In an April 6 research note, Dawson James Securities Inc.'s Head Healthcare Research Analyst Jason K. Kolbert reported that Sorrento Therapeutics Inc. (SRNE:NASDAQ) announced that it entered into an agreement to acquire late-stage oncology company ACEA Therapeutics for $38M in stock.
Kolbert stated that the ACEA merger will give Sorrento access to (oral) Abivertinib. The highly versatile drug candidate has already undergone wide testing in several clinical trials including a completed non-small cell lung cancer (NSCLC) registrational/Phase 3 trial, a Phase 1 B-cell lymphoma study, Phase 2 studies of COVID-19 patients with ARDS and Phase 2 studies for hairy cell leukemia, systemic lupus erythematosus and prostate cancer.
By merging with ACEA, Sorrento will now gain access to ACEA's extensive proprietary library of greater than one million small molecule compounds that could be investigated and developed for a wide range of applications in treating B cell lymphomas, multiple sclerosis (MS), NSCLC, rheumatoid arthritis, systemic lupus and various viral infections.
The analyst commented that the prized asset in ACEA's portfolio is its small molecule tyrosine kinase inhibitor (TKI) called Abivertinib, which "selectively targets both a mutant form of the epidermal growth factor receptor (EGFR) and Bruton's tyrosine kinase (BTK)."
Abivertinib offers promise for treatment across several indications including lupus, prostate cancer and several B cell lymphomas. The report mentioned that a Phase 3 registrational trial evaluating Abivertinib in treating NSCLC has already been completed. In addition, the drug is also now being studied in Brazil and the U.S. in a Phase 2 study of COVID-19-induced respiratory compromised patients.
The analyst indicated that the ACEA drug pipeline includes another clinical candidate, AC0058, that is currently being evaluated in a Phase 1b trial for Lupus patients. According to the analyst's report, there may be some potential for AC0058 for use in treating MS or other autoimmune diseases.
Analyst Kolbert noted that that the acquisition of ACEA will provide additional benefits to Sorrento in that it will now have access to ACEA's state-of-the-art cGMP facility that includes 5 buildings across a 23-acre campus in Quzhou, China. The analyst advised that "this facility has successfully manufactured multiple batches of the active pharmaceutical ingredient (API) and final product in capsules for Abivertinib and AC0058 for clinical studies and currently has capacity to manufacture up to 5,000 kg/year of APIs and 50,000,000 capsules of final drug product." The analyst commented that in many aspects, ACEA reminds us of pharmaceutical firm BeiGene Ltd. (BGNE-NASDAQ), which as of today has a $32 billion market cap.
The Dawson James report did not specifically incorporate the ACEA purchase into its valuation model. The firm's estimates were based upon the assumption that Sorrento achieves success in developing COVI-SHIELD and RTX, a non-opioid pain medication. By applying a 50% probability and a 30% discount rate to an equally weighted average of its FCFF, EPS and sum-of-the-parts analysis forecast and factoring in the likelihood of a future capital raise, Dawson James calculated a $19.00 price target.
The analyst stated that Dawson James has a "Buy" rating for Sorrento Therapeutics. SRNE shares last closed for trading on April 6, 2021 at $7.86 per share.
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