Is Sorrento Therapeutics Stock A Buy?

Is Sorrento Therapeutics Stock A Buy? Sorrento Therapeutics, Inc. [NASDAQ: SRNE] is a clinical-stage and commercial biopharmaceutical company, which researches human therapeutic antibodies for the treatment of cancer, inflammatory, metabolic, autoimmune, neurodegenerative and infectious diseases.

The company, operating through two segments, Sorrento Therapeutics and Scilex, applies cutting-edge science to create innovative therapies to help alleviate sufferings of patients suffering from cancer, chronic pain and COVID-19. 

For investors, the question is whether SRNE stock is a good investment?

Is Sorrento Therapeutics Stock A Buy?

So far, this year, shares of Sorrento Therapeutics [NASDAQ: SRNE] have been galloping at an unprecedented pace, bulldozing their peers in the biotech sector, largely owing to the company’s blitzkrieg against SARS-CoV-2, the novel coronavirus that causes COVID-19.

The company has been expanding upon its coronavirus testing and treatment pipeline at unparalleled speed, and this has caused the company’s stock to soar and offer an outstanding return of more than 325% within a short span of six months. In sharp contrast, the iShares Nasdaq Biotech ETF [NASDAQ: IBB] is up just around a measly 10%.

In all fairness, the company has not been bereft of its fair share of controversies, but taking into account current rate of compounding, it may cause investors to wonder if they should add the stock of this biopharmaceutical company to their portfolio.

Well-stacked Covid Related Products in The Pipeline

From researching antibody treatments to working on diagnostic tests to vaccine candidates, Sorrento has an impressive Covid-related portfolio in its arsenal.

The company has been putting in a lot of efforts in the fight against COVID-19, and, to its credit, has some impressive options lined up, the most promising being COVI-SHIELD.

As of now, COVI-SHIELD, which is an antibody cocktail, is currently undergoing pre-clinical testing by Sorrento and its partner, Mount Sinai Hospital.

If the tests are successful, the company believes it has the potential to manufacture up to 200,000 courses of the biologic per month, with the capability to scale up production to tens of millions of courses based on demand.

Antibodies are proteins that are used by the immune system to neutralize pathogens such as bacteria and viruses. An antibody test checks your blood by looking for antibodies which, in turn, allows healthcare professionals to identify patients who may have had a past infection with the virus that causes COVID-19.

Additionally, Sorrento recently received a license from Columbia University to commercialize COVI-TRACE, a rapid salivary diagnostic test for detecting COVID-19 within 30 minutes. The company is seeking an Emergency Use Authorization (EUA) for the test by the U.S. Food and Drug Administration (FDA).

How Do the Financials Look?

The biopharmaceutical company, as of June 30, had $326 million in total liquidity, and $263 million in debt and lease obligations. These numbers demonstrate the company’s financial strength, at least in the shorter run.

The company, in the first half of 2020, recorded about $154.2 million in net losses. However, the company’s cash loss from operations came to just $76 million in the first half of the year if we discount $52 million the company had to pay because of its early debt obligations.

Apart from the financials, investors can also feel optimistic about Sorrento’s growth prospects, going by CEO Henry Ji’s words when he announced in May that Sorrento could have a cure for COVID-19.

He was referring to an antibody called STI-1499 for which Sorrento Therapeutics recently filed for FDA approval to begin a phase 1 study in treating hospitalized COVID-19 patients.

SRNE hopes to quickly advance the candidate through clinical testing and, if things turn out favorably, even receive an Emergency Use Authorization or EUA for STI-1499 at the end of the current year. 

Risks of Investing in Sorrento Therapeutics

Despite Sorrento’s long list of coronavirus programs related to the prevention, diagnosis, and treatment of COVID-19, the company faces a long list of obstacles which will require some doing to surmount. The first, at this stage, is obtaining EUA from the FDA and then ultimately securing final approval for its pipeline candidates.

This is a minor obstacle, though, as FDA has been quick and generous in granting approval to a long list of antibody and diagnostics tests from Sorrento’s rivals. This, in fact, is a major complication as it forces Sorrento to compete in an increasingly crowded marketplace.

We also need to take into account the financial position of the company.  As mentioned above, Sorrento, at the end of June, had less than $24.4 million in cash and cash equivalents on hand. This could severely impede the company’s ability to put money into research and development and to seek approval and commercialize its products.

Sure, Sorrento could raise more cash by issuing new shares. But it recently struck a deal to buy biotech startup SmartPharm Therapeutics and issued around 1.76 million new shares to give to SmartPharm stockholders to close the deal, which diluted the value of existing shares. Sorrento intends to apply the startup’s technology to develop antibody products for fighting against the new coronavirus pandemic.

