Shares of Inovio Pharmaceuticals (NASDAQ: INO), a clinical-stage biotech focused on DNA immunotherapies and vaccines, fell by nearly a third in July, according to data from S&P Global Market Intelligence. The drop was due to the company's decision to raise capital through a dilutive common stock offering.
Continue Reading Below
Inovio announced its intention to raise up to $86.25 million through an equity offering in mid-July. The company said that the proceeds from the deal would be primarily used to fund its vast clinical pipeline.
Unfortunately, investors learned a few days after the announcement that the secondary offering was taking place at $6 per share. That price represented a sharp discount to the closing price of $7.83 on the day that the capital raise was first announced. The lower-than-anticipated offering price suggests that the company had trouble attracting enough interest from investors to raise all of the capital that it needed. As a result, it had to sell 12.5 million shares of common stock in order to raise the full $75 million, which is a higher rate of dilution than the markets were likely expecting.
Given the disappointing pricing and heavy dilution, it is easy to understand why shares took a beating in July.
Inovio ended March with about $90 million in cash while its net loss in the first quarter was just over $23 million. Those numbers clearly indicate that a capital raise was needed. A quick look at its share count over the last 10 years shows that management hasn't been shy about issuing equity when needed.
Looking beyond the financial statement, Inovio continues to boast a number of exciting product candidates in its pipeline. The furthest along is VGX-3100, which is a hopeful treatment for cervical dysplasia caused by the human papillomavirus (HPV). The company recently got the green light from the Food and Drug Administration to move forward with its pivotal phase 3 trial, so this remains a high-interest drug for investors to watch.
Beyond VGX-3100, Inovio also counts a number of exciting compounds in its pipeline that promise to create value down the road. This includes a handful of partnered drugs that are designed to treat a wide range of cancers. There are also a number of moonshot vaccines in early stages of development that promise to prevent diseases such as Ebola, Zika, and even HIV.
While the company's pipeline remains exciting, there's still that pesky issue of funding all of these projects at the same time. Inovio has partnerships with Regeneron Pharmaceuticals, AstraZeneca, and Roche that should help to cover some of its development costs, but investors should fully expect that the company to produce heavy losses for the foreseeable future. That means that more capital raises will likely be coming down the road. For that reason, I'll be keeping Inovio far away from my portfolio for the time being.
10 stocks we like better than Inovio PharmaceuticalsWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Inovio Pharmaceuticals wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of August 1, 2017