This year will probably go down as the roughest year for investors since the financial recession in 2008. The S&P 500 has shed more than 20% of its value year-to-date as inflation and interest rates weigh down the equities market. Hence, investors are scrambling to streamline their portfolios. In doing so, they might want to think about some biotech stocks to sell.
Biotech stocks have typically been among the most risky investments. These firms spend a ton of money on research and development and offer little to no assurance that their pipeline will ever reach the commercialization stage. Additionally, most of these companies operate at a loss for years, which has irked investors of late. Hence, it’s probably best to sell off many of the non-performing biotech stocks before more significant losses arrive.
That said, it’s true that the industry is set for incredible growth over the long term. The trick for investors is to perform extensive due diligence before wagering on biotech stocks. Here are three that investors may want to discard from the watch list in the current volatile investing environment.
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Illumina (NASDAQ:ILMN) specializes in DNA sequencing and the provision of related analysis equipment globally. It has been the leading stakeholder in the market, which saw robust growth up until the pandemic kicked in. The pandemic gave this company a new lease of life, as its DNA sequencing technology played a significant role in identifying and monitoring COVID-19 variants. However, with the pandemic firmly in the rear-view mirror, it’s tough to foresee a scenario where Illumina can mount a comeback.
Its latest results are reflective of how its business is at a crossroads. The company posted $1.16 billion in net sales in its second quarter, down 5% sequentially. Moreover, its net loss came in at a hefty $535 million, a massive drop from a net income of $185 million in the prior-year period. Its business seems frailer without Covid 19-related sales and is poised for similar showings in the upcoming quarters.
Moreover, Illumina seems to be banking on its acquisition of Grail, a past spin-off of the company, which is a cancer identification specialist. However, this catalyst remains nothing but a wildcard at this point, with the EU disapproving of the acquisition.
Galapagos NV (GLPG)
Galapagos NV (NASDAQ:GLPG) is a Belgian biotech company whose claim to fame is its rheumatoid arthritis (RA) medicine, Filgotinib. Filgo is available for use in the European Union, Great Britain, and Japan but hasn’t been able to break into the highly lucrative U.S. market.
In 2019, it struck a deal with another leading biotech in Gilead (NASDAQ:GILD) for the development and commercialization of Filgo in the U.S. It received a massive $3.95 billion in upfront payments and another $1.1 billion in equity investment from the firm. However, Filgo was flagged by the U.S. FDA for its impact on sperm counts, which led to Gilead pulling out of its plans to commercialize the drug in the U.S. To rub further salt in Galapagos’ wounds, its top executives left the company high and dry while the company navigates through the rut it’s in currently.
GLPG stock has given up its chances for commercialization in the U.S., where drugs usually enjoy a premium reimbursement compared to other parts of the world. Moreover, the competition in the rheumatoid arthritis market is heating up with every passing year, with plenty of biosimilars also coming into play of late.
Ionis Pharmaceuticals (IONS)
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Ionis Pharmaceuticals (NASDAQ:IONS) is another biotech in a spot of bother. Unlike GLPG stock, this company generates solid recurring revenues from a few of its approved medicines. It generates the bulk of its royalty revenues from its muscular atrophy drug, SPINRAZA. That said, Ionis generates sales from a fairly one-dimensional portfolio which it’s been looking to evolve over the past few years to no avail.
Ionis had multiple trial failures in the past 12 months, which present a sordid picture for its future. On top of that, recent results have been sub-par, with the company guiding for $575 million in sales this year, compared to $810 million last year. Operating expenses are expected to remain at a healthy $825 million to $850 million. Thus, though Ionis appears to have a relatively solid foundation, this company also trades at a lofty valuation relative to future prospects.
On the date of publication, Muslim Farooque 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
Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.