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Inovio’s Immunotherapy Technology Base

Over two decades ago, the creation of naked DNA vaccines gave the promise of a significant advance in the development of both therapeutic and preventative vaccines. The concept was to incorporate genes in a plasmid that would express certain antigens.  These would then trigger an effective immune response that could be used to either treat or prevent cancer and infectious disease. A plasmid is a circular piece of DNA that when injected into muscle or skin will be taken up by surrounding cells; its genes then express the desired antigens with the goal of triggering an immune response against those antigens.

Inovio (INO) has made two significant advances over the original naked DNA technology. Its SynCon technology has allowed the company to design more effective antigens to be expressed by the plasmids which include novel components to optimize expression. As importantly, INO has developed the Cellectra electroporation process that allows much more effective uptake of injected plasmids into cells. The Cellectra constant current device delivers a small electric charge following intramuscular (IM) injection  which increases the uptake of the plasmids in cells. These two advances are intended to overcome issues that have been problems in the development of earlier naked DNA vaccines.

The lead product of Inovio’s immunotherapy technology platform is VGX-3100. It is based on two DNA plasmids that target and evoke immune responses to E6 and E7 oncogenes that are found in HPV 16 and 18 viral types. These oncogenes are responsible for transforming HPV-infected cells into pre-cancerous and cancerous cells.VGX-3100 is injected into muscle (usually the arm) followed by electroporation using Inovio's Cellectra device. It then triggers immune responses against cells expressing E6 and E7.

Phase 2 Trial of VGX-3100 in Cervical Dysplasia

Cervical dysplasia refers to abnormal changes in the cells on the surface of the cervix. The cervix is the lower part of the uterus (womb) that opens at the top of the vagina. While these changes are not necessarily cancerous, they can lead to cancer if not treated.

Cervical dysplasia is usually caused by certain types of the human papilloma virus (HPV), which is a virus that is spread through sexual contact. There are many types of HPV of which some are directly linked to cervical dysplasia or cancer. Others can lead to other diseases such as genital warts.

Invasive squamous cell cervical cancers are preceded by a long phase of pre-invasive disease that is referred to as cervical intraepithelial neoplasia (CIN). CIN is categorized into grades 1, 2 and 3 depending upon the proportion of the thickness of the epithelium showing mature and differentiated cells. The severity of dysplasia as determined by CIN, is determined by a biopsy of the cervix; the three categories are: CIN 1, mild dysplasia: CIN 2, moderate to marked dysplasia; and CIN 3, severe dysplasia to carcinoma in situ (which means on site or local).

More severe grades of CIN (2 and 3) reveal a greater proportion of the thickness of the epithelium composed of undifferentiated cells. Persistent infection with one or more of the oncogenic subtypes of human papillomaviruses (HPV) is a necessary cause for cervical neoplasia. Most cervical abnormalities caused by HPV infection are unlikely to progress to high-grade CIN or cervical cancer. Most low-grade CIN regress within relatively short periods or do not progress to high-grade lesions. However, high-grade CIN carries a much higher probability of progressing to invasive cancer. Hence, it is of great importance to reduce the severity of CIN.

Inovio has just reported topline results in a phase 2 trial in women with biopsy-proven CIN 2/3 associated with HPV types 16 or 18. The trial was a double-blind, randomized proof of concept, phase 2 trial intended to enroll at least 148 women with 111 on VGX-3100 and 37 on placebo.  All subjects in the trial had a history of CIN 2 or 3 and had been previously treated by surgery. The dosage was administered intramuscularly followed by the application of electroporation through the Cellectra device that is intended to increase the cellular uptake of VGX-3100. Both drug and placebo doses were given in three doses at weeks 0, 4 and 12.

Results of Phase 2 Trial Were Impressive

The primary efficacy endpoint was to cause regression of the disease from CIN2 or 3 to either CIN 1 or no disease at 36 weeks from the first treatment. On July 23, 2014 Inovio announced that on a per protocol basis the study had achieved this primary endpoint. CIN 2/3 resolved to CIN 1 or no disease in 53 of 107 (49.5%) women treated with VGX-3100 compared to 11 of 36 (30.6%) who received placebo. This difference was statistically significant (p<0.025).

In its initial press release, Inovio did not release any information on the intent to treat analysis of the study. However, it subsequently published an 8-K in which it stated that statistical significance was also achieved in the intent to treat population. The difference between per protocol and intent to treat is as follows. The per protocol population are those women who completed all three doses of VGX-3100. The intent to treat population includes all women who received at least one dose of the drug.

As a technology proof of concept study, intent to treat is actually not a particularly useful analysis. Vaccine studies often use a physician to apply a regimen rather than relying on self-administration and the analysis on a per protocol basis is much more meaningful than in some other disease states.

A secondary endpoint of the trial was virological clearance of HPV 16 or 18 from the cervix in conjunction with regression of cervical dysplasia to CIN1 or no disease. This was observed in 43 of 107 (40.2%) patients treated with VGX-3100 as compared to 5 of 35 (14.3%) of placebo recipients (p<0.025).

Side effects associated with the therapy were mild. The only side effect that occurred more frequently in VGX-3100 patients than in placebo patients was redness at the administration site in the one to four weeks following treatment. The lack of severe side effects is an important feature of this drug.

Detailed study findings will be submitted for publication in a peer-reviewed scientific journal. There is always the possibility that other issues will surface when the full results are published, some positive and some negative. However, these are unlikely to meaningfully affect the conclusions that have been drawn from the impressive topline results.

