6/22/21 Inovio Has 4 Sources Of Potential Value
* DNA plasmid technology has many applications.
* Inovio’s Covid-19 vaccine may still have a global market.
* Inovio potential HPV related therapies look headed for success.
* Glioblastoma therapy success is contingent but would be highly valuable.
In 2020, for a few weeks, Inovio (INO) stock shot up to over $20 per share, up over $30 one day, from a base of about $2.50 per share, based on hopes it might be a victor in the race for a Covid-19 vaccine. At its pre-Covid price I argued it was undervalued. When it shot up, I stressed value was contingent not just on development of its own vaccine but on how other potential vaccines worked out. I also stressed there is underlying value in its HPV and glioblastoma (brain cancer) therapies. In this article I will update the Inovio scenario against a background of a share price that lately has trended between $8.00 and $9.00 per share, giving the company a market capitalization of about $1.8 billion.
DNA plasmid platform
Inovio is a leader in DNA plasmid technology. A plasmid is a DNA structure found in cell cytoplasm, outside the nucleus or chromosomes. As with DNA found in chromosomes, the plasmid DNA can be transcribed to mRNA (messenger RNA) and then into protein production. While the concept is simple, the technology for making it work in humans has been subject to over a decade of development. Because the plasmids must enter human cells, an electroporation device, currently Cellectra, is used for administration.
In theory, if you need to make a protein inside the human body for therapeutic purposes, you can make the corresponding DNA and insert it using plasmids and electroporation. This can be used to make vaccines, in which the body reacts to the protein to form antibodies. It can also be used to generate large proteins, including antibodies, more directly. Currently the Inovio pipeline includes 11 potential therapies in clinical trials, but that is a tiny subset of what is possible.
DNA plasmid technology has advantages. The DNA does not need to be incorporated into the chromosomes, making it safer and easier to administer. It can produce dose dependent results, also a safety feature. And it can produce long-term protein production, rather than requiring ongoing dosing, as is the case with current antibody therapies.
Covid-19 vaccine: lost in America, but still some global potential
Despite getting off to a quick start, Inovio’s Covid vaccine candidate, INO-4800, did not get chosen as a premier candidate by the Trump administration Warp Speed program. There were also delays in trial approvals at the FDA, some involving questions about using Cellectra for dosing, rather than the more familiar needle-based injection approach for mRNA and other vaccine candidates. At this point in time, we are approaching a nearly fully vaccinated public in the United States, while INO-4800 has only completed its Phase 2 trial. As a result Inovio has partnered with Advaccine to conduct a global Phase 3 trial. Trial subjects will be primarily in Latin America and Asia. Given the positive Phase 2 results, I expect Phase 3 results will also be positive. However, no specific timeline has been announced. The trial will need to be completed, the data analyzed, and applications made to global health agencies. That means, even if all goes well, no sales until well into 2022. However, given the number of people globally who have not been vaccinated, there could still be substantial income from sales. INO-4800 can be stored at room temperature, so it could be particularly attractive to nations with poor infrastructure. Since the situation is evolving, I do not want to place any particular value on INO-4800 at this time. If it does eventually produce revenue, that would be an upside. It could even be a very large upside if there is still sufficient demand for it.
For me, most of the current value of Inovio is in the HPV-targeting therapies VGX-3100, INO-3107, and MEDI0457. Of these VGX-3100 is the most advanced. It is in clinical trials for treatment of three varieties of precancerous cervical dysplasia caused by HPV infections: cervical, vulvar, and anal. In China VGX-3100 is partnered with ApolloBio, but Inovio retains global rights. In March 2021 Inovio announced the first VGX-3100 Phase 3 trial for cervical dysplasia had positive results. This made it the first DNA medicine to achieve efficacy endpoints in a Phase 3 clinical trial. Full results will be presented at a science meeting later this year. Topline results were that 23.7% of patients achieved histological regression with viral clearance, versus 11.3% in the placebo group. Positive secondary results included HPV clearance.
A second Phase 3 trial of VGX-3100 is ongoing, with enrollment completion expected in 2021. That means FDA approval is possible in 2022. Revenue could be substantial. Pricing of the therapy, which is currently unknown, makes it difficult to predict future revenue. Precancerous cervical dysplasia caused by HPV run at about 195,000 cases annually in the U.S. If the therapy were priced at $10,000 (cheap for cancer, expensive for a vaccine) and 100,000 cases were treated per year, revenue would run at $1 billion per year. However, that is just a guess within a possible broad range of outcomes.
Hopefully, the results of VGX-3100 trials for vulvar and anal precancers will also be a success and the label will be enlarged. The same for INO-3107 for recurrent respiratory papillomatosis. In addition, Inovio is partnered with AstraZeneca (AZN) for MEDI0457 for HPV caused head and neck cancer, as well as cervical, anal, penile, and vulvar cancers, currently all in Phase 2 trials.
Glioblastoma therapy: good data so far, but risky
Inovio is conducting a Phase 1/2 novel combination trial of INO-5401 and INO-9012 and Regeneron’s (NASDAQ:REGN) PD-1 inhibitor Libtayo (cemiplimab) for newly diagnosed GBM (glioblastoma multiforme), the most aggressive form of brain cancer. In late 2020, INOVIO shared encouraging interim OS18 (overall survival at 18 months) data, which also demonstrated immunogenicity and tolerability in a majority of patients. The company anticipates sharing two-year (24 months) overall survival data later in 2021.
While this is encouraging data, new glioblastoma therapies have a long record of failure, including when Phase 3 trials followed positive Phase 2 trials. Presuming a Phase 3 trial is started, that makes Inovio even harder to value. Success would propel Inovio into the upper ranks of companies generating novel therapies. One might add $5 billion to $10 billion in market capitalization with that outcome. I do not like to assign any significant value to glioblastoma therapies, but I might be willing to change my view if the full Phase 2 results seem particularly strong. I would prefer to see data from a much larger number of patients.
Cash position
At the end of Q1 2021 Inovio had $519 million in cash and equivalents, which should allow it to reach multiple data points. In January 2021 it had increased its share count with an offering of over 20 million shares at $8.50 per share, generating $162 million in new cash. Operating expenses are running at about $50 million per quarter. Whether more cash will need to be raised (further diluting current shareholders) depends on upcoming data and FDA interactions. While it is at least conceivable that VGX-3100 could begin producing substantial revenue before Inovio runs through its cash, I would expect a cash raise again if strong data leads to a rise in the stock price. Milestones from current partnerships or new deals could also extend the cash runway.
Conclusion
If I am right at guessing U.S. revenue at $1 billion or more (with label and geographic expansion or a higher list price) per year for VGX-3100, then even without a successful Covid-19 approval and launch, Inovio could see its market capitalization and stock price more than double by, say, 2023. Some discounting for the risk of Phase 3 trial failures, or resistance of insurers to pricing, is always in order.
If, like me, you believe in the potential of the DNA plasmid platform, then accumulating shares at $8 to $9 per share makes sense. If you believe that my estimate of $10,000 per therapy for VGX-3100 is too high, that the Covid vaccine will arrive too late to result in significant revenue, and that any glioblastoma therapy success is unlikely, then of course $8 seems too high. When there are so many contingencies, the future is anyone’s guess. My best guess is that VGX-3100 is highly likely to achieve commercial status and then label expansion. At current price, I believe upside potential outweighs downside risks. My take is Inovio is a good Buy for investors with diverse portfolios who can stand the risk.
