Rising interest rates and recent turmoil in the banking sector seem to be affecting the biopharmaceutical industry as it heavily relies on consistent funding for R&D. Furthermore, several regulatory and structural obstacles are hampering the industry’s growth.
Given industry-wide and macroeconomic headwinds, investors should steer clear of fundamentally weak biopharmaceutical stocks Syndax Pharmaceuticals, Inc. (SNDX), Senseonics Holdings, Inc. (SENS), and Sio Gene Therapies Inc. (SIOX). Let’s discuss this in detail.
Last month, the Federal Reserve increased interest rates for the ninth consecutive time, setting a baseline range of 4.75% to 5%. The Labor Department reported that consumer prices showed an overall increase of 5% year-over-year in March, a decline from February’s 6% and a significant drop from June’s 40-year high of 9.1%.
However, core prices, which are considered a better measure of underlying inflation, rose by 0.4% last month after a 0.5% rise in February. This will likely keep the central bank on track for further rate hikes. According to the CME FedWatch Tool, there is more than an 85% chance that the fed-funds rate will rise by 25 basis points to 5%-5.25% in May.
In addition to rising interest rates, banking crises have taken a toll on the biopharmaceutical industry. Scarce capital is prompting massive layoffs and shutdowns across the industry. According to data compiled by BioPharma Dive, more than 5000 employees from biotech and pharmaceutical companies have been laid off so far this year.
Furthermore, the biopharmaceutical industry has been dealing with various regulatory obstacles. The Inflation Reduction Act of 2022 consists of several drug pricing measures, including restrictions on price increases and Medicare negotiations.
Given several macroeconomic and industry-wide headwinds, investors could avoid stocks SNDX, SENS, and SIOX with weak fundamentals.
Syndax Pharmaceuticals, Inc. (SNDX)
SNDX is a clinical-stage biopharmaceutical company that develops cancer therapies. Its two lead product candidates are SNDX-5613, which is in clinical trials for treating specific types of acute myeloid leukemia, and SNDX-6352, or axatilimab, which is in clinical trials for treating chronic graft versus host disease.
In terms of forward EV/Sales, SNDX is trading at 60.74x, considerably higher than the industry average of 3.58x. The stock’s forward Price/Sales of 91.92x is significantly higher than the industry average of 4.27x. Also, its forward Price/Book multiple of 5.12 compares with the 2.70x industry average.
For the fourth quarter that ended December 31, 2022, SNDX’s operating expenses increased 36.4% year-over-year to $42.03 million. Its loss from operations was $42.03 million compared to an income of $95.75 million in the prior year’s period. The company’s net loss and loss per share stood at $39.19 million and $0.62, compared to net earnings and EPS of $96.20 million and $1.81 in the prior-year quarter, respectively.
Analysts expect the company to report a loss per share of $3.12 for the fiscal year ending December 2023. For the fiscal year 2024, SNDX’s loss per share is expected to come in at $3.08.
The stock has slumped 18.8% year-to-date to close the last trading session at $20.80. Moreover, it is trading below its 50-day and 200-day moving averages of $22.91 and $23.35, respectively.
SNDX’s weak fundamentals are reflected in its POWR Ratings. It has an overall D rating, equating to Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has a D grade for Momentum, Growth, and Value. It is ranked #156 out of 164 stocks within the D-rated Medical - Pharmaceuticals industry.
Click here to see the other ratings of SNDX for Stability, Quality, and Sentiment.
Senseonics Holdings, Inc. (SENS)
SENS is a medical technology company that offers continuous glucose monitoring systems for individuals with diabetes. It offers implantable CGM systems for diabetics with real-time monitoring/management. The company provides its products to healthcare providers and patients through a network of distributors and fulfillment partners.
In terms of forward EV/Sales, the stock is trading at 12.65x, 253.3% higher than the industry average of 3.58x. Likewise, its forward Price/Sales of 14.65x is 243.3% higher than the industry average of 4.27x.
For the year that ended December 31, 2022, SENS’ net revenue decreased 52.9% year-over-year to $656 million. Its operating loss widened 20% year-over-year to $68.63 million. In addition, the company registered a loss per share of $0.11 during the quarter.
As of December 31, 2022, the company’s total current liabilities increased 71.1% year-over-year to $31.47 million. SENS’ total assets stood at $177.67 million, compared to $198.93 million as of December 31, 2021.
Analysts expect SENS to report a loss per share of $0.14 for the fiscal year ending December 2023. Similarly, the company’s loss per share is expected to come in at $0.13 for the next fiscal year (ending December 2024).
Shares of SENS have plunged 42.7% over the past six months and 61.7% over the past year to close the last trading session at $0.66. The stock is trading below its 50-day and 200-day moving averages of $0.86 and $1.20, respectively.
SENS’ bleak outlook is reflected in its overall D rating, equating to Sell in our POWR Ratings system. It has a D grade for Growth, Stability, Value, and Momentum. The stock is ranked #50 out of 56 stocks in the D-rated Medical - Diagnostics/Research industry.
Click here to access SENS’ rating for Quality and Sentiment.
Sio Gene Therapies Inc. (SIOX)
SIOX is a clinical-stage company that develops gene therapies for neurodegenerative diseases. It has license agreements with Oxford BioMedica and The University of Massachusetts Medical School to develop and commercialize various gene therapy products to treat such diseases.
On December 14, 2022, SIOX announced that its Board of Directors had determined to dissolve the company and liquidate its assets, including its subsidiaries. The company's Plan of Dissolution entails systematically winding down its business and operations. After shareholder approval of the plan, SIOX plans to file a certificate of dissolution and delist its common stock from the Nasdaq Capital Market.
SIOX reported a net loss of $4.02 million and a loss per share of $0.05 in the third quarter that ended on December 31, 2022. Also, as of December 31, 2022, the company’s total assets came in at $47.27 million, compared to $75.08 million as of March 31, 2022.
Over the past year, the stock has plunged 30.9% to close its last trading session at $0.40. Furthermore, it is trading below its 50-day moving average of $0.41.
SIOX’s POWR Ratings reflect this poor outlook. The stock has an overall D rating, which equates to Sell in our proprietary rating system.
SIOX has a D grade for Growth, Value, Quality, and Momentum. It is ranked #342 out of 416 stocks within the F-rated Biotech industry.
In addition to the POWR Ratings I’ve highlighted, you can see SIOX’s ratings for Stability and Sentiment here.
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SNDX shares were trading at $21.83 per share on Thursday afternoon, up $1.03 (+4.95%). Year-to-date, SNDX has declined -14.22%, versus a 8.52% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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