Sorrento Therapeutics Inc (SRNE)

[KCAC]

JAN
11
Sorrento Therapeutics (SRNE) - Part 1 Brief Thoughts & Introduction
The BioWatch team recently traveled to the headquarters for Sorrento Therapeutics (SRNE) and met with CEO Henry Ji, VP of Immunotherapy Gunnar Kaufmann, as well as a number of scientists. Ji and his team graciously provided an extended Q&A as well as a general company tour. In evaluating SRNE, you should download the latest company presentation. It contains clinical data referenced in announcements and with their presentation at the JP Morgan Healthcare conference on January 11, 2016.

We first visited Sorrento in 2013. It was a much smaller, different company. We have witnessed its continuing evolution. It was fast. For the investor community, it’s even more jarring.

Sorrento now sports an unbelievably large, cutting-edge biotechnology portfolio. It has a portfolio that dwarfs any other “Small Bio”…and perhaps many “Pharmas” too. The investor community has this main question: Is it real or is it smoke and mirrors?

This 4-part update presents our impressions regarding Sorrento’s ability to execute on its portfolio. We will also discuss some of its key products. We won’t go into detail into all of its partnerships, at least not yet. We’ll also defer discussion of the CAR.TNK technology for our article on NantKwest – Sorrento’s “partner”. Unlike Sorrento, NantKwest is focused on one thing: Natural Killer cells.

Key Technologies & Products
Antibody Technologies
Cellular Therapies
Other
GMAB Library
Allogenic CAR.TNK
(Directed NK Cells)
Resiniferatoxin (RTX)
(Pain)
K-Lock & C-Lock Conjugation

CAR-T
(Directed T-Cells)
Cynviloq
(Licensed to NantPharma)
Mabtech’s BioSimilar and “BioBetter” mAbs
LA Cell Intracellular Targeting Technology

Bi-specific Antibodies
Various Stem Cell Targets

Lee’s Pharma (anti-PD-L1 mAb)



Furthermore, this update will provide notes to three Sorrento technologies:
1) “BioSimilar and BioBetter mAbs;
2) The intracellular targeting technology from the City of Hope (i.e. LA Cell);
3) Sorrento’s CAR-T platform.
Of the current drugs in development, we believe that the BioBetters will be the first late stage candidates that will bring significant value to SRNE, while the CAR-T and intracellular technologies are rarely discussed. The intracellular technology is real and rare.

Our Brief Thoughts

Sorrento has an extraordinary set of antibody technologies and cell therapies. It has an almost unbelievable number of shots on goal with each of its various platform technologies.

Is Sorrento real? Or is it smoke and mirrors?

Even if it’s real, SRNE will require time to percolate. It is still early. The antibody technologies and CART.TNKs are years away from reaching the market. This means that SRNE’s shorter-term valuation will be an upcoming reaction to milestones reached by its lead drugs, and any new partnerships.

Short-Term Milestones (Under 1 Year)

Sorrento doesn’t need to raise capital in the short-term, and hence it doesn’t attract significant investment banking attention. Its cash position appears healthy, and there’s more coming.

In May 15, 2015, NantPharma acquired Cynviloq from Sorrento. Whenever advances Cynviloq forward, then large regulatory payments will be directed towards Sorrento.

Sorrento also has Resiniferatoxin (RTX) for dealing with severe cancer pain. It should launch into late trials in 2016.

BioBetter mAbs

These are well-tested versions of approved and well-known mAbs in the USA. Sorrento acquired the rights to 4 biosimilar mAbs from Taizhou Mabtech Pharma in China. Late stage testing has already been completed in China. Sorrrento has exclusive rights to North America, Europe, and Japan.

Mabtech’s “BioBetters” originated from CHO cell lines while most of the “originals” were derived from recombinant yeast. Sorrento’s biosimilar mAbs thus have a better safety profile. This is why they’re called “BioBetters”.

We should see these mAbs enter Phase II/III trials in 2H 2016. While we hope these will become registration trials, it’s still a short path if an additional trial is still required.

Financial Update

(SRNE) recently filed its 10-Q for Q3 2015. We have provided selected data for summarizing its financial position. Sorrento has enough cash to last until mid-2016.

