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3 Biotech Stocks to Avoid Right Now

By Cory Renauer - Updated Mar 24, 2021 at 11:21AM

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Here's why these attention-grabbing stocks could be toxic to your portfolio.

Did you know that new biotech stocks go public at a rate of about one per week? With so many investment options in this space to choose from, it's a little surprising that some of the most popular companies right now haven't had much success when it comes to drug development. 

Every business has a story to tell, and plenty of investors like what they've been hearing from these three. Before following the crowd, though, you should know that there are potholes along these companies' paths to success.

Company (Symbol) Year-to-Date Gain Market Cap
Cassava Sciences (SAVA 8.03%) 698% $2.1 billion
Ocugen (OCGN 9.70%) 435% $1.8 billion
Rubius Therapeutics (RUBY 1.67%) 270% $2.3 billion

Data source: Yahoo! Finance.

1. Cassava Sciences

This company's developing a potential new Alzheimer's disease drug called simufilam. In the U.S., 1 in 9 people over the age of 65 have Alzheimer's disease, but there still aren't any available treatments for this progressive and ultimately fatal disease. As the first, simufilam could become one of the top-selling drugs of its time. 

Scientist with pipette

Image source: Getty Images.

Following a successful phase 2 trial, Cassava Sciences told investors the Food and Drug Administration (FDA) gave the green light for a pair of phase 3 trials slated to begin in the second half of the year. If simufilam succeeds at both, shares of this biotech could explode higher.

Unfortunately, Cassava Sciences has been developing simufilam for over a decade and it still doesn't have any evidence from a full randomized controlled trial that simufilam works as intended.  

The company included a placebo group in a small phase 2 study that wrapped up last March, but simufilam failed to reduce signs of inflammation that show up in fluid that bathes the brain the first time the data was analyzed, in May. Investigators also gave Alzheimer's disease patients cognitive tests to see if simufilam actually made a difference, but they couldn't measure an improvement. This parallel measurement endpoint is not a traditional study for evidence of efficacy, but a February press release from Cassava said:

“There is also agreement that the use of separate clinical scales to assess cognition (ADAS-cog1) and function (ADCS-ADL2) are appropriate co-primary endpoints of efficacy. A clinical scale that combines cognition and function, such as iADRS3, is a secondary efficacy endpoint.”

Results of the phase 3 trial are forthcoming.

2. Ocugen

Shares of this clinical-stage drugmaker have been soaring in response to good news for a COVID-19 vaccine called Covaxin. The vaccine's developer, Bharat Biotech, is a well-established vaccine manufacturer headquartered in India.

Bharat Biotech has hired Ocugen to co-develop Covaxin for the U.S. market, and it looks like a winner. In a phase 3 study with over 25,000 volunteers, Covaxin was about 81% effective at preventing COVID-19 infections in India.

Before buying any Ocugen shares, you should know that the FDA wasn't willing to consider emergency use authorization requests without data from lots of U.S. trial volunteers when there were zero COVID-19 vaccines available. Now that the agency has already authorized three safe and effective options, there's zero chance that Ocugen will sell Covaxin in the U.S. without a new phase 3 trial.

Scientist looking into a microscope.

Image source: Getty Images.

3. Rubius Therapeutics

This clinical-stage biotech is developing new cancer therapies made from a line of red blood cells that can be taken off a shelf and administered as soon as they're prescribed. Shares of Rubius have soared this year, thanks to some tumor shrinkage observed in an early-stage study with a variety of cancer patients taking its lead candidate RTX-240.

In an interim assessment of an ascending-dosage trial that had data from 16 volunteers available, two of the patients have responded well to RTX-240 treatment. While this looks like a pretty good result for an interim analysis of an early trial, it's probably too early for anyone at Rubius to begin celebrating. That's because the only confirmed tumor shrinkage presented so far occurred for a patient treated with the lowest dosage tested. 

Rubius Therapeutics' red blood cells are engineered to excite and enlist different types of white blood cells to take action against tumors. The company was able to show expansion of natural killer cells and T-cells for eight patients earlier this year. Unfortunately, the company hasn't been able to show RTX-240 expanded these tumor-fighting cells for the patients who responded.

Looking forward

All of these companies have huge market valuations right now that could come crashing down if their lead programs can't deliver. That's because there's nearly nothing for them to fall back on.

Ocugen doesn't have any potential new drugs in clinical trials right now, and it's going to be a long time before we know if the gene therapies it intends to develop have a shot at success. Cassava Sciences has a potential new test for biomarkers that could indicate Alzheimer's disease, but simufilam is the only clinical-stage new drug candidate in its pipeline. 

Rubius Therapeutics is developing a platform of red-blood-cell-based treatments, and the company already has a second candidate cleared by the FDA to begin clinical trials. If any of these companies has a fallback if its lead candidate doesn't work out, it's Rubius. That said, it's still way too risky to consider putting in your portfolio at the moment.

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Stocks Mentioned

Cassava Sciences, Inc. Stock Quote
Cassava Sciences, Inc.
SAVA
$22.49 (8.03%) $1.67
Rubius Therapeutics, Inc. Stock Quote
Rubius Therapeutics, Inc.
RUBY
$1.22 (1.67%) $0.02
Ocugen, Inc. Stock Quote
Ocugen, Inc.
OCGN
$2.21 (9.70%) $0.20

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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