FDA Approval Highlights High-Risk Case for Sorrento Therapeutics Stock

Unsurprisingly, some of 2020’s best stocks have been those that can benefit from success in the fight against the novel coronavirus. Sorrento Therapeutics (NASDAQ:SRNE) stock has been one of the winners.

A scientist holding a test tube in a stock image

Source: Shutterstock

But it hasn’t been one of the big winners. SRNE stock has gained over 200% so far this year. But other coronavirus plays have risen by more. Sorrento stock, in fact, has pulled back by about half from last month’s highs.

At these lower levels, SRNE looks attractive — for investors with a high tolerance for risk. Nothing is ever guaranteed with biotech companies, and Sorrento is no exception.

But what makes SRNE stock particularly intriguing is that the company has multiple ways to win. It’s not just a vaccine play, or a treatment play, or a testing play. It’s all three.

Multiple Ways to Win

It’s somewhat surprising that SRNE has underperformed other coronavirus stocks given the breadth of its pipeline.

Sorrento does have a vaccine candidate — T-VIVA-19. T-VIVA-19 targets a specific receptor, and in theory should induce the body to build neutralizing antibodies to ward off the coronavirus.

Sorrento also is working on testing. COVI-TRACK will offer antibody testing with results in just eight minutes. COVI-TRACE is a saliva-based test. Given still-significant needs for capacity, both products should see strong demand upon approval.

And then there’s the treatment angle. Here, too, Sorrento has two different offerings. COVI-GUARD is an antibody-based treatment which should neutralize Covid-19 (the condition caused by the coronavirus). Approval of Phase 1 testing for COVI-GUARD boosted SRNE stock on Friday.

Abivertinib is another potential treatment, currently in Phase 2 trials. The drug can treat the “cytokine storms” that are part of the worst Covid-19 cases, in which patients undergo significant (and often fatal) respiratory distress.

Certainly it’s unlikely that all of these efforts are successful. But they don’t have to be.

SRNE Stock Looks Cheap

After all, Sorrento only has a market capitalization of about $2.75 billion at the moment. That’s not terribly high relative to other coronavirus plays.

Trying to figure out exactly how much profit Sorrento could make off any of these efforts is difficult. It’s not clear what, say, pricing would be for a vaccine. COVI-GUARD could be a successful treatment for some Covid-19 cases, and not for others.

But from a broad perspective, it’s not difficult to imagine any of these efforts being worth $2 billion, or more, if Sorrento reaches approval. Similarly, it’s not difficult to imagine the company becoming a takeover target, as is often the case with early stage companies that reach the approval stage.

After all, diversified pharmaceutical companies have existing infrastructure in terms of sales, marketing, and relationships. Sorrento doesn’t. It’s often a “win-win” for a larger company to simply buy out the smaller one.

Bear in mind that Sorrento has a pipeline outside of the coronavirus and Covid-19 area as well. It’s been developing so-called “CAR-T” (chimeric antigen receptor T cell) therapies.

That’s been one of the hottest categories in cancer treatment for some time, and an area that itself has seen multiple acquisitions in recent years.

It’s too simplistic to argue that SRNE stock soars if it gets any products approved. But it might not be far off. At the least, the market still is pricing in seemingly limited odds of success.

Mind the Risks

All that said, investors need to keep the risks in mind. They’re real.

For one, across the board Sorrento is going up against larger and often better-funded companies trying to do much the same thing. There are dozens of companies working on coronavirus vaccines and Covid-19 treatments. Some are further along than Sorrento at the moment.

To be sure, there likely isn’t going to be a single vaccine. There almost definitely won’t be a single treatment regimen. But being first will be an advantage, as the earliest approved therapies and vaccines are most likely to become the standard of care.

There are short-term risks as well. Short sellers have taken aim at SRNE. The abrupt departure of Sorrento’s chief financial officer added to some of the questions coming from the bear camp.

Meanwhile, Sorrento is aggressively selling stock to raise cash to fund its research and development efforts. As a result, there’s going to be some volatility along the way to trial results.

So position sizing matters. Risk tolerance matters. SRNE stock, like any biotech, is not a slam dunk.

But good biotech investors don’t look for slam dunks, because they don’t exist. What they look for is an attractive risk/reward profile — which is exactly what SRNE stock has at the moment.

On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in the article.

Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. Click here to see what Matt has up his sleeve now.

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