Investing in biotechs is risky enough when you're holding shares of unblemished and outwardly functional companies, so why take a chance on a stock that you know has problems? While sometimes there can be compelling opportunities for contrarians in the biotech space, for many investors, minimizing risk is a bigger priority than maximizing their potential returns.
And that's why it's a good idea to avoid the two biotechs that I'll be discussing today. Neither is in danger of going out of business this year, but both have an unfortunate tendency of burning their investors. Let's explore why.
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1. Bluebird Bio
Down by more than 95% over the last three years, Bluebird Bio (BLUE 4.80%) is a bit of an oddity among biotech stocks because it's unprofitable despite having a product on the market. Its cell therapy called Zynteglo aims to treat a rare blood disorder -- beta thalassemia, and it's approved in the E.U., but, for now, not in the U.S.
Regulators are still evaluating data on whether the drug is safe and effective, as the company's original application for approval didn't address all of their questions. And, due to poor uptake in the E.U., Bluebird is winding down its European operations supporting Zynteglo's sales to save costs. So, its trailing-12-month revenue of $53.6 million is sure to start dipping soon, as there won't be anywhere else to sell it until there's some progress with regulators in the U.S.
Clinical trial troubles are also abundant with Bluebird. Its therapy for sickle cell disease is still on a partial clinical hold after a patient in the trial developed anemia in late 2021, and it'll likely affect the company's timeline to advance the candidate.
These issues are only the latest to weigh the stock down. With only $442 million in the bank and 2022's expenditures estimated by management to be in the ballpark of $400 million, it's unclear how there will be any solutions in sight, and it's making some investors nervous.
Its shares currently trade for a price-to-book (PB) multiple of 0.5, which means that its shares are worth less than the company's cash value in liquidation.
And that's why it's a tempting stock for bargain-hunting speculators to make an investment in. But until it can demonstrate that it can profitably keep a drug on the market, which it couldn't do in the E.U., there's not much reason to bite just yet.
2. Inovio Pharmaceuticals
Shares of Inovio Pharmaceuticals (INO 4.99%) have dropped by around 73% in the last 12 months, and there's likely more to come. While the biotech soared in 2020 as a result of its coronavirus vaccine candidate, not much has gone right for investors since then.
The U.S. Food and Drug Administration (FDA) placed a partial clinical hold on its candidate's phase 3 clinical trial which would ultimately last a whopping 14 months, ending only in November 2021. A few months of that hold guaranteed Inovio would lose the race to develop a coronavirus vaccine to the likes of Pfizer and Moderna. And after more than a year, the company's chances of staking out a significant market share against these entrenched competitors have dwindled.
Right now, management estimates that it'll be able to report interim data on its vaccine trial in the first half of 2022, but there's little information about when the company might apply for full approval.
Without a firm timeline, the roadmap to realizing revenue from jab sales is starting to look fraught, and cash is starting to look like a looming problem. Against its trailing-12-month operating expenses of $231.5 million, it has only $394.9 million in liquid assets. Aside from its coronavirus jab, none of its other pipeline programs are close to commercialization, nor would they have an equally large market if they were ultimately approved for sale.
It's feasible that Inovio will be able to find a home in the market for its coronavirus shot, but it's hard to believe that its shares will recover the ground they've lost this year. Therefore, it makes sense to avoid purchasing this stock.
