Even as the market plunged due to the economic fallout from the coronavirus pandemic, some companies managed to perform well. One of these was Inovio Pharmaceuticals (NASDAQ:INO), a biotech whose efforts to develop a vaccine for the novel coronavirus did not go unnoticed. Inovio famously claimed to have created its vaccine, INO-4800, in a mere three hours on Jan. 10, after Chinese researchers publicly released the genetic sequence of the SARS-CoV-2 virus that causes COVID-19.

Inovio's stock soared by 860.3% between then and June 29, but alas, what goes up must come down, and the company's shares have been on a downward spiral since June 30. Sure, Inovio is still up by an impressive 197.9% year to date -- compared to gains of 6.9% for the S&P 500. And given its recent woes, it might be wise for investors to cash in on some profits while they still can. However, if Inovio can recover and start climbing again -- perhaps even eclipsing its early 2020 gains -- it might be even wiser to hold on to its shares. Which of these scenarios is more likely? 

Woman with question marks hovering above her head.

Image source: Getty Images.

Here's why Inovio's stock has been dropping

Several factors have contributed to Inovio's poor performance on the market over the past two months. Let's consider three of them. First, investors were not impressed with the data the company released on June 30 from its phase 1 clinical trial for INO-4800. 

The company did claim that 94% of the trial's participants demonstrated overall immune responses six weeks after receiving the vaccine, and that INO-4800 did not cause any severe adverse reactions. But Inovio initially did not reveal how many of the trial's participants produced neutralizing antibodies (proteins that defend healthy cells from pathogens). 

The lack of details regarding neutralizing antibodies made it hard to compare the efficacy of INO-4800 with other COVID-19 vaccine candidates, and this led to investors selling off Inovio's stock. Second, other companies have been making steady progress in their quests to develop vaccines for COVID-19. Several have already started phase 3 clinical trials, including Moderna, Pfizer, and AstraZeneca.

Of course, the clinical trial process is uncertain. Even though Inovio seems to be trailing some of its peers in this race, the company could, in principle, end up leapfrogging all of them. While this scenario is possible, investors don't seem to think it is probable. That's another reason why Inovio's stock has underperformed since late June, compared to the other perceived leaders in the COVID-19 vaccine hunt. 

INO Chart

INO data by YCharts

Finally, Inovio's peers have landed agreements to supply governments worldwide with millions of doses of their vaccines, pending regulatory approval. The U.S. government awarded Novavax $1.6 billion as part of Operation Warp Speed to carry out the development of the company's candidate and manufacture 100 million doses of the vaccine as early as late 2020.

Moderna, AstraZeneca, and Pfizer all signed similar deals with the U.S. government, and the latter also has agreements in place with the U.K., Japan, and Canada. Meanwhile, Inovio has yet to pen such a contract, which indicates that these governments have less confidence in the company's efforts. Considering Inovio's valuation is tied to its COVID-19 program, that does not bode well for the company. 

Potential catalysts on the way

On Aug. 10, Inovio announced its financial results for the second quarter that ended on June 30. The company took this opportunity to release more details regarding INO-4800's phase 1 clinical trial. Inovio revealed that 100% of the trial's participants demonstrated neutralizing antibodies and T-cell responses. T cells are white blood cells that bind to and instruct virus-infected cells to self-destruct.

While the market's reaction to Inovio's quarterly update was basically a shrug, the company expects to begin a phase 2/3 clinical trial for its candidate sometime this month. If that happens, investors could take notice, and Inovio's stock could get a lift. Further, the biotech is currently developing a medicine called VGX-3100 as a treatment for a human papillomavirus (HPV)-associated precancerous condition called cervical dysplasia (among other diseases).

VGX-3100 is undergoing a phase 3 clinical trial, and Inovio expects to release initial data from this study in the fourth quarter. If the results are encouraging, the company's stock could soar. After all, the annual incidence of cervical dysplasia stands at 195,000 people in the U.S and 233,000 people in Europe, according to the company's estimates. And considering there are no approved treatments for this condition, VGX-3100 could become a cash cow for Inovio.

With these two catalysts on the way, Inovio's shareholders still have something to look forward to. 

Will Inovio turn things around?

Inovio will likely see better days ahead. The market has been volatile all year, and it wouldn't surprise me if the biotech manages to bounce back, at least momentarily, thanks to some good news regarding its COVID-19 program or VGX-3100. However, Inovio's stock is unlikely to match (or exceed) the highs it reached earlier this year anytime soon, and the company is too risky for most investors, in my view.

Even if Inovio's experimental vaccine for the novel coronavirus goes on to earn regulatory approval, other biotechs seem in a much better position to profit from this opportunity. Investors interested in COVID-19 vaccine makers would be better off investing in Novavax, Pfizer, or AstraZeneca. And while Inovio's potential treatment for cervical dysplasia seems promising, it will be at least a year before the company can launch this product on the market, if it earns regulatory approval.

Aggressive investors may want to consider initiating a small position in this biotech stock, but for risk-averse investors, it'd be best to watch the show unfold from a safe distance.