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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission file number 001-36150 
SORRENTO THERAPEUTICS, INC.
(Exact Name of Registrant as Specified in Its Charter)
 
Delaware
 
33-0344842
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification Number)
4955 Directors Place
San Diego, California 92121
(Address of Principal Executive Offices)
(858)
203-4100
(Registrant’s Telephone Number, Including Area Code)
Securities Registered pursuant to Section 12(b) of the Act:
Title of each class:
 
Trading Symbol (s)
 
Name of each exchange on which registered:
Common Stock, $0.0001 par value
 
SRNE
 
The Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes     No  .
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated file, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer
 
  
Accelerated filer
 
 
 
 
 
Non-accelerated filer
 
  
Smaller reporting company
 
 
 
 
 
 
 
 
Emerging growth company
 
  
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  .
The number of shares of the issuer’s common stock, par value $0.0001 per share, outstanding as of July 28, 2019 was 130,978,668.




Sorrento Therapeutics, Inc.
Form 10-Q for the Quarter Ended June 30, 2019
Table of Contents
 
 
 
 
 
 
 
 
 
 
 





PART I. FINANCIAL INFORMATION
Item 1.    Consolidated Financial Statements.
SORRENTO THERAPEUTICS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except for share amounts; unaudited)
ASSETS
June 30,
2019
 
December 31,
2018
Current assets:
 

 
 

Cash and cash equivalents
$
61,385

 
$
158,738

Restricted cash
9,592

 
9,592

Marketable securities
316

 
297

Grants and accounts receivables, net
9,786

 
3,833

Inventory
6,631

 
2,898

Income tax receivable
303

 
526

Prepaid expenses and other
5,493

 
3,680

Total current assets
93,506

 
179,564

Property and equipment, net
30,829

 
24,384

Operating lease right-of-use assets
46,686

 

Intangibles, net
64,825

 
66,283

Goodwill
38,298

 
38,298

Cost method investments
237,008

 
237,008

Equity method investments
25,509

 
27,980

Restricted cash
45,150

 
45,000

Other, net
5,232

 
5,570

Total assets
$
587,043

 
$
624,087

LIABILITIES AND STOCKHOLDERS’ EQUITY
 

 
 

Current liabilities:
 

 
 

Accounts payable
$
24,886

 
$
13,817

Accrued payroll and related benefits
12,500

 
10,236

Accrued expenses
17,383

 
13,403

Current portion of deferred revenue
3,350

 
2,703

Acquisition consideration payable
11,312

 
11,312

Current portion of derivative liabilities
7,900

 

Current portion of debt
32,257

 
10,150

Current portion of operating lease liabilities
2,401

 

Total current liabilities
111,989

 
61,621

Long-term debt, net of discount
223,589

 
223,136

Deferred tax liabilities, net
8,923

 
9,416

Deferred revenue
115,192

 
116,274

Derivative liabilities
19,900

 

Operating lease liabilities
52,043

 

Deferred rent and other
791

 
6,140

Total liabilities
532,427

 
416,587

Commitments and contingencies (See Note 13)


 


Equity:
 

 
 

Sorrento Therapeutics, Inc. equity
 

 
 

Preferred stock, $0.0001 par value; 100,000,000 shares authorized and no shares issued or outstanding

 

Common stock, $0.0001 par value 750,000,000 shares authorized and 122,645,334 and 122,280,092 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively
13

 
13

Additional paid-in capital
665,515

 
626,658

Accumulated other comprehensive income
48

 
15

Accumulated deficit
(532,583
)
 
(367,750
)
Treasury stock, 7,568,182 shares at cost at June 30, 2019, and December 31, 2018
(49,464
)
 
(49,464
)
Total Sorrento Therapeutics, Inc. stockholders equity
83,529

 
209,472

Noncontrolling interests
(28,913
)
 
(1,972
)
Total equity
54,616

 
207,500

Total liabilities and stockholders equity
$
587,043

 
$
624,087

See accompanying notes to unaudited consolidated financial statements

1



SORRENTO THERAPEUTICS, INC.  
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except for per share amounts; unaudited)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 


 
 
Revenues:
 

 
 

 
 

 
 

Royalty and license
$
120

 
$
120

 
$
240

 
$
240

Sales and services
6,357

 
3,793

 
12,380

 
9,919

Total revenues
6,477

 
3,913

 
12,620

 
10,159

Operating costs and expenses:
 

