Image source: Getty Images.

What happened

After regulators notified DNA vaccine maker Inovio Pharmaceuticals (NASDAQ:INO) that they are placing its lead compound on clinical hold, shares fell by 13% as of 11:15 a.m. EDT on Monday.

So what

FDA officials told Inovio that they have ordered a clinical hold on the company's proposed phase 3 clinical trial for VGX-3100. This study has not yet been initiated, but Inovio had previously announced its intentions to start the trial before the end of the year.

While Inovio has not yet received a formal letter from the agency, it stated that initial contact with the FDA showed that this hold is related to the shelf life of its Cellectra 5PSP immunotherapy delivery device. The company expects to have an official letter in hand with more detailed information within 30 days.

Inovio believes that this issue will be resolved before the end of the year. However, it specified that clinical development will not resume until the first half of 2017.

News of the delay is causing some traders to bail on the company's stock.

Now what

VGX-3100 is the company's most advanced compound, so it is no surprise that the markets are reacting negatively to the news. This drug is being studied as a potential vaccine for cervical dysplasia, a precancerous condition caused by human papillomavirus, or HPV, and market watchers believe that it could eventually generate annual sales of more than $500 million if it wins approval. 

While the delay doesn't appear to be related to the vaccine's clinical performance, this hold raises some financial concerns that investors need to be aware of. After all, Inovio is burning through roughly $12 million each quarter. While the company had more than $134 million in cash on its balance sheet as of the end of June, this delay increases the risk that it will have to raise additional capital through a secondary offering to keep its doors open.

That's especially true when you consider that Inovio's spending is likely to ramp up markedly from here. While Inovio has partners, like AstraZeneca, that are helping to fund some the costs of its pipeline, the company is solely responsible for funding the development of VGX-3100. That suggests that spending will surge if this phase 3 trial once again if it gets the green light.

While it is possible that this clinical hold will not be a long-term problem, running into issues with the FDA is never good. For that reason, I suggest that potential shareholders approach Inovio's stock with caution.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.