What happened

Shares of Sorrento Therapeutics (NASDAQ:SRNE) were sinking 11.5% lower as of 11:34 a.m. EDT on Wednesday. There weren't any new developments to cause Sorrento's shares to fall. Instead, it appears that investors continued to think that the stock's huge gain following the drugmaker's announcement last week of promising preclinical results for an experimental COVID-19 antibody might have been too much too soon.

So what

Extreme volatility is par for the course with small biotech stocks like Sorrento. Good news gets investors all excited. Then that excitement often fades to some extent as they fully digest the news.

Gloved hands holding two test tubes

Image source: Getty Images.

In Sorrento's case, the main issue is that its good news was really early. The company found an antibody (STI-1499) that demonstrated the ability to completely neutralize the novel coronavirus that causes COVID-19. However, this result came from a lab study of the antibody and the virus in a test tube. It's not uncommon at all for promising in vitro results to fail to translate to success in clinical testing in humans. 

Sorrento's STI-1499 antibody could turn out to be tremendously effective at fighting COVID-19 and have an attractive safety profile. But it's still way too soon to know if that will be the case. Investors seem to be recognizing that reality.

Now what

Keep your eyes on Sorrento's progress in advancing ST-1499 to an early-stage clinical trial. The company stated that it "plans to request priority evaluation and accelerated review from regulators," but it has to gain approval to begin a phase 1 clinical study first. If results are positive in a phase 1 study, there will be a good reason for investors to regain their excitement.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.