A Brief Update on Sorrento ($SRNE)

Was a time when novelists garnered add-on Warholian 15-minute clumps of fame by dazzlingly blurbing the new novels of their peers. Tom Robbins (Even Cowgirls Get the Blues) rose to the occasion by intoning, for a book jacket, “It’s frappe of zeitgeist, bay-bee!” We think the blurbee novel was My Cousin, My Gastroenterologist  by satirist Mark Leyner. This blog has always had a leitmotif of insider wordplay and shibbolethic abbreviations, and so if we occasionally designate something FOZ, you’ll know.

Today, FOZ is something going on in the hot Chinese biotech market. Taiwanese science has always had ur-credibility, but the mainland’s efforts have caught up and now exuberate….doing so with a proliferation of new listings of micro-caps and start-ups on Chinese bourses. A recent new rule of the Chinese exchanges allows biotechs with no revenue in China to uplist to major exchanges there.

Investor Patrick Lin, friend of this website and its investors and CBO of Processa Pharmaceuticals ($PCSA) spoke with me today about an interaction he’d had with analyst Josh Schimmer, MD, MBA, of Evercore ISI. We’ve now learned that Sorrento Therapeutics ($SRNE), proud of its muscular presence in mainland China, plans to list on the Hong Kong exchange its TNK CAR-T subsidiary company. Biotech companies listed in China are beginning to fetch premium valuations.

Here’s where it gets interesting. The Sorrento CAR-T subsidiary listing will have a rather important benchmark equity lurking right off to its side: Genscript, which includes subsidiary Legend Biotech Corporation. Legend has partnered with $JNJ for an anti-BCMA CAR-T program that competes with bluebirdbio ($BLUE). Get this: Genscript’s market cap in USD is now $6B. Since Genscript has legitimacy as a comparator company for Sorrento’s subsidiary, this uplisting is a potential inflection point in the valuation of $SRNE shares.

What does one really make of a situation in which valuation of a subsidiary trumps that of the parent company? We’re not precisely sure, but we’re sure it can’t be bad for Sorrento longs. Sorrento’s present market cap is around $550M, but we still think legitimate expectations could place Sorrento’s market cap at $2-3B in the near to medium term, higher longer term.

We were fortunate to be invited to an exclusionary luncheon for friends of Sorrento in January in San Francisco, hosted by CEO Henry Ji. Ji is very Chinese in all senses, and these include the Big Face he thrusts forward about the future of his company, a posture that conceals shame over the debacle of Sorrento V1.0, where Ji, having baited the wrath of Patrick Soon-Shiong over his competing paclitaxel formulation, stood by helpless as he watched his top lieutenants get lured away followed by share dumping and functional raping of Sorrento by Soon-Shiong.

Ji is serious. His CMO Jerome Zeldis, MD, PhD, drove Celgene ($CELG) to the top of the market, and appears in fine fettle despite his age. I have reviewed in depth the literature about strategies for multiple myeloma CAR-T, whether to target CD38 or B-cell maturation antigen (BCMA) as competitors are. I favor the former approach, which is Sorrento’s. Sorrento multiple myeloma CAR-T trials should begin enrolling at any point: the phase 1 trial seeks 72 relapsed or refractory (R/R) patients. You can review the study protocol here. At present but one site is listed: Roger Williams Medical Center in Providence, RI. We think it reasonable to assume that prominent oncology centers (Memorial Sloan-Kettering, MD Anderson, Fred Hutchison (Seattle) and University of Arkansas) with avowed expertise in this illness will be eventual study sites as well.

Remember too that Sorrento is diversified: its products include an FDA-approved lidocaine patch for pain management, its intrathecal resiniferatoxin program for intractable cancer pain (think of it as capsaicin on steroids; the study protocol is here). The company manufactures antibody drug conjugates and has a major Chinese manufacturing facility. Sorrento also owns a significant stake in Celularity, a now-private company in Warren, NJ, advancing therapeutics based on cells and tissues derived from placenta, and extremely promising. My former MD Anderson colleague Andrew von Eschenbach, MD, who went on to lead the FDA, is a board member.

Disclosures: Of companies named above, I have a long position in $SRNE. I will not trade in $SRNE shares for one week, reckoned in business days, after this column appears. This is not a solicitation or recommendation to purchase Sorrento shares, and I have received nothing of pecuniary value from $SRNE. I am participating in the $PCSA PIPE.

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