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It has been a decade — since November 2010, to be precise — since Sorrento Therapeutics (NASDAQ:SRNE) has seen its stock hold onto a big gain. From then to now, SRNE stock is off by 15%; it currently trades at $6.32 per share. If you’re hitting yourself for sticking around that long in search of profit, it could be worse. Just a few months previous to the start of its low plateau, in May 2010, Sorrento shares fetched around $75 apiece.
As I’ve stated in previous pieces, biotechs and biopharmas of this size live and die based on the breakthrough drugs, tests and therapies they bring to market. And for investors, that represents a fishing expedition of dubious value, if any at all. For example, Inovio Pharmaceuticals (NASDAQ:INO) has not released a single product in its 40-plus years of existence.
So you may wonder, “What’s Sorrento got in the pipeline?” Good question, and here’s the biggest answer: a Covid-19 saliva test. Hitting the mark could prove an incredible boon for the company … except that in this case, Yale University is out front, and probably far out front. On Aug. 15, Yale announced that its SalivaDirect had received an emergency use authorization (EUA) from the U.S. Food & Drug Administration.
Covid-19 Test Not Ready For Prime Time
The Yale School of Public Health’s announcement called SalivaDirect “quick and affordable.” The developers have no investors to please, either, as the lead professors on the project “are not seeking to commercialize the method. Rather, they want the simplified testing method to help those most in need,” Yale stated.
Considering that Sorrento has at least three-plus months to go on the EUA track — their own news release says “as early as the end of this year” — they can only hope for a successful launch point to meet the anticipated demand for millions of tests.
Even so, the world at large (and Wall Street in particular) may not notice. SRNE will be up against Yale’s media relations team and their one built-in advantage: News outlets love it when university researchers make big discoveries. Given its $1.6 billion market cap, Sorrento should consider spending some bucks on a high-flying PR team, lest their work get lost in the shuffle.
Yes, a successful Covid-19 test should boost Sorrento’s bottom line no matter what. But media attention has never hurt share price, either: Just ask the flamboyant leader of Tesla (NASDAQ:TSLA), Elon Musk. He’s done a great job selling his company to investors even when it was posting a long string of quarterly losses.
The Bottom Line on Sorrento’s Bottom Line
Now, let’s backtrack just a sec. Notice how I said a novel coronavirus test “should boost Sorrento’s bottom line”? And before that, how Yale is “not seeking to commercialize” its already-approved test? How does a public biomed company hoping to make a profit compete with a bunch of do-gooders at an Ivy League university solely focused on the human condition — and charging about $10 per test?
Right now, investors in SRNE stock would be happy if their shares were worth that much.
And with so few analysts weighing in on Sorrento, a surface read isn’t a good one. The two surveyed by the Wall Street Journal call it a buy, with a price target of $25.50 per share. But as I see it, that number leans too much on crystal ball gazing that factors in an approved test.
Why You Should Pass on SRNE Stock
We’ve already discussed some hazards related to “test gazing” where investors are concerned. Now add this: InvestorPlace writer Mark R. Hake has pointed out recently that Sorrento “only had $24 million in cash at the end of June 30. Moreover, it is burning at least $38 million each quarter.” Factor in the $15 million it plans to pay ACEA Therapeutics to license their product and you’re entering into a financial backwater from which safe passage seems less and less likely.
Meanwhile, SNRE has missed earnings targets for three consecutive quarters. That’s not pretty, considering that all the analyst projections were underwater to begin with. Losses have accelerated over the same period, now nearing $80 million on $9 million in sales and revenue.
Would I buy a stock in this kind of financial position? No. It might be a different story if Yale and Sorrento were neck-and-neck to get their tests out. But they’re not and for all we know, some other university might be hard at work on a test as well. I’m not a big proponent of buying any stock based solely on its potential, let along the potential of a single product.
In other words: Why wait for Sorrento’s Covid-19 test to pass when it’s already failed the financial litmus test?
On the date of publication, Lou Carlozo did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
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