Short-Squeeze Drama: Biotech Edition

The fuss over GameStop (GME) has aimed the spotlight on several small- and even mid-cap stocks that hold a high level of short interest.

For quite some time now, retail investors have been identifying others with similar qualities as GME: a short interest standing at more than 20% of the total float, a market capitalization above $1 billion, and a stock price of roughly $20 per share or even less.

Now, these traders have turned their attention to the biotech industry and one stock that caught their attention is Sorrento Therapeutics (SRNE).

In 2020, Sorrento was hailed as one of the hottest COVID-19 stocks as it jumped an impressive 135% since the year started.

However, the hype dissipated quickly, with the stock falling almost 50% by August that same year.

The company’s volatility was expected considering Sorrento’s early entry, but delayed progress in the COVID-19 race.

As 2020 rolled out, investors started ditching the stock in favor of other developers like Moderna (MRNA), Pfizer (PFE), BioNTech (BNTX), Novavax (NVAX), and AstraZeneca (AZN).

Come 2021, however, the stock seems to bounce back.

Sorrento’s shares have been climbing since the year started following the company’s encouraging data on COVI-MSC, which is its entry in the race to find a potent COVID-19 treatment.

COVI-MSC works as a stem cell treatment developed for COVID-19 patients suffering from acute respiratory distress.

Based on its report in January, Sorrento disclosed that the first three individuals who went through their COVI-MSC treatment were discharged from the hospital within only a week.

Meanwhile, the fourth patient, the one who needed mechanical ventilation due to deteriorating respiratory condition, experienced rapid improvement of his condition and was discharged from the hospital the night of his third COVI-MSC infusion.

On a more promising note, none of the patients experienced any adverse effect following their COVI-MSC treatment.

Outside its COVID-19 treatment program, this San Diego-based biotechnology company has been working on therapies for cancer, neurodegenerative, autoimmune, and inflammatory conditions.

It has multiple “shots on goal” particularly in the oncology department, with its non-small cell lung cancer treatment Abivertinib as the leading candidate to date.

Sorrento’s pain management pipeline, which is headlined by Ztildo, is ripe for expansion thanks to its strategic collaboration with SCILEX.

The company also has its hands in other high-growth sectors in the biotech world, paying particular attention to non-opioid pain relief and immunotherapy.

These projects indicate that Sorrento is no one-trick pony.

In fact, even if its COVID-19 program falls flat – a very real possibility considering that COVI-MSC still needs to go through multiple trials – Sorrento has several initiatives to fall back on.

With three shots on goal, namely, its COVID-19 program, its oncology platform, and non-opioid pain treatment, Sorrento has ensured that it’s well-positioned for success.

If approved, Sorrento’s current pipeline comprising diagnostic kits and therapies could generate over $2 billion in short-term sales.

At the moment though, Sorrento’s $4.02 billion market capitalization makes it a tiny biotechnology company compared to its competitors.

Given its robust pipeline, it’s evident that Sorrento still needs to boost its capitalization to push through with all the plans.

For context, its most dominant rival in the COVID-19 treatment market is Gilead Sciences (GILD), which has $84.38 billion in market capitalization, rakes in $800 million each quarter from sales of Remdesivir.

Let’s say Sorrento expands to the vaccine market, it still cannot catch up with the leader in that arena, Moderna (MRNA), which has $70.97 billion in market capitalization.

Looking at Sorrento’s performance, this company remains an underappreciated stock loaded with potential.

From a business perspective, Sorrento offers a solid pipeline of candidates that could present promising results to push the stock price up.

At this point, the positive updates on its COVID-19 program can cause the stock price to rise exponentially, putting short sellers looking in an unfortunate position.

Overall, Sorrento has the potential to double in value. However, bear in mind that it still has a long way to go. Hence, this company is best as a long-term investment.