Sorrento Therapeutics: Abbreviated Path Through The FDA To Fuel Profits

| About: Sorrento Therapeutics, (SRNE)

Upcoming Events - Initiation of pivotal, Phase III trial in Q4 2013

Sorrento Therapeutics (SRNED.OB) - Based in San Diego, CA, engages in the development and commercialization of novel drugs for the treatment of various diseases. Recently, Sorrento Therapeutics completed the previously announced merger with IgDraSol (private) in a transaction valued at $28.2 MM. Also, Sorrento Therapeutics recently completed a 25 to 1 reverse merger setting the stage for a potential uplisting to the NASDAQ. However, the reason investors may be interested in Sorrento Therapeutics is now the appealing simplicity of their strategy. Sorrento plans on using its recently acquired drug from the merger, Cynviloq, a novel formulation of paclitaxel, to rapidly reach the market and begin generating sales by gaining share from already approved Abraxane and other cytotoxic chemotherapy drugs. As explained in detail below, Cynviloq is similar to Abraxane, which was developed by Abraxis Bioscience and later bought by Celgene (NASDAQ:CELG) in 2010 for approximately $2.9 BB. Before discussing Sorrento's drug, it is important to understand Abraxane, produced by Celgene.

Abraxane Background - Abraxane is paclitaxel protein (albumin) bound particles, and was first approved in 2005 for the treatment of breast cancer after failure of combination chemotherapy for metastatic disease or relapse within six months of adjuvant chemotherapy. Since then, Abraxane has been approved and utilized in multiple oncology indications and moved up the lines of chemotherapy, reaching the more lucrative segments (due to longer treatment duration and more patients). Most recently, Abraxane received approval for first-line treatment of adenocarcinoma of the pancreas. Abraxane has gained market share from other taxane formulations due to its improved targeting of paclitaxel to the tumor cells and solvent free formulation. Taxol administration is often associated with irritation and required significant side effect management, which has benefited Abraxane. Sales and adoption have reflected these improvements over paclitaxel, and in 2012 totaled $427 MM, an increase of 11 percent over the previous year. The drug is still on patent, and according to Celgene's most recent 10-k, Abraxane is not set to lose exclusivity in the U.S. until 2024, and in Europe until 2022. Of course, there is the potential for these patents to be invalidated in court, but Celgene's lawyers certainly would have look at Abraxane's intellectual property during the acquisition due diligence.

Cynviloq - Sorrento's drug, Cynviloq, is a micellar diblock copolymeric paclitaxel formulation, and is currently approved and marketed in several countries, including South Korea for metastatic breast cancer (MBC) and non-small cell lung cancer (NSCLC) under the trade name Genexol-PM®. Sorrento, via IgDraSol, has gained exclusive U.S. distribution rights to Cynviloq™ from Samyang Biopharmaceuticals Corporation, a South Korean corporation. In the U.S., Cynviloq has completed Phase 2 testing for potential advancement into registration trials (detailed in the next section). Although all stakeholders (physicians, patients, investors,etc.) seek targeted and efficacious treatments for cancer, improved formulations of cytotoxic chemotherapy with improved efficacy and safety profiles are still important for the management of cancer, and represent key advances in the field.

In clinical trials so far and based on PK / PD data, it appears that Abraxane and Cynviloq do indeed behave in similar fashion, lowering both clinical and regulatory risk. The conclusion in one of these abstracts demonstrates the potential:

"Conclusions: A non-albumin-based paclitaxel formulation (IG-001) was found to have similar properties to the albumin-based paclitaxel formulation (nab-paclitaxel). Its clinical development could give us the next generation paclitaxel nanoparticle formulation that can be more readily modified than nab-paclitaxel (Abraxane)." To view Sorrento's abstract presentations from AACR, please click here and here.

Sorrento's Strategy - Following an end of Phase II meeting with the FDA, Sorrento believes that they will be able to utilize the FDA's 505(b)2 pathway with Abraxane and Taxol as the reference products. This essentially means that Sorrento Therapeutics will be relying on the safety and efficacy data for Taxol and Abraxane, which has long been established. To do so, Sorrento will need to establish the bioequivalence of Cynviloq to these reference products, and then file with the FDA. Anticipating smooth sailing, and given the data presented in two recent conferences, it appears that Cynviloq can be on the market as early as late 2015 or early 2016 for both metastatic breast cancer and lung cancer indications.

The personalized medicine component with the recent deal with Biomiga diagnostics makes an investment in Sorrento potentially very promising, and highlights management's foresight in differentiating the product, since the product appears quite similar to Abraxane.

As a sign of validation, OPKO Health (OPKO) and its largest shareholder, Dr. Philip Frost, are significant shareholders of Sorrento. OPKO Shares owned currently total approximately 2.3 M, although interest from OPKO originally centered around the antibody library, and not the current oncology asset.

Pipeline Programs - While it appears on the website and through some recent press releases that there are a number of preclinical programs, Sorrento Therapeutics does not appear to be significantly investing in these efforts. Indeed, the author does not believe these programs will have significant upside potential for a number of years given the early stage of development, and investors should remain focused on the lead oncology asset.

Risks Factors - As all investors in biotech and pharma know, the drug development process is time-consuming, expensive, and above all, uncertain. Even though it appears Sorrento Therapeutics will use the less risky and more rapid 505(b)2 pathway for approval, there is still regulatory risk and manufacturing risk. Furthermore, the fact Abraxane is still on-patent is a double edged sword. On the one hand, competing against a branded drug allows Sorrento to charge a higher price versus a generic competitor. However, Celgene will surely react and use its considerable muscle to defend Abraxane's lucrative position in the marketplace. Sorrento will need an effective sales and marketing effort, either through a partner (more likely) or on its own; this will dilute future profits.

Fundamentals and Financials - According to the most recent 10-Q filed with the SEC, as of the end of Q2 2013, cash and cash equivalents totaled approximately $5.8 MM. If Sorrento wishes to pursue drug development seriously, there will clearly need to be additional capital raises in the form of additional equity offerings. If these coincide with the development of important milestones, it is the author's opinion that these are not necessarily dilutive, as capital will be raised at successively higher valuations. It is also likely that capital raises will come sooner rather than later, given the favorable biotech financing environment. Although there is some revenue generated on the income statement, this is mainly grant income for various projects in development with minimal impact for investors. As of September 28, 2013, Sorrento sports a market capitalization of approximately $132 M. If Sorrento is able to execute on their strategy, it can be expected that in approximately 2 years increased market capitalization and share price will significantly rise with an approved drug hitting the market.

Conclusion and Future Directions - Overall, Sorrento Therapeutics offers biotech investors the opportunity to capture market share from a currently patented drug and an abbreviated approval pathway. Sorrento further appears to be positioning the drug with a companion diagnostic, helping differentiate it from the competition.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.