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Sorrento Therapeutics (SRNE) Conference Updates: SVB/Leerink And Oppenheimer

|About: Sorrento Therapeutics, Inc. (SRNE)
Summary

Sorrento has transformed into a fully fledged clinical and manufacturing biotech company as it has advanced multiple clinical programs in the past year and has extensive vertical integration of manufacturing.

It has multiple catalysts in the coming year ranging from data readouts in key clinical programs, to initiating pivotal trials, to pending (EU) partnerships.

It has sufficient financing in place to fund its current operations for the year, possible breakeven ZTlido sales by EOY, and a pending dual-list HK IPO and Celularity IPO.

Disclaimer

  • Information on this blog is not an offer to buy or sell, or a solicitation of any offer to buy or sell the securities mentioned herein
  • Information presented is believed to be factual and up-to-date, but I do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed
  • All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change

In case you missed it, I have selected highlights to share from the two recent conferences that Sorrento Therapeutics (SRNE) presented at in the past month. The first was the SVB/Leerink Healthcare Conference on 2/28 (Jerome Zeldis CMO, Bill Farley VP Sales, Business Development) and the second was the Oppenheimer Global Healthcare Conference on 3/20 (Jiong Shao CFO). The webcasts are still available via the company’s website at this time and I encourage you to listen to them. The information included herein, contains a combination of shared information by the aforementioned speakers and my thoughts on the matter.

What you missed, what you need to know…

Clinical program updates

  • Anti-CEA CAR-T
  • Anti-CD-38 CAR-T
  • Resiniferatoxin (RTX)
  • ZTlido
  • Seprehvir (HSV1716)
  • Sofusa

Company updates

  • Sorrento Therapeutics
  • Scilex
  • Celularity

Anti-CEA CAR-T

Phase 1 (P1) CAR-T Hepatic Artery Infusions or Pancreatic Venous Infusions for CEA-Expressing Liver Metastases or Pancreas Cancer (HITM-SURE)

Conference(s): One patient is still alive today from the P1 study. Given the positive findings of the P1 study, Sorrento has met with the FDA who has since signed off on moving forward with a pivotal trial. The pivotal trial will start in 2H19, will be an RCT against placebo, enroll approximately 120-130 patients and is estimated to cost 200K.

Significance: On November 6th, Sorrento reported the median overall survival (OS) was 8.3 months and the mean OS was 9.8 months for this P1 trial. Since one patient has lived for an additional 4 months since that update, the mean OS survival is now 10+ months (as referenced on their updated March slide deck). Although this is single patient data in a small sample size, this is a remarkable event given the survival in this population has been estimated at 3-6 months. To that end, the FDA has already recognized the value in moving this forward to a pivotal trial faster than expected. This is a positive sign for Sorrento and Investors, shortening the path to approval. Of note, given the limited treatment options for patients with metastatic pancreatic cancer, there would be no direct competition after first line FOLFIRINOX or GEM-ABRAXANE to receive this treatment if the survival benefit holds.

Anti-CD-38 CAR-T

P1 Study to Evaluate the Safety and Efficacy of Anti-CD38 CAR-T in Relapsed or Refractory Multiple Myeloma (MM) Patients

Conference(s): The focus of the P1 trial will be on multiple myeloma patients who are daratumumab resistant or daratumumab refractory. Sorrento has already seen drug activity from the initial patients that have been dosed and plan to expedite recruitment by expanding trial sites from two to four. That said, they anticipate having 12+ patient data by midyear which they will likely share at the 61stASH Annual Meeting in December, if not sooner. If the data is robust, Sorrento will move for an accelerated approval from the FDA for the retroviral program into a pivotal trial.

Other

Conference(s): Sorrento’s non-retroviral anti-CD-38 CAR program, AKA KOKI, will have an IND submitted in 3Q19 for which they are looking to quickly execute a P1 trial. Should this be successful, they will work expeditiously with the FDA to start a pivotal P2 trial (by EOY19 or 1H20). The larger goal for this CAR program is to transition from the retroviral CAR to the KOKI CAR (as production of the KOKI CAR is quicker and there are less regulatory hurdles). Additional goals around the CD-38 target include submission of INDs this year for both an anti-CD-38 ADC and an anti-CD-38 mAb.

