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Sorrento Therapeutics, Inc. – After Court-Approved Purchaser Oramed Gets Cold Feet and Subsequent Emergency Mediation with Judge Isgur, Court Approves $145.25mn Sale of Scilex Stock to Junior DIP Lender (and Non-Debtor Affililiate) Scilex Holding Company

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September 12, 2023 – The Court hearing the Sorrento Therapeutics, Inc. cases issued an order: (i) approving the sale of the Debtors’ Scilex Stock to Junior DIP Lender Scilex Holding Company (“Purchaser” or “Scilex,” $145.25mn purchase price*) and (ii) conditionally vacating the earlier August 30th Oramed sale order [Docket No. 1316, with September 11th executed Non-Binding Term Sheet attached at Exhibit 1 to this order]. A related (emergency) sale motion is filed on September 11, 2023 [Docket No. 1267].

*The order notes as to elements of the consideration: “Pursuant to the Term Sheet and as more fully set forth therein, Purchaser has offered to purchase the Purchased Assets in exchange for, among other things, (i) $110 million, which may be paid in full in cash or, alternatively, satisfied by paying $10 million in cash (in accordance with the Term Sheet) and assuming $100 million of the Senior DIP Facility approved by the Court in the Stalking Horse Protections Order by means of the ‘Option 2’ DIP Assumption, as defined in and described by the Term Sheet; (ii) the assumption of certain of Sorrento’s unsecured claims in the approximate amount of $12.25 million, as described in the Term Sheet; and (iii) the Junior DIP Credit Bid, a credit bid, on a dollar-for-dollar basis, pursuant to section 363(k) of the Bankruptcy Code, in an aggregate approximate amount of $23 million in principal obligations owing by the Seller to the Purchaser as of the Closing Date under the Term Sheet, plus all unpaid principal, interest, fees, and costs (collectively, the ‘Credit Bid Amount’).”

On August 30th, the Court hearing the Debtors’ cases issued an order approving the sale of the Debtors’ Scilex Stock to replacement DIP lender and stalking horse Oramed Pharmaceuticals Inc. ("Oramed," with their then $105.0mn purchase pric, consisting of a $100.0mn credit bid of their DIP debt and $5.0mn in cash.

That suddenly changed in the ensuing days.

The Debtors' emergency motion to swap out buyers picks up the story: "As the Debtors were preparing to close the sale to Oramed, the Debtors learned that Oramed believed the necessary conditions to close the sale were not satisfied (which the Debtors disputed and continue to dispute). Following negotiations between the Debtors, Oramed, Scilex, the Unsecured Creditors’ Committee, and the Equity Committee, as well as mediation with the Honorable Marvin Isgur, the Debtors, Oramed, and Scilex agreed to (a) the Non-Binding Term Sheet, attached hereto as Exhibit 1 (the 'Scilex Term Sheet') (which the Unsecured Creditors’ Committee and the Equity Committee have signed as 'Consenting Parties') and (b) the Term Sheet for Senior Secured Note and Warrants and Related Matters, attached to the Scilex Term Sheet as Exhibit A (the 'Debt Term Sheet") (collectively, the 'Term Sheets')."

As to the terms embodied in those Term Sheets, the Debtors continued: "Subject to the more detailed provisions set forth in the Scilex Term Sheet and definitive documentation to be negotiated, the Scilex Term Sheet generally provides for, among other things:

