Sorrento Therapeutics (NASDAQ:SRNE) had good news for investors recently when it said its second candidate to fight coronavirus showed positive results in preclinical testing. That's after positive preclinical results in a first candidate last month. Does this mean Sorrento is the stock to add to your portfolio of players in the coronavirus treatment race?
Let's take a closer look at these two candidates -- and the rest of the Sorrento business.
Last week, Sorrento said the candidate it calls Covidtrap showed its ability to block coronavirus infection in African green monkey kidney epithelial cells in vitro (in test tubes). Epithelial cells line the surface of our bodies and are the first to come in contact with outside elements. Covidtrap acts by binding to the spike protein -- or the protein responsible for infection -- of the virus. Sorrento also is investigating neutralizing antibody STI-1499, which blocked infection in its in vitro testing.
Path forward for Covidtrap
Sorrento discussed Covidtrap with the U.S. Food and Drug Administration (FDA) and received feedback regarding the path forward. The company said it plans on submitting preclinical data on both of its candidates for scientific publication in the coming two to three months and will move forward into animal testing. If all goes well there, clinical trials would follow.
While Covidtrap and STI-1499 in vitro testing is encouraging, the early stage of this program means I won't bet on the candidates right now. They still need to be proven safe and efficacious, first in animals and then in humans. Anything can happen at any point through that lengthy process.
Though the FDA has made efforts to grant emergency use authorization when needed during this coronavirus crisis -- for Gilead Sciences' (NASDAQ:GILD) remdesivir, for example -- that has happened only with products much further along in the development pipeline. So, with Sorrento, we are far from seeing a marketed product.
The rest of the pipeline
But what about the rest of Sorrento's pipeline? As I always say, it's best to invest in a company for its entire pipeline or portfolio instead of just one program.
Excluding coronavirus work, Sorrento has nine programs in development, from preclinical to phase 2. The two most advanced are both resiniferatoxin, a non-opioid painkiller, for osteoarthritis and terminal cancer pain. Pivotal trials are next for those programs, and if all goes well, they are likely Sorrento's closest-to-market products.
Through its subsidiary, Scilex, Sorrento already has one commercialized product. ZTlido is a lidocaine-delivery system in the form of a patch approved for a neuropathic pain condition called postherpetic neuralgia -- a complication of shingles infections. The product, launched in October 2018, has seen quarterly double-digit or triple-digit year-over-year revenue gains. That's positive, but the problem is ZTlido revenue still remains low. Sorrento posted product revenue of $5.2 million in the most recent quarter, and at the same time, cost of revenues totaled $2.4 million.
And the financial picture isn't about to improve. Sorrento said in the quarterly report that it expects to continue reporting "substantial cumulative net losses" into the foreseeable future as it works to advance product candidates. The company, which has $21.9 million in cash and equivalents, may raise funds through strategic collaborations, asset sales, government grants, or equity sales. Sorrento filed a shelf registration in March, which would allow it to issue as much as $1 billion in securities. If Sorrento goes that route, there is the problem of dilution for existing shareholders. And if Sorrento doesn't raise capital by this or other means, advancing the coronavirus program or other candidates seems unlikely.
Acquisition offers refused
Sorrento has refused acquisition offers -- from two biopharmaceutical companies and from private equity -- late last year and early this year. It's possible positive data from resiniferatoxin trials or the early-stage coronavirus programs may result in other offers, and that could be a catalyst for the shares. Study data alone, sans takeover offer, may drive shares higher as well.
But at this point, the uncertainly about how Sorrento will fund its programs is what makes me cautious. And that's why I wouldn't make this biotech stock my next coronavirus bet. It's still worth putting Sorrento on your watchlist if you are a higher-risk investor looking for possible takeover targets or clinical-stage companies with interesting pipelines. But even in those cases, I would wait for more clarity on Sorrento's funding before taking the plunge.