LIFESCI ADVISORS

November 11, 2013

Sorrento Therapeutics, Inc.

Initiation of Coverage

LifeSci Investment Abstract

Andrew I. McDonald, Ph.D. (415) 205-0591 [email protected] Jerry Isaacson, Ph.D. [email protected] Robert Freeze George Dimopoulos, Ph.D.

Sorrento Therapeutics, Inc. (Sorrento, NASDAQ: SRNE) has an oncology drug candidate ready for registrational bioequivalence trials, a novel Phase I/II end-stage cancer pain drug, and is developing fully human antibodies, Antibody Drug Conjugates (ADCs), and Antibodyformulated Drug Conjugates (AfDCs) based on its GMAB® platform. Sorrento’s lead candidate is Cynviloq™, a nanoparticle paclitaxel formulation targeting non-small cell lung cancer and metastatic breast cancer. Sorrento is pursuing the 505(b)(2) approval pathway for CynviloqTM.

Key Points of Discussion Cynviloq™

(paclitaxel polymeric-micelle nanoparticle formulation) is a Third Generation Paclitaxel Therapy. Sorrento’s recent acquisition of IgDraSol gave them the rights to the proprietary, registration study-ready drug Cynviloq™ (paclitaxel polymeric micelle for injection) in the United States and the 28 EU member countries. Based on a recent End of Phase 2 (EOP2) FDA meeting, Sorrento will pursue the 505(b)(2) approval process for this candidate on the basis of a, bio-equivalence (BE) registration study with Abraxane® (albumin-paclitaxel). Cynviloq™ was in-licensed by Sorrento through an exclusive distribution and marketing license agreement with Samyang Biopharmaceutical Corporation, a South Korean conglomerate. Cynviloq™ is protected until 2028 by patents on the paclitaxel formulation, the chemical polymer, and the method of synthesis of the chemical polymer, which do not infringe on Abraxane’s primarily biologic polymer patents. Abraxane® is a human serum albumin (HSA)-bound formulation of paclitaxel marketed by Celgene. Distinct from Abraxane®, Cynviloq™ utilizes a proprietary, non-biologic, chemical polymeric-micelle nanoparticle technology to solubilize paclitaxel. Particle

LIFESCI ADVISORS Equity Research

Ticker

SRNE

Price

$8.75

Market Cap (M)

$186

EV (M)

$151

Shares Outstanding (M)

21.3

Avg. Daily Vol.

16,648

52-week Range:

$1.50-$22.50

Cash (M, pro forma)

$40.4

Net Cash/Share

$1.88

Debt (M)

$5.0

Annualized Cash Burn (M)

$15

Years of Cash Left

2.7

Short Interest (M)

NA

Short Interest (% of Float)

NA

FY Dec EPS:

2011A

2012A

2013A

Q1

($0.00)A

($0.00)A

($0.01)A

Q2

($0.00)A

($0.00)A

($0.35)A

Q3

($0.00)A

($0.00)A

NA

Q4

($0.00)A

($0.01)A

NA

FY

($0.01)A

($0.02)A

NA

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dissociation studies have shown that the highly unstable nanoparticles in both formulations rapidly disintegrate at physiologic concentrations, for example when the drugs are administered intravenously, to release its highly potent cytotoxic payload paclitaxel.

Cynviloq™ Possesses Enhanced Properties Compared to Abraxane®. Cynviloq™ is well differentiated from its closest competitor, Abraxane® through its superior chemical polymer-based, non-biologic formulation that provides convenience through ease of handling versus a biologic formulation and avoids safety issues such as prion/viral transmission, associated with HSA that is used for the Abraxane® formulation. Future clinical differentiation might also be achieved through strategic life cycle management such as label expansion in indications where Abraxane® is not approved and patient-tailored Cynviloq™ dosing using a proprietary Therapeutic Drug Monitoring (TDM) device in-licensed by the Company. Previous Trials Show Promising Results for Cynviloq. Cynviloq™ is approved and marketed by Samyang in South Korea where it is branded as Genexol-PM® for metastatic breast cancer (MBC), non-small cell lung cancer (NSCLC), and ovarian cancer. Cynviloq™ has been tested in over 1,200 patients in the U.S., Russia, and S. Korea in clinical trials in MBC, NSCLC, ovarian, pancreatic and bladder cancer where it has shown comparable clinical activity versus historical Abraxane® clinical data in these indications. Results from Phase I studies in Russia and S. Korea involving 80 patients established a higher MTD than Abraxane® and Taxol®. Phase II results in 259 patients suggested comparable efficacy to Abraxane® and superior efficacy to Taxol® or standard of care based on historic data. An open-label, Phase III MBC study in South Korea randomizing patients with recurrent or advanced MBC to Cynviloq™ 260mg/m2 every 3 weeks (q3w) versus Cremophor-paclitaxel (known in U.S. as Taxol®) given at the standard 175 mg/m 2 q3w dose showed statistically significant improvement in objective response rate (ORR) with Cynviloq™. The superior ORR to Cynviloq™ versus Taxol® is comparable with data from the pivotal registration studies submitted for Abraxane® that was the basis for its approval in the U. S. and in China for treatment of MBC. A Well Defined Cynviloq™ Regulatory Strategy With Accelerated Time to Market. Through the FDA 505(b)(2) application process, companies can obtain FDA approval of new drug applications (NDAs) for reformulations of drugs with the same active pharmaceutical ingredient (API) by relying, in part, on the agency’s findings for a previously approved drug, thereby avoiding costly and time consuming clinical trials. This process applies because paclitaxel is the API for approved Abraxane® and Taxol® formulations. According to Section 505(b)(2) guidelines, an NDA approval can be obtained for a new drug without conducting the full complement of safety and efficacy trials and without a “right of reference” from the original applicant, which in the case of Abraxane® is Celgene. In cases where different formulations of the same API are found to be bioequivalent, a straightforward bioequivalence trial comparing the

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pharmacokinetic parameters (C max and AUC) of both drugs may be sufficient to gain FDA approval. Phase III Trials in US Expected to Begin in First Half of 2014. Sorrento plans to pursue the accelerated and simplified 505(b)(2) NDA submission process on the basis of bioequivalence (BE) versus Abraxane® to get to the market as quickly as possible. Following the EOP2 meeting in July, the FDA concurred with Sorrento’s proposed 505(b)(2) regulatory strategy. The FDA further concurred that demonstration of bioequivalence in a single study in MBC patients comparing Cynviloq™ and Abraxane® both given at 260 mg/m2 and infused over 30 minutes might be sufficient for approval in both MBC and NSCLC. The endpoints of the BE study will be AUC and Cmax. Notably, no additional safety or efficacy trials are required. Sorrento plans to randomize 60-100 patients with MBC for treatments with Abraxane® or Cynviloq™ during the first cycle. In the next cycle, patients will cross-over to receive the other treatment modality. PK parameters (AUC and Cmax) will be measured using the patients as their own controls to establish bioequivalence. The relatively small study patient population and short treatment period mean that the study can be completed in a short timeframe; approximately a one year study period from recruitment to completion and at an estimated cost of less than $5 million. The NDA filing under 505(b)(2) is expected by the first half of 2015 with potential approval estimated in the first half of 2016. If the Cynviloq™ and Abraxane® are shown to be bioequivalent and approval is granted, Cynviloq™ will receive the same label indications as Abraxane®, including MBC and NSCLC, plus all future indications for which Abraxane® may be approved, such as advanced pancreatic cancer (upon expiration of Abraxane’s marketing exclusivity). Sorrento will also be in active discussion with the FDA on the appropriate registrational pathways for the other indications for which Abraxane® is not approved, such as ovarian cancer and bladder cancer. In addition, Sorrento is actively seeking a commercial partner to help develop Cynviloq™ outside of the United States and in indications, which will require full Phase III trials, such as ovarian, pancreatic or bladder cancer. Although Abraxane® (plus gemcitabine) has 7 year orphan drug exclusivity for pancreatic cancer, Sorrento will be able to develop Cynviloq™ for pancreatic cancer by developing new combination regimens. Significant Commercial Opportunity. In 2010, Celgene paid at least $2.9 billion, and potentially up to $4 billion, to acquire Abraxis Bioscience and Abraxane®. Last year, Celgene reported Abraxane® sales of $427 million, predominantly in MBC. In October, 2012, the FDA also granted Abraxane® approval for NSCLC, an indication with a significantly larger patient population than MBC. In September of this year, the FDA also granted approval for Abraxane® in combination with gemcitabine for the treatment of locally advanced or metastatic pancreatic cancer as first line therapy. A recently concluded large, global, randomized Phase III study (MPACT trial) of Abraxane® in combination with gemcitabine demonstrated significantly improved ORR, progression-free survival (PFS), and a nearly 2-month overall survival (OS) benefit versus that with gemcitabine monotherapy in patients with advanced pancreatic cancer. This survival benefit

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is significant considering that the last FDA approved drug for treating pancreatic cancer, Roche/Genentech’s and Astellas’ Tarceva (erlotinib) added less than 2 weeks survival to gemcitabine treatment. Due to the aggressiveness of the disease and with very limited treatment options available, Abraxane® plus gemcitabine is expected to become the new standard of therapy as first line therapy in patients with advanced pancreatic cancer. Analysts estimate peak year sales potential for Abraxane® of approximately $1.7 billion, and CynviloqTM may be able to capture some of that market. With approval as the only other branded competitor to Abraxane®, a 30% patient share conversion has the potential to generate at least $500 million for Cynviloq™ in the United States in these indications. Label expansion in indications where Abraxane® is not approved, such as bladder cancer or ovarian cancer, and launch in the EU countries should bring additional sales revenues as well. With an estimated 15,000 deaths due to bladder cancer in the US alone each year, the bladder cancer indication could be a significant market for Cynviloq™ since there are currently no FDA approved drugs for 2nd line treatment of patients with advanced urothelial carcinoma refractory to platinum-based chemotherapy. Future of Personalized Therapy with Therapeutic Drug Monitoring. Sorrento recently secured an exclusive license from Biomiga Diagnostics for worldwide rights to a proprietary Therapeutic Drug Monitoring (TDM) device that will allow clinicians and patients to measure the blood level of paclitaxel on successive days to determine whether the optimal therapeutic dose of paclitaxel administered has been achieved for each individual patient. With the TDM device, patients will benefit from personalized dosing, which will assure the best treatment outcome possible – maximum efficacy with minimal toxicity. TDM has the potential to substantially enhance the commercial viability and competitiveness of Cynviloq™ versus other chemotherapy agents. Acquisition of Clinical Stage Chronic Pain Program Expands Pipeline. Sorrento obtained resiniferatoxin (RTX), a development candidate for the treatment of intractable pain associated with end stage cancer and other severe pain indications, through the acquisition of the privately-held company Sherrington Pharmaceuticals, Inc. in October. RTX is a novel, non-opiate, selective, and ultra-potent inhibitor of Transient Receptor Potential Vanilloid Type 1 (TRPV1) receptor, the most important member of the TRPV family. TRPV1 channels are found throughout the central nervous system (CNS) and various organs; however, expression on neural structures is at 30-fold higher levels than in non-nociceptive tissues. Afferent nerves expressing TRPV1 receptors are polymodal nociceptive neurons with unmyelinated or thinly myelinated axonal fibers. Most importantly, the afferent neurons expressing TRPV1 receptors are not involved in muscle control or the normal feelings of touch and pain sensation. In certain painful or inflammatory conditions, the receptors can become up-regulated and “hyper-stimulated,” to the point where the nerves transmit undesired pain signals, even when no painful stimuli are present.

