Inovio Pharmaceuticals (NASDAQ: INO), last week’s COVID-19 spectacle has now capitulated investors into no mans land after falling after positive Phase I data. It seems strange right, investors were backing INO with the expectation of positive phase I trials. INO fulfilled the expectation yet the bears decided to take the biotech to the woodshed. The sell-off is leaving investors riding the Inovio train confused. So, let’s get to the bottom of this investing dilemma today.
Table of contents 1. INO's phase I trial data 2. Is INO's decline artificial? 3. Should you invest in INO?
INO’s phase I COVID-19 trials
Yesterday, INO announced positive (from INO’s perspective) phase I COVID-19 trial data. The trial saw participants develop 94% immunity at week 6 after receiving two doses of INO-4800. At the end of the trial, week 8, participants saw thr skin redness where the injection took place. Despite the redness, which is grade 1 in severity, there were no other side effects. Ultimately, allowing INO to conclude that the vaccine is safe and tolerable. Thus, the phase I trial achieved the intended outcome, is it safe? Adding these results to the clinical cabinet, INO now has a successful, positive phase I trial and promising pre-clinical data.
Also, the U.S government selected INO-4800 for Operation Warp Speed. The inclusion should see INO’s clinical results expedited without comprising the safety of efficacy of its phase 2/3 trials.
Is INO’s bearish activity real or fake?
The decline all started when Stifel analyst Stephen Willey changed his position on INO from a buy to a hold. Stifel explains how his downgrade was purely off the share price, not representing INO’s fundamentals. The downgrade prompted a 20% sell-off on Friday. However, the bulls instantly responded by driving INO up 30% to a 52-week high of $32.
Investors were still expecting volcanic action on the release of positive phase I trial data. However, INO did the exact opposite yesterday. From an objective standpoint, the sell-off on Friday seems more plausible than the decline yesterday. Because, INO skyrocketed by over 100% in a 3 days, ultimately forming a bubble and giving support to Willey’s fundamental argument. Yesterday’s decrease reflects investors cashing in off a now turbulent stock, loss-aversion, and INO finding a more natural equilibrium (opinion not advice). Thus, the bearish price action was likely not artificial and we could even see it continue in the imminent future with pre-market already down 10% (at the time of writing). Especially, as the INO news is likely to stay relatively quiet this week.
Should you invest in INO?
Disclaimer: Patrick Mcloughlin own shares in INO @$17.66.
Before I start, I am obliged to remind our viewers that this is not advice, only general commentary from my extensive research in this area.
Short answer: Yes INO could potentially become a viable investment, however, use the bearish activity over the past few days as a powerful lesson.
Many avid Inovio investors would likely be indifferent about INO’s decline as they expect the biotech to rise. Hence, many investors will be considering snapping up more INO shares at a discount, also known as averaging down. However, investors must understand the maths is against when averaging down, unless the stock soars again. Let us run through an example let us say you purchased 100 shares of INO @ $30 ($3000). You then think INO I might snap another 100 INO shares @$25 ($2500), essentially at a 17% discount, making your average $27.5. You need INO to rise 10% to $27.5 to breakeven, and anything beyond that is a bonus. In theory, as the coronavirus rages on and if Inovio secures additional funding we could see INO surge and averaging down would pay off.
However, if another front runner such as Moderna or Novavax crosses the finish line first, or the curve flattens, or a treatment is created, then averaging down could increase your losses . Overall, averaging down should pay-off if enough bulls get behind Inovio. However, investors must understand the risks.
Investing while it is low
Investors looking to get in on INO might be think the current share price might be a good entry. Especially, considering the resistance level of $31-$32. Phase 2/3 trial hype, the growing coronavirus, and Operation Warp Speed could reinject bullish optimism. Ultimately, supporting the idea of investing in INO while it is down. However, the current share price is only appealing entry when compared to the high on Friday. Thus, investors must understand that investing now holds considerable risk. Because the bears are in control and the hope of you making a capital gain relies on certain future events playing out.
Riding the wave
Averaging down and investing while INO seems low is factoring in an optimistic future, which creates an opportunity for failure. Whereas riding the wave involves getting in once the positive event, such as more funding or phase 2/3 trial interim results, occurs. Riding the wave can be advantageous as INO trades on a high volume, meaning the share price can rise quickly. However, riding the wave could be dangerous. The decline after positive phase I data screams to investors how risky riding the wave can be.
Overall, if you make an investment make sure it is within your investing competency, reflects financial interests, and factors in the risks.
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The information above is not financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.
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Written by Patrick McLoughlin, Senior Manager of YIG.