But savvy investors, with the recent plunge of biotech stocks, are beginning to take account of the risks and stop being greedy. For one, many investors have realized that so many things can go wrong in the journey to FDA drug approval. Furthermore, there are many hurdles to jump that the capital is enormous.
Now investors are scared of throwing their money at biotech companies. As a result, there has been a massive sell-off in this sector since 2021. In addition, reports of layoffs in biotech companies due to the cash crunch are rife. That means that some biotech companies will soon run out of money very soon.
In this article, I will highlight two biotech stocks in the extremes. One of them, Bluebird Bio (NASDAQ: BLUE), is going through troubled times and has lost 98% of its share value, while the other, Vertex Pharmaceutical (NASDAQ: VRTX), is at the top of the game when it comes to treating cystic fibrosis. Other companies will likely buy the first, or it will go bankrupt, while the second expects to see growth this year.
#DUMP: Bluebird Bio Inc (NASDAQ: BLUE)
Publicly traded bio stocks are coming to grips with investors getting wiser. A popular biotech index, the XBI, has been down 27% since the beginning of 2022 and has lost more than half of its February 2021 all-time highs. As a result, biotech firms are losing much of their value, and BlueBird Bio is not exempt.
The share price of Bluebird Bio has slumped by a whopping 98% from its March 2018 peak, and since going public in June 2013, it has lost 80% of its value. Right now, the prospects for the stock are grim. Its revenue cannot offset costs. In 2021, it had an income of $3.7 million and suffered a loss of $819 million. This was better than 2020 when it reported no revenue and a loss of $619 million. There is substantial doubt right now if the company can continue to exist in the short term.
The management of Bluebird Bio says that they are aware of the situation and taking steps to remedy the cash burn rate. But how fast can that be? They hope to reduce the cash burn rate to $340 million in 2022. They would also cut staff by 30%, lower operating costs by 40%, and find creative ways to extend the cash flow beyond the first half of 2023.
Bluebird's story is typical of many biotech stocks right now. I see no way they can survive unless they merge with another company or get bought over. For now, the stock is a sell. Bluebird Bio Inc (NASDAQ: BLUE) is currently trading at $3.67. This is so mind-blowing when looking at its 2018 high of $154. So if you still own this stock, probably waiting for a miracle for it to bounce back to its all-time high, I think you should just cut your losses and move to the next available train.
#HOLD: Vertex Pharmaceuticals Incorporated (NASDAQ: VRTX)
My team has analyzed Vertex Pharmaceuticals. This is an outstanding stock and one of the highlights of the biotech sector. Vertex pharmaceuticals has a lot going for it that makes us recommend buying the stock.
For one, Vertex Pharmaceuticals has a powerful franchise on cystic fibrosis. This franchise has lasted for more than a decade. Sales of the drug for treating CF, Trikafta, rose by 22% to $7.6 billion in 2021. And the figures are still climbing. In addition, the key patent for the drug will be good until 2037. So, Vertex Pharmaceuticals has a lot of profits to make from it.
Also, the company has a thriving research arm for producing new drugs. For years, Vertex Pharmaceuticals has been pouring money from the CF drug into researching new drugs. This investment has been paying off. For example, a recent drug for treating pains, VX-548, resulted from this investment. This drug is estimated to be worth billions in annual revenue.
Also, Vertex has several promising trial drugs. One of them is VX-880, a trial drug for the treatment of diabetes based on immunosuppression of insulin-producing cells. When approved, Vertex Pharmaceuticals will realize lots of benefits.
The recent sell-off in biotech stocks will not affect stocks like Vertex Pharmaceuticals (NASDAQ: VRTX). The stock is currently trading at $254, up about 14 percent YTD. Has so much to climb. Why not get on this train now?