The Life Sciences Report: You must get a real feel for market sentiment when you're talking to institutional investors. Do you feel they have moved into more defensive positions? Are they moving out of healthcare, or up the food chain in market cap?
Ram Selvaraju: We have seen a significant rotation out of healthcare and, in particular, out of speculative, development-stage biotech. We have also seen a fair bit of attrition among larger-cap names in the space, and this is not limited to the specialty pharmaceuticals companies that have been at the heart of recent pricing controversies, such as Valeant Pharmaceuticals International Inc. (VRX:NYSE; VRX:TSX). Companies like Celgene Corp. (CELG:NASDAQ) and Gilead Sciences Inc. (GILD:NASDAQ) have gotten hit as well, primarily because investors believe if there are going to be broader debates over drug pricing, big biotechs that set high prices for their innovative products at introduction are going to get hit just as badly as guys in the spec pharma space that engage in what's called product flipping.
TLSR: Go ahead and explain product flipping.
RS: Product flipping is practiced by pharma execs who buy a company with products on the market and then jack up the prices of the products acquired. The acquirers of the products don't do anything to make the products better. They just jack up prices unilaterally because it's what the market can bear. This is obviously egregious behavior, but the fact is that regardless of whether you're engaged in price gouging or are actually in the business of launching a premium-priced innovator drug, investors are scared and are moving out of all of these companies.
TLSR: How long could this cycle last?
RS: I don't know how long this sentiment will last. I anticipate that if and when we get some clarity on where the pricing debate is going, or if the controversy dies down, we will see investors begin to rotate back into the space.
"Athersys Inc. is getting a $15M upfront cash payment as part of its agreement with Tokyo-based big pharma Healios."
Whether this constitutes taking up a defensive position is difficult to answer because healthcare itself is widely considered to be a defensive sector. It's noncyclical, people need drugs, and demand for healthcare products is thought to be largely price inelastic. I do know that because of these recent healthcare-specific concerns, investors have become markedly more reluctant to keep capital deployed in this space.
TLSR: We have seen a rather dramatic slide in valuations, and it seems to have hurt some companies with good prospects, as well as the nascent, preclinical-stage companies. Does that sum it up?
RS: Where we've seen the most damage by far has been in the small- and micro-cap space, where a significant percentage of stocks trade below cash or even at negligible enterprise value. This is even true in cases where companies have positive clinical data, and even if they have risk-mitigated drug development projects ongoing—and sometimes even in cases where companies are generating revenue and could potentially obtain profitability in the near term. From our perspective, there has been a flight to quality, but there has also been a rotation out of the sector at large.
TLSR: What will be the upshot of this kind of selloff? When small- or micro-cap companies need money to get their drug candidates into Phase 2 or Phase 3, will they have trouble raising the capital? Will they have to give away too many warrants with shares?
RS: Clearly, companies are no longer finding access to capital as easily as they could a year or two ago. People began calling the top in the biotech sector in mid-2015, and we saw investors start to exhibit reluctance to deploy capital into smaller companies along the same issuer-friendly lines as had been the case with the advent of at-the-market (ATM) issuances, registered direct secondary offerings pricing at relatively minor discounts and deals being done without warrant coverage.
For the remainder of this year, especially among more vulnerable firms, you are going to see a resurfacing of structured deals—private investments in publicly listed equities (PIPEs), warrant-laden transactions, registered direct offerings that include warrants—simply because the more speculative, smaller-cap companies will have to offer more significant inducements to get investors to commit capital. I don't think it is such a prohibitive environment—at least, not yet—that these companies can't get funding at all, but they are going to come out of this with their cap structures more compromised than would have been the case if the environment had stayed the same as it was in 2013 and 2014.
TLSR: You are very focused on milestones, which should be catalysts when they are successfully achieved. Your research notes detail these upcoming events. But I've noticed that investors are not as excited about milestones/catalysts these days. A press release announcing that the first patient has been dosed is a happy event for a biotech company, but it doesn't seem to get any attention from investors. Are investors jaded now to these minimalist-style milestones?
