MicrocapResearch.com emailed and tweeted a trading alert on Sorrento Therapeutics (NasdaqCM: SRNE) at market open on 12/24 at $8.60. We believe Sorrento Therapeutics has serious potential to make strong gains in 2015 for reasons discussed in this article.
Founded in 2006, Sorrento Therapeutics (web site) is based in San Diego, California and focuses on the discovery, development, and commercialization of proprietary pharmaceuticals internationally for the treatment of several forms of cancer and auto-immune diseases as well as intractable pain in end-stage disease. Sorrento’s lead product, Cynviloq, is currently approved and marketed in various countries, including South Korea, for metastatic breast cancer (MBC), non-small cell lung cancer (NSCLC), and ovarian cancer under the trade name Genexol-PM. Cynviloq has also completed Phase I or III trials for MBC, and Phase I or II trials in NSCLC, Ovarian, Bladder, and Pancreatic cancers. Resiniferatoxin, a non-opiate, ultra potent drug for intractable pain in end-stage disease is also under development. Sorrento Therapeutics is also developing antibody drug conjugates and recombinant intravenous immunoglobulin (rIVIG) for the treatment of certain auto-immune diseases, as well as immunodeficiencies.
Sorrento also notes in their Q3 filing:
“Through September 30, 2014, we have identified and further developed a number of potential drug product candidates across various therapeutic areas, and intend to select several lead product candidates to further advance into preclinical development activities in 2014 and 2015.”
Shares Outstanding: 36.1 million as of the 12/22/2014 Schedule 13D, which includes the shares from a $40 million investment by Dr. Patrick Soon-Shiong for a 20% stake in the company.
Market Cap: ~ $345 million
Public Float: 18-20 million, depending on source
(click to enlarge)
Sources: SEC filings, Nasdaq.com, and Fidelity Investments
New Joint Venture and Key Investor Bring Strong Upside Potential in 2015
In the last 10 days, Sorrento Therapeutics made three major announcements regarding their direction in 2015:
- The 12/15/2014 announcement of “The Immunotherapy Antibody” joint venture with privately held NantWorks Inc. and its founder, physician scientist, and biotechnology entrepreneur Dr. Patrick Soon-Shiong. Dr. Soon-Shiong has provided 20 million in “initial” funding and now owns 20% of Sorrento Therapeutics at a purchase price of $5.80/share. The JV will accelerate development of multiple immuno-oncology monoclonal antibodies (mAbs) for the treatment of cancer
- The 12/19/2014 announcement of collaboration with privately held Conkwest Inc. (web site) to develop “Next Generation Cancer Immunotherapy”
- The 12/24/2014 announcement of a $48 million investment by Dr. Soon-Shiong in Conkwest Inc.
Sorrento Therapeutics is also purchasing $2 million in class A common stock in Conkwest Inc. as part of the transaction
Who is Dr. Patrick Soon-Shiong?
For starters, he:
- Founded Abraxis BioScience and developed Abraxane, a blockbuster drug approved for use in liver, lung, pancreatic, and breast cancers. Dr. Soon-Shiong sold Abraxis BioScience to Celgene for $2.9 billion in 2010
- Founded American Pharmaceutical Partners which he sold to Fresenius SE for $5.6 billion in 2008
- Has a net worth estimated at $13 billion (Forbes), is the wealthiest American in the healthcare industry, and the wealthiest man in Los Angeles
- Is a pioneer in genomics and immunotherapy drug research, drugs that stimulate our immune systems to work harder or smarter to attack cancer cells
Dr. Soon-Shiong in November of this year, San Diego News
Dr. Soon-Shiong “Disrupting Cancer”. 60 Minutes, December 7, 2014
The market for new immunotherapy treatments for cancer was estimated at $35 billion annually by Citigroup last year. Obviously, the “Immunotherapy Antibody Joint Venture” announced between Sorrento Therapeutics and Dr. Soon-Shiong’s NantWorks Inc. and the Sorrento-Nantomics-Conkwest collaboration is aimed squarely at this segment.
Dr. Soon-Shiong stated:
“Immunotherapy is one of the most powerful next-generation platforms added to our war against cancer. Integration of Nantomics advanced proteomics platform with the power of Sorrento’s fully human antibody libraries and Conkwest’s natural killer cell-lines is expected to enable an approach to attack tumors and their micro-metastases in a manner never before addressed.”
Strong Balance Sheet
Sorrento Therapeutics reported current assets of $45.8 million vs. current liabilities of $8.7 million as of the September 30th Q3 filing.
- Q3 cash balance of $44.3 million has been increased with the additional$40 million in funding by Dr. Soon-Shiong just announced
- Dr. Soon-Shiong’s investment in Sorrento Therapeutics has been called “initial joint funding” and an “initial joint venture”- strongly suggesting there’s more to come
- The potential for a massively dilutive financing at poor terms for current shareholders seems remote given Dr. Soon-Shiong’s personal wealth and investment in the company
Analyst Mean Price Target of $17/share Likely to Increase
Sorrento Therapeutics is rapidly growing from a microcap into a small cap company. There are currently 4 analysts following Sorrento, all with buy recommendations.
|Price Target Summary|
|No. of Brokers:||4|
Source: Yahoo Finance
Zacks Small Cap Research increased their price target on Sorrento Therapeutics to $18/share on December 15. The price targets in the table above were made prior to the materially significant news of the last 10 days and I expect them to be revised upward as well.
Zacks (see release) points out the following positives from the Sorrento/Natworks JV:
Expect a Jump in Institutional Participation
Sorrento Therapeutics had a healthy 39% institutional ownership as of 9/30/14 (see table above) and I expect that level is increasing now. With a relatively small float of 18-20 million shares, this could easily keep momentum to the upside…but due to the smallish float investors should expect and be prepared for volatility. There doesn’t appear to be a meaningful short position in the stock at present.
The 1 month chart for Sorrento Therapeutics is a thing of beauty. Following the high volume breakout earlier this month, there were a few days of lower volume sideways trading. Then, during the holiday-shortened 12/24 trading day, shares gained another 11.5% on heavier volume. It’s noteworthy that the initial move in Sorrento shares was made during the biggest weekly decline in two years for the broader market.
Momentum and money flow show an uptick on 12/24 and could be signaling the start of another leg up.
There is some resistance at around $11 on the 12 month chart.
The Bottom Line
I believe Sorrento Therapeutics is a strong buy here and a gain of 50% from current prices over the next 6 months is a reasonable, if not conservative expectation. Short term/active traders may want to see a breakout above $11 resistance before jumping in.
Subscribe to MicrocapResearch.com for free with the subscription box on top left of page.
Follow MicrocapResearch.com on Twitter:
Disclosure: I am long SRNE. I have not been paid by any company or third party for this article.
Disclaimer: Opinions expressed are my own and should not be considered investment advice nor an invitation to buy or sell shares of any company mentioned on this site. Investors should perform their own due diligence and consult with a Registered Investment Advisor prior to making any investment decision. See sidebar for full disclaimer.