3 Reasons to Take a Chance on Sorrento Stock

As others have pointed out, Sorrento (NASDAQ:SRNE) is somewhat risky. After all, SRNE stock is trading at a huge trailing price-sales (P/S) ratio of over 50. What’s more, companies focused on early-stage drugs are inherently volatile.

floating molecules representing biotech stocks like SRNE stock
Source: Shutterstock

Yet, Sorrento has multiple, extremely promising tools that could be employed against the novel coronavirus.

Here are the three main reasons why I’m upbeat on the company’s outlook in the medium-term.

SRNE Stock: Abivertinib Could Alleviate a Deadly Coronavirus Symptom

In lab tests, Sorrento’s cancer drug, abivertinib, has reduced the extent to which human immune-system cells overreact to the coronavirus. Such overreactions — related to a condition called “cytokine storm” — have been implicated in the deaths of many coronavirus patients.

Importantly, in July Sorrento received permission from the FDA to conduct a Phase 2 randomized trial of the drug. Phase 2 trials can include up to 300 patients, and Regeneron recently applied to the FDA for emergency approval of its antibody based on the results of a trial involving 275 patients.

Since Regeneron began its trial in June, I believe that Sorrento could announce favorable trial results for abivertinib within the next several weeks and apply for emergency-use authorization shortly thereafter. The FDA could then grant the authorization a few weeks later.

Another major positive point in abivertinib’s favor is the fact that it has already been tested on about 600 cancer patients. If the drug wasn’t fairly well-tolerated by those patients, Sorrento would, in all likelihood, not have made the decision to license it from its manufacturer, Acea, and subsequently agree to acquire Acea.

So abivertinib is probably safe.

The Outlook of Sorrento’s Coronavirus Test Is Still Strong

In an August column on SRNE stock, I noted that Sorrento’s rapid coronavirus test had an important advantage over a competing diagnostic tool launched by Abbott (NYSE:ABT). Specifically, the latter company’s test, which was approved by the FDA, “requires an uncomfortable nasal swab and must be administered by a health professional.” Conversely, Sorrento’s test only requires people being tested to provide saliva and appears to be simple enough for anyone to administer.

Although in August the government paid Abbott to deliver 150 million of Abbott’s test swabs, most businesses do not appear to be utilizing the diagnostic tool. I believe that businesses, many of which are already struggling, are reluctant to hire a healthcare professional to administer the test and do not like the idea of subjecting their customers to uncomfortable nasal swabs.

In light of companies’ failure to utilize Abbott’s test on a wide scale, I believe that there will be tremendous demand for Sorrento’s test, which is cheap and rapid as well as very easy to administer and take.

Sorrento Has Many Other Shots on Goal

As multiple other pundits have pointed out, Sorrento is developing a number of other therapies for the coronavirus as well as a vaccine for the illness.

One antibody in particular, STI-1499 is quite promising because, according to Sorrento, it has completely neutralized the coronavirus in lab tests. And, indicating that the FDA believes that the antibody has some potential, the agency has approved a Phase 1 trial of the drug.

As I pointed out in a previous column, SmartPharm, which Sorrento agreed to buy in August, is quite promising. More specifically, Sorrento has said that it used SmartPharm’s technology to create an antibody that ““has the potential to generate long-lasting anti-viral protection with a single intra-muscular administration.”

If Sorrento can develop antibodies that protect people from viruses for a long time with a single injection, eliminating the need for extremely expensive vaccines that generally take many months to test, the company will do very well over the longer term.

The Bottom Line on SRNE

Sorrento has huge potential, yet the market capitalization of Sorrento’s stock is just $2.2 billion. Consequently, I advise risk-tolerant investors to buy the stock in SRNE at its current level.

On the date of publication, Larry Ramer held a long position in Sorrento. 

Larry has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Among his highly successful contrarian picks have been solar stocks, Roku, and Snap. You can reach him on StockTwits at @larryramer. Larry began writing columns for InvestorPlace in 2015.

Article printed from InvestorPlace Media, https://investorplace.com/2020/10/three-reasons-to-take-a-chance-on-srne-stock/.

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