For a hot minute there, Sorrento Therapeutics (NASDAQ:SRNE) stock was one of the year’s biggest novel coronavirus winners. SRNE stock shot up from $2 this spring to as high as $19 per share. Traders flocked into Sorrento shares following the company, stating that it had a potential Covid-19 cure that inhibited the virus 100%.
However, notable critics, such as a writer at the Wall Street Journal, immediately sounded the alarm, suggesting that Sorrento had rushed to conclusions in presenting the data that way. We’re now six months removed from the original drama and Covid-19 still isn’t cured, so clearly the initial enthusiasm was overblown. Not surprisingly, Sorrento has slumped from a high of $19 this summer to $7 per share now.
The losses have accelerated in recent weeks. Sorrento disappointed shareholders with an underwhelming status update on its clinical pipeline. Meanwhile, other, more well-known and far better funded competitors continue developing their own coronavirus vaccines and therapeutics.
Sorrento: Great At Marketing, But Less So Elsewhere
Our Josh Enomoto put it perfectly in a recent article: You’d never want to play poker against Sorrento chief executive officer (CEO) Henry Ji. Ji is a brilliant marketer. He has absolutely convinced investors that Sorrento is going to come up with something that changes the game in fighting Covid-19. As such, it’s really hard to bet against Sorrento stock. Up until recently, Ji has managed to spin even mediocre press releases into a compelling narrative.
However, at some point, the rubber has to hit the road. Sorrento’s original run of dazzling announcements about inhibiting the virus 100% came out this spring. It’s now November and there are still few signs of any commercial product that’s about to hit the market from this supposed coronavirus cure. You can hype up potential for awhile, but at some point you need actual revenues to back up the story.
$1.8 Billion For What?
As of this writing, even after its recent drop, SRNE still sports a market capitalization of $1.5 billion. That’s quite a bit of money for a company that has only produced positive earnings per share once out of the past 10 years. That year, 2017, was a record year for Sorrento as it scored $152 million in revenues and scratched out a small profit.
Since then, things are heading in reverse once again, however. For 2019, Sorrento only brought in $31 million in revenue while losing nearly $300 million. This year, things are improving, but only marginally. For Q2 of 2020, for example, Sorrento saw revenues rise from $6.5 million to $9 million. That might sound promising on its own. However, scored a net loss of $85 million Q2. That’s pretty remarkable — in a bad way — managing to blow through that much money in a single quarter while seeing revenues of just $9 million.
It’d be one thing if Sorrento had one clear lead product that was about to become a big commercial success. But if you listen to the recent Sorrento research and development pipeline update, it’s a bunch of stuff they’re working on, but nothing that seems close to imminent success.
This is a far cry from the idea from earlier this year that the company had a potential “cure” for the virus. With the company losing tons of money and diluting shareholders heavily to pay for operations, Sorrento will need to come up with something more tangible — and soon — otherwise the stock will keep slumping.
SRNE Stock Verdict
When trading a hot, story-driven stock like Sorrento, it’s important to never overstay your welcome. Sorrento has not historically done much of anything in terms of generating revenues or profits. Thus, there’s very little to fall back on when the Covid-19 enthusiasm fades. You’re seeing that now as Sorrento stock deflates like air leaking out of a balloon.
In all likelihood, once a working Covid-19 vaccine hits the market, companies like Sorrento will disappear from the headlines, with their shares slumping back to the low single digits. In fact, there’s a good chance that traders will forget about SRNE stock altogether … at least until there’s another new pandemic outbreak somewhere in the world. Hopefully that won’t be for quite awhile.
In any case, with Sorrento having missed its opportunity this year, there’s no reason to still be holding the stock now.
On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.