  • Aggregate consideration consisting of: 
    • $110 million, to be paid as follows: (x) an advance payment of $5 million in cash to be paid within two business days after entry of the Order, (y) $100 million on the closing of the Sale (either payable in cash through Option 1 or pursuant to the Senior DIP Assumption through Option 2 (each as defined below)), and (z) $5 million in cash to be paid upon the closing of the Sale; plus
    • The assumption (by Scilex) of the obligations of Sorren to to Paul Hastings LLP for legal fees and expenses reflected in Paul Hastings LLP’s proof of claim #238 in the amount of approximately $12.25 million; plus
    • A credit bid of all amounts owed to Scilex under that certain Junior Secured, Super-Priority Debtor-in-Possession Loan and Security Agreement, dated as of July 28, 2023, between Scilex and the DIP Borrowers (the “Junior DIP Facility” and the “Junior DIP Credit Bid”).
  • The following timeline:
    • Finalization of definitive documentation: Prior to closing the Sale.
    • Closing of Senior DIP Assumption (if applicable): Immediately prior to closing the Sale.
    • Closing of Sale: September 19, 2023.
  • The Sale to be consummated through one of two options:
    • Option 1: Hudson Bay funds $115 million to Scilex in connection with the definitive documentation between Scilex and Hudson Bay at Docket No. 1239 (the “Hudson Bay Documents”); or
    • Option 2: If Hudson Bay fails to timely provide such commitment, Scilex will assume the Debtors’ obligations under the $100 million Senior DIP Facility, subject to the Term Sheets and the definitive documentation (the “Senior DIP Assumption”).4
  • The Oramed SPA to be conditionally terminated, effective upon closing the Sale to Scilex.
  • And the following releases:
    • Upon the closing of the Sale (under either Option 1 or Option 2), a mutual release between Oramed (on the one hand) and the Debtors and
      Scilex (on the other hand) in connection with all matters related to the Oramed SPA and these chapter 11 cases.
    • Additionally, if the Sale is consummated through Option 1, a mutual release between the Debtors and Scilex (and related parties) relating to the negotiation of the Sale or as a result of the Sale.
    • Additionally, if the Sale is consummated through Option 2, (i) a mutual release between Oramed (on the one hand) and the Debtors and Scilex (on the other hand) of all claims, other than Scilex’ obligations under the transaction documents and (ii) a mutual release between the Debtors and Scilex (and their related parties) relating to the negotiation of the Sale or as a result of the Sale."

Case Status

On February 13, 2023, Sorrento Therapeutics, Inc and one affiliated debtor (NASDAQ CM: SRNE; together “Sorrento Therapeutics” or the “Debtors”) filed for Chapter 11 protection noting estimated assets between $1.0bn and $10.0bn; and estimated liabilities between $100.0mn and $500.0mn. At filing, the San Diego-based Sorrento Therapeutics, “a clinical and commercial stage biopharmaceutical company developing new therapies to treat cancer, pain (non-opioid treatments), autoimmune disease and COVID-19,” noted the entrance of “enforceable judgments” ($50.0mn of a $175.0mn arbitration award enforceable immediately) in favor of the Nant Companies and “a short-term liquidity crunch” as the factors compelling their bankruptcy filings.

On March 30, 2023, the Court issued a final order authorizing the Debtors to access the $45.0mn balance, of what is in total $75.0mn of new money debtor-in-possession (“DIP”) financing being provided by JMB Capital Partners Lending, LLC. With a February 21st interim DIP order, the Debtors were given the authority to access a first $30.0mn tranche of the new money DIP.

On April 14, 2023, the Court issued an order approving proposed bidding procedures for the sale of substantially all of the Debtors’ assets as part of a “toggle Plan.”

On July 5, 2023, the Court issued an order authorizing the Debtors to access $21.6mn in new money, junior debtor-in-possession (“DIP”) financing, on an interim basis, being provided by non-debtor subsidiary Scilex Holding Company (“Scilex,” or the “Junior DIP Lender”). The request for further DIP funding comes as additional liquidity from the earlier approved $75.0mn [and now senior] DIP facility proved insufficient to carry the Debtors through what is a longer than expected stay in bankruptcy.  The Junior DIP Lender had a right of first refusal as to the provision of further DIP financing which it declined to exercise as to the Oramed DIP which it otherwise consented to.

On August 7, 2023, the Court issued a final order authorizing the Debtors to access $100.0mn of replacement, new money, debtor-in-possession (“DIP”) financing being provided by Oramed.

