Sonnet BioTherapeutics Holdings, Inc. (SONN) is a clinical-stage oncology-focused biotechnology company with a proprietary platform for innovating biologic medicines of single or bispecific action. The company’s lead candidate is SON-1010, a fully human version of interleukin 12 for treating non-small cell lung and head and neck cancer.

In addition, the company is developing SON-080, a fully human version of interleukin 6 for chemotherapy-induced peripheral neuropathy and diabetic peripheral neuropathy.

SONN has made constant progress, with two clinical programs SON-1010 and SON-080, currently advancing in human studies. During the third quarter of 2022, the company initiated a second Phase 1 clinical trial of SON-1010 (IL12-FHAB) based on the successful initiation of the first two cohorts in the first-in-human (FIH) dose-escalation trial (SB101) in patients with advanced solid tumors.

SONN also initiated a Phase 1b/2a clinical trial of SON-080. The new study (SB211) will be conducted at multiple sites in Australia in patients with persistent chemotherapy-induced peripheral neuropathy (CIPN).

The company reported collaboration revenue of $62.07 for the fiscal 2022 third quarter ended June 30, 2022. However, its bottom line declined significantly. Its loss from operations came in at $7.87 million, worsening 26.1% year-over-year. The company’s net loss widened 28.8% year-over-year to $7.88 million, while its net loss per share came in at $0.13.

Shares of SONN have plunged 73.9% in price year-to-date and 83.7% over the past year to close the last trading session at $1.51. The stock is currently trading 84.4% below its 52-week high of $9.66, which it hit on November 18, 2021.

Here is what I think could influence SONN’s performance in the upcoming months:

Disappointing Financials

SONN’s operating expenses increased 27.1% year-over-year to $7.93 million in the fiscal 2022 third quarter ended June 30, 2022. The company’s loss from operations worsened by 26.1% year-over-year to $7.87 million. The company’s net loss widened 28.8% from the prior-year period to $7.88 million, while its net loss per share came in at $0.13.

As of June 30, 2022, the company’s total current liabilities and total liabilities stood at $6.50 million and $6.73 million, respectively. For nine months ended June 30, cash outflows from operating activities stood at $21.53 million, up 29.6% year-over-year.

Unfavorable Analyst Estimates

Analysts expect the company’s revenues to decrease 79.3% year-over-year to $100,000 in the fiscal 2022 fourth quarter (ended September 30). The company’s loss per share of $1.51 for the to-be-reported quarter is expected to widen by 19.8% year-over-year. Furthermore, the company has missed the consensus EPS estimates in three of the trailing four quarters, which is disappointing.

In addition, SONN’s current and next fiscal year's revenues are expected to come in at $400,000 and $50,000, indicating a decline of 17.3% and 87.5% year-over-year, respectively. Also, analysts expect the company’s loss per share for the same periods to come in at $6.68 and $6.24, respectively.

Weak Profitability

In terms of trailing-12-month CAPEX/Sales, SONN’s 0.47% is 90.4% lower than the 4.88% industry average. Its trailing-12-month ROCE, ROTC, and ROTA of negative 2,741.75%, 1,431.63%, and 390.39% compare to industry averages of negative 38.97%, 21.82%, and 30.24%, respectively.

Furthermore, the stock’s trailing-12-month asset turnover ratio of 0.11% is 69.8% lower than the 0.35% industry average.

POWR Ratings Reflect Bleak Prospects

SONN has an overall rating of D, translating to Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. SONN has a grade of F for Stability. The stock’s relatively high beta of 1.36 justifies the Stability grade. In addition, it has a D grade for Quality, consistent with its lower-than-industry profitability metrics.

SONN is ranked #181 out of 426 stocks in the F-rated Biotech industry. Get all SONN ratings here.

Bottom Line

SONN delivered poor results for the fiscal third quarter. Moreover, analysts seem bearish about the company’s growth prospects. The stock is currently trading below its 50-day and 200-day moving averages of $1.90 and $3.64, respectively, indicating a downtrend.

Given its deteriorating financials, bleak growth prospects, and lower-than-industry profitability, we think it could be wise to stay away from this biotech stock now.

How Does Sonnet BioTherapeutics Holdings, Inc. (SONN) Stack up Against Its Peers?

SONN has an overall POWR Rating of D. One could also check out these other stocks within the Biotech industry with an A (Strong Buy) rating: Gilead Sciences Inc. (GILD), Vertex Pharmaceuticals Inc. (VRTX), and United Therapeutics Corporation (UTHR).

SONN shares fell $0.01 (-0.56%) in premarket trading Wednesday. Year-to-date, SONN has declined -73.89%, versus a -18.64% rise in the benchmark S&P 500 index during the same period.

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.

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