Clinical-stage biopharma firm Sorrento Therapeutics (NASDAQ:SRNE) is one of the companies working on a cure for the novel coronavirus. For shareholders, investing in the stock has been a rollercoaster ride. In March, its shares were around $1.50. By early August, they hit a 52-week high of $19.39. Now, they are around $6.50.
Sorrento’s scientific work is antibody-centric. An article by Layal Liverpool, published in the New Scientist, describes antibodies as “Y-shaped proteins produced as part of the body’s immune response to infection. They help eliminate disease-causing microbes from the body, for instance by directly destroying them or by blocking them from infecting cells.”
Therefore, antibodies are crucial in the fight against Covid-19. Since the start of the year, the company’s announcements point out that it has put together a range of coronavirus diagnostic solutions and therapy candidates.
However, as InvestorPlace.com contributor Ian Bezek has recently written, “Sorrento disappointed shareholders with an underwhelming status update on its clinical pipeline… When trading a hot, story-driven stock like Sorrento, it’s important to never overstay your welcome.”
I agree with his conclusion. Unless management can release valid clinical trial results soon, shares of Sorrento Therapeutics are not likely to make new highs. Therefore, the stock should only belong in portfolios that can take high risks. Here’s why.
Pfizer and BioNTech Making Headlines
Research by Nelson L. Michael, M.D., Ph.D., Director, Center for Infectious Diseases Research of the Walter Reed Army Institute of Research, Silver Spring, Maryland, points out, “diagnostic, preventive, and therapeutic interventions will allow for sound policy decisions in the response to the Covid-19 pandemic as well as subsequent pandemics of respiratory viruses to come.”
Over the past several months, Sorrento Therapeutics has put out numerous press releases highlighting the company’s pipeline of products and therapies that aim to detect the virus, prevent the infection via a vaccine and treat patients suffering from Covid-19. However, no substantial results have so far come out of the company’s efforts.
Earlier in November, CNBC’s host Jim Cramer summarized the mood about Sorrento. He cited, “I don’t think that you want to be in that stock. I think that we’ve now seen what it take to be a winner in this space, and they don’t have it.”
Cramer was, of course, referring to the potentially game-changing results announced by Pfizer (NYSE:PFE) and Germany-based BioNTech (NASDAQ:BNTX). The two companies, which have been jointly working on a vaccine since spring, are about to apply for FDA approval for their vaccine candidate.
Prof. Ugur Sahin, M.D., who had co-founded BioNTech with Dr. Özlem Türeci, believes, “The impact of a new Covid vaccine will kick in significantly over summer and life should be back to normal by next winter.”
Meanwhile, Moderna (NASDAQ:MRNA) also release advanced-stage positive news. As a result, I expect investor confidence regarding Sorrento shares to deteriorate further.
The Bottom Line on SRNE Stock
Sorrento’s management highlights a vast array of potential Covid-19 diagnostic and therapeutic products. So far in the year, the shares have moved along with each Covid-19 news released by management. But there is no concrete therapy that the company has offered yet. Without substantial positive developments, the stock cannot go up.
Furthermore, the company says, “We are a clinical stage company subject to significant risks and uncertainties, including the risk that we or our partners may never develop, obtain regulatory approval or market any of our product candidates or generate product related revenues.”
For a small, clinical-stage firm, Sorrento is putting its limited resources into too many areas. After all, its market capitalization is only around $1.7 billion. News-related euphoria will possibly not end well for shareholders.
Are you an investor who enjoyed the increase in the share price since March? You may want to take some money off the table. It is likely that there will be a continuation of the downward trend that started in August.
Those investors who do not want to commit money to a single stock in the biopharma space may also consider buying an exchange-traded fund (ETF) with Sorrento Therapeutics as a holding. Example of such funds include the Global X Genomics & Biotechnology ETF (NASDAQ:GNOM), the Spdr S&P Biotech ETF (NYSEARCA:XBI) or the Virtus LifeSci Biotech Clinical Trials ETF (NYSEARCA:BBC).
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tezcan Gecgil, Ph.D., has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination.