The tech and growth segments of the market have been having a tremendous 2023 with one glaring exception. Traders have been choosing to avoid biotech stocks amid macroeconomic uncertainty around the sector.
With the upturn in market sentiment and improving access to funding, however, biotech stocks should be primed for better performance going forward.
It’s vital to pick carefully, however. Some high-risk biotech stocks are unlikely to make investors money over the long term regardless of what happens with the economy or stock market. Protect your portfolio by steering clear of these poor-performing unstable biotech stocks.
Cassava Sciences (SAVA)
Cassava Sciences (NASDAQ:SAVA) is a clinical-stage biotech company developing simufilam for the treatment of Alzheimer’s disease.
For a while, the market thought highly of Cassava’s prospects. SAVA stock soared from $3 to a peak of more than $100 at one point.
Since then, however, it’s been a long steady decline. The company has come under heavy scrutiny following accusations of data manipulation around its clinical trial results. Indeed, the U.S. Department of Justice opened a criminal inquiry last year into whether there was any wrongdoing.
Cassava has pressed on with its efforts to develop simufilam. But hopes are fading. Recent trial results were in theory modestly encouraging but failed to show superiority compared to Eli Lilly’s (NYSE:LLY) Donanemab therapy. Given Eli Lilly’s much larger resources and the market’s greater confidence in Eli Lilly’s clinical processes and integrity, it’s hard to see the path forward from here for Cassava.
SAVA stock is already down sharply. But with less than $5/share in cash left and that figure running down steadily, it’s hard to see why SAVA stock should be trading anywhere above the single digits at this point.
Ginkgo Bioworks (DNA)
Ginkgo Bioworks (NYSE:DNA) might seem like a bargain at first glance. The former SPAC has slumped to less than $2 per share, marking a more than 80% decline from its offering price. And the company has seemingly interesting technology and an appealing ticker symbol.
On closer inspection, however, the bull case falls apart completely. For one thing, Ginkgo Bioworks is still extremely expensive. Due to an incredibly high amount of outstanding shares, DNA stock still has a shocking $3.5 billion market cap despite the $1.77 share price.
That’s a massive number for a company that is generating less than $500 million in annual revenues and loses tons of money. Specifically, Ginkgo somehow lost a startling $2.2 billion last year. Much of that came from the company’s excessive share-based compensation, but there are large operating losses even if you exclude share-based comp from those results.
Adding insult to injury, short sellers have presented a devastating report about the quality of Ginkgo’s purported technology and business model. Goldman Sachs also recently cut DNA stock to a sell rating with a mere $1.25 per share price target given its concerns around a slump in demand for Ginkgo’s services.
MannKind (MNKD)
MannKind (NASDAQ:MNKD) is on a different path than most struggling biotech companies. Usually, companies flame out when their lead clinical therapeutic fails to obtain FDA approval. MannKind, by contrast, got to market but its product failed to take off.
The idea for MannKind was hatched back in 1997 when founder Al Mann considered the potential for a dry insulin compound for treating diabetes. After a long and winding road, the FDA approved MannKind’s insulin formulation, Afrezza, in 2014.
However, that launch was spectacularly unsuccessful, with partner Sanofi (NYSE:SNY) quickly pulling its support for the drug. By 2016, researchers were asking why inhaled insulin was a failure in the market.
Afrezza eventually returned to the market, but it has been far from a roaring success. The product generated a rather modest $12.4 million in net revenues in the first quarter of this year. That’s not great for a product that has had nearly a decade to try to gain consumer adoption. Given that MannKind is loss-making and demand for its approved therapeutic is limited, it’s exceptionally difficult to justify the firm’s current $1.0 billion market cap.
On the date of publication, Ian Bezek 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.
