Pharmaceutical stocks have been relatively subdued in the last 12 months. During this period, the S&P 500 Pharmaceutical Industry index has trended higher by 3.5%. I believe there are undervalued stocks in the sector poised for a breakout, but at the same time, there are a considerable number of pharma stocks to sell. This column will focus on the weaker names in the sector that remain unattractive even after a big correction.
It’s important to note the industry has a significant level of risk. Even after investing billions in research and development, the outcome can be negative. While one blockbuster drug can be a gamechanger for an early-stage company, it makes sense to remain overweight on large pharma stocks.
Several pharma stocks surged into the limelight during the pandemic. However, there are only a handful that have created shareholder value. The surge in pharma stocks allowed smaller companies to raise funds, but that does not imply success.
These are the three pharma stocks to sell that were in focus during the pandemic, but seem to be struggling to survive.
For some investors, it’s already be too late to exit Novavax (NASDAQ:NVAX) after a plunge of 89% in 12 months. While the stock has seen some consolidation around $10 levels, the downside might not be over. My personal view is investors should consider exiting any fresh positions initiated in the stock.
It’s worth noting Novavax reported revenue of $735 million for the third quarter of 2022 as compared to $179 million in Q3 2021. Even with the big surge in revenue, NVAX stock has remained depressed.
There are two reasons for the stock being punished. First, Novavax reported operating level losses of $127 million for Q3 2022. With cash burn and investment in R&D, further dilution might be on the cards. Furthermore, Novavax has been significantly behind peers in the Covid-19 vaccine race. Even if there is a market for booster doses, it seems unattractive from a return perspective. The same is being reflected in NVAX stock price trend.
Novavax is building a pipeline beyond the Covid-19 vaccine. However, it might be years before any commercial launch.
Ocugen (NASDAQ:OCGN) is another pharmaceutical company that came into the limelight during the pandemic. OCGN stock skyrocketed after partnering with India’s Bharat Biotech for the sale of Covaxin in the United States.
However, with the U.S. Food and Drug Administration advising clinical trials for the Covid-19 vaccine (developed in India), the stock plummeted. The vaccine is still under clinical trials and I don’t see a market opportunity even if its commercialized.
While Ocugen is building a deeper pipeline, the following point is a concern. The company has a cash buffer that’s expected to fund operations through Q4 2023. Clearly, equity dilution is on the cards in the next two quarters and it’s likely to take OCGN stock lower.
Therefore, with zero or very limited revenue visibility for the next few years, the stock can be avoided. My view is the company might struggle to survive.
Inovio Pharmaceutical (INO)
Inovio Pharmaceutical (NASDAQ:INO) stock is another name among pharma stocks to sell even after a correction of 61% in 12 months. It hogged the limelight during the Covid-19 vaccine race., but the company has failed to deliver and INO stock has been punished by investors.
Back in October 2022, Inovio announced the company has stopped an internally-funded effort to develop a Covid-19 heterologous booster vaccine. In a November 2022 update, the company discontinued development of product candidates targeting Lassa fever and Middle East Respiratory Syndrome.
These are strategic business decisions to control cost. However, it undermines the credibility of the company’s development pipeline. Recently, Inovio announced headcount reduction by 11%. The company has however continued efforts to focus on promising DNA medicine candidates.
It seems clear there is no product commercialization coming in the next two to three years. During this period, cash burn will sustain. I would therefore refrain from any exposure to the stock.
On the date of publication, Faisal Humayun did not hold (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.