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3 Beaten-Down Biotech Stocks -- Can They Recover?

By Cory Renauer – Oct 31, 2021 at 6:19AM

Key Points

  • A phase 2 clinical trial flop left Atea Pharmaceuticals with a weak clinical-stage pipeline.
  • The FDA didn't approve Omeros' experimental treatment for a rare autoimmune disorder, which probably shouldn't have surprised anyone.
  • Novavax's inability to turn great clinical trial data into a revenue-generating product has been enormously frustrating.

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Each for reasons of their own, Atea Pharmaceuticals, Omeros, and Novavax have had a very tough time this year.

Look out below for these tumbling biotech stocks. Shares of Atea Pharmaceuticals (AVIR 0.22%)Omeros (OMER 5.18%), and Novavax (NVAX -5.67%) were big winners for investors this year right up until they weren't.  

When stocks fall, they tend to fall hard. For reasons of their own, each of these stocks has given up more than half their value in 2021.

Investors running for the exits don't always have time to examine the reasons they're stampeding. Big sell-offs can create terrific bargains this way. Here's a closer look at what happened to these three stocks to gauge their odds of recovery. 

Investment advisor with a client.

Image source: Getty Images.

1. Atea Pharmaceuticals

Atea Pharmaceuticals shares have fallen a terrifying 70% since the company told investors some bad news on Oct. 19, 2021. Now its market cap rests at around $990 million, which is only $200 million more than the amount of cash on the company's balance sheet at the end of June. 

This is a clinical-stage drugmaker without any reliable source of revenue yet. The bottom fell out from under the stock because the only new drug candidate the company has in late-stage clinical trials, AT-527 flopped in a phase 2 study.

Atea Pharmaceuticals was developing AT-527 as an orally available antiviral treatment for COVID-19 in partnership with Roche. After seeing AT-527 fail to reduce the amount of circulating SARS-CoV-2 virus compared to a placebo, further investment from Atea's big pharma partner seems highly unlikely.

Shares of Atea Pharmaceuticals could rebound if an ongoing phase 3 trial with AT-527 and COVID-19 patients succeeds. After failing to help mild to moderately affected patients in phase 2, though, the odds of success seem slim.

Unsmiling biotechnology laboratory employee.

Image source: Getty Images.

2. Omeros

Omeros stock lost around 53% of its value this October thanks to an upsetting but predictable FDA decision. The company's market cap has fallen to around $401 million at recent prices. That works out to around $390 million more than the company's cash balance at the end of June.

Narsoplimab's demise is tanking Omeros stock because the company's only source of revenue, Omidria, isn't very secure. Omidria's an expensive pupil-dilating eye-wash solution made with decades-old ingredients that aren't hard to find. 

Narsoplimab is the only potential new drug the company had in late-stage clinical development. As investors should have expected, the FDA did not approve narsoplimab for the treatment of a rare autoimmune disorder that sometimes affects patients who receive bone marrow transplants.

Investors should have seen this coming because, in 2018, when narsoplimab was still known as OMS721, it flopped in its first placebo-controlled clinical trial with patients suffering from a similar, blood-based autoimmune disorder. The company's ill-advised attempt to apply for approval without data from a clinical trial with a control group was a glaring red flag experienced biotech investors spotted a mile away. Desperate behavior like this is all the reason investors need to avoid Omeros like the plague.

Befuddled scientists.

Image source: Getty Images.

3. Novavax

Novavax shares are down around 58% from a peak they reached in February. By market cap, this is still an $11.2 billion company that had a whopping $2.1 billion in cash and equivalents at the end of June. 

Novavax was briefly worth more than $20 billion after its experimental COVID-19 vaccine succeeded beyond expectations in a phase 3 trial this January. Since then, Pfizer, its collaboration partner BioNTech, and Moderna have locked in over $60 billion in combined sales of their COVID-19 vaccines.

Novavax's management team earned top spots on worst-of-2021 lists because the company still hasn't recorded a single sale in the U.S. or abroad. Novavax hasn't even filed a request to the FDA for emergency use authorization (EUA) of its vaccine candidate yet.

The company expects to request authorization from the FDA before the end of 2021, but by then there won't be any demand for another authorized vaccine. It's already been two months since the FDA granted full approval to Pfizer's vaccine and Moderna submitted its application for full approval in August. 

While Novavax has a chance to make significant vaccine sales abroad, the company's poor execution to date in the U.S. is a warning that investors shouldn't ignore.

Cory Renauer has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Atea Pharmaceuticals, Inc. The Motley Fool has a disclosure policy.

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