 
 

 
 

 
 

Costs of revenues
3,281

 
1,226

 
5,589

 
2,538

Research and development
24,759

 
17,925

 
50,343

 
32,554

Acquired in-process research and development

 

 
75,301

 

Selling, General and administrative
27,772

 
11,039

 
52,894

 
21,000

Intangible amortization
992

 
657

 
1,958

 
1,319

Loss on contingent liabilities and acquisition consideration payable
34

 
1,437

 
66

 
13,663

Total operating costs and expenses
56,838

 
32,284

 
186,151

 
71,074

Loss from operations
(50,361
)
 
(28,371
)
 
(173,531
)
 
(60,915
)
Gain (loss) on trading securities
(76
)
 
(121
)
 
18

 
(118
)
Loss on derivative liabilities
(10,591
)
 

 
(25,092
)
 

Loss on foreign currency exchange
(411
)
 
(586
)
 
(98
)
 
(569
)
Interest expense
(9,520
)
 
(45,009
)
 
(18,600
)
 
(46,061
)
Interest income
305

 
6

 
839

 
10

Loss before income tax
(70,654
)
 
(74,081
)
 
(216,464
)
 
(107,653
)
Income tax benefit
(383
)
 
(1,377
)
 
(561
)
 
(2,325
)
Loss on equity method investments
(1,574
)
 
(2,105
)
 
(2,471
)
 
(3,027
)
Net loss
(71,845
)
 
(74,809
)
 
(218,374
)
 
(108,355
)
Net loss attributable to noncontrolling interests
(15,083
)
 
(945
)
 
(53,541
)
 
(1,919
)
Net loss attributable to Sorrento
$
(56,762
)
 
$
(73,864
)
 
$
(164,833
)
 
$
(106,436
)
Net loss per share - basic per share attributable to Sorrento
$
(0.46
)
 
$
(0.73
)
 
$
(1.35
)
 
$
(1.15
)
Net loss per share - diluted per share attributable to Sorrento
$
(0.47
)
 
$
(0.73
)
 
$
(1.51
)
 
$
(1.15
)
Weighted-average shares used during period - basic per share attributable to Sorrento
122,549

 
100,563

 
122,415

 
92,795

Weighted-average shares used during period - diluted per share attributable to Sorrento
132,459

 
100,563

 
128,132

 
92,795

 
See accompanying notes to unaudited consolidated financial statements

2



SORRENTO THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands; unaudited)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2019
 
2018
 
2019
 
2018
Net loss
$
(71,845
)
 
$
(74,809
)
 
$
(218,374
)
 
$
(108,355
)
Other comprehensive gain (loss):
 

 
 

 
 

 
 

Foreign currency translation adjustments
(52
)
 
(199
)
 
33

 
(89
)
Total other comprehensive gain (loss)
(52
)
 
(199
)
 
33

 
(89
)
Comprehensive loss
(71,897
)
 
(75,008
)
 
(218,341
)
 
(108,444
)
Comprehensive loss attributable to noncontrolling interests
(15,083
)
 
(945
)
 
(53,541
)
 
(1,919
)
Comprehensive loss attributable to Sorrento
$
(56,814
)
 
$
(74,063
)
 
$
(164,800
)
 
$
(106,525
)
 
See accompanying notes to unaudited consolidated financial statements

3



SORRENTO THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except for share amounts; unaudited)
 
Six Months Ended June 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock
 
Treasury Stock
 
Additional
Paid-in Capital
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Accumulated
Deficit
 
Noncontrolling
Interest
 
 
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
Total
Balance, December 31, 2018
122,280,092

 
$
13

 
7,568,182

 
$
(49,464
)
 
$
626,658

 
$
15

 
$
(367,750
)
 
$
(1,972
)
 
$
207,500

Issuance of common stock upon exercise of stock options
365,242

 

 

 

 
1,206

 

 

 

 
1,206

Equity contribution related to Semnur acquisition

 

 

 

 
28,400

 

 

 
26,600

 
55,000

Stock-based compensation

 

 

 

 
4,963

 

 

 

 
4,963

Issuance of 2019 Warrants

 

 

 

 
4,288

 

 

 

 
4,288

Foreign currency translation adjustment

 

 

 

 

 
33

 


 

 
33

Net loss

 

