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 March 31, 2020

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 April 24, 2020 was 209,690,497.

Sorrento Therapeutics, Inc.

Form 10-Q for the Quarter Ended March 31, 2020

Table of Contents

Part I	Financial Information	3
Item 1.	Consolidated Financial Statements (Unaudited)	3
	Consolidated Balance Sheets (Unaudited) as of March 31, 2020 and December 31, 2019	3
	Consolidated Statements of Operations (Unaudited) for the Three Months Ended March 31, 2020 and 2019	4
	Consolidated Statements of Comprehensive Loss (Unaudited) for the Three Months Ended March 31, 2020 and 2019	5
	Consolidated Statements of Stockholders’ Equity (Unaudited) for the Three Months Ended March 31, 2020 and 2019	6
	Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2020 and 2019	7
	Notes to Consolidated Financial Statements (Unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34
Item 4.	Controls and Procedures	34
Part II	Other Information	35
Item 1.	Legal Proceedings	35
Item 1A.	Risk Factors	36
Item 5.	Other Information	42
Item 6.	Exhibits	42
SIGNATURES		44

PART I. FINANCIAL INFORMATION

Item 1.Consolidated Financial Statements.

SORRENTO THERAPEUTICS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except for share amounts; unaudited)

ASSETS	March 31, 2020			December 31, 2019
Current assets:
Cash and cash equivalents	$	21,897		$	22,521
Restricted cash		—			13,098
Accounts receivables, net		10,023			14,454
Inventory		3,038			3,362
Prepaid expenses and other		14,674			14,153
Total current assets		49,632			67,588
Property and equipment, net		28,470			29,888
Operating lease right-of-use assets		46,329			46,384
Intangibles, net		62,316			63,308
Goodwill		38,298			38,298
Cost method investments		237,008			237,008
Equity method investments		24,676			25,233
Restricted cash		45,050			45,150
Other, net		4,774			4,775
Total assets	$	536,553		$	557,632
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	28,986		$	27,630
Accrued payroll and related benefits		15,507			15,914
Accrued expenses		14,241			18,728
Current portion of deferred revenue		3,777			3,643
Acquisition consideration payable		398			908
Current portion of derivative liabilities		7,280			8,800
Current portion of debt		16,585			36,261
Current portion of operating lease liabilities		3,374			3,322
Total current liabilities		90,148			115,206
Long-term debt, net of discount		182,958			199,088
Deferred tax liabilities, net		8,893			9,043
Deferred revenue		114,085			114,389
Derivative liabilities		36,600			35,000
Operating lease liabilities		52,094			52,111
Other long-term liabilities		549			39
Total liabilities	$	485,327		$	524,876
Commitments and contingencies (See Note 10)
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 204,566,004 and 167,798,120    shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively		23			18
Additional paid-in capital		875,712			788,122
Accumulated other comprehensive loss		(215	)		(270	)
Accumulated deficit		(725,013	)		(659,818	)
Treasury stock, 7,568,182 shares at cost at March 31, 2020, and December 31, 2019		(49,464	)		(49,464	)
Total Sorrento Therapeutics, Inc. stockholders’ equity		101,043			78,588
Noncontrolling interests		(49,817	)		(45,832	)
Total equity		51,226			32,756
Total liabilities and stockholders’ equity	$	536,553		$	557,632

See accompanying notes to unaudited consolidated financial statements

3

SORRENTO THERAPEUTICS, INC.  

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except for per share amounts; unaudited)

	Three Months Ended March 31,
	2020			2019
Revenues:
Net product revenues	$	5,248		$	3,359
Service revenues		2,473			2,784
Total revenues		7,721			6,143
Operating costs and expenses:
Cost of products sold		548			441
Cost of services		1,891			1,867
Research and development		21,154			25,616
Acquired in-process research and development		—			75,301
Selling, general and administrative		26,299			25,122
Intangible amortization		992			966
Total operating costs and expenses		50,884			129,313
Loss from operations		(43,163	)		(123,170	)
(Loss) gain on trading securities		(59	)		94
Loss on partial debt settlement		(23,645	)		—
Gain (loss) on derivative liabilities		4,920			(14,501	)
(Loss) gain on foreign currency exchange		(147	)		313
Interest expense		(6,825	)		(9,080	)
Interest income		19			534
Loss before income tax		(68,900	)		(145,810	)
Income tax benefit		(276	)		(178	)
Loss on equity method investments		(556	)		(897	)
Net loss		(69,180	)		(146,529	)
Net loss attributable to noncontrolling interests		(3,985	)		(38,458	)
Net loss attributable to Sorrento	$	(65,195	)	$	(108,071	)
Net loss per share - basic per share attributable to Sorrento	$	(0.36	)	$	(0.88	)
Net loss per share - diluted per share attributable to Sorrento	$	(0.36	)	$	(0.88	)
Weighted-average shares used during period - basic per share    attributable to Sorrento		182,609			122,281
Weighted-average shares used during period - diluted per share    attributable to Sorrento		182,609			122,281