RS: Investors are much more sophisticated and demanding now. With very few exceptions, they are not interested in early-stage clinical milestones. They do want to see Phase 2 data. They do want to see Phase 3 data. They do want to see new drug application (NDA) submissions, and they want to see NDA acceptances. Of course, they want to see drug approvals and successful product launches as well. That's paramount.
But these days, we are even seeing exceptions to those rules. If investors think a company has a financing overhang, they're not going to react even if a company files an NDA for its first product, which under normal circumstances is a big milestone. Synergy Pharmaceuticals Inc. (SGYP:NASDAQ) filed an NDA on Friday, Jan. 29, and the stock hardly moved in response. In this current environment, even late-stage milestones are not having as much of an impact as they ought to.
TLSR: We recently saw a second, approved, inhaled insulin product rejected by a pharma partner. It happened back in fall 2007, and in early January 2016 we saw Sanofi SA (SNY:NYSE) return all rights to Afrezza back to MannKind Corp. (MNKD:NASDAQ). Who would imagine that patients would rather stick themselves than inhale a powdered insulin? We are not only seeing development milestones ignored, but also approved products that fail in the marketplace. The question is, how can investors protect themselves from these kinds of disappointments?
RS: Investors these days have to consider the possibility that even if a drug goes through the development and approval process successfully, it could still fail at the ultimate hurdle, which is commercial receptivity. If that happens, it doesn't matter whether you managed to get through all the previous hoops. It may not have been an investible thesis to begin with, and there may be no pot of gold at the end of the rainbow.
TLSR: Do you see this as a trend in the marketplace, where approved products fail?
RS: I don't know that I would call it a trend, but I could cite many, many examples of these kinds of failures: Fanapt (iloperidone) for management of schizophrenia; Zaltrap (ziv-aflibercept) for colorectal cancer; Qsymia (phentermine + topiramate) and Belviq (lorcaserin), both for weight loss; Stendra (avanafil) for erectile dysfunction. There are plenty of recent examples of drugs that were based on well-validated mechanisms and targeted big markets that failed utterly to make a commercial impact.
TLSR: What's the reasoning behind all of this?
RS: Well, I think it's clear that the failure of Afrezza is primarily due to safety concerns and issues associated with the labeling restrictions placed on the product by the FDA. I personally had always been negatively biased against Afrezza. My sense was that there is a fundamental opposition and resistance in the diabetes patient population to an inhaled insulin product, given the considerations of compromised lung function and long-term reduction in lung capacity. It's not that patients would rather stick themselves. I think patients would rather have an oral insulin, which is why we cover Oramed Pharmaceuticals Inc. (ORMP:NASDAQ).
"Whether companies are engaged in price gouging or are launching a premium-priced innovator drug, investors are scared and are moving out."
Oramed has Phase 2b data that will read out in April or May this year. It's a 180-subject, double-blind, placebo-controlled trial with ORMD-0801 (oral insulin formulation) in type 2 diabetic patients who are not adequately controlled with metformin. We anticipate that if those data are positive, Oramed will likely get significant corporate attention from bigger players in the diabetes space because it's widely understood that if you provide people with pill-based solutions in diabetes, such drugs are going to sell well. One of the fastest, best drug launches in history was that of Januvia (sitagliptin; Merck & Co. Inc. [MRK:NYSE]), which isn't even particularly effective relative to insulin, and you can't treat diabetes patients only with Januvia. Oramed's product gives effective nighttime glucose control, and in our view, that represents a meaningful advance in the therapy for diabetes.
TLSR: Stendra (Vivus Inc. [VVUS:NASDAQ]) is supposed to rapidly bring on an erection. That sounds like an investible theory. What is the issue here?
RS: Stendra has a faster onset for erectile dysfunction, but what Vivus failed to understand is that consumers don't care as much about rapidity of onset as the duration of the effect—how long it lasts. Men want the ability to get an erection over a period of several hours. They don't care whether the drug takes effect in 15 minutes versus 25 or 30 minutes, and exerts an effect for only half an hour. That's not the ideal product profile. Understanding the market is vital.
TLSR: What this discussion tells me is that investors should stay with oncology, no?