 

 

 

 

 
(164,833
)
 
(53,541
)
 
(218,374
)
Balance, June 30, 2019
122,645,334

 
$
13

 
7,568,182

 
$
(49,464
)
 
$
665,515

 
$
48

 
$
(532,583
)
 
$
(28,913
)
 
$
54,616


 
Three Months Ended June 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock
 
Treasury Stock
 
Additional
Paid-in Capital
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Accumulated
Deficit
 
Noncontrolling
Interest
 
 
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
Total
Balance, March 31, 2019
122,311,917

 
$
13

 
7,568,182

 
$
(49,464
)
 
$
657,115

 
$
100

 
$
(475,821
)
 
$
(13,830
)
 
$
118,113

Issuance of common stock upon exercise of stock options
333,417

 

 

 

 
1,125

 

 

 

 
1,125

Stock-based compensation

 

 

 

 
2,987

 

 

 

 
2,987

Issuance of 2019 Warrants

 

 

 

 
4,288

 

 

 

 
4,288

Foreign currency translation adjustment

 

 

 

 

 
(52
)
 

 

 
(52
)
Net loss

 

 

 

 

 

 
(56,762
)
 
(15,083
)
 
(71,845
)
Balance, June 30, 2019
122,645,334

 
$
13

 
7,568,182

 
$
(49,464
)
 
$
665,515

 
$
48

 
$
(532,583
)
 
$
(28,913
)
 
$
54,616



4



 
Six Months Ended June 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock
 
Treasury Stock
 
Additional
Paid-in Capital
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Accumulated
Deficit
 
Noncontrolling
Interest
 
 
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
Total
Balance, December 31, 2017
82,903,567

 
$
9

 
7,568,182

 
$
(49,464
)
 
$
413,901

 
$
242

 
$
(165,120
)
 
$
7,042

 
$
206,610

Adoption impact of ASC 606

 

 

 

 

 

 
910

 

 
910

Issuance of common stock upon exercise of stock options
25,815

 

 

 

 
162

 

 

 

 
162

Issuance of common stock for BDL settlement
309,916

 

 

 

 
2,340

 

 

 

 
2,340

Issuance of common stock for Scilex settlement
1,381,346

 

 

 

 
13,744

 

 

 

 
13,744

Issuance of common stock for public placement and investments, net
7,786,743

 
1

 

 

 
58,272

 

 

 

 
58,273

Issuance of common stock for Virttu settlement
1,795,011

 

 

 

 
11,308

 

 

 

 
11,308

Issuance of common stock related to conversion of notes payable
22,038,565

 
2

 

 

 
49,998

 

 

 

 
50,000

Beneficial conversion feature recorded on convertible notes

 

 

 

 
12,006

 

 

 

 
12,006

Warrants issued in connection with convertible notes

 

 

 

 
9,646

 

 

 

 
9,646

Stock-based compensation

 

 

 

 
2,939

 

 

 
(29
)
 
2,910

Foreign currency translation adjustment

 

 

 

 

 
(89
)
 

 

 
(89
)
Net loss

 

 

 

 

 

 
(106,436
)
 
(1,919
)
 
(108,355
)
Balance, June 30, 2018
116,240,963

 
$
12

 
7,568,182

 
$
(49,464
)
 
$
574,316

 
$
153

 
$
(270,646
)
 
$
5,094

 
$
259,465

 
Three Months Ended June 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock
 
Treasury Stock
 
Additional
Paid-in Capital
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Accumulated
Deficit
 
Noncontrolling
Interest
 
 
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
Total
Balance, March 31, 2018
91,028,089

 
$
10

 
7,568,182

 
$
(49,464
)
 
$
480,691

 
$
352

 
$
(196,782
)
 
$
6,068

 
$
240,875

Issuance of common stock upon exercise of stock options
1,725

 

 

 

 
7

 

 

 

 
7

Issuance of common stock for public placement and investments, net
1,377,573

 

 

 

 
9,315

 

 

 

 
9,315

Issuance of common stock for Virttu settlement
1,795,011

 

 

 

 
11,308

 

 

 

 
11,308

Issuance of common stock related to conversion of notes payable
22,038,565

 
2

 

 

 
49,998

 

 

 

 
50,000

Beneficial conversion feature recorded on convertible notes

 

 

 

 
12,006

 

 

 

