It is not a bad idea to hunt for biotech stocks to sell. Such stocks have earned a bad reputation among investors, and for good reason. Most biotech companies fail, as their success often hinges on receiving regulatory approval for their products. It is an extremely high-risk sector to invest in.
For every promising biotech company that successfully navigates clinical trials and generates multibagger returns, there are 99 others that either fail outright or struggle to deliver any gains at all. These stocks rarely live up to the hype.
However, this tendency for failure also makes biotech companies a prime target if you’re looking to short-sell or dump shares. Plenty of biotech firms are burning through cash at an alarming rate while still being years away from potential FDA approval. Going contrarian on these names could help you realize substantial returns in this volatile sector. Let’s look at the biotech stocks to sell.
Tonix Pharmaceuticals (TNXP)
Tonix Pharmaceuticals (NASDAQ:TNXP) has been hemorrhaging money without any light at the end of the tunnel. Based in Chatham, New Jersey, Tonix is focused on repurposing existing drugs for central nervous system disorders. The company was also chasing a potential Covid-19 vaccine and biodefense projects, but those efforts have fizzled.
The core issue here is simple. In the most recent quarter, Tonix reported a net loss of $27.32 million on revenue of just $3.78 million. The company reported cash and cash equivalents of $24.9 million to end the year.
Profitability remains elusive, with analysts predicting losses through 2026. Unless a miracle product emerges from the pipeline soon, Tonix seems destined for the corporate graveyard through either a bankruptcy filing or perpetual share dilution.
Allakos (ALLK)
Allakos (NASDAQ:ALLK) is another biotech firmly in the “Danger Zone.” This clinical-stage company is developing treatments that target immunomodulatory receptors, with its lead candidate AK006 being studied for chronic spontaneous urticaria (CSU) and other indications.
Sound promising? Don’t be fooled. Allakos has been aggressively diluting shareholders for years to stay afloat with no revenue stream in sight. The $171 million cash balance may seem hefty, but it equates to less than three quarters’ worth at current burn levels. Any further delays in the clinic could rapidly deplete that buffer.
Some tout Allakos’ urticaria program as innovative, with blockbuster potential if it is successful. However, by the time this long shot pays off (if it ever does), early investors will likely own just crumbs of the company after endless financing rounds.
Rapt Therapeutics (RAPT)
Rapt Therapeutics (NASDAQ:RAPT) is a clinical-stage biopharma developing oral small molecules for oncology and inflammatory diseases. The lead candidates are RPT193 for inflammation and FLX475 for cancer, but my enthusiasm is muted.
While Rapt boasts a more robust $159 million cash position compared to the prior biotech stocks to sell, the burn is intensifying at an alarming pace. Revenue has effectively dried up, with losses skyrocketing from $53 million in 2020 to $117 million last year. Analysts don’t forecast profitability for years, even under rosy drug approval scenarios.
The saving grace? Rapt hasn’t overtly abused the share dilution lever…yet. However, with a roughly 1-2 year cash runway, that could change quickly if the pipeline hits any snags. And in biotech, delays are almost a given.
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On the date of publication, Omor Ibne Ehsan 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.