Feuerstein Jumps in and Comes Out With Egg on His Face

Inovio has been the subject of a large number of attack articles by the notorious Adam Feuerstein. The Inovio announcement was made at 9:15 A.M. on July 23, 2014 and at 10:17 A.M.; Feuerstein predictably published an attack article with the sensational title “Inovio Declares Spin-Laden Victory With DNA Vaccine”. His comments were as follows:

“Inovio Pharmaceuticals (INO) declared a spin-laden victory Wednesday from its phase II study of the DNA vaccine VGX-3100 in women with high-grade cervical intraepithelial neoplasia (CIN 2/3), also known as cervical pre-cancerous lesions.

Surprised? Not really. I believe Inovio's goal from the outset was to find any nugget of positive data from the VGX-3100 phase II study -- even if the study actually failed -- in order to rationalize a move to a phase III study. The press release issued by Inovio Wednesday appears to have accomplished this goal.

On a per protocol basis, Inovio says the response rate to VGX-3100 was 49.5% compared to 30.6% for placebo -- a statistically significant difference. Response rate in this study was defined as regression of pre-cancerous cervical lesions from grade 2/3 to grade 1 or no disease.

But Inovio's per-protocol analysis of the study's primary endpoint omits patients. How many patients are missing from the analysis? We don't know because Inovio didn't disclose. The study was designed to enroll 148 patients, according to a design schema on ClinicalTrials.gov, but Inovio could have enrolled more. If 148 patients were enrolled, Inovio's per protocol analysis omits five patients -- four treated with VGX-3100 and one patient on placebo.

Inovio did not disclose the more important intent-to-treat analysis of the study's primary endpoint.

Shares of Inovio are up 17% to $13.03 in Wednesday trading. Spin works, at least for a little while.”

Feurstein’s comments are typical of his blogs. It was intended to create confusion and uncertainty about the significance of the results. His focus on Inovio not providing data on the intent to treat population was proven to be incorrect. Inovio subsequently issued an 8-K in which it stated that the study also achieved statistical significance for the primary endpoint on intent to treat basis as well as per protocol. Feuerstein did not retract his article. He just quietly acknowledged at the end of the article the statement made by Inovio in this 8-K.

I would point out that even if the intent to treat results were not statistically significant, that the results in the per protocol group are sufficiently encouraging to conduct a phase 3 trial.

Inovio Is In an Excellent Financial Condition to Conduct a Phase 3 Trial

I think that these phase 2 results establish strong proof of concept for VGX-3100 that would encourage any company to conduct a phase 3 trial. I would guess that planning and then conducting this trial and getting to the release of topline results could take three years or sometime in 2017; management has not clarified this

Importantly, Inovio now has the cash resources to conduct this phase 3 trial. It ended the first quarter with $117 million of cash which management states can carry the company through 2017. They have also just filed an S-3 that allows the issuance of equity to raise up to $175 million. The Company had previously issued guidance that it had cash to last until 2017. However, this did not take into account doing a phase 3 trial in cervical dysplasia. Conducting a phase 3 will require a partnership or an incremental cash raise. If it decides to go the partnership route, its cash position puts Inovio in a strong negotiating position.

Investment Conclusion

Inovio has now achieved credibility for its technology platform and also the financial strength that moves it to a much higher stature in the emerging biotechnology world. Over time I think that this will draw in a new class of institutional investor that should put the stock in strong hands and make it less susceptible to the manipulation by short selling hedge funds.

This is definitely a stock that I want to stay involved with. I have felt for some time that immunotherapy will produce a paradigm shift in the treatment of cancer. Within the last year or so, Wall Street (after initial skepticism) has become very optimistic about immunotherapy although the focus has been on the checkpoint inhibitors of Merck’s (MRK) pembrolizumab and Bristol-Myers Squibb’s (BMY) nivolumab and Yervoy.

I think it is just a matter of time until attention begins to focus on interesting approaches from other companies such as Inovio, Northwest Biotherapeutics (NWBO), Agenus (AGEN) and others. The innovations in immunotherapy likely will come from these small companies. BMY entered this area through the acquisition of Medarex and MRK followed with me-too drug development. The big companies are not risk takers and will wait to see which technologies work and then either acquire the innovator small company or try to copy its technology. I suspect that there will be numerous acquisitions of small immunotherapy companies in coming years if they show convincing proof of concept

Inovio ow has bout 65  million fully diluted shares so that at the current price of $12.98 the market capitalization is about $843 million. This suggests to me that the promise of VGX-3100 and Inovio’s technology base is reasonably well recognized. This coupled with the probability that commercialization of VGX-3100 is perhaps three years away tempers my enthusiasm for the stock at these levels.

I am not recommending buying the stock at current levels as the upside potential could be moderate. In order to recommend the stock, I would have to see the potential for $1 billion of market capitalization or much more. I know that valuing biotechnologies is a very imprecise art form, but I am just not comfortable in arguing for that magnitude of market capitalization at this point in time. However, I am going to move Inovio into my active coverage universe. I see the company as now having the opportunity to build a commercial operation on its own or to be acquired and I think that this will ultimately reward investors even from these levels. I will bide my time and hopefully will be presented with a buying opportunity.

I will be watching with interest what other therapeutic targets Inovio is pursuing.

Apart from this cervical dysplasia study, Inovio is also conducting studies using this immunotherapy against cervical as well as head and neck cancers caused by these HPV types.

I am concerned that Inovio could still be the target of short sellers. They have enormous power to influence stock prices of small biotechs even in the face of striking news that we have seen with Inovio. They have made an enormous short bet against Inovio and rather than covering their short and walking away, they may double down. I have seen this behavior with other stocks. They will probably try to dredge negative information from the complete results of the phase 2 trial which will no doubt show up in future Feuerstein columns. For a company that is cash strapped, this can be a problem as concern that they may be forced to finance can weigh on the stock regardless of fundamentals. However, Inovio’s strong cash position largely avoids this risk.