Sunday, May 19, 2024

Sorrento Stock Deal Emerges Days Before It Runs Out of Cash

(Bloomberg) — Sorrento Therapeutics Inc., which filed for bankruptcy in February after suffering shortseller attacks for prematurely saying it had developed a cure for Covid-19, received court approval to sell a major stake in its publicly traded subsidiary.

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The San Diego-based company is set to sell its shares of Scilex Holding Co. back to Scilex after a previous deal fell through last-minute, according to court papers. Under the agreement, Scilex will pay Sorrento $110 million for the shares, with $5 million to be paid in advance. Hudson Bay Capital Management plans to fund the deal.

Additionally, Scilex will cover around $12 million of legal fees that Sorrento owes law firm Paul Hastings. The deal is expected to close Sept. 19, according to court papers.

Scilex emerged as the successful bidder for the shares after a previous deal with Oramed Pharmaceuticals Inc. collapsed last month. Sorrento had considered suing in order to force the sale through, but was ultimately able to reach a deal with Scilex after mediation, the company’s chief restructuring officer, Mohsin Meghji, said in a hearing Tuesday.

“Our liquidity has been tight — is tight — and it was critical that we close the sale as quickly as possible,” Meghji said. As of Monday, the company had about $6.5 million in cash and was projected to run out of money the following week, he added.

The value of its Scilex shares has dropped precipitously since it first filed for bankruptcy. On the day of filing in February, the stock traded at a high of $9.50, bringing the total value of its stake to around $850 million. Seven months later, those shares have fallen 74% lower.

Sorrento was attacked by shortsellers in 2020 after its chief executive officer touted on Fox News that the firm had developed an antibody treatment “cure” for Covid-19. Famed shortseller Hindenburg Research was among the firms that targeted the company in a report.

The case is Sorrento Therapeutics Inc. et al., 23-90085, in the US Bankruptcy Court, Southern District of Texas (Houston).

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