Biotech stocks have gotten caught up in the broader technology sector sell-off. The benchmark iShares Biotechnology ETF (NYSEARCA:IBB) has fallen from a peak of $175 in 2021 to just $130 today. There are few signs of a biotech stock bubble at this point.

That said, even with the sector at an overall discount, that’s not an all-clear for the whole sector. Many of the worst biotech stocks either have a drug prospect that is unlikely to get FDA approval or one that simply never garners much commercial momentum once it is launched.

Biotech is a tricky sector due to the challenges around getting FDA approval and then being able to convince doctors to prescribe the drug once it is live. And in the case of these three overvalued biotech stocks, the business plan simply isn’t working as hoped.

Cassava Sciences (SAVA)

Cassava Sciences (NASDAQ:SAVA) is a small biotech company attempting to develop a drug to treat Alzheimer’s disease.

SAVA stock skyrocketed from $3 in 2020 to a peak of more than $100 per share in 2021. This came amid a great deal of excitement around clinical data, which purported to show a strong beneficial effect from Cassava’s drug simufilam.

However, on closer scrutiny, the data seemingly doesn’t stand up on its own. Concerned doctors and short sellers alike pointed out considerable areas of concern with Cassava’s data. Indeed, there’s a whole website devoted to shining light on Cassava’s alleged data and clinical trial practices.

The hammer fell for SAVA stock in 2022 when the U.S. Justice Department opened a criminal investigation into Cassava to examine whether it had manipulated research results for simufilam. Needless to say, this is far too dodgy for the average investor to participate in. It seems unlikely that simufilam would earn FDA approval anytime soon, so folks should avoid SAVA stock for the foreseeable future.

MannKind (MNKD)

One area where biotech investors lose money is in drugs that are long shots, at best, to ever get FDA approval. Another area is where a drug gets approval but has insufficiently favorable commercial prospects. MannKind (NASDAQ:MNKD) falls into the latter category.

The idea for MannKind was hatched back in 1997 when founder Al Mann considered the potential for a dry insulin compound for treating diabetes. After a long and winding road, the FDA approved MannKind’s insulin formulation, Afrezza, in 2014.

However, that launch was spectacularly unsuccessful, with partner Sanofi (NYSE:SNY) quickly pulling its support for the drug. By 2016, researchers were asking why inhaled insulin was a failure in the market.

Eventually, Afrezza returned to production. But it has had limited success in its second run. It is generating $12 million or so per quarter in revenues. This is not an encouraging figure for a drug that has had FDA approval since 2014. Even adding in some collaboration and partnership revenues, MannKind is still losing money.

MannKind’s current $1.2 billion market capitalization is far too high for a company whose lead product simply hasn’t generated any sort of meaningful commercial traction despite nearly a decade of best efforts.

Amarin (AMRN)

Amarin (NASDAQ:AMRN) is another company with an approved drug but has struggled to turn that into commercial success.

The firm is the creator of Vascepa. Vascepa is a prescription-only omega-3 fatty acid product. It is intended to be used, in conjunction with diet, to reduce triglyceride levels in adults who suffer from severe hypertriglyceridemia.

Vascepa proved to be efficacious enough to garner FDA approval but not enough to become a widely prescribed drug. There also remains some skepticism about the necessity of a prescription version of fish oil as opposed to much cheaper over-the-counter options.

The FDA initially approved Vascepa in 2012 for some limited use cases and gave it wider approval in 2019. However, the benefit from this was short-lived. Amarin’s revenues peaked at $614 million in 2020. It slumped to $369 million in 2022, and analysts expect another decline this year.

Not surprisingly, Amarin is unprofitable, and AMRN shares are trading in penny stock territory. Despite that, the stock is considerably overvalued. Due to heavy dilution, Amarin still has a market capitalization of $500 million. That’s far too much for a company whose approved drug has largely been a commercial failure and whose sales are now in severe decline.

On the date of publication, Ian Bezek 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.