Sorrento Therapeutics (NASDAQ: SRNE) was lacking direction as short-sellers brought down the stock after most positive announcements. However, the green light from the FDA allows the bulls to lay down the trackwork. The clear path is promising, but the volatility is making it difficult for investors to enter. Today’s article looks to make sense of the volatility and to breakdown the SRNE stock forecast for 2021.
Table of contents 1. Why all the hype? 2. Smart money is bullish. 3. Is there doubt?
Why is the SRNE stock forecast suddenly bullish?
Sorrento’s positive Cancer and COVID-19 drug developments are attracting bullish investors.
On the 17th of September, the FDA gave SRNE the green light to commence Phase I COVID-19 clinical trials. The FDA’s vote of confidence comes from Sorrento’s positive pre-clinical trial data. Despite the announcement being last week, the increase in media coverage saw trading volume spike this week.
Moreover, SRNE expects STI-1499 to receive an Emergency Use Authorisation (EUA) potentially. While a EUA is still wishful thinking Sorrento initiated, “cGMP manufacturing to produce 50,000 doses in anticipation of the approval”. Sorrento intends to submit a EUA application as early as before the end of 2020. A potential approval likely saw investors buy shares under FOMO. However, investors should not translate a submission as a guarantee.
Cancer Treatment Update
SRNE’s positive Phase 1B cancer results are making investors optimistic about future catalysts. Sorrento reported on Tuesday that a “majority of their patients suffering from intractable pain reported a meaningful pain reduction of 30% or more from baseline”.
Phase I trial results usually do not trigger bullish activity. Because they are a relatively easy hurdle to overcome. However, the market potential of cancer can make Phase I trial results a bullish catalyst. Hence, the 17% rally on Tuesday.
However, the Phase I results is not the real reason for the rally. Sorrento intends to file a Phase 3 trial application to the FDA “imminently”. A phase 3 trial for Cancer is a huge catalyst.
Options and analysts project a bullish future – overly optimistic or accurate?
Implied volatility and the comparison of put to call volume can indicate the underlying sentiment. In the case of Sorento, Implied volatility is ranging between 140-540%, which is incredibly high. When Implied Volatility gaps up it usually suggest a big swing to the downside or upside is imminent. Considering SRNE holds bullish catalysts under its belt we could see the price move to the upside.
Furthermore, Analysts Dawson James and H.C Wainwright are leading the bullish charge. Both analysts rate Sorrento as a buy with the respective 12-month price targets of $24 and $30. It is still uncertain whether SRNE will reach the respective prices of $24 or $30 in 2021. However, it is fair to say that the sentiment is bullish. Because H.C Wainwright and James both held their buy rating ratings since May and raised their price targets this quarter.
Opposition to the bullish SRNE stock forecast
The two most significant rebuttals are poor trial results and investors overreaching. It is important to note that the incredibly bullish activity is factoring in favourable trial results. Phase 3 trial results and an FDA approved COVID-19 drug is no easy feat. Analysts and options make it seem that SRNE is poised for success. However, setting stop losses to avoid a potential fallout is essential.
Overall Sorrento holds a bullish outlook for two reasons. First, the vote of confidence from the FDA makes SRNE a potential COVID-19 treatment frontrunner. A COVID-19 vaccine is still two or more quarters away. Hence, the FDA green light is a major win. Because if SRNE receives approval than they will act as a symbol of hope in the meantime. Second, the positive phase 1B cancer trial results bolstered Sorrento’s drug pipeline. Essentially, the cancer progression de-risks the investment (opinion not advice). Because investors are not just riding on COVID-19 hopes.
These two fundamental changes are why options activity and analysts are bullish. Overall, all signs are pointing towards a bullish future for SRNE heading into 2021. However, if Sorrento fails to achieve future milestones, then the short-sellers will tear down the gains in a heartbeat.
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The information above is not financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.
Written by Patrick McLoughlin, Senior Manager of YIG.