Shares of Sorrento Therapeutics (NASDAQ:SRNE) are down 33% since closing at $11.95 on Oct. 13. Of course, bulls can make the case that SRNE stock is up more than 11% in the last month. But so are a lot of stocks. That doesn’t mean you should buy them, and that’s the sentiment I hold for Sorrento.
From the moment the world effectively shut down due to Covid-19, investors flocked to stocks that looked to be part of the solution. If you were a company developing a therapeutic treatment or rapid test, things were good. If you were offering a vaccine, things were even better. And if you were offering a chance at all three, your name was Sorrento Therapeutics.
The problem for Sorrento is that it has yet to achieve any of those three.
Was It All About Marketing Hope?
When I wrote about Sorrento in August, SRNE stock was reeling from a body blow that came from the announcement that its former chief financial officer, Jiong Shao, was terminated. This lent credence to a Hindenburg Research report that accused the company of making misleading statements including saying it had a Covid-19 cure. The implication was that Sorrento was capitalizing on the market’s fear of anything Covid-related to boost SRNE stock.
Stock picking always contains a bit of “let the buyer beware.” But the real issue is that the report strongly implied that the company was hyping their progress to obscure insolvency concerns. And firing the CFO only adds to that belief.
Nevertheless, the company does have real products in its pipeline. The question remains if any of them will move the needle in terms of revenue.
A Pipeline That Appears to Be Too Little, Too Late
In July, Sorrento announced that it had a diagnostic “spit” test, COVI-TRACE, that claimed 97% accuracy for positive tests and 100% accuracy for negative tests. These products are still awaiting FDA approval, and if they do hit the market, they will not have a first mover advantage.
The company’s most promising option, Abivertinib, is in Phase 2 trials. Abivertinib can potentially be used to treat Covid-19 patients from developing the cytokine storm that contributes to the disease progression and, in some cases, to fatalities for patients with acute respiratory distress syndrome (ARDS).
Now let’s be clear. The world is hoping that the news we are hearing about vaccines is true. And the market is responding as such. But before consumers will be able to release their “pent-up demand” in 2021, there’s still going to be some pain to go through as it relates to Covid-19. There will be an increase in cases. There will be more deaths.
So anything that can be brought to market to help ensure better outcomes will be welcome. But Sorrento is not there yet. And it’s becoming less likely that the company will get its product to market anytime soon.
Is Sorrento a Play Beyond Covid?
That’s a good question because the key with these biopharma companies is their pipeline beyond Covid-19. And Sorrento does have some products that are in the market. The one driving the most revenue is its ZTLido system. This delivers lidocaine, a local anesthetic, and it was forecast to deliver approximately 14% of Sorrento’s $58 million in 2020 revenue.
ZTLido is produced by Scilex Pharmaceuticals, a subsidiary of Sorrento. However, at this point, the company looks like it will be nowhere close to hitting that $58 million figure. As of its most recent earnings report released in November, the company has generated $28.5 million in revenue through three quarters.
Investors Are Bailing on SRNE Stock
There are only two analysts that cover Sorrento, so it’s difficult to get a read on the company. Of course, the fact that there are only two analysts covering it says a lot in and of itself. Share volume is down and as of this writing, the stock is in a bearish pattern with lower highs and lower lows.
And, as support for the idea that one successful product is not delivering all that Sorrento needs, InvestorPlace contributor Mark Hake wrote about the company’s unprofitable habit of diluting its shares on a regular basis.
If you bought into SRNE stock in March, congratulations, you’ve made a nice profit. With uncertainty surrounding the capital gains tax rate in 2021, now might be a good time to take your gain and go. If you waited until July to buy the stock, you’re looking at a different decision. Either way, with any Covid-19 product being months away, it’s unlikely that the stock is going to increase significantly for quite some time.
On the date of publication Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris Markoch is a freelance financial copywriter who has been covering the market for over six years. He has been writing for Investor Place since 2019.