We recently added Inovio Pharmaceuticals to the Technology Speculator portfolio. The following article covers many of the bullish reasons that we decided to initiate a position. It is from: , published on SeeekingAlpha.

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Summary

  • Inovio receives CNBC media coverage based on 100% effectiveness of Ebola study.
  • Inovio’s DNA-based, proprietary technology can demonstrate robust response rates.
  • Understanding the long-term potential for Inovio’s Ebola participation.

Understanding the intricacies of the companies that we invest in can go a long way in helping us understand why certain companies tend to participate in sector rallies while others stand idle or are left behind during sector appreciations. As a long-term investor in Inovio Pharmaceuticals (SYMBOL: INO), I have watched my investment participate on both sides of the equation, appreciating while other sector stocks languish and depreciating at times when the sector is rallying.

But, as much as Inovio can be compared to others, the truth is that the science behind what Inovio is trying to accomplish in clinical trials is quite different from many of its peers. Inovio differentiates itself not only by its science, but, has also published clinical data demonstrating its emergence as a next generation pharmaceutical company.

The most recent indication that promotes these differences was evidenced during an interview by CNBC’s Melissa Lee. The interview questioned Dr.Joseph Kim, CEO of Inovio Pharmaceuticals, and focused on Inovio’s leadership role in current Ebola trials. The televised interview highlighted that Inovio has demonstrated, in animal trials, a 100% effective vaccine that provided protection against the Ebola virus when introduced to the test animal. The results indicate an early model for a preventative vaccine that, like other Inovio studies, had no visible safety or adverse side effects. The results of this study were published in a peer reviewed and vetted article.

When pressed about the science, Dr. Kim responded that the strongest aspect of the Inovio vaccine model is that the SynCon technology currently being used in clinical trial is a DNA-based, computer generated model which is designed to replicate the virus and attack the disease based on certain amino acid response.

But, the question exists to many investors, professional and novice alike, as to how a computer can actually design a vaccine. The answer provides a basic understanding of what Inovio is studying in the clinic.

I am going to break down my explanation into four sections. Once investors have at least a cursory understanding of the science, we can then discuss how the success within the technology can benefit Inovio and its shareholders in the near and long-term future.

The first question investors need to understand is how a DNA vaccine sequence is generated by a computer. As complex as it may sound to some, the information is relatively easy to understand. It works like this:

The genetic code (DNA) for antigens from different existing strains for many viruses is available in readily accessible databases. Inovio, after identifying its study parameter, will then take this accessible information and use proprietary software and manual decision-making to select the key amino acids from the input DNA sequences. This provides information necessary to synthetically create a new DNA sequence representing a consensus of the different input strains. The computer program chooses the amino acids that are most immunologically important, dominant or conserved. Thus, the computer is developing a DNA sequence that utilizes the most relevant of disease fighting components in the DNA code making the likelihood of success a greater known variable than by blind clinical trial and formulation. Clearly, the technology being utilized by Inovio can consolidate studies and provide an efficient and cost saving method of trial study and design by having the computer analyze the known data and offer potential solutions in a DNA-based sequence.

Second, diseases like Ebola mutate. So, how can an Inovio DNA generated vaccine quickly address mutations?

Once the DNA sequence is created, using the proprietary SynCon technology, as described above, the company then has a DNA sequence that is very similar to others from the same virus family. While not directly matching, by having this great similarity and by having selected the amino acids that are most pertinent, Inovio has observed in their influenza studies, for example, that the SynCon sequence can in fact generate antibodies or T cells that are able to fight unmatched strains. These unmatched strains could be known or they may be unknown,but, the generated sequence will have the ability, based on the amino acids identified, to attack and treat the newly emergent mutations.

Third, how long would it take to develop a DNA “fermented” vaccine… days, weeks or months?

According to Inovio, utilizing the current capacity of their manufacturing affiliate, they can make a batch of approximately 50K doses each week. The company can further scale up the manufacturing capacity by adding additional manufacturers with greater capacity. Dr. Kim has alluded to potential partnerships in several areas of clinical study. Perhaps an Ebola study partnership can greatly enhance the capabilities and scale of production. But, until Dr. Kim becomes more specific about partnership plans, any reference to a partnership remains speculative.

Fourth, the Ebola virus has mutated over 250 times, although some accounts have the mutation figure as high as 800 mutations. How can Inovio address mutations in the virus and might other companies simply be testing products that might be obsolete in a year?

Here is some of the beauty in the DNA-based SynCon sequence. Whether other companies’ products become obsolete is not really relevant to Inovio. The fact is, if a vaccine is strain-specific and requires that the vaccine genetically matches the virus, then once the virus mutates, it will become difficult or impossible for that vaccine to provide protection. So it becomes obsolete based on nature’s adaptive capability. With Inovio utilizing a DNA specific sequence with appropriate amino acids, the DNA-based vaccine could be a defining benefit to further an Inovio sponsored vaccine because it can address mutations within the already identified DNA code.

Thus, Inovio is already demonstrating early leadership capabilities as these methods and trials become more urgent in nature. Large pharmaceutical companies that are far behind the curve in addressing the virus can pick up significant time and date by partnering with Inovio.

Inovio’s Position In Developing An Ebola Vaccine

Now, we don’t know for a fact that Inovio’s SynCon approach will work against Ebola. But, I feel confident in my opinion, based on proven results, that what Inovio can bring to the table in regard to furthering the development of a vaccine should not be discounted by the market. Nor, should the market or investors pin their hopes on a single winner in the race for a cure.

We do know that the theory behind the technology at Inovio is sound and they have established proof-of-concept in humans with respect to showing the ability to address unmatched strains as well as what could be identified as mutations in treating influenza. Capitalizing on this success and demonstrating further trial progression with strains of Ebola is certainly a well calculated and reliable opportunity.

Yet, in all my optimism, I remain committed to the assumption that the best scenario is for Inovio to position themselves as a long-term player in a long-term game. Many investors shoot for the early home run, sometimes hitting it over the wall while sacrificing potential base runners that could have been put into position to score as well.

The reality is that Ebola is a very complex disease and there have been little to no baseline studies to determine what success might actually look like at this point in time. So, for the investor looking for a quick home run, disappointment might become the norm for the next several months. Until significant numbers of control groups are staged and tested, the results cannot be deemed scientifically reliable.

For instance, if Inovio was to use their vaccine as an experimental preventive measure for the hundreds of aid personnel leaving for Africa, what baseline would be used to determine efficacy? If three people were treated in a group of six, for instance, and three contracted Ebola and three did not, what conclusions could be drawn from that outcome? Did the vaccine protect the three healthy people or did those people simply not get exposed in the same way the infected people were exposed. Or, were the immune systems of those three people stronger than the infected?

This is the issue that companies face, especially when headlines are quickly plastered in mainstream media that a company has been”successful” or has “failed” in their approach. Ebola is not only a catastrophic problem for the world, it has also become a headline trade for Wall Street, punishing and rewarding companies based on a single protracted rumor.

Inovio’s peer reviewed article demonstrated that animals were protected from the Ebola virus once they had received the vaccine. The results, though, in all fairness, indicate that the animals were first given the vaccine and then infected with the virus. The results were stellar, demonstrating 100% effectiveness in combating the virus. And, at this stage of the race for a cure, the medical community is not only looking for a cure, but, a preventative vaccine as well. This is the sweet spot and position of strength that Inovio has placed itself within the study and treatment of Ebola.

Inovio can already be considered a leader in some stages of this study and certainly lends itself to be a major contributor in the development of vaccines to fight Ebola. Inovio management should be more apt to position the company as a long-term contributor and look for partnership opportunities with a major pharmaceutical company that will want to leverage off of the early and provocative clinical results that have been demonstrated, vetted and published. The partnership with GeneOne Life Sciences is a start, but, I am looking for a larger and more lucrative partnership.

In actuality, this is where I can envision Inovio’s position…partnered with a major pharmaceutical company who wants to utilize the SynCon technology to advance quickly through trials and human testing. The quickness of which Inovio can actually produce a vaccine in quantity is also quite impressive, using a fermenting process with the ability to generate mass amounts of doses in a relatively short period of time.

But, the ability to mass produce doses is one thing…companies must also develop the logistical wherewithal to deliver the drugs, purchase and build the necessary infrastructure to maintain production, have retooling capabilities in place to ensure little to no interruption to production and be willing to work effectively with government to ensure that the venture is profitable.

Too many people jump to the conclusion that an Ebola vaccine is a certain windfall. Contrary to most public opinion, the government is far less loose with the purse strings than many might believe. No professional company can work to design an effective medication and expect to name their own price. Unfortunately the priceline model will not work when it comes to government reimbursement.

In fact, for all of the hype and headline attention being provided about Ebola, I have not read of a single large commitment of funds by any single government. In fact, private benefactors have not risen to the forefront either. So, while we all want Inovio to jump head first into finding a first line vaccine on its journey to an effective cure, the truth is that until a firm commitment is made from a funding source, whether it be a single source or a conglomerate of sources, Inovio must remain fairly prudent before committing large amounts of time, capital and resources.

I am on board with those that want a rapid and all encompassing study to be initiated by Inovio. But, I temper my enthusiasm once I apply a deeper sense of underlying logic to the equation. The chances of a single company having the ability to address Ebola on its own is quite slim. However, a partnership of a few, with Inovio being one of the few, is a far more likely scenario.

In my opinion, Inovio is going to take the data that it already has in hand and position itself as a long-term player who is going to be a part of a long0term solution. The chances of Inovio going the project alone does not make as much sense as many believe. We all see headline news come and go and the prudent company will take a keen interest in opportunities at hand, but, will not lose focus of core company values, initiatives and current programs.

Inovio, by all means, is deserving of the attention it will receive from peer companies and media as it relates to Ebola. But, for investors to lose focus on the successful and recently published Phase ll results in relation to its cancer programs would be foolish.

I remain intent on watching Inovio develop on key strategic fronts. The opportunity to be a significant contributor in the fight against Ebola adds to my bullishness,but, I treat the opportunity as an additional component within a pipeline of blockbuster possibilities.

I have little doubt that exciting and volatile times remain for investors, but, as long as Inovio continues to publish significantly meaningful data and trial results, the long-term chance for success continues to look very bright.