Are Inovio and Rockwell Medical In for a Bad Year?

The performance of a health care stock during the first week of trading is sometimes a good indicator of how it will perform for the year. I believe this pattern might be the result of bigger players positioning themselves for the year by dumping stocks they think will under-perform.

As such, the first week of trading might be indicative of the market's overall confidence in a given stock. Taking a look at the broader picture, it's interesting that some health-care stocks lifted off last week, while others sank for mysterious reasons. So with that in mind, here is my take on why Inovio Pharmaceuticals (NASDAQ: INO  ) and Rockwell Medical Technologies (NASDAQ: RMTI  ) were the biggest laggards in health-care during the first week of trading.

Is Inovio too risky?
Shares of the DNA vaccine maker Inovio fell more than 15% last week on unusually high volume, making it one of the worst performers in the sector. Drops like that are usually linked to a material event, yet nothing came across the wires that should cause investors to worry.

Instead, this downturn is only the latest wild swing in the company's share price. Over the past year, Inovio has risen roughly 380%, but has done so in nauseating fashion. In the past six months, investors have seen Inovio shares break through $3 three different times, only to see share price fall precipitously afterwards.

So my take is that this recent drop is little more than a continuation of this year-long trading pattern. Looking ahead, Inovio does have a mid-stage trial readout for its human papillomarvirus, or HPV, vaccine VGX-3100 that could help bring some stability to the company's shares. 

What's interesting is that Inovio's peer in the vaccine space, Novavax (NASDAQ: NVAX  ) is rapidly closing in on a $1 billion market cap figure and has been spared the wild swings in share price, even though it's at a similar developmental stage.

While Novavax is receiving payments from its BARDA contract that is clearly helping to drive share price appreciation, I believe the primary difference between the two companies is the uncertainty surrounding Inovio's vaccine platform. Novavax's nanoparticle platform has been validated through the approval of GlaxoSmithKline's HPV vaccine Cervarix, as well as the company's own successful mid-stage trials.

By contrast, Inovio's DNA-based approach is marked by a history of clinical failures, and the company is fighting to reverse this trend. So until Inovio validates their approach, you should expect more wild swings like last week.

Has the market lost confidence in Rockwell Medical?
Rockwell Medical was looking to have a banner year in 2013 after its shares rose nearly 400% in a few months' time. However, the market apparently lost confidence in the company's dialysis-induced iron deficiency drug, triferic, after Brean Capital issued a note saying the drug won't be approved in 2014. Namely, Brean's analyst on the matter, Jonathan Aschoff, questioned Rockwell's trial design, as well as the drug's effectiveness.

Even so, triferic did meet both its primary and secondary endpoints in late-stage trials, which will be used to support a New Drug Application with the Food and Drug Administration early this year. I think it's also important to understand that there is always debate over a drug's chances with the FDA. Sometimes the naysayers are right, sometimes they are way off base. Time will tell. 

Looking ahead, Rockwell Medical will be in trouble if triferic isn't approved, however. With only about $30 million in cash remaining, and a near stalemate between revenue and costs, Rockwell needs another revenue driver or shares are likely to head south in a hurry. Given that a regulatory decision isn't expected until year's end, you might want to wait on the sidelines for now.

Foolish outlook
I believe the negative view of Inovio and Rockwell in the first week of trading is a bellwether of sorts for each company. In Inovio's case, the market is unconvinced that the company has solved the riddle of DNA vaccines, and speculators have started to jump ship. Rockwell, on the other hand, is in for a rough year ahead of its regulatory review for triferic. Last week's drop might be a sign of things to come.

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Read/Post Comments (6) | Recommend This Article (7)

Comments from our Foolish Readers

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  • Report this Comment On January 06, 2014, at 7:44 PM, Skiidog wrote:

    Another hit piece. The stock went up more last 2 weeks than it went down. Keep spouting the 30 years of failures argument. Inovio hasn't had any clinical failures since Dr. Kim took over. The stock dropped from pure stock manipulation by Adam F. Every time the stock price surges he conveniently releases an article bashing the stock and spouting 30 years of failure without mention of the peer reviewed, best in class studies that have been released since 2009. Not one mention of the awards that Dr. Kim and INO have received. Not one mention of the collaboration INO has with high ranking organizations. No mention of the stock ownership by the board of directors. No mention that they increased their share counts in the open market last year.

    If someone wants to know why the stock went down simply youtube "stock manipulation" and watch Jim Cramer confess about bashing a stock that runs too fast too quick so a hedge fund can get in at a lower price. Please do a little more research before you write an article about INO. There is so much more about this company that you could have focused on.

  • Report this Comment On January 07, 2014, at 4:50 AM, studham wrote:

    No, it will not be a bad year for INO. 'Drops like that are usually linked to a material event' like hedge fund and MM manipulating the market by having their 'friends' write an article with no basis to provide FUD… Yet nothing came across the wires that should cause investors to worry…. Except 3 negative articles by the fool, SA and the street.

    In the past six months, investors have seen Inovio shares break through $3 only once (not the three times you mention, wouldn't that be a triple top?)… only to see share price fall back in line with the major trend lines to form a perfect pennant. Where at the end of December SPDR bought over 7MM shares (in the last week).

    I agree that this recent drop is little more than a continuation of this year-long MM manipulation trading pattern (connect the dots: lower trend line 7/9, 8/20, 10/31, 11/13, 12/11). There will be a major run up around the summer VGX-3100 announcement and now is the time to buy hence the bashing begins. And as we all can see, has plenty of room to come down to play within the trend line…

    What's interesting is that you bring up Novavax who only has 4 trial drugs compared to INO's 15… and they did have WILD swings in price… from 2.80-1.70, 2.70-2.26, 3.40-2.70 and the last one of 2.70-5.40. I also find it odd that you bring up the BARDA payments but not the recent investment from Roche to INO.

    Your 30 years of failure comment is just a blatant ill informed statement. It makes me want to cancel my subscription as it proves that there is little to no research done at the fool… Inovio hasn't had any clinical failures since Dr. Kim merged VGX with Inovio back in 2009. In fact they have had smashing successes with 100% success rate in their ebola and h7n9 trials and their HIV vaccine achieves seven-fold increase (7% to 52%) in response rate of CD8 T-cells when delivered with electroporation.

    So until the MM have had their fill, due to the large float, keep spreading your FUD so we can expect more wild swings like last week.

  • Report this Comment On January 07, 2014, at 10:11 AM, jack0623 wrote:

    Funny how Fool has been pumping this stock and then they create a headline line this to send it further down. I always thought Fool was nothing more than a pump and dump organization. This just proves it!

  • Report this Comment On January 07, 2014, at 10:35 AM, yahoo123 wrote:

    George please study more ... About ino.

  • Report this Comment On January 08, 2014, at 1:40 AM, 987654321 wrote:

    what a joke this is about INO... i guess Roche knows less than this author... ha!

  • Report this Comment On January 08, 2014, at 11:49 AM, aldehyde wrote:

    hey budwell you and af living together you sound alike how much you getting paid for hit pieces you are laughable

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