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Government and Institutional Support Are Positives for Sorrento Stock

Sorrento (NASDAQ:SRNE) recently made a key deal with the U.S. government, indicating that Washington is upbeat on the company, its antibodies, and its technology. Meanwhile, I remain bullish on the outlook of Sorrento’s antigen test for the novel coronavirus. Finally, boding well for the longer-term outlook of SRNE stock, multiple, large institutions have taken meaningful stakes in the company.

Image of two scientists in lab coats studying results in a lab
Source: Shutterstock

On Nov, 27, Sorrento disclosed that two federal agencies – the Defense Advanced Research Projects Agency and the Joint Program Executive Office for Chemical, Biological, Radiological and Nuclear Defense – had awarded it up to $34 million.

The company said it would use the funds to develop a scalable, gene-encoded protective antibody platform against Covid-19. The antibody will be based on Sorrento’s STI-2020 antibody.

Sorrento also reported that the antibody it will develop for the government would be “an intramuscular injection” and would be developed using “plasmid DNA encoding the SARS-CoV-2 neutralizing antibody STI-2020.”

A Validation of Sorrento’s Antibody and New DNA Technology

Washington’s decision to provide meaningful funding to Sorrento for this project shows that the federal government believes that the STI-2020 antibody could potentially be more effective in treating the coronavirus than antibodies developed by Eli Lilly (NYSE:LLY) and Regeneron (NASDAQ:REGN). Those two antibodies have already been approved by the FDA.

Adding to my optimism about Sorrento’s anti-Covid-19 antibodies, the company last month said that its antibodies are superior to those of Regeneron and Eli Lilly because Sorrento’s antibodies were made to prevent ” antibody-dependent enhancement,” which occurs when an antibody facilitates the entrance of a virus to cells.

Washington’s optimism about Sorrento’s antibodies is a sign that they will eventually be approved and potentially even stockpiled by the FDA.

But likely more importantly, the government’s decision indicates that it is upbeat on Sorrento’s new technique of injecting DNA into human cells in order to make proteins.

As I noted in a previous column, Sorrento had said it was able to use this technique, developed by a company called SmartPharm which it acquired, to create an antibody encoded DNA plasmid candidate that could generate long-lasting anti-viral protection with a single injection into a muscle.

And as I noted in that article, SmartPharm has said that its technique is better than more widely used treatments because it’s less expensive and doesn’t trigger an immune system response.

The fact that the project being funded by the U.S. government will incorporate DNA and would be delivered through “an intramuscular injection” indicate that the initiative will combine SmartPharm’s technology and Sorrento’s antibody.

When I first wrote about Sorrento’s acquisition of SmartPharm, I was bullish on the outlook of SmartPharm’s technique. Now that the federal government has agreed to fund tests of the technology, I’m much more optimistic about it.

The Outlook of Sorrento’s Test Remains Strong

In a November interview with The Motley Fool, Sorrento CEO Henry Ji stated that “the key {with testing for the coronavirus} is you have to give results very fast.” He noted that the company’s antigen test yields results in 15 to 20 minutes.

In multiple past columns, I’ve stated that the quickness of Sorrento’s test and the likely ability of people who are not health care professionals to administer it give the firm a competitive advantage over competing diagnostic tools.

And I’ve noted that tests which take even two to three hours to yield results and those that must be administered by health care professionals will likely not enable businesses to safely open. That’s why businesses have not widely adopted the tests by Sorrento’s competitors. So, I agree with Ji’s statement.

The CEO added that the company was advancing the test quickly, but he would not say when Sorrento would submit it to the FDA for emergency approval.

However, since I think there will be some concern about the coronavirus for another six to eight months in the U.S., and some large companies and the government will likely look to stockpile tests for the coronavirus, I believe Sorrento will be able to significantly profit from the tests as long as it is submitted for approval by the end of February 2021.

The Bottom Line on SRNE Stock

As of the end of September, several impressive institutions owned shares of SNRE stock. For example, Blackrock (NYSE:BLK) owned 15 million of the shares, State Street (NYSE:STT) had 11.7 million and Morgan Stanley (NYSE:MS) owned 2.74 million shares.

Sorrento’s DNA technology and its test sound very impressive. Meanwhile, the federal government and multiple, large institutions are showing some confidence in the company, and the market capitalization of SRNE stock is still a relatively low $2 billion.

In light of these points, I recommend that longer-term, risk-tolerant investors buy SRNE stock.

On the date of publication, Larry Ramer held long positions in Sorrento and Regeneron.

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, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.

Article printed from InvestorPlace Media, https://investorplace.com/2020/12/government-institutional-support-sorrento-snre-stock/.

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