"Biotech is a volatile sector that's often driven by cycles of optimism followed by pessimism, greed at highs and panic at lows. Thus, I believe it's important to stay grounded and simply follow the data & developments for each company we own."
- Seeking Alpha contributor Jonathan Faison
Inovio Pharmaceuticals (NASDAQ:INO ) is amongst several biotech stocks I've designated as part of my "High Risk, High Reward" Biotech Portfolio. Other stocks in this portfolio include Agenus, Inc. (AGEN), Alpine Immune Sciences (ALPN), Crinetics Pharmaceuticals (CRNX), Relay Therapeutics (RLAY), Xenon Pharmaceuticals (XENE), X4 Pharmaceuticals (XFOR) and CytoDyn (OTCQB:CYDY). I'm long in each of these based on a combination of their stories, their potential/probability of success, management execution, near term catalysts in the pipeline, a molecule's clinical benefits and my own personal degree of risk tolerance and they remain in this portfolio until they can de-risk their platform or go bust.
Founded in June 2001, Inovio Pharmaceuticals is a Delaware incorporated company who has its principal offices in Plymouth, PA and their Research and Development Offices in the San Diego, CA biotech industry area.
As October 21, 2022, its share price was $1.77 with a market cap near $409M. Its average ten day trading volume is roughly 4.82M shares and its current enterprise value "EV" is ~$134.11M.
Today, this article will cover Inovio Pharmaceuticals existing pipeline, their science and technology and the advantages their DNA platform provides. I'll also discuss the potential for several near term catalysts that could give a boost to the share price and what actions I'm taking in order to be prepared should any announcements come to fruition in the next 8-16 weeks. Biotech investors may want to consider Inovio for their portfolio after reviewing this article and completing their dive into Inovio.
According to the Inovio's website,
The Company's DNA medicines pipeline is comprised of three types of product candidates: prophylactic DNA vaccines, therapeutic DNA immunotherapies, and DNA encoded monoclonal and bispecific antibodies ("dMAbs" and “dBTAs”), all of which utilize the two components of INOVIO's integrated platform, SynCon® and CELLECTRA®.
As an investor in Inovio for over a decade, I've watched as Inovio has built a pipeline filled with candidates that can potentially be utilized as a stand alone mono-therapy, likely for VGX 3100 for Cervical Dysplasia and VGX3107 for Recurrent Respiratory Papillomatosis or, in combination with other therapies such as their Immuno-Oncology drug candidates INO-5401 & INO-9012 in combination with Regeneron's PD-1 inhibitor, Libtayo to address newly diagnosed patients suffering Glioblastoma Multiforme "GBM". The discussion today will focus on these drug candidates and the upcoming potential for near term price catalysts.
If you're new to this rapidly evolving field of RNA/DNA medicine and are only familiar with the mRNA platforms that have taken center stage over the last several years due to COVID, allow me to share with you some of the differences between the two.
To start with, the stability of DNA vs RNA. If you take a look at an RNA strand, you can see that it is a single side of the double helix strand that we otherwise know as DNA (Think of RNA as a part of a ladder, but with only one side where as the DNA exists in nature as a double helix and has both sides).
Taking what we know, as illustrated above, this not only differentiates RNA from DNA, but their makeup explains why DNA can be extracted from living things that perished hundreds of years ago. RNA existence as a single strand, makes them very fragile and have a shortened half-life.
DNA on the other hand is much stronger therefore, can store more information and can recognize when damage has taken place due to any disruption in the base pairs (shown above). Plus, it has the capability to maintain its composition from total decay for about 500 hundred years, according to an article in Nature entitled,"DNA has a 521 year half-life".
Unlike the composition of DNA, single strands of mRNA (messenger RNA) are also known to be very fragile in nature therefore require sub-zero deep freeze storage due to its shorter life. Such temperature requirements severely impact the logistics of the storage, transport, and distribution of these types of vaccines.
To overcome the limitations of trying to deliver naked mRNA in a vaccine, they must also be encased in an envelope of Lipid Nano-Particles "LNP". This key processes helps support premature mRNA half-life degradation and permits the administration and delivery of the mRNA to the cytosol of antigen-presenting cells. However, to date little information on optimization of the stability of mRNA vaccines can be found in the public domain.
