There’s no shortage of relatively unknown biotech stocks posting wild swings on the market these days. Sorrento Therapeutics (NASDAQ:SRNE) is one such company that was virtually unheard of before the novel coronavirus pandemic struck. SRNE stock was trading under $2 per share in February, since then the firm has climbed to $19 per share and back down to $11.06 at the time of this writing.
Sorrento is working on a saliva-based coronavirus diagnostic test, something that could prove monumental in defeating the coronavirus pandemic without further crippling the economy.
But like most coronavirus vaccine stocks, SRNE has been volatile as investors digest detailed drug development data and try to trade on it for the first time in history. Everything and nothing is a catalyst for these coronavirus biotechs, and for that’ reason they’re rife with volatility.
SRNE Stock Nosedived This Week
This week, Sorrento stock made its way markedly lower on news that the Yale School of Public Health had developed a low-cost saliva-based Covid-19 test earlier this week. The Food and Drug Administration (FDA) gave the new test Emergency Use Authorization over the weekend, prompting stock holders in SRNE to panic a little bit.
Competition is undoubtedly a factor when it comes to all things Covid-related. Anyone and everyone in the field is working on a way to combat the pandemic, which, from a public health standpoint, is fantastic. But from investors’ perspective, it’s a minefield.
The good thing about coronavirus diagnostic test-makers is the market is arguably wider. Until the virus has been eradicated, testing is a key way to keep the economy up-and-running. In the absence of a vaccine, everyone from airports to schools will be looking for a cheap, effective testing method. With that in mind, it’s easier to pick a winner in the diagnostic test space than it is in the vaccine race.
Competition Still a Worry
That doesn’t suggest it’s easy to bet on test-makers, though. A big part of the reason Sorrento’s stock sunk on Monday was the fact that Yale’s test, SalivaDirect, is ahead of Sorrento’s COVI-TRACE. SalivaDirect has already had FDA approval — meaning the test can move forward toward production. Not only that, but Yale has decided to open-source the process for SalivaDIrect. Early predictions suggest that the cost of the test will be just $10.
That’s a huge advantage for Yale. Aside from accuracy, price and ease of use will be of utmost importance to those purchasing test kits.
It’s Not Over for Sorrento
The advancement of SalivaDirect is a setback, but it’s not a death sentence. There are a few things working in Sorrento’s favor. First of all, SRNE claims it’s not far behind Yale on getting FDA emergency approval and beginning production of its tests. So although it’s behind, Sorrentino isn’t that far behind as long as it’s FDA approval materializes soon.
But the most important factor that stock investors in SRNE should be focused on is the ease of use for Sorrento’s saliva test. Unlike SalivaDirect and many other competitors, SRNE’s tests can be processed on site in under 30 minutes. For others, the test results have to be sent away to an independent lab to analyze.
That makes the use-case for Sorrento much wider-reaching. An airport, for example, that wants to test passengers coming through security is going to need a test that can provide results on-site. The rapid results much trump cost for a wide range of potential users.
Not only that, but Sorrento may not be as far behind Yale on cost. In fact, according to some calculations, COVI-TRACE could actually cost less than SalivaDirect. According to Sorrento CEO Henry Ji, COVI-TRACE could also cost somewhere around $10 per test once production ramps up. When you factor in the cost of overnight shipping and lab processing fees, SalivaDirect is likely to be pricier than just the cost of materials to conduct the test.
The Bottom Line
Sorrento looks like a clear winner in the coronavirus diagnostic space based on the information available. But investors should be aware that a lot can go wrong. Aside from competition, there’s a chance the tests don’t get approved or are found to be less accurate than initially believed.
If Sorrento’s coronavirus bets don’t materialize, the stock would be a dud. The firm is struggling under a huge debt pile and there’s not much else to continue propelling the share price.
Betting on coronavirus biotechs isn’t for the faint of heart, but if you’re going to do it Sorrento Therapeutics looks like a pretty good play.
Laura Hoy has a finance degree from Duquesne University and has been writing about financial markets for the past eight years. Her work can be seen in a variety of publications including InvestorPlace, Benzinga, Yahoo Finance and CCN. As of this writing, she did not hold a position in any of the aforementioned securities.
The post Sorrento Therapeutics Stock Is a Solid Coronavirus Pick appeared first on InvestorPlace.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.