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Scientists at the NIH discovered that, when RTX is administered directly into or near the dorsal root ganglion or other afferent nerve ganglia, such as via intrathecal (IT) administration into the cerebrospinal fluid (CSF), RTX stimulates a calcium influx, which initiates a rapid functional depolarization followed by programmed cell death (“apoptosis”) of the neurons. Functionally, this means that RTX is able to permanently reduce pain by “severing” the connection between the hyperstimulated source of the pain and the CNS, where the unwanted pathologic pain signal is perceived. The side effects of RTX are significantly reduced because of its potency and high selectivity for specific afferent nerves. Notably, it does not kill myelinated nerves responsible for transmission of normal pain sensations, skeletal or smooth muscle control or cognitive function. RTX is administered directly to the spinal cord of patients via an intrathecal injection by an anesthesiologist, neurologist or interventional radiologist. This is an out-patient procedure where the patient is under mild anesthesia, propovol, for approximately one hour. Cancer Pain - A Significant Unmet Need with High Cost Implications: Each year in the U.S. almost 600,000 people die from cancer, 80 percent of those patients experience moderate to severe pain, lasting over 90 days. The cost of keeping these patients comfortable adds significantly to the overall cost of cancer treatment. Patient’s primary options are non-steroidal anti-inflammatory drugs (NSAIDs) or opiates that are delivered in a wide variety of options. These treatments have marginal efficacy until doses are achieved that so severely impact the quality of life, that patients require significant supportive care. Over 345 million doses of morphine to treat breakthrough pain were sold in the U.S. in 2005 alone. High dose opiates and NSAIDs are given as a baseline treatment and then patients with breakthrough pain receive additional medication. The cost for treating breakthrough cancer pain using rapidly acting fentanyl preparations (e.g. Actiq® or Fentora®) can reach over $5,000 per patient over a 90 day period. Implantable intrathecal morphine pumps for 24hour drug delivery cost over $30,000 to implant in addition to the cost of the medicine and related maintenance. Furthermore, opiates are highly addictive-regulatory requirements around scheduled compounds is huge cost to healthcare systems. Patients develop resistance to opiates, requiring everincreasing dosing, leading to ever-increasing side effects. RTX has the potential of eliminating pain without the side effects associated with opiates. Treatment will require only a single injection of RTX, which will address significant unmet medical needs by producing long lasting, analgesic coverage of refractory mixed chronic pain syndromes. Once approved, RTX has the potential to become the new standard of care for terminal cancer patients suffering from intractable pain. As the human safety experience with RTX grows, Sorrento can expand the breadth of indications covered under the IT approach and greatly increase the ultimate market potential. Additionally, formulation and delivery options such as intra-ganglionic (IG) application will allow RTX to be used in even more indications, further expanding the market potential. RTX is currently in an investigator-sponsored Phase I/II clinical trial at the National Institutes of Health (NIH) under a Cooperative Research and Development Agreement (CRADA). Data from

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the first six patients enrolled in the study has been published indicating substantial analgesia and no significant adverse events. In the trial, terminal cancer patients received RTX via intrathecal injection into the lumbar cistern, which allows for treatment of a large portion of the body with a single injection.1 Potential Veterinary Application for RTX: Of the extensive published preclinical data, some of the most impressive are the relief of pain and reduction in analgesic requirements seen after the IT administration of RTX for the treatment of pain associated with spontaneous malignant bone tumors in companion dogs. In a study by Brown et al. at the University of Pennsylvania, the majority of the dogs treated with a single IT injection of RTX responded to treatment as demonstrated by owner-observed pain relief, lasting for the lifetime of the animal. 2 After treatment, the dogs remained fully alert, with no signs of sedation, as would typically be seen during treatment with opiates. They exhibited none of the other side effects seen with opiates or high dose NSAIDs such as constipation or nausea, and displayed their normal personality according to the animal’s owner. Further, they were shown to still sense normal pain, and had no indications of a loss of muscle function. It is important to note that canine osteosarcomas share many physiological and molecular biological characteristics with human osteosarcomas. The existing data on osteosarcoma in dogs may allow Sorrento to file for conditional marketing approval with the Center for Veterinary Medicine (“CVM”) division of the FDA under the minor use/minor species (MUMS) act, legislation which is similar to an Orphan Product Designation for human medicines. Under a MUMS designation, drugs with a reasonable expectation of efficacy in a minor use, such as osteosarcomas, can be marketed immediately. The sponsor company then has four years, while it is marketing the product, to complete the registration trial and any additional work required by CVM for full approval. The veterinary market for RTX presents a low cost and low risk opportunity to quickly develop a product for a manageable and profitable market. Sorrento’s G-MAB® Library Technology may be Superior to Traditional Technologies. Sorrento’s core technology the G-MAB® library is one of the most diverse, fully-human antibody libraries to date. As demonstrated through preclinical data, Sorrento has already identified a number of very promising drug candidates for oncology, inflammation and infectious disease. Previous technologies aimed at the generation of monoclonal antibody libraries have only been able to achieve a combined heavy and light chain potential diversity of up to 1011. However, using a proprietary amplification method, Sorrento was able to generate an astonishing combined potential Iadarolo, M. J. & Gonnella, G.L., 2013. Resiniferatoxin for Pain Treatment: An Interventional Approach to Personalized Pain Medicine. The Open Pain Journal, 6 (Suppl 1: M10), pp95-107. 2 Brown, D.C. et al., 2005. Physiologic and antinociceptive effects of intrathecal resiniferatoxin in a canine bone cancer model. Anesthesiology, 103, pp1052-90. 1

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library diversity of approximately 2.1 x 1016. The G-MAB® technology allows for the generation of fully-human sequences and avoids the challenges with non-fully human sequences and their respective potential developmental hurdles. It also allows for quick in vitro screening of large numbers of antigens, including accelerated monoclonal antibody discovery of less than two months and the selection of drug candidates in less than twelve months. Preclinical Data Show Strong Potential for G-MAB®. The G-MAB® library technology has been used to identify monoclonal antibodies as potential drug candidates aimed at a number of important oncological, inflammation and infectious disease targets. In preclinical data from Sorrento its mAbs targeting PD-1 receptors on the surface of CD4+ T-cells and PD-L1 receptors on tumor cells demonstrated superior results compared to relevant controls. Also Sorrento’s antibodies against tumor-overexpressed c-Met receptors, tumor microenvironment-associated VEGFR2, the difficultto-target C-C chemokine receptor 2 (CCR2; a G Protein-coupled Receptor [GPCR]) as well as antibody interference with bacterial quorum all demonstrated outstanding results compared to relevant controls. G-MAB® Library for Developing ADCs and Antibody Formulated Drug Conjugates. Sorrento is pursuing a two-pronged ADC approach, namely utilizing non-proprietary drugs and linkers as well as pioneering new ADC technologies, which will further empower the G-MAB® library. In proof-of-concept studies, Sorrento’s ADCs have demonstrated significant in vitro activity against tumor antigen-expression cells. In contrast to antibody drug conjugates (ADCs), which require prodrug and linker synthesis and tumor cell internalization, antibody formulated drug conjugates (AfDC) allow for multiple drug payload combinations to antigen-heterogenous cancer cells, targeting of multiple tumor cells at once by drug release at the tumor site, and use of approved oncolytics as drug load. The G-MAB® technology is the foundation for the identification of targeting warheads for better delivery and efficacy for current and future cancer therapies. Sorrento Announced Alliance for Antibody and Vaccine Development Targeting Obesity. On November 5, 2013, Sorrento announced a development collaboration with The Scripps Research Institute (TSRI) based in La Jolla, CA. TSRI has issued Sorrento an exclusive, worldwide license for the technologies based on ghrelin signaling inhibition for the prevention and treatment of metabolic disorders, particularly obesity. Researchers at TSRI have produced preclinical data demonstrating the ability of ghrelin peptide analogs to affect reduced food intake and weight loss. Sorrento sees the collaboration as an opportunity to leverage the G-MAB platform technology for the discovery of fully human antibodies able to shut down the ghrelin-mediated appetite process. The program has the potential to produce antibodies or vaccines targeting obesity. The continuing rise in obesity across the world illustrates the need for a mutli-faceted research approach, and this collaboration has may produce effective therapies to help patients with weight control.

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Financial Discussion YoY Financials. At the end of 2012, Sorrento had cash and cash equivalents of $5.1 million compared to $3.5 million at the end of 2011. Also, revenues were $584,000, up from $529,000 at the end of the previous year. Operating loss for 2012 was $4.9 million, up from the previous year’s loss of $3.2 million. This increase in operating loss can be explained by the Company’s YoY increase in research and development investment, including $3.8 million in 2012 and $2.6 million in 2011. At the end of 2012, Sorrento had no short or long term debt, and therefore was fully financed by equity. Proceeds from the exercise of stock options and sale of common stock in private placement transactions were approximately $6.0 million at the end of 2012, up from almost $2.0 million at the end of the previous year. This accounts for a significant part of the Company’s YoY increase in cash and cash equivalents. While the issuance of equity or debt may be necessary, Sorrento will also seek funding through collaborative agreements with pharmaceutical or biotechnology company partnerships. See fundraising activities below. QoQ Financials. At the end of the second quarter 2013, Sorrento had cash and cash equivalents of $5.8 million. The operating loss for the quarter was $4.7 million, up from $0.9 million from the second quarter 2012. The increase in operating loss is attributed to higher costs associated with the initial development services agreement with IgDraSol, and additional expenses such as legal, consulting, and compliance costs. Fundraising Activities. On October 25, 2013, Sorrento announced the pricing of a common stock offering for 4.77 million shares (including the full exercise of the over-allotment option granted to the underwriters) at $7.25 per share. The gross proceeds from this financing are expected to be approximately $34.6 million. In addition, in October 2013 the Company announced an additional raise of $1.85 million at pari passu pricing as well as the entering into of a venture debt facility for $5 million in September 2013. The cash will be used to fund the BE trial for Cynviloq™, research and development activities, general corporate purposes, and potential acquisitions of other companies, products, or technologies. Reverse Stock Split and Uplisting to NASDAQ. Sorrento completed a 1-for-25 reverse stock split in July 2013, setting the stage for the NASDAQ uplisting. The reverse split significantly decreased the number of issued and outstanding common stock shares, from approximately 336.4 million to approximately 13.5 million. Sorrento shares began trading on the NASDAQ Capital Market under the symbol “SRNE” on October 25, 2013. The uplisting will benefit the Company through increased ability to secure financing from the US capital markets, increased liquidity of shares, and enhanced marketability of shares.

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Expected Upcoming Milestones    

4Q 2013 – Initiate IND-enabling activities for two G-MAB/ADC programs. 1Q 2014 – Initiate BE registration trial for use of Cynviloq™ for NSCLC/MBC. 1H 2014 – Submit corporate sponsored IND application for RTX. 2H 2014 – Initiate additional trials for RTX in patients with terminal cancer pain.

