Sorrento Therapeutics, Inc. (NASDAQ:SRNE) is one of the biggest movers in the biotechnology space as we head into the latter half of this week on some news related to one of the company’s lead development programs.

Here’s what happened and what it means for the company and its shareholders.

The news relates to a drug called ZTlido (lidocaine topical system), which Sorrento was trying to get approved in a target indication of the relief of pain associated with post-herpetic neuralgia (PHN). This condition, PHN, is a complication of shingles, which is caused by the chickenpox (herpes zoster) virus. It affects the skin and nerves and leads to an itching and a burning sensation in sufferers, which can’t be addressed with standard dermatology treatments or other painkillers – at least not from a long term efficacy standpoint.

So, with ZTlido, Sorrento was trying to change this.

Well, technically, the driving force behind the program was a company called Scilex, but the latter is a wholly owned subsidiary of the former, so for the purposes of interpreting market impact, it’s Sorrento that’s in the spotlight.

The drug is a woven patch type asset that contains 1.8% lidocaine. It’s stuck on to the skin and the lidocaine is released steadily, relieving symptoms over time. Importantly, and as a USP, it’s being billed as a major advancement in analgesics because of its proprietary adhesion technology demonstrating 12-hour wear with efficient lidocaine delivery, even during exercise.

And what did the latest news tell us?

As per the release, the FDA has approved the asset in its target indication. An approval is, of course, a real milestone for a company like Sorrento and – as might be expected – the company’s share price has picked up some strength on the back of the news. At close of play yesterday (so, subsequent to the release) the company went for $9.95 – a 17% premium to its preannouncement market cap. Premarket activity on Thursday has added an extra 6% onto this, with the company looking set to open the session today at $10.50 a share.

There’s a secondary factor that’s pushing this one up, or at least contributing to the degree of momentum we’re seeing in the stock, that’s worth mentioning.

Specifically, we’re seeing a release of pressure rooted in a major uncertainty associated with the success or failure of the company’s registration application. There were some concerns associated with the safety of the patch that led many to believe it might bot pick up approval.

You only need to take a look at the following statement to see what we mean:

“During or immediately after treatment with ZTlido, the skin at the site of application may develop blisters, bruising, burning sensation, depigmentation, dermatitis, discoloration, edema, erosions, erythema, exfoliation, flushing, irritation, papules, petechia, pruritus, vesicles, or may be the locus of abnormal sensation.”

Basically, the patch can cause some considerable discomfort before it starts to work and the potential for this to put off physicians from prescribing it lead to concerns that the FDA would turn down the drug when it came to decision day. These concerns have proven unfounded with the latest decision, so that’s why we’re seeing the stock jump that little bit more than it might otherwise, if the program was expected to get a green light.

This above-mentioned issue might not be completely allayed, of course.

Side effects such as discomfort, especially to the degree outlined above, and before efficacy kicks in, might be enough to put patients off using the asset even if their physicians recommend it and this could, in turn, lead to some dampened topline sales figures when the commercialization phase gets underway.

With that said, and as mentioned above, this group of patients currently have very limited options when it comes to long term treatment and relief of their symptoms, so that’s likely going to mitigate (or perhaps entirely negate) the downside risk associated with the potential for patient noncompliance on the back of tolerability concerns.

There’s a good chance we’ll see Sorrento continue to strengthen as we move towards commercialization phase for the asset, which is set to start during the third quarter of 2018.

The bottom line here is that this is great news for Sorrento and that’s why we’re seeing the company run, but it’s not entirely out of the woods as far as a successful commercialization execution is concerned.

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