General Background

Petition Date Perspective

In an 8-K filed in respect of the Chapter 11 filings, the Debtors provide:  "Ongoing Litigation. …the Company had also been engaged in arbitration before the American Arbitration Association against NantCell and NANTibody relating to alleged breaches of the April 21, 2015 Exclusive License Agreement entered into between the Company and NantCell and the June 11, 2015 Exclusive License Agreement entered into between the Company and NANTibody (the NantCell/NANTibody Arbitration'').

On December 2, 2022, the arbitrator in the NantCell/NANTibody Arbitration issued an award granting contractual damages and pre-award interest in the amounts of $156,829,562 to NantCell and $16,681,521 to NANTibody, exclusive of post-award, prejudgment interest, which will accrue at 9% per annum (the “Nant Award”)….On February 7, 2023, 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."

The Debtors and Scilex Holding Company (Nasdaq: SCLX, “Scilex”), a majority-owned subsidiary of Sorrento Therapeutics, Inc. (Nasdaq: SRNE, “Sorrento”) issued a press release in connection with Sorrento's Chapter 11 filing.

Henry Ji, Ph.D., Chairman and Chief Executive Officer of Sorrento, commented: “Today, Sorrento Therapeutics, Inc. and its wholly-owned direct subsidiary, Scintilla Pharmaceuticals, Inc. (“Scintilla”), commenced voluntary proceedings under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Texas (the “Bankruptcy Court”). 

While Scilex is majority-owned by Sorrento, Scilex is not a debtor in Sorrento Therapeutics’ voluntary Chapter 11 filing. Scilex will continue to operate its business as usual.

As of its chapter 11 filing, Sorrento had over approximately $1 billion in assets, including a $125 million arbitration award against NantPharma, LLC for a dispute related to Sorrento’s sale of Cynviloq™. The company had approximately $235 million in liabilities as of its filing and faced a short-term liquidity crunch, due to insufficient cash or other short-term assets to satisfy certain obligations.   Included among those obligations was a $175 million arbitration award against Sorrento, which was reduced to enforceable judgments on February 7, 2023 in favor of NantCell, Inc. and Immunotherapy NANTibody LLC. While $125 million of those judgments was stayed for 70 days, $50 million was not stayed and could be enforced immediately.

Sorrento assessed that enforcement actions with respect to the $50 million unstayed portion of these judgments, such as attachment of Sorrento’s assets and bank accounts, could lead to significant business disruption. As a result, Sorrento sought chapter 11 relief to safeguard business operations and its ability to continue developing life-saving therapeutics, while protecting and maximizing value for stakeholders.”

Jaisim Shah, Chief Executive Officer and President of Scilex Holding Company, added: “Scilex is not a debtor in Sorrento’s chapter 11 filing and will continue to operate business as usual, with a focus on growing revenues, offering innovative, non-opioid pain management products and developing meaningfully differentiated programs that address significant unmet needs and lead to better health outcomes for the millions of acute and chronic pain patients.”

Goals of the Chapter 11 Filings

According to the Meghji Declaration (defined below): "While the Debtors and their advisors worked hard in the lead-up to this filing, they are still finalizing certain 'first-day motions,' which they intend to file as soon as possible within the next couple of days so that the Debtors can obtain authority to fund this week’s payroll by Thursday morning (February 16, 2023). Finally, the Debtors have started and will continue soliciting proposals for postpetition financing to provide additional funding for the remainder of these chapter 11 cases, so that Sorrento can pursue confirmation of a chapter 11 plan — which it fully intends to do. In the meantime, Sorrento is and will remain focused on maximizing value for the benefit of its estate and all stakeholders.

Given the valuable (but currently locked up and restricted (with exceptions and carveouts)) Scilex stock that STI owns, the Debtors are hopeful that — with the benefit of the breathing spell provided by the automatic stay and the opportunity to secure debtor-in-possession financing to address their short-term liquidity needs — they will be able to propose a plan of reorganization that pays off all creditors (including the Nant Companies) in full and reinstates equity."

