Inovio Pharmaceuticals Inc (NASDAQ:INO) took a beating on Monday, on the news that the company has picked up a clinical hold for its lead cervical cancer asset, and that as a result, the development of the asset in question is set to be delayed.
We think that the market reaction is a bit of an oversell, and that in turn, there’s an opportunity to get in at a discount ahead of the company resuming its development pathway.
First of all, nobody (other than the agency itself) knows much about why the hold is in place, or what impact it’s going to have from a timeframe perspective, outside of the general guidance given by Inovio as part of its announcement. Of course, markets are assuming the worst, and this is why we are seeing the double digit sell off.
What we do know is that the hold relates to the delivery device, as opposed to the drug, and that it’s something to do with the potential shelf expiry of said device. We also know that Inovio reckons it can get the issue sorted before the year draws to a close and – in turn – that the company is looking to kick off the trial during the first quarter of next year.
This latter sentence is important. Why? Because the trial in question has not yet begun. This isn’t a hold based on some degree of response to administration, or some unexpected protocol hurdle, or even some unforeseen side effect. Any of these three things would be bad for the drug, and would spell a considerable delay or – at worse – a discontinuation. No. It’s a delay based on protocol, but it’s been identified pre-commencement, which means Inovio is not yet spending on enrollment, dosing etc. There’s a capital delay issue, and we’ll get to this in a minute, but the pre kick-off delay is far less damaging from a cost perspective than it otherwise might have been.
So what do we know about the specifics of the delivery device?
Well, for those not familiar with the drug, it’s called VGX-3100, and it’s an immunotherapy agent targeting cervical cancer. The drug itself doesn’t seem to have any issues heading into the phase III, and there is some pretty solid early stage data that suggests it’s got a good chance of performing in the upcoming pivotal. The hold relates to the device used to deliver the drug to a patient, called the CELLECTRA 5PSP immunotherapy delivery device. It’s a battery operated, software driven, and portable device that uses a sort of electric wave and vibration technique to introduce the drug in question (in this instance, VGX-3100) to a patient intramuscularly. This sort of delivery translates to optimal uptake by the muscle cells of the drug, and the subsequent production of the intended antigen and immune responses. The problem seems to be that there is a disposable element of the device (presumably the needle or other section that comes in to contact with the patient, although this is speculation). If we take the announcement at face value, it’s that the FDA is concerned it doesn’t last long enough in whatever conditions it is stored (presumably air tight, maybe refrigerated).
Whatever the specifics, these things are generally easy to resolve. It may necessitate a packaging redesign, or some different storage instructions, but it’s not going to know the trial out of whack for too long, and so the current sell off looks like a decent opportunity to get in to Inovio ahead of the gap closing and the company resuming its momentum.
So what’s the downside? Well, the only real problem is the capital implications for the company. Inovio has a pretty solid balance sheet, but a quarter or two delay is probably going to cost the company anywhere between $20-25 million that it wouldn’t have otherwise had to spend. This may, and we reiterate may, necessitate a capital raise a little sooner than hoped. That’s pretty much the only concern, however, and we don’t think it’s too much of an issue.