A study by the National Institutes of Health NIH takes a deeper dive into the questions surrounding both the LNP and deep freeze process and what effects it may have regarding mRNA stability in this Library of Medicine, PubMed 2021 published article, "mRNA-lipid nanoparticle COVD-19 vaccines: Structure and Stability".
Here the studies author's write,
Although progress has been made to enhance the stability in vivo and efficacy of mRNA-LNP vaccines, much less attention has been paid to their stability during storage (Crommelin et al., 2021). In order to effectively distribute a vaccine worldwide, it should have a sufficiently long shelf life, preferably at refrigerator temperatures (2–8 °C) or above. Currently, hardly any data is available in the public domain on what happens when mRNA-LNP formulations are stored for long periods of time. Moreover, it is unclear to what extent entrapping mRNA within LNPs influences the storage stability of the mRNA vaccine.
What makes Inovio's DNA vaccines different? Inovio's manufacturing of the DNA is essentially a fermentation process that uses inactivated E-coli bacteria. Inovio takes a piece of the fully cultivated DNA bacteria strand and inserts a small sequence of genetic code taken from the desired antigen target. As with all of the mRNA COVID constructed vaccines, for example, INO also used the genetic sequence of the spike "S" protein found on the surface of the SARS-CoV-2 virus for their COVID vaccine candidate INO-4800.
The advantages to Inovio creating these carefully designed plasmids, which are now circular strands of DNA that instruct a cell to produce proteins or antigens to help the person’s immune system fight an infectious disease, is the ability of a person's immune cells to recognize and help defend against and eradicate cancer and pre-cancerous cells using the same technology. For a good look at how the Syncon Technology platform works, I highly encourage readers to take two minutes to watch a short video presentation obtained from the INO website entitled, DNA Medicines Explained.
Finally, from the labs that sequence the genetic codes used in the plasmid to the manufacturing process by any of their several Contract Manufacturing Organizations "CMO"...all of this up front effort comes together to fill a small vial with a simple saline solution containing a trace amount of salt and the newly encoded DNA plasmid with no additives, ready for vaccine administration. More on the platform will be discussed below.
From the same 2021 NIH study of the limitations of mRNA, the study's authors write this regarding DNA,
Moreover, in contrast to mRNA vaccines, DNA vaccines have shown rather low immunogenicity in early clinical trials, possibly because DNA-based vaccines need to gain access to the nucleus to exert their action, complicating efficient delivery.
Here, Inovio has taken the challenges of low immunogenicity and found that their patented CELLECTRA proprietary smart device facilitates uptake of its DNA medicines into the cell, which as outlined above, has been a key limitation to the use of DNA in humans. Described as the size of an electric toothbrush but, with a smaller head, the CELLECTRA device is an impressive medical instrument. So, how does it work?
In my previous article on INO from May 2020, I discussed the technology behind the utilization of electroporation as the key feature that enables the DNA plasmids to do their work. Electroporation "EP" is the controlled delivery of milli-second bursts of low flow discharges of battery generated electricity. This is administered with Inovio's CELLECTRA device either intradermally (at the surface of the skin), or into the muscle (see below graphic). Electroporation breaks down the barriers to cell entry, chiefly the cell membrane walls by stimulating the membrane pores to open and close involuntarily and allows for increased levels of DNA uptake. As the pores open, needle injected synthetic DNA plasmids are able to enter the cell before the pore membrane closes.
Electroporation (National Institutes of Health - PubMed)
Once inside the cell, the DNA plasmid begins the process of manufacturing the encoded antigen naturally, triggering the immune response that targets the virus/disease/tumor. If you watched the referenced video mentioned in the section above, you'll understand the process.
What's important for the reader to note is that as all of Inovio's vaccines are delivered in a two steps process; first by subcutaneous injections of the DNA vaccine, followed by an administration of EP. So far, human clinical trial data from more than 15,000 administrations across more than 5,000 participants to date have shown a tolerable safety profile.
