Inovio Pharmaceuticals erwartet top line results

Early-stage positive clinical trial results contribute incremental value to anxious shareholders of biotech companies by validating drugs in their pipelines. These gains are especially magnified when the trials are designed to deal with difficult to treat diseases such as lung cancer or human papillomavirus (HPV), in which there are vast needs for treatment. Earlier this month, shareholders of Clovis Oncology (CLVS) saw their holdings double in a single day when the company reported strong safety data at the 2013 American Society of Clinical Oncology (ASCO) meeting. This surge in Clovis's price had me wondering if Inovio (INO) longs would share the same success with the company's upcoming catalyst that resembles similar features to those of CLVS.

Clovis Success Story

Clovis's lung cancer drug, CO-1686, blew past the most optimistic expectations with its early June drug results. For several years, the oncology community had seen failures with the treatment of epidermal growth factor receptor (EGFR) mutations which occur in non-small cell lung cancer (NSCLC) cases. In other words, there were no clear expectations for the CLVS drug to be developed as a treatment to NSCLC. However, CLVS reported notable traits in its Phase I findings with CO-1686 by displaying effective patient responses and strong safety data, a matchless combination that was welcomed by the lung cancer community and investors of Clovis.

To add, the demonstrated efficacy in Phase I was exhibited without reaching the maximum tolerated dose. A more concentrated dose in future Phase II trials could potentially further raise efficacy. There are currently no approved treatments for lung cancer patients with the T790M mutation, which reverses the effect of the standard treatments of advanced NSCLC after failure of chemotherapy.

It's not hard to see why the price of CLVS has surged 130% in the last three months. The company saw a slight run up to the data release date on June 3rd and jumped more than two fold following the encouraging data. Its promising early stage success and the vast need for an approved treatment of NSCLC could fast track Clovis's drug with FDA Breakthrough Status, providing investors with additional value.

Inovio's shot to validate synthetic DNA vaccines

Inovio Pharmaceuticals is a development stage company that focuses on providing universal protection against cancers and various diseases through its synthetic vaccine technology and delivery process. Recent successful preclinical study announcements against viruses Ebola, Marburg and H7N9 validated its Syncon universal vaccine for influenza strains. With these vaccines and others in its pipeline, Inovio hopes to satisfy the vast need for a synthetic vaccine technology and, in turn, become the modern conventional preventive and therapeutic treatment of various diseases.

Current protection against influenza has shown weaknesses in the ability to react to rapidly changing strains, as the protective vaccine may not be the same as the common virus affecting people. Instead of guessing the target, INO combines DNA sequences from existing virus strains into a single dose to protest against multiple influenza strains. With the delivery of the company's proprietary electroporation system, the DNA vaccine assists the immune system by creating antibodies to protect against broad virus strains. INO is looking to build on its rolling momentum with upcoming catalysts that concentrate on other disease fields to expand the pipeline and add incremental shareholder value.

HIV vaccine PENNVAX-B data

With July approaching, investors are patiently waiting for the publication of PENNVAX-B data to validate what the company reported in Phase I trials back in early 2012.

As a therapeutic vaccine for HIV-positive volunteers, the vaccine generated significant (75%) antigen-specific T-cell responses paramount in clearing chronic viral infections. To compare, other DNA vaccines that were delivered without electroporation yielded poor overall T-cell immune responses.
In a preventive setting with uninfected patients, PENNVAX-B demonstrated best in class results with 89% of subjects generating T-cell response.
If the upcoming publication reaffirms PENNVAX-B with a best in class distinction, the stock price of INO will gain traction as results would validate the potency of the company's synthetic vaccine technology platform. This event could bring a similar intraday price increase that CLVS experienced with its data announcement. However, in the less likely case that results are not as promising, investors will be faced with an opportunity to add to their position at pulled back prices. Nonetheless, Inovio should be seeing an increase in coverage and exposure from the approaching publication date and participation at the 2013 OneMedForum investor conference. Publicity for such small-cap biotechs is always a plus.

VGX-3100: The therapeutic vaccine to treat cervical dysplasias and cancers?

Market Outlook

20 million Americans are currently infected with human papillomavirus (HPV), valuing the global HPV therapeutics market at a forecasted $4.2 billion by 2017 (CAGR of 6%), according to GlobalData estimates. This moderate growth rate is primarily attributed to a weak pipeline landscape as most drugs are in early stage clinical development, so they are going to make an impact after 2017. The HPV market is mainly dominated by preventive vaccines, such as FDA-approved Gardasil and Cervarix, which are only meant for immunity against HPV infection in non-infected individuals. Once a person has been diagnosed with the HPV infection, these vaccines are not able to prevent the development of cervical dysplasia and cancer. This presents the need for a novel first-in-class therapeutic vaccine to treat cervical dysplasia and cancer caused by HPV.