See accompanying notes to unaudited consolidated financial statements

4

SORRENTO THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands; unaudited)

	Three Months Ended March 31,
	2020			2019
Net loss	$	(69,180	)	$	(146,529	)
Other comprehensive loss:
Foreign currency translation adjustments		55			85
Total other comprehensive loss		55			85
Comprehensive loss		(69,125	)		(146,444	)
Comprehensive loss attributable to noncontrolling interests		(3,985	)		(38,458	)
Comprehensive loss attributable to Sorrento	$	(65,140	)	$	(107,986	)

See accompanying notes to unaudited consolidated financial statements

5

SORRENTO THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except for share amounts; unaudited)

	Three Months Ended March 31, 2020
	Common Stock				Treasury Stock							Accumulated
	Shares		Amount		Shares		Amount			Additional Paid-in Capital		Other Comprehensive Income (Loss)			Accumulated Deficit			Noncontrolling Interest			Total
Balance, December 31, 2019		167,798,120	$	18		7,568,182	$	(49,464	)	$	788,122	$	(270	)	$	(659,818	)	$	(45,832	)	$	32,756
Exercise of stock options, net		49,193									99											99
Issuance of common stock upon exercise of    warrants		5,008,609		1		—		—			13,534		—			—			—			13,535
Issuance of common stock for public    placement, net		2,090,802		1		—		—			7,325		—			—			—			7,326
Stock-based compensation		—		—		—		—			3,682		—			—			—			3,682
Issuance of common stock from    Aspire Purchase Agreement		29,619,280		3		—		—			62,950		—			—			—			62,953
Foreign currency translation adjustment		—		—		—		—			—		55						—			55
Net loss		—		—		—		—			—		—			(65,195	)		(3,985	)		(69,180	)
Balance, March 31, 2020		204,566,004	$	23		7,568,182	$	(49,464	)	$	875,712	$	(215	)	$	(725,013	)	$	(49,817	)	$	51,226

	Three Months Ended March 31, 2019
	Common Stock				Treasury Stock							Accumulated
	Shares		Amount		Shares		Amount			Additional Paid-in Capital		Other Comprehensive Income (Loss)		Accumulated Deficit			Noncontrolling Interest			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		31,825		—		—		—			81		—		—			—			81
Equity contribution related to Semnur acquisition		—		—		—		—			28,400		—		—			26,600			55,000
Stock-based compensation		—		—		—		—			1,976		—		—			—			1,976
Foreign currency translation adjustment		—		—		—		—			—		85		—			—			85
Net loss		—		—		—		—			—		—		(108,071	)		(38,458	)		(146,529	)
Balance, March 31, 2019		122,311,917	$	13		7,568,182	$	(49,464	)	$	657,115	$	100	$	(475,821	)	$	(13,830	)	$	118,113

See accompanying notes to unaudited consolidated financial statements

6

SORRENTO THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands; unaudited)

	Three Months Ended March 31,
Operating activities	2020			2019
Net loss	$	(69,180	)	$	(146,529	)
Adjustments to reconcile net loss to net cash used for operating activities:
Depreciation and amortization		3,058			3,471
Non-cash operating lease cost		842			1,292
Non-cash interest expense and amortization of debt issuance costs		4,386			6,200
Acquired in-process research and development		—			75,301
Stock-based compensation		3,682			1,976
Loss on partial debt settlement		23,645			—
(Gain) Loss on derivative liabilities		(4,920	)		14,501
Loss on equity method investments		556			897
Deferred tax provision		(150	)		(186	)
Changes in operating assets and liabilities, excluding effect of acquisitions:
Accounts receivable		4,432			(3,575	)
Accrued payroll		(407	)		(76	)
Prepaid expenses, deposits and other assets		185			(2,677	)
Accounts payable		728			(3,439	)
Accrued expenses and other liabilities		(4,488	)		8,691
Deferred revenue		(169	)		(319	)
Other		(750	)		163
Net cash used for operating activities		(38,550	)		(44,309	)
Investing activities
Purchases of property and equipment		(21	)		(5,228	)
Purchase of assets related to Semnur, net of cash acquired		—			(17,040	)
Net cash used for investing activities		(21	)		(22,268	)
Financing activities
Proceeds from equity offerings, net of issuance costs		69,896			—
Proceeds from short-term debt		725			—
Proceeds from exercise of stock options and warrants		13,634