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Saturday, 09/21/2019 12:17:42 PM

Saturday, September 21, 2019 12:17:42 PM

Post# of 14936
Summary of legal issues from May, can't find anything more recent.



Litigation
TBD, Siegler v. Sorrento Therapeutics (SRNE)

Of note, I have no formal legal training. As such, readers are cautioned that my conclusions may not be accurate or reflect court opinion, so further due diligence is warranted. That said, I have reviewed all of the recent court filings in this case from April to present (5/8/19), which is ECF 83-88, and have summarized my thoughts below.

As I have previously stated, the bulk of the claims against SRNE have been dismissed by US District Judge Curiel. Since last month’s update, the Plaintiff has 1) filed a motion to reconsider the dismissal of prior claims – which was DENIED, 2) filed a motion to ask for guidance on the SAC – which was DENIED and 3) asked for an extension to file the SAC – which was granted (extension to 5/3). The SAC has been filed as ECF 86 with multiple demands including having SRNE stop using the IP in question, provide damages and lastly, demand for a jury trial.

Expect next for the Defendants to reply, followed by a ruling by Judge Curiel, in the coming weeks. As I had previously mentioned, the SAC is a refinement of previous argued points in the FAC, so don’t expect anything groundbreaking here. As SRNE had mentioned in their 10-K that they didn’t have any ongoing litigation that was considered material to their business and since the pro se Plaintiff hasn’t yet shown sufficient evidence to support her claims, I don’t expect much out of this. To that end, it is highly unlikely that this would go to a jury trial or that SRNE would feel the need to settle this out of court, as the case is winding down with a full dismissal expected. I think it’s important that SRNE see this to the end to set the precedent that it will fully defend its IP going forward. At this point, it’s possible for the trial to be completed within the next two months.

TBD, Litigation case: Sorrento | NantiBody v NantCell, Patrick Soon-Shiong, Charles Kim

Unlike the Siegler case, the litigation case against Patrick Soon-Shiong [PSS], Charles Kim [CK] et al. is material to SRNEs business and should be closely followed. This case is being tried in Los Angeles Superior Court, was filed on 4/3/19 and will have Judge Terry Green presiding. SRNE is asking the court: 1) to return $90M (plus interest) from NantPharma to NANTibody, 2) to return the IgDraSol assets (i.e. Cynviloq) from NANTibody back to NantPharma 3) to bar PSS and CK from serving as NANTibody directors and/or officers, 4) to issue a statement that the defendants breached their fiduciary duties and lastly, 5) to cover attorneys’ fees. This case will be a slow burn for a while as it has just started. To date, the only thing that has happened is the Defendants were granted an extension to respond.

TBD, Arbitration case: Sorrento v NantPharma, Patrick Soon-Shiong

The arbitration case against PSS et al. is also material to SRNEs business and should be closely followed. The details of the arbitration were outlined in the contract between SRNE and PSS that was filed with the SEC by SRNE in their 10-Q on 8/7/15 under Exhibit 10.2, Section 9.6 Dispute Resolution, [B] Arbitration. This case is being arbitrated with the American Arbitration Association in Los Angeles. SRNE is seeking damages in excess of $1B, as well as additional punitive damages related to alleged fraud and breaches of Stock Sale and Purchase Agreement. Although the contract specifies that the parties and Arbitrator should use all reasonable efforts to complete the arbitration in 3 months, this abbreviated deadline is highly unlikely given the complexity of the case. Don’t expect much in terms of PR either, as there are restrictions on PR except as what is required by law.

SEC Filings

SRNE has filed a number of forms so far this month, including an S-3 and 8-K. For investors that aren’t familiar with the filings, here’s a quick overview: First, the S-3 that was filed wasn’t significant and just amounts to completion of prior filings. Second, the 8-K that was filed is important and here’s why… SRNE has renegotiated the delayed draw term loan from the Oaktree loan that was reported on Exhibit 10.5 in the 10-Q filing on 11/8/18. The delayed draw term loan is a conditional loan of $50M that SRNE would receive if it meets certain commercial and financial milestones between 8/7 – 11/7/19. These are: 1) have a market cap of 1B+ (since there are 122,457,257 shares outstanding as of 4/15/19, the stock price would need to exceed $8.17 to achieve this goal), 2) no default, and 3) SRNE shall have entered into a licensing agree with a non-affiliated pharma, license one or more products to it and receive an up-front cash payment. There are of course undisclosed targets around each of those items in (3). So then, going back to the 8-K filing, SRNE reported that it had given up 1.3M in new warrants to get $20M of the conditional loan now. This means that SRNE diluted existing shareholders by 1%, keeping its recent promises to minimize dilution, and now has additional working, unrestricted capital to fund its businesses.

There are two areas to focus on this discussion: 1) the fact that SRNE agreed to the terms of the original delayed term loan leads me to believe the company sees its share price above $8.17 by 11/7/19, has no concern for financial insolvency and will announce a partner with an upfront, significant payment. One such partner may be the major European Pharmaceutical company that SRNE alluded to in their 1/23/19 8-K, with whom, when an agreement is finalized, intends to resubmit the ZTlido 1.8% MAA with in the near future. 2) The need for the $20M (advance on the delayed draw term loan) now highlights a sense of urgency. As the company reported on their last 10-K that it had $158M in cash and cash equivalents, it can be reasoned that the money is not needed out of need for insolvency, but need to quickly start something new, something unanticipated. Given the recent flurry of PRs on 4/10 (advancing an RTX program for PD), 4/15 (advancing an RTX program for CVDs) and then on 4/16 (announcing the creation of water-soluble cannabidiol [CBD] formulation with a plan to fully enter the CBD business), it’s reasonable to believe that SRNE intends to quickly get RTX into human trials for these new indications (which will take time and INDs to get approved first), but more importantly, to quickly get its CBD business established and partnered.



https://seekingalpha.com/instablog/47373598-c-capital-research/5302467-may-news-update-sorrento-therapeutics-srne
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