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Brean Initiates Coverage today:
Brean 1st page ini report:
Cynviloq Expected to Upset Celgene's Abraxane;
Initiate with BUY and $17 TP
Buy TP: $17.00
Investment Summary
We are initiating coverage of Sorrento Therapeutics, Inc. (SRNE) with a BUY rating and $17 target price. Sorrento Therapeutics is a clinical-stage pharmaceutical company focused on the development and commercialization of first-in-class or best-in-class therapies in Oncology. We like the company for its low-risk, third-generation paclitaxel therapy, which is a chemo agent used broadly in solid tumors. We also like RTX, which is currently in Phase I/II development and could be a first-in-class compound for treating severe pain associated with end-stage cancer.
Our target price of $17 is based on DCF analysis of the Cynviloq and RTX opportunities alone. The rest of the pipeline represents the most exciting area of oncology research, in our view, i.e., Antibody Drug conjugates and modified CAR-T therapy—we have excluded these from our valuation but note that, should any of the pre-clinical programs demonstrate efficacy, there could be material upside to our target price. The next 12 months are also filled with multiple potential catalysts for compounds in late development stages.
Discussion
• De-Risked Chemo Agent, Cynviloq, Could Pose Significant Threat to Abraxane. Taxanes are the most widely used chemotherapy class in the world and have a significant role in the treatment of various solid tumors. Celgene’s (CELG, Not Rated) second-generation agent, Abraxane, is on track to deliver $1 billion revenue in 2015. Sorrento’s Cynviloq is a 3rd-generation product that improves handling and reduces potential infection risks from human albumin present in Abraxane while maintaining comparable efficacy.
• RTX, Resiniferatoxin, if Developed Successfully, Could Reach Peak-Year Revenue in the US of $150-200 million. Sorrento’s RTX is a small molecule with a non-opiate mechanism of action that may permanently eliminate intractable cancer pain experienced by end-stage
cancer patients. If fully developed, it could extend an alternative to opiate-driven pain management and offer the most convenient dosing in the pain management market.
• Share Price Appears to Have Additional Upside Associated with Catalysts on Cynviloq and RTX. Our target price of $17 is based on DCF of the Cynviloq and RTX opportunities alone. In the coming 12 months, we see significant catalysts for both. Among them, an NDA filing of Cynviloq and readout on RTX Phase I/II results as the most important catalysts. Pre-clinical developments of the ADC and CAR-T may represent additional upside beyond our target price, if successfully developed.
• The Management Team is Invigorated by New Members with Strong Track Record. Many members of the senior management team have been with the company for less than two years, and the company itself has undergone transformation through three acquisitions during 2013. While it remains to be seen if the management team can successfully deliver the upside from acquisitions, we are comfortable that the current team has had many years of combined experience in operating successfully in a small company environment, i.e., entrepreneurial settings, which typically mean fast-paced and resource-constrained.
Valuation / Target Price
We used DCF to determine our target price. Using our Cynviloq and RTX forecasts in the US alone, which we view as conservative, we applied a 10% discount rate to reach our target price of $17. We project Cynviloq and RTX each to reach about $200 million in annual sales in 2025.
You can get a warrant quote in your stock brokerage account. Just enter BTX and you'll see at least 2 symbols come up - one will say it's warrant.
Seeking Alpha article - explains today's sell-off. Some old info in this article, written by short-seller (see last sentence of article - Our price target is $0. [we are short this stock]).
http://seekingalpha.com/article/3192796-asterias-biotherapeutics-stem-cell-program-is-dead-on-arrival
It's a pretty impressive list of mutual funds that hold shares in this company (even though not huge amount of shares by any one of them).
Picked up more shares today under $11. Love good buying opportunities - down 6-7% or more on light volume = buy-time.
BTX is way undervalued just from the amount of AST stock they own, let alone their other subsidiaries.
Bought in today at $11. Been watching for a while as I own BTX, but I saw the below analyst report and decided to buy:
AST initiated with "buy", target set to $22
May 6, 2015 9:41 AM EDT
Lake Street Price at rating $12.71
May 6 (FlashRatings.com) - Analysts at Lake Street initiate coverage of Asterias Biotherapeutics, Inc. (AST) with a "buy" rating. The target price is set to $22.
Lake Street notes, "We believe investors have yet to fully appreciate the high barriers and underlying value in the stem cell technology platform that Asterias has built in regenerative medicine and cancer immunotherapy. The company has one of the largest intellectual property portfolios in the stem cell space, with more than 400 patents / patent applications, and its technology is ultimately better-suited to a pharmaceutical business model because of the ability to centrally produce large quantities of high-quality cells that can be used off-the-shelf - as opposed to manufactured for each patient from their own cells."
New board member, previously with JP Morgan.
