What happened

Shares of the mid-cap biotech Sorrento Therapeutics (NASDAQ:SRNE) jumped by as much as 20.6% in premarket trading Friday morning. The company's shares are bolting higher in response to the news that its wholly owned subsidiary SmartPharm Therapeutics had landed a $34 million contract from the Defense Advanced Research Projects Agency (DARPA) to develop a rapid countermeasure against COVID-19.

This initial round of funding will reportedly be used to support the development of the SARS-CoV-2 neutralizing antibody STI-2020 (aka COVI-AMG) through phase 2 studies. In preclinical studies, hamsters treated with STI-2020 experienced a dramatic reduction in viral load compared to animals in the control group, according to Sorrento.

So what

Sorrento's highly diverse COVID-19 pipeline attracted investors in droves earlier this year. After the company fell well behind the pack from a developmental standpoint, however, its shares clearly lost a fair amount of their appeal.

Sorrento's stock, in fact, was off by a whopping 57% relative to its 52-week at the close of trading last Wednesday. This DARPA contract -- while small in absolute terms -- seems to be reigniting investor interest in this mid-cap biotech.

Now what

Is Sorrento's stock a strong buy in the wake of this news? It all depends on your appetite for risk. On the one hand, Sorrento clearly sports tremendous promise as a growth vehicle, thanks to its diverse lineup of COVID-19 diagnostics and antibodies and even a possible vaccine. But the COVID-19 space may also turn out to be an exceptionally hard place to make a living for a smaller company like Sorrento. Therefore, this biotech stock arguably still isn't suited for the risk-averse crowd -- despite today's encouraging development.  

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.