The author is well acquainted with current INO COVID vaccine trial participants. When asked to describe the discomfort level of the EP process on a scale of 1-10, the response was "1-2 with mild discomfort that goes away quickly." Asked to physically describe the CELLECTRA® device I learned that it was nothing bigger than an electric toothbrush with a "smaller head."
One other final advantage to these smart devices lies in their ability to be used over and over with a simple change of the disposable head. This certainly saves costs to the clinicians per dose with a simple disposable replacement head as needed.
In the end, it boils down to Inovio's two step vaccine process. The combined success of Inovio's SynCon Technology and the CELLECTRA devices capability to deliver the vaccine via electroporation "EP" comes Inovio's future success or failures.
Several other advantages of the SynCon platform include how DNA plasmid vaccines can easily be inter-changed with similar blue prints as a virus mutates, their ability to be developed quickly and mass-produced at low cost (relative to the RNA approach) and their stability profile for storage at room temperature environments for up to one year.
Not only has Inovio been able to consistently produce binding and neutralizing antibodies, but also critical T-cells. T-cells are critical to stopping disease targets. With DNA plasmids, there are no anti-vector responses. This means INO can continue to boost. Additionally, DNA is non-replicating so there are no concerns regarding the synthetic DNA plasmid reproducing, offering an exceptional safety profile for the vaccine. This is unique to Inovio's DNA platforms.
INO Technology Advantages (Inovio Pharmaceuticals)
Reading from the transcripts of the last quarterly investor update, Chief Medical Officer, "CMO" Michael Sumner hinted at what could be a catalyst coming in the next 8-16 weeks,
I would like to provide an update on our clinical programs for HPV-associated diseases. On our prior earnings call, we announced our intention to amend the trial design for REVEAL 2. Our Phase III trial evaluating VGX-3100 as our treatment for HPV-associated cervical high-grade squamous intraepithelial lesions or HSIL. I want to share that the amendments to revise the primary analysis population from the all-comers population to the biomarker-positive population have been submitted and that the last patient visit is slated for September. Therefore, we are still on track to report efficacy safety follow-up data through week 40 by later this year or early next year.
The amendments came as a surprise to everyone as the FDA recommended, what they see as the most likely path supporting an approval of a marketing application, that INO use REVEAL 2 as an exploratory study to evaluate a biomarker selective population. Once the amended trial, from the all-comers population to the biomarker-positive population is completed, the FDA requested INO conduct an additional 1 or 2 well-controlled trials in these biomarker positive populations.
INO will then be able to assess the path going forward for the VGX-3100 program following the analysis of the REVEAL 2 results.
Any positive announcement from INO regarding the safety and efficacy data, scheduled for later this year or early next year could serve as a catalyst to move the share price higher.
Cervical Cancer Progression (National Cancer Institute)
SVP of Clinical Development of Infectious Diseases David Liebowtiz provided some details on the company's MERS, Ebola and Lassa Fever programs during the August earning call.
With regards to our other infectious disease vaccine candidates, we are still on track to announce data for our Phase IIa trial for Middle East Respiratory Syndrome, and our Ebola booster study in the second half of this year. The data for our Phase I trial of INO-4500 for Lassa Fever which we had previously guided to read out in the first half of 2022 is currently being analyzed by Inovio and our partner, CEPI. We expect to complete our analysis and share data on INO-4500 later this year.
All three candidates are expected to have some data readouts later this year or early next year according to Liebowitz. Any positive announcement from INO could serve as an additional catalyst to move the share price higher.
In 2020, Inovio announced that they had been granted 'Orphan Drug Designation' for INO-3107 to treat a rare disease known as Recurrent Respiratory Papillomatosis (RRP) caused by the presence of HPV 6 or the HPV 11 virus. Orphan Drug Designation is critical to advancing drug development for rare disease indications, such as RRP.