In his Board capacity, Mr. Deming will Chair the Audit Committee and be a member of the Compensation Committee. Mr. Deming is a banker with TAG Healthcare Advisors, LLC, a boutique financial advisory firm serving the pharmaceutical, biotech and medical device industries. He has over 35 years of banking experience, of which 27 years were with J. P. Morgan, where he ran the healthcare investment banking group for twelve years. Mr. Deming has broad experience in capital raising, mergers and acquisitions, and strategic advice.
Yep. Docket #192. Going private. I sold all my shares last week. No way common shares are going to survive IMO.
Add - are you hearing any further rumors and/or anything from any large investors that they are actually waiting for the vote to happen before purchasing more shares, or is that just more or a gut feeling you have?
I have to say at this point that I really don't think common shares will survive and am really on the fence about selling the shares I have at this point. I'd be sick though if I missed a huge run here be selling pre-vote and being wrong.
What voting are you referring to? As the winning bidder, ESW's 'Plan' doesn't need to be approved / voted on by anyone, does it? Once all the transfer docs are signed/executed (within 15 days of winning the bid), they control Hipcricket and can implement whatever changes they want without a vote on anything - is this not correct?
It depends if ESW takes an equity position in the current shares, or (as stated in the proposal) the common shares are retired and 1,000 new shares are issued under a reorg'd Hipcricket and ESW buys/issues those 1,000 shares to themselves. I think we'd know if we can find the wording about this in the Plan. I was hoping z_deville would let us know if the wording that was in the proposal made it over to the Plan or not.
z_deville,
Does the copy of the plan you obtained contain the same wording that was in the proposal (below) anywhere in the plan? Seems to me if this wording made it into the plan, we're done. If it was removed or otherwise changed, we have hope.
"in connection with the Restructuring, on the effective date of the Confirmed Plan (the “Effective Date”), the Debtor’s pre-petition equity interests will be retired, cancelled, extinguished and/or discharged and 1,000 shares of new equity in the Reorganized Debtor (the “New Equity”) shall be issued. The New Equity shall be free and clear of all liens, claims, rights, interests, security interests and encumbrances of any kind (except those that are specifically acceptable to Proposed Plan Sponsor in its sole and absolute discretion) as provided for in the Plan..."
Sorry, I guess I'm just not getting it then. There is still a tussle between ESW and SITO. Regardless of who wins, the bid amount is not high enough to pay all creditors and leave anything left for common shareholders. You stated earlier today that even if the bid amount from ESW didn't exceed liabilities, they could still allow existing shares to live on. It would seem like a pretty big and material change to make from the proposed plan to the final plan to change the wording from extinguishing pre-petition equity to not doing so. Seems their intent is/was clear in the proposed plan, not sure what would make them change it in the final one. I also don't understand what the reference to the 1,000 shares being issued under the reorg'd company is about.
Not trying to be argumentative, just want to understand if there is any hope at this point. The dispute between SITO and ESW isn't relavant if we assume ESW wins. And no, I know there was no big sell off today and I saw a huge bid support in the late afternoon. I am just plain confused at this point.
Doesn't this tell us everything we need to know...shareholders get nothing? Is there another take on this other than existing shareholders being wiped out?
"in connection with the Restructuring, on the effective date of the Confirmed Plan (the “Effective Date”), the Debtor’s pre-petition equity interests will be retired, cancelled, extinguished and/or discharged and 1,000 shares of new equity in the Reorganized Debtor (the “New Equity”) shall be issued. The New Equity shall be free and clear of all liens, claims, rights, interests, security interests and encumbrances of any kind (except those that are specifically acceptable to Proposed Plan Sponsor in its sole and absolute discretion) as provided for in the Plan..."
Is there any meat/content you can add to what the rumor is, other than it being 'good news' or are there no other details about it?
So the fact that the bid wasn't over the $12.7M in total liabilities doesn't necessarily mean shareholders get wiped out, right? The total reorg plan could still retain shareholders - is that correct?
That has been my thinking over the weekend. ESW just starts with a clean slate...they pay both secured & unsecured creditors in full, infuse the company with some working capital, reduce bloated salaries, get rid of some higher-paid personnel and then run the show. Wouldn't take long to see the company turn the corner since they are very close to CFBE. If they get a chunk of shares (anywhere close to today's price) in exchange for the cash they are putting up, they can recoup their investment in very short order. This is just a no-brainer it seems to me for what they would be getting under this scenario. I'm sure the Plan will be more complicated that this, but they do have a history of acquiring shares rather than just having privately held companies in their portfolio.
That was just me guys...decided to buy on hope, hope. Bought another 458K shares. Nothing to get excited about (391K + the 67K blocks are mine). I just think ESW likes holding shares of stock and will keep public instead of going private. Probably shouldn't have bought more here, but decided to anyway.
