Shares in Sorrento Therapeutics (NASDAQ:SRNE) had been steadily on the rise through the summer — a move that accelerated in August. SRNE stock spiked to close at a five-year closing high of $18.82 on Aug. 10, then began to drop. Shares in the biotech company are down 57% over the past several weeks. What gives? Is the steep decline a buying opportunity, or are investors losing interest in Sorrento for a reason?
Like so many biotech and pharmaceutical stocks in 2020, you can chalk up the dramatic movement to the novel coronavirus.
Spike on the Claim of a Covid-19 Cure
Sorrento Therapeutics has been hard at work in 2020 on solutions to the coronavirus pandemic. Sorrento’s slate of projects includes antibody tests for blood and saliva, Abivertinib to combat Covid-19’s dangerous cytokine storms, and a coronavirus vaccine candidate. The company has also been working on COVI-GUARD, a neutralizing antibody (STI-1499) that could provide protection against Covid-19.
The drama actually began in May. Fox News published a report that made COVI-GUARD sound like a done deal — a way to protect against the coronavirus before an actual vaccine hit the market. In an interview, Sorrento’s CEO told Fox News:
“We want to emphasize there is a cure. There is a solution that works 100 percent. If we have the neutralizing antibody in your body, you don’t need the social distancing. You can open up a society without fear.”
SRNE stock shot up 158% in a day when that interview was published. Then the fallout began.
Hindenburg Research Report Sinks SRNE Stock
Short-seller Hindenburg Research accused Sorrento of hyping a solution that was too good to be true. In its report, Hindenburg Research suggested Sorrento had ulterior motives. According to Hindenburg, “Sorrento was nearly out of cash and facing growing questions of solvency leading up to its surprise cure announcement. The company put paperwork in place to sell $500 million of stock just weeks in advance of ‘discovering’ the cure.” [Emphasis Hindenburg’s.]
The fallout resulted in SRNE giving back much of its gains. However, in June it began to climb again. Even if the claims for COVI-GUARD had been overstated, Sorrento’s T-VIVA-19 coronavirus vaccine, COVI-TRACE detection test, and Abivertinib cytokine storm treatment still held promise.
What Happened in August?
There has been plenty of drama surrounding Sorrento in August.
The FDA announced Emergency Use Authorization for use of a saliva-based Covid-19 detection test developed at Yale University. It competes with Sorrento’s COVI-TRACE solution. On Aug. 23, the FDA issued another Emergency Use Authorization, this time for use of blood plasma in treating coronavirus patients. This move shook the stocks of many Covid-19 vaccine chasers. Also in August, Sorrento terminated its CFO and filed legal action against Hindenburg Research.
All said, the dramatic events of August have not been kind to Sorrento shareholders, with SRNE stock dropping 57% from its Aug. 10 peak.
Bottom Line on SRNE Stock
Pharmaceutical and biotech companies that are in the hunt for a coronavirus vaccine are a big deal right now. Many are among 2020’s hottest stocks. Leading contenders like Inovio (NASDAQ:INO) and Moderna (NASDAQ:MRNA) are closely followed by dozens of investment analysts.
Sorrento Therapeutics doesn’t get that same level of attention. The Wall Street Journal is tracking just two investment analysts offering coverage of SRNE. They both have the stock rated as a buy. One has a 12-month price target of $21, the other $30 for an average $25.50 target. Even if you take the low target, that’s a hefty 158% upside over the stock’s current $8 range.
As with any small biotech firm working on coronavirus solutions, there’s the potential for Sorrento Therapeutics to hit on a solution that becomes richly rewarding. And Sorrento has enough irons in the fire that even if it doesn’t hit the jackpot of an approved coronavirus vaccine, it can still benefit from other aspects of the pandemic, including infection detection.
However, any coronavirus wins would be relatively short-term. And then it’s back to Sorrento’s current portfolio of non-opioid pain management and immuno-oncology — markets that had SRNE stock trading at $3.39 to open 2020. There’s also the shadow of the Hindenburg Research accusations hanging over the company. Its recent agreement to acquire SmartPharm could boost it, but it’s too early yet to tell.
Whether you feel Sorrento stock at the $8 level is an opportunity or over-priced largely depends on whether you think the company’s Covid-19 bets will ultimately pay off.
On the date of publication, Brad Moon did not have (either directly or indirectly) any positions in the securities mentioned in this article.