When I last wrote about Sorrento Therapeutics (NASDAQ:SRNE) in early October, it was trading around $11.20, well down from its all-time high of $19.39, still up significantly from where it started the year.
At the time, I suggested that Sorrento was a better buy in the single digits. Now trading around $6 as I write this, I’m wondering if the stock’s month-long swoon screams buy-on-the-dip.
Here are both sides of the argument.
Sorrento Stock Is a Screaming Buy
The company reported its third-quarter results on Nov. 9. There was visible progress in both the top- and bottom-line numbers.
Its net product revenues in the quarter were $7.9 million, 107% higher than a year earlier. Meanwhile, its service revenues rose 97% to $3.9 million. Overall, sales were up 103% to $11.8 million. In the nine months ended September 30, sales jumped 55% to $28.5 million, with product revenues accounting for two-thirds of sales and services the remainder.
On the bottom line, Sorrento lost $83.1 million from operations, 56% higher than a year earlier. If you exclude $35 million in acquired in-process research and development costs — these are upfront licensing fees paid to organizations such as Columbia University to commercialize certain R&D — and you have an operating loss that was $5 million lower than in the same period a year ago.
For the first nine months of fiscal 2020, Sorrento lost $174 million, compared to a $226.8 million loss a year earlier. Once again, if you exclude the $40 million in acquired in-process research development costs, its operating loss was 41% lower year-over-year.
Remember, losses are commonplace in biopharmaceutical companies. The fact that revenues are going up while losses are going down is a good thing.
Sure, it’s burning about $40 million in cash every quarter at this point, so it will have to raise more equity and debt in the future, but the latest news suggests Sorrento could have a part to play in the world’s recovery from Covid-19.
On Nov. 9, Sorrento filed an investigational new drug (IND) application for STI-2020 (COVI-AMG) that’s intended to treat patients with mild Covid-19 symptoms. It’s looking to get an emergency use authorization (EUA) from the Food and Drug Administration.
It might not be an announcement like Pfizer’s (NYSE:PFE), but it suggests Sorrento is still in the game. It’s still a big deal with only $28 million in revenue through the first nine months.
The Knife Is Still Falling
InvestorPlace contributor Josh Enomoto is one person who understands science. His articles do a much better job than I ever could of articulating what’s important and why. Recently, he discussed how Sorrento’s chief executive officer, Henry Ji, has managed to charm investors during the rise of the novel coronavirus.
In essence, Enomoto argues, the CEO’s managed to convince investors that Sorrento has a solution for every stage of the coronavirus spectrum. The question is whether any of these solutions will make it to the finish line and actually get pushed into service.
Or, all of them could fall flat on their face, making the nearly $1 billion offer it received in January seem extremely attractive.
“Sorrento fails to gain traction on any of their solutions. And it’s not an unthinkable proposition either,” Enomoto wrote on Nov. 4. “Yes, it has something for everything as far as Covid is concerned. But none of these platforms are exclusive to Sorrento and Sorrento leads in none of its contested market subsegments.”
In the end, at least to my eye, even its drug to treat mild cases of Covid-19 could be left at the altar despite having 100,000 doses in place for manufacture and use early in 2021.
What to Do?
My colleague believes that 90% of investors have no business owning Sorrento stock. I would agree with that assessment.
However, for that small sliver of speculative investors out there, the fact that it has lost 50% of its value over the past month points to a risk-to-reward proposition that has once again become favorable.
I’m not suggesting Henry Ji will become a billionaire anytime soon but if you want to bet a bob or two on SRNE and can afford to lose it all, the $6 area is an excellent entry point.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
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