Company Description Sorrento Therapeutics, Inc. is a development stage biopharmaceutical company focused on discovering and commercializing new and more effective first-in-class and/or best-in-class therapies for treating cancer, inflammation and infectious diseases. The Company initially incorporated in 2006 as San Diego Antibody Company, and reincorporated in 2009 as Sorrento Therapeutics, Inc., as part of a reverse-merger that allowed the Company to go public. In March 2013, Sorrento entered into an option agreement to acquire IgDraSol, Inc., giving the Company access to the lead clinical compound, Cynviloq™, a new chemical delivery system for paclitaxel aimed at the treatment of various solid tumor cancers. Cynviloq™ is about to enter the abbreviated 505(b)(2) bioequivalence registration process as a biosimilar to Celgene’s Abraxane® for metastatic breast cancer and non-small cell lung cancer. Through the Igdrasol acquisition, Sorrento also acquired TOCOSOL® paclitaxel, a vitamin E-based emulsion formulation. The TOCOSOL® technology will be the basis for Sorrento to develop next generation Antibody-formulated Drug Conjugates (AfDC) by linking monoclonal antibodies with a cytotoxic payload such as paclitaxel encapsulated in the TOCOSOL® formulation. In October 2013, Sorrento acquired Sherrington Pharmaceuticals, Inc. in exchange for 200,000 shares of its common stock. Sherrington is a privately-held company focused on the development of a chronic pain treatment for end-stage cancer patients and other severe pain indications (aka: RTX). RTX is a development candidate for the treatment of intractable pain associated with end stage cancer and other severe pain indications In addition to Cynviloq™ and RTX, Sorrento has a platform technology, known as G-MAB®, which may be superior to traditional technologies for discovering and generating large and diverse libraries of fully-human antibodies for the development of therapeutic and anti-infective treatments. This technology gives Sorrento freedom to operate in the antibody space without stacking royalties for future products. The Company has exclusive, worldwide license agreements with The Scripps Research Institute for the development of monoclonal antibodies aimed at (a) blocking quorum sensing for the treatment of Staphylococcus aureus infections and methicillin-resistant Staphylococcus aureus, or MRSA and (b) neutralizing the appetite-stimulating hormone ghrelin for prevention and/or treatment of obesity. Sorrento also has an exclusive, worldwide license agreement with

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OPKO Health, Inc. for the development of antibodies for ophthalmological indications. In addition, Sorrento is looking to develop an antibody formulated drug conjugate system using the G-MAB® technology or biosimilars for creating a more effective drug delivery system for cancer therapies. Most of these indications are currently in preclinical development; however, Sorrento is looking for collaborative agreements with biopharmaceutical companies to fund manufacturing and clinical trials for their antibody therapies.

Cynviloq™: A Treatment for Metastatic Breast Cancer, Non-Small Cell Lung Cancer, and other Solid Tumors Cynviloq™, a micellar, diblock copolymeric paclitaxel formulation, is Sorrento’s lead development candidate. It is currently approved and marketed in several countries for metastatic breast cancer (MBC), non-small cell lung cancer (NSCLC), and ovarian cancer (OC) under the trade name Genexol-PM. While Taxol® (paclitaxel) is a well-known and effective chemotherapy, it is also difficult to tolerate at high doses because of the solvent, Cremophor-EL (poly-oxyethylated castor oil), that is used to solubilize the paclitaxel in its formulation. Therefore, different strategies are used to deliver higher, more effective, and safer doses of this drug to cancer patients. Celgene’s Abraxane®, which consists of paclitaxel bound to human serum albumin, is one approach to solving this problem. Cynviloq™ may represent the next step in the advancement of paclitaxel therapy. Because Cynviloq™ is considered to be a new formulation of paclitaxel and is not a new chemical entity it is not subject to the normal approval process with the FDA. Instead, Sorrento can apply for approval of this drug under the 505(b)(2) bioequivalence regulations, which allows for the use of data generated outside of the specific clinical program, from other approved formulations, to support the application. Sorrento expects to be able to file an NDA for approval of Cynviloq™ with the FDA in 2016. Cynviloq™ consists of paclitaxel encapsulated within a poly-lactide and polyethylene glycol diblock copolymer micelle. A micelle is an aggregate of surfactant molecules, having a hydrophobic and hydrophilic end, in which the hydrophilic ‘heads’ form a sphere with the hydrophobic ‘tails’ in the center. The hydrophobic center is able to encapsulate hydrophobic drugs such as paclitaxel. The drawing in Figure 1 shows the synthesis of the micelle, formed by the aggregation of copolymers, poly (D,L-Lactide) and poly (ethylene glycol), which encapsulate paclitaxel molecules (represented by orange spheres).

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Figure 1: Schematic of Cynviloq™ Formulation

Source: Company Presentation The micelle formulation of paclitaxel increases the patient maximum tolerated dose to greater than 300 mg/m2, surpassing Bristol Myers Squib’s Taxol® (175 mg/m2) and Celgene’s Abraxane® (260 mg/m2) maximum tolerated doses. Compared to Cynviloq™, the formulations of Taxol® and Abraxane® have disadvantages linked to patient safety, preparation, and storage. For instance, Taxol®, formulated with poly-oxyethylated castor oil is connected with potentially life threatening anaphylactic shock. Abraxane®, formulated with donor-derived human serum albumin (HSA), poses challenges with preparation and storage, such as difficulty in reconstitution before treatment and the requirement of a specific ambient storage temperature. In contrast, Cynviloq™, is easy to handle and prepare, with no special storage requirements and a toxicity profile that is consistent with high dose paclitaxel therapy Paclitaxel Mechanism of Action: Inhibition of Cell Division Paclitaxel is a diterpene organic compound that is a member of the taxane family of anti-neoplastic agents. Taxanes function by impairing microtubule dynamics during cell division. The structure of paclitaxel is shown in Figure 2.

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Figure 2: Chemical Structure of Paclitaxel

Source: LifeSci Advisors During cell division, microtubules act as ‘conveyer belts’ responsible for moving chromosomes and other cellular components. Globular proteins, termed α- and β-tubulin, polymerize to form microtubules, which generally consist of 13 linear protofilaments assembled around a hollow core, as shown in Figure 3. Figure 3: Structure of a Microtubule

Source: Cooper, GM, et al., 2000 Microtubules can undergo rapid cycles of disassembly or assembly, caused by tubulin dimers depolymerizing or polymerizing. The rate of hydrolysis of guanosine triphosphate (GTP) bound to beta tubulin during or shortly after polymerization determines the growth of a microtubule. If new GTP-bound tubulin molecules are added more rapidly than GTP is hydrolyzed, a GTP cap is retained at the growing end of the molecule. However, if GTP is hydrolyzed more rapidly than new GTP-tubulin bound molecules are added, the presence of guanosine diphosphate (GDP)-bound LIFESCI ADVISORS Equity Research

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tubulin at the end of the microtubule weakens the binding affinity of tubulin, thereby, favoring depolymerization and causing the dynamic behavior of microtubules. 3 The active moiety of Cynviloq™, paclitaxel, arrests cell division in cancer cells by binding specifically to beta tubulin subunits of microtubules and is believed to inhibit their disassembly, resulting in the restriction of microtubule movement.4

Metastatic Breast Cancer The two leading indications for the development of Cynviloq™ guanosine triphosphate are metastatic breast cancer and non-small cell lung cancer. This section gives background on MBC, followed by the background for NSCLC. Types of Breast Cancer5 Breast cancer is a malignant growth which begins in the tissues of the breast and can potentially spread to other parts of the body by way of the lymphatic system. The most common type of breast cancer is ductal carcinoma, which accounts for approximately 90% of all breast cancer cases. This type of cancer grows inside the milk-producing ducts of the breast and initially may not be detectable by physical examinations. It is not considered to be malignant in the early stages, but if not caught early it can lead to invasiveness. Accounting for about 8% of breast cancer diagnoses, lobular carcinoma is considered to be the second most common type of cancer of the breast. At first, precancerous cells may appear in the hollow glands, also called lobules, where milk accumulates in the breast. Women with this condition have a greater than average risk of developing breast cancer during their lifetimes. Detection of these atypical cells in the lobules may pose challenges with clinical breast examinations and mammograms and is often reserved for biopsies. Once diagnosed with abnormal lobular cells, the patient may be given the recommendation to undergo a lumpectomy to eliminate the risk of developing breast cancer, contrary to the past, when they were advised to have a mastectomy. Current thought considers a mastectomy unwarranted, since most women with this pathology may never lead to breast cancer. Less common forms of breast cancer are inflammatory breast cancer (IBC), which is rare but aggressive, and Paget’s disease (PD). The origins of IBC progression is in the skin of the breast, causing the breast to appear red and swollen and giving the appearance of inflammation. IBC grows in a sheet-like pattern within the skin of the breast, as opposed to the common lump shaped morphology found in the other types. PD is a carcinoma affecting the nipple and areola area of the breast, and symptoms include nipple redness, scaling, tingling, and pain. Although the progression Cooper, GM., et al., 2000. The cytoskeleton and cell movement, Chapter 11. The Cell: A Molecular Approach Jordan, MA., et al., 2004. Microtubules as a target for anticancer drugs. Nature Reviews Cancer, 4, pp 253-65 5 http://www.cancer.gov/cancertopics/pdq/treatment/breast/Patient/page1 [Accessed May 17, 2013] 3 4

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of PD is not clearly defined, it is believed that precancerous/cancerous cells from the lobules may infiltrate the tissue of the nipple and areola. Causes and Risks Associated with Breast Cancer While specific causes remain unknown, over the years researchers have been able to elucidate some of the risks linked to the development of breast cancer. Most of these risks are similar to those related to all cancers, and, according the Mayo Clinic, they include:           

Women have much higher occurrences of breast cancer versus men. Women older than 55 years of age have a higher risk than younger women. Family history increases risks of family members developing breast cancer. Inheriting or getting mutations in genes, such as BRCA 1 and BRCA 2, adds substantial risk. Receiving radiation treatments to the chest in younger years may increase risk. Fat tissue can stimulate estrogen production, which may fuel the initiation of breast cancer. Periods before age 12 increases risk. Menopause after age 55 increases risk. A woman having her first child after age 35 increases risk. Taking hormone replacement therapy medication that combines estrogen and progesterone can substantially increase the risk. Drinking more than one alcohol drink per day increases risk of breast cancer.

