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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 September 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 valueSRNEThe 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 October 22, 2019 was 141,871,384.



Sorrento Therapeutics, Inc.
Form 10-Q for the Quarter Ended September 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)
ASSETSSeptember 30,
2019
December 31,
2018
Current assets:  
Cash and cash equivalents$34,649  $158,738  
Restricted cash9,592  9,592  
Marketable securities94  297  
Accounts receivables, net11,560  3,833  
Inventory4,335  2,898  
Income tax receivable216  526  
Prepaid expenses and other7,122  3,680  
Total current assets67,568  179,564  
Property and equipment, net30,338  24,384  
Operating lease right-of-use assets47,799  —  
Intangibles, net64,299  66,283  
Goodwill38,298  38,298  
Cost method investments237,008  237,008  
Equity method investments25,240  27,980  
Restricted cash45,150  45,000  
Other, net5,175  5,570  
Total assets$560,875  $624,087  
LIABILITIES AND STOCKHOLDERS’ EQUITY  
Current liabilities:  
Accounts payable$26,750  $13,817  
Accrued payroll and related benefits14,665  10,236  
Accrued expenses18,478  13,403  
Current portion of deferred revenue3,613  2,703  
Acquisition consideration payable11,312  11,312  
Current portion of derivative liabilities9,000    
Current portion of debt25,877  10,150  
Current portion of operating lease liabilities3,018  —  
Total current liabilities112,713  61,621  
Long-term debt, net of discount234,370  223,136  
Deferred tax liabilities, net8,634  9,416  
Deferred revenue114,783  116,274  
Derivative liabilities29,500    
Operating lease liabilities53,378  —  
Deferred rent and other828  6,140  
Total liabilities$554,206  $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
    
1


Common stock, $0.0001 par value 750,000,000 shares authorized and 131,001,293 and 122,280,092 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively
13  13  
Additional paid-in capital692,473  626,658  
Accumulated other comprehensive (loss) income(129) 15  
Accumulated deficit(596,998) (367,750) 
Treasury stock, 7,568,182 shares at cost at September 30, 2019, and December 31, 2018
(49,464) (49,464) 
Total Sorrento Therapeutics, Inc. stockholders’ equity
45,895  209,472  
Noncontrolling interests(39,226) (1,972) 
Total equity6,669  207,500  
Total liabilities and stockholders’ equity
$560,875  $624,087  
See accompanying notes to unaudited consolidated financial statements
2


SORRENTO THERAPEUTICS, INC.  
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except for per share amounts; unaudited)
 Three Months Ended September 30,Nine Months Ended September 30,
 2019201820192018

Revenues:    
Net product revenues$3,810  $1,121  $11,868  $1,982  
Service revenues1,968  2,984  6,530  12,282  
        Total revenues5,778  4,105  18,398  14,264  
Operating costs and expenses:    
Cost of products sold2,839  662  3,868  663  
Cost of services2,387  1,515  6,947  4,052  
Research and development27,573  19,567  77,916  52,124  
Acquired in-process research and development  9,478  75,301  9,478  
Selling, general and administrative25,234  20,102  78,128  41,102  
Intangible amortization991  655  2,949  1,974  
Loss on contingent liabilities and acquisition consideration payable37  33  103  13,696  
Total operating costs and expenses59,061  52,012  245,212  123,089  
Loss from operations(53,283) (47,907) (226,814) (108,825) 
Loss on trading securities(221) (26) (203) (144) 
Loss on derivative liabilities(10,700)   (35,792)   
(Loss) gain on foreign currency exchange(521) 18  (619) (551) 
Interest expense(9,459) (2,684) (28,059) (48,744) 
Interest income182  219  1,021  229  
Loss before income tax(74,002) (50,380) (290,466) (158,035) 
Income tax benefit(221) (826) (782) (3,152) 
Loss on equity method investments(1,431) (900) (3,902) (3,926) 
Net loss(75,212) (50,454) (293,586) (158,809) 
Net loss attributable to noncontrolling interests(10,797) (3,126) (64,338) (5,045) 
Net loss attributable to Sorrento$(64,415) $(47,328) $(229,248) $(153,764) 
Net loss per share - basic per share attributable to Sorrento$(0.49) $(0.40) $(1.83) $(1.52) 
Net loss per share - diluted per share attributable to Sorrento$(0.50) $(0.40) $(2.00) $(1.52) 
Weighted-average shares used during period - basic per share attributable to Sorrento130,800  117,021  125,240  100,959  
Weighted-average shares used during period - diluted per share attributable to Sorrento140,445  117,021  132,265  100,959  
 
