Last year, Sorrento Therapeutics (SRNE.Q -6.19%) became one of the hottest coronavirus stocks. It's made an impressive gain of 135% since last January. However, many investors who joined the hype were quickly disappointed, as the stock fell nearly 50% from all-time highs in August.
The enormous volatility behind Sorrento stock is not without reason. It was among the first in the biotech sector to begin searching for ways to treat COVID-19. After the development of its coronavirus tests and therapeutics began to stall, shareholders started ditching the company in favor of its competitors.
Is Sorrento bound for a turnaround this year, or is the wait for results set to stretch even longer?
Jack of all trades, but master of none?
When it comes to combating COVID-19, Sorrento is bringing everything at its disposal to the fight, from coronavirus test candidates to experimental antivirals.
The company licensed a COVID-19 diagnostic test (COVI-TRACE) from Columbia University back in July. It claims that the saliva test is highly accurate, producing results in a matter of 30 minutes. COVI-TRACE has yet to receive an Emergency Use Authorization (EUA) from the U.S. Food and Drug Administration (FDA).
The company started gathering documents required for an EUA in August. However, it has not submitted such an application. Two months ago, Sorrento's CEO, Dr. Henri Ji, gave the following statement during an interview: "We are doing the final final, all of the sample testing. So far, we are pretty happy with the data, so I think we will be able to submit it very soon as well." There have been no further material updates to the status of COVI-TRACE since then.
The same goes for Sorrento's antigen and antibody tests. It is rather peculiar that the company still hasn't cleared the regulatory threshold despite a lower barrier to entry given the severity of the pandemic.
Nevertheless, California gave the green light for Sorrento to run its tests on clinical samples back in December. It cites outdated technology as one of the reasons behind the delay in submitting an EUA for its antibody test. The company had filed for regulatory review of its antigen test as of Dec. 22.
Sorrento is also investigating four different neutralizing antibodies against SARS-CoV-2 for inpatient, outpatient care, and with different types of delivery (such as intranasal). They are currently in the discovery process or phase 1. Sorrento has received up to $34 million from various Department of Defense initiatives to develop its neutralizing antibodies.
Lastly, it has five other coronavirus treatments that are between preclinical or phase two clinical trials. Since receiving phase 2 trial clearance from the FDA in July, there have been no further material updates to its experimental coronavirus therapy, abvertinib.
Sorrento also has candidates targeting non-opioid pain management and cancer immunotherapy. In another article, I discussed how Sorrento's pain management pipeline had early stage clinical trials that involved far too little patients, and lacked verification versus placebo. Thus far, Sorrento's most promising experimental treatment is probably abvertinib, which targets non-small-cell lung cancer.
Is it worth the risk?
Right now, Sorrento only has a market cap of $2.6 billion, which is relatively tiny given the extent of its pipeline. In context, Gilead Sciences (GILD -0.64%) is bringing more than $800 million per quarter from sales of its coronavirus treatment remdesivir. Meanwhile, large-cap biotech Moderna (MRNA 3.01%) projects it can generate close to $12 billion from sales of its coronavirus vaccine this year alone. These two companies' market caps range from $49 billion to $84 billion.
Investors should note, however, that having potential therapeutic candidates is just one part of the story. The problem with Sorrento is the lack of progress in its clinical programs. It's been over a year since the SARS-CoV-2 began to spread, and Sorrento still does not have one COVID-19 related product that has earned regulatory clearance. Besides, the golden period to make money off COVID-19 testing will soon be history thanks to the rollout of coronavirus vaccines this year.
Overall, Sorrento is a very risky biotech that's only suited for investors who can withstand abnormal amounts of volatility. It only has $75 million in cash on hand, compared to a quarterly loss of $83 million and a debt balance of $168 million. Since its inception in 1989, the company has lost a cumulative $887 million.
To stay afloat, the company has been selling equity. Over the past year, its shares outstanding have increased from about 180 million to 257.7 million. This year, it expects to get its tests on the market and a few of its COVID-19 therapeutics into late-stage trials. However, it may be too little too late, as the mass rollout of coronavirus vaccines could render coronavirus tests and treatments far less profitable than a year ago. For these reasons, in addition to the stock volatility, it's best to stay away from Sorrento altogether if you are investing in stocks based on their coronavirus pipeline alone.