Pathogenesis of Metastatic Breast Cancer The female breast is composed of milk-producing glands, called lobules and milk-storage spaces, referred to as ducts, which are connected to the nipple. Cancer can arise in cells that make up the tissues lining the lobules and ducts. During metastasis, cancer cells from either the lobules or ducts can spread to other parts of the breast and may eventually use the lymph vessels as conduits to other areas of the body. Breast cancer is very complex, encompassing a wide variety of triggers. For cancer cells to emerge, cell cycle regulation is adversely disrupted, which promote uncontrollable proliferation with the loss of phenotypic expression. In a general sense, mutations in oncogenes and tumor suppressor genes have been found to be key contributors in cell cycle deregulation and uncontrollable proliferation. DNA mutations, either inherited or caused by carcinogens, can create oncogenes from protooncogenes and dampen the effects of tumor suppressor proteins, resulting in cancer. In breast cancer cells, there are a multitude of genes that have been discovered to be involved with transformation and metastasis. Figure 4 lists some of the important genes associated with breast cancer. LIFESCI ADVISORS Equity Research

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Figure 4: Well Known Breast Cancer Genes Gene BRCA 1 BRCA 2 BRCA 3 HER2/neu

Type Tumor suppressor Tumor suppressor Tumor suppressor Proto-oncogene

Transformation Yes Yes Yes Yes

Metastasis No No No Yes

Source: LifeSci Advisors Detection of mutations in BRCA 1-3 (Breast Cancer 1-3 tumor suppressor genes) is used for diagnostic purposes to determine predisposition to breast cancer. Women who are positive for mutated copies of BRCA have a high probability of developing breast cancer later in life and account for the majority of the inherited type.6 Moreover, over expression of HER2/neu, a tyrosine kinase receptor with extensive homology to the epidermal growth factor receptor, has been strongly associated with aggressive metastasis and is often used as a prognostic factor for breast cancer. A gene mutation, found in 1 and 5 breast cancers, promotes excessive levels of HER2/neu, which causes the rapid growth of cancer cells and can lead to aggressive metastasis. 7 The early steps of metastasis entail degradation of the extracellular matrix (ECM) and subsequent invasion of the surrounding tissue by cancer cells. The breakdown of the ECM is achieved by an enzyme system, consisting of matrix metalloproteinases (MMPs) and the urokinase-type plasminogen activator enzymes (u-PA) and its inhibitor, plasminogen activator inhibitor-1 (PAI-1). u-PA converts plasminogen to plasmin, which degrades EMC components and activates metalloproteinases and growth factors.8 According to the Tumor Marker Utility Grading System, a system which assesses value of tumor markers, UPA/PAI-1 are the only markers that have true prognostic use for metastatic breast cancer but have not yet been utilized as a prognostic test for the aggressive type of breast cancer. Diagnosis and Classification of Breast Cancer In addition to diagnostic markers for categorizing breast cancer, referenced in the preceding section, physical examination of the breast, mammograms and other imaging techniques, and biopsies are the main tools of diagnosing breast cancer and classifying it. The stage of breast cancer is based on the following characteristics:

Peshkin, B. et al., 2001. BRCA 1 and 2 testing: Complex themes in result interpretation. Journal of Clinical Oncology. 19(9): pp., 2555-2565. 7 http://www.mayoclinic.com/health/breast-cancer/AN00495 [Acccessed May 19, 2013] 8 Umeda, T. et al., 1997. Cellular localization of urokinase-type plasminogen activator, its inhibitors and their mRNAs in breast cancer tissues. Journal of Pathology. 183: pp., 388-397. 6

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Size of the tumor. Whether the tumor is invasive or noninvasive. Whether the cancer has spread to the lymph nodes. Whether the cancer has spread to other parts of body (metastasis).

Two classification systems can be used in evaluating the stage of breast cancer based on the above criteria. One is the TNM staging system, which takes into consideration three characteristics of breast cancer tumors, which are size of the tumor (T), lymph node involvement (N), and metastasis (M). The other is a numeric system that classifies cancers on a scale of Stage 0 to Stage IV. The TNM system allows researchers and clinicians to furnish more details about cancer size and behavior, but the numerical system is more often used. The TNM system is described in the table in Figure 5, and the numerical system is described in the table in Figure 6. Figure 5: Description of the TNM Staging System Size of Tumor (T) TX T0 Tis

The tumor can't be measured or found. No evidence of the primary tumor. The cancer is "in situ" – it has not started growing into healthy breast tissue. These numbers are based on the size of the tumor and the extent to which T1, T2, T3, T4 it has grown into neighboring breast tissue. The higher the T number, the larger the tumor and/or the more it may have grown into the breast tissue. Lymph Node Involvement (N) NX Nearby lymph nodes can't be measured or found. N0 Nearby lymph nodes do not contain cancer. These numbers are based on the number of lymph nodes involved and N1, N2, N3 how much cancer is found in them. The higher the N number, the greater the extent of the lymph node involvement is evident. Metastasis (M) MX Metastasis can't be measured or found. M0 No distant metastasis. M1 Distant metastasis is present. Source: American Cancer Society

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Figure 6: Numerical Staging System for Breast Cancer Stage Number Stage 0 Stage I Stage II Stage III

Stage IV

Description No evidence of cancer cells or non-cancerous abnormal cells migrating to other parts of the breast in which they started Cancer cells infiltrated other parts of breast or surrounding tissues (ie lymph nodes) and is divided in Stage IA and IB Cancer not found in the breast but has spread to the lymph nodes and axillary lymph nodes; also divided into two sub-stages. There is no evidence of cancer in the breast tissue but has spread to the skin of the breast or to the lymph nodes or axillary lymph nodes. Subcategories include IIIA, IIIB, IIIC. Describes invasive breast cancer that has spread beyond the breast and nearby lymph nodes to other organs of the body, such as the lungs, distant lymph nodes, skin, bones, liver or brain. Source: American Cancer Society

Metastatic Breast Cancer Treatment Paradigm As with most cancers, metastatic breast cancer is treated with a combination of surgery, radiation, and pharmaceutical interventions. Surgery is usually employed during Stage I breast cancer with the hope of removing tumors before metastasis ensues. Breast-conserving surgery is often employed by the surgeon to excise the cancer but not the breast itself. This type of surgery may include lumpectomy, in which the tumor and a small amount of normal tissue surrounding it are removed or may include removal of a larger cancerous area in the breast by conducting a partial mastectomy. Clinicians may elect to remove the breast entirely and a small number of lymph nodes in close proximity to tumors by a proceeding with a total mastectomy. Furthermore, a more extensive surgery, called a modified radical mastectomy, can be performed to remove the whole breast in addition to the lymph nodes under the arm, the lining over the chest muscles, and parts of the chest wall muscles as a precaution. If the tumor is suspected to have spread to the sentinel lymph node as observed in Stage II, a sentinel lymph node biopsy is done during surgery to remove it. The sentinel lymph node is the primary node the cancer is likely to spread to from the tumor. In conjunction with surgery, radiation therapy is used to eliminate any remaining tumor cells. Radiation therapy, using high-energy x-rays or other types of radiation to kill cancer cells, consists of two method types: external radiation and internal radiation. External radiation treatment is administered to the patient by sending radiation from a machine to the target area. Internal radiation uses a radioactive substance, sealed in needles, wires, or catheters, that is placed directly into or near the cancer. The method used depends on the stage of breast cancer being treated.

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Chemotherapy, hormone therapy, and targeted therapy are three categories of pharmacological interventions that are used to treat breast cancer patients. Chemotherapy consists of drugs, which halt the growth of cancer cells, either by killing the cells or by stopping them from dividing. Sex hormones such as estrogen can encourage the growth of breast cancer, so hormone therapy removes hormones or blocks their actions and inhibits cancer cell growth. For instance, estrogen, which promotes breast cancer growth, can be removed systemically by inhibiting its production in the ovaries by way of pharmacological and non-pharmacological methods. Other hormone drugs can directly block hormone receptors on cancer cells. Tamoxifen, an estrogen antagonist, is often prescribed to patients with early stages of breast cancer and those with metastatic breast cancer. The third category, targeted therapy, involving monoclonal antibodies and tyrosine kinase inhibitors, identifies and attacks cancer cells without harming normal cells. Monoclonal antibodies may be used alone to target a specific cancer protein or may carry chemotherapy agents or radioactive material to cancer cells. Tyrosine kinase inhibitors block the action of cancer specific linked kinases, which are responsible for signaling within cancer cells. These different categories of treatments can be used in combination as a therapy for breast cancer. Figure 7 lists branded and generic agents that are primarily used in MBC from each category. Figure 7: Agents Used in Metastatic Breast Cancer Treatment Chemotherapy Methotrexate Abraxane (HSA-bound paclitaxel) Doxorubicin Cyclophosphamide Fluorouracil Taxotere (docetaxel)

Hormone Therapy Arimidex (anastrozole) Aromasin (exemestane) Femara (letrozole) Tamoxifen

Targeted Therapy Afinitor (everolimus) Herceptin (trastuzumab) Kadcyla (ado-trastuzumab emtansine) Tarceva (erlotinib)

Source: The National Cancer Institute, LifeSci Advisors

Lung Cancer Types of Lung Cancer There are two major types of lung cancer, small cell lung cancer (SCLC) and non-small cell lung cancer (NSCLC). SCLC comprises up about 10 to 15 percent of all lung cancer cases and is named for the small sized cells that make up these cancers. SCLC often emerges in the bronchi near the center of the chest, and tends to invade other parts of the lung as well as to other areas of the body early in the course of the disease prior to causing symptoms. A hallmark of SCLC is that surgery to remove the cancerous lesions is rarely used and the main course of treatment is chemotherapy. NSCLC dominates the number of lung cancer cases, affecting 85 to 90% of patients. There are three main subtypes of NSCLC, adenocarcinoma, squamous cell carcinoma, and large cell carcinoma. All LIFESCI ADVISORS Equity Research

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three cancer cell types differ in size and shape when examined under the microscope, but they all have similarities in treatment and prognosis.9 Causes and Pathogenesis of Non-Small Cell Lung Cancer The American Cancer Society and other medical organizations have gathered risk factor information strongly associated with lung cancer, particularly NSCLC. The primary cause of the disease is tobacco smoke, which contains hundreds of carcinogens and is responsible for 85 percent of all lung cancer cases.10 In the early 20th century, lung cancer attributed to tobacco smoke was much less common than other types of cancer, but this changed as manufactured tobacco products became more readily available and more people began smoking. An accumulation of studies in the last part of the 20th century, have shown that about 80% of all lung cancer deaths are tobacco use related.11 Figure 8 lists all main risk factors connected with NSCLC.

http://www.cancer.org/cancer/lungcancer-smallcell/detailedguide/small-cell-lung-cancer-what-is-small-cell-lungcancer [Accessed 5/16/2013] 10 Peto, R. et al., 2000. Smoking, smoking cessation, and lung cancer in the UK since 1950: combination of national statistics with two case-control studies. Bmj , 321: pp 323-329. 11 http://www.cancer.org/cancer/lungcancer-non-smallcell/detailedguide/non-small-cell-lung-cancer-risk-factors [Accessed 5/15/2013] 9

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Figure 8: Primary Risk Factors Related to NSCLC Risk Factor Tobacco Smoke

Radon

Cancer-causing Agents in the Workplace Radiation Therapy

Personal and Family History

Beta Carotene Supplements and Smoking Air Pollution

Additional Information All types of tobacco products, including cigars and pipes. Secondhand smoke is believed to cause more than 3,000 deaths from NSCLC each year The natural breakdown of uranium in soil and rocks can promote the accumulation of this odorless gas in homes and there is strong correlation between exposure and NSCLC. Carcinogens such as inhaled chemicals (arsenic, beryllium, cadmium, silica, vinyl chloride, and coal products), asbestos, radioactive ores, and diesel exhaust. Patients who have had radiation therapy to chest for other types of cancer. For instance, patients undergoing for Hodgkin disease or breast cancer are examples. Patients who had lung cancer in the past are at risk for developing the disease again. Also, a family history of lung cancer may indicate risk since a family member may have inherited DNA changes in chromosome 6. Smokers who had taken beta carotene raised the risk of developing cancer. Exposure to heavily trafficked roads appears to raise risk in developing cancer. Source: American Cancer Society

The pathogenesis of NSCLC involves the accumulation of multiple DNA aberrations and mutations over a long period of time. These DNA abnormalities can occur through methylation, DNA sequence changes, and DNA segment amplification or deletion.12 The most common modifications in NSCLC have been clearly established to be loss of genomic regions of chromosomes 3p and 9p, and deletions of chromosomal arm on 5p in the earlier stages of preneoplasia, while mutations in tumor suppressor genes, p53 and p16 have been found in the later stage. 13 Tumor suppressor genes p53 and p16 play an extremely essential role in cell cycle regulation and apoptosis. Mutations in these genes may inactivate them, promoting excessive cell division and loss of phenotypic expression. Furthermore, mutations in the proto-oncogene KRAS, causing it to be switched on