See accompanying notes to unaudited consolidated financial statements
3


SORRENTO THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands; unaudited)
 Three Months Ended September 30,Nine Months Ended September 30,
 2019201820192018
Net loss$(75,212) $(50,454) $(293,586) $(158,809) 
Other comprehensive gain (loss):    
Foreign currency translation adjustments(177) (74) (144) (163) 
Total other comprehensive loss(177) (74) (144) (163) 
Comprehensive loss(75,389) (50,528) (293,730) (158,972) 
Comprehensive loss attributable to noncontrolling interests(10,797) (3,126) (64,338) (5,045) 
Comprehensive loss attributable to Sorrento$(64,592) $(47,402) $(229,392) $(153,927) 
 
See accompanying notes to unaudited consolidated financial statements
4


SORRENTO THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except for share amounts; unaudited)
Nine Months Ended September 30, 2019
Common StockTreasury StockAdditional
Paid-in Capital
Accumulated
Other
Comprehensive
Income (Loss)
Accumulated
Deficit
Noncontrolling
Interest
 
 SharesAmountSharesAmountTotal
Balance, December 31, 2018122,280,092  $13  7,568,182  $(49,464) $626,658  $15  $(367,750) $(1,972) $207,500  
Issuance of common stock upon exercise of stock options158,699  —  —  —  289  —  —  —  289  
Issuance of common stock for public placement, net229,168  —  —  —  947  —  —  —  947  
Equity contribution related to Semnur acquisition—  —  —  —  27,991  —  —  26,600  54,591  
Stock-based compensation—  —  —  —  8,978  —  —  —  8,978  
Issuance of 2019 Warrants—  —  —  —  4,288  —  —  —  4,288  
2019 Public Offering of common stock and warrants, net of issuance costs8,333,334  —  —  —  23,322  —  —  —  23,322  
Adjustment to noncontrolling interest—  —  —  —  —  —  —  484  484  
Foreign currency translation adjustment—  —  —  —  —  (144) —  (144) 
Net loss—  —  —  —  —  —  (229,248) (64,338) (293,586) 
Balance, September 30, 2019131,001,293  $13  7,568,182  $(49,464) $692,473  $(129) $(596,998) $(39,226) $6,669  

Three Months Ended September 30, 2019
Common StockTreasury StockAdditional
Paid-in Capital
Accumulated
Other
Comprehensive
Income (Loss)
Accumulated
Deficit
Noncontrolling
Interest
 
 SharesAmountSharesAmountTotal
Balance, June 30, 2019122,645,334  $13  7,568,182  $(49,464) $665,515  $48  $(532,583) $(28,913) $54,616  
Issuance of common stock upon exercise of stock options22,625  —  —  —  30  —  —  —  30  
Equity contribution related to Semnur acquisition—  —  —  —  (409) —  —  —  (409) 
Stock-based compensation—  —  —  —  4,015  —  —  —  4,015  
Issuance of 2019 Warrants—  —  —  —  —  —  —  —    
2019 Public Offering of common stock and warrants, net of issuance costs8,333,334  —  —  —  23,322  —  —  —  23,322  
Adjustment to noncontrolling interest—  —  —  —  —  —  —  484  484  
Foreign currency translation adjustment—  —  —  —  —  (177) —  —  (177) 
Net loss—  —  —  —  —  —  (64,415) (10,797) (75,212) 
Balance, September 30, 2019131,001,293  $13  7,568,182  $(49,464) $692,473  $(129) $(596,998) $(39,226) $6,669  

5


Nine Months Ended September 30, 2018
 Common StockTreasury StockAdditional
Paid-in Capital
Accumulated
Other
Comprehensive
Income (Loss)
Accumulated
Deficit
Noncontrolling
Interest
 
 SharesAmountSharesAmountTotal
Balance, December 31, 201782,903,567  $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 options42,565  —  —  —  302  —  —  —  302  
Issuance of common stock for BDL settlement309,916  —  —  —  2,340  —  —  —  2,340  
Issuance of common stock for Scilex settlement1,381,346  —  —  —  13,744  —  —  —  13,744  
Issuance of common stock for public placement and investments, net10,396,489  2  —  —  71,475  —  —  —  71,477  
Issuance of common stock for Virttu settlement1,795,011  —  —  —  11,308  —  —  —  11,308  
Issuance of common stock related to conversion of notes payable22,038,565  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—  —  —  —  4,218  —  —  (29) 4,189  
Foreign currency translation adjustment—  —  —  —  —  (163) —  —  (163) 
Net loss—  —  —  —  —  —  (153,764) (5,045) (158,809) 
Balance, September 30, 2018118,867,459  $13  7,568,182  $(49,464) $588,938  $79  $(317,974) $1,968  $223,560  

Three M