Money Problems for Inovio Pharmaceuticals (NASDAQ:INO)?

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By Ross Schwartz on October 24, 2014 BioPharma

It’s a drug’s development pipeline that determines the biotech stock’s overall valuation and this is what makes it a unique sector for investors. The reason for this is that it may take many years for an approved drug to get to pharmacies because developing a drug from scratch means burning cash which is a major disadvantage. This means that the company should have enough cash all the time as the clinical-stage or even primary commercial-stage biotech may not rake in the profits for a long time to come, and it is necessary that healthcare investors watch the cash flow of the biotech company’s stocks closely.

The Inovio business model

Inovio Pharmaceuticals (NASDAQ:INO) focuses on clinical drugs that improve the body’s immune system to fight transmittable diseases and cancers like certain other important clinical drug developers. It is well-known for leading a large number of combined clinical and preclinical studies for Ebola, Hepatitis B and C, HIV, prostate cancer, neck and head cancer, and cervical cancer

Investors are mostly focusing on the company’s VGX-3100, a vaccine treatment for cervical dysplasia associated with human papillomavirus types 16 or 18. Just recently, Inovio Pharmaceuticals (NASDAQ:INO) conveyed VGX-3100’s mid-stage results which show a substantial regression in patients’ cervical intraepithelial neoplasia 2/3, or CIN 2/3, to CIN1 or an absence of the disease. This shows the vaccine has been well-tolerated with just a little localized redness in the area around the injection.

The Inovio cash position

Inovio’s 2014 second quarter earnings shows cash, short-term investments and cash equivalents of $109 million which has increased from $52.7 million at the end of last year.

This may show Inovio Pharmaceuticals (NASDAQ:INO) to be a cash cow, even though it has no approved drugs and earned just $10 million from its partnership with Roche(NASDAQOTH:RHHBY). On the other hand, in 2014’s first quarter Inovio Pharmaceuticals (NASDAQ:INO) dispensed about 21.8 million shares common stock shares, which earned it $59.2 million. However, though Inovio’s cash position is stable all the way up to 2017, there are insinuations that it may not have enough cash to sustain itself through 2018.

Ways for Inovio to raise cash

Licensing agreements are the best way for Inovio to raise cash. Inovio’s deal with Roche (NASDAQOTH:RHHBY) last year earned it $10 million, along with a possible $412.5 million in extra developmental markers. In fact, the reason why Roche(NASDAQOTH:RHHBY) became interested in Inovio’s INO-5150 and INO-1800 prostate cancer and hepatitis B vaccines is because there was a potential to syndicate these immunotherapies with experimental ones that exist in the infectious disease and oncology pipeline.

Another way to raise rash would be the VGX-3100 approval from the Food and Drug Administration, especially since it has the potential to sell at $500 million annually when it reaches pharmacies.

Inovio Pharmaceuticals (NASDAQ:INO) can also offer its shareholders common stocks to increase its cash flow, especially since its outstanding share count in 2014 is 60 million, up from 19 million shares almost five years ago.

So, is Inovio running out of money?

In literal terms, yes! Inovio Pharmaceuticals (NASDAQ:INO) admits it has $317.3 million deficit since it started and may run out of money in 2018. But, it will probably focus on its INO-5150 for prostate cancer to gain extra revenue, but it may also stay liberal with its share offerings which may result in a standstill to new stock offerings.