Renewed interest in emerging biotechnology companies lifted Sorento Therapeutics (NASDAQ:SRNE) recently. Excessive bearish volumes against the stock could squeeze them out further. If Sorrento continues to post positive news in its drug and testing developments on the novel coronavirus, then SRNE stock may keep rising.
At a 34.3% short float, the bearish bet on Sorrento is getting too crowded.
The company posted a pair of news releases that caught investor attention. On Sept. 17, the company received U.S. Food and Drug Administration approved its Phase 1 clinical trial of STI-1499. COVI-GUARD is a neutralizing antibody for treating hospitalized Covid-19 patients.
Sorrento previously posted preclinical studies of STI-1499. It “demonstrated 100% in vitro neutralizing effect against SARS-CoV-2, preventing infection of healthy cells.” The company then evaluated STI-1499 on multiple strains. Once again, it proved 100% effectively. So, when Sorrento presented the results of infected hamsters to the FDA, it translated to a 160mg dose for a human patient.
On Sep. 14, Sorrento announced an exclusive licensing agreement with Mayo Clinic. It will supply “stable antibody-drug-nanoparticle albumin-bound (nab) immune complexes (ADNICs) targeting many types of human diseases.”
This technology produces antibody drug conjugates that may play a role in chemotherapy. ADNIC technology is also more efficient because of its absorption in targeted cancer cells. Also, the non-covalent binding will facilitate “delivery of both a monoclonal antibody and chemotherapeutic payload” to the tumor.
SRNE Stock in Cancer Treatment
Having a connection with Mayo Clinic and Columbia University is a vote of confidence for Sorrento. Not only is it involved in developing rapid on-site detection tests for coronavirus, it is also licensing the next generation of cancer treatment. The more drugs the company has against a wide variety of diseases and infections, the more diverse its business gets. When it comes to biotechnology investing, investors should demand such a robust business model.
Markets are focused on making a quick buck by trading the hottest Covid-19 vaccine developer. Yet Sorrento is under a short attack.
Sorrento works in three markets. From its investor presentation (slide 5), it is involved in Covid-19, Immuno-Oncology and non-Opioid Pain Management. When generic drug giants like Endo International (NASDAQ:ENDP) and Teva Pharmaceutical (NYSE:TEVA) are out of favor because of opioid litigation, Sorrento’s pain management looks appealing.
In 2018, the FDA approved Sorrento’s pain relieving patch ZTlido. And because the stock barely moved by much back then, investors are most interested in its Covid-19 developments.
COVI-TRACE, a rapid on-site virus detection solution, is under EUA filing in the final stages. It will reach commercial scale in the fourth quarter of 2020. COVID-TRACK is a rapid antibody detection. Once it reaches manufacturing scale, its usage should boost the bottom line. The FDA granted the company emergency use of COVI-TRACK on June 10.
Investors may only guess what Sorrento’s future revenue will look like. An educated guess may include the following metrics in a five-year discounted cash flow revenue exit model.
|Discount Rate||12.5% – 9.0%||11.00%|
|Terminal Revenue Multiple||8.1x – 9.1x||8.6x|
|Fair Value||$10.60 – $13.20||$11.73|
Model courtesy of finbox: click on this link to change metrics
Assuming that revenue grows by at least 50% annually, Sorrento shares could be worth over $11.
Risks and Your Takeaway
The Covid-19 vaccine and testing market is getting highly competitive. As other firms reach market sooner, Sorrento cannot fall behind its research and development efforts. If management scales production and supplies its treatments to those who need it, markets will take notice. This could hurt the bears further.
On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article.