Source: shutterstock.com/Leonid Sorokin
Investors who’ve dipped their toe into the waters of biotech stocks know that the chances of these stocks crashing and burning is certainly higher than with most sectors. Failure is incredibly common for firms that engage in the development of pharmaceuticals. High costs and long product development timelines combine to produce spectacular failures rates, pretty consistently. Indeed, that narrative plays out over and over, but it also produces spectacular wins at the same time.
With that said, it’s important for investors to both trust their intuition, but also the data, when it comes to flagging biotech firms. There are more stocks to sell than buy in this sector, that’s for sure. Here are three of the top stocks to avoid in this sector, in my view.
Novavax (NASDAQ:NVAX) is one of the higher-profile pharmaceutical flops in recent memory. If you recall, the company was hand-picked by the government to receive $1.6 billion to develop a Covid vaccine in mid-2020. That spiked its stock price, which eventually approached the $300 level in early 2021.
Of course, the hype didn’t translate into meaningful revenue or profitability, and shares of NVAX stock now trade for $8. Novavax’s Nuvoxavid vaccine did generate sales, but it was essentially an also-ran in the battle for Covid vaccine windfalls. The big-3 firms won that race, and Novavax ended up somewhere far behind. In many ways, the company still isn’t even on the map.
The revenue that Novavax did produce from its vaccine is quickly dissipating. In the first quarter, sales fell from $704 million to just $81 million. Net income has done an about-face during the same period, going from $203 million to -$294 million over the space of just one year.
Novavax is undertaking a restructuring in order to control costs. It’s absolutely headed in the wrong direction, and should be avoided despite its inexpensive price.
MannKind (NASDAQ:MNKD) is a biotech stock you almost want to root for with your capital. The firm was born from a novel idea that showed a lot of promise. After all, the inhaled insulin MannKind developed, Afrezza, seems relatively appealing compared to injections.
Unfortunately, this product simply didn’t take off, despite the novelty of the delivery method. It took the company nearly two decades to get the product to market. Just two years after reaching the market, the category was written off as a failed idea.
Afrezza made a comeback but isn’t doing much these days. In the most recent period, Afrezza did $12.4 million in sales. That level of sales wouldn’t be considered strong for a therapeutic that took a decade to develop, much less one that has taken 25 years. As I said, you want to root for the underdog who simply does not give up. In this case, that’s not a good idea, given how unique pharmaceutical development is in terms of its extreme costs.
Firms like BioXcel (NASDAQ:BTAI) that develop treatments for Alzheimer’s disease are very attractive. Therapeutics to prevent progression and drugs that treat symptoms are also getting considerable attention.
In June, it was revealed that the firm had fabricated data relating to its phase 3 results for one of its key Alzheimer’s drugs. That sent the company’s share price predictably crashing.
The potential outcomes for BioXcel are disastrous. The FDA could force BioXcel to begin its phase 3 trial anew. That would set the firm back significantly. Further, if BioXcel fudged the data at this point, who’s to say that the company didn’t do so during previous phases of development? It raises a whole host of questions about the company and what it’s willing to risk to bring a product to market.
The missteps also open BioXcel to litigation risks, as serious adverse events occurred. Even in clinical trials, firms like BioXcel don’t have carte blanche when it comes to risks. BTAI shares are a clear sell at this point, and I wouldn’t be surprised if they crashed to zero eventually.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.