Developing and commercializing new drugs involves so many uncertainties that even the finest biotech stocks are relatively risky. Some are so deep in the danger zone, though, that anyone would be well advised to leave them alone. For a variety of reasons, I'd avoid Sarepta Therapeutics Inc. (SRPT -0.80%), MannKind Corporation (MNKD 2.45%), Novavax, Inc. (NVAX 2.06%), and Inovio Pharmaceuticals (INO -5.10%) at any price.
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Even if you have no intention to buy these stocks, each offers some important lessons for biotech investing, and beyond.
No. 1: Sarepta Therapeutics Inc.: unconfirmed
In September, Sarepta Therapeutics won a highly controversial FDA approval for its Duchenne muscular dystrophy (DMD) therapy, Exondys 51. It's the first DMD drug to win an approval and could become the first to lose one.
The FDA greenlighted the drug based on a slight increase in a protein vital to muscle function observed in a few trial participants. Exondys 51 hasn't shown an actual benefit for DMD patients, and it must do so to maintain its conditional approval.
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Exondys 51 has an addressable patient population of around 1,200 to 1,500 boys in the U.S., and there's a strong chance a much smaller number will gain access to the pricey treatment. One of the largest U.S. insurers, Anthem, recently deemed the therapy "investigational and not medically necessary," which means it probably won't pay the $300,000 Sarepta intends to charge for a year of treatment with the drug.
Anthem's concerns echo those of FDA staff, including Commissioner Robert Califf's 126-page summary regarding Sarepta's disturbing approach to Exondys 51's development. In short, Sarepta didn't follow well-established guidelines that could have sped up the review process and bolstered confidence in the drug's efficacy. Actions that elicited scathing criticism from regulators give me enough reason to avoid this stock like the plague.
No. 2: Novavax, Inc.: Unsuccessful repeat attempt
Novavax placed nearly all its chips on a vaccine that looked like it might succeed where many have failed, but it failed miserably in a big trial. Unfortunately, Novavax doesn't have any products to sell, and the $366.4 million in cash and marketable securities on its balance sheet at the end of June isn't nearly enough to develop its remaining vaccine candidates without heavily diluting shares.
Running big vaccine trials is expensive, and Novavax burned through $156.6 million in the first half of the year. The company could have raised lots of cash, selling relatively few shares following somewhat positive results from a mid-stage trial with its resposynactyl virus (RSV) vaccine, but a recent late-stage flop leaves little hope it can salvage anything from the program.
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Mid-stage results were just strong enough to be considered statistically significant, but the RSV F Vaccine couldn't repeat the success in an 11,850-patient study with similar patients. In fact, a slightly higher percentage of patients injected with the vaccine became infected than those given a placebo. The company is still running a trial that could enroll up to 8,255 healthy pregnant women to see if it prevents infections among their babies through their first 90 days.
Based on the poor results from the trial with older adults, the odds of any success with the RSV F Vaccine are slim to none. If it fails, the already depressed stock price could fall much further.
No. 3: MannKind Corporation: Difficulty breathing
Unlike Novavax, MannKind has a product to sell, but the company might have better luck selling snow cones to polar bears. The company has lots of debt, and little cash to pay them. A bankruptcy announcement in the near future wouldn't surprise many Foolish investors.
MannKind's inhalable insulin, Afrezza, is popular among the small group of diabetics who have used it, but the black box warning on its label is a huge obstacle to overcome. Physicians need to jump through hoops to prescribe Afrezza -- typically a death sentence for drugs with plenty of available treatment options.
MannKind experienced numerous setbacks on the road to Afrezza's approval. As a result, its balance sheet is riddled with red flags. Perhaps the most pressing issues are a working capital deficit of about $198.9 million, and a stock price so low it's in danger of losing its listing on the Nasdaq exchange. Unless Afrezza starts flying off pharmacy shelves immediately, any price is too high for this troubled stock.
No. 4: Inovio Pharmaceuticals: Be patient
In one form or another Inovio Pharmaceuticals has been around since 1983, but it's only been a self described "leader" in advancing DNA-based therapies to treat infectious diseases and cancers for a little over 16 years. In that time, the company has developed exactly zero drugs into commercial stages, and a recent FDA hold placed on VGX-3100 (Inovio's only drug ready for a late-stage study) will extend its losing streak a bit further.
According to Inovio, the agency requested information regarding VGX-3100's delivery device. The company doesn't have all the info yet, but expects this "setback" to delay the beginning of its phase 3 trial until the first half of 2017.
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I'd wager the trial doesn't begin until much later. The company announced its phase 2 success with VGX-3100 more than two years ago, but it hadn't even started enrolling patients into the phase 3 study when the FDA made contact.
Drug development is a slow, tedious process, but Inovio is leading its field at a snail's pace. It is, however, quick to announce beginning early-stage trials for relevant vaccines during scary viral outbreaks. It also excels at raising equity, which isn't necessarily a good quality for biotech stocks. Since the beginning of the century, the number of Inovio shares outstanding has risen about 5,160%, from 1.397 million to 73.55 million. With no products for Inovio to sell after all these years, I expect investors' slice of any potential profits will continue evaporating while its pipeline goes nowhere fast.