Basic Facts for Quarter Ending September 30, 2015
(in Thousands)

Q3-2015
Q2-2015
Q3-2014
Grants & Services Revenue
$ 1,103
$ 1,173
$ 1,276
Costs of Revenues
604
314
527
R&D Expense
7,244
7,971
5,440
Acquired in-process Rxh
24,068
-
-
G&A Expenses
4,711
3,072
1,854
Total Operating Expenses
36,738
11,706
8,407
Net Gain on Sale of Igdrasol**
69,274
-
-
Income Tax Expense
35,323
-
-
Net Loss
(2,079)
(10,958)
(7,605)
Basic & diluted loss per share
(0.03)
(0.30)
(0.27)
Avg. Shares Outstanding
37,328
36,315
28,533
Recent Price (per share)
7.81
(12/21/15)
21.17
(8/3/15)
8.51
(12/23/14)
Market Capitalization
295M
769M
243M
Cash & Marketable Securities*
$ 123,454
$ 51,699
$ 71,902


























*SRNE owns about 5.6M shares of NantKwest NK
**Igdrasol held the IP and capital assets related to Cynviloq. It was sold to NantPharma

Sorrento doesn’t need to raise capital in the short-term, and hence it doesn’t attract significant investment banking attention. Furthermore, whenever NantPharma achieves regulatory milestones, then large payments will be directed towards Sorrento.

Any short-term validation of Sorrento’s worth will have to arrive from a partnering deal with a major pharma. We don’t see this on the immediate horizon; a lucrative deal usually requires clinical data.

Sorrento has a couple assets that are approaching mid-stage and late-stage clinical development including its CAR-T and Biosimilar candidates.

Equipment & Employees

During our visit, it was clear that Sorrento’s cash infusion has enabled the acquisition of capital assets and personnel.

1) The equipment is state of the art, equivalent to that owned by large biotechs and pharmas – This expensive lab equipment isn’t often see with other developmental stage biotechs. This should speed the development of candidate biologics.

2) The continued growth in lab personnel is noted as well as the educational and professional pedigree – We have written that Sorrento has experienced robust personnel expansion so it may execute on the development of its many programs. This has clearly continued. Most large labs are filled with “techs” to perform routine, repeated tasks. That’s appropriate. Sorrento was a bit different. Many of Sorrento's staff are scientists - tjeu hail from some of the best labs in the country. They should help push the development of Sorrento’s advanced technologies.

3) There is ample space for continued expansion – In Sorrento’s latest 10-Q, the plan is to continue hiring for the next year.

4) There is the potential for vertical integration – While CEO Ji did not commit to any future plans, the current construction should support enough commercial capacity for cell therapy products for the foreseeable future.

Major Ownership of SRNE

As of December 17, 2015, Patrick Soon-Shiong personally owned 873,938 shares of SRNE, but also controls SRNE shares through a fund (Cambridge Equities LP), limited liability company (MP 13 Ventures LLC), and a foundation (Chan Soon-Shiong Family Foundation). He thus controls 22.3% of SRNE. He also has majority control of NantKwest, a major partner for Sorrento, as well at the “Nant family of companies”.

Soon-Shiong is the inventor of Abaxane and founder of Abraxis BioScience. Along with Soon-Shiong’s other investments, Abraxis’ acquisition gave him the title “Richest Man in Los Angeles”. His stated intent is to drive medicine forward through his Nant companies. As with any large, fast-growing endeavor, we expect some initial chaos at the Nant companies. A few of his professional acquaintances have described him as a gifted biotech inventor – they don’t expect him to be a one-shot wonder.

Sorrento has “mutual interests” with Soon-Shiong through a number of his companies.

Patrick Soon-Shiong (PSS) & Sorrento Therapeutics
Company
Location
Relationship
Sorrento Therapeutics
(SRNE)
San Diego, CA
Through various entities, PSS owns 22.3% of SRNE.
NantKwest (NK)
Carlsbad, CA
SRNE owns 19.9% of NK, while PSS is its CEO and majority owner. SRNE has partnered with NK towards the development of its proprietary CAR-directed, Natural Killer cells called CAR.TNK.
TNK Therapeutics
San Diego, CA
Subsidiary of SRNE to develop CAR.TNKs and CAR-Ts, using Sorrento’s G-MAB library to create new CAR constructs.

