Inovio Pharmaceuticals (INO 8.75% ) is on many investors’ radar screens these days. This is not surprising since the small biotech ranks among the leaders in the race to develop a vaccine against the new coronavirus disease COVID-19. Anyone who bought the stock earlier this year and held it has now almost quadrupled their initial investment.
You may be thinking, “Wow, if only I could have bought this stock much earlier when it first went public. Imagine the amount of money I could have won. The good news is that you don’t have to use your imagination. I have the answer for you. The bad news is that the amount is probably not what you might expect. If you had invested $10,000 in Inovio’s IPO (Initial Public Offering), this is how much money you would have now.
It is complicated
Before answering the big question, it’s important to understand what is meant by Inovio’s IPO. Unfortunately, it’s complicated. Inovio hasn’t always been Inovio. It began operations in 1983 and was then known as Biotechnologies & Experimental Research.
In 1994, the company changed its name to Genetronics and went public through a stock exchange with Consolidated United Safety Technologies, which was already listed on the Vancouver Stock Exchange. To further muddy the waters, Consolidated United Safety Technologies was originally known as Concord Energy, having started the business in 1979.
Three years after merging with Consolidated, Genetronics moved its stock market listing from the Vancouver Stock Exchange to the Toronto Stock Exchange. In December 1998, the company listed its shares on the American stock exchange, now known as the American stock exchange NYSE. Genetronics changed its name to Inovio in 2005 with the acquisition of Norwegian gene delivery technology company Inovio AS.
To simplify all of this, let’s just use Inovio’s first day of trading on a US exchange for our calculations. And we won’t go into the complications caused by biotech stock splits over the years.
You could have purchased shares of what would later be known as Inovio on December 8, 1998, for an adjusted price of $60 per share. With an initial investment of $10,000, you could have bought 166 shares (and you would have $40 left since you couldn’t buy a partial share).
Fast forward to today. Those 166 shares would now be worth… just over $1,700. If you had taken the remaining $40 that you couldn’t use to buy Inovio and put the money in a sock drawer, it would have been a better investment than buying Inovio stock.
behind the disappointment
Why was Inovio such a disappointment for early investors? Mainly because the company has been in business for decades and has no approved product on the market. Inovio has not been profitable since its inception. By the end of 2019, the company had run up an accumulated deficit of nearly $740 million.
When a company goes such a long time without achieving profitability, it has to raise funds to keep the lights on. This usually requires either going into debt or issuing new shares. Inovio did both.
The issue of new shares to strengthen its cash position weighed particularly heavily on the biotech stocks over the years. Just look at the following chart, which illustrates how Inovio’s market capitalization has increased significantly as its share price has fallen.
This chart shows how much dilution hurts shareholders. Of course, if Inovio hadn’t issued more shares and diluted the value of existing shares, it probably wouldn’t be in business today.
A better future ?
Although early investors in Inovio did not fare well, it is possible that someone who buys the stock today may have a better chance of success. Inovio’s pipeline includes several promising candidates.
The company’s experimental COVID-19 vaccine has recently attracted attention. Last week, Inovio completed enrollment in its Phase 1 clinical study of INO-4800. He expects to report the results of this study in June.
Inovio’s lead candidate, however, is the VGX-3100 immunotherapy. biotechnology published positive interim results in March from two Phase 2 studies evaluating VGX-3100 in the treatment of anal dysplasia and vulvar dysplasia, precancerous conditions caused by human papillomavirus (HPV) types 16 and 18. Inovio has a few late-stage studies of the drug underway and plans to report results from one later in 2020.
The company also has other immunotherapies and vaccines in its pipeline. However, they are all in early or intermediate clinical testing. It will be several years before any of them can potentially gain regulatory approval.
Could Inovio turn a $10,000 investment today into a fortune over the next decade? May be. But with clinical-stage biotech stocks, it’s important not to risk money you’re not willing to lose. As Inovio’s story shows, the potential for loss is real.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.