Is Inovio a bad news buy?
You won’t find many stocks that have been more volatile this year than Inovio Pharmaceuticals (NASDAQ: INO). We’re talking about a biotech that saw its share price skyrocket over 300% in early March, only to lose more than half of those gains in a matter of days. Last month Inovio’s shares nearly doubled before plunging again.
Some investors have probably thrown in the towel on the low blows biotechnology stocks. But could Inovio really be a buy when there is bad news?
A lot of bad news
The worst news came on September 28, when the company announced that the United States Food and Drug Administration placed a partial clinical wait on the planned phase 2/3 clinical study of its COVID-19 vaccine candidate INO-4800.
Inovio had previously stated on several occasions that it planned to start the Phase 2/3 study of INO-4800 in September. However, the company said in a press release that the FDA had “further questions” about the planned clinical trial of the investigational vaccine and the Cellectra 2000 device that delivers it.
This news apparently had an impact on another important goal for Inovio: securing external funding for its INO-4800 program. Inovio CEO Joseph Kim told Cantor 2020 Global Virtual Healthcare Conference that the company plans to announce third-party funding for its Phase 2/3 study of INO-4800 by the end of it. September. This announcement never came.
That’s not all. Last week, the company dropped its appeal of a Pennsylvania judge’s decision to deny an injunction against VGXI, its long-term contract maker. Inovio had sought to force VGXI to provide the proprietary manufacturing information necessary for the large-scale production of the INO-4800.
Ready to bounce back?
However, don’t rule out the possibility that Inovio may bounce back in a meaningful way from all of these setbacks. The company plans to answer questions from the FDA this month. The agency would then have 30 days to inform Inovio of the start of the planned phase 2/3 study of INO-4800.
Inovio said the FDA’s partial clinical suspension was not related to any safety concerns with previous clinical studies of INO-4800. This is certainly encouraging news for biotechnology. If Inovio is able to satisfactorily answer questions from the FDA, it is possible that the Phase 2/3 study of the company’s COVID-19 vaccine candidate could begin before the end of the year.
It remains to be seen whether Inovio will get the promised external funding. But if the FDA gives INO-4800 the green light to move to Phase 2/3 testing, there’s reason to believe Inovio could still strike a funding deal – especially since Kim hinted that the company was really on the verge of doing it just a few weeks ago.
As for the dispute with VGXI, Inovio still hopes to prevail in court even if it will not appeal the injunction decision. The company also increased its production capacity of INO-4800 by partnering with the healthcare giant Thermo Fisher Scientific.
Buying bad news?
It’s possible that Inovio could offer another big comeback. Any positive news could trigger a short squeeze as a significant percentage of biotech stocks are currently sold short.
However, buying Inovio right now would be more of a game than an investment, in my opinion. There are simply too many unanswered questions to buy biotech stocks with much confidence. Inovio might be a bad news bet that some might choose to take – but I think it would only be a gamble at this point.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.