Significance: As Sorrento has already mentioned twice that it has “seen drug activity” in its anti-CD38 CAR in the clinical trial, it’s fair to say the asset is slowly being derisked ahead of a data share. Taking this fact along with an aggressive plan to increase enrollment and concurrently seek KOKI CAR approval and run a KOKI trial should give investors’ more confidence in the CD-38 CAR program. As a limited data share may come before December, other notable conferences to follow would be: ASCO - JUNE, ESMO - SEPT, SITC - NOV. Positive data out of Sorrento’s anti-CD-38 CAR program, regardless of the competitors BCMA, CD19 data, should have a significant impact on share price, as Sorrento’s CAR is the only one to target CD-38 and will have a defined niche if approved.

RTX

P1 Study of Resiniferatoxin for Knee Pain in Moderate to Severe Osteoarthritis (OA)

Conference(s): Sorrento reiterated that the focus of the RTX program will be targeting the OA market, as it has approximately 30M patients. The company will still develop RTX for intractable cancer pain (IT and epidural) but has acknowledged that this is a smaller market. As for the current P1 study in OA, Sorrento has reported that one patient from the 5mcg cohort (lowest tested dose) is still pain free after 6 months and others are seeing 3 months of pain control. This is notable as the study was only defined to follow pain reduction in WOMAC scores at 68 days. Since the drop in WOMAC scores over that time was greater than the needed threshold of 2 points (RTX showed a 4.7-point reduction), Sorrento has been in talks with the FDA to start a global pivotal trial in 2H19, that will enroll approximately 1000 patients, take approximately 18 months to complete and cost approximately 20M. Sorrento is not stopping there, however, as it is looking to expand RTX, possibly into the phantom limb pain market under a fast-track designation.

Significance: Without a doubt, RTX represents the most valuable asset to Sorrento at this time and has been touted as a multibillion dollar program. Given that a pivotal study will start in the 2H19, a clear path has been defined going forward toward approval should the data be positive. In the era of the ‘War on Opioids’, RTX stands out as it is non-addictive, one-time use (possibly repeated after 3-6 month), and is well tolerated. Investors should look forward to the publication of the P1 data in the next couple of months, that may time with the overlap of the pivotal trial and have a significant impact of share price appreciation.

ZTlido

Conference(s): Sorrento has successfully built a team around their first commercial product, ZTlido 1.8% TDD, reporting a full, well-trained sales, marketing and support team, in addition to recently signing on a VP of Market Analytics for Scilex, Shawn Sahebi. As previously reported on 1/14/19, ZTlido currently has coverage for 100M lives through insurers and has a new goal of 200M lives covered by EOY. Although sales for ZTlido will be confidential outside of quarterly reporting, Sorrento did emphasize that sales are ramping up and are now exceeding Endo’s Lidoderm market share. They further feel that their current WAC pricing of $9/patch, relative to Lidoderm $18/patch and generics $7.50 is competitive. Given their current sales and marketing plan, they report that they are looking to breakeven before EOY. Scilex isn’t stopping there though… per their financing agreement they already have plans to develop at ZTlido 5.4% patch, getting it into clinic this year, as well as working with the FDA to design a trial for back pain.

Significance: Scilex has demonstrated that it is making excellent use of its financing by quickly building up the necessary internal support for a successful inhouse ZTlido 1.8% product launch. As they are also pursuing an aggressive marketing campaign and have an outstanding Citizen’s Petition with the FDA against their OTC competitors, a successful rollout of their patch is looking ever more likely.

Seprehvir (HSV1716)

Conference(s): A brief update was given reporting that a clinical trial with their oncolytic virus will start in 2H19 in patients with liver metastases.

Significance: Seprehvir has been largely off the radar for investors, as Sorrento has spent the last few years redefining its core assets and getting them into clinic. That said, Sorrento is now ready to expand deeper into its portfolio and get Seprehvir back into the clinic. As oncolytic viruses have not been shown to be very successful as single agent therapies, look to see this trial studied in combination with a CAR-T therapy (likely the anti-CEA CAR). Investors shouldn’t expect much from this program until data readouts in 2020.

Sofusa

Conference(s): Sorrento is excited about the Sofusa platform they announced/purchased last year, 7/3/18, and is ready to get it into clinic. They plan to initiate a trial with an unnamed anti-PD1 across a number of cancers in 3Q19 along with a second trial in 2H19 for an unnamed drug (likely sumatriptan, given the earlier study on it).

Significance: Should the data that comes out of the larger Sofusa studies be positive, look for this to be a transformative technology that will change the way a number of infusions are given. This tech represents a novel delivery platform (less pain, less invasive, less drug) and lends itself to be used for a multitude of commercially approved drugs which creates significant licensing opportunities for Sorrento. There’s something to be said too about the unnamed anti-PD1 agent that will be used in the study… if Sorrento pairs its device with a commercially approved drug in this study, say Opdivo or Keytruda, it would benefit from the extensive groundwork done by BMS and Merck across countless tumor types and lend itself to a partnership. Either way, moving forward with an inhouse asset or commercial asset, this technology in Sorrento’s hands is a winner.

