As shares pull back, is now the time to buy Sorrento (NASDAQ:SRNE)? The biotech play soared over the summer, as its novel coroanvirus catalysts fueled speculation. But, as the company fell behinds its rivals in the race for treatments/therapies, SRVE stock quickly sank back to prior levels.
After hitting prices as high as $19.39 per share in August, the stock changes hands today for around $7.05 per share. In other words, a more than 63% decline. And, while there’s potential for a comeback, it’s anything but guaranteed.
How so? Sure, Sorrento has plenty of options still in play that could pay off in the coming year. But, if its current Covid-19 pipeline fails to deliver, expect disappointed investors to punish the stock further.
That is to say, even after the stock’s massive dive in the past two months, shares could easily fall back to its pre-pandemic prices. In other words, well under $3 per share. And that’s really the gamble. If a couple of the items in its pipeline are hits, shares may have a shot of bouncing back. Yet, those buying today also face the risk of potential losses around 60%.
So, what’s the play here? As this remains a high-risk (but potential high-return) opportunity, some may see opportunity buying the sell-off. But, as uncertainty remains, exercise some caution.
SRNE Stock and Covid-19 Catalysts
This company may have multiple horses in this race, with products in Covid-19 vaccination, treatment and testing. But, it’s a wide field, and Sorrento is far from being the front runner. When it comes to therapies/treatments, names like Regeneron (NASDAQ:REGN), with its REGN-COV2 antibody cocktail, and Gilead (NASDAQ:GILD), with its redemsivir treatment, remain much further ahead.
Still, Sorrento still has a shot with its candidates for helping to tackle the outbreak. As I wrote back in September, the company’s COVI-GUARD (STI-1499) could wind up being a viable Covid-19 treatment. Another of its antibody treatments, COVI-AMG (STI-2020), has also shown potential recently. In addition, the company’s testing products (COVI-TRACE, COVI-TRACK) remain in development as well.
But, that’s not all! As InvestorPlace’s Larry Ramer noted Oct 22, the company’s cancer drug, abivertinib, could help minimize a deadly coronavirus symptom. Emergency-use authorization, as well as FDA authorization, could be around the corner.
Yet, the drug still needs to get through clinical trials. Like with the other catalysts that helped to drive SRNE stock to double-digits earlier this year, it’s hardly a slam-dunk. Sure, positive developments for its COVI-GUARD, abivertinib, or the rest of its Covid-19 pipeline could send shares soaring. But any sort of hiccup? Expect this hard-hit stock to get hammered once again.
Outside Covid-19 Pipeline, Other Risks to Keep in Mind
The issues with SRNE stock go beyond concerns with its Covid-19 candidates. Like with many pandemic plays, its current market capitalization ($1.85 billion) is based on its potential, not on the value of its existing assets. That is to say, there isn’t much for this company to fall back on if the aforementioned pandemic catalysts fail to deliver.
As this commentator noted, risks with its candidates not related to the pandemic remain an issue as well. And that’s on top of existing concerns over the company’s balance sheet. In short, big trouble if the aforementioned catalysts fail to deliver financially.
Yet, given these issues are so well known, shorting the stock remains a crowded trade. How so? Even after the epic sell-off since August, more than 27% of its outstanding shares remain sold short. This means the stock is still vulnerable to a short squeeze, on the heels of positive news.
Sure, it remains uncertain whether Sorrento’s grab-bag of coronavirus catalysts will pay off. But any sign of progress in its pipeline could be enough to leave the shorts scrambling to cover their positions. And, in turn, fuel another rally in SRNE stock. Yet, don’t consider this reason alone to pounce on the pullback. While short-sellers have had a tough time in 2020’s resilient stock market, this time, they may be on the mark.
As Uncertainty Remains, Be Careful Buying on Recent Weakness
Investors who bought at Sorrento’s August highs, when enthusiasm was at its peak, have seen massive near-term losses. But, while those interested in the stock today can jump on recent weakness, there are few guarantees diving into shares now will produce solid returns.
Sure, Sorrento has a shot of getting one of its many Covid-19 offerings approved. But, even shares have fallen into the single-digits, one can argue much of its long-shot pandemic prospects remain priced into shares.
So, what’s the play here? If its pandemic catalysts deliver, shares could soar back to double-digits. If not? The stock could tumble down to pre-pandemic price levels (under $3 per share). Bottom line: watch out, if you are looking to pounce on the pullback in SRNE stock.
On the date of publication, Thomas Niel did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Thomas Niel, contributor to InvestorPlace, has written single stock analysis since 2016.