Sorrento Therapeutics files bankruptcy following legal disputes

By Sarah Lizee

Olympia, Wash., Feb. 13 – Sorrento Therapeutics, Inc. filed Chapter 11 bankruptcy on Monday in the U.S. Bankruptcy Court for the Southern District of Texas.

Sorrento had been engaged in arbitration against Dr. Patrick Soon-Shiong’s NantPharma, LLC relating to alleged breaches of a May 14, 2015 stock sale and purchase agreement entered into between the company and NantPharma related to the development of the cancer drug Cynviloq.

This is one of several pending actions filed by the company against Soon-Shiong and entities he controls, according to an 8-K filed Monday with the Securities and Exchange Commission.

In April 2019, Sorrento filed an action in the Los Angeles Superior Court derivatively on behalf of Immunotherapy NANTibody LLC against NantCell, Inc. and Soon-Shiong, among others, related to several breaches of a June 11, 2015 limited liability company agreement for NANTibody entered into between Sorrento and NantCell.

The suit alleges breaches of fiduciary duties and seeks a declaration that the assignment agreement entered into on July 2, 2017 between NantPharma and NANTibody is void and an equitable unwinding of the assignment agreement.

The suit calls for the restoration of $90.05 million to the NANTibody capital account, restoring Sorrento’s equity method investment in NANTibody to its invested amount as of June 30, 2017 of $40 million.

The parties are currently engaged in discovery in the derivative action, with a jury trial likely in 2023.

In 2020, Sorrento also filed a legal action against Soon-Shiong, asserting claims for fraudulent inducement and common law fraud alleging that he acquired Cynviloq for the purpose of halting its progression to the market.

The company had also been engaged in arbitration against NantCell and NANTibody relating to alleged breaches of exclusive license agreements.

On Dec. 2, the arbitrator in the NantCell/NANTibody arbitration issued an award granting contractual damages and pre-award interest in the amounts of $156.83 million to NantCell and $16.68 million to NANTibody, exclusive of post-award, prejudgment interest, which will accrue at 9% per annum.

On Dec. 20, the arbitrator in the Cynviloq arbitration issued an award granting contractual damages of $125 million to Sorrento, reflecting the value of lost milestone payments for the approval of Cynviloq for the treatment of breast and lung cancers.

On Feb. 7, the court confirmed the Nant award and issued a 70-day stay of enforcement of the judgment beyond $50 million.

“Following such confirmation, the company believed that NantCell and NANTibody, in an attempt to satisfy the unstayed $50 million portion of the Nant award, would imminently take steps to levy the company’s assets, which would cause significant disruption and harm to the company’s business, including its ability to continue developing life-saving and cutting-edge drugs,” Sorrento said in the 8-K.

In light of this, Sorrento made the Chapter 11 filing to protect its business and maximize value.

In its petition, the company listed 200 to 999 creditors, $1 billion to $10 billion in assets, and $100 million to $500 million in liabilities.

Its largest unsecured creditors are NantCell, based in Culver City, Calif., with a $156.83 million claim, NANTibody, based in Culver City, Calif., with a $16.68 million claim, Paul Hastings LLP, based in Los Angeles, with an $11.47 million claim, JB Pacific, Inc., based in San Diego, with a $4.49 million claim, Latham & Watkins LLP, based in Washington, with a $3.89 million claim, Aditus Partners, LLC, based in Edgewood, Ky., with a $2.8 million claim, and Mayo Clinic, based in Rochester, Minn., with a $2.25 million claim.

The company’s proposed counsel is Jackson Walker LLP. Its proposed financial adviser is M3 Partners.

The biopharmaceutical company is based in San Diego. Its Chapter 11 case number is 23-90085.

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