Sorrento Therapeutics (parent company)

Conference(s): Sorrento is now recognizing its transformation from a discovery company into a clinical and manufacturing company. It has its sights firmly focused on monetizing its assets, getting its flagship programs into clinical studies and looking to spin off its subsidiaries. As of EOY18, it has 158M in unrestricted cash, split across two accounts, the main account and the Scilex account, that it will use to further fund its operations/clinical programs and has a current burn rate of approximately 20M/quarter. Sorrento has and continues to be optimistic, more so than the market understands, and has restated its position as a year behind its larger competitors like Juno or Kite.

Significance: Sorrento continues to deliver on its timelines and is now pushing forward to get two of its flagship programs into pivotal clinical trials later this year. Although it is optimistic about its burn rate and its current financial position, I believe it will need a cash infusion later this year for it to be able to take on new clinical studies from previously sidelined assets, advancing existing assets into costlier pivotal trials, as well as to cover operations. That said, it already has a plan B, with a recently filed 100M shelf for ATM access should it need to raise funds. Sorrento has also alluded to partnering, saying it has talked with all major players in the space, and that if needed, will consider that option, as well as has two other plans it is closely guarding, 1) the Hong Kong dual list IPO (previously mentioned to happen in 1Q19) and 2) the European partner (Grünenthal is my guess) for ZTlido. Both are very likely to move forward and would be anticipated to provide significant cash for the company. Since neither were mentioned at the conferences, only time will tell. Investors should not worry about dilution in the near-term as current funding is sufficient and notable clinical data shares will drive the price higher before Sorrento has a need to capitalize on the ATM shelf.

Scilex

Conference(s): Sorrento would like to see Scilex become a major player in the non-opiate space, further building up its franchise, with the additional purchase of another late stage non-opiate asset. It’s longer term vision also includes spinning off Scilex and having it IPO possibly in the next 12 months.

Significance: With the war on opioids in the spotlight as a public health emergency in the United States, there has and will continue to be pressure on Pharma companies, Physicians, Pharmacists and the like to limit the production, prescribing and dispensing of opiate narcotics. To that end, advancing Scilex’s non-opiate pipeline has come at an opportune time for Sorrento. Investors will directly benefit from this seismic shift as Scilex grows, gets spun off and IPOs (for at least 450M) in due time.

Celularity

Conference(s): As many of you know, Sorrento holds an approximate 25% stake in the Celgene spinoff and private venture, Celularity. Celularity has a strong leadership team led by Dr. Hariri, over 800 patents and is moving forward with its clinical allogeneic PNK program. It has been long rumored that Celularity would IPO in 2019, but not yet confirmed. This rumor is one step closer to reality as it was mentioned that a Celularity IPO is now anticipated in Q3-Q419 for approximately 1.5-2B

Significance: Sorrento has made a smart investment in Celularity for its 25% stake (10M + IP). Looking ahead, a potential 2B Celularity IPO would put the value of Sorrento’s stake at 500M. It is anticipated that Sorrento will divest from Celularity over time and use these funds to further their own clinical pipeline, reducing or eliminating the need for further dilutive financing. As Celularity has been out of the limelight for the past year, look for it to start shining next week (3/29/19 3:00 EST) when the data is released around its two completed P1 clinical trials for its allogeneic PNK programs in AML and MM. Celularity has already updated their website on 3/12 to reflect the planned P2 trials, starting in 2H19, so look for positive data in the abstracts.

Final Thoughts

Sorrento Therapeutics has transformed over the past few years, finding direction with its IO and pain franchises (which will be headed into pivotal trials this year and include a commercial asset in ZTlido), having made key investments in technology / joint ventures and having secured funding for its continued clinical operations/clinical programs and to support a successful launch of ZTlido. It has been discounted in the past years for its far-reaching vision of greatness on the Pharma stage. To that end, it has been heavily sold off, below fair value. This year, Sorrento will fill in the missing piece – clinical data. I believe the clinical data from its lead programs, combined with a successful US launch from ZTlido, an EU partner for ZTlido, and possible IPOs (from the dual list in HK to the Celularity IPO) will bring Sorrento to its fair valuation. As of today, 3/21/19, it closed at $5.23 and has a market cap of 640M and yet is still undervalued.

Where do you think it should be?

Disclosure: I am/we are long SRNE.