You've no doubt heard plenty in the news about the scramble to develop vaccines for the novel coronavirus disease, COVID-19. And you've probably heard about drugs that could potentially be used to help treat some COVID-19 patients. But you may not have heard much about therapies that -- rather than just treating COVID-19 -- hold the potential to cure the disease.
Sorrento Therapeutics (SRNE.Q 33.33%) thinks it has a therapy that could cure COVID-19. Actually, it could have at least two potential COVID-19 cures. With these possibly game-changing therapies in Sorrento's pipeline, is the biotech stock a slam-dunk buy right now?
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Groundbreaking developments
On May 15, Sorrento announced that it had identified an antibody called STI-1499, which was able to completely neutralize the coronavirus SARS-CoV-2. The company's CEO, Henry Ji, stated in a Fox News interview: "We want to emphasize there is a cure. There is a solution that works 100 percent."
That's the kind of news that you'd expect to cause a stock to skyrocket. And Sorrento's shares did skyrocket on the report, soaring more than 100% the day the biotech made its announcement about STI-1499.
Nearly two months before its news about STI-1499, Sorrento reported that it had developed a protein called STI-4398 (also known as COVIDTRAP), which it hoped would be able to inhibit the ability of the novel coronavirus to spread. The goal was for STI-4398 to block SARS-CoV-2 from binding to and infecting respiratory epithelial cells, which would prevent people from developing COVID-19 after exposure to the virus.
Last Friday, Sorrento announced that STI-4398 met this goal, making it the biotech's second potential antidote for COVID-19. The company stated that STI-4398 demonstrated the ability to completely inhibit novel coronavirus infection.
Exciting but early
You might think that Sorrento's shares would have surged yet again on news about a second potential cure for COVID-19. The stock did rise, but only by a relatively modest 8%. Why weren't investors as excited about STI-4398 as they were about STI-1499?
The reality is that the gains that Sorrento enjoyed over the last few weeks have largely evaporated, for one simple reason: It's still really early for the company's COVID-19 programs. Sorrento's results for both STI-1499 and STI-4398 were from in vitro lab testing.
Positive results from test tubes and culture dishes, while encouraging, don't guarantee that a given therapy will prove to be equally effective in humans. Sorrento plans to advance STI-4398 and STI-1499 into animal studies, but those would still only be at the preclinical stage.
The real proof for the biotech's potential COVID-19 cures will come in human clinical trials. Sorrento stated that it has discussed the development of STI-4398 with the Food and Drug Administration and "received guidance on the path forward to a clinical trial" for the therapy. It has also said that it intends to request priority evaluation and accelerated review from the FDA for STI-1499. So far, though, it's uncertain how long it will be before Sorrento can begin a phase 1 clinical study of either of its COVID-19 therapies.
Is the stock a buy?
There are several things to consider in any decision to buy shares of Sorrento Therapeutics. The most obvious is that its COVID-19 efforts are in a really early stage. It's also important to note that other drugmakers are researching antibodies as antidotes for the disease.
Eli Lilly (LLY -1.81%), for example, has already kicked off two phase 1 clinical studies for antibodies that hold the potential of neutralizing SARS-CoV-2. One of these antibodies was originally developed by AbCellera and the other by Junshi Biosciences. Lilly expects to report results from these studies within the next few months. It's possible that the big drugmaker could announce results even before Sorrento begins its first clinical trial for STI-1499 or STI-4398.
Also, take a look at Sorrento's overall pipeline and not just its COVID-19 programs. The biotech's lead candidate, resiniferatoxin, is being evaluated in a couple of phase 2 studies for treating pain associated with terminal cancer and with moderate-to-severe osteoarthritis. In addition, Sorrento has three early-stage cancer programs.
Don't overlook Sorrento's cash position. The company reported $21.9 million in cash and cash equivalents as of the end of March. With continuing losses, Sorrento will need more cash to fund operations and advance its pipeline. That probably means more dilution-causing stock offerings are on the way.
In January, Sorrento's board of directors rejected a nonbinding proposal from a private equity firm to acquire the company for up to $7 per share -- at the upper end of the reported takeover offer, roughly 50% higher than the current share price. This acquisition attempt came well before Sorrento's COVID-19 announcements. Aggressive investors might view the outside acquisition interest, along with the biotech's coronavirus programs, and think that buying a small stake now could pay off in a major way down the road.
However, my view is that Sorrento is still way too risky for most investors. I think the safest thing to do is to wait, to see how the company's COVID-19 therapies pan out in clinical trials. If Sorrento is successful in these studies, there will be an opportunity to jump aboard soon enough and still reap huge rewards.
