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Is Sorrento Therapeutics a Good Coronavirus Stock to Buy?

By Keith Speights – Aug 29, 2020 at 5:09AM

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Here are the pros and cons for the high-flying biotech stock.

Sorrento Therapeutics (SRNE -4.32%) is one of those stocks that's kind of like a lightning rod. That's apparent from the fact that over 22% of the biotech's outstanding shares were sold short as of Aug. 14, 2020. On the other hand, there are also many investors who feel strongly optimistic about Sorrento's growth prospects.

The company has received lots of attention since CEO Henry Ji announced in May that Sorrento could have a cure for COVID-19. Its stock has been a big winner, jumping close to 150% year to date. But is Sorrento Therapeutics a good coronavirus stock to buy? 

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Image source: Getty Images.

Plenty of arrows in the quiver

Both proponents and opponents of Sorrento can agree on one thing: The biotech has plenty of arrows in its quiver that target COVID-19. Sorrento's programs cover the prevention, diagnosis, and treatment of COVID-19.

In June, the company requested emergency use authorization (EUA) from the Food and Drug Administration for its COVI-TRACK diagnostic test, which detects novel coronavirus antibodies. It also plans to file for an EUA for COVI-TRACE, a rapid salivary diagnostic test licensed from Columbia University.

Sorrento has been even more active in developing potential treatments for COVID-19. The biotech filed for FDA approval earlier this month to begin a phase 1 study of antibody therapy STI-1499 (COVI-GUARD) in treating hospitalized COVID-19 patients. It hopes to quickly advance the candidate through clinical testing and perhaps even receive an EUA for STI-1499 as soon as the end of 2020.

The company recently acquired the rights to abivertinib from ACEA Therapeutics and is evaluating the candidate in a phase 2 study for treating COVID-19 patients with severe to moderate pulmonary symptoms. It also has two other COVID-19 therapeutic candidates in preclinical testing, COVI-SHIELD and COVIDTRAP.

In addition, Sorrento has selected its lead COVID-19 vaccine candidate after conducting preclinical testing. This candidate, T-VIVA-19, has yet to advance into phase 1 clinical testing.

Plenty of hurdles to jump, too

Sorrento faces plenty of obstacles. The obvious challenges include securing FDA emergency use authorization and ultimately getting approval for its pipeline candidates.

Sorrento shouldn't have too hard a time getting EUAs for its COVID-19 antibody and diagnostics tests. The FDA has already granted EUAs for a long list of rival products. Of course, this raises yet another hurdle for Sorrento: competing in an increasingly crowded marketplace. That might not be too problematic for COVI-TRACE, though, since the saliva-based diagnostic test offers several key advantages. 

The biotech could have a tougher time getting its therapeutic candidates and experimental vaccine on the market. The FDA hasn't given many EUAs so far for therapeutic candidates. The first COVID-19 vaccine authorization is still at least several months away.

There's also a money hurdle. Sorrento had less than $24.4 million in cash and cash equivalents on hand at the end of June. Even with its restricted cash of $45 million added in (which can only be used for its designated purpose, not for general business operations), the company doesn't have a lot of money to advance its pipeline or commercialize any products that secure EUA or approval.

Sure, Sorrento could raise more cash by issuing new shares. But it's already planning to offer around $19.4 million in new shares to fund the acquisition of SmartPharm Therapeutics. Every new share on the market dilutes the value of existing shares.

To buy or not to buy?

My view is that Sorrento's pipeline has considerable potential. It wouldn't surprise me if the biotech stock moves higher, especially if good news sparks a short squeeze. Some might like those prospects enough to scoop up shares.

However, I think that Sorrento is too risky to buy right now for most investors. What could change that assessment? For one thing, it would be great for the company to receive FDA emergency use authorization for at least one of its products. Solid results from a clinical study (as opposed to preclinical data) would also be a big plus. Clarity on how Sorrento will fund its multiple programs would be helpful as well.

In the meantime, I suspect that Sorrento Therapeutics will continue to be the kind of stock that attracts passionate views both for and against it.

Keith Speights 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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