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Why Is Everyone Talking About Sorrento Therapeutics Stock?

By Prosper Junior Bakiny – Jun 27, 2020 at 8:08AM

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Does the biotech company really have a cure for COVID-19 on its hands?

Sorrento Therapeutics (SRNE 0.99%) first announced its plans to work on developing a COVID-19 therapy back in late January. That was hardly surprising news, given that many other biotech companies -- including some with much more name recognition than Sorrento -- also entered the race.

But Sorrento did grab the attention of investors and pundits alike in May, when it announced that it had a potential cure for COVID-19 on its hands.

This announcement sent the company's shares flying. The stock has cooled down since, but if Sorrento really does have a cure for COVID-19, that could be a game-changer. The company is currently working on other coronavirus-related programs, as well. Given its involvement in the fight against COVID-19, is it worth buying shares of Sorrento today?

SRNE Chart

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A look at Sorrento's COVID-19 programs 

On May 15, Sorrento announced that a potential COVID-19 antibody therapy called STI-1499 had proven highly successful in preclinical trials. Specifically, STI-1499 was able to prevent the SARS-CoV-2 virus -- the virus that causes COVID-19 -- from infecting healthy cells. In addition to these encouraging results from preclinical testing, Sorrento said that "initial biochemical and biophysical analyses also indicate STI-1499 is a potentially strong antibody drug candidate."

On June 5, Sorrento announced that STI-4398, another of its potential COVID-19 therapies, had also proven highly effective in preclinical testing. The company plans to develop STI-4398 as a treatment for COVID-19 patients and as a prophylactic treatment for the disease.

A hand in a blue nitrile exam glove fills a syringe with clear liquid from glass vial.

Image source: Getty Images.

Sorrento also developed a diagnostic test for COVID-19. The company claims that its COVI-TRACK in vitro diagnostic kit can detect antibodies to the SARS-CoV-2 virus in eight minutes or less. The U.S. Food and Drug Administration (FDA) is currently reviewing this test, and the company could receive an emergency use authorization for the product soon.

Lastly, Sorrento announced in March a partnership with SmartPharm Therapeutics to develop an antibody vaccine for COVID-19. Sorrento hopes that its rich lineup of coronavirus-related programs will bear fruit in at least one area. If the company is successful on multiple fronts, its stock could skyrocket. 

It's too early to get excited

Sorrento's antibody therapies certainly looked promising in preclinical testing, but it's impossible to predict, based on these results alone, whether they will be equally effective in human clinical trials. Considering that Sorrento has yet to even start clinical studies for these antibodies, it seems way too soon to get excited.

Of course, that didn't stop some investors from loading up on shares of the company when it first announced the encouraging results of STI-1499's preclinical trials. The company's CEO, Henry Ji, may have stoked investor enthusiasm by making bold claims about STI-1499 in a Fox News interview.

As Ji put it: "We want to emphasize there is a cure. There is a solution that works 100%. 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 Ji's claims, a New York-based law firm filed a class-action lawsuit against Sorrento, alleging that it made misleading statements about STI-1499 that led some investors to incur losses.

This lawsuit may end up being nothing more than a mild complication with few actual ramifications for Sorrento. Still, given this legal action, the fact that Sorrento has yet to start clinical trials for its potential vaccine and therapies, and the fact that many other companies have essentially left Sorrento in the dust, it makes little sense to bet that this biotech company will come out ahead of its peers. 

Consider, for instance, Moderna (MRNA 2.98%), which is one company that's nearing the start of a late-stage clinical trial for its investigational COVID-19 vaccine, mRNA-1273. The company expects to start a phase 3 clinical trial for its potential vaccine in July. This trial will be conducted in collaboration with the National Institutes of Health (NIH) and will enroll 30,000 participants in the U.S. The trial's primary endpoint will be "the prevention of symptomatic COVID-19 disease." Moderna and many other companies seem much more likely to successfully and quickly develop a vaccine for COVID-19 than Sorrento. 

Why you should stay away from Sorrento (for now)

In my view, Sorrento remains a risky stock to buy. The company currently has just one product on the market, a treatment for pain associated with shingles called ZTlido. However, this product doesn't generate much cash for Sorrento, and the company only recorded $7.7 million in revenue during the first quarter. Further, while Sorrento has other products in development, none have even started phase 3 clinical trials yet. Lastly, the company's low cash balance -- Sorrento had $21.9 million in cash and cash equivalents as of March 31, and it burned $21.2 million on research and development in the quarter -- means more share dilution could be on the way. Sorrento simply isn't worth the trouble right now, as there are many other quality biotech stocks to consider buying.

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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Stocks Mentioned

Sorrento Therapeutics, Inc. Stock Quote
Sorrento Therapeutics, Inc.
$1.52 (0.99%) $0.01
Moderna, Inc. Stock Quote
Moderna, Inc.
$123.26 (2.98%) $3.57
Fox Corporation Stock Quote
Fox Corporation
$28.73 (-0.79%) $0.23

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