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Better Buy: Inovio Pharmaceuticals Inc. vs. Novavax Inc.

By Keith Speights - May 3, 2016 at 3:25PM

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They're both clinical-stage vaccine developers with exciting lead candidates -- but which is the better choice for investors?

Image Source: Inovio Pharmaceuticals

Similarities only go so far. Inovio Pharmaceuticals (INO 9.25%) and Novavax (NVAX 11.12%) illustrate the point. Both are clinical-stage biotechs with hopes to win regulatory approval for vaccines in the relatively near future. Both have other products in their pipelines -- all of them still early or mid-stage candidates. Both are developing Ebola virus vaccines. 

But while Inovio and Novavax have some things in common, their stocks have taken dramatically different courses recently. So far this year, Inovio's shares are up more than 60%. Meanwhile, Novavax's stock is down almost 40%. Does Inovio's performance point to its stock being the better buy? Or does Novavax's slump now make it the more attractive bargain? Here's how the two biotech stocks stack up.

Lead candidates
Inovio's lead drug candidate is cervical dysplasia vaccine VGX-3100. The biotech plans to advance VGX-3100 to a pivotal phase 3 clinical trial this year. If all goes well, it's estimated that the vaccine could ultimately generate over $500 million per year.  

Novavax has a couple of phase 3 studies already underway for its lead product candidate, a vaccine for respiratory syncytial virus (RSV). One of those studies focuses on preventing RSV in older adults, while the other study targets infants. Novavax also has a phase 1 study in progress for its RSV-F vaccine for pediatric patients between the ages of 6 months and 5 years old. Some analysts estimate the vaccine could reach peak annual sales of more than $1 billion in the U.S. alone if approved.

Both Inovio and Novavax could have big winners on their hands. Both companies' vaccines showed great promise in phase 2 studies. However, both biotechs have also faced some questions about those mid-stage studies.

For Inovio, the questions center around the methodology it took for its phase 2 study of VGX-3100. Most clinical researchers prefer to see data reported under the "intent-to-treat" approach, where all patients' results are included in the analysis. Inovio chose to go with a "per protocol analysis" instead. Under that approach, data from any patients who violate the protocol of the study are thrown out, which can bias the study's results. 

The questions facing Novavax stem from its phase 2 study designed to show how well vaccinating pregnant women worked at protecting their newborns from RSV. While the results were positive, the study only showed that antibodies against RSV from immunized mothers were passed to infants; they did not demonstrate that the vaccine actually protected infants from RSV. 

Rest of the pipeline
Inovio claims a solid pipeline beyond VGX-3100. Heading up the list is INO-3112, a combination of VGX-3100 plus DNA-based immune activator encoded for interleukin 12 (IL-12). INO-3112 is currently in two phase 1 studies, one targeting cervical cancer and another focusing on head and neck cancer.

In addition, Inovio has 10 other early-stage candidates in its pipeline. All are vaccines targeting different viruses, including hepatitis B, hepatitis C, HIV, and Ebola. Inovio also has a pre-clinical study in progress for an experimental vaccine for the Zika virus. 

Novavax counts two flu vaccines in its pipeline. In July 2015, the company reported positive results from a phase 2 study of its quadrivalent seasonal influenza virus-like particle (VLP) vaccine. Novavax's other pandemic flu vaccine is in phase 2 clinical testing.

Like Inovio, Novavax is developing an Ebola vaccine that is in a phase 1 clinical trial. Novavax also has one pre-clinical study in progress for a combination respiratory vaccine for flu and RSV. The company hopes to advance this combo vaccine to phase 1.  

Cash position
At the end of 2015, Inovio had $163 million in cash, cash equivalents, and short-term investments. The company had no debt. These conditions mean Inovio is in good shape to fund operations until it gets ready to launch VGX-3100 (assuming the vaccine wins regulatory approval).

Inovio also has a couple of big partners, most notably MedImmune, a division of AstraZeneca. MedImmune is funding the development of INO-3112, which is helping Inovio stretch out its cash even more. In addition, Inovio stands to gain significant milestone payments for INO-3112. 

Novavax's cash position looks good as well. The company reported $230.7 million in cash, cash equivalents, and marketable securities at the end of 2015. This position was bolstered considerably by an issuance of convertible senior notes earlier this year. Although Novavax doesn't have any partners with deep pockets right now, the biotech is looking for a partner to help market its RSV vaccine outside of the U.S. 

Picking a winner
I think both stocks could be winners for investors. If I had to choose only one, though, I'd go with Inovio.

The decision comes down mainly to their pipelines. If we were just comparing lead candidates, Novavax would get the nod. However, the potential for Inovio's INO-3112 and the big wildcard of its Zika virus vaccine can't be ignored.

Also, despite Novavax's dismal stock performance recently, the company is still valued at more than $1.4 billion. Inovio's impressive stock run this year still hasn't pushed the company's valuation above $800 million. If VGX-3100 wins approval or substantial progress is achieved on the Zika vaccine, this stock should be worth a lot more than it is now. 

Both Inovio and Novavax certainly come with their fair share of risk, but I like their prospects. In particular, I think Inovio could do very well over the long run. 


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Stocks Mentioned

Novavax, Inc. Stock Quote
Novavax, Inc.
$57.15 (11.12%) $5.72
Inovio Pharmaceuticals, Inc. Stock Quote
Inovio Pharmaceuticals, Inc.
$1.89 (9.25%) $0.16

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