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Is Sorrento Therapeutics Stock a Buy?

By Prosper Junior Bakiny – Jun 11, 2020 at 6:20AM

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Could this be the best coronavirus stock yet?

The pool of companies looking to develop vaccines or treatments for COVID-19 is very large. However, some of these companies are attracting more headlines than others. Sorrento Therapeutics (SRNE -2.58%) made a lot of noise on May 15, when it announced some exciting news regarding its efforts to develop a treatment for COVID-19. The company's stock soared by more than 100% on the news, and although it has since given up some of these gains, Sorrento's stock is still up by about 44% year to date.

Naturally, if the company reports more exciting coronavirus-related news -- and successfully develops a treatment for the potentially deadly disease -- its stock could skyrocket once again. With this backdrop in mind, it is worth taking a closer look at Sorrento's investment prospects, and deciding whether this biotech stock is a good buy. 

Doctor holding glass vial with a label that says COVID-19 Vaccine, Coronavirus.

Image source: Getty Images.

Sorrento Therapeutics' COVID-19 efforts

Sorrento has been looking to develop an antibody for the treatment and prevention of COVID-19 for several months. After screening "billions" of potential candidates, the company said it believes an antibody it developed called STI-1499 looks very promising. In a preclinical experiment, STI-1499 "completely neutralized the virus infectivity." While these results were promising, in vitro preclinical experiments of potential therapies, even when highly successful, are not a guarantee that the candidate in question will go on to be effective when tested on humans. But Sorrento's CEO, Henry Ji, made bombastic claims about STI-1499 that may have landed the company is some legal troubles.

In an interview with Fox News, Henry Ji said: "We want to emphasize there is a cure. There is a solution that works 100 percent. If we have the neutralizing antibody in your body, you don't need the social distancing. You can open up a society without fear."

Following this statement, a class action lawsuit has been brought against Sorrento on behalf of investors who purchased shares of the company and incurred losses. The lawsuit alleges that Sorrento made false or misleading statements regarding its potential cure for COVID-19, STI-1499. While drugmakers often get sued -- and not much may come of this lawsuit -- investors may still want to keep an eye on how things develop.

Then on June 6, Sorrento reported that it had another potential cure called Covidtrap (STI-4398), and Sorrento said it proved successful in a preclinical trial. Even with these positive results, however, Sorrento has yet to start a phase 1 clinical trial for either candidate. Also, the company still has far too many obstacles to overcome before it can even hope to be considered one of the front-runners in this race. 

What's really going on with Sorrento Therapeutics?

At the moment, Sorrento doesn't have much going its way. The company only has one approved product, which is Ztlido, a treatment for pain associated with shingles. During the first quarter, Sorrento reported total revenue of $7.7 million, compared to the total revenue of $6.1 million it recorded during the prior-year quarter.

Needless to say, Ztlido is hardly a blockbuster drug, but Sorrento does have several products in its pipeline, including potential treatments for multiple myeloma, terminal cancer pain, and of course, its COVID-19 programs. Still, none of these pipeline candidates look even remotely close to being launched on the market.

Is this biotech stock a buy?

In my view, investors should stay far away from Sorrento at the moment, and here are three reasons why. First, although its COVID-19 treatments seemed promising in preclinical trials, that's not a guarantee that they will prove equally successful in human clinical trials. And with other companies much further along in their hunt for a COVID-19 vaccine, betting on Sorrento to win this race is highly speculative.

Second, the company's only approved product doesn't generate much revenue, and it looks as though Sorrento is running out of money. During the first quarter, the company only had $21.9 million in cash and cash equivalents, and it reported a net loss of $69.1 million.

The company will likely need to turn to dilutive forms of financing soon, especially since it has not received funding from the Biomedical Advanced Research and Development Authority (BARDA), or any of the other organizations that have been actively funding companies to develop vaccines or treatments for COVID-19.

Third, none of Sorrento's other pipeline candidates look remotely close to gaining approval from the U.S. Food and Drug Administration. In short, Sorrento looks far too risky at this point, and investors would do well to consider buying other biotech stocks

Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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