RS: I think so. But I would also say developers in oncology must achieve a high hurdle of innovation. There's going to be a high failure rate in oncology, not because the drugs don't work, but because clinical efficacy is no longer impressive enough. If you don't have a very high objective response rate; if you don't have a lot of complete responses; if you don't have a durable response, which is the case with ibrutinib (Imbruvica; AbbVie Inc. [ABBV:NYSE]), a Bruton's tyrosine kinase (BTK) inhibitor used in chronic lymphocytic leukemia that has successfully reduced cancer to a chronic condition for many patients, then you could suffer in the marketplace.
"When we get some clarity on where the pricing debate is going, we will see investors begin to rotate back into the space."
If we think about complete responses being the gold standard investible thesis, you're going to have a very hard time gaining investors' attention these days, even with the autologous chimeric antigen receptor T-cell (CAR-T) therapies being developed by Kite Pharma (KITE:NASDAQ) and Juno Therapeutics (JUNO:NASDAQ). A lot of drug development effort is being brought to bear within the domain of oncology, and clinical effectiveness has been evolving so fast in this area—in so many types of cancer—that it's getting harder and harder to obtain and then retain investors' attention.
TLSR: Most CAR-T development will be going after lymphomas and leukemias because they seem to respond more quickly to therapeutic intervention, though perhaps not durably. What do you think about the concept of investing in solid tumor therapeutics versus lymphoma and leukemia?
RS: In the solid tumor context, I think it is likely that targeted therapeutics will continue to be the mainstay of treatment for some time to come, and that includes monoclonal antibodies, armed antibodies, intracellularly active antibodies and, of course, the standard small molecule-based targeted therapeutics, such as kinase inhibitors.
There is still a lot of opportunity within the solid tumor space, and I have a significant degree of confidence in the possibility of leveraging CAR-T approaches in the solid tumor setting, as well as in hematologic cancers, whether it's autologous CAR-T, allogeneic CAR-T, or chimeric antigen receptor-tumor attacking natural killer cell-based (CAR-TNK, pronounced car-tank) therapy. I believe there is the potential to demonstrate the same kind of efficacy in solid tumor settings as has historically been the case in hematological malignancies.
TLSR: Ram, there's one other important issue with regard to market uptake of new therapies. What about pricing newly approved products that address unmet needs? Isn't that a concern for payers, and for patients?
RS: Yes. There has been a rapidly accelerating trend over the past 10 years for cancer drugs to be priced very expensively straight out of the gate, even if the efficacy from a survival-prolonging standpoint is only marginal. A study done by researchers at Memorial Sloan Kettering Cancer Center showed that if the current trend in cancer drug pricing were to continue uninterrupted, by 2035 we would effectively be paying for novel anticancer drugs at, on average, $100,000 per month per patient.
That's unsustainable. When you have many patients who have a lifetime cap of just over $1M from their private insurance plans, then a single novel anticancer drug could, within a single year, eat up that entire lifetime cap. The patient is left with no coverage at all.
We are getting closer to making cancer a chronic condition like HIV. The closer we get to rendering people cancer-free, the more people are going to say, "Well, if your drug doesn't have a durable response and keep me alive for a normal lifetime, then it doesn't deserve to reach the market." If it does, by some miracle, get to the market, it shouldn't be reimbursed and shouldn't be given to patients.
TLSR: Ram, shall we talk about some companies now?
RS: Sure. We recently initiated coverage on a company called Cynata Therapeutics Ltd. (CYP:ASX), which is an Australian-listed firm. We have a price target of AU$1/share on the stock, which is currently trading at roughly AU$0.35–0.36/share.
"Smaller-cap companies will have to offer more significant inducements to get investors to commit capital."
We believe this company is particularly interesting because, unlike other firms operating in the stem cell space, it is positioning itself as a manufacturing solution. It has developed a proprietary technology platform called Cymerus, which utilizes an inducible stem cell line. Because it's a stem cell line, you can effectively produce and proliferate as many cells as you want, ad infinitum. You can then differentiate these cells into mesenchymal stem cells (MSCs). So far, MSCs represent the only stem-cell category that has gotten market approval. You have an MSC solution belonging to Melbourne, Australia-based Mesoblast Ltd. (MESO:NASDAQ; MSB:ASE; MBLTY:OTCPK) called TEMCELL (remestemcel-L), which is currently approved in Canada, New Zealand and Japan. It has been under consideration in the U.S. for quite some time.