RRP obstructs patient's airways with primarily benign tumors that can grow in size in the larynx rather quickly requiring invasive surgical procedures and in rare cases, result in cancer. RRP is presently incurable and the courses of treatment include recurrent surgery to remove the tumors as frequently as every few weeks to every few months or the use of antiviral drugs. Regardless of the procedures chosen, living with this incurable disease can result in social isolation as it often comes with a change in voice, hoarseness and difficulty breathing and in the most severe cases, patients opt to insert a permanent tracheotomy.
On October 13, 2022, Inovio announced positive interim results from an ongoing Phase 1/2 clinical trial evaluating INO-3107 for the treatment of HPV 6 and HPV 11-associated Recurrent Respiratory Papillomatosis (RRP) in adults. The price moved up approximately 25% over the following days and like most catalysts are short lived, but make for excellent trading opportunities. Any subsequent news on the future development or progress of INO-3107 may present just such a scenario. For more on those results announced this month, please follow the link provided.
This year, Inovio announced the survival results for INO5401 + INO-9012 in combination with Libtayo (cemiplimab) in patients with newly diagnosed GBM at the 2022 ASCO Annual Meeting. Fifty-five% of MGMT methylated subjects remain alive at a median of 32.5 months while the historical comparison for OS in this population has been 24 months. Median OS durations in Cohorts A and B were 17.9 months (95% CI 14.5-19.8) and 32.5 months (95% CI 18.4-not reached), respectively.
INO-5401 is a mixture of three synthetic plasmids that target Wilms tumor gene-1 (WT-1) antigen, prostate specific membrane antigen (PSMA), and human telomerase reverse transcriptase (hTERT) antigen. INO-9012 is a plasmid encoding human interleukin-12 (IL-12) p35 and p40 subunit proteins.
Dr. David Reardon, Clinical Director, Center for Neuro-Oncology of Dana-Farber Cancer Institute and coordinating principal investigator of the study said this at ASCO 2022,
"GBM remains one of the most aggressive and hard-to-treat cancers. The fact that we have seen this novel combination trial of a T cell generating DNA medicine combined with a PD-1 checkpoint benefit a large percent of trial participants past 32 months is very encouraging. These latest results and continued development are welcoming as it continues to improve upon a standard of care which was defined 17 years ago and remains sub-optimal for our patients with GBM."
This announcement was over six months ago. Could another announcement come in the last half of this year or early next year regarding a larger PHII/III trial with REGN continuing their support? The data seems to imply that the combination therapy has produced results that exceed the current SoC. The question on investors mind's, "Does an additional life expectancy of eight more months over the current SoC (24 vs 32.5) justify further research to spend upwards of $41,000 per patient (avg. clinical trial costs)?
According to a 2020 study on the cost of clinical trials, reported to the US Department of Health and Human Services,
The average cost of phase I, II, and III clinical trials across therapeutic areas is around $4, $13, and $20 million respectively. Pivotal (phase 3) studies for new drugs approved by the Food and Drug Administration FDA cost a median of $41,117 per patient. Source: SOFPROMED
A search in clinicaltrials.org for current PHII GBM trials in newly diagnosed patients using a monoclonal antibody was conducted. Two trials for newly diagnosed patients were discovered. The efforts applied were to determine the number of trial participants a PHII/III study could look like to get a cost of any potential trial. Eighty (80) patients in one trial was the high end therefore, if enrollment were the same number of patients, the cost could be ~$3.28M and well within the range of funding.
"The global glioblastoma multiforme treatment market size was valued at $2.14 B in 2020 and is expected to expand at a compound annual growth rate "CAGR" of 8.8% from 2021 to 2028" according to Grand View Research.
A positive announcement of INO-5401 moving forward with REGN will certainly be the biggest catalyst to the share price.
A review of their last 10-Q outlines the specifics of two important pieces if litigation that could have a substantial impact on the operations if Inovio is unable to successfully defend itself or prosecute their cases against VGXI or GeneOne. Readers are encouraged to go directly to the Montgomery County, PA Clerk Records for more information.
Below, I will provide readers with a consolidated brief on both cases below:
The case with Inovio as the Plaintiff is, in part, based on an announcement after the start of the COVID pandemic in 2020, that VGXI did not have the capacity to manufacture the DNA plasmids as requested by INO within a specified timeline for their COVID vaccine candidate, INO-4800.
