Wildcat Capital Calls for Ouster of Sorrento's CEO, Accuses Firm of Squandering Assets and Destroying Shareholder Value
May 9, 2016
By Alex Keown, BioSpace.com Breaking News Staff
NEW YORK -- Wildcat Capital Management LLC, an activist investor which has a 6.5 percent stake in Sorrento Therapeutics , is calling for the termination of the pharma company’s chief executive officer, the halting of recently announced financing transactions and initiate a sale process of the company.
The investment firm made public a letter on May 6 that it sent to the board of directors outlining its grievances with management. Wildcat claims Henry Ji, the company’s CEO, and the rest of the management team have “engaged in egregious and improper self-dealing and are squandering the company's assets” and “destroyed” shareholder value. In its letter, Wildcat claims Sorrento leadership has no understanding of fiscal discipline. More egregiously, Wildcat claims Sorrento “repeatedly transferred assets” to subsidiaries it created and then granted stock options and other financial benefits from those new subsidiaries to Ji and other executives.
Sorrento stock fell more than 11 percent on Friday, to close at $5.80 per share. Shares of Sorrento stock have steadily declined since a peak price of $24.36 per share in July. In February, shares hit a low price of $4.5- per share.
San Diego-based Sorrento is an antibody-centric, clinical-stage biopharmaceutical company developing treatments for cancer, inflammation and autoimmune diseases. Sorrento's lead products are multiple late-stage biosimilar and biobetter antibodies, as well as clinical CAR-T therapies targeting solid tumors.
In its letter, Wildcat lays out in detail its complaints against the company leadership, saying the management team’s deal making caused the company to lose the ability to control the development and monetization of its scientific assets.
Additionally, Wildcat claims the Sorrento leadership has “repeatedly entered into transactions in which it has acquired scientific assets without the financial ability to either pay for those assets or further develop them to a stage where they can be monetized.” Wildcat was also highly critical of a financing deal that allowed an investor to acquire 45 percent of outstanding shares at a “near 52-week low.” Although not specifically named, Wildcat must have been referencing a private placement deal with South Korea-based Yuhan Corporation for 1.8 million shares of stock at $5.55 per share, a deal which netted Sorrento $10 million.
One of the licensing deals Wildcat criticized was an April 2015 deal with NantCell, LLC, a private company controlled by Dr. Patrick Soon-Shiong of NantKwest. According to the letter, Sorrento “licensed a number of antibodies, antibody drug conjugates, and CAR-TNK products” for $10 million in cash and a $100 million stake in NantCell.
“Apparently, the $100 million of illiquid stock was an insufficient investment for the company so it proceeded to invest the valuable cash it received by purchasing an additional $10 million of stock in NantCell. However, as noted in the company's most recent Form 10-K, the ownership interest in NantCell does not provide the Company with any control or the ability to exercise significant influence over NantCell so the monetization of these assets, and of the investment in NantCell, are subject completely to the actions of outside parties,” the letter said.
In addition to the demand for the termination of Ji, Wildcat also called for the appointment of three Wildcat representatives to the board to lead a special committee.
Sorrento has not publicly responded to the Wildcat letter.