The biotech industry’s innovative nature provides investors an opportunity to rake in significant returns when companies manage a breakthrough. The biotech industry is expected to capitalize on the tailwinds amid the growing demand for healthcare solutions.
However, not all biotech stocks are well-positioned to gain. To that end, it could be wise to steer clear of fundamentally weak biotech stocks Bicycle Therapeutics plc (BCYC), CorMedix Inc. (CRMD), and 22nd Century Group, Inc. (XXII).
Before diving deeper into the fundamentals of these stocks, let’s discuss what’s happening in the biotech industry.
Over the years, breakthroughs in scientific knowledge and technology have helped biotech companies grow. Investments in the biotech sector have grown at a rapid pace. As the global population grows, the need for therapies and drugs rises is rising. The rise in chronic diseases and a rapidly aging population are increasing the demand for healthcare solutions.
Biotech companies work on addressing significant medical challenges such as cancer, diabetes, Alzheimer’s, etc. This requires enormous investments in research and development, clinical trials, manufacturing, and marketing. Also, these companies face intense scrutiny from health regulators, making their businesses vulnerable to external factors.
This often makes biotech stocks volatile. This volatility makes them a double-edged sword, with stocks having the potential for enormous gains and significant losses if a drug fails to perform or come to market. Given the number of regulations and complexities, investing in this sector comes with a remarkable reward-risk ratio.
Considering these factors, it could be wise to avoid the fundamentally weak biotech stocks BCYC, CRMD, and XXII. These stocks are currently trading at an expensive valuation.
Let’s take a closer look at their fundamentals.
Bicycle Therapeutics plc (BCYC)
Headquartered in Cambridge, the United Kingdom, BCYC, a clinical-stage biopharmaceutical company, develops a class of medicines for diseases that are underserved by existing therapeutics. In addition, it collaborates with biopharmaceutical companies and organizations to develop programs in therapeutic areas.
In terms of forward EV/Sales, BCYC’s 17.44x is 375.3% higher than the 3.67x industry average. Its 26.08x forward Price/Sales is 496.7% higher than the industry average of 4.37x.
BCYC’s 0.03x trailing-12-month asset turnover ratio is 90.1% lower than the 0.35x industry average.
BCYC’s loss from operations for the fiscal first quarter ended March 31, 2023, widened 52.7% year-over-year to $41.80 million. The company’s net loss widened 41.7% year-over-year to $39.06 million. In addition, its net loss per share widened 39.8% year-over-year to $1.30.
BCYC’s EPS for the quarter ending June 30, 2023, is expected to remain negative. It has a bleak earnings surprise history, missing the consensus EPS estimates in three of the trailing four quarters. The stock has declined 17.1% year-to-date to close the last trading session at $24.54.
BCYC’s weak fundamentals are reflected in its POWR Ratings. It has an overall rating of F, which translates to a Strong Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Within the F-rated Biotech industry, it is ranked #376 out of 378 stocks. The stock has a D grade for Growth, Value, Momentum, Stability, Sentiment, and Quality. Click here to access all the ratings of BCYC.
CorMedix Inc. (CRMD)
CRMD, a biopharmaceutical company, focuses on developing and commercializing therapeutic products to prevent and treat infectious and inflammatory diseases worldwide. Its lead product candidate is DefenCath and Neutrolin.
In terms of trailing-12-month EV/Sales, CRMD’s 2,905.68x is significantly higher than the 3.96x industry average. Additionally, its 3,547.69x trailing-12-month Price/Sales is considerably higher than the industry average of 4.15x.
CRMD’s loss from operations for the first quarter ended March 31, 2023, widened 56.7% year-over-year to $11.02 million. The company’s net loss widened 50.2% year-over-year to $10.57 million. Its net loss per common share widened 33.3% over the prior-year quarter to $0.24.
CRMD’s EPS for the quarter ending June 30, 2023, is expected to remain negative. Over the past month, the stock has fallen 1.4% to close the last trading session at $4.91.
CRMD’s POWR Ratings reflect its grim prospects. It has an overall rating of F, equating to a Strong Sell in our proprietary rating system. The stock is ranked last in the same industry. It has an F grade for Quality and a D for Growth, Value, Momentum, Stability, and Sentiment.
To see the POWR Ratings of CRMD, click here.
22nd Century Group, Inc. (XXII)
XXII, an agricultural biotechnology company, focuses on tobacco harm reduction, reduced nicotine tobacco, and enhancing health and wellness through plant science for the life science and consumer products industries.
It develops very low nicotine content tobacco and cigarette products under the VLN King and VLN Menthol King names, and SPECTRUM research cigarettes for use in independent clinical studies.
In terms of trailing-12-month EV/Sales, XXII’s 2.12x is 25.8% higher than the 1.69x industry average. Likewise, its 1.45x forward Price/Sales is 27% higher than the industry average of 1.14x.
For the fiscal first quarter ended March 31, 2023, XXII’s operating loss widened 118.8% year-over-year to $17.82 million. The company’s net loss widened 103.9% year-over-year to $18.18 million. Its adjusted EBITDA widened 122.9% year-over-year to $14.72 million. Additionally, its net loss per common share widened 60% over the prior-year period to $0.08.
XXII’s EPS for the quarter ending June 30, 2023, is expected to remain negative. It has a grim earnings surprise history, missing the consensus EPS estimates in three of the trailing four quarters. Over the past year, the stock has fallen 61.4% to close the last trading session at $0.69.
XXII’s bleak outlook is reflected in its POWR Ratings. The stock has an overall rating of F, equating to a Strong Sell in our proprietary rating system. It is ranked #377 in the Biotech industry. It has an F grade for Quality and a D for Growth, Value, Stability, and Sentiment.
In total, we rate XXII on eight different levels. Beyond what we stated above, we have also given XXII a grade for Momentum. Get all XXII ratings here.
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BCYC shares were trading at $24.60 per share on Wednesday morning, up $0.06 (+0.24%). Year-to-date, BCYC has declined -16.89%, versus a 7.86% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
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