In August 2015, SRNE and TNK exclusively licensed the NanoVelcro Circulating Tumor Cell profiling assay (the “Technology”) from Cytolumina Technologies Corp. (“CTC”) and Fetolumina Technologies Corp. (“FTC”). TNK shall acquire 4.166% of the capital stock of each of CTC and FTC for an aggregate purchase price of $5M.

TNK, on the one hand, and CTC and FTC, on the other hand, shall share the profits from the net sales of the Technology for any cell based therapies in the TNK Field or SRNE antibody on a 50/50 basis.
NantCell,
NANTibody
Culver City, CA
San Diego, CA
In April 2015, SRNE granted an exclusive license to NantCell covering patents, know-how, and materials related to certain antibodies, anti-body drug conjugates (ADC) and two CAR-TNK products.

NantCell agreed to pay a royalty not to exceed 5% to SRNE on any net sales of products. In addition, SRNE received an upfront payment of $10M and 10M shares of NantCell common stock to SRNE (valued at $100M based on a recent equity sale of NantCell common stock to a third party).

SRNE’s ownership interest in NantCell does not provide SRNE with control or the ability to exercise significant influence.

In April 2015, SRNE and NantCell also established a joint venture NANTibody, as a stand-alone biotech with $100M initial joint funding. NantCell owns 60% and contributed $60M to NANTibody. SRNE owns 40% of NANTibody and contributed $40M. NANTibody will develop multiple cancer mAbs, including but not limited to anti-PD-1, anti-PD-L1, anti-CTLA4 mAbs, and other checkpoint mAbs as well as antibody drug conjugates (ADCs) and bispecifics.
NantBioScience, NantStem
Culver City, CA
San Diego, CA
In July 2015, SRNE and NantBioScience established a new joint venture called NantCancerStemCell LLC, or NantStem, as a stand-alone biotechnology company with $100M in initial joint funding. NantBioScience contributed $60M cash to NantStem for a 60% ownership in NantStem and SRNE was obligated to make a $20M cash contribution to NantStem for 20%.

SRNE also issued a call option on shares of NantKwest (NK) that it owned to Cambridge Equities, LP (a PSS fund). The call option to Cambridge is on up to 2.0M shares of NK held by SRNE (the Option Agreement). The Option Agreement gives Cambridge the right to purchase up to 2.0M shares at a price of $15.295 from time to time in Q1-2016.

NantStem will develop small molecules against targets which may address important drivers of cancer growth including cancer stem cells. Sorrento will contribute specified small molecule programs (lead inhibitors of the proto-oncogenes c-Myc, and the master metabolism regulator HIF-1 alpha, and an inducer of the tumor suppressor cytokine TRAIL).
NantPharma
Lincolnshire, IL.

In July 2015, NantPharma purchased the Cynviloq program from SRNE. SRNE may receive up to $620M in regulatory milestone payments and up to $600M in sales milestones, of which $45M has already been disbursed. SRNE will also receive “transfer payments” (“think single digit royalties”) on manufactured units of Cynviloq. During the first three years after closing, SRNE has the option to co-develop and/or co-market Cynviloq on terms to be negotiated

Other major holders include:

Opko Health, Inc 5.7%
venBio Select Advisor 5.7%
Cormorant Asset Mgt 5.6%
Wildcat Capital Mgt 4.5%

Next Part

Part 2 of BioWatch’s series on Sorrento (SRNE) will summarize its BioBetter program.

(At the time this post was written, one or more BioWatch writers held a long position in SRNE)

This blog post is from The Biotech Watcher: http://alanhobbes.blogspot.com/?view=magazine
And about us, see http://alanhobbes.blogspot.com/2014/12/welcome-to-my-personal-thoughts-about.html
Posted Yesterday by Alan Leong
Labels: $SRNE BioBetters mAb ownership Soon-Shiong Sorrento Therapeutics Update

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