Inovio CEO Preps Retail Investors for Drug Study Failure

Inovio Pharmaceuticals (INO) CEO Joseph Kim is walking back expectations for the phase II study of its DNA vaccine VGX-3100 in women with high-grade cervical intraepithelial neoplasia (CIN 2/3), also known as cervical pre-cancerous lesions. Results from the VGX-3100 study should be announced any day, but I suspect Inovio already has data in hand. Why else would Kim be laying the foundation for a massive spin job, if not to cushion the vaccine's failure?

The red flags flying over Inovio are there for any clear-eyed investor to see:

Inovio pushed through shareholder vote approving a 1-for-4 reverse stock split on May 23, which went into effect on June 5. Why the need for a reverse stock split? Kim explained:

Our stockholders approved a reverse split to have our price and share structure reflect our leadership position in immunotherapies and expand our potential investor audience.

Interesting spin. Drug companies in leadership positions aren't generally valued with stock prices in the $2 range. More typically, terminally depressed stock prices -- like Inovio's -- are the direct result of management incompetence and/or drug development setbacks and failures. Innovio is very good at issuing press releases and promoting its stock to retail investors, but its track record of developing DNA vaccines is abysmal.

Inovio's decision to enact a reverse stock split right before the VGX-3100 results was more likely timed purposefully to keep the stock trading above $1 if the study fails. Well played, Kim! 

Kim hints at negative VGX-3100 study results in Monday's interview conducted by a Seeking Alpha contributor.

In the interview, Seeking Alpha contributor Trevor Lowenthal asks Kim, "Inovio is expected to produce a top line data read-out for its experimental HPV immunotherapy, VGX-3100, very shortly. How crucial is this to Inovio's future?"

Kim's response:

The upcoming data will help define the potential clinical utility of this HPV immunotherapy for late-stage cervical pre-cancers. But the efficacy and immune response data together are going to help define the broad potential of the products based on our expansive DNA immunotherapy and electroporation technologies as monotherapies and as combinations with complementary technologies, such as checkpoint inhibitors. [Emphasis added.]

Later in the interview, Kim is asked, "What are the primary risks facing the company?"

Again, Kim's response:

If you are defining risk as what might negatively impact the company's market valuation, I think the obvious risk is that our upcoming Phase II efficacy data does not meet our primary goal and the market looks at the data simplistically and says INO is a sell. However, smart investors are going to be looking closely at our T cell data and making investment decisions with that as well. We have tremendous confidence that we can ultimately see clinical utility of one of our products as a monotherapy, either with one of our immunotherapies by itself or possibly with an immune activator included. But cancer is complex, and it may very well be the case that different mechanisms need to be used in conjunction to achieve the desired impact against cancer. [Emphasis added.]

Let's unpack Kim's statement. If treatment with VGX-3100 fails to shrink high-grade pre-cancerous cervical lesions more than a placebo (the study's primary endpoint), it would be "simplistic" to consider the vaccine a failure and sell Inovio. Instead, "smart investors" will disregard the miss on the study's primary efficacy endpoint and reward Inovio if VGX-3100 causes a T-cell response in patients, even though T-cell response is not listed as an endpoint in the phase II study

Don't be fooled by Inovio's smoke and mirrors. A T-cell response to VGX-3100 absent a statistically significant shrinkage in cervical lesions compared to placebo is clinically meaningless. It's a failure.

In a 2010 study published in the journal Cancer Immunology Immunotherapy which followed 50 women with high-grade cervical intraepithelial neoplasia (CIN 2/3) -- the same type of patients Inovio enrolled in the VGX-3100 phase II study -- Trimble et al found that systemic immune response (a T-cell response) did not predict regression of CIN 2/3 lesions. 

Moreover, 26% of the CIN 2/3 lesions followed in the Trimble study shrank completely on their own, without any treatment, after 15 weeks. You can find other studies in the medical literature which cite CIN 2/3 complete regression rates of approximately 35%. 

In other words, the efficacy bar for VGX-3100 is very high, which explains Kim's desire to walk back expectations.

All the 148 women enrolled in the Inovio phase II study are confirmed positive for the human papillomavirus (HPV) serotypes 16 and 18, and have a baseline diagnosis of CIN grades 2 or 3, meaning they present with abnormal cells on their cervix which carry a moderate to higher risk for progressing to cancer.

Women in the study are randomized into two groups. The first group receives injections of VGX-3100 followed by electroporation at months 0, 1 and 3. The second group receives a placebo injection followed by electroporation on the same time schedule. The study's primary endpoint is a comparison of the number of patients with regression of CIN to grade 1 or less at nine months. 

Based on the medical literature, you can expect approximately 35% of the women in the placebo arm of study to have complete regression of their CIN 2/3 cervical lesions. Keep that in mind when Inovio reports results from the VGX-3100 study. I suspect Kim knows his vaccine is in trouble, hence his need to prime retail investors with the "T-cell response" bamboozle. 

Adam Feuerstein writes regularly for TheStreet. In keeping with company editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.

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