Inovio Pharmaceuticals (NASDAQ:INO) was already a highly promising small-cap biotech stock before the coronavirus pandemic began. Since then, however, the company has quickly become among the most exciting -- if not volatile -- vaccine developers on the market.

The company's COVID-19 vaccine candidate, INO-4800, was one of the first vaccines to begin human clinical trials, granting it a headstart over other pharmaceutical giants with candidates starting testing later this year. However, Inovio also has a number of other things going for it. Does its coronavirus work make Inovio an automatic buy for investors? Let's do dive into the research and find out.

Person with gloves and a face mask holding a coronavirus vaccine dose.

Image source: Getty Images.

The coronavirus opportunity

Inovio's COVID-19 vaccine, INO-4800, definitely has the potential to make the company a fortune. More specifically, INO-4800 is a DNA-based vaccine, meaning that it uses a specific gene from a virus to stimulate the body's immune response. Although Inovio isn't the only company to be developing a DNA-based vaccine, it's ahead of the competition in terms of clinical progress. Inovio was one of the first few companies to announce it was working on a COVID-19 vaccine in January and it began clinical testing in April.

While it is hard to estimate how many people around the world would need a vaccine, it wouldn't be surprising if hundreds of millions -- if not billions -- of people end up getting vaccinated. This is especially true since some of the larger COVID-19 vaccine developers are planning to scale up production into the hundreds of millions of doses next year should their clinical trials succeed. That's a big deal for Inovio, considering that it's still a relatively small company with essentially nonexistent revenue.

Beyond its headstart, there are other reasons to be optimistic about INO-4800's chances. The main one is that the company has a history of developing vaccines for other types of coronaviruses. The most notable is INO-4700, a phase 2 MERS (Middle Eastern Respiratory Syndrome) vaccine that's already shown encouraging results.

The other side of the story

Despite this, some industry experts aren't as enthusiastic as you might expect. In March, RBC analyst Gregory Renza downgraded Inovio's stock from a sector outperform to a sector perform, saying that INO-4800 won't become a long-term revenue source.

The biggest problem for Inovio is its production capacity. Being a small biotech, the company doesn't have the same manufacturing strength as larger pharmaceutical giants working on COVID-19 vaccines. Johnson & Johnson said it plans to produce up to 900 million doses for its own vaccine by April 2021, with the company enlisting the aid of Emergent BioSolutions and Catalent to ramp up its manufacturing capabilities should the vaccine's clinical trials prove successful. GlaxoSmithKline and Sanofi said their joint COVID-19 vaccine program could produce around 600 million doses next year.

By comparison, Inovio has said it will only be able to produce one million doses by the end of the year. While that's not insignificant for this small-cap biotech company, it's not enough to capture a majority share of the COVID-19 vaccine market. When one considers that there are already over 70 separate COVID-19 vaccine candidates in development, there will be an incredible amount of competition, and it's uncertain whether Inovio's clinical headstart will be enough to make up for its smaller production capacity.

Scientist dripping a liquid into a beaker.

Image source: Getty Images.

What about its other treatments?

Inovio has 12 separate vaccine candidates currently under development, with the majority still in early-stage clinical trials. At the same time, Inovio is developing its own delivery platforms that can administer these vaccines. This includes the company's new hand-held, battery-powered Cellectra smart device, which Inovio expects to scale up production by the end of the year. 

Putting aside INO-4800, Inovio's next most promising vaccine is VGX-3100, which treats pre-cancerous cells (lesions) found in certain strains of human papillomavirus (HPV). HPV frequently progresses to cervical cancer in patients, which requires chemotherapy and invasive surgeries. If VGX-3100 works, it would be the first treatment of its kind to treat HPV infection, giving women the option of preventing cervical cancer without taking more drastic measures.

VGX-3100 is going through four separate clinical trials, all targeting a specific type of lesion known as high-grade squamous intraepithelial lesion (HSIL), including vulvar, anal, and cervical HSILs. Clinical results so far have been encouraging, with an earlier phase 2 trial showing a substantial reduction in HPV-caused lesions in patients compared to the placebo group.

Other treatments include INO-5410, which treats a rare type of brain cancer known as glioblastoma currently in phase 2 trials. INO-5151 is a prostate cancer drug undergoing phase 2 trials, while MEDI0457 is a phase 2 head and neck cancer treatment. This last one is particularly noteworthy, considering it's currently being tested together with AstraZeneca's Imfinzi, another immunotherapy drug. The partnership gives Inovio the option of earning up to $700 million in milestone payments for MEDI0457 should it become a success, on top of double-digit royalties from ongoing sales for the drug.

Of course, these three treatments are still in phase 2 trials, and it will still a number of years before their manufacturers are ready to seek regulatory approval if everything goes well. Regardless, Inovio's non-COVID-19-related lineup looks pretty solid, and all things considered, has become somewhat overshadowed by its COVID-19 vaccine.

Understanding the financials

Looking beyond the current excitement, Inovio remains a clinical-stage biotech stock. As such, investors shouldn't be too surprised to see that it barely has revenues and operates at a net loss while it develops its various candidates. The real question is whether there's enough cash on hand to finance its operations until a drug is ready for regulatory approval.

Investors weren't happy when Inovio posted its fourth-quarter financial results in March, with shares tumbling as much as 28% in light of the news. While some figures were worse from Q4 2018, the big picture isn't that bad, especially compared to other small-cap biotech stocks.

Name Market cap Q4 2019 revenue Q4 2018 revenue Q4 2019 net loss Q4 2018 net loss Q4 2019 cash Q4 2018 cash
Inovio Pharmaceuticals $1.8 billion $279,000 $2.5 million ($37.7 million) ($33.0 million) $89.5 million $81.2 million

Data source: Ycharts, Inovio Pharmaceuticals.

Net Q4 revenue came in at $279,000, which is quite a bit less than the $2.5 million reported in Q4 2018. At the same time, net losses for the quarter came in at $37.7 million, a bit worse than last year's loss of $33.0 million. Cash, cash equivalents, and short-term investments came in at $89.5 million in Q4 2019, relatively unchanged from last year's $81.2 million.

While having less than $100 million in cash with quarterly losses of $37.7 million might seem precarious, Inovio has received a number of research grants for its COVID-19 work. The Bill and Melinda Gates Foundation donated $5 million to Inovio in March, while the Coalition of Epidemic Preparedness Innovations (CEPI) donated an extra $6.9 million earlier this month. Overall, I'm not worried at all about Inovio running out of cash anytime soon.

Does this make Inovio a buy?

It's easy to get caught up in the excitement surrounding coronavirus-related stocks, and Inovio has certainly been one of the most volatile stocks over the past couple of months. But even when you factor out the company's COVID-19 vaccine, Inovio has quite a bit going for it. Its HPV treatment could be a major blockbuster, while its partnership with AstraZeneca could bring in hundreds of millions of dollars in cash should its head and neck cancer drug prove successful.

There are many ways for Inovio to hit a home run in the years to come, and that's a very good thing for a small biotech stock that just needs a single lucky break to become a success. However, Inovio has also been the target of short-sellers in the past and will likely continue to be a favorite among short-selling firms. For long-term investors, this means that Inovio's stock is likely to be quite volatile moving forward. We've already seen significant price swings in both directions over the past couple of months, which can be stressful for some investors. 

Overall, Inovio seems a little too risky and volatile right now to recommend to most investors. However, if this warning still doesn't put you off -- and you're comfortable with making high-risk, high-reward investments -- getting started now with a small position has the potential to generate significant returns in the future.