Inovio (INO) has likely been the most volatile stock in its class of biotechnology companies during the last year. Getting perspective on its true long-term value is crucial to investors. As with other clinical (pre-commercial) stage pharmaceutical stocks, this involves weighing many contingencies. The ratio of Inovio’s 52-week high of $33.79 to its 52-week low of $2.19 is about 15, which is remarkable. It closed on November 18 at $11.03, down sharply from last Monday when it rose sharply following news that the FDA granted permission to start its Phase 2 trial for INO-4800, its potential COVID-19 vaccine.
Given the state of the COVID-19 vaccine race, I believe the bulk of the future value for Inovio is in its HPV precancerous lesion therapies, which will be the focus of this article. The glioblastoma (brain cancer) therapy may have a great deal of value if it gets Phase 3 results sufficient for FDA approval. I will explain why I will heavily discount that outcome until I see the data. Long term, Inovio has a proven platform that should generate new medicine at regular intervals. I will explain why I believe the current price is reasonable for long-term investors, whereas I think the danger outweighs the opportunity for short-term investors unless they like to play with volatility. I note that my last article on Inovio, Inovio’s Wild Ride and Real Value, from March 25, 2020, has largely proven to be correct.
INO-4800 for COVID-19 Update and Value
Inovio, after what seemed to be a quick start, fell behind in the race to produce a validated COVID-19 vaccine. At least two companies were able to move at warp speed and may have emergency use authorization from the FDA before the end of 2020. The FDA delayed Inovio’s bid, only allowing it to begin the INO-4800 Phase 2 trial on November 16. It still is waiting on an okay for Phase 3. That means it is not likely to have Phase 3 data before mid-2021, judging by the timelines of the successful trials.
That does not mean INO-4800 is without value. Assuming it meets the FDA bar of 50% efficacy, and especially if it is close to the 90% efficacy we are seeing from competitors, there could still be massive global vaccine demand in the second half of 2021. That demand might be mainly outside of the United States, Europe, and other top-paying nations, so the price per dose might have to be relatively low. Inovio believes its vaccine is the best-in-class in terms of needing minimal refrigeration, which would be a competitive advantage where medical and transportation infrastructure is weak. Again, that means where people and governments cannot pay top dollar for medicines. It might also have an advantage in T cell generation and length of immunity provided, but we have not seen the specific data yet.
Given that it now appears that COVID-19 immunity post-infection is long-lasting, so boosters may not be needed, I would guess there will be little or no revenue from these vaccines after 2022. Taken as a whole, I would prefer to assign no significant value (I assign value in terms of market capitalization, then work back to share value) to INO-4800 at this time. Note that leaves potential upside if it works out better than what I admit is a near-worst case scenario for INO-4800.
HPV precancer therapies: the money machine
VGX-3100 is a DNA-based vaccine against the most common strains of HPV (human papillomavirus). There are already vaccines to protect against new HPV infections. But VGX-3100 works on patients who already have infections and is in two Phase 3 trials to reverse cervical dysplasia (pre-cancer) caused by HPV infections. As of the Inovio Q3 2020 analyst conference, the pandemic had caused an enrollment delay to that. Data is now expected in the first half of 2021 (interpretation: Q2) and an application, or BLA, for commercial authorization could still be submitted to the FDA in 2021 (interpretation: early 2022), which means a possible ramp of VGX-3100 sales in 2022.
What might those sales amount to? According to Inovio, HPV-related cancers have spiked 44% since 1999. There were 570,000 HPV associated cervical cancer cases worldwide in 2018. Treatment’s unmet need is high. Many of these cases are in China, where ApolloBio has licensed exclusive rights to commercialization. Because VGX-3100 is more like a cancer therapy than a vaccine, it is likely to be priced more like a cancer therapy. At 100,000 therapies per year and $5,000 per therapy, that would provide $500 million per year in annual revenue. But note no price has been announced. The price could be considerably higher, but it could take years to ramp to 100,000 annual treatments. There is currently no treatment other than surgery.