VGX-3100 Trials

VGX-3100 is a therapeutic DNA vaccine designed to treat cervical intraepithelial neoplasias (CIN) that are caused by human papillomavirus types 16 and 18. Inovio is in the process of enrolling females internationally for the Phase II clinical trial which is expected to have data ready by Q1 2014. The primary endpoint of this internally funded Phase II study is to assess the regression of cervical lesions and clearance of HPV 16 or 18. In other words, the company wants to further evaluate the efficacy and safety of the vaccine against the placebo in its attempt to treat cervical dysplasia and cancer patients.

Phase I results indicated that VGX-3100 has the potential to drive robust immune responses to antigens from high risk types of HPV infection as well as produce killer T-cells that destroy cervical dysplasia cells. The positive outcomes of the Phase I study achieved best-in-class immune responses which lay a strong foundation for the company to continue ongoing trials.

Although the Phase II data for VGX-3100 is still several months away, the cervical dysplasia vaccine is the most advanced independent therapeutic treatment in Inovio's pipeline. If all goes as planned, VGX-3100 may be INO's first commercialized product, providing the company with a consistent revenue stream. In addition, the vaccine would satisfy an immediate need in the HPV therapeutic market that has no successful treatment for infected individuals. If the Phase II results exhibit the same promising success as preceding Phase I VGX trials, Inovio would share similar traits to Clovis; promising early stage results for a difficult to treat disease that needs an approved treatment. As seen above, VGX-3100 could be Inovio's own CO-1686 by duplicating the recent surge in Clovis's value.

Insulation from several risks

Healthcare companies, especially pre-profit small-cap firms, are undoubtedly susceptible to risks that cause the subject company to flounder. With volatile biotechs, investors know there is a greater amount of speculation involved due to the wide array of vulnerability. I will be discussing three of the most common risks and suggesting how Inovio is well protected against them. This, however, should not encourage investors to disregard their own findings.

Financing Risk

On March 12th, 2013, the company closed an offering of approximately 27.4 million shares and warrants with net proceeds of roughly $14 million. With this financing, Inovio has cash, cash equivalents & short-term investments of $28.2 million, which is enough to fund the company through 2014. Additionally, many of the company's operations are funded externally by their wide array of partners. This financial assistance, through grants and contracts, minimizes Inovio's own out-of-pocket expenses when conducting costly clinical trials. Although it is inevitable that a development stage company like Inovio will raise capital through dilution, this risk is off the table for the foreseeable future.

Clinical Trial Risk

Inadequate results on the basis of not meeting efficacy or safety endpoints are the greatest risk factor for Inovio. The company's historical data and experienced staff mitigate this risk by providing overall positive results. Moreover, this risk is shared as the majority of Inovio clinical studies are conducted with a partner who may fund or collaborate on the trial. On the other hand, comparing the risk-to-upside ratio for these studies, positive results may potentially lead to licensing deals. In these events, INO may strike lucrative agreements, such as a further development with Merck or expanding its Asian network through VGX International.

Systematic Risk

The recent instability of global economies and talks of a market correction have made this risk a probable reality. Though this risk is out of investors' hands, the company's operations and financial position insulate it from any major global events. Performance of INO stock price is primarily driven by its own fundamentals and catalysts instead of economic factors such as The Fed's bond purchasing agenda. To add, the company sports a debtless balance sheet with current assets equaling nearly a quarter of market cap. Inovio's investments are held in liquid money market funds and their cash is sufficient enough to weather any storm within the next year.

Value Proposition

A recent report, "Global Vaccine Market Forecast to 2017", valued the 2012 global vaccine market at $27.3 billion. According to their findings, the market is expected to grow at a CAGR of around 12% until 2017, resulting in a $48 billion global market. By this time, it is expected that Inovio's VGX-3100 would be on the market, assuming no setbacks, and that several of its other pipeline candidates for HIV and Influenza would be at, or nearing Phase III trials.

Assuming the company is able to capture a conservative 0.25% of the vaccine market by 2017, it would lead to sales of $120 million. With further partnerships, greater royalties and a potential best in class therapeutic treatment for cervical dysplasia and cancer on the market, the projected 2017 sales figure is not out of reach. Trading at the industry average sales multiple of 9x would value the company at a market cap just north of $1 billion in 2017. A present valuation of $378 million is calculated if the 2017 figure is discounted with a rate of 35% for 3.5 years. This brief calculation is very sensitive to assumptions, but even with minor adjustments on the sensitivity table, the current company price illustrates enormous upside potential.

Conclusion

Inovio's diverse pipeline tailored towards difficult to treat diseases and cancers offers much promise for the future outlook of the company. Its successful track record of announcing potent treatment results during clinical trials bode well for upcoming catalysts such as the HIV data and VGX-3100 further down the road. Well-managed operations and financial stability secure the company against possible risks, which also validate the potential upside of Inovio at currently discounted pricing. Any potential for partnerships following positive results will add further value to investors' pockets as the company continues its epic year.

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