Dozens of biotechnology companies have locked horns in the race towards producing a Covid-19 vaccine. Sorrento Therapeutics (NASDAQ:SRNE) has gone a step or two further by developing a whole assortment of Covid-19 solutions. However, the clinical prematurity of its portfolio, as well as its weak fundamentals, make SRNE stock a risky bet at this stage.
Despite its challenges, SRNE stock is up around 230% year-to-date while the iShares Nasdaq Biotech ETF (NASDAQ:IBB) is up only 10.2% in the same period. Sorrento has invested heavily in expanding its product base, but it hasn’t been able to gain assistance from external parties. Therefore, the company is forced to take up additional debt and exhaust its organic reserves to fund its programs.
Moreover, the path to profitability for many of its products is also unclear.
Worrying Liquidity Position
Sorrento’s financial position is a major cause for concern. Though it has plans in place for its operating, debt servicing and capital requirements, the management has significant doubts about its effective implementation.
Sorrento raised $196.94 million from a common stock issue, paying off $133.27 million in debt obligations in the first two quarters. Unfortunately, the move is likely to impact shareholders in the form of equity dilution. As it stands, the company has $326 million in liquidity, including cash equivalents, restricted cash, and its investments. On the flip side, debt and lease obligations are at $263 million, which signals there’s enough short-term liquidity for Sorrento for now.
Sorrento’s poor operating performance though, isn’t helping its cause. Though loss per share narrowed to 34 cents, it missed out on analyst estimates of a loss of 22 cents per share. Additionally, Sorrento’s revenues rose 39.1% to $9 million compared to the second quarter last year. Its $147 million long term debt seems tamable compared to the healthy 39.1 revenue growth in the second quarter.
A Whole Assortment of Covid 19 Solutions
Despite liquidity concerns, SRNE stock is up 57% in the past month. Therefore, investors appear to be looking past the company’s financials and looking at its potential. A large part of this optimism is linked to Sorrento’s impressive cocktail of Covid-19 solutions. Its well-rounded portfolio includes antibody treatments, vaccine candidates and diagnostic tests.
One of the most promising elements of Sorrento’s portfolio is its COVI-SHIELD antibody therapy. The company has paired up with Mount Sinai Health System in developing an antibody shield against the coronavirus. The shield could block out the activity of the virus in susceptible areas. At present, the program is in its early testing stage, which, if successful, could produce 200,000 doses per month.
Furthermore, the company is also working on a neutralizing antibody, which it calls COVI-GUARD. If tests are successful, it could result in 100% inhibition. Sorrento is also developing its Covid-19 vaccine, called T-VIVA-19. However, it is perhaps the least promising product in the company portfolio, as several of the company’s competitors will beat it to the market.
Perhaps the company’s best chance of generating immediate revenue is its diagnostic test called COVI-TRACK. The test takes roughly eight minutes or less to show results with an efficacy of over 90%.
The FDA hasn’t accepted it yet but instead, the company secured a license from Columbia University for its saliva test. However, according to short-seller Hindenburg Research, the university received only $5 million in the deal with profitability prospects at a minimum. Sorrento claims that the statements are misleading and has threatened legal action.
Final Word on SRNE stock
Don’t get me wrong — Sorrento has a lot of potential. It has a whole cocktail of Covid-19 solutions, which could prove to be instrumental in its long-term success. However, these products are still clinically premature, and the claims about its saliva test are enough to make me fidgety.
It has done well to manage its debt burden, but without assistance from third-parties, it’s virtually on its own. The next couple of months will be interesting, but for now, I’m bearish about its prospects.
Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University. As of this writing, he did not hold a position in any of the aforementioned securities