What happened

Shares of Inovio Pharmaceuticals (NASDAQ:INO) were crashing 27.4% as of 10:17 a.m. EDT on Friday. The big decline came after the company announced that the U.S. Department of Defense is discontinuing funding of the phase 3 study evaluating its COVID-19 vaccine candidate INO-4800.

So what

The loss of funding for the phase 3 study of INO-4800 presents a huge setback for Inovio, so today's major sell-off of the biotech stock after this news isn't surprising. 

Chart trending down with stock prices and coronavirus in the background

Image source: Getty Images.

Why did the Defense Department pull the plug on funding the late-stage study? Inovio said that the department's Joint Program Executive Office for Chemical, Biological, Radiological and Nuclear Defense (JPEO-CBRND) told the company: "The decision results from the changing environment of COVID-19 with the rapid deployment of vaccines. This decision is not a reflection of the awardee or product, rather a fast-moving environment associated with the former Operation Warp Speed on decisions related to future products."

That kind of sounds like the old line used when couples break up: "It's not you, it's me." However, in this case, it makes sense.

The U.S. already has supply deals in place with Pfizer, Moderna, and Johnson & Johnson for more than enough doses to fully vaccinate every American. COVID-19 vaccines from AstraZeneca and Novavax could soon win Emergency Use Authorizations, too. Investing in testing another vaccine simply isn't a smart use of government money at this point.

Now what

The Defense Department will still fund the ongoing phase 2 study of INO-4800. Inovio now plans to conduct its late-stage study of the vaccine primarily outside the U.S. It also is evaluating another candidate, INO-4802, that targets coronavirus variants.

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.