TLSR: MSCs are available for harvest from young, healthy individuals, and they can be propagated and expanded ex vivo for patients who need them. Why do you want to induce an allogeneic MSC? Is it to make them more embryonic-like, more immune-privileged?
RS: The concept is that by having a cell line, you have a product entirely amenable to regulatory quality control standards. Yes, there are ways to generate MSCs allogeneically, but we have yet to come across a company that has a cell line-based way to propagate them. Having a cell line means that all the batches are identical. It's a drug-like characteristic that is important in manufacturing and quality control. The MSC product is standard, and everything conforms to strict quality control standards. That makes the regulatory process much easier to navigate. We feel this is the principal advantage of using a stem cell line versus any of the existing methodologies.
In addition, you can only go so far with the traditional allogeneic approaches to expanding MSCs. With Cymerus, you have a theoretically unlimited capability to expand and provide an "off-the-shelf" therapy on a commercial scale.
Cynata has, in our view, the only truly sustainable production platform for MSCs. Thus, the company could conceivably be the manufacturing partner of choice for any company that wants to be in the MSC therapeutic space. Cynata is more risk-mitigated than the average stem cell company because it's not focused on doing clinical development and product development entirely on its own.
The company wants to validate its technology platform by generating additional clinical data, which it anticipates doing later this year. It also recently got authorization from the United Kingdom's Medicines & Healthcare Products Regulatory Agency (MHRA) to begin a Phase 1b study of its proprietary cells in graft-versus-host disease. But the company feels its value-added proposition is within the context of being a manufacturer for other companies focusing on the development of MSC-based therapeutics. It's the only company with a cell line capable of generating therapeutics at commercial scale.
TLSR: That sounds like a commodity-class company. How do you create a value-added, brand-style model out of this platform?
RS: I don't think we would necessarily agree that this is a commoditized business model. But it's a fair question. Usually, if you're a service provider, you play in a commoditized market. But from what we have seen so far in terms of precedent partnership transactions in this space, potential partners and collaborators would regard this as a commodity, and we believe they would pay accordingly.
"CAR-T has the potential to demonstrate the same kind of efficacy in solid tumor settings as has historically been the case in hematological malignancies."
These are not service agreements, where Cynata gets a modest mark-up on cost of goods and that's it. We would be looking at Cynata to do licensing transactions that involve significant upfront payments, regulatory milestone payments, and decent royalties on net sales of future MSC-based products that utilize the Cymerus manufacturing technology platform. The company could potentially strike agreements such as the one Athersys Inc. (ATHX:NASDAQ) has with Tokyo-based big pharma Healios KK (4593:TYO), which will develop Athersys' MultiStem (allogeneic multipotent adult progenitor cells) for ischemic stroke in Japan. The deal was announced in early January, and Athersys is getting a $15M upfront cash payment, with an option Healios can exercise for another cash payment of $10M. But there are also milestones that Athersys could garner during the development process, and they could add up to another $30M, as well as sales milestones of as much as $185M. Athersys will also get tiered royalties if the product is commercialized, including royalties for using the Athersys trademark.
This is just one example. Celgene has an investment in Mesoblast; Novartis AG (NVS:NYSE) has an investment in Gamida Cell Ltd. For Cynata, we are looking at upfront cash payments and milestone payments prior to commercialization, and double-digit royalties ranging anywhere from 10–20% on net sales of its products, which could potentially generate hundreds of millions of revenue each year.
TLSR: Cynata Therapeutics has an AU$30M market cap. Even if this technology is fabulous, which institutional investors can buy this stock to bid the shares up?
RS: There are always investors looking for value in the micro-cap space. If you are an institutional investor—a healthcare-focused hedge fund—it behooves you to have some exposure to the micro-cap domain because of the sheer scale of the alpha that can be generated, even upon the achievement of relatively modest milestones. If you have a company trading at a $20–30M market cap, like Cynata, and it inks a deal where the upfront payment is $5M and the total value of the transaction is over $100M, with all of the potential milestones involved, then the aggregate net present value of that transaction constitutes a 2–3x return. That's not the kind of magnitude of return you're going to see with a company that trades at a $200-300M market cap.