Peto, R. et al., 1975. Cancer and ageing in mice and men. British Journal of Cancer, 32: pp411-426 Massion, P. eta l., 2003. The molecular basis of lung cancer: molecular abnormalities and therapeutic implications. Respiratory Research, 4: pp 12-27. 12 13

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continuously, triggers uncontrollable cellular growth and proliferation and has also been implicated in the later stages of lung preneoplasia.14 Diagnosis and Classification of NSCLC Like many other cancers, NSCLC is usually not diagnosed until severe, life-disrupting symptoms occur. Symptoms, such as the ones listed below in Figure 9, may be suggestive of NSCLC, but a combination of tools must be used to make an accurate diagnosis. Figure 9: NSCLC Symptoms Localized NSCLC         

Persistent Cough Chest Pain during deep breathing, coughing or laughing Hoarseness of Voice Weight and Appetite Loss Coughing up blood or rust colored sputum Shortness of Breath Fatigue Persistent Bronchitis and Pneumonia Wheezing

Metastasized NSCLC (in addition to localized NSCLC symptoms)  Bone Pain (back or hips)  Neurologic Changes, such as headache, weakness or numbness of arm or leg, dizziness, balance problems, or seizures)  Jaundice  Lumps on the body surface due to cancer spreading to lymph nodes and skin in the neck or above collarbone

Source: American Cancer Society After reviewing the patient’s symptoms and medical history, clinicians employ imaging tests such as chest x-ray, computed tomography scan, magnetic resonance imaging scan, and/or positron emission tomography scan to assist in locating cancerous areas and to look for possible signs of invasiveness within the lung. Other imaging techniques utilized to discern metastasis beyond the lung include endoscopic esophageal endobronchial ultrasound, bronchoscopy, mediastinoscopy, and/or thoracoscopy. These types of imaging tests are useful in strongly suggesting NSCLC, but the actual confirmation is done by sampling of tissues and cells. For instance, a sample of sputum,

Thiberville, L. et al., 1995. Evidence of cumulative gene losses with progression of premalignant epithelial lesions to carcinoma of the bronchus. Cancer Research. 55: pp 5133-5139. 14

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containing cancerous cells or a sample of cells gathered by fine needle aspiration biopsy determines whether the cancer is NSCLC.15 Once a diagnosis is made, clinicians use a numerical staging system to classify the status of NSCLC in patients in order to prescribe the correct treatment course. The basic numerical staging of NSCLC takes into account the location and size of the tumor as listed below in Figure 10. Figure 10: Stages of NSCLC NSCLC Stage Stage 0 Stage 1

Stage 2

Description The cancer is localized within the inner lining of the lungs, which is also known as carcinoma in situ The cancer is localized within the lung and has not spread to any lymph nodes. Stage 1A- tumors 3 cm or less in size. Stage 1B -tumors greater than 3 cm. The cancer has spread to nearby lymph nodes, or has not spread to lymph nodes but is large, in a certain region of the bronchus or in a location where it invades the lung lining. Stage 2A- tumor 3 cm or less in size with spread to lymph nodes.

Stage 3

Stage 2B- tumor 3 cm or greater in size with spread to lymph nodes, or present in the main bronchus or invading the lung lining or chest wall. The cancer has spread to tissue near the lungs. Stage 3A- (large tumors with spread to nearby lymph nodes or any size tumor that has spread to lymph nodes further away from the tumor.

Stage 4

Stage 3B- any size tumor that has spread to distant lymph nodes or a tumor that has invaded other structures in the chest such as the heart or esophagus. The cancer has spread to another part of the body. Areas of metastasis include, skin, lymphatic system, brain, liver Source: American Cancer Society

15

http://www.cancer.org/cancer/lungcancer-non-smallcell/detailedguide/non-small-cell-lung-cancer-diagnosis [Accessed 5/18/2013].

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Treatment Regimen for NSCLC According to the National Cancer Institute, there are three standard treatments that can be used separately or in combination for the treatment of NSCLC. They are surgery, radiation therapy, and pharmacological intervention. Surgery to remove cancerous tissues in the lung, along with other types of treatments, may be an option for early stage non-small cell lung cancer patients. Surgery during the early stages of NSCLC gives the best chances for a cure, but the nature of the procedure is complex and therefore often leads to complications. Depending on the course of NSCLC, three types of lung surgeries are conducted:   

Pneumonectomy: The entire lung is removed Lobectomy: A lobe of the lung is removed Segmentectomy: A part of the lobe is removed

Post-surgery, radiation therapy can be used to eliminate minor tumor deposits that surgery may have failed to remove. Radiation treatment may also be applied to shrink tumors before surgical procedures. If the tumor is inoperable because of its size, radiation in combination with chemotherapy may be utilized as the primary treatment for NSCLC. Radiation therapy in this indication consists of external beam radiation therapy (EBRT) and brachytherapy. EBRT, which delivers radiation externally to the tumor, is the primary radiation therapy for primary lung cancer or its metastasis to other organs. However, modified and improved versions of conventional EBRT have emerged to target tumors without harming healthy tissues. Brachytherapy or internal radiation therapy is used to minimize tumors in the airways, though in few cases it may be used as part of a larger treatment regimen. In this therapy, a small source of radioactive material is placed directly into the tumor or into the airway next to the cancer. Although this is usually conducted with a bronchoscope, it may also be done during surgery. Pharmacological interventions for NSCLC include chemotherapy and targeted drug therapy. Chemotherapy can be prescribed to patients in each stage, while targeted drug therapy is usually administered to patients in advanced stages of lung cancer. Common chemotherapies and targeted drugs used in first-line and second-line treatments for NSCLC, and their manufactueres, are listed in the table in Figure 11.

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Figure 11: Primary Chemotherapy and Targeted Drugs for NSCLC Chemotherapy Drugs Abraxane (HSA-bound paclitaxel) – Celgene Methotrexate – generic Taxotere (docetaxel) – Sanofi/generic

Targeted Therapies Avastin (bevacizumab) – Roche Tarceva (erlotinib) – Roche Erbitux (cetuximab) – Bristol-Myers Squibb Xalkori (crizotinib) – Pfizer

Source: National Cancer Institute, LifeSci Advisors

Disease Market Information Epidemiology of Metastatic Breast Cancer and Non-Small Cell Lung Cancer Worldwide, breast cancer is the most prevalent cancer in women with an estimated of 1.6 million new cases diagnosed annually. Rates of breast cancer vary globally, and in general developed countries have higher rates than developing countries. Not all factors defining the differences between developed and developing countries are known. Lifestyle and reproductive factors in developed countries, while low screening rates and incomplete reporting of breast cancer cases in developing countries, may explain part of the differences in rates.16 A total of 2.7 million women in the United States are afflicted with breast cancer, and an estimated 232,340 new cases of metastatic breast cancer are projected in 2013. In addition to these cases, 64,640 new cases of primary breast cancer along with 39,620 breast cancer deaths are expected.17 NSCLC is the leading cause of cancer death globally with an estimated 1.18 million deaths annually.18 Approximately 1.35 million new cases are diagnosed every year, and it is estimated that NSCLC contributes to an average of 20% of all cancer deaths. About half of all cases occur in developing countries, with men being afflicted more than women 19 According to the American Cancer Society, 228,000 new cases and 159,000 deaths are projected for the United States in 2013. Market Estimates According to the DataMonitor Group and the Freedonia Research Group, the global and the United States cancer drug markets are approximately $78 billion and $16 billion, respectively. Chemotherapeutics and other cancer drugs are used in multiple cancer indications, so assessing the Forouzantar, M. et al., 2011. Breast and cervical cancer in 187 countries between 1980 and 2010: a systematic analysis. Lancet. 378 (9801): pp. 1461-84 17 http://www.cancer.org/cancer/cancerbasics/cancer-prevalence [Accessed May 19,2013] 18 Facts about Lung Cancer. http://www.lungcanceralliance.org/documents/lungcancer_factsheet_2008.pdf. [Accessed May 19,2013] 19 Schiller JH, et al. 2002 Comparison of four chemotherapy regimens for advanced non-small-cell lung cancer. NEJM . 346:(2). pp. 92 – 98. 16

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market size for each cancer indication poses a challenge. The best approach in evaluating potential sales for Cynviloq™ is to make comparisons to its closest future competitor, Abraxane®. Celgene’s Abraxane® is a current treatment for breast, lung, and pancreatic cancer and is undergoing clinical trial evaluation for melanoma. This agent, a second generation paclitaxel therapy, has shown in clinical trials to have a relatively better safety profile and to have an improved efficacy than its predecessor, Taxol® due to its formulation. Celgene management and analysts are forecasting between $1.5 to $2.0 billion by the 2017-2018 period. In our view, the projected sales range is a plausible scenario for Abraxane® since it has room for growth once the drug’s indication range is expanded further. The drug brought in $427 million in revenue in 2012 mostly from sales in MBC. Cynviloq™ is well differentiated from its closest competitor Abraxane® by its superior chemical polymer-based, non-biologic formulation which allow for higher MTD of >300 mg/m2 paclitaxel every 3 weeks as shown in Phase I studies. This compares well to MTD of 175 mg/m2 & 260 mg/m2 paclitaxel doses with Taxol® and Abraxane®, respectively). Cynviloq™ also offers convenience through ease of handling versus a biologic formulation and avoids safety issues, such as prion or viral transmission, associated with human serum albumin (HSA) that is used for the Abraxane® formulation. Clinical differentiation may be achieved through strategic life cycle management such as label expansion in indications where Abraxane® is not approved. Sorrento is also pursuing patient-tailored Cynviloq™ dosing using a proprietary Therapeutic Drug Monitoring (TDM) device under development by the Company . If approved as the only branded competitor to Abraxane®, a 30% patient share conversion has the potential to generate $500MM for Cynviloq™ in the United States in these indications. Label expansion into indications where Abraxane® is not approved such as bladder cancer or ovarian cancer and launch in the EU countries should bring additional sales revenues as well. With an estimated 15,000 deaths due to bladder cancer in the US alone each year, the bladder cancer indication could be a significant market for Cynviloq™. This is punctuated by the fact that there are currently no FDA approved drugs for 2 nd line treatment of patients with advanced urothelial carcinoma refractory to platinum-based chemotherapy. We believe that the combined promotional efforts behind these brands by Celgene for Abraxane® and later by Sorrento will also help expand the market for new paclitaxel formulations. This will come with a significant detriment to the less effective and more toxic, generic, Cremophor-based paclitaxel.

