Maxim Group downgraded Inovio Pharmaceuticals (NASDAQ: INO) from Buy to Hold, citing few drivers near-term for upside.

Analyst Jason McCarthy commented:

Inovio reported 2Q16 earnings (*next bullet). What's critical now is the fact that Inovio is burning up to $100M a year, in our view. We recognize Inovio does have revenues that partially offset the burn rate. These include license fees like the one paid upfront by AstraZenca ($27M) for the VGX-3100 technology (in this case INO-3112). We believe in Inovio's platform and technology, but the key challenge that we face is assessing how much success is reflected in the current ~$700M market capitalization given the fact that first product revenues won't arrive until the end of the decade. We see few specific catalysts that could drive the stock (one way or the other) for the moment. As such we believe it is prudent to step our rating down to Hold from Buy.

• Inovio reported 2Q16 with $6.2M in revenue and a net loss of $24.4M. The company began 3Q with $135M in cash and equivalents. Inovio continues to generate revenue primarily from non-dilutive funding sources and recognition of upfront payments associated with partnerships, which partially offsets cash burn.
• While Inovio continues to develop multiple early stage DNA-based immunotherapies targeting both oncology and infectious disease indications, including diseases like the Zika virus and Ebola, our focus remains on the lead program, VGX-3100, and the planned phase III study. The next major event will be the start of the first phase III trial, hopefully by year-end.
• Model changes. We push back our commercial assumptions for VGX-3100 from 2020 to 2021. Milestones and timelines associated with INO-3112 have also been pushed back to 2023 (from 2021). Milestones from Roche have been eliminated, though development of the HBV program (INO-1800) is still assumed but pushed to out years (2023).

Conclusion. We remain impressed with Inovio's platform technology, but the high spend rate (albeit partially offset by license and grant revenues) is a concern, coupled with a high valuation (~$700M current market cap) and few hard catalysts (positive or negative). As such, we believe it is prudent to step our rating down to Hold from Buy, and we have removed our previous $14 price target. We will be watching INO's valuation levels and looking for additional transforming license deals, which could cause us to revisit our rating.

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Shares of Inovio Pharmaceuticals closed at $9.35 yesterday.