Sorrento Therapeutics (NASDAQ:SRNE) stock is garnering a lot of interest after rising from penny stock status to potential Covid-19 winner. Investor interest in the San Diego-based therapeutics firm which works primarily in oncology is not unwarranted. Sorrento has built out a Covid-19 program with seven products.
Among Sorrento’s seven Covid-19 products, only one has progressed meaningfully toward FDA acceptance. Two are tests. Of Sorrento’s two tests, one is under FDA emergency use review and the other should follow suit. Four of Sorrento’s products, including its vaccine candidate, are in preclinical stages.
So, why are markets so interested in SRNE stock? I’d argue that Sorrento investors ought to show interest in it because of Abivertinib, and Abivertinib alone.
SRNE Stock Is all About Abivertinib
Readers might argue that Sorrento also has promise thanks to recent news regarding its COVI-TRACE product. True, it has. However, that press release doesn’t tell us much about timelines. COVI-TRACE may well never come to market either. More importantly investors need to consider the potential revenue Sorrento might receive. According to USA Today’s fact check, a test costs around $120. And that’s what COVI-TRACE is: a test.
However, according to The Wall Street Journal, Covid-19 drug Remdesivir costs $3,120 on average.
The point here is that even if both are effective and widely used, Abivertinib should sell for much more than COVI-TRACE. Thus, there should be more money in it although tests are used more often. Further, Abivertinib is already in Phase-2 clinical testing. COVI-TRACE is preclinical.
Buyer Beware
Investors are getting caught in the trap of investing in companies which simply take shots in the dark regarding Covid-19. The point is that there are perhaps hundreds of companies developing Covid-19 tests. Investors can’t throw money at them based on thin press releases alone.
Abivertinib has two applications. It is being scrutinized as an immunotherapy in non-small cell lung cancer (NSCLC). It is currently in Phase 3 clinical testing. This is interesting and perhaps a compelling reason to purchase SRNE shares in and of itself.
Yet that is not why we are here. Markets are interested in its Covid-19 application.
Abivertinib is being evaluated in regard to its ability to combat cytokines and the so-called cytokine storm in Covid-19. According to New Scientist, a cytokine storm is a severe reaction to infection leading to inflammation which can be fatal. Scientists believe the cytokine storm phenomenon is what causes death in Covid-19. Thus, Sorrento can potentially play the hero if it can solve the cytokine response issue.
Let’s assume that Abivertinib gains FDA approval for both its cancer and Covid-19 applications. In this imaginary exercise, Sorrento would surely make a lot of money, sending SRNE stock sky high.
Sorrento Is Still a Biotech
Investors are aware that biotechs are highly speculative. These companies often fizzle out after years upon years of operating at a loss. Biotech companies are essentially companies fundamental analysts would almost always recommend to avoid. Their intrigue is thrill, chance, and the potential for high returns.
Sorrento falls into this category. In the first six months of 2019 it suffered an operating loss of $218 million. In the same period in 2020, it has racked up $151 million in the red. Essentially the company has a bunch of losses and future liabilities including $147 million in long-term notes (page 15).
Should You Buy?
I believe those numbers I’ve just mentioned should at least give potential investors pause. They don’t represent insignificant troubles. Yet, at the same time, Abivertinib’s revenue potential is high. Just how high, I can’t say. But I’d have to assume that Sorrento could likely turn their ship around if Abivertinib’s Covid-19 application is the real deal. Perhaps likewise, as a cancer therapeutic.
But to give an accurate estimate of revenue attached thereto is difficult. Let’s just assume that it would be a reversal of fortune in any case.
I can’t recommend a purchase because I need more concrete numbers regarding potential revenues. And for those seriously considering it at this point, I’d suggest a deeper dive in that direction.
As of this writing, Alex Sirois did not own shares of any of the stocks mentioned in this article at the time of this writing.
