Whether Sorrento Therapeutics Could Benefit From A Short Squeeze
Feb. 03, 2021 9:58 AM ETSorrento Therapeutics, Inc. (SRNE)9 Comments7 Likes
Summary
Sorrento Therapeutics has recently disclosed positive results in anti-COVID allogeneic adipose stem cells research.
Sorrento Therapeutics is among the Nasdaq stocks with the highest short interest at 26.8%.
I believe that the combination of a strong research pipeline with high short interest can lead to interesting returns.
The GameStop (GME) short-squeeze drama has turned the spotlight on small- and mid-cap stocks with a high level of short interest. Heavily shorted stocks could become the target for so-called social trades by retail investors, who look to set off sharp price increases in these names and put pressure on short sellers, who need to buy shares they sold short to cover their positions.
Retail traders are now looking for other stocks with similar characteristics to GME: a short interest standing at over 20% of the total float, a market cap of over $1 billion and a stock price of possibly $20 per share or less.
I analyzed the Nasdaq looking for stocks that met those parameters and, among them, Sorrento Therapeutics (SRNE) stood out.
Company overview
Sorrento Therapeutics is a clinical-stage and commercial biopharma company. The Company operates in three main areas: Immune-Oncology, Non-Opioid Pain Management and COVID-19.
SRNE operates in the Immune-Oncology therapeutic area, leveraging its G-MAB antibody library and targeted delivery modalities to create the next generation of cancer therapeutics. These modalities include chimeric antigen receptor T-cell therapy (CAR-T), dimeric antigen receptor T-cell therapy (DAR-T), antibody-drug conjugates (ADC), as well as bispecific antibody approaches. Additionally, Sorrento Therapeutics' effort in the Immune-Oncology segment led to the development of Sofusa, a drug delivery technology that delivers biologics directly into the lymphatic system to potentially achieve improved efficacy and fewer adverse effects than standard parenteral immunotherapy.
Sorrento Therapeutics is present in the Non-Opioid Pain Management area through the recently-approved ZTlido, a lidocaine topical system. SRNE is also helping the fight against COVID-19 with a series of COVID-19 programs, spacing from COVID tests to treatments and vaccines.
Source: Corporate Presentation (January 2021)
Recent news
On January 31st, Sorrento Therapeutics announced encouraging results from its Phase 1b study of human allogeneic adipose-derived mesenchymal stem cells (COVI-MSC™) for patients suffering from COVID-19.
Particularly, a "patient, who spent more than two weeks in hospital and needed invasive mechanical ventilation, was treated with COVI-MSC and discharged after 3rd COVI-MSC infusion". So far, 4 out of 4 ICU COVID-19 patients were successfully discharged after COVI-MSC treatments.
It brings us great joy each time one of the treatments helps to save a life, after all that is what we at Sorrento work toward each and every day to save one life at a time. (Dr. Henry Ji, Chairman and CEO of Sorrento Therapeutics)
Stock price and key financials
Moving to the financial side of Sorrento Therapeutics, one can notice that the stock increased by +103% from the beginning of the year, mostly due to expectations on COVI-MSC testing and to general market trends on COVID-related stocks. As of 02/02/2021, SRNE is trading at $13.90 per share with a market capitalization of $3.65 billion.
According to the latest filings available (2020-Q3 10K), the Company has cash available for $75 million and a total debt of $168 million.
However, the short interest is what most attracted my attention. According to Reuters, as of 02/02/2021, the Company has 70.4M shorted shares out of 262.9M outstanding shares therefore leading to a 26.8% short interest. For sure, we are far away from the >100% short interest of GameStop (GME), still 26.8% is not a negligible percentage.
Source: Thomson Reuters
Conclusion
From a business point of view, Sorrento Therapeutics has a solid pipeline of research projects that could provide interesting results pushing the stock price up. Should that happen, the large number of short sellers could find themselves in the unpleasant need of closing their position, thus further increasing the price. The combination of these two effects could determine a sharp upside: that is why I believe that now is the proper timing for investing in Sorrento Therapeutics.
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