Shareholders of Inovio Pharmaceuticals (INO 2.81%) didn't have much to smile about in 2014 and 2015. This year, however, is a much different story. Inovio's stock has soared close to 40% year to date. A lot has been said and written about the small biotech, but what investors really need to know about Inovio can be summed up in three charts.
What's the primary reason behind Inovio's remarkable rise so far this year? Zika. The mosquito-borne virus has infected people in over 50 countries. The following map shows how much Zika is already affecting the United States, with dark blue representing the states most heavily affected.
Worries about Zika have helped turn Inovio into a stock market star. The company reported promising results for its experimental Zika virus vaccine in pre-clinical testing with mice and monkeys earlier in 2016. Those results led Inovio to become the first to initiate testing in humans in July.
Inovio's head start has generated a lot of attention. On Monday, Popular Mechanics magazine named the company's Zika vaccine as a 2016 Technology Breakthrough. The magazine stated that Inovio is "the drug company behind what looks to become the fastest vaccine ever to come to market." That's the kind of press that clinical-stage biotechs' marketing departments drool over.
A loaded pipeline
There's more to Inovio than just a Zika vaccine, though. A lot more. Just take a look at the biotech's pipeline numbers.
Although Inovio's pipeline definitely skews toward early-stage studies, the company claims a pretty impressive development program for a small-cap biotech. Two pipeline candidates warrant special notice.
VGX-3100 begins phase 3 testing later this year. Phase 2 results for the cervical dysplasia vaccine were encouraging. If approved, VGX-3100 could attain peak annual sales of up to $500 million.
If VGX-3100 proves to be successful, that's a good omen for another Inovio candidate, INO-3112. The immunotherapy combines VGX-3100 and DNA-based immune activator encoded for interleukin 12 (IL-12). Inovio and MedImmune, a division of AstraZeneca (AZN 2.65%), are partnering on INO-3112. Two of the phase 1 cancer studies shown in the preceding chart feature the vaccine, one targeting cervical cancer and another targeting head and neck cancer.
One thing about Inovio that could concern investors is the company's cash position. At first glance, the $134.5 million in cash, cash equivalents, and short-term investments Inovio reported as of June 30 looks pretty good. But note the trend shown in the following chart.
This chart shows the last two years of Inovio's quarterly cash positions. As of March 31, 2015, the company had a cash stockpile of $81 million. Soon thereafter, Inovio sold more shares in a public offering that netted just over $82 million. That influx of cash has kept the company in solid shape since then, and the current cash balance stands at roughly $130 million.
However, Inovio is currently burning through nearly $12 million each quarter. At this rate, the company could be looking to raise more cash sometime in 2017. If Inovio opts to issue more shares, it would mean dilution for existing shares -- and the stock price would probably suffer as a result.
Things could be worse, though. AstraZeneca's MedImmune is funding all development costs for INO-3112. Other corporate and government partners are funding all of the other clinical studies in Inovio's pipeline except for the phase 3 VGX-3100 trial and three early stage cancer studies. If Inovio had to foot the bill all on its own, the company would be burning through a lot more cash.
Two out of the three charts that sum up Inovio are unequivocally good news for the company. The spread of Zika is concerning for public health officials, but it drives enthusiasm for Inovio's stock. Inovio's pipeline might be stacked with phase 1 candidates, but there's a lot of potential. Even the one chart that doesn't look as great for the company isn't horrible. Nearly every clinical-stage biotech has to undertake additional public offerings of stock to provide more cash to fund development.
Inovio isn't without risk. It's possible that the company could lose its status as the leader in the race for a Zika vaccine. There could be issues uncovered in phase 3 testing of VGX-3100. However, I remain cautiously optimistic about Inovio's prospects. My hunch is that shareholders will keep on smiling.