As I always say, it's easier statistically to find companies out there that will go from $20M to $200M valuations within 12 months than it is to find companies that go from $200M to $2 billion ($2B), or $2B to $20B. The percentage return in your portfolio is exactly the same, but the likelihood of being able to identify companies that achieve that kind of percentage return increases as you go down the cap levels.
TLSR: Can you go to the next name, please?
RS: We are covering CorMedix Inc. (CRMD:NYSE.MKT), with a Buy rating and price target of $6.50/share. It is a particularly interesting name because it is developing a next-generation anti-infective solution called Neutrolin (taurolidine + citrate + heparin) to prevent catheter-related bloodstream infections (CRBSIs) in patients undergoing hemodialysis.
The company has the FDA's qualified infectious disease product (QIDP) designation, which was enabled by the Generating Antibiotic Incentives Now (GAIN) Act that was signed into law by President Obama in mid-2012. In our view, the CorMedix solution embodies a characteristic that is absolutely critical in the world of novel anti-infective development, and that is the ability to evade resistance by microorganisms and bacteria. Effectively, the company is using a non-antibiotic compound with the main active ingredient taurolidine, which has been widely assessed as active against various infectious organisms. Taurolidine is not like an antibiotic, against which resistance will always evolve. We think this platform positions CorMedix particularly well going forward.
The company is developing taurolidine, in combination with citrate and heparin, to address the issue of catheter colonization by bacteria to form biofilms. You're looking at CRBSIs in patients in the hospital with catheters threaded into their arms or threaded via a central line so they can be fed nutrients, be given a chemotherapy drug, or undergo hemodialysis. The catheter can, inevitably really, become colonized by all kinds of nasty bugs. Using the taurolidine catheter lock solution allows the company to effectively eliminate the bacterial colonization of these catheters.
TLSR: Is the compound bacteriostatic, or is it specifically targeting the formation of biofilms?
RS: Taurolidine has been documented to prevent biofilm formation, which sets it apart from typical antibiotics, which are not effective against biofilms. This puts CorMedix and Neutrolin in a privileged position among anti-infective agents, because Neutrolin can be used broadly without fear that resistance will occur and render it useless.
In addition, because Neutrolin is focused specifically on the CRBSI domain, there is a clear hospital- and dialysis center-based setting for the product. We're not talking about a mass-market product with hundreds of nationwide reps needed in a marketing effort.
We should see interim data from the first of two Phase 3 trials with Neutrolin later this year. Obviously, if those data are positive, we believe CorMedix could obtain a very lucrative marketing partnership in the U.S., and would potentially be able to accelerate sales of Neutrolin in non-U.S. territories, particularly in Europe, where the compound is approved and marketed in certain countries.
TLSR: Your implied market cap is only about $230M, and I'm assuming that's a 12–18 month price target. As I look at Neutrolin, I'm thinking every intensive care unit (ICU) should be using it because nosocomial (hospital-acquired) infections are something institutions are focusing on. I'm also thinking that all the nephrology/dialysis centers should be using it. And there are other opportunities for taurolidine, such as prevention of urinary tract infections (UTIs) and associated catheter encrustation. Your implied market valuation seems very low considering the potential, and the fact that there is no other FDA-approved product like this on the market. Can you comment on that?
RS: I don't disagree with you. We have a relatively conservative viewpoint here, and the potential future upside may well be significantly greater than what we have projected.
We are, first of all, assuming market penetration only in the domain of CRBSIs—not in UTIs or any medical device or suture-related use of taurolidine. We are also not giving the company significant credit for the commercialization of Neutrolin outside of the U.S. We are only modeling sales in the areas of hemodialysis, ICU patients, patients on oncology drugs administered via intravenous drip, and patients receiving total parenteral nutrition. In addition, we are assuming a relatively modest market cap compared to the current valuations of other single-product companies in the anti-infective domain—those developing antibiotics against which resistance will inevitably occur.
TLSR: Do you have one more name?
RS: We're focusing on Sorrento Therapeutics Inc. (SRNE:NASDAQ). This is not a one-product company: It has various presences in multiple therapeutic areas on multiple technology fronts. But it is an oncology-focused company first and foremost.
