What happened

Shares of Sorrento Therapeutics (NASDAQ:SRNE) were slipping 5% lower as of 3:24 p.m. EDT on Friday. The decline appears to be related to Sorrento's announcement earlier in the day that it plans to acquire SmartPharm Therapeutics. In the press release announcing the deal, the company also said that it expects to file an Investigational New Drug (IND) Application with the FDA in August for approval to begin a phase 1 study of COVID-19 antibody therapy candidate STI-1499, also known as COVI-GUARD.

So what

One reason why investors might be wary of Sorrento's intended acquisition of SmartPharm is that the financial terms of the deal weren't disclosed. Sorrento isn't anywhere close to reaching profitability and had only $21.9 million in cash and equivalents as of March 31, 2020. 

COVID-19 printed on a blue background with small red models of the novel coronavirus

Image source: Getty Images.

Aside from the near-term financial concerns, though, an acquisition of SmartPharm could pay off for Sorrento over the long run. The two companies are already working together to use SmartPharm's Gene Mab plasmid nanoparticle platform in Sorrento's development of therapies for COVID-19 and other diseases.

Sorrento's plan to submit for FDA approval to begin a phase 1 study of STI-1499 is kind of a double-edged sword. The good news is that the biotech is moving forward with its COVID-19 program, which so far has included only preclinical testing. The bad news is that Sorrento is still way behind others who are already evaluating experimental antibody therapies in clinical trials.

Now what

The SmartPharm transaction is expected to close in August. However, the progress for Sorrento's COVID-19 candidates will be more important for the biotech stock. Sorrento hasn't yet announced definitive plans to advance any candidate other than STI-1499 into clinical testing.