Sorrento (NASDAQ:SRNE) should continue to climb in the very likely case the company’s superior coronavirus test is approved and then becomes widely used in the U.S. and potentially around the world. And SRNE stock appears poised to improve its longer-term outlook through acquisitions.
In a previous column, I noted that Sorrento’s coronavirus test, unlike competing diagnostics, yields results in just 30 minutes, does not require lab equipment and doesn’t have to be sent to labs. As a result, it, unlike other tests, could be used by hospitals, stadiums, hotels, office buildings and other organizations to allow people to safely enter their facilities on the same day that the test is taken.
Further, a Seeking Alpha columnist recently pointed out that, because Sorrento’s test does not need to be sent to a lab, it could be much cheaper than competing diagnostics. According to the columnist, labs usually charge at least $80 per test that they evaluate, while Sorrento has said that its test “might cost only $10.”
A recent test made by Abbott (NYSE:ABT) and approved by the FDA reportedly yields results in 15 minutes, costs only $5, and does not require lab equipment. But it requires an uncomfortable nasal swab and must be administered by a health professional. Businesses and other organizations will likely be able to use Sorrento’s test without hiring expensive health professionals; with Abbott’s test, that will not be the case.
A Promising Acquisition and a Good Overall Strategy
On Aug. 26, Sorrento announced that it had agreed to merge with start-up biotech company SmartPharm in exchange for $19.4 million of SRNE stock.
SmartPharm “seeks to insert nucleic acids (mRNA or DNA) into cells to make normal versions of a missing or abnormal program or to produce an entirely new type of protein that has therapeutic benefit.”
According to the company, its system prompts human bodies to make desirable proteins, eliminating the need for scientists to develop and inject such proteins. SmartPharm adds that its system is superior to more prevalent “Viral-vectored gene therapies” because it’s less expensive and, unlike viruses, does not prompt a response by the immune system.
Sorrento reported that it was able to use SmartPharm’s system, in conjunction with Sorrento’s STI-1499 antibody, to develop “an antibody encoded DNA plasmid candidate” which “has the potential to generate long-lasting anti-viral protection with a single intra-muscular administration.” Sorrento has said that STI-1499 “demonstrated (a) 100% neutralizing effect” of Covid-19 in lab tests and stopped the virus from entering healthy cells in tests in animals.
So it sounds like SmartPharm’s technology may cause cells to produce antibodies for a long period of time after just a single injection.
Of course, such technology could very well be used to treat many illnesses, not just Covid-19.
Indeed, Sorrento stated that SmartPharm’s technology is “expected to provide a vast product pipeline of novel, long-acting therapeutic proteins for a broad range of diseases, including cancer.”
SmartPharm’s technology certainly sounds very promising. And the fact that SmartPharm agreed to merge with Sorrento in exchange for SRNE stock, without any cash considerations, certainly indicates that SmartPharm is upbeat on its own prospects and those of Sorrento. That’s very encouraging news for the owners of Sorrento stock.
Finally, as I indicated earlier, I’m pleased that Sorrento appears to be intent on using the cash it’s generating to improve its longer-term prospects. Ultimately I believe that Sorrento will use much of its profits from its test for the coronavirus test to make other high-potential acquisitions, thereby greatly improving the outlook of its stock.
The Bottom Line on SRNE Stock
I believe that Sorrento will ultimately make a great deal of money from its test for the coronavirus, and I’m very encouraged by its merger with SmartPharm. I’m also very pleased by the company’s strategy of using its cash to make promising acquisitions, and I believe that this approach will boost the valuation of SRNE stock over the medium-term to long-term.
Given the huge potential of Sorrento and the fact that its market capitalization is only $2 billion at this point, I continue to advise risk-tolerant investors to buy the shares.
As of this writing, the author owned shares of SRNE stock.
Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.