It is, however, to be noted that the number of new shares that Sorrento has issued represents less than 1% of company’s outstanding shares. It is, therefore, clear that the dilution of existing shares is not the only thing weighing on investors’ minds and driving down the value of the stock.

Experts believe that the sliding share value has more to do with the investors losing confidence in Sorrento’s prospects in the increasingly crowded and fast-moving COVID-19 therapeutics and vaccine markets.

Sorrento quickly needs a winner, and there is hope that FDA could allow EUA for its COVI-TRACK novel coronavirus antibody test as well as allow it to start a phase 1 clinical study of its experimental antibody therapy, COVI-GUARD.

Are Sorrento Therapeutics’ Competitors a Threat?

Early investors in novel coronavirus-focused biotechs have reaped rich rewards this year. Two prime examples of it are Sorrento Therapeutics and its closest competitor, Moderna Inc. [NASDAQ: MRNA] whose shares have soared close to 170% and 250%,respectively, year to date.

Investors as such would be interested to know which of these two biotech stocks they should currently add to their portfolio.

Prospects of Moderna

If you want to add shares of a company that is right up there with the leaders when it comes to the development of a coronavirus vaccine, Moderna should be your ideal choice. 

Moderna’s mRNA-1273 is one amongst the six vaccine candidates in late-stage testing worldwide, according to the World Health Organization.

Moderna initiated a phase 3 study of its COVID-19 vaccine candidate mRNA-1273 in July this year in collaboration with the Biomedical Advanced Research and Development Authority (BARDA) which has committed up to $955 million in funding. The National Institute of Allergy and Infectious Diseases (NIAID) is also involved in the project.

The COVID-19 vaccine is going to open the floodgates of heaven for Moderna if its late-stage testing goes well. Moderna recently signed $1.525 billion agreement with the US government to supply 100 million doses of mRNA-1273. The company is also in, what it refers to as, “advanced discussions” with the European Commission to supply 80 million doses of its vaccine.

Apart from the Covid-19 vaccine, Moderna has in its arsenal a lot of other promising vaccine candidates as well in phase 2 testing, including cytomegalovirus (CMV) vaccine mRNA-1647 (in partnership with Merck), personalized cancer vaccine mRNA-4157, and coronary artery disease therapy AZD8601 (in partnership with AstraZeneca). In addition, Moderna has 10 programs in phase 1 development.

Moderna, sans any approved product (as of now), is yet to report a profit. However, this should not give investors sleepless nights as, apart from a lot of promising candidates in its pipeline, its cash position remains solid with the company having $3.1 billion in cash, cash equivalents, and investments as of June 30, 2020. 

Prospects of Sorrento

Sorrento Therapeutics has its fingers in a lot of pies when it comes to Covid-19. The firm has an antibody cocktail COVI-SHIELD and a rapid salivary diagnostic saliva test COVI-TRACE for detecting COVID-19.

It also has multiple therapeutic candidates in different stages of development with the most advanced of the company’s COVID-19 program being Abivertinib, an enzyme inhibitor whose rights Sorrento acquired in May from ACEA Therapeutics.

It can be used to treat patients with moderate to severe COVID-19. It’s also evaluating investigational pain drug Resiniferatoxin in three phase 2 studies.

Moderna’s market capitalization is ten times than that of Sorrento. A few may argue that Sorrento has tremendous scope for expansion and it can really strike a bottomless pit of gold if a few of its programs manage to achieve their desired objective.

Critics, on the other hand, may argue that Sorrento has limited financial resources which are spread thin across multiple programs.

All in all, Sorrento is a good stock to keep a close watch on, but Moderna seems to be a better pick at this stage. The chances of mRNA-1273 winning FDA approval are bright, which, in turn, is sure to catapult Moderna to an astral plane.

Is Sorrento Therapeutics Stock a Buy? The Bottom Line

Sorrento’s clinical programs are, on average, at an early stage and the biotech firm suffered a loss of $82.2 million in Q2 2020. It means that the company needs a cash injection to offset its losses as well as advance its different COVID-19 programs.

Sorrento’s market cap currently stands around $2 billion which is significantly smaller than that of other biotechs that are working on COVID-19 vaccines — such as Novavax [NASDAQ: NVAX], BioNTech [NASDAQ: BNTX], and Moderna [NASDAQ: MRNA].

Market cap of these firms stand anywhere between $8 billion and $28 billion. A smaller market cap, on the other hand, means that Sorrento has a lot of room for expansion.

It should be kept in mind that Sorrento, unlike Moderna for example, is yet to receive any major contract for its vaccine candidates. However, just because the company’s clinical programs are in their early stages, it does not mean they cannot eventually succeed.

To sum it up, Sorrento may be currently running under loss, but investors should still give it a chance in case its vaccine candidates turn out to be successful. Should that happen, its share price is likely to skyrocket and the investors can look forward to reap a windfall.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.