In the initial days of the Covid-19 pandemic, the stock of any company that initiated a vaccine or drug program went ballistic. With time, irrational exuberance has faded and stock prices are reflecting the reality. And I would count Sorrento Therapeutics (NASDAQ:SRNE) stock among the speculative names. At the beginning of fiscal year 2020, SRNE stock was trading at $3.39. With the company initiating a deep pipeline of Covid-19 products, SRNE stock skyrocketed by 471% to $19.39.
SRNE stock’s performance has been unimpressive in the last three months. The stock is already trading lower by over 60% from all-time highs. And the company’s stock is not an exception. iBio (NYSEMKT:IBIO) is yet another speculative bet related to the novel coronavirus vaccine. IBIO stock is lower by 75% from recent highs.
Purely from the perspective of short-term trading, SRNE stock might still be attractive. However, I don’t consider the company as a good investment. I believe it is likely to trend lower in the coming months.
Companies like Pfizer (NYSE:PFE) or AstraZeneca (NASDAQ:AZN) have a promising outlook when it comes to the race for the Covid-19 vaccine. Among smaller names, Moderna (NASDAQ:MRNA) is worth investing.
Let’s discuss the reasons for being cautious on SRNE stock.
A Deep Covid-19 Pipeline; Little Progress
The website of Sorrento Therapeutics has a pipeline of nine Covid-19 programs. Probably, this is the most extensive pipeline by any company related to the novel coronavirus. However, I don’t see the pipeline translating into top-line or cash flow growth. Given the stock trend, I think the market participants are equally skeptical.
Let’s look at an example. One potential product of the company is COVI-TRACE. It’s a “one-step diagnostic test that detects SARS-CoV-2 virus” within 30 minutes using a saliva sample.
Back in August 2020, the U.S. Food and Drug Administration authorized a rapid testing system from Abbott Laboratories (NYSE:ABT). The test delivers results within 15 minutes and Abbott had planned to make “50 million tests available monthly in the U.S. at the beginning of October 2020.”
Even if Sorrento Therapeutics got an FDA approval, I don’t see the company making inroads in the rapid testing market.
Let’s take another potential product and its status.
In May 2020, Sorrento announced that the company will join hands with Mount Sinai Health System for the “development of an antibody cocktail (COVI-SHIELD™) to potentially treat COVID-19.” One week after this announcement, the company reported positive results in pre-clinical experiments. Subsequent to this, there has been no significant update on the progress. The program still remains in the pre-clinical stage.
My view is as follows – The company is possibly trying to do too many things at a time. Further, the progress has been extremely slow. This does not encourage the markets and the impact is clear on SRNE stock.
As a matter of fact, Sorrento Therapeutics has been in existence since fiscal year 2009. However, the company has just one FDA-approved drug. There is no substantial growth in terms of revenue and Sorrento continues to burn cash.
Concluding Views on SRNE Stock
If we look at the company’s Covid-19 pipeline, several programs are still in the pre-clinical stage. The company has applied for review for the diagnostic test and antibody test. Even if they are approved, it will not be the first in the market.
Therefore, if I have to invest in a company with a promising COVID-19 program, Sorrento Therapeutics will certainly not be in the list.
Further, if outcomes related to the program are negative, the stock can nosedive. A 95% year-to-date upside is purely driven by the Covid-19 program.
To underscore my point: In the second week of October 2020, the company’s R&D investor update disappointed the markets. And the stock plunged by 13%.
Overall, SRNE stock is another speculative bet. Medium- to long-term investors can stay away from the stock.
On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.