Right. The laws of where they are incorporated, not physically located, would dictate.
ok, thanks for your insight on this and through this whole thing. I haven't been through anything like this in all my investing years, so new territory for me. I assume/hope that if & when you feel it's "safe" to start accumulating tomorrow, you'll post here and let us know.
I am thinking the ESW bid might have been something like investing $12.7M (plus breakup fees, etc. as required) to cover all liabilities, plus $X million more to infuse working capital into the company in exchange for lots of cheap shares priced down here around the $.003 range or so. ESW seems to like having stock as an investment rather than just taking a company private, so I am hopeful our shares survive. They would then get back in compliance by filing the Q3 report with the SEC and probably do a reverse split somewhere down the road. If this type of plan was agreed upon, I don't think SITO has the resources to match/beat that. Does this type of structured plan seem reasonable to you or do you think it's something else?
Again, thanks for your input here. Appreciate it.
Even if the stock price starts moving up first thing tomorrow morning on heavy volume, would it be better to wait until we know the judge has certified ESW as the winning bid? If that bid was indeed submitted late, she could rule on a technicality and give SITO the win here, no? It sounds like SITO didn't make any counter-offer, so a SITO win wipes us out if it were to go thatway.
Could go either way. A recapitalization plan could be done with or without keeping existing shares of HIPPQ. The bid action we saw at the end of the day yesterday gives me encouragement - someone bidding 1M+ shares must have known details of the bid by that point and wouldn't be trying to buy if the shares were going to be wiped out IMO.
Funny, this article just got posted on Yahoo finance. Not related to ESW, but...
----
BOSTON (Reuters) - The largest new field of activist investors in years is shaking up corporate America, seeking to tap into billions of dollars in available capital and inspired by the outsized returns of brand-name agitators like William Ackman and Carl Icahn.
The surge could force more companies into costly battles with shareholders over leadership, spin-offs, and buybacks, though some of the new entrants risk being brushed off if corporate boards find they lack good ideas or firepower.
"Everyone wants to be an activist these days. Everyone wants that capital," said Damien Park, head of consulting group Hedge Fund Solutions.
In the last five months, some 45 hedge funds launched their first ever activist campaigns, according to data from research firm Activist Insight, up from 26 new entrants the same period the previous year, and 15 the year before. The October through March period is traditionally the most active season, coming in the runup to companies' annual meetings, usually held in the spring and early summer when boards are elected.
Among the newcomers are firms like H Partners, Chieftain Capital, Isaac Capital, Vertex Capital, Jet Capital and Heng Ren Investments, some of which are taking on big names in the corporate sphere. H Partners and Chieftain, for example, are pressuring bedding-maker Tempur Sealy to change its leadership, while Jet Capital is complaining about "poor capital allocation" at SunCoke Energy.
They join more established hedge funds that are also promoting activist campaigns, including Kyle Bass' Hayman Capital and David Tepper's Appaloosa Management, which are pushing for former Goldman Sachs banker Harry Wilson, who had been a part of the Obama administration's auto task force, to join General Motors' board.
Activism has picked up dramatically since the 2008 financial crisis, but it has been popular before including in the 1970s to late 1980s when financiers including Carl Icahn and Nelson Peltz were called corporate raiders for their strong-arm tactics used to replace top management and improve value for shareholders.
The surge comes as activist funds outpace traditional long-short-equity rivals' returns, and draw inflows: Activist funds gained an average 6.3 percent in 2014 -- with Ackman returning 40 percent -- crushing the average fund's 3.5 percent increase, Hedge Fund Research data show. To be sure, an investor who simply tracked the Standard & Poor's 500 index in 2014 would have gained 12 percent.
Last year, 71 dedicated activist funds that oversee $119.2 billion in assets took in a record $14.2 billion in new money, nearly three times the $5.3 billion they pulled in 2013, HFR said. Meanwhile, about $135 billion in money is sitting on the sidelines earmarked for activist strategies, according to advisory firm Kingsdale Shareholder Services.
Still, with less expertise, fewer connections and less cash, some of the newcomers risk falling flat.
"This is like playing sports where you can't simply copy your rival's playbook and hope to replicate success if your team can't execute well," said Kingsdale CEO Wesley Hall.
The world's 14 top activists have on average $16 billion to deploy in full throttle fights, while the newcomers often have less than $100 million in assets, Activist Insight said.
"There will inevitably be opportunists who are trying to ride a momentum moment," said Richard McGuire who runs $3 billion Marcato Capital Management. "But maybe some of them have a good nose for good ideas and I wouldn't be as quick to dismiss them."
ok, so we know the total liabilities amount, and we'll find out the sales price at some point. We would need to know the outstanding share count number in order to calculate how that would translate to a share price.
