Inovio Pharmaceuticals (INO 0.36%) and Novavax (NVAX 2.31%) were hardly household names at the beginning of 2020. But due to their efforts to develop vaccines against the novel coronavirus, both biotechs have grabbed headlines over the past several months. In turn, astute investors looking to profit from the market opportunity have drastically bid up shares of both companies.

Novavax's stock is the better performing of the duo year to date. The stock is up about 2,510%, while Inovio's share price is up 244.8%. That's a significant difference in growth given that Inovio's market cap started the year at $334.5 million and Novavax started at $128.8 million. Investors should note that it is far easier for much smaller-cap companies' shares to skyrocket. But both of these companies started relatively small at the beginning of 2020, and they've earned wildly different stock price growth. (By comparison, the S&P 500 has recouped its losses and climbed about 8.54% since Jan. 1.) With the race to launch a coronavirus vaccine on the market intensifying, the next four months will be critical for Inovio and Novavax. Let's investigate their business activities over the past few months and decide which is the most likely to outpace the other moving forward.

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The case for Inovio Pharmaceuticals 

Inovio started a phase 1 clinical trial for its experimental vaccine, INO-4800, in April, and reported primary results from the study on Jun. 30. While this initial data failed to impress investors, Inovio gave more details regarding the phase 1 study in its latest quarterly update for the period ended Jun. 30. The company reported that all 38 participants developed neutralizing antibodies  and demonstrated T cell responses. Antibodies are proteins that defend healthy cells from pathogens, while T cells are white blood cells that bind to and instruct virus-infected cells to self-destruct.

The most common adverse reaction to the vaccine was redness on the skin where the dose was administered, a response that warranted the lowest level of severity on the candidate's safety rating. Overall, Inovio's INO-4800 results were encouraging, and the company plans on starting a phase 2/3 clinical trial this month. The biotech hopes it will be able to produce 100 million doses of INO-4800 in 2021. In addition to its COVID-19 program, Inovio has many other pipeline candidates, including vaccine candidate VGX-3100. 

Hand holding a chess piece and knocking down another chess piece.

Image source: Getty Images.

VGX-3100 is being developed as a treatment for various human papillomavirus (HPV)-associated diseases, including cervical dysplasia, a precancerous condition. Inovio is currently running a phase 3 clinical trial for VGX-3100 as a treatment for cervical dysplasia and plans to release results in its fourth quarter. The annual incidence of cervical dysplasia is about 195,000 people in the United States and 233,000 people across Europe. There are no approved medicines for the disease. If VGX-3100 and INO-4800 both earn regulatory approval, each has the potential to be a major growth driver for Inovio. 

The case for Novavax 

Novavax started a phase 1/2 clinical trial for its potential COVID-19 vaccine, NVX-CoV2373, in late May, and reported positive results from the phase 1 portion of the trial on Aug. 4. This vaccine candidate also has a strong safety profile and produced neutralizing antibodies in all 131 participants. The company initiated the phase 2 portion of the study on Aug. 24, which will enroll 1,500 participants and test the safety and immunogenicity (the ability to trigger an immune response in the body) of NVX-CoV2373. Novavax expects preliminary results from the trial in the fourth quarter.

Beyond its COVID-19 program, Novavax's most promising candidate is NanoFlu, a potential flu vaccine for adults aged 65 and above. In March, Novavax reported positive results from a phase 3 clinical trial for this vaccine. The trial pitted NanoFlu against Fluzone HD, one of the leading flu vaccines for people over 65 that is marketed by Sanofi (SNY -0.94%). According to Novavax, NanoFlu demonstrated equal if not superior immunogenicity compared to Fluzone. NanoFlu also had a safety profile comparable to that of Fluzone. 

Novavax plans on submitting its flu vaccine candidate to the U.S. Food and Drug Administration (FDA) under an accelerated approval pathway, but it isn't clear when the company will do so. However, if NanoFlu hits the market, which looks promising based on its clinical trial results, Novavax estimates that the market opportunity could be greater than $4 billion across the U.S and several European countries. This creates an exciting opportunity for Novavax, which currently does not generate any revenue.

The verdict

Between these two companies, I believe that Novavax is the better investment option. Here are two reasons why: First, while neither company is profitable, Novavax has secured more funding in the race to develop a vaccine for COVID-19. In total, Novavax has received about $2 billion from various third parties, including the Department of Defense (DoD) and the Coalition for Epidemic Preparedness Innovations (CEPI). The biotech also signed a deal to supply the U.K. government with 60 million doses of its vaccine.Meanwhile, Inovio has received roughly $110 million in funding in its quest to market INO-4800.

Second, Novavax's NanoFlu has already proved successful in a phase 3 clinical trial, and it looks likely to earn regulatory approval. Although successful trials are no guarantee of market entry, its progress means that Novavax is closer to launching a product on the market -- one that could generate billions in sales -- than Inovio is. For those reasons, I believe Novavax is the better biotech buy today.