SRNE) has a direct competitor for its Covid-19 saliva test — Yale University. And this could really end up hurting SRNE stock, as Sorrento’s test has not yet been approved.” data-reactid=”12″>Sorrento Therapeutics (NASDAQ:SRNE) has a direct competitor for its Covid-19 saliva test — Yale University. And this could really end up hurting SRNE stock, as Sorrento’s test has not yet been approved.
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FDA Emergency Use Authorization Use (EUA) for its Covid-19 test. On Aug. 19, Sorrento stated that it was “in anticipation of a potential EUA” by the end of 2020 with its new FDA filing.
give away the tests for free. But Yale’s announcement said that it would be charging just $10 per swab test. Moreover, Sorrento warned it may take legal action against the company from its skeptical reports on the stock.
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Sorrento Is Bleeding Cash
As of June 30, the company had just $24 million in cash, yet had burnt through over $76 million in cash flow in the first half of 2020. That includes negative $37.5 million in cash flow from operations in the latest quarter.
In fact, the table at the right shows that Sorrento has consistently burnt capital in the past five quarters since going public.
Click to Enlarge
Source: Mark R. Hake, CFA” data-reactid=”49″>
Click to Enlarge
Source: Mark R. Hake, CFA
It also shows that the negative FCF is also only incrementally improving over the past four quarters. Moreover, its sales have fallen from a peak of $13 million in Q4 2019 to $9 million in Q2 2020.
This means that the deficit between $24 million in cash and $38 million in FCF outflow this next quarter has to be financed. Therefore, Sorrento has to continually raise capital in order to pay for this deficit.
risk in its latest 10-Q filing. It has had “substantial cumulative net losses to date and anticipates that it will continue to do so for the foreseeable future” (page 9).
How Will The Company Finance Its Deals?
Here is how they described said product: an “orally available irreversible small molecule tyrosine kinase inhibitor to Bruton’s tyrosine kinase and mutant epidermal growth factor receptor.”
The problem is the company does not have $5 million to spare. Moreover, the total price includes an “upfront $15 million license fee” and the other $10 million was due within thirty days, or Aug. 13.
Remember from above Sorrento only had $24 million in cash at the end of June 30. Moreover, it is burning at least $38 million each quarter. Adding on another $15 million to pay for ACEA will require further financing.
From what I can tell, the company has not yet announced how this agreement was paid for. Moreover, Sorrento already has $166.2 million in current and long-term debt.
closed earlier this month.
Sorrento issued 1.76 million shares at a deemed price of $10.60. Keep in mind that the stock is now at 6.57, as of Friday, Sept. 4. So this has not been well received by the market. It effectively increases the company’s cash burn rate.
However, the issuance of 1.76 million shares represents less than 1% of the company’s existing 224 million shares outstanding. So there was little to no cost in terms of closing costs for the company. But again, I am baffled how the company expects to fund this higher burn rate.
What to Do With SRNE Stock
Sorrento stock is highly speculative in nature. It is not clear how the company is going to finance its ongoing operations.
I suspect that it will have to issue more equity and/or take on further debt. Though if it receives an EUA by the end of the year, it might have the makings of a viable business plan.
Given the speculative nature of SRNE stock, and how its finances will work I would wait until the company figures out how to cover its burn rate.
Total Yield Value Guide which you can review here.
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