Morgan Stanley recently released its bullish take on the biotech space, driven by anticipated interest rate cuts and a surge in mergers and acquisitions (M&A) activity. The analyst firm states biotech stocks typically outshine the market just before a rate cut. Moreover, increased optimism spurs an uptick in M&A activity, contributing to a more active biotech sector. Hence, discarding underperforming biotech stocks to sell is imperative, as the industry is picking up steam again.
This strategic pruning can help solidify a portfolio’s performance, especially in sectors finally catching up following years of underperformance. As the biotech market shows signs of improvement, understanding which stocks to sell can help shield investors from the upcoming volatility.
Moderna (MRNA)
Moderna (NASDAQ:MRNA) shot to fame following the release of its groundbreaking mRNA Covid 19 vaccine. However, since then, it has failed to build meaningful growth drivers to strengthen its long-term bull case. Moreover, as a poster child for mRNA technology, Moderna is now front and center with medical experts scrutinizing the technology’s reliability. Potential toxicity to the risk of causing autoimmune and cardiovascular issues continues to cast a shadow over the brand.
However, we’ve seen robust activity in MRNA stock in the past year, with the most recent spike spurred by fears of a bird flu outbreak. The breakout is reminiscent of the pandemic when its MRNA stock jumped to record highs. Nevertheless, this dependency on global health crises for spikes in demand positions the company in a precarious position. Hence, it’s likely to sustain investor confidence with global health emergencies.
Rallybio (RLYB)
Rallybio (NASDAQ:RLYB) is a clinical-stage biotech business developing therapies for severe and rare diseases. It recently saw a brief bump in its stock price, which was linked to the announcement of a partnership with Johnson & Johnson (NYSE:JNJ). Both companies will develop treatments for fetal and neonatal alloimmune thrombocytopenia (FNAIT).
Though it remains to be seen how the partnership pans out, concerns over Rallybio’s narrow drug pipeline are concerning. Its novel drug, RLYB212, will enter Phase II trials in the second half of 2024, which still has a long development pathway ahead. Meanwhile, RLYB continues to burn through its cash reserves considerably. From 2021 onwards, we’ve seen its cash balance dwindle from $175.3 million to $94.2 million, as per its latest report. Moreover, its net loss of $47 million in 2021 worsened to $76.3 million on a trailing twelve-month basis (TTM). These numbers underscore the potential risks for investors, highlighting the challenge of transitioning from a clinical-stage player to a diversified player in the biotech space.
Ginkgo Bioworks (DNA)
Ginkgo Bioworks (NYSE:DNA) was once a promising biotech play, serving the healthcare and life sciences industries through its novel cell programming solutions. Its technology facilitates the biological production of innovative therapeutics and food ingredients while enhancing drug therapy research and development.
Despite its promising applications, we’ve seen a marked slowdown in its top-and-bottom-line expansion in the past few years. Its revenues were a healthy $477.7 million in 2022, now 56% lower on a TTM basis to $208.7 million. Similarly, its gross profit of $273.5 million in 2022 is down to $167.9 million for the TTM. Additionally, with declining sales, the firm has incurred massive losses, reporting a monstrous net loss of $854 million in the past 12 months.
Short sellers have also panned the firm, leveling severe allegations concerning its revenue sources, corporate strategy, and partnerships. Hence, those clinging to the hope that DNA stock will regain its former momentum will likely be disappointed.
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