Markets

Why Sorrento Therapeutics Stock Cratered on Friday

What happened

Sorrento Therapeutics (NASDAQ: SRNE) ended the week on a down note, tumbling by nearly 11% on Friday on news of a fresh acquisition.

So what

Sorrento revealed in a regulatory filing that it has agreed, through a subsidiary, to purchase ACEA Therapeutics. Sorrento's initial payment is $38 million for the company. Among other terms, ACEA could earn up to an additional $265 million if it hits certain sales and operational milestones.

ACEA is a clinical-stage biotech that concentrates on oncology treatments, and it is already familiar to Sorrento. In May, the latter acquired exclusive rights to ACEA's abivertinib throughout the world, save for China.

Cancer attacking an organism.

Image source: Getty Images.

Abivertinib was originally developed as a cancer drug, but is now being tested as a candidate in the treatment of COVID-19. Following successful early stage testing, it has been cleared for phase 2 clinical trials in the U.S. and Brazil.

Now what

As is fairly typical for relatively young biotech companies, Sorrento is loss-making on the bottom line. Investors might be concerned that an outlay of potentially hundreds of millions of dollars for ACEA, which has already sold near-global licensing for its key pipeline drug to Sorrento, is extravagant.

Yet Sorrento is gaining ACEA's three other pipeline drugs, all of which are cancer treatments, in the deal. Perhaps at least one can be retargeted, like abivertinib, to fight COVID-19. Since Sorrento started as a developer of such drugs, to me this feels like a complementary and sensible buy.

10 stocks we like better than Sorrento Therapeutics
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and Sorrento Therapeutics wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

*Stock Advisor returns as of September 24, 2020

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

SRNE

Latest Markets Videos

    The Motley Fool

    Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

    Learn More