Don’t Bail on Sorrento Therapeutics Stock Just Yet

It’s probably not all that surprising that Sorrento Therapeutics (NASDAQ:SRNE) stock has tumbled. At least some investors looked to Sorrento as a play on a Covid-19 vaccine. With larger players seemingly out in front in vaccine development, those investors probably feel disappointed at the moment.

floating molecules representing biotech stocks like SRNE stock

Source: Shutterstock

But the good news elsewhere isn’t necessarily a reason to dump SRNE stock just yet, for two core reasons. First, we knew going in that this was a high-risk, high-reward play. Volatility was to be expected.

More importantly, SRNE stock isn’t just a vaccine play. The company is tackling multiple aspects of the novel coronavirus pandemic. And on all three fronts, Sorrento still is making progress.

It bears repeating: even at a (modestly) lower price, this is still a high-risk play. But I’ve long liked the “multiple shots on goal” approach Sorrento has taken toward Covid-19. And I still believe there’s a good chance that approach winds up paying dividends, even if investor attention has moved elsewhere for the time being.

SRNE Stock Tumbles

Again, from a short-term perspective the weakness in Sorrento stock is not necessarily a surprise. Broadly speaking, the trading in the stock has been driven by one factor: news.

Other companies have posted good news on the vaccine front, with early results showing effectiveness clearing 90 percent. Those results have sparked optimism not just in the sector, but across the market, with many pandemic ‘losers’ seeing nice rallies of late.

Meanwhile, Sorrento has been rather quiet. In particular, there’s been basically no news on the vaccine front. Even the chart looked bearish, with SRNE stock showing a classic head-and-shoulders pattern that has played out to a tee.

And so traders have flocked to where the headlines are and where the charts look better. Again, that’s not surprising. But it’s also not what long-term investors should do.

A Closer Look

While Sorrento hasn’t garnered major headlines on the vaccine front, it’s not as if the company has made no progress at all.

Indeed, the core strategy outside of the vaccine still holds. Sorrento is looking to develop testing capabilities and treatments for those who test positive for Covid-19. On the testing front, Sorrento has three different options. Its COVI-STIX, a 15 minute test, should be submitted for approval by the Food & Drug Administration relatively soon, according to chief executive officer Henry Ji.

As Ji envisions it, a Sorrento test could essentially be like a pregnancy test, available at any pharmacy and with something close to instant results at home.

On the treatment front, Sorrento too is moving forward. Earlier this month, the company filed for an IND (Investigational New Drug) application with the FDA for its COVI-AMG antibody. That antibody has shown promise in early testing.

More importantly, COVI-AMG (an apparent improvement over “parent antibody” COVI-GUARD) is showing potency at low doses. The lower the dose of the antibody required, the greater the number of doses that can be produced in the same timeframe.

And so while competitors may be able to develop their own antibody-based treatments, Sorrento has a real chance to develop the best of the bunch.

Recent acquisitions of SmartPharm and ACEA Therapeutics too add to Sorrento’s treatment capabilities.

Even the vaccine efforts aren’t finished. Ji has admitted that the company will end development if a blockbuster emerges. But despite early data, we haven’t seen that blockbuster just yet. Hopefully we will, but if we don’t, it could be Sorrento that plays a key role in that market as well.

Taking the Broad View

After the pullback of late, Sorrento has a market capitalization just shy of $2 billion. It’s difficult, if not impossible, to pin down exactly what the valuation should be. There are simply too many moving parts.

Sorrento’s Covid-19 efforts, after all, aren’t occurring in a vacuum. Multiple rivals are trying to develop their own vaccines and their own tests and their own treatments. Sorrento could get multiple products approved yet still not see the revenue and/or profits bulls expect.

I’d look at valuation this way: SRNE stock still has plenty of potential catalysts. There’s enough promise in the tests and treatments to suggest that the company will be a player in the fight against Covid-19.

There’s a business outside of the pandemic as well. Sorrento still has its legacy oncology pipeline.

It’s possible that none of these efforts pan out. The biotech business is not simple, and it’s not low-risk. Neither is biotech investing.

But the rewards can be huge, particularly with the right products and the right company. Even with the pullback of late, there’s plenty of reason to see Sorrento as a potential winner — somewhere.

On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in the article.

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