Sorrento (NASDAQ:SRNE) stock has been on fire in the past month. On the heels of an unsolicited takeover bid, shares have rallied from $1.60 per share at the close on Nov. 22 to $3.95 at the close Dec. 16. In other words, a gain of more than 140%. But with Sorrento rejecting the bid, is there further upside for the biotech company?
Sorrento’s management rejected the $3-$5/share all-cash bid. The company is currently in late-stage licensing and collaborations discussions with larger bio-pharma players. This is a typical playbook for biotech startups like SRNE stock. After a year of dilutive equity offerings and uncertainty, investors may want SRNE to take the money and run. But management may know what’s best for the stock’s future. If their conviction pays off, shares could make further gains in 2020.
SRNE Stock: Come For Non-Opioid Pain Management, Stay For CAR-T Therapies
Biotech stocks are high risk, high return. If you do your homework, you can find great opportunities. SRNE stock is a prime example. The company has managed to get a product to the commercialization stage. This gives them two options. Either sell out a big premium to a strategic acquirer. Or, in the case of SRNE, pursue partnerships and licensing deals with big pharma.
But this overview makes biotech investing sound easier than it is. It’s hard to “wing it” when analyzing biotech companies like Sorrento stock. Wall Street resorts to hiring MDs to help them separate the wheat from the chaff. That should give you an idea of what you are up against.
Yet, in the case of SRNE stock, opportunities are spelled out for you. Sorrento focuses on immuno-oncology and non-opioid pain management products. The “non-opioid” part is key to the Sorrento story. In the aftermath of the opioid crisis, demand for alternative pain management is on the rise.
Sorrento stock has two non-opioid pain plays. Firstly, ZTlido. From Sorrento’s 58%-owned subsidiary Scilex, the product launched in October 2018. This product targets postherapetic neuralgia. Secondly is Resiniferatoxin (RTX). RTX’s knee pain applications are currently in clinical trials. RTX products for other types of pain (cancer, post-surgical) are also in development.
In addition, SRNE stock has immuno-oncology (cancer treatment) products in the pipeline. These are also referred to as CAR-T therapies. Sorrento has a long way to go before commercializing these products. But if they win Food and Drug Administration approval, CAR-T could be a game-changer for the stock.
However, does SRNE stock have the capitalization to go at it alone? Let’s dive into the company’s financials and find out.
Can Sorrento Stock Afford to Go At It Alone?
Biotech is a lot like poker. You gotta know when to hold ’em, and you gotta know when to fold them. You also need to know when to walk away. By which I mean sell out to a larger biotech or pharmaceutical company. This is more an art than a science.
Sell to an acquirer too early, and you leave money on the table. Take chances and go at it alone, and you could exhaust your financial resources. Simply put, biotech companies typically aren’t cash cows. Cash is their fuel, as developing new products requires extensive research and development activities.
At first glance, it doesn’t look like SRNE stock has the cash to sustain operations. As of Sorrento’s latest quarterly report, the company had $34.7 million in cash on hand. But SRNE had $53.3 million in operating losses for the quarter alone.
However, thanks to their portfolio, Sorrento stock has many options. They are not limited to more dilutive equity offerings. The company has considered an IPO for Scilex. The licensing/collaboration discussions could improve Sorrento’s cash situation as well. Licensing could help fund R&D. Collaboration could also help with R&D costs.
Do Your Homework Before Buying
With any biotech stock, there is a key caveat. Are you versed in the intricacies of FDA approvals? In other words, how much do you understand investing in biotech? Retail investors can find opportunity in names like SRNE stock. But if you don’t do your homework, you can get burned. Big time.
The fortunes of Sorrento stock can turn on a dime. SRNE stock has won big thanks to ZTlido. But all bets are off whether the company’s CAR-T research will strike oil. The rejected takeover bids show big bio-pharma is confident in Sorrento’s potential. Yet, this shouldn’t be your reason to buy.
In conclusion, what’s the play for SRNE stock? If you are an experienced biotech investor, shares could be a buy at today’s prices. But if you are a biotech rookie, tread carefully. Speculating in biotech is the polar opposite of “set it and forget it” investing. Know what you’re doing before putting in that buy order.
As of this writing, Thomas Niel did not hold a position in any of the aforementioned companies.