Editor’s note: This article was updated on Aug. 20, 2020, to clarify Sorrento’s response to Hindenburg’s allegations.
Sorrento Technologies (NASDAQ:SRNE) has obtained the rights to a novel coronavirus test developed by Columbia University. And that test appears to have important advantages over competing tests. In the medium term, the convenience of Sorrento’s test, which determines whether people have the virus by analyzing their saliva, could boost SRNE stock above its current levels.
Sorrento’s shares, which had soared in response to the company’s licensing of the aforementioned test, plunged last week, tumbling 34% from their high on Monday to Friday’s close.
Like many other coronavirus stocks, Sorrento was pressured by the market’s sudden realization that a vaccine for the coronavirus could be ready sooner rather than later.
Worries About a Competing Test
But worries about a competing coronavirus test also likely played a role in the shares’ weakness. Specifically, Yale University’s test for the coronavirus, which uses saliva to determine whether individuals have the virus, was given emergency approval by the FDA last week. Further, the NBA started using Yale’s test last week. According to ESPN, the test’s cost could be as low as $4 per person.
And short-selling research firm Hindenburg quoted “a senior official” at Columbia University as calling the test “a complete joke.” According to Hindenburg, the official added, “Why would we sell something for $5M and royalties that has market potential … It’s because it doesn’t have market potential.”
Sorrento has since threatened legal action against them, saying they released misleading information “for the sole apparent purpose of negatively manipulating the company’s stock price.” But the question is already out there.
The Important Advantage of Sorrento’s Test
SRNE stock seems to have plunged partly because investors are worried about the cheapness of Yale’s test and its first-mover advantage, along with the statement reportedly made by the official at Columbia.
But Sorrento’s test appears to have an extremely important edge over the saliva test of Yale and a similar test created by Rutgers University (Those are the two saliva tests that I have come across). Specifically, the results of Sorrento’s test delivers results in a half hour, without having to be sent to a lab for analysis. And Sorrento’s test “requires no laboratory equipment and can be used just about anywhere,” Fierce Biotech reported.
According to the publication, after “applying a little heat, enzymes and reagents react to the presence of the virus’s RNA and change the color of the liquid from red to yellow to indicate a positive result.”
Conversely, the tests created by Yale and Rutgers have to be sent to labs to assess. Yale’s test “could [deliver] results back within a few hours — and definitely within 24 hours,” ESPN quoted a Yale assistant professor of epidemiology as saying. Results from Rutgers’ test take between 24 and 48 hours to receive.
The difference in the amount of time that the tests deliver results may not sound meaningful, but it’s actually huge. Sorrento’s CEO, Henry Ji, correctly noted “that [Sorrento’s] test could eventually be used to test people before they fly on airplanes, attend sporting events, or stay at a hotel.”
Sorrento’s Test Is Much More Useful
The test could also be used to screen individuals for the virus before they enter hospitals, office buildings, and trains. People entering those facilities would just have to arrive at their destinations 30 minutes to an hour early, take the test, (which would be administered by someone with personal protective equipment) and then come back. At that point, it will have been determined whether they have the virus, and the organizations could act accordingly.
Obviously, arriving just a half hour to an hour early is much more practical in many cases than having to arrive a few hours early. Getting to a restaurant, sporting event, train station, hospital or an office an hour early and then needing to wait for an hour is (in most cases) not that much of an inconvenience. Conversely, having to arrive at those places even a few hours early is terribly inconvenient and sometimes not at all practical.
The Bottom Line on SRNE Stock
Given its superior convenience and the advantages it gives to many enterprises, Sorrento’s test could very easily proliferate around the world over the next six to eight months. Further, I still believe that the company’s therapies for the coronavirus could be used to treat patients by the end of this year. As a result, I like the shares at this point.
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 Roku, oil stocks and Snap. You can reach him on StockTwits at @larryramer. As of this writing, he owned shares of Sorrento.