Stock Market Crash Warning: Don’t Get Caught Holding These 3 Biotech Stocks

Stocks to sell

Investing in the biotech sphere isn’t for the faint of heart, and you should steer clear of the biotech stocks to avoid. That’s because biotech stocks tend to experience wild swings in developments, such as clinical trial outcomes or drug approvals. Unsurprisingly, the SPDR S&P Biotech ETF had shed roughly 40% in value over the past three years, when the broader market gained 22%. Hence, investors pondering over biotech stocks to avoid them will always remain relevant.  Moreover, they’re probably even more relevant, given the current state of the stock market.

The stock market is in correction territory on the back of an exhaustive list of factors weighing down investing sentiment. In such a scenario, portfolio management is key, which is why it is best to shed these three biotech stocks to avoid.

Biotech Stocks to Avoid: Ironwood Pharmaceuticals (IRWD)

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Ironwood Pharmaceuticals (NASDAQ:IRWD) develops and commercializes treatments for gastrointestinal conditions. Its flagship product, Linzess, is one of the leading drugs for managing irritable bowel syndrome. Lately, though, it has been in the news for its short bowel syndrome therapy, which could potentially add a new chapter to its growth story. 

However, its short bowel syndrome therapy trial results have been lackluster. Though it achieved positive primary outcomes, it failed to meet several secondary goals, prompting a sell-off in IRWD stock. To be fair, that’s not something new for its investors, with IRWD stock shedding more than 36% of its value in the past five years. Moreover, even if future trials are successful, it faces plenty of competition from Takeda’s Gattex and upcoming therapies such as Zealand Pharma’s glepaglutide. 

Also, it wrapped up last year in disappointing fashion, with a $2 million net loss in the fourth-quarter (Q4) compared to a $49 million net profit in the prior-year period.

Nano-X Imaging (NNOX)

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Nano-X Imaging (NASDAQ:NNOX) is an Israel-based medical imaging business that is using nanotechnology to make X-ray technology more accessible. It employs a two-pronged approach: selling its OEM systems along with a scan-as-a-service (SaaS) business model. This approach focuses not only on the accessibility of its X-ray technology but also on its utility.

Though that all seems fascinating, the stock market is currently looking for tangible results, which NNOX lacks. As per its latest report, NNOX’s cash and short-term investments have dropped from $213.5 million in 2020 to $82.4 million. Moreover, its net losses have surged from $1.9 million in 2018 to $60.8 million in 2023. These numbers are troubling for a company like NNOX looking to scale its operations.

Nevertheless, NNOX stock has gained an incredible 78% as part of the stock market’s rally earlier this year. However, it trades at a nosebleed valuation, more than 21 times forward sales estimates.

Cassava Sciences (SAVA)

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Cassava Sciences (NASDAQ:SAVA) is one of the most popular biotech firms over the past few years. This interest can be gauged by its parabolic stock price gains of over 1,876% over the past five years. Year-to-date (YTD) though, SAVA stock is trading in the negative, which isn’t surprising given its troubles.

Cassava is looking to commercialize what it claims to be a game-changing Alzheimer’s treatment called Simufilam. To be fair, the progress in Simufilam has been encouraging over the past few years, with it now in its Phase 3 trials. However, these trials have been far from rosy, marred by multiple controversies. Concerns surrounding equipment calibrations, verification tests, and the use of statistical methods have put a damper on SAVA stock and its future.

The skepticism surrounding trial integrity could potentially be make or break for Cassava’s business. Meanwhile, the company continues to pump in money into research and development, a figure that rose to $89.4 million last year. At the same time, its net losses have ballooned from $6.3 million in 2020 to $97.2 million last year.

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.

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