Earnings releases for clinical-stage biotech stocks often prove to be non-events. However, that wasn't the case last week with Inovio Pharmaceuticals (NASDAQ:INO), which reported its second-quarter results before the opening bell on Monday, Aug. 10. Shares finished higher by 26% the day of the report and ended the week up 14% overall.
Inovio Pharmaceuticals, by the numbers
For the quarter, Inovio generated $5.29 million in revenue, a 39% increase from the $3.8 million in revenue it reported in Q2 2014. The primary driver of the increase was a $3 million milestone payment received from collaborative partner Roche, which was triggered by the initiation of a phase 1 trial for INO-1800, Inovio's DNA immunotherapy designed to treat hepatitis B infections.
In terms of Inovio's bottom line, the company reported a loss of $6.2 million, or $0.09 per share, a remarkable decline from the $10.7 million loss ($0.26 per share) that it produced in the year-ago quarter. Comparatively, Inovio's loss was $0.03 per share narrower than Wall Street had been expecting.
Any time a clinical-stage company can report a narrow-than-expected loss, it's generally good news, as it implies lower cash burn. Since it could be years before Inovio generates recurring revenue from the sale of its DNA-based immunotherapies, any loss reduction should be considered welcome news for shareholders.
But in reality, Inovio's actual top- and bottom-line results were a relative non-event. Instead, Wall Street and investors focused on these three aspects interspersed throughout Inovio's Q2 report.
1. Inovio lands another big-time partner
Make no mistake about it -- the biggest development of Inovio's Q2 report was the announcement that it had landed another Big Pharma collaborative partner.
According to the press release, Inovio will receive $27.5 million in an upfront payment from MedImmune, a subsidiary of AstraZeneca (NYSE:AZN), with the potential to earn future development and commercial milestones totaling up to $700 million for INO-3112. Inovio could also be in line to receive double-digit royalties based on sales of INO-3112.
INO-3112 is a DNA-based immunotherapy product targeted at cancers caused by human papillomavirus, or HPV, type 16 and 18. It combines the company's lead product, VGX-3100, with a DNA-based immune activator encoded for IL-12 (thus INO-3112). AstraZeneca intends to study INO-3112 with novel immunotherapies within its own pipeline for the treatment of HPV-driven cancers, since "emerging evidence suggests that the benefits from immuno-oncology molecules... can be enhanced when they are used in combination with cancer vaccines that generate tumor-specific T-cells."
In addition to their collaboration with INO-3112, the pair will work on two other DNA-based vaccine products to which AstraZeneca would retain the commercial rights to develop and commercialize.
Deals of this caliber are critical for Inovio, since it needs cash to undertake its clinical studies and conduct research. Even more so, nabbing big-name partners begins to push the needle toward validating Inovio's drug-development platform as worth watching.
2. Inovio makes a serious move beyond cancer
Although Inovio's promise revolves around its DNA-based cancer immunotherapies, investors shouldn't ignore its more than half-dozen ongoing infectious-disease studies. These involve experimental treatments for hepatitis B and C, as well as various HIV treatments, an influenza vaccine, and an Ebola vaccine.
However, what really took the cake in Q2 were two vaccine-based announcements.
First, Inovio announced that it and collaborative partner GeneOne Life Sciences were moving their Middle East Respiratory Syndrome, or MERS, vaccine into phase 1 studies. It's worth noting that Gene One is financing and conducting the study, with results expected by the end of the year. In return, Gene One will receive "milestone-based co-ownership of this immunotherapy." Within recent months an outbreak of MERS in South Korea has had the world on edge, so any research into MERS, which is deadly about 40% of the time and has no cure, would be welcome.
Secondly, Inovio reminded investors that it may net an award of up to $45 million from the Defense Advanced Research Projects Agency for developing multiple treatments options for Ebola.
Infectious diseases may not be Inovio's ticket to riches, but they very well could keep the lights on while Inovio advances its cancer vaccines through clinical trials.
3. Cash is no longer a major concern
The last important development (which sort of builds on the first development) is that cash is genuinely not a concern for the intermediate term.
A year ago, Inovio had projected that it had a cash runway through the fourth quarter of 2017. At the time, investors were looking at more than three years without worrying about the company's cash situation. However, things have gotten even better -- although it may have come with a price.
On top of the $27.5 million raised from its one-time payment with AstraZeneca, Inovio sold 10,925,000 shares of common stock in May, raising $81.9 million in net proceeds once underwriter discounts and deductions were accounted for. The downside here is that Inovio's common stock offering was priced 19% below the prior day's closing price, so existing shareholders were blindsided.
Inovio ended its latest quarter with $154.6 million in cash and short-term investments, and that doesn't even account for the $27.5 million from AstraZeneca. As a pure estimate on my part, I'd suggest Inovio's cash runway has now moved into late 2019, giving Inovio ample time to complete its research into a number of its HPV-driven cancer vaccines.
Inovio a buy: yes, no, maybe so?
With a number of new developments on the table, the question that needs answering is whether investors should consider buying Inovio.
Without question, the deal with AstraZeneca will give Inovio's cancer vaccine platform more credence on Wall Street. The upfront milestone payment and common stock offering also remove any cash fears shareholders may have had for many, many years.
On the flipside, it could be years before the Food and Drug Administration approves one of Inovio's products. We shouldn't be expecting a readout on VGX-3100 for cervical dysplasia until the second half of 2018, meaning a cash-producing cancer vaccine may not hit the market until 2019 or 2020. Inovio's infectious-disease vaccines may deliver an approval before then, but with the topsy-turvy nature of infectious-disease vaccines, there's no guarantee that any would be profitable on a recurring basis beyond initial stockpiling.
Ultimately, I believe Inovio is probably best left for investors who have a high tolerance for risk and a very long time horizon to see their investment play out.