Back in May, Sorrento Therapeutics (NASDAQ:SRNE) captivated investor attention after it claimed the discovery of an antibody that can provide "100% inhibition" against COVID-19. In fact, the company's senior vice president, Dr. Mark Brunswick, made the following statement in an interview by Fox News: "So, if we were approved [by the U.S. Food and Drug Administration (FDA)] today, everyone who gets that antibody can go back to work and have no fear of catching COVID-19." Sorrento's CEO, Dr. Henri Ji, reiterated this attitude:
"We want to emphasize there is a cure. There is a solution that works 100 percent. If we have the neutralizing antibody in your body, you don't need the social distancing. You can open up a society without fear."
Fast-forward five months, and 12 coronavirus vaccine candidates are in phase 3 trials. At the same time, however, Sorrento's antibody candidates are still in the preclinical or very early stages of clinical trials. The picture is becoming clear, and it looks like the rest of the company's coronavirus pipeline will face stiff competition if its drugs are approved. Today, let's take a look as to why Sorrento is definitely not a coronavirus stock you want to add to your portfolio.
A vulnerable pipeline
Right now, Sorrento is awaiting an Emergency Use Authorization (EUA) from the FDA for its COVID-19 diagnostic and antibody tests. It also is investigating COVID-19 antibodies and therapeutic proteins in early studies, and has an experimental drug for patients with severe COVID-19 in phase 2. Unfortunately, all of these candidates are extremely susceptible to the mass commercialization of coronavirus vaccines, which could effectively end (or at least reduce) the need for tests and treatments.
Even if the tests receive approval, they still have to compete with the more than 220 SARS-CoV-2 viral tests and 56 antibody tests currently on the market. The same goes for its experimental therapies, which would go head-to-head with Regeneron's antibody cocktail, Gilead Sciences' remdesivir, and the generic steroid dexamethasone.
Although Sorrento is also developing a coronavirus vaccine, that candidate is only in the preclinical phase, which means that it is not yet being tested on human subjects. The top nine coronavirus vaccine manufacturers expect they will have a production capacity of more than 8.7 billion doses by the end of 2021. If Sorrento cannot advance its experimental vaccine in a timely manner, the business consequences could be disastrous.
Research and development woes
Some investors may argue that Sorrento's coronavirus portfolio is just icing on the cake, with the company's real potential lying in its non-opioid pain management and oncology pipelines. But significant caution is also warranted here. In another article, I outlined how the company's pain management candidates lack efficacy data in large-scale, placebo-controlled studies, despite years of development.
Moreover, Sorrento's potential non-small cell lung carcinoma (NSCLC) treatment, abivertinib, which is in phase 2/3 trials, will run into feasibility problems -- even if it's approved. There are already studies suggesting abivertinib has a weaker effect than osimertinib, an approved NSCLC drug. Both drugs are likely to be inferior to Regeneron's Libtayo, which had its phase 3 trial for treating NSCLC stopped early due to a considerable survival benefit among patients. That drug is projected to become a first-option treatment for the condition.
Takeaways for investors
Right now, Sorrento has only $24.4 million in cash on its balance sheet, while its total debt, leases, and senior notes amount to approximately $259 million. The company generated just $5.79 million in product revenue in Q2 2020, compared to a net loss of $82.2 million.
Remarkably, Sorrento is a $2 billion company in terms of market cap. That's despite the company increasing its shares outstanding from around 90 million in 2018 to over 217 million today. The company has lost a whopping $800 million since its inception in 2006.
At the end of the day, fixing attention on biotech companies receiving FDA approvals can be dangerous, especially if the probability of achieving that outcome is low and the subsequent commercialization opportunity is smaller than projected. For these reasons, I recommend investors stay well away from Sorrento stock.