The Potential and Peril with Inovio Pharmaceuticals, Inc.

Two recent headlines show just how controversial Inovio Pharmaceuticals (INO -5.98%) is. My colleague Cory Renauer wrote an article titled "4 Stocks I'd Avoid at All Costs" that listed Inovio. An article that I wrote with the headline "3 Biotech Stocks That Could Double in 12 Months" was published the next day, featuring (drum roll, please) ... Inovio. 

So is Inovio a horrible, rotten investment choice or a way to potentially make a lot of money?

Maybe both.

Image source: Getty Images.

Great peril

I encourage you to read Cory's article to fully understand why he's bearish about Inovio. He pointed out that the biotech has been in business for a really long time with no product on the market yet. Cory also correctly noted that Inovio finished mid-stage testing of its experimental cervical dysplasia vaccine VGX-3100 over two years ago and still hadn't begun enrolling for the planned late-stage study when the U.S. Food and Drug Administration placed a clinical hold on the study.

Cory raises a good question: Will Inovio ever actually have a commercially successful product? The truth is that it might not.

When Inovio's stock began climbing in early 2016 over pre-clinical results for its experimental Zika virus vaccine, I thought the market was crazy. Pre-clinical results simply don't mean much. Early-stage results often don't mean much, either. And in case you haven't noticed, every pipeline candidate that Inovio has in in early-stage testing with the exception of VGX-3100.

After Inovio announced its second clinical study in humans for the Zika vaccine candidate, the stock jumped yet again. I again cautioned against reading too much into the biotech's seeming success, making the case that Inovio wasn't the best Zika play at the time. What I said then is still true now: The early bird doesn't always get the worm.

Even before the FDA's clinical hold on the VGX-3100 study, I pointed out a concern about the previous mid-stage study of the experimental vaccine. Inovio used what is called a "per protocol analysis" in that phase 2 clinical trial, meaning that results were tossed out for any patient who started treatment but later violated protocol of the study. This isn't an ideal approach for conducting a study and raises concerns that the results were more favorable than they would have been if results for all patients were included. 

Because of all these factors, Inovio's stock remains very risky. There is a significant chance that none of the products in the company's pipeline will obtain regulatory approval. 

Great potential

On the other hand, I don't think Inovio's potential should be dismissed. Let's first look at VGX-3100.

Why has Inovio taken so long to move forward with its late-stage study for the experimental cervical dysplasia vaccine? The company's answer is that it needed to compile and analyze follow-up data for 52 weeks after the mid-stage study's primary endpoint was reached in the spring of 2014. Inovio then worked with the FDA on finalizing the details of the late-stage study. 

While this study is now on clinical hold, I don't think it's a show-stopper. The FDA's concern appears to be related to the the shelf-life of parts of Inovio's Cellectra 5PSP immunotherapy delivery device. Inovio might not be able to move forward as soon as it expects (in the first half of 2017), but if this is the FDA's only issue, VGX-3100 shouldn't be dead in the water.

Cellectra 5PSP. Image source: Inovio Pharmaceuticals.

To me, the biggest reason to be excited about the potential for the experimental vaccine isn't about VGX-3100 itself. Inovio's INO-3112 combines VGX-3100 and a DNA-based immune activator encoded for interleukin-12. AstraZeneca (AZN 0.40%) liked the prospects for INO-3112 enough to pay $27.5 million upfront to Inovio in 2015, with the possibility of milestone payments up to $700 million.

INO-3112 is the focus of two early-stage studies, one targeting cervical cancer and the other targeting head and neck cancer. AstraZeneca is funding both studies. Success for VGX-3100 in the late-stage study could bode well for INO-3112's chances.

While Inovio's pipeline includes several other candidates, none appear to be as important to the biotech's fortunes as the experimental Zika vaccine. It's way too early to predict that this vaccine will win regulatory approval. However, Inovio does currently have a legitimate claim to a leadership position in the race to fight Zika.  

Regardless of Inovio's slow-moving history and current FDA issues, I think the biotech's potential for big returns is real. Several Wall Street analysts agree. I also think the risk for Inovio is real. But it's this very uncertainty that makes the opportunity for huge gains possible. With higher risks comes the potential for higher rewards.   

What Inovio and whiskey have in common

I agree with Cory Renauer's view in many respects. Inovio is a stock that I wouldn't buy, because I don't like to take on too much risk in my investments. However, if you can tolerate considerable risk, Inovio just might turn out to be a big winner. Maybe.

My favorite speech of all time comes to mind. In 1952, a young Mississippi representative named Noah Sweat spoke on the floor of the state legislature about whiskey. Here's what he said:

If when you say whiskey you mean the devil's brew, the poison scourge, the bloody monster, that defiles innocence, dethrones reason, destroys the home, creates misery and poverty, yea, literally takes the bread from the mouths of little children; if you mean the evil drink that topples the Christian man and woman from the pinnacle of righteous, gracious living into the bottomless pit of degradation, and despair, and shame and helplessness, and hopelessness, then certainly I am against it.

But if when you say whiskey you mean the oil of conversation, the philosophic wine, the ale that is consumed when good fellows get together, that puts a song in their hearts and laughter on their lips, and the warm glow of contentment in their eyes; if you mean Christmas cheer; if you mean the stimulating drink that puts the spring in the old gentleman's step on a frosty, crispy morning; if you mean the drink which enables a man to magnify his joy, and his happiness, and to forget, if only for a little while, life's great tragedies, and heartaches, and sorrows; if you mean that drink, the sale of which pours into our treasuries untold millions of dollars, which are used to provide tender care for our little crippled children, our blind, our deaf, our dumb, our pitiful aged and infirm; to build highways and hospitals and schools, then certainly I am for it.

This is my stand. I will not retreat from it. I will not compromise.

Inovio is like whiskey. It's either the devil's brew or a stimulating drink that can put a spring in your step. That's my stand, and I won't retreat from it or compromise.