 
12,006

Warrants issued in connection with convertible notes

 

 

 

 
9,646

 

 

 

 
9,646

Stock-based compensation

 

 

 

 
1,345

 

 

 
(29
)
 
1,316

Foreign currency translation adjustment

 

 

 

 

 
(199
)
 

 

 
(199
)
Net loss

 

 

 

 

 

 
(73,864
)
 
(945
)
 
(74,809
)
Balance, June 30, 2018
116,240,963

 
$
12

 
7,568,182

 
$
(49,464
)
 
$
574,316

 
$
153

 
$
(270,646
)
 
$
5,094

 
$
259,465



 
See accompanying notes to unaudited consolidated financial statements

5



SORRENTO THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands; unaudited)
 
Six Months Ended June 30,
Operating activities
2019
 
2018
Net loss
$
(218,374
)
 
$
(108,355
)
Adjustments to reconcile net loss to net cash used for operating activities:
 

 
 

Depreciation and amortization
5,934

 
3,931

Non-cash operating lease cost
2,217

 

Non-cash interest expense
11,268

 
44,272

Semnur-related IPR&D
75,301

 

Amortization of debt issuance costs
1,073

 
515

Gain on trading securities
(18
)
 
118

Stock-based compensation
4,963

 
2,910

Loss on derivative liabilities
25,092

 

Loss on equity method investments
2,471

 
3,027

Loss on contingent liabilities and acquisition consideration payable
66

 
13,663

Deferred tax provision
(493
)
 
(2,253
)
Changes in operating assets and liabilities, excluding effect of acquisitions:
 

 
 

Grants and other receivables
(5,952
)
 
7

Accrued payroll
2,264

 
2,187

Prepaid expenses and other
(4,528
)
 
1,403

Accounts payable
5,655

 
(326
)
Deferred revenue
(435
)
 
(2,115
)
Other
(98
)
 

Acquisition consideration payable for Scilex

 
(2,020
)
Accrued expenses and other liabilities
2,451

 
(3,049
)
Net cash used in operating activities
(91,143
)
 
(46,085
)
Investing activities
 

 
 

Purchases of property and equipment
(7,488
)
 
(2,812
)
     Purchase of assets related to Semnur, net of cash acquired
(17,040
)
 

Net cash used in investing activities
(24,528
)
 
(2,812
)
Financing activities
 

 
 

Proceeds from Early Conditional Loan, net of issuance costs
18,858

 

Proceeds from bridge loan for Scilex regulatory milestone

 
20,000

Repayment of bridge loan for Scilex regulatory milestone

 
(20,000
)
Proceeds from loan agreement

 
1,586

Short-term loan repayment
(740
)
 

Scilex consideration for regulatory milestone

 
(22,466
)
Payment on Scilex Notes
(918
)
 

Proceeds from issuance of common stock, net

 
58,273

Proceeds from issuance of convertible notes

 
37,849

Proceeds from exercise of stock options
1,206

 
162

Net cash provided by financing activities
18,406

 
75,404

Net change in cash, cash equivalents and restricted cash
(97,265
)
 
26,507

Net effect of exchange rate changes on cash
62

 
(152
)
Cash, cash equivalents and restricted cash at beginning of period
213,330

 
20,429

Cash, cash equivalents and restricted cash at end of period
$
116,127

 
$
46,784


6



Supplemental disclosures:
 

 
 

Cash paid during the period for:
 

 
 

Income taxes
$
13

 
$
15

Interest paid
$
6,178

 
$
1,128

Supplemental disclosures of non-cash investing and financing activities:
 

 
 

Semnur acquisition consideration paid in equity
$
55,000

 
$

Semnur acquisition costs incurred but not paid
$
601


$

BDL non-cash consideration
$

 
$
2,340

Property and equipment costs incurred but not paid
$
2,671

 
$
391

     Scilex non-cash consideration for regulatory milestone
$

 
$
13,744

     Conversion of convertible notes
$

 
$
50,000

Reconciliation of cash, cash equivalents and restricted cash within the Company’s consolidated balance sheets:
 
 
 
Cash and cash equivalents
61,385

 
46,784

Restricted cash
54,742

 

Cash, cash equivalents, and restricted cash
$
116,127

 
$
46,784

 See accompanying notes to unaudited consolidated financial statements

7



SORRENTO THERAPEUTICS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2019
 
1.