Inovio Drops After U.S. Cuts Off Funding; Short Sellers Gain

Inovio Pharmaceuticals Inc. sank as much as 29% Friday after the U.S. government pulled funding for its Covid-19 vaccine research, a vindication for short sellers who have been amassing positions in the biotech stock.

Bears betting against Inovio are set to reap nearly $160 million from Friday’s plunge alone, quintupling their $40 million in profits year-to-date, according to Ihor Dusaniwsky, S3 Partners managing director of predictive analytics. It shares closed 25% lower to $6.85, the steepest decline since Sept. 28.

Issues with a key supplier, development delays including a partial hold on testing from the Food and Drug Administration and the abundance of Covid-19 vaccine supplies in the U.S. have hurt the advancement of Plymouth Meeting, Pennsylvania-based Inovio’s shot. Add to that Friday’s news that the Department of Defense will curtail funding for its late-stage vaccine trial because of the broad availability of other shots.

“The decision results from the changing environment of Covid-19 with the rapid deployment of vaccines,” the government agency said, according to Inovio’s statement released earlier. “This decision is not a reflection of the awardee or product, rather a fast-moving environment associated with the former Operation Warp Speed on decisions related to future products.”

Inovio Drops After U.S. Cuts Off Funding; Short Sellers Gain

The case of Inovio is among the few recent examples where short sellers betting against a company’s success have paid off. More broadly, hedge funds have elected to side-step placing bearish bets to avoid getting hammered by the rise of Reddit-fueled rallies and euphoric retail investors.

Despite backlash from Reddit users earlier this year, Citron Capital’s bets against Inovio were the fund’s largest contributor from shorting to a 155% return in 2020, according to a January letter to investors. Citron was far from being the company’s only skeptic, with roughly a third of shares available for trading sold short as of Friday, data compiled by S3 Partners shows. The total short positions stood at $634 million, the data show.

The company will continue to develop its shot through Phase 3 testing, though mostly outside the U.S. “Inovio remains well-positioned to support both pandemic and endemic vaccine needs with INO-4800 and INO-4802,” according to an earlier statement alluding to the company’s Covid-19 shot as well as a vaccine meant to address Covid variants. Inovio declined to comment beyond its initial press release.


Analysts were divided on the company’s outlook. Six rate the stock at a hold-equivalent compared to just four who recommended shares to clients while none were sell rated, data compiled by Bloomberg show. Still, the average price target of $15 suggests the shares could more than double from Friday’s level.

With the FDA partial pause on the trial unresolved and following Friday’s setback, Inovio’s “window for success, already narrow, closes a bit more,” Piper Sandler analyst Christopher Raymond wrote in a research note. He has a Wall Street low price target of $7.

“INO-4800 has not been part of our valuation,” he said, referring to the vaccine candidate. “However, talking with investors, it appears the market has concerned itself with little else. Not a great set-up in our view, and given today’s events, we continue to remain on the sidelines.”

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