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Why Sorrento Therapeutics Stock Plunged Today

By Joe Tenebruso – Aug 19, 2020 at 4:42PM

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The biotech dismissed a key executive.

What happened 

Shares of Sorrento Therapeutics (SRNE 5.21%) fell on Wednesday after the biopharmaceutical company fired its chief financial officer. By the close of trading, Sorrento's stock was down 9.9%.

So what 

After the market close on Tuesday, Sorrento disclosed in a Securities and Exchange Commission (SEC) filing that it had terminated CFO Jiong Shao's employment, effective immediately. 

A downwardly sloping stock chart.

Sorrento Therapeutics stock declined on Monday, following news that it had fired a senior member of its leadership team. Image source: Getty Images.

Sorrento said Najjam Asghar, who has served as the biotech company's chief accounting officer since June 2019, would replace Shao as CFO until a long-term successor is found.

Now what

Experienced investors know that it's rarely a good thing when a company fires its chief financial officer. Such a move often signifies that the CEO and board of directors are unhappy with the company's decision-making as it relates to key financial matters -- and it could be a sign of mounting problems that have not yet been disclosed to shareholders. Many of Sorrento's investors apparently decided to sell their shares today rather than wait for any potential bad news to be announced.

Moreover, a sizable number of people are betting against Sorrento's stock. Roughly 20% of the biotech's shares are sold short, which essentially means these investors have taken positions that will profit if Sorrento's stock price declines. News of turnover in the company's highest leadership ranks may have given these short-sellers a reason to increase their bearish bets against Sorrento, which could have applied additional downward pressure on its share price on Wednesday.

Joe Tenebruso 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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