Other Drugs on the Market Other top revenue generating anti-neoplastic drugs addressing breast and lung cancer are listed in Figure 12. Since these agents may be used for cancer indications beyond breast and lung cancer, total sales may be inclusive of all indications that the drug is prescribed for by clinicians. The recent approval of Roche’s Perjeta and Kadcyla for the treatment of metastatic breast cancer may add tremendous market value to the breast cancer markets. Analysts are forecasting peak sales of $2 LIFESCI ADVISORS Equity Research

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billion for each product. Perjeta is a HER2/neu receptor antagonist agent, which has been shown to enhance anti-tumor activity as a complement to Herceptin. Kadcyla is an antibody drug conjugate (ADC) that targets cancer cells directly, and is used when first-line therapies fail. Figure 12: Global Sales of Breast and Lung Cancer Drugs (in Millions) Agent Abraxane Afinitor Avastin Doxil Herceptin Tarceva Tykerb Xalkori Xeloda

Company Celgene Novartis Roche J&J Roche Roche GSK Pfizer Roche

2011 Sales $385 $430 $5,292 $402 $5,253 $564 $231 n/a $1,397

2012 Sales $427 $797 $5,764 $83 $5,889 $1,400 n/a $123 $1,523

Breast

Lung

Source: LifeSci Advisors and Company Reports Clinical Data for Abraxane Phase III Clinical Data for Metastatic Breast Cancer. A multicenter, randomized Phase III study comparing Abraxane® to paclitaxel in 460 patients with metastatic breast cancer was conducted in 2011. Patients were randomized to receive a 30 minute infusion of Abraxane® at a dose of 260 mg/m2 or paclitaxel at a dose of 175 mg/m2 given as a 3 hour infusion. The primary outcome was efficacy. Patients in the Abraxane® treatment arm had a significantly higher target lesion response rate of 21.5 % (95% CI: 16.2 % to 26.7%) versus 11.1% (95)% CI:6.9% to 15.1%) for patients in the paclitaxel injection arm ( p=0.003). There was no significant difference in overall survival between the two groups. Phase III Clinical Data for Non-Small Cell Lung Cancer. A multicenter, randomized, openlabel Phase III study was conducted in 1052 patients with stage IIIb/IV NSCLC to evaluate Abraxane® versus paclitaxel, each in combination with carboplatin. Advanced stage NSCLC patients received either Abraxane as an intravenous infusion over 30 minutes at a dose of 100 mg/m2 on days 1, 8, and 15 of each 21-day cycle or paclitaxel infusion over 3 hours at a dose of 200 mg/m2. In both treatment arms, carboplatin at a dose of AUC=6 mg*min/ml was given intravenously on day 1 of each 21-day cycle after completion of either Abraxane® or paclitaxel infusion. The primary outcome was overall response rate (ORR). Participants in the Abraxane® arm had a statistically significant advantage in ORR versus paclitaxel (33% versus 25%, p=0.005), and again there was no difference in overall survival between the two study arms.

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Cynviloq™ Clinical Data Discussion Safety Profile To date no formulation-associated serious adverse effects have been observed with Cynviloq™. Common side effects associated with paclitaxel include hair loss, nausea and vomiting, diarrhea, mouth sores, and low blood cell count (either red blood cells or white blood cells or both). Early Drug Studies: Phase I Clinical Study Phase I pharmacokinetic studies have demonstrated a higher maximum tolerated dose (MTD) for Cynviloq™ (435 mg/m2) versus Abraxane (300 mg/m2), which underscores the ability of the Cynviloq™ chemical polymer formulation to increase MTD and to potentially improve clinical efficacy. A second Phase I study evaluating Cynviloq™ in 18 Russian pancreatic cancer patients, weekly infusions of 220-300 mg/m2 q3w of Cynviloq™ and 1250 mg/m2 of gemcitabine or 1250 mg/m2 of gemcitabine were administered. The main outcomes of the study were overall response rate (31.3%), progression free survival (5.6 months) and overall survival (greater than 7 months) of patients given Cynviloq™ and gemcitabine. Interestingly, in a multi-centered Phase III MPACT study investigating Celgene’s Abraxane® in 861 pancreatic patients, weekly infusions of 125 mg/m2 of Abraxane in combination with gemcitabine of 1000 mg/m2 or 1000 mg/m2 gemcitabine alone were given. The primary outcomes were overall response rate (23%), progression free survival (5.5 months), and overall survival (8.5 months). The study showed that all three outcomes results were very similar to the results obtained in the Cynviloq™ study, which demonstrated that Cynviloq™ can penetrate poorly diffused cancers, such as pancreatic cancer, tantamount to Abraxane®. Phase II Clinical Study for Metastatic Breast Cancer A randomized, single-arm Phase II study evaluated Cynviloq™ in 41 metastatic breast cancer patients in Korea. 20 Patients were given either 300 mg/m2 every three weeks or placebo. Treatment was continued until disease progression or until the treatment was not tolerated. The primary outcomes of the study were overall response rate (ORR), progression free survival (PFS), and overall survival (OS). The overall response rate to treatment was 59%, including 5 CRs and 19 PRs. 37 of 41 patients received Cynviloq™ in the trial as a first-line therapy, and 59.5% of these experienced a response, and 4 of 41 patients were received the drug as a second-line treatment, with 2 PRs. The median time to progression (TTP) in the trial was 9 months.

Lee, K.S. et al., 2008. Multicenter phase II trial of Genexol-PM, a Cremophor-free, polymeric micelle formulation of paclitaxel, in patients with metastatic breast cancer. Breast Cancer Research and Treatment, 108(2), pp241-250. 20

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Regarding safety, 51.2% of patients had grade 3 sensory peripheral neuropathy, and 2.4% experienced grade 3 myalgia. 19.5% of patients experienced hypersensitivity reactions, and two of these were grade 3. Grade 3 or grade 4 neutropenia was experienced by 51.2% and 17.1% of patients in the trial, respectively, and 22% experienced grade 1 or 2 thrombocytopenia. Phase II Study for Non-Small Cell Lung Cancer Another Phase II study examined Cynviloq™ in 69 NSCLC patients. Participants were administered escalating doses between 220-300 mg/m2 q3w in combination with cisplatin (60 mg/m2). Dose escalation was based on the absence of toxic side effects. The primary outcomes of the study were overall survival, progression free survival, and overall survival. ORR in the trial was 37%, while the median TTP was 9 months and median OS was 21.7 months. Adverse events in this trial included grade 3 peripheral neuropathy (13%) and grade 3/4 joint pain (7.3%). 5.8% of patients experienced grade 3 or 4 hypersensitivity reactions, 29% experienced grade 3 neutropenia, and 17.4% experienced grade 4 neutropenia.

Other Drugs in Development for NSCLC Dacomitinib Pfizer’s dacomitinib is an oral anti-neoplastic agent, which irreversibly inhibits epidermal growth factor receptor (EGFR), HER-2 and Her-4 tyrosine kinases. It is currently in Phase III trials. Phase III Clinical Trial. A multicenter randomized double blind comparative Phase III clinical trial is currently underway. 21 In this study, 800 patients with NSCLC will be assigned to two experimental arms. In the first experimental arm, patients are given dacomitinib 45 mg orally daily, while participants in the second arm are given erlotinib 150 mg orally once daily. The primary outcome is progression-free survival and secondary outcomes include overall survival, objective response rate, duration of response and safety and tolerability. This study is expected to be completed in August of 2013. Phase II Study Results. In a randomized, open-label trial dacomitinib was compared to erlotinib in 180 patients with advanced NSCLC. Participants were treated with dacomtinib 45 mg or erlotinib 150 mg once daily. The primary outcome was progression free survival. PFS was 2.86 months for patients treated with dacomitinib and 1.91 months for patients treated with erlotinib (hazard ratio= 0.66; 95% CI 0.47 to 0.91; two sided p=0.012). In this study, dacomitinib demonstrated significantly improved PFS compared to erlotinib, setting the stage for Phase III.

21

http://www.clinicaltrials.gov/ct2/show/NCT01360554

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Sorrento’s Antibody Development Platform In addition to Cynviloq™, Sorrento has a portfolio of early stage antibody drug candidates and antibody formulated drug conjugates that are designed to address a variety of diseases. These programs are discussed in the following section.

Antibodies and the Immune System The human immune system is a complex yet powerful defense mechanism which protects the body from the invasion of foreign particles and disease-causing agents, known as antigens. The system is comprised of two types of immunity: innate immunity and adaptive immunity. Innate immunity is the body’s first line of defense, confers non-specific responses to the presence of antigens, and does not possess immunologic memory to previous encountered antigens. Examples include mechanical factors such as skin, cilia, mucous and saliva to remove bacteria and other infectious agents, and chemical factors such as pH, certain enzymes, proteins and surfactants. In addition, innate immunity also includes the release of interleukins, interferons, macrophages and neutrophils.22 Adaptive immunity, however, is antigen-specific, has a lag time between exposure and maximal response, and results in immunologic memory. This system is made up of cytotoxic T-cells, activated macrophages and natural killer cells, and cytokines. Perhaps more importantly, humoral immunity includes the production of antibodies for fighting off the presence of soluble antigens, and antibody production is the main function of this immunity type. Antibodies, also known as immunoglobulins (Ig), are glycoproteins produced by B-cells and bind specifically to one or a few closely related antigens. This binding marks the antigen for attack by other parts of the immune system or neutralizes the antigen from further propagation and pathogenicity. There are five classes of antibodies which include IgA, IgM, IgE, IgG and IgM, and each of these have a specific function. Also soluble antibodies, those which are not bound to B-cells but are released, are found in various fluid types including blood, tissue fluids, and a variety of secretion types. The functional aspect and area of importance of the antibody’s structural unit is found in its variable regions, which are located on the tips of the two light and heavy chains that make up the “Y” configuration of the molecule. These regions are comprised of 110-130 certain amino acid residue sequences that are specific to receptors found on the surface of antigens, and are what make up the antigen binding sites as shown in Figure 13. Even in the absence of antigen stimulation, it is estimated that an individual can make over a trillion different genetically distinct antibodies, enough to guarantee that there will be an antigen binding site for almost any potential antigen. In addition, 22

Microbiology and Immunology On-Line: Immunology - Chapter 1: Innate (Non-Specific) Immunity

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while initial response to a new antigen type results in a low binding affinity, repeated exposure to an antigen results in the production of antibodies with higher binding affinity.23 This explains, in part, the immunologic memory inherent in humoral immunity. Figure 13: Antibody Structural Unit

Source: University of Arizona – The Biology Project The underlying basis for the widespread interest in antibodies for use as therapeutic agents can be attributed to their high specificity and diversity, which also leads to minimal side effects, better pharmacokinetics, increased efficacy, and more effective methods for delivering drugs to disease targets. However, the development of treatments require the cloning and proliferation of a single antibody type, known as a monoclonal antibody (mAb), that targets a specific antigenic receptor. In addition, active immunization using vaccination has its limits, including the inability to be effective against toxic and highly conserved antigens. In 2011, the US market for therapeutic mAbs was approximately $20.1 billion and is expected to grow at a CAGR of 6.4% to $27.4 billion by 2016.24 Thus, mAbs are at the forefront of extensive and ongoing research to develop and commercialize safer and more effective treatments for a wide range of diseases. One of the greatest issues now facing companies seeking to develop antibodies is the fact that patent coverage of the field is almost complete, meaning that companies must pay various royalties related to different steps of the antibody production process. By using the proprietary G-MAB® platform technology, Sorrento has more freedom to operate than its competitors, and can avoid stacking royalties.

23 24

NCBI Bookshelf: The Generation of Antibody Diversity; NBK26860 BCC Research: Antibody Drugs: Technologies and Global Markets. February 2012.

