To no one’s surprise, two of the biggest winners in the markets for the first half of 2020 were the biotechnology and pharmaceutical sectors. With economic and societal calamities linked to the novel coronavirus, it’s vitally important to forward a solution. One of the companies that stepped up to the plate was Sorrento Therapeutics (NASDAQ:SRNE). Primarily specializing in oncology, the company’s push toward Covid-19 treatments and testing platforms dramatically boosted SRNE stock.
And what a wild ride it has been! At one point, SRNE stock was approaching the $20 level, a price point last seen in 2015. But historically, Sorrento has never consistently maintained its momentum. Unfortunately, it appears that might be the case again, at least for the near term.
I want to be clear: the volatility is not isolated to Sorrento. As you know, the second half of this year has neither been kind to sudden Wall Street darlings like Novavax (NASDAQ:NVAX) nor speculative ventures like Inovio Pharmaceuticals (NASDAQ:INO). Here, the reality of the vaccine race is probably coming to haunt the sector.
Even in the best of circumstances, vaccines take years to develop and distribute. President Donald Trump would like to ramp up this process by throwing money at it; hence, the White House initiative, Operation Warp Speed. Unfortunately, you can’t bribe science. Sure, extra money help,s but it likely has diminishing returns, especially in the biotech/pharmaceutical arena.
Further, it’s not just vaccine plays that have taken a hit. Those companies which specialize in treatments, such as Gilead Sciences (NASDAQ:GILD) have also underperformed in the second half. Thus, it’s unlikely that SRNE stock would be the one name to escape the volatility.
Buy SRNE Stock on the Science, Not Emotions
Despite Sorrento Therapeutics shares collapsing since this year’s high, some analysts are still holding out hope. To be fair, their optimism isn’t completely unjustified.
In possibly the near future, the Food and Drug Administration can grant one or two approvals for the company: first, the biotech is waiting on its emergency use authorization for its COVI-TRACK coronavirus antibody test and second, it’s standing by for a green light to its antibody therapy, COVI-GUARD.
Let’s tackle the latter first. COVI-GUARD, otherwise known as STI-1499, generated headlines when Sorrento released a statement stating that it demonstrated “100% inhibition” of the novel coronavirus. Sounds great, right?
Well, I know more than a few people assumed that this was a perfect cure for Covid-19. However, the test results came from in-vitro or laboratory conditions. Investors shouldn’t get too excited about SRNE stock until STI-1499 proves itself in human trials. Subsequently, that’s what Sorrento is waiting for.
As for COVI-TRACK, this is a “tradeoff” solution that may not pan out. COVI-TRACK is an antigen point of care (POC) test. Primarily, this testing platform is attractive because, as Sorrento states, it’s very quick (“eight minutes or less” to get results).
But if you’re thinking that speed results in a tradeoff with accuracy, you’re absolutely correct.
Here’s the issue — POC tests require a minimum threshold of antibody load to function properly. So, if patients have a lower antibody load (i.e. they’re Covid-positive but don’t aggressively exhibit symptoms) than the threshold, this could lead to false negatives.
Indeed, the Centers for Disease Control and Prevention already warned about this possibility, which is why the true gold standard in testing today is quantitative polymerase chain reaction (qPCR) testing, which features higher sensitivities.
A Harsh Reality Check
While testing is important in combating the coronavirus, I will argue that you need accurate testing for such an endeavor to work. Otherwise, you just end up negating prior efforts.
For instance, with testing, you obviously don’t want any false readings if you can help it. But if you had to choose, it’d be much better to have false positives than false negatives. With the former, patients end up going above and beyond in terms of mitigation. But with the latter, sick people could end up unknowingly infecting many others.
While I appreciate Sorrento’s antigen POC test proposal addressing the time concern, if the accuracy isn’t there, time is a moot point. In that sense, I’m not entirely sure if the FDA will grant the emergency use authorization. Again, if the test is not accurate, the thing could spit out results in two seconds — it just wouldn’t matter.
Also, I’m not sure if STI-1499 will receive a Phase 1 testing approval. As an inhibitor, it has stiff competition, such as Gilead’s remdesivir. Frankly, I’m not really sure that STI-1499 will be all that special when brought under human clinical trials.
I could be wrong about that. But here’s my take. Before you decide to invest in SRNE stock, make sure you’re basing your decision on the science, not on emotions. If you do, you’ll probably adopt a more conservative framework.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.