Last 10Q shows 154,786,916 (as of 8/31/14) for 'basic and diluted' share count. Since this includes diluted shares, I think the number we'd use to calculate would be less than this 154M. Probably close to 150M share count I would guess. If anyone knows more or can clarify, please do so! I'd like to be ready to calculate what the per-share number would be if we get the opportunity to do so!
So let's say the final sales price is high enough that shareholders receive 2-cents or so per share. What is the process? Will a document be published confirming the shareholder payout amount, or do we have to calculate that (I'm not sure of the exact outstanding share count - does anyone know the exact amount? I don't think we can use the fully diluted share count since that includes options that won't be exercised)?
I assume the stock price would immediately move up close to whatever the amount would be but not all the way, so would we have to wait until the transaction closes within 15 days to get a full payout? If so, would our shares just be converted to the cash amount like any other cash-only acquisition transaction?
That's my feeling too. The longer, the better (though I hope we hear something today...). I'm kind of surprised that the stock isn't halted while this is going on.
The total secured and unsecured creditor debt is $12.7M (per doc filing), so anything over that will go to shareholders. With so many shares outstanding, we'll have to get to about $15M sale price in order to get a penny or so per share. That amount just doesn't seem unreasonable for the patents, platform, data analytics and customer list we have.
I would not think so since they would be trading on non-public info. Plus, these are lawyers, not traders, so I don't think they would be interested anyways. I think they would be risking their jobs if they engaged in any type of trading around this, just like they would if they traded on any cases they were working on not related to this one.If the confidential info isn't secure in this type of environment, I don't know where it would be. Just my thought on this.
The judge has to review & certify the auction results and that is scheduled for Monday, 10:00 in a court room. I expect we won't hear of the results prior to that (especially since the auction is happening in a law office, I would be very surprised if there are any 'leaks'. I think we'll find out late Monday morning.
Excellent. Let's get this over with and be done with it one way or another. HIPP also received a second bid so that is encouraging. Of course, SITO thinks the bid isn't a qualified one...
Bought another big chunk today. Hope, hope, hope...
Thought it was scheduled for Monday, March 9th unless it gets postponed again. Won't happen tomorrow.
No new filings.
Thanks, that was my understanding of who gets paid first/last.
I was looking back at the Ladenburg report from July 2014 and in particular, the valuation section. It says other firms in the mobile space have been acquired for prices in the range of 4.5 to 25 times sales, with an average of 12.8 during the past few years. While these acquisitions were not of companies in bankruptcy, it seems to me that we should be able to command something at or close to 1X, so I think the $20M amount you're referring to is achievable. Would take just a little competition from the hedge funds vs. Yahoo to get us to/over that amount I think. Looks like we're still on for the auction happening on Monday.
Anyone know if/when an updated cash flow statement might be posted? The first one was posted a month ago on 2/4/15 and I don't see anything more recent. Not sure how often this is required to be updated by HIPP for the court.
Is there a way to block these constant, worthless pump posts of yours?
The filing said shareholders would be wiped out with SITO's $4.5M bid, but isn't that because nothing would be left over after paying the liabilities. If the purchase price is higher than the liabilities, doesn't the difference have to go to the unsecured creditors (shareholders)? I'm not sure where else it would go otherwise. I think a payout could either be in cash or in the case of Yahoo acquisition, shares of their stock. This bankruptcy / stalking horse bid is all new to me so I'm not certain what happens if a decent size bid comes in. I do know there are over 150M shares outstanding so the payoff won't be much but I'll take a little something vs. a total loss here.
Would also like to know when we'll know who/what the winning bid is. The auction is Monday, so do we hear then, or do we wait until the judge certifies the results on Wed. or sometime after that? I am guessing we won't hear on Monday.
HIPP also has about 22 or so other mobile-related patents, several of which could be quite valuable if an acquiring company wants to work on monetizing them. Just having them to defend against IP-related lawsuits is significant too so I can easily see YHOO acquiring just to have the set of patents if nothing else. This is really a unique situation here but hard to guess how it will ultimately play out. I also think the data analytics that HIPP now has could be quite valuable to the acquirer. Bought a big chunk of shares today, hoping for the best.
There are over 150M shares outstanding, not 25 million. No analyst is going to give a current value anywhere close to what you are saying. I suspect you may be looking at either a very, very old (non-relavant) report or a report for a different company.
Yahoo is looking for resolution and future involvement in the '636 patent dispute. The expedited meeting earlier this week was about the patent issue, not about Yahoo bidding on the purchase of HIPPQ.
Thanks. I;ll take a look and take your word for it if it's in a filing.
How do you know there is another bidder? I don't recall seeing that in any of the filings but may have overlooked it.