Sorrento Therapeutics (NASDAQ:SRNE) fell 18% on Monday on the heels of the news that the Pfizer (NYSE:PFE) vaccine could be 90% effective. This is well above and beyond the efficacy of the flu vaccine. If that is true, it could be a big competitive advantage against other potential purveyors of Covid-19 vaccines, like Sorrento. therefore it make sense that Sorrento stock should fall, but the size of the move may be exaggerated. In fact, this morning it’s bouncing a bit.
But what happens next is most important.
One thing is clear — this pandemic has a massive scope. Millions of people are infected worldwide and billions will need inoculation. There is no way that Pfizer will be the only winner. In theory, the dips in SRNE stock are mere temporary setbacks. There is plenty of room for many suppliers to fill the need that humanity will need. Meanwhile, investors are clearly not confident of SRNE’s success — the stock is 70% off its August highs.
Sorrento Stock Is Not New to Drama
Since October, Sorrento stock has corrected over 50%. But this is not new — it did that in August too, and on a bigger scale. The correction back then was over 70%, yet here Sorrento stock is still kicking.
The bulls are trying to find footing at the September support, but it’s too early to judge. It spent a week consolidating back then, and a 114% rally ensued. If it holds, then the bulls can perhaps do it again. The idea is to build a better base of investors that can remount an effort to break down the resistance.
This stock is not for the faint of heart. The danger is if the buyers don’t have room to maneuver. Any further drop can trigger another selloff. The stock can then fall into the June lows and maybe even fill the May gap.
Normally I don’t mind buying dips in stocks that have great fundamentals. In this case, the upside potential is completely based on potential future successes. Although the company has its finger in many aspects of fighting Covid-19, they could be spread thin. Management is playing the long game and they could bring it all together at the end.
The risk they run is that more companies declare their progress like PFE did Monday. Sorrento could be left in the dark.
Stock Price Success Is the Discussion Here
It is important to differentiate my worry over the stocks price from the company prospects. How the stock moves has little to do with the scientific discovery. I fear that the more headlines that don’t involve SRNE stock, the fewer bids there are for it. Perception is reality in this case, at least from a stock price perspective.
They did make it more difficult for themselves early in the process. In May they claimed they could cure Covid-19.
I welcome the fact that Sorrento is trying to cover the detection, therapeutic and prevention of the virus. This is a noble effort, and I wish them great success for everyone’s sake. But investors often lack patience. Wall Street likes to see tangible value, or else they find something else to buy. Sorrento is already lagging other high-profile competitors. Moderna (NASDAQ:MRNA), Novavax (NASDAQ:NVAX) are up 296% and almost 2,000% while SRNE languishes year to date. Competing for bids on Wall Street shouldn’t be a measure of success, but in this case that’s what we are discussing here.
This has been an unusual year, especially for these biotech firms. It has been a hectic race to find a vaccine for a novel virus, so there were no rules. All of them were thinking outside the box, and hopefully Sorrento didn’t make the scope of their effort too big to implement. I’d hate to see them fail because they bit off more than they could chew. Only time will tell, but I am definitely pulling for them.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Nicolas Chahine is the managing director of SellSpreads.com.