So many contenders in the novel coronavirus vaccine lineup, so little time. One of the entrants in the densely populated field is Sorrento Therapeutics (NASDAQ:SRNE). Up over 130% year-to-date, SRNE stock reflects investors’ enthusiasm for vaccine plays.
Down 60% from its previous high, Sorrento stock also reflects the risks of vaccine investing, pandemic or not.
Something else investors should acknowledge is that for the week ending Oct. 15, Sorrento lost 7%. That occurred over a time frame in which a slew of large, well-heeled pharmaceuticals companies reported struggles in their Covid-19 vaccine trials.
That’s confirmation that vaccine stocks are getting correlated with each other. It’s also a reminder that if companies such as Johnson & Johnson (NYSE:JNJ), AstraZeneca (NYSE:AZN) and Eli Lilly and Company (NYSE:LLY), among others, are encountering difficulties in developing a Covid-19 vaccine, it stands to reason smaller entities like Sorrento can and will find the footing equally difficult.
Why Risks Abound with SRNE
On the surface, one bit of good news with Sorrento is that it has a pipeline, including cancer and pain management treatments. Those could be potential diversifiers for the company should its coronavirus vaccine efforts not bear fruit.
However, Sorrento doesn’t have a deep history of clinical success. And speaking of its vaccine plans, it’s got a lot of pots on its stove on the moment. Meaning, as is the case with some other contenders in the Covid-19 vaccine race, Sorrento lacks a singular focus. Sorrento is a much larger company, but between the lack of clinical success and multiple vaccine irons in the fire, there are parallels with a name like iBio (NYSEAMERICAN:IBIO), a company with multiple vaccines ideas that have yet to bear fruit.
It’s not an apples-to-apples comparison because Sorrento is engaged on three coronavirus-fighting fronts: Testing, therapeutics and vaccines. In a normal operating environment, that would be a plus, but 2020 isn’t normal. Other companies are proving adept at testing, meaning a vaccine is the name of the game. That’s how airlines fly at fuller capacity. It’s how kids go back to school. It’s how Disneyland reopens.
On that note, Sorrento faces another iBio-esque problem: It’s running low on time because its vaccine candidate, T-VIVA-19, isn’t in a clinical trial. To be fair, its Abivertinib therapeutic is in Phase 2 trials, but on its current trajectory, T-VIVA-19 could be more than away from regulatory approvals and that’s just not going to cut it.
All of this is important because 11 Covid-19 vaccines are in Phase-3 trials while another 15 are at the Phase 2 stage. Translation: Sorrento is pretty far behind the eight ball here.
Sorrento faces other challenges, including some investors not being keen on the compensation package proposed for CEO Henry Ji. Ji’s pay would be tied to Sorrento’s market capitalization, meaning that if that metric jumps to $5 billion, the CEO would get 25 million shares.
Two major shareholders oppose the idea. In theory, tying an executive’s compensation to market value increases aligns his or her interests with those of shareholders. However, there’s a matter of optics at play here.
That proposal was revealed in August when SRNE stock had a market capitalization of $4.6 billion. Interesting time to propose the award of 25 million shares to a CEO when the stock needs to gain less than 10% to trigger the prize.
As of Oct. 15, Sorrento is a $2.1 billion stock. Perhaps if the market value more than doubles, Ji does deserve a big payday, but it’s going to take a big, positive surprise on the vaccine to make such a move even remotely possible.
On the date of publication, Todd Shriber did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Todd Shriber has been an InvestorPlace contributor since 2014.