What happened

Shares of Sorrento Therapeutics (NASDAQ:SRNE) were skyrocketing 41.4% higher as of 11:41 a.m. EST on Friday. This big gain came after Sorrento announced earlier in the morning that it had received a nonbinding proposal from an unnamed private equity firm to acquire either all or a majority of the shares of the company for up to $7 per share. That amount would set the price tag for fully acquiring Sorrento at more than $1.1 billion. 

So what

Investors were understandably excited about today's news of a potential acquisition of Sorrento. An offer isn't surprising, considering that the biotech rejected two other buyout bids in November. However, the previous offers were only $3 and $5 per share, respectively. Sorrento's board of directors decided that the bids "seriously undervalued" the company. It looks as if the board made the right decision in light of the latest offer.

Woman drawing a picture on a wall  of a big fish about to eat a small fish

Image source: Getty Images.

The flurry of interest in Sorrento stems from the prospects for its nonopioid pain drug Ztlido, which won FDA approval in 2018, and the company's pipeline. Sorrento hopes to report results from a late-stage study of another nonopioid pain drug, SP-102, in the second half of this year. Its pipeline also includes several antibodies in late-stage trials targeting cancer, rheumatoid arthritis, and asthma, as well as six other experimental drugs in earlier-stage studies.

Now what

Sorrento's huge move today highlights just how exciting investing in biotech stocks can be. However, investors shouldn't put the cart before the horse. Sorrento's board is only "carefully reviewing the proposal" at this point. There's no guarantee that any deal will go through. On the other hand, it's also possible that another potential buyer could step forward with an even better offer.