Based on VGXI's response, INO asked VGXI to provide the necessary "transfer materials" to another third party Contract Manufacturing Organization's "CMO". Further, Inovio asserts that their contract agreement stipulates that VGXI shall, at the request of Inovio, transfer the manufacturing methods to a third party, under their agreement. VGXI disagrees.
Does Inovio have a legal basis to challenge VGXI withholding the transfer materials or do they have a contract that can compel VGXI to make that transfer? As noted, Inovio is already contracted with other manufacturers besides Richter-Helm so whatever the motive by VGXI to deny the request, be it due to claims of patent protection and/or trade secrets, the civil litigation was unable to be resolved outside the courtroom and it looks like this case will likely go to trial in 2023.
Also outline in the same 10-Q, the GeneOne lawsuit was filed in PA against Inovio for what GeneOne claims was a material breach of contract by INO.
INO was the supplier of the CELLECTRA device for Gene One Life Sciences. GeneOne was conducting their own COVID trials in Korea when INO pulled the plug and stopped their supply of these devices. On December 7, 2020, GeneOne filed a complaint in the Court of Common Pleas of Montgomery County, Pennsylvania against INO, alleging that they had breached the "CELLECTRA Device License Agreement", when INO terminated the agreement on October 9, 2020.
What is the connection between VGXI and GeneOne? VGXI is a GeneOne company. As a result, it stands to reason their relationship has been irreparably harmed...damaged for good, all over what would eventually become the failed efforts to bring to market a DNA COVID vaccine in both Korea and the United States. Besides the lost time and efforts and the continuing financial burden of the litigation comes the loss of CEO and Founder of Inovio, J. Joseph Kim who resigned earlier this year.
Accordingly, investors should note that the outcome of this litigation could potentially result in a significant amount of financial damages which could severely impact the operations. As outlined in the financial discussion below, INO has over $300M in short term investments that could be tapped to fund any potential unfavorable court ruling, but would they could need much more from other sources if required.
According to the latest 10-Q filing with the SEC, Inovio finished the second quarter with $348.1 million in cash, cash equivalents and short-term investments. As of June 30, 2022, Inovio had 247.5 million shares of common stock outstanding and 267.8 million shares of common stock outstanding on a fully diluted basis.
Total operating expenses were $104.9M. G&A expenses were $48.5M for the 3 months ended June 30, 2022, and the increases are primarily related to a $26M increase in legal expenses, which includes a $14M non-cash expense related to anticipated issuance of their common stock and $30M cash as part of the proposed settlement of a security class action litigation. Inovio expects their insurance carrier to cover the $30M cash portion of the settlement.
Additionally, a $6.9M onetime severance expense, related to the separation of former CEO J. Joseph Kim, was expensed.
Looking forward, INO projects their cash burn to decrease incrementally into the third quarter of 2024 as a result of cost-cutting initiatives including a corporate reorganization that resulted in an 18% reduction in their full-time workforce and an 86% reduction in contractors. According to the new CEO, Jacqueline Shea,
These initiatives are expected to reduce our operating expenses by approximately 30% over the next 18 months and extend our cash runway into the third quarter of 2024.
The concerns of most investors is the common practice of dilution to raise the capital necessary to fund operations.
Quant Factor Grades provide investors with an instant characterization of each stock. This makes it easy to find or rule out stocks based on your investment criteria.
Seeking Alpha grades each stock by five “factors” -- Value, Growth, Profitability, Momentum and EPS Revisions. To do this, they compare the relevant metrics for the factor in question for the stock to the same metrics for the other stocks in its sector. The factor is then assigned a grade, from A+ to F. Source: Seeking Alpha
Looking back over the last ~10 years, while under the previous leadership of former CEO J. Joseph Kim, we can see that INO share price has had a dismal return compared to the S&P 500. A $10,000 investment in INO a decade ago would be worth only $6,630.00 today or a loss of roughly -33.70%. No doubt Wall Street has punished Inovio, most likely due to their inability so far to get any approved products through a PHIII trial, resulting in the erosion of shareholder value the last ten years.