The Phase 2 VGX-3100 results reported back in September 2015 showed that patients with high grade cervical neoplasia who were treated showed significantly higher regression rates to no disease or low-grade neoplasia than placebo recipients. Unless the Phase 3 trial data skew far from the Phase 2 data for safety and efficacy, I would rate regulatory approval as highly likely. One can apply various ratios to determine a future market capitalization number based on projected revenue, but if $500 million per year in revenue is reached, a market cap of $5 billion (10 times annual revenue) would be a conservative number. At the current time that should be discounted for the chance of failure and the time value of money. Call it $4 billion. Note any analyst can simply choose a different price point for the therapy, or annual patients, or a different discount, to justify a different number.
Given the success so far, VGX-3100 Phase 2 trials are now also underway for vulvar neoplasia and anal dysplasia. A related DNA vaccine, INO-3112, has been licensed to MedImmune, a subsidiary of AstraZeneca (AZN), and combined with durvalumab to target HPV associated head and neck squamous cell carcinoma. Renamed MEDI0457, it is a combination of Inovio’s VGX-3100 immunotherapy and a DNA-based immune activator encoded for IL-12. A Phase 2 trial completed enrollment in Q3 2019. MedImmune is also testing the combination for other cancers caused by HPV. As far as value, all that could be seen as reinforcing my $4 billion estimate for market capitalization, or even expanding it by $1 to $2 billion.
INO-5401 potential as a glioblastoma therapy
On November 20, 2020, there will be a presentation at the Society for Neuro-Oncology 2020 Annual Meeting of INO-5401 glioblastoma overall survival at 18 months, OS18. This could add to conviction, as the 12 month INO-5401 OS12 data released in May 2020 was positive with an 85% rate. INO-5401 in this trial was combined with INO-9012 and Regeneron’s (REGN) Libtayo, a PD-1 inhibitor.
Any therapy that works better than the current standard of care for glioblastoma would be welcomed by patients and doctors, and so would be immensely valuable. No improvement on standard of care has been made in over 20 years. Against that potential immense valuation, ballpark $10 billion for Inovio, is the fact that the 20-year dearth of new effective brain cancer drugs is not for want of trying. I have owned stock in more than one company with positive Phase 2 results in glioblastoma that then failed Phase 3 trials. That said, not all positive Phase 2 trial results are alike. The stronger the Phase 2 results are, the more likely they are not just a statistical fluctuation, and so are an indicator of Phase 3 results. In any case, the Phase 3 trial will likely take at least 3 years. While I will be looking closely at new trial data, for the purpose of this article I am not yet assuming any significant long-term value in INO-5401.
Quick Review of Platform
There are a number of other clinical stage therapies in the Inovio pipeline. The platform that produces them clearly has value. The technology is based on introducing DNA into the body, but unlike gene therapy, the DNA is not integrated into the chromosomes of cells. Instead it is in the form of a plasmid, which can exist in the cytoplasm of a cell and can generate proteins. The plasmids, once manufactured in large batches, can be introduced into humans using electroporation. Inovio has a line of patented devices, Cellectra, for administering its therapies. In addition to allowing the cells to generate proteins that invoke antibody production, Inovio is developing dMAb therapies, where the DNA in the plasmids generates monoclonal antibodies. If dMAb works it could be immensely valuable, but again, I do not want to assign any particular potential market capitalization to it yet.
Over the years, much of Inovio’s research has been funded by grants from government agencies and non-profits rather than investors. That is largely true for the COVID-19 effort. As of the end of Q3 2020, Inovio had a cash and equivalents balance of $338 million. Cash burn in Q3 was $34 million. At that rate, there should be sufficient cash over the next two years, time to get the potential FDA approval of VGX-3100. But I am never surprised when a biotechnology company raises cash by issuing new shares or by licensing a potential therapy in its pipeline.
Conclusion: Long-term buy, short-term volatility
Short term, the price swings at Inovio are anyone’s guess. The only surprise would be a return to low volatility. For long-term investors, whether today’s price is good for buying depends on expectations of future revenue, earnings, and resulting market capitalization. Based on my analysis above, I see market capitalization trending to $4 billion as Inovio moves to commercialization of VGX-3100.
As I write, the market capitalization is $1.9 billion with the shares near $11.00. So I would set a target of $20 per share, but intend to keep my shares in any case (I did sell some earlier this year at the COVID-19 bubble prices). If the shares drop more to mid-single digits for any reason other than bad VGX-3100 data, I would load up again. But while I am a long-term investor, I do have a considerable risk appetite that is probably not appropriate for investors who do not do their homework or know how to balance risk.
Disclosure: I am/we are long INO. 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.