Covid-19 excitement masks Sorrento’s disastrous capital structure

Investors looking at press releases on Sorrento’s website might be excused for thinking that the company was about to cure Covid-19. Indeed, Friday’s announcement that Sorrento’s “STI-1499, a potent anti-SARS-CoV-2 antibody”, could “completely inhibit” Covid-19 infection sent the group’s stock up 158%, even though this finding came from an in vitro virus infection experiment. That Sorrento is now valued at $1.4bn is even more remarkable given its first-quarter financials report, not published under news and events but rather under a separate section for SEC filings on Sorrento’s website. This reveals the precarious state of the company, which spends over $45m a quarter on R&D and admin, but ended March with $22m in cash and $183m in debt. The company is not insolvent, however, thanks to an at-the-market offering announced in April to sell up to $250m of new stock; $70m had already been raised from first-quarter equity issues, the SEC filing reveals. Nevertheless, the unaudited report admits that there is “substantial doubt about the company’s ability to continue as a going concern within one year”. Investors betting on Covid-19 would do better to investigate Sorrento’s capital structure and brace themselves for further dilution.

Sorrento's financial highlights
First-quarter R&D spend (21,154)
First-quarter SG&A spend (26,299)
First-quarter net operating cash outflow (38,550)
Mar 31 gross cash 21,897
Mar 31 gross debt (182,958)
First-quarter proceeds from equity offerings 69,896
Cumulative losses since inception (725,000)
Maximum value of 27 Apr ATM offering 250,000
Amount of ATM used/remaining Not disclosed
Source: 10-K SEC filing.

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