Sorrento Therapeutics (NASDAQ:SRNE) has worked on many diseases since its founding in 2009, mostly involving monoclonal antibodies and immunotherapy to treat cancer. And in 2020, SRNE stock is the ultimate coronavirus play.
In May, CEO Henry Ji went on TV, suggesting Sorrento’s STI-1499 antibody could neutralize the virus. Since then, Sorrento has bought the rights to a Covid-19 test from Columbia University and SmartPharm, a company working on a vaccine.
Each announcement sent a surge of hope into the market and a surge of buyers into the stock. Shares that opened the year under $5 are now trading over $12.
The Covid-19 Market
Since the market bottomed in March, three distinct sub-markets have developed around Covid-19, the novel coronavirus that has the world economy by the throat.
There is a market for cures. There is a market for vaccines. And there is a market for tests.
Few companies are in all three markets. Sorrento is one of them.
But when dealing with a global pandemic, size matters. Big contracts have been let on promised vaccines from Novavax (NASDAQ:NVAX) and Pfizer (NYSE:PFE), which have boosted their smaller development partners. The big money is going to be on big companies because, whatever the solution turns out to be, this is a big market that will demand big manufacturing support.
Sorrento, however, is not a big company. Sales for the first half of the year came to around $16 million. The company listed assets of $533 million at the end of June, with $198 million in debt. Yet this company has a market capitalization of $3 billion, thanks to announcements that hold enormous promise.
Sorrento’s Promises
On May 15, Sorrento issued a press release saying its STI-1499 “demonstrated 100% inhibition of SARS-CoV-2 virus infection in an in vitro virus infection experiment at a very low antibody concentration.”
Overnight, shares went from $2.60 to $6.78.
Over the next two months, the value of shares tripled again. Sorrento announced its T-VIVA-19 as a vaccine candidate against Covid-19. It said its Abivertinib entered a Phase-2 study for the cytokine storms experienced by patients. Then it said it will buy privately held SmartPharm, saying the combination “may potentially provide longer-acting, single injection protection” from the virus. Finally it announced the agreement with Columbia for a saliva-based antibody test it said could deliver results in 30 minutes.
Enter The Shorts
All this sounds great. But so far, Sorrento is not producing a working vaccine, it is not delivering a cure, and even the test is experimental.
It’s the perfect recipe for a short seller.
Enter Nate Anderson, whose Hindenburg Research had previously taken on Opko Health (NASDAQ:OPK). He first took on Sorrento in May, calling Sorrento’s claims of a cure “too good to be true.” Then he took on the spit test, noting that many others have them, and saying Yale is giving one away.
Sorrento has threatened to take action against Hindenburg, but the market already gave its reaction. It took out one-third of Sorrento’s value in less than a week. Shares that were at $18 have fallen to $12.
The Bottom Line
If Sorrento has a vaccine, a cure and a test for Covid-19 that work, it’s worth a lot more than $2.9 billion.
But if its claims are 100% accurate, I expect a bigger company to look at buying Sorrento, because it takes cash to turn claims into cures.
Sorrento may be a worthwhile speculation. But if you buy it, keep an eye on it, not just by the day but by the hour, the minute, the second. What goes up can come down quickly.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of the environmental thriller Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.