"We are getting closer to making cancer a chronic condition like HIV."
We think there are multiple significant positive attributes to this company. The first is CEO and cofounder Henry Ji, someone we consider a visionary businessman with significant scientific acumen. Ji has built the company to focus on optimization of innovation. He has carefully established the company's presence in multiple areas, including the domains of monoclonal antibodies, where Sorrento has technology platforms enabling it to produce high-affinity monoclonal antibodies as well as favorable linkers that would allow generation of armed antibody modalities, as well as multispecific, bispecific and trispecific antibodies.
In addition, there are antibodies in the pipeline that can penetrate the cell and work on intracellular targets. Sorrento has an integrated antibody technology development platform that we think outstrips anything else currently present in the industry today.
The company also has a pipeline of Phase 3 assets of "bio-better" antibodies. This is important because it's not enough to have a biosimilar drug on the market. The European commercial experience with biosimilar drugs has been pretty negative, and has demonstrated that biosimilar agents usually get market share at the expense of very heavy price discounting, which effectively renders them almost prohibitive to produce. We think the only chance companies have in developing follow-on biologic products is to develop bio-betters—antibodies based on existing biologics that have some kind of advantage either on the safety front or the efficacy front.
The pipeline at Sorrento contains four bio-better candidates: a bio-better of Xolair (omalizumab) for asthma; a bio-better of Simulect (basiliximab), a transplant antirejection agent; a bio-better of Remicade (infliximab), to treat rheumatoid arthritis; and a bio-better of Erbitux (cetuximab), to treat certain types of solid tumors, notably head-and-neck cancer and colorectal cancer. We believe this is a very diversified portfolio and includes bio-betters of several products that have not faced significant biosimilar competitor development.
The aggregate annual sales of Sorrento's branded biologic products are very significant; it is on the order of several billion dollars every year. By sitting on this pipeline of bio-better drugs, which have all generated Phase 3 data outside the U.S., Sorrento has already more than justified its current market cap of ~$170M.
TLSR: Looking at Sorrento's pipeline, there's a group of cellular therapy assets as well, but they are earlier stage. Would you speak to that?
RS: Cell-based immunotherapy is the most exciting part of Sorrento's pipeline. The company is in a joint venture with NantKwest Inc. (NK:NASDAQ), which was originally known as Conkwest, and which is developing a natural killer (NK) cell line called NK-92 for use in cell-based immunotherapy.
Natural killer cells are different from those used as the basis for CAR-T immunotherapy. They have certain advantages. In particular, they are a cell line, so they represent a product that can be readily scaled up and can go through the necessary regulatory quality controls. The product is standardized, batch to batch.
Another advantage to NK cell scalability is that you can ensure supply for all patients who need it. With autologous CAR-T approaches, you don't have any guarantee that you'll be able to get enough cells out of the patient's immune system at any given time to prepare the next cycle of therapy.
One more advantage is that, with the furor over drug pricing and the significant spiraling of innovator cancer drug prices in particular, we anticipate a significant market need for a readily available, off-the-shelf, NK cell-based immunotherapy in the treatment of cancer.
One very important advantage to using NK cells versus CAR-T is that, so far, we have seen that an NK cell-based approach does not cause cytokine release syndrome (CRS), which is a potentially fatal side effect of autologous CAR-T therapy. There is currently no way to effectively predict which patients given an autologous CAR-T therapeutic may manifest CRS. That's a significant safety drawback to autologous CAR-T therapy.
The NK cell-based therapy platform is called CAR-TNK, and Sorrento owns 50% rights to it. Sorrento also is supplying the antibodies necessary to arm the TNKs. Furthermore, we note that Sorrento, unlike other companies in the space, has invested in the development of diagnostic modalities that would allow the company to track in real time what's called "antigenic drift" among tumor cells. Over time, cancer cells mutate to evade immune system attack, changing the antigens and proteins expressed on their cell surfaces to make them less easy to detect by immune cells. Sorrento has a diagnostic platform that tracks the ways cancer cell antigens evolve, and then designs antibodies against the new antigens as they appear. The CAR-Ts and CAR-TNKs recognize those new antigens and retain efficacy against the cancer cells even as they mutate.
