3 Biotech Stocks to Dump Before They Go to Zero


Editor’s note: This article was updated on April 24 to remove an inaccurate reference to Tonix Pharmaceutical’s cash burn in 2023. 

  • These biotech stocks to sell are burning through cash at an alarming rate and seem destined for zero, making them prime targets for selling.
  • Tonix Pharmaceuticals (TNXP): Profitability remains elusive although analysts expect losses to narrow. 
  • Allakos (ALLK): Aggressively diluting shareholders for years, with any potential success likely leaving early investors with just crumbs.
  • Rapt Therapeutics (RAPT): Intensifying cash burn and delayed profitability, potentially forcing them to abuse the share dilution lever.
biotech stocks to sell - 3 Biotech Stocks to Dump Before They Go to Zero

Source: PopTika / Shutterstock.com

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)

medicine research, pharmaceutical background, LJPC stock
Source: Sisacorn / Shutterstock.com

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)

Illustrative Editorial of Allakos (ALLK) Inc website homepage. Allakos Inc logo visible on display screen.
Source: Pavel Kapysh/ Shutterstock.com

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)

Animated image of different medications
Source: Olga Kononok/Shutterstock

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.

On Penny Stocks and Low-Volume Stocks: With only the rarest exceptions, InvestorPlace does not publish commentary about companies that have a market cap of less than $100 million or trade less than 100,000 shares each day. That’s because these “penny stocks” are frequently the playground for scam artists and market manipulators. If we ever do publish commentary on a low-volume stock that may be affected by our commentary, we demand that InvestorPlace.com’s writers disclose this fact and warn readers of the risks.

Read More: Penny Stocks — How to Profit Without Getting Scammed

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.

Omor Ibne Ehsan is a writer at InvestorPlace. He is a self-taught investor with a focus on growth and cyclical stocks that have strong fundamentals, value, and long-term potential. He also has an interest in high-risk, high-reward investments such as cryptocurrencies and penny stocks. You can follow him on LinkedIn.

Article printed from InvestorPlace Media, https://investorplace.com/2024/04/3-biotech-stocks-to-dump-before-they-go-to-zero/.

©2024 InvestorPlace Media, LLC