Events Leading to the Chapter 11 Filing

In a declaration in support of the Chapter 11 filing (the “Meghji Declaration”), Mohsin Meghji, the Debtors’ chief restructuring officer, detailed the events leading to Sorrento Therapeutics' Chapter 11 filing. The Meghji Declaration provides: “Prior to commencing these chapter 11 cases, Sorrento had a healthy balance sheet but faced a short-term liquidity crunch, as it had insufficient cash or other short-term assets to satisfy certain obligations.

As detailed below, a $175 million arbitration award against Sorrento was recently reduced to enforceable judgments in favor of the Nant Companies. Sorrento feared that enforcement actions with respect to these judgements, such as attachment of Sorrento’s assets and bank accounts, was going to lead to significant business disruptions, including its ability to continue developing life-saving and cutting-edge drugs. As a result, Sorrento has sought chapter 11 relief to obtain some breathing room, protect its business, and seek to maximize value for stakeholders.”

Prepetition Indebtedness

The Debtors have historically financed themselves primarily through equity sold in “at the market offerings,” pursuant to various sales agreements, including the most recent agreement dated December 3, 2021, with Cantor Fitzgerald & Co., B. Riley Securities, Inc., and H.C. Wainwright & Co., LLC, in their capacities as sales agents (the “ATM Sales Agreement”). Under this ATM Sales Agreement, STI may issue and sell shares of its common stock by any method permitted by law deemed to be an “at the market offering” under the Securities Act of 1933. As of the Petition Date, STI has raised net proceeds of approximately $457.6 million (in the aggregate) through various sales under the ATM Sales Agreement.

In February 2022 and September 2022, STI entered into two bridge loans for $45 million and $41.6 million, respectively. Both bridge loans have been repaid in full and are no longer outstanding.

As of the Petition Date, the Debtors do not have any funded debt obligations but have approximately $235 million in general unsecured debt — primarily consisting of approximately $60 million in trade payables and approximately $175 million on account of the Nant Award, although only $50 million of that is presently due and owing (the remainder of the Nant Award has been stayed). 

About the Debtors

According to the Debtors: “Sorrento is a clinical and commercial stage biopharmaceutical company developing new therapies to treat cancer, pain (non-opioid treatments), autoimmune disease and COVID-19. Sorrento’s multimodal, multipronged approach to fighting cancer is made possible by its extensive immuno-oncology platforms, including key assets such as next-generation tyrosine kinase inhibitors (“TKIs”), fully human antibodies (“G-MAB™ library”), immuno-cellular therapies (“DAR-T™”), antibody-drug conjugates (“ADCs”), and oncolytic virus (“Seprehvec™”). Sorrento is also developing potential antiviral therapies and vaccines against coronaviruses, including STI-1558, COVISHIELD™ and COVIDROPS™, COVI-MSCTM; and diagnostic test solutions, including COVIMARK™.

Sorrento’s commitment to life-enhancing therapies for patients is also demonstrated by our effort to advance a TRPV1 agonist, non-opioid pain management small molecule, resiniferatoxin (“RTX”), and SP-102 (10 mg, dexamethasone sodium phosphate viscous gel) (SEMDEXA™), a novel, viscous gel formulation of a widely used corticosteroid for epidural injections to treat lumbosacral radicular pain, or sciatica, and to commercialize ZTlido® (lidocaine topical system) 1.8% for the treatment of postherpetic neuralgia (PHN). RTX has been cleared for a Phase II trial for intractable pain associated with cancer and a Phase II trial in osteoarthritis patients. Positive final results from the Phase III Pivotal Trial C.L.E.A.R. Program for SEMDEXA™, its novel, non-opioid product for the treatment of lumbosacral radicular pain (sciatica), were announced in March 2022. ZTlido® was approved by the FDA on February 28, 2018."

Corporate Structure Chart

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The post Sorrento Therapeutics, Inc. – After Court-Approved Purchaser Oramed Gets Cold Feet and Subsequent Emergency Mediation with Judge Isgur, Court Approves $145.25mn Sale of Scilex Stock to Junior DIP Lender (and Non-Debtor Affililiate) Scilex Holding Company appeared first on Daily Bankrupt Company Updates | Bankrupt Company News.


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