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Technologies and Issues with Creating Monoclonal Antibodies Monoclonal antibodies have historically been generated by immortalizing antibody-producing white blood cells from mice to produce a proliferation of a specific antibody type with known characteristics. However, given that these antibodies are comprised of mouse protein sequences, they have the potential to elicit an immune response from the patient rendering them neutral, reducing efficacy, and potentially resulting in an allergic reaction. In light of these issues, mAbs were subsequently developed adding in human sequences to make them more immune-tolerable. However, being that they still contained mouse protein sequences, the same issues existed. Thus, various technologies for producing mAbs comprised of fully-human protein sequences were inevitably developed. One such approach is to genetically engineer mice to inactivate the gene expression of mouse antibodies and supplant it with human antibody gene expression. The mouse is then inoculated with a specific antigen, an immune response is hopefully observed, and then the antibody of interest is obtained as a potential human antibody candidate. Another method is to use clonal isolation and expansion of human B-lymphocytes. However, the antibodies created are limited to those that are produced in response to non-human antigens or antigens that the lymphocyte donor had prior response to. Therefore, this method may not yield appropriate antibodies needed to develop therapies targeting cancer, auto-immune diseases or inflammation. The issue with these technologies is that they require immunization, which is difficult and time-consuming. Sorrento and the G-MAB® technology take a different approach. Recombinant libraries of human antibodies can be generated through antibody display technology, which uses bacteriophages to link proteins with genetic information that encode them. This results in the expression of a foreign peptide on the phage surface, which is linked to the genetic information that encoded for it in the phage’s genome. Thus, by introducing a variety of rearranged immunoglobulin genes and observing the link between phage phenotype and genotype, large libraries of peptide/protein sequences can be quickly screened for to be used as candidates for monoclonal antibodies targeting a number of human and non-human antigens. It is this approach which has led Sorrento to develop its G-MAB® technology to create large human antibody libraries for the development of novel antibody therapies. This approach also gives Sorrento freedom to operate in this area.

G-MAB® Discovery Platform for Monoclonal Antibody Candidates With antibody display technologies, there are many sources used to generate fully-human antibody libraries including the use of naïve or immunized individuals, or by using synthetic or semi-synthetic sequences. In addition, there are a variety of display methods to choose from including phage, yeast, bacterial, ribosomal, and mammalian displays. Sorrento’s research using naïve individuals, their proprietary RNA transcription G-MAB® technology, and a phage display vector system to generate a recombinant antibody library has yielded astonishing results. LIFESCI ADVISORS Equity Research

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Library Generation Methodology and Analysis In general, lymphocytes are initially isolated from a number of individuals and the heavy and light chains of either full length immunoglobulins or of their variable regions are subsequently amplified. These sequences are then inserted into expression vectors for display. In 2009, researchers at Rinat-Pfizer set out to assess the diversity of an IgM phage display antibody library created using the RNA of lymphocytes from approximately 600 naïve donors. They analyzed 1.9 x 105 sequences resulting in a combined heavy and light chain potential diversity of 3.5 x 1010. Following this, researchers at Sorrento set their sights on maximizing the diversity of mAbs by using an innovative and proprietary amplification and enrichment method. They used primer sets and a T7 RNA polymerase to amplify the variable regions of all five immunologlobulin classes which include IgM, IgG1-4, IgA, IgD and IgE, resulting in double-stranded cDNA for phage display vector insertion. Next, a sample of these inserts was sequenced yielding approximately 1.9 x 10 7 sequences of high quality, and analysis of these sequences resulted in a combined heavy and light chain potential diversity of 2.1 x 1016. This implies a higher probability for discovering variable domain sequences that could be used to develop therapies for diseases where there are currently no mAb candidates.25 In addition, it also implies a higher probability of finding candidates that have superior binding affinities for increased drug receptor occupancy, resulting in potentially more effective therapies. Comparison to Traditional Technologies Given the ability of the G-MAB® library technology to create vastly more diverse fully-human antibody libraries and single-class libraries as compared to traditional technologies may place Sorrento at the forefront of discovering new first-in-class and ‘bio-better’ mAbs aimed at creating a multitude of novel and more effective therapies. In addition, G-MAB® is able to generate mAbs against a range of targets, from small molecules such as auto-inducing peptides to large, more complex and more difficult targets such as G protein-coupled receptor (GPCR) molecules. However, aside from its diversity, the G-MAB® technology offers several other advantages over competing technologies. Animal-to-human gene transfer techniques used in chimeric and humanization technologies can be difficult and limited. However, the G-MAB® technology allows for the generation of fully-human sequences without these challenges. Human-mouse technologies are less effective than fully-human technologies in discovering human antibody candidates since a mouse inoculated with a given human antigen may not develop an immune response, and the need for animal facilities are expensive to establish and maintain. Also, the G-MAB® technology allows for quick and costeffective in vitro screening of large amounts of antigens, and any antigen of interest can be examined 25

Zhou, H. et al., 2011. Recombinant antibody libraries and selection technologies. New Biotechnology, 28(5), pp448-452.

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without the need for successful stimulation of an immune response from the host. That is, G-MAB® allows for accelerated mAb discovery of less than two months, and the selection of drug candidates in less than twelve months. Finally, Sorrento is currently under no agreement that would restrict them from collaborative arrangements with third parties looking to utilize their technology to help develop mAb therapy candidates.

Potential Applications for the G-MAB® Technology Sorrento has over 40 potential mAb candidates in their G-MAB® pipeline including those aimed at treatments for oncology, inflammation and infectious disease indications, many of which are currently in preclinical development. Moreover, the Company is looking to target specific ligands and receptors on diseased cells in effort to block binding sites and inhibit signaling pathways, the mechanisms responsible for pathogenicity. Among the many targets in Sorrento’s pipeline, this report will highlight the PD-1, PD-L1, and c-Met targets in oncology, and quorum sensing in Methicillin-Resistant Staphylococcus aureus (MRSA) infections. PD-1 and PD-L1 Targets in Oncology There are a number of mAbs currently in clinical development for various cancers aimed at programmed cell death protein 1 (PD-1), a T-cell receptor, and programmed cell death 1 ligand 1 (PD-L1), a tumor receptor, preventing receptor binding and allowing the immune system to initiate a targeted response against PD-L1 expressing tumors. Also, in terms of safety and efficacy, therapies targeting these receptors appear to offer superior results compared to current therapies targeting dendritic cell CTLA-4 receptors.26 This can be seen by the fact that CTLA-4 binding can be found between T-cells and many other non-tumor cells, as opposed to PD-L1 receptor interaction which is only found with tumor cells. This specificity could potentially result in less severe side effects and greater efficacy. Thus, Sorrento is also looking to identify potential mAb candidates for developing therapies against PD-1 and PD-L1, although with the goal of identifying those mAbs that are more effective and safer than competing products. Evidence of Tumor Evasion through PD-1/PD-L1 Receptor Binding PD-1 and PD-L1 are important factors in the ability of tumors to evade the immune system. PD-L1 receptors are expressed by a number of cancer types including lung cancer, melanoma, kidney cancer, colon cancer and stomach cancer, to name a few. In fact, a 2004 study on 196 tumor samples from patients with kidney cancer showed that high PD-L1 expression was linked to a rise in tumor

Quezada, S.A., Peggs, K.S.. 2013. Exploiting CTLA-4, PD-1 and PD-L1 to reactivate the host immune response against cancer. British Journal of Cancer, 108, pp1560-1565. 26

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aggressiveness and increased mortality. 27 This relationship was also confirmed in various other cancer types. In addition, PD-L1 expression in tumor cells was found to be inversely correlated with CD8+ T-cell concentration, suggesting that antitumor cytotoxic CD8+ T-cells may be suppressed by the presence of this ligand.28 Antibody Blockage of PD-1/PD-L1 Permits Immune Response In response to the presence of tumor cells, the activation of T-cells relies on signals elicited through the antigen-specific T-cell receptor (TCR) and other receptors located on the surface of T-cells, such as the major histocompatibility complex (MHC).29 Following activation, T-cells bind to antigens and signal factors and immune cells, such as cytotoxic CD8+ T-cells, to attack and destroy these antigens. However, the binding of the tumor-specific T-cell PD-1 receptor with the PD-L1 receptor on the cell surface of its respective tumor acts to inhibit this signaling and induce T-cell apoptosis. This negative regulation suppresses CD8+ T-cells and ultimately inhibits a proper immune response. Figure 14 gives an illustration of this interaction, and how mAbs can be developed to bind to T-cell PD-1 or tumor cell PD-L1 to block interaction of these receptors and prevent immune suppression against tumor cells. Figure 14: T-cell and Tumor Cell PD-1/PD-L1 Interaction

Source: Sorrento Presentation, 2013 Thompson, R. Houston, et al. Costimulatory B7-H1 in renal cell carcinoma patients: Indicator of tumor aggressiveness and potential therapeutic target. Proceedings of the National Academy of Science of the United States of America. November 2004; 101(49): 17174-17179 28 Hamanishi, J. Programmed cell death 1 ligand 1 and tumor-infiltrating CD8+ T lymphocytes are prognostic factors of human ovarian cancer. Proceedings of the National Academy of Science of the United States of America. February 2007; 104(9): 33603365. 29 Saresella, M., et al. The PD-1/PD-L1 pathway in human pathology. Current Molecular Medicine. March 2012; 12(3): 259-67. 27

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Clinical Data for Anti-PD-1 Antibody (BMS-936558) Study Design. In June 2012, various university and institutional researchers, in collaboration with Bristol-Myers Squibb, published the results from a Phase I open-label, multicenter, multidose, doseescalation study assessing the safety and effectiveness of BMS-936558, a fully human mAb targeting the PD-1 receptor in patients with advanced melanoma, prostate, kidney, colorectal or non-smallcell lung cancer.30 The study included a total of 296 patients given a dose of 0.1 to 10 mg per kg of body weight every 2 weeks. Patients were assessed for responsiveness after every 8 week treatment cycle, where up to 12 cycles were administered until patients exhibited either complete response or disease progression. Primary endpoints included safety and tolerability of multiple doses, while secondary endpoints included immunogenicity and pharmacokinetic profile of multiple doses. Safety. Adverse event severity was graded according to the National Cancer Institute Common Terminology Criteria for Adverse Events, version 3.0. Using these criteria, 14% of patients exhibited grade 3 or 4 drug-related adverse events, including pneumonitis, increased aspartate aminotransferase, diarrhea, pruritus, macular rash, and hyper- and hypothyroidism. In addition, three deaths due to pulmonary toxicity occurred. Pharmacokinetics. After infusion was initiated, the median time to peak concentration of the antibody was 1 to 4 hours. Using day 1 to day 14, the data for a 0.1 to 10.0 mg per kg of body weight dose level were analyzed, resulting in a linear dose-proportional increase in peak antibody concentration. Also, according to dose level, and using the same dose range and timeframe, median receptor occupancy was 64 to 70%. Anti-Tumor Activity. Response was evaluated in 236 of the patients receiving anti-PD-1 antibody BMS-936558 therapy. Complete or partial responses were observed in patients with melanoma, kidney and non-small-cell lung cancers, and results are provided in Figure 15. Overall, 36% of patients with PD-L1 positive tumors exhibited a statistically significant complete or partial response to anti-PD-1 antibody therapy (P=0.006), suggesting a relationship between the expression of PDL1 receptors on tumor cells and response to anti-PD-1 antibody therapy. Also, large metastatic tumors such as lung and kidney cancers tend to be relatively resistant to therapy; however treatment with anti-PD-1 antibody showed the ability to shrink many of these tumors, a positive sign in early clinical studies.