While this trend seems likely for the next few years, they do have the potential to advance a few key drugs in their pipeline, resulting in some near term catalysts that traders can potentially capitalize upon. More on those trading opportunities and catalysts later in this article.
While other Quant Factor Grades are available to discuss for INO, such as Valuation (C+), Growth (D+), Profitability (C-) and Revisions (D+) it's a common practice for investors to measure an investment's performance against other benchmarks, such as the S&P 500. Therefore I've selected "Momentum" strictly to illustrate this quant grade as a performance comparison tool.
I also present a brief snapshot of the XBI for comparison with the S&P 500 Index and INO. The XBI is an exchange traded fund launched by State Street Global Advisors, Inc. and invests in stocks of companies operating across health care, pharmaceuticals, biotechnology and life sciences sectors. The fund invests in growth and value stocks of companies across diversified market capitalization. Their current AUM is 6.88B.
Wall Street Analyst Coverage/Recommendations
As of October 2022, seven financial analysts cover the stock. One analyst Charles Duncan at Cantor Fitzgerald has a "Buy" rating with an implied upside potential of ~80%. Six analysts have a "Hold" recommendation. Based on analyst ratings, Inovio Pharmaceutical's 12-month average price target is $4.00.
I've held a core position in Inovio Pharmaceuticals for a long time. My core value has eroded over time however, the trades around the catalysts remain my objective and have helped me raise cash to dollar cost average "DCA" in recent months.
DCA takes a certain degree of discipline, patience and confidence in the biotech equities you own. At these rock bottom prices I'll continue to accumulate shares of INO to set up future trades based on the pending catalysts outlined in this article.
I intend to use any profits to fund my discipline of 'averaging down' in this position until I reach my goal. Currently $1.38 is the 52W low for INO. My next buy will not take place until I'm certain that INO can hold this price and climb out of the buy zone shown in the chart below. If the price falls below the buy zone, a new base must form before I decide to make any more purchases.
Inovio Daily Chart (Trading View)
"Plan your trade and trade your plan."
Once the equity becomes 5% of my portfolio and if I still believe in their stories, their platforms, their potential/probability of success, management execution, near term catalysts in the pipeline, a molecule's clinical benefits and my own personal degree of risk tolerance, I'll use any future trading money to invest in my broad portfolio of 'dividend champions and kings' for my retirement.
Historically speaking, the best time to be invested in Inovio, using my investing discipline was pre-COVID. The run into the $30s helped me actually fold some green into my pocket but, being a biotech junkie it didn't take me long to reinvest and I currently have a DCA of $6.06.
I certainly have come to appreciate the thesis by stalwart Inovio bears who, for the last decade have seen their thesis proliferate time and time again. Their main thesis, if you're new to this investment, focuses on Inovio's inability to bring a product to market. It has been their thesis for a decade and it hasn't changed and why should it? Whether it's the science, the people, the epic missteps of the CEO, the bears have owned Inovio. But, for how long will they be able to maintain their thesis?
An announcement of further advances of INO-4800 PHIII human trials in China with their China partner Advaccine, or announcements of further funding from CEPI, or an international pharmaceutical business who may want to partner with them for their MERS, Ebola and Lassa fever vaccines could change the landscape of Inovio's price action and the erosion of the bear thesis, as well as provide needed catalysts to the share price. Want more irony? GeneOne still lists on their website, Inovio as a partner with them on their own MERS vaccine (GLS 5300) and their own Zika vaccine (GLS-5700).
Additionally, Inovio is going to report in the coming quarters the final overall survival for patients enrolled in clinical trials for the treatment of the deadly brain disease Glioblastoma while using INO-5401 in combination with INO-9012 and a PD-1 checkpoint inhibitor from Regeneron (REGN). For that reason, I remain optimistic on the price being a buy at these levels.
In the mean time, I'll continue to remain patient (learned by investing in INO), look for trading opportunities, stay within my trading discipline and remain focused on the bigger picture of creating wealth for my retirement.
This article was written by
Disclosure: I/we have a beneficial long position in the shares of INO either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.