pre-crisis peak for the broader markets) to levels of under $3 in September 2008 before plunging to under $1 in March 2009 (as the markets bottomed out), implying INO stock lost 77% from its peak. It staged a strong recovery immediately post the 2008 crisis, to levels of around $5 by January 2010, reflecting a large 226% rise. In comparison, the S&P 500 Index saw a decline of 51% from its peak in September 2007 to its bottom in March 2009, followed by a sharp recovery of 48% by January 2010.

Inovio’s Fundamentals Have Been Lackluster

Inovio’s revenues decreased from $42 million in 2017 to $7 million in 2020. Note that Inovio doesn’t have a commercial product, and its revenues primarily comprise of collaboration revenue from other pharmaceutical companies. As such, the revenue stream has been volatile for Inovio. The company is currently running into losses, primarily due to higher R&D investments. The company reported a loss of $1.07 per share in 2020, compared to a loss of $1.05 per share in 2018.

Does Inovio Have Sufficient Cash Cushion To Meet Its Obligations?

Inovio has seen its total debt increase from nil in 2018 to around $39 million in 2020, while its total cash increased from $127 million to $411 million over the same period. It also utilized over $177 million in cash for its operations in 2020. The company has a sufficient liquidity cushion to meet its near term obligations.

Conclusion

Phases of Covid-19 Crisis:

• Early- to mid-March 2020: Fear of the coronavirus outbreak spreading rapidly translates into reality, with the number of cases accelerating globally
• Late-March 2020 onward: Social distancing measures + lockdowns
• April 2020: Fed stimulus suppresses near-term survival anxiety
• May-June 2020: Recovery of demand, with gradual lifting of lockdowns – no panic anymore despite a steady increase in the number of cases
• July-October 2020: After poor Q2 results, Q3 expectations were lukewarm, but continued improvement in demand, and progress with vaccine development aided stock indices growth.
• Early 2021: Multiple countries approved the vaccines for Covid-19, further buoying market sentiment, though new variants of coronavirus resulted in uptick in active cases in several countries.

As of now the demand for Covid-19 vaccine is extremely high across the globe, and if Inovio succeeds with INO-4800, it will be a big game changer for the company. Though timing of it being approved, if it does, will be crucial to watch, given its competing with pharmaceuticals giants like Pfizer and Johnson & Johnson. We believe that INO stock could rally back to levels of over $14, implying over 35% upside from the current price.

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