The biotech segment is one of the most potent, boasting an impressive Compounding Annual Growth Rate (CAGR) of 13.96% until 2030. However, investing in biotech stocks also bears immense risk, as companies’ performance relies heavily on drug approvals. A major drug approval has the potential to multiply stock price several times, while a failure to reach approval may cause an immediate, sharp decline. For the following reasons, it is important to choose biotech investments carefully. Below are three biotech stocks to sell. 

Cassava Sciences (SAVA)

Cassava Sciences (NASDAQ:SAVA)  is a relatively small biotech company working on simufilam, a drug to treat Alzheimer’s.

In addition to struggles with drug development, the company has been under investigation for falsifying data. Its co-founder was accused of manipulating test results to improve simufilam’s image and failed to disprove the overwhelming evidence against him. This development dealt a blow to Cassava Sciences as it has hurt its credibility and widened the gap between Cassava Sciences and its bigger, more credible competitors. 

At the same time, Cassava Science’s worrisome financial situation further strengthens a bear case. Its stock has sharply declined, now valued at around $25 from a peak of about $125. This would mean buying a stock with strong potential at a discount if the development of simufilam was likely, though that seems far from the case. With only $140 million cash on hand, their cash pile will likely be depleted before the drug gets approved, making funding research another issue for the company. 

Mannkind (MNKD)

Mannkind (NASDAQ:MNKD) is a small American biotech company in Danbury, Connecticut. The company’s main drug is its development of dry insulin, which the FDA approved in 2014. Most companies’ success relies on whether their key drug gets approved, but Mannkind’s problem is the performance of their approved insulin formation: Afrezza. Mannkind tends to generate $11 million-$13 million from the drug, an underwhelming amount for a company with a market cap of almost $1 billion. 

In addition, the company’s financials are in turmoil, and there is no clear pathway to escape. Though the most recent quarter is an exception, as the company had a net margin of around 3%, it tends to lose a significant amount of money to little avail. A quarter ago, it had a margin of about -10%, the quarter before that -25% and the quarter before that -50%. Meanwhile, the company is not close to the development of a drug that has the potential to save it. The stock peaked at $116 and is now at around $3, and there seems no way to reverse the declining trend. 

Halozyme Therapeutics (HALO)

Halozyme Therapeutics (NASDAQ:HALO) is an American biotech company that commercializes novel recombinant human enzymes for enhancing the delivery of drugs. Unlike other biotech stocks in this list, the biggest problem that Halozyme faces is debt. The company has continuously added on debt, much of which at a high interest rate, now reaching over $1.5 billion in debt. It is difficult for a company that relies on cash for innovation and progress to pay the debt without giving up innovation. At the same time, the company has been declining for the past year, losing over 33% of its stock price and further tightening its financial situation. The company has also been largely unsuccessful in developing drugs in the past few years and is not close to approval on any major drugs that could lift it from its current financial situation. There is a rocky path ahead for Halozyme Therapeutics.

On the date of publication, Tomas Levani 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.