TLSR: Ram, your $45/share price target implies a $1.7B market cap. Is this a 12–18 month target price?
RS: Yes. The company's enterprise value looks to be under $100M today. We believe that just the CAR-TNK component of Sorrento's valuation would more than justify a doubling, if not a tripling, of the current enterprise value. Then, if you add all of the other components, you could easily justify a target price in the $40–45/share range. Keep in mind that Sorrento owns 50% of the NantKwest CAR-TNK platform, and NantKwest currently trades at a market cap of roughly $800M. You can effectively argue that the 50% ownership of the CAR-TNK platform more than justifies Sorrento's current market cap, let alone enterprise value.
TLSR: It seems like a huge jump—$170M to $1.7B. If I'm an institutional investor, and I ask about that, what do you say?
RS: If you're thinking that this is an unprecedented or unrealistic valuation discrepancy, I would merely point out that companies like Kite and Juno, which are still relatively early stage, do not have any products on the market, and have real issues with regard to safety and scalability, trade at market caps of ~ $2B and $2.5B, respectively. From our perspective, these companies provide attractive valuation benchmarks for Sorrento. But we think Sorrento, of all the companies with a foothold in cell-based immunotherapy, is by far the most diversified, and arguably the most innovative.
TLSR: You mentioned the possibility of a cytokine storm with the autologous CAR T-cell approaches. If I'm an oncologist and have my choice of an agent that could cause severe and potentially fatal CRS and one that is safer, I know which I'd choose. This has to ultimately be a growth driver for Sorrento, doesn't it?
RS: I don't disagree with you there. I will stress that we don't yet have clinical data with armed CAR-TNKs, and so, for the moment, the autologous CAR-T developers have the upper hand. But I believe if we see data from the armed CAR-TNKs that are similar, or equivalent, in efficacy, meaning complete responses and patients into remission, then we are going to see the market signal its preference for allogeneic CAR-TNK-based approaches versus autologous CAR-T. We have to remember, though, that there are ways to generate allogeneic CAR-T-based cells as well.
I think what will wind up being the standard of care is an integration of all three—allogeneic CAR-T, allogeneic CAR-TNK and the ability to track antigenic drifts. For the moment, the only company we have seen that has a foothold in all three of those areas—and the ability to operate across all three modalities—is Sorrento Therapeutics.
TLSR: Thank you, Ram.
Raghuram "Ram" Selvaraju, Ph.D., is a managing director at Rodman & Renshaw, a unit of H.C. Wainwright, focused on healthcare research. He possesses over a decade's worth of experience in healthcare equity research, and has been ranked by StarMine for earnings accuracy as well as The Wall Street Journal's "Best On the Street" survey for his stock-picking performance. In addition, Selvaraju has appeared numerous times on Bloomberg, CNBC, Business News Network and BTV to comment on drug development trends, healthcare reform policy, and pharma and biotech M&A. Prior to joining Rodman & Renshaw, Selvaraju held senior research positions at MLV & Co., Aegis Capital, Hapoalim Securities USA and Rodman & Renshaw LLC. He earned a Ph.D. in molecular neuroscience and cellular immunology as well as a master's degree in molecular biology from the University of Geneva in Switzerland, and a master's degree in business administration from Cornell University.
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1) Dr. George S. Mack conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report and The Life Sciences Report, and provides services to Streetwise Reports as an independent contractor. He owns, or his family owns, shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of Streetwise Reports: Cynata Therapeutics Ltd., Athersys Inc. and CorMedix Inc. Sorrento Therapeutics Inc. is a banner sponsor of Streetwise Reports. Mesoblast Ltd. is not associated with Streetwise Reports. The companies mentioned in this interview were not involved in any aspect of the interview preparation or post-interview editing so the expert could speak independently about the sector. Streetwise Reports does not accept stock in exchange for its services.
3) Raghuram Selvaraju: I own, or my family owns, shares of the following companies mentioned in this interview: None. I personally am, or my family is, paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: H.C. Wainwright has received fees for investment banking services from Cynata Therapeutics Ltd. and Oramed Pharmaceuticals, and may seek to do business with companies mentioned in this report. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I determined and had final say over which companies would be included in the interview based on my research, understanding of the sector and interview theme. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
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