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Sorrento: 250% Upside


Sorrento's revolutionary CAR-TNK program has already attracted attention from Soon-Shiong and Nantkwest.

A recent sale of Cynviloq leaves a potential $1.2 billion in milestones.

Sorrento's license of four Chinese biosimilars is looking at a $9 billion market.

Sorrento Therapeutics (NASDAQ:SRNE) is a pharmaceutical company with diverse assets. It is run by CEO Henry Ji, who co-founded the company in 2006. In 2010, the company went public through a reverse merger. The company is based in San Diego and employs 50 people. Its share price has seen very volatile action in the past two years, rising from $3.10 in October 2014 to a peak of $26.80 in July 2015. Since then, it has withdrawn to a low of $4.25 in February 2016 to a closing price of $7.22 on April 25. Despite what the volatility suggests, Sorrento has an excellent outlook for a biotech company that's still in the developmental stage. A full estimate of Sorrento's value would account for the following: current drugs in development, including biosimilars and CAR treatments, the company's G-MAB antibody library, potential upcoming royalties, cash and expenses, as well as long-term partnerships and licenses. It is my belief that the complexity of Sorrento's varying assets have led to a significant value opportunity with upside of 2.5-times the current price.

Sorrento Therapeutics' platforms are based on a number of projects. According to the company's website, the G-MAB Technology platform antibody library is a collection of human antibodies collected from over 600 healthy donors, which it claims is one of the largest collection of antibodies in the world. The technology amplifies "antibody variable regions" which are present in RNA. These antibodies can be isolated, reproduced and tested against specific targets. MAB stands for Monoclonal AntiBody, the likes of which are used in immunotherapy to stimulate a patient's immune system. The two main approaches to using MABs to treat diseases are to create chimeric MABs or humanized MABs. The ability to graft these MABs onto T-Cells has enabled the CAR-T revolution in cancer treatment, which I've recently written about [specifically, ZIOPHARM (NASDAQ:ZIOP), Kite Pharma (NASDAQ:KITE), and Juno Therapeutics (NASDAQ:JUNO)]. The potential treatments for MABs include cancer and other auto-immune diseases.

CAR Platform

Source: Sorrento, Pipeline

Sorrento's CAR program is overlooked and rarely mentioned, with focus being on strictly CAR-T platforms. One year ago, the company founded TNK Therapeutics, a subsidiary. According to the press release, the platform focuses "on developing CAR.TNKs (Chimeric Antigen Receptor Tumor-attacking Neukoplast®) as well as other complementary cellular and immunotherapies targeting both solid tumors and hematological malignancies." Neukoplast technology is a "Natural Killer (NK) cell-line based therapy." Natural killer cells form a function analogous to T-Cells, acting within the immune system to identify threats and targets. Thus, CAR-NK is closely related to CAR-T. In 2014 Conkwest licensed Neukoplast® to Sorrento in a collaborative deal. The company is now NantKwest, part of Soon-Shiong's biotech empire; NantKwest has been a major partner to Sorrento for many years. As you can see in the following slide, available from the company's corporate presentation (January 2016), CAR.NK therapies have received scant attention from existing biotech players. The chart omits one other CAR company developing a CAR.NK technology- Celyad (NASDAQ:CYAD), a company with a market cap of $449 million. Celyad has one CAR-T trial in phase I and CAR.NK trials in pre-clinicals.

Source: Corporate presentation, January 2016

According to information available on Celyad's webpage, NantKwest's, as well as this review by Alan Hobbes, the potential for CAR-TNK treatments are somewhat limited, although they have some advantages to CAR-T therapies. From a commercial standpoint, there is less competition, and it could potentially disrupt the current favorites. Scientifically speaking, NK treatments have an advantage which is actually inherent in their names: they are natural killers. NK cells sometimes identify specific targets and kill a series of them. They also augment MAB activity by secreting cell-killing toxins, which attach to an invader. Additionally, NK cells naturally target multiple cancers, and they can be modified to promote efficacy for patients. Considering these factors and recent partnerships with NantKwest, it is clear that much of the CAR.NK universe has been revolving around Sorrento Therapeutic's G-MAB library. Sorrento has made major joint ventures with NantKwest, not to mention bio-similar efforts with MabTech in China, LA Cell, and Yuhan corporation. Sorrento is leveraging its library to gain licenses for a wide range of studies.

There are some clear reasons to discount CAR.NK versus CAR-T. These reasons include a lack of clinical development, efficacy drawbacks, and challenges modifying NK cells. However, it is also true that combining the two treatments in a CAR-TNK therapy could imply the best of both worlds. Either way, valuing the company based on potential revenue from these technologies is speculative at best. The following are Sorrento's CAR-related projects, housed within the subsidiary, TNK Therapeutics.

In August 2015, TNK Therapeutics acquired multiple clinical and preclinical CAR-T studies as well as the underlying IP for the CAR-T technology. Details were lacking from the press release, but the corresponding 8-K reveals that the specific acquisition was "NanoVelcro Circulating Tumor Cell profiling assay (the "Technology") from Cytolumina Technologies Corp. (CTC) and Fetolumina Technologies Corp. (FTC)." Sorrento paid an aggregate of $5 million, or 4.166% of each company's shares. The terms of the deal are not extremely favorable, as Cytolumina and Fetolumina are entitled to half of all future sales. It might be fair to value this acquisition at $5 million; but on the other hand, as the next cases will...