Biotech stocks  had a bull run in 2020 on the back of the global health crisis and a rise in chronic and lifestyle diseases. An ageing population in the U.S.  is another factor that has boosted the demand for specialized drugs. But the relatively speedy development of the COVID-19 vaccine has signaled to some observers that all biotechnology companies will be similarly successful in finding cures for other rare ailments.

The Robinhood platform last year saw millennials rush to bet on many biotech stocks to benefit from the industry’s growth prospects. This “market-hype-driven" investing led to many fundamentally weak stocks securing positions on the Robinhood 100 list. There are many penny stocks in this list that aren’t worthwhile investments, we think, and investors should steer clear of them.

Catalyst Pharmaceuticals, Inc. (CPRX), Vaxart Inc. (VXRT), and Sorrento Therapeutics, Inc. (SRNE) are three such companies. They  are struggling with internal issues, so it is advisable to avoid them for now.

Catalyst Pharmaceuticals, Inc. (CPRX)

CPRX is a biopharmaceutical company that develops and commercializes therapies for patients suffering from neurological, rare debilitating, and chronic neuromuscular diseases in the U.S... The company treats patients who have lambert-eaton myasthenic syndrome with Firdapse, a proprietary form of amifampridine phosphate. Firdapse is also undergoing  trials for curing congenital myasthenic syndrome, and anti-MuSK antibody positive myasthenia gravis.

During the third quarter ended September 30, 2020, CPRX’s total revenue declined  5.1% year-over-year to $29.3 million. However, its EPS rose to $0.41 from $0.13 posted in the same period last year, due to a tax-accounting benefit. . The stock has lost much of its appeal since August 2020 when  its flagship drug, Firdapse, failed to meet its primary or secondary goals in its Phase 3 clinical trials.

The consensus revenue estimate for the fourth quarter ended December 31, 2020 is  $30.4 billion, signifying a 0.8% year-over-year growth. CPRX’s EPS is expected to rise 12.5% to $0.09.

During the past year, CPRX has lost 17.3% to end yesterday’s session at $3.55. Over the past six months, the stock retreated  29%.

CPRX’s dismal prospects are apparent in its POWR Ratings. It has an overall rating of “Sell” with a “D” for Trade Grade, a “C” for Buy & Hold Grade and Peer Grade and a “B” for Industry Rank. It is currently ranked #89 of 262 stocks in the Medical - Pharmaceuticals Industry.

Vaxart Inc. (VXRT)

VXRT is a clinical-stage biotechnology player that develops oral recombinant protein vaccines formulated on the basis of its proprietary oral vaccine platform. The company also develops therapeutic immune-oncology vaccines for cervical cancer and dysplasia caused by human papillomavirus.

VXRT’s revenue slumped 42.6% year-over-year to $0.3 million in the third quarter ended September 30, 2020, due to reduced revenue from its contract with Janssen, for which activities were mostly completed between July 2019 and June 2020. However, its net loss per share narrowed to $0.08 compared to a loss of $0.32 posted in the prior year period. VRTX incurred a loss on account of increased research and development expenses for its COVID-19 vaccine candidate, VXA-CoV2-1.

Analysts expect revenue for the quarter ended December 31, 2020 to be $2.9 million, indicating a 25.9% year-over-year decline. Loss per share for the quarter is likely to be $0.08.

The stock was under heavy pressure in December after the company revealed that it was under investigation by the federal government and the SEC regarding claims it allegedly made about being  selected by Operation Warp Speed (OWS) for accelerated vaccine development. In addition,  the company released details about  ongoing class action lawsuits that a few shareholders had filed against it. The company also fueled fears of stock dilution after its share offering last month.

VXRT rallied 1775.2% in the past year to close at $6.73 in yesterday’s trading session. However, the stock has  lost 24.1% during the past six months.

VXRT’s POWR Ratings are consistent with this bleak outlook. VXRT is rated “Sell” with an “F” for Trade Grade and Buy & Hold Grade and a “D” for Peer Grade, and Industry Rank. It is currently ranked #197 of 491 stocks in the Biotech Industry.

Sorrento Therapeutics, Inc. (SRNE)

SRNE is a clinical-stage biopharma company that develops treatments for cancer, autoimmune, inflammatory, and neurodegenerative diseases. Sorrento Therapeutics and Scilex are the two segments that the company operates in. SRNE also develops cancer therapeutics by leveraging its proprietary G-MAB antibody library and targeted delivery modalities.

During the third quarter ended September 30, 2020, the company’s total revenue climbed 103.4% year-over-year to $11.7 million. Loss per share for the quarter narrowed to $0.33 compared to $0.50 posted in the prior year period.

In May 2020, SRNE’s Founder and CEO, Dr. Henry Ji, claimed that the company had discovered an antibody that could block and neutralize COVID-19 with 100% effectiveness. However, the company faced criticism around  a lawsuit that alleged its “false and misleading" claims over a cure for COVID-19 caused shareholders to lose money. The Street expects revenue for the quarter ending March 2021 to be $42.7 million, indicating a 453% year-over-year growth. EPS for the quarter is likely to be $0.71.

SRNE ended yesterday’s trading session at $7.39, surging 104.4% during the past year. Over the past six months, the stock declined 1.9%.

SRNE’s dismal prospects are also apparent in its POWR Ratings. It has an overall rating of “Sell” with an “F” for Trade Grade, Buy & Hold Grade and a “D” for Peer Grade and Industry Rank. It is currently ranked #181 of 491 stocks in the  Biotech Industry.

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CPRX shares were trading at $3.43 per share on Friday afternoon, down $0.12 (-3.38%). Year-to-date, CPRX has gained 2.69%, versus a 0.87% rise in the benchmark S&P 500 index during the same period.

Namrata is an accomplished financial journalist, with nearly a decade of experience. She specializes in interpreting news releases and framing investment strategies, and has worked with some of the leading companies in real estate, banking, insurance, mutual funds, financial research, fintech, and investment education.

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