Inovio Is in a Race to Develop a COVID-19 Vaccine, but Can It Possibly Win?

Alex Carchidi

Inovio Pharmaceuticals (NASDAQ:INO) made waves in February when it announced it had produced a COVID-19 vaccine candidate after only three hours of effort. As with other companies announcing efforts toward developing a COVID-19 vaccine or therapy, Inovio's stock immediately ignited, placing it firmly on the radar of curious investors. Nonetheless, Inovio's scientific approach remains unproven, and recent issues suggest that the company's leadership may not be up to the task of bringing their vaccine to market even if it works.

Specifically, Inovio is currently facing down a class action lawsuit from its shareholders, who claim that the company's initial statements regarding its vaccine development efforts were highly misleading. If the shareholders win, Inovio's stock price will suffer.

In short, the shareholders accuse Inovio's leadership of overstating the significance of their vaccine candidate, alleging that the company's long-term value will be harmed by such exaggerations. They're not wrong about Inovio jumping the gun with its vaccine candidate announcement. While Inovio did produce results rapidly, it was only able to do so because the genetic sequence of the coronavirus had been released hours earlier. Given that Inovio's vaccine candidate is merely a physical copy of the viral genome prepared such that it can readily enter human cells using the company's proprietary platform, it is highly likely that Inovio did no testing or confirmation of any kind before making the announcement. 

And that's not Inovio's only problem in the short or medium term; the business hasn't demonstrated the ability to innovate as well as its competitors, nor do its financial data support the idea that its stock will take off if it brings a vaccine product for COVID-19 to the market.

Inovio gambles on risky foreign collaborations and undeveloped science

Inovio's collaborations with Chinese organizations to test its vaccine candidate may be a valuable competitive advantage in the long term, but prior clinical-stage collaborations with China by other COVID-therapeutic producers, such as Gilead Sciences (NASDAQ:GILD), have failed to pay off so far.

Image Source: Getty Images

Inovio's COVID-19 vaccine trials in China may falter if it fails to recruit eligible patients who have not already been exposed to the virus or if infections are controlled so successfully without vaccination that the benefit-to-risk ratio for patients falls below ethical-use minimums. And Inovio has little experience in running clinical trials without a collaborator to handle a large share of the burden.

Even if the company can successfully navigate these clinical and organizational risks, it also faces the risk that its vaccine candidate is ineffective. Inovio's scientific approach to developing the vaccine is roughly parallel to that of Moderna's (NASDAQ:MRNA), wherein viral genetic material is the primary component of the vaccine.

No prophylactic vaccine for use in humans has ever been produced using this approach before. But there are a couple of veterinary vaccines which use the same approach, and there are also several other non-preventative therapies that have made it to the human-use market in the last few years.

Notably, Inovio's stock skyrocketed once again at the end of April, when it announced that its vaccine candidate for MERS, another coronavirus, had performed well in preliminary clinical trial data. While this finding lends some credence to its scientific approach, it's also important to note that Inovio wasn't working alone. Inovio's partner in the trial, GeneOne Life Sciences, uses the same vaccine methodology as Inovio, meaning that it is difficult to attribute any of the joint effort's successes to Inovio alone and that Inovio is unlikely to see the full financial benefit of the vaccine if it proceeds to the market.

High expenses, low revenue, and a weak strategic position make Inovio an easy pass

Though it's been operating for nearly two decades, Inovio has no products on the market, consistently negative revenue growth, and a staggering total debt-to-equity ratio of 1,841. (Compare this with Gilead Sciences, which has a debt-to-equity ratio of 112.) Nor does it have much cash on hand to service its debts, meaning that the company will be under severe cash-flow constraints for the foreseeable future. Most importantly, Inovio's product pipeline only has one phase 3 program, meaning that it isn't strongly positioned to come back from a stumble in its COVID-19 vaccine program after the pandemic ends.

There's not much reason to hope that Inovio is going to gain value in the long term, as it's nowhere near profitability now. Current shareholders should sell Inovio, and prospective buyers should avoid it unless they have a very high tolerance for risk. In contrast, Moderna's infectious disease vaccine pipeline is significantly larger than Inovio's, and Moderna also retains more exclusive worldwide rights to sell its products currently in development should they be proven effective and safe. That makes it look significantly more favorable for investors even before taking its COVID-19 vaccine candidate into account. 


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