Topalian, S.L., et al. Safety, Activity, and Immune Correlates of Anti-PD-1 Antibody in Cancer. The New England Journal of Medicine. June 2012; 336(26): 2443-54. 30

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Figure 15: Clinical Activity of Anti-PD-1 Antibody in Cancer (BMS-936558) Cumulative Response

Cumulative Response Rate

Stable Disease ≥24 wk

ProgressionFree Survival at 24 wk

Melanoma

26/94

28%

6%

41%

Kidney Cancer

9/33

27%

27%

56%

14/76

18%

7%

26%

Cancer Type

Non-Small Lung Cancer

Cell

Source: LifeSci Advisors Clinical Data for Anti-PD-L1 Antibody (BMS-936559) Study Design. In June 2012, these same researchers also published results for a multicenter, openlabel, non-randomized, parallel, multidose Phase I study assessing the safety and effectiveness of BMS-936559 in patients with selected advanced cancers, including those in the preceding study. 31 Anti-PD-L1 antibody was administered to these patients at escalating doses ranging from 0.3 to 10 mg/kg of body weight in 6 week cycles for up to 16 cycles until evidence of disease progression or severe toxic effects occurred. Primary endpoints included assessment of the safety and adverse events of using anti-PD-L1 antibody to treat these cancers, while secondary endpoints included assessment of anti-tumor activity and pharmacokinetics. As of February 2012, 207 patients had been treated with anti-PD-L1 antibody. Safety. Of these 207 patients, 9% exhibited Grade 3 or 4 adverse events which included adrenal insufficiency and infusion-related reaction. However, only 5% of patients were considered to have treatment-related Grade 3 or 4 adverse events. Also, at the time of cutoff 22% of patients had died, but the most common cause of death was due to disease progression as opposed to drug toxicity. Pharmacokinetics. Anti-PD-L1 antibody serum levels increased in a dose-dependent manner from 1 to 10 mg per kg body weight in 131 patients who were evaluated. Half-life was estimated to be approximately 15 days. In addition, receptor occupancy was evaluated at doses of 1 to 10 mg per kg at the end of one treatment cycle in 29 patients with melanoma, resulting in a median receptor occupancy that exceeded 65% for all groups. Anti-Tumor Activity. Response was evaluated in 160 of the patients receiving anti-PD-L1 antibody BMS-936559 therapy. Complete or partial responses were observed in patients with melanoma, Brahmer, J.R. Safety and Activity of Anti-PD-L1 Antibody in Patients with Advanced Cancer. The New England Journal of Medicine. June 2012; 366(26): 2455-65. 31

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kidney, non-small-cell lung and ovarian cancers, and results are provided in Figure 16. Blocking of PD-L1 receptor using anti-PD-L1 antibody BMS-936559 resulted in durable tumor regression with a complete or partial response rate of 6 to 17% and prolonged disease stabilization rate of 12 to 41% at 24 weeks in patients with these selected advanced cancers. Figure 16: Clinical Activity of Anti-PD-L1 Antibody in Cancer (BMS-936559) Cumulative Response

Cumulative Response Rate

Stable Disease ≥ 24 wk

ProgressionFree Survival at 24 wk

Melanoma

9/52

17%

27%

42%

Kidney Cancer

2/17

12%

41%

53%

5/49

10%

12%

31%

1/17

6%

18%

22%

Cancer Type

Non-Small Lung Cancer

Cell

Ovarian Cancer

Source: LifeSci Advisors Sorrento’s Anti-PD-L1 Preclinical Data is Promising Preclinical studies using the G-MAB® technology to identify anti-PD-L1 mAb candidates have resulted in the generation of very promising data. In four separate studies, Sorrento’s mAbs proved to be at least a potent and effective as its comparators. The results can be summarized as follows: • Sorrento lead anti-PD-L1 mAb STI-A1010 showed in vitro T-cell activation to be significantly higher than control IgG, and at least as potent as two competitor mAbs, bestlisted for T-cell activation in the respective patents. • In a xenograft model of non-small-cell lung cancer using human cell line H1975 and a 10 mg/kg dosage, Sorrento’s A1010 IgG1 exhibited significant anti-tumor activity. Compared to saline, control IgG1, and the competitor anti-PD-L1 mAb IgG4, STI-A1010 showed a 45% inhibition of tumor growth. • In a study concerning the cytokines interleukin-2 (IL-2) and interferon-gamma (IFN-γ), Sorrento’s anti-PD1 lead mAb STI-A1110 exhibited in vitro immune regulation that was greater than media control, and at least as potent as a competitor mAb, best-listed for immune modulation in the respective patent. Sorrento is scheduled to launch a Phase I clinical trial for an anti-PD-L1 and anti-PD1 antibodies in 2015.

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Developmental Anti-PD-1 and Anti-PD-L1 Products. There are a number of therapies that use mAbs to target PD-1 and PD-L1 receptors on the surfaces of activated T-cells and tumor cells, respectively, that are currently progressing through clinical trials. Figure 17 gives an overview of some of these therapies and their respective clinical stage. Figure 17: Clinical Development of Anti-PD-1 and Anti-PD-L1 Products Target

Monoclonal Antibody

Company

Phase of Development

Comments / Update

PD-1

BMS-936558

Bristol-Myers Squibb

Phase III

Currently Recruiting in US and EU Melanoma patients showed 51% partial response, 9% complete response; Received "Breakthrough Drug" designation Positive results in durable tumor regression in melanoma, lung and kidney cancers

PD-1

MK-3475

Merck

Phase I

PD-L1

BMS-936559

Bristol-Myers Squibb

Phase I

PD-L1

MPDL-3280A

Genentech

Phase I

Well tolerated and no limiting toxicities across tumor types

PD-L1

MEDI-4736

MedImmune

Phase I

Currently recruiting for clinical study

Source: LifeSci Advisors Bristol-Myers Squibb – Yervoy Approved by the FDA in 2011 for the treatment of unresectable or metastatic melanoma, Yervoy (ipilimumab) is a mAb that acts by binding to the CTLA-4 receptor on the surface of CD4+ T-cells to block inhibitory binding to dendritic cells, activating cytotoxic T-cell for immune response to tumor cells. The FDA has issued a boxed warning for patients and healthcare professionals stating that Yervoy may result in severe and fatal immune-mediated adverse reactions involving any organ, due to the effects of T-cell activation and proliferation. In response to severe immune-mediated reactions, it is suggested that Yervoy administration is discontinued and high-levels of systemic corticosteroid is to be initiated. Total revenue for Yervoy was approximately $706 million in 2012. In a 2010 clinical study in 676 patients with advanced melanoma, median survival was 10 months in patients that were administered ipilimumab compared with 6 months with those who were given the cancer vaccine gp100. In addition, one year survival was 46% for patients treated with ipilimumab as opposed to gp100, which yielded a one year survival rate of 25%.

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The c-Met Receptor Target in Oncology c-Met is a receptor tyrosine kinase (RTK) protein that is expressed on the surface of stem cells which is necessary for embryonic tissue development of organs, and adult tissue regeneration in wound healing. It is a product of the proto-oncogene, c-Met. Upon activation, c-Met is upregulated causing intracellular signal transduction pathways to be triggered ultimately resulting in cell proliferation leading to tissue growth. However, if a mutation takes place in c-Met, these same functions can play an important role in cancer. Thus, RTKs such as c-Met have become potential molecular targets for cancer therapies. The Role of c-Met in Tumor Progression In order to generate tissue, stromal or mesenchymal cells release a paracrine factor known as hepatocyte growth factor (HGF) which acts on epithelial and endothelial cells that express c-Met. Stimulation of c-Met by the binding of HGF results in the activation of a number of biological and biochemical cellular processes which can ultimately lead to cell proliferation, survival, enhanced motility, and angiogenesis through signal transduction pathways such as RAS, PI3K and STAT. 32 However, genetic mutations can lead to overexpression of c-Met and increased tyrosine kinase activity, causing deregulation of these intracellular activities. Thus, these same pathways that lead to cellular proliferation and angiogenesis can result in malignancies and eventual metastasis through cell scattering. c-Met activating mutations have been found in a number of cancer types including kidney, ovarian, breast, liver and brain cancers. Increased levels of c-Met expression have also been seen in lung cancer studies. In a 2005 study published in Cancer Research, researchers found that cMet was highly expressed in 67% of lung adenocarcinomas, 57% of squamous cell carcinomas, 57% of large cell carcinomas, and 25% of small cell lung cancers. In addition, cells that overexpress c-Met have been linked to poorer clinical prognosis and reduced overall survival when compared to the same cancers resulting from alternative modes. 33 Therefore, there is a large push for the development of mAbs aimed at inhibiting the HGF/c-Met interaction. Clinical Evidence for Genentech’s MetMAb34 Roche/Genentech’s MetMab (onartuzumab – OA5D5) is a humanized monovalent mAb designed to bind to c-Met and inhibit HGF binding, resulting in the obstruction of the c-Met signaling pathway and potential cell death. Previous bivalent mAbs had the potential to activate, as opposed to inhibit,

Ma, P.C. et al., 2003. c-Met: Structure, functions and potential for therapeutic inhibition. Cancer and Metastasis Reviews, 22(4), pp309-325. 33 Ma, P.C. et al., 2005. Functional expression and mutations of c-met and its therapeutic inhibition with SU11274 and small interfering RNA in non-small cell lung cancer. Cancer Research, 65, p1479. 34 Surati, M. et al. Role of MetMAb (OA-5D5) in c-MET active lung malignancies. Expert Opin Biol Ther. December 2011; 11(12): 1655-62 32

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the c-Met pathways through dimerization/phosphorylation of the receptor. Thus, the monovalent form acts to prevent both HGF binding and agonistic activation of the c-Met pathways. In 2011, Expert Opinion on Biological Therapy Journal published clinical results from a Phase I and Phase II study done by researchers at the University of Chicago School of Medicine and Genentech for the the use of MetMAb in solid tumors. Phase I Study. This study was done to evaluate the safety and efficacy MetMAb in local, advanced, and metastatic solid tumors in patients who had no response to previous therapies. This was a doseescalation design on 21 patients, which included 1, 4, 10, 20, and 30 mg/kg doses given on day 1 of three week cycles. All does were well tolerated, a maximum tolerated dose was not reached, and one patient with gastric cancer exhibited a complete response. Phase II Study. This was a randomized, Phase II study of the use of erlotinib with or without MetMAb as a second or third line treatment for stage IIIb or IV non-small-cell lung cancer. Dosage included 150 mg once per day of erlotinib plus15 mg/kg of MetMAb once per week, or placebo, for three weeks. Tumors with greater than 50% of their cells that stained at an immunohistochemistry intensity of 2 or 3 were termed, “MET diagnostic positive,” and approximately 50% of patients were categorized as such. These patients tended to have a higher survival and progression free survival rate with MetMAb used in conjunction with erlotinib, as opposed to erlotinib with placebo. Also, MetMAb-erlotinib combination had an excellent safety profile, where MetMAb did not intensify erlotinib toxicities and the most recurrent MetMAb toxicity was peripheral edema which affected ~20% of the patient population. Conclusion. In these clinical studies, MetMAb exhibited good c-Met specificity, was well tolerated at all doses, and a good safety profile when used as both a single agent or in combination with erlotinib. Thus, MetMAb appears to be a promising therapy for use in a variety of solid tumors expressing the c-Met receptor. Sorrento’s Preclinical Data for c-Met Targeting Shows Promise Sorrento performed a study evaluating its lead antibody STI-A0601 discovered from their G-MAB® library technology in a xenograft model of U118 human glioblastoma cells in mice. The animals were treated with 150 μg of anti-c-Met antibody three times per week following tumor inoculation and compared those with cells treated with phosphate buffered saline (PBS). At day 35, tumor cells treated with PBS showed a logarithmic increase in tumor sizes from approximately 50 mm3 to roughly 750 mm3, whereas cells treated with Sorrento’s G-MAB®-discovered antibody prevented tumor growth effectively, as seen in Figure 18.

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Figure 18: Sorrento Preclinical Study with G-MAB mAbs

Source: Sorrento Therapeutics Presentation, 2013 Developmental mAbs Aimed at HGF-Met Interaction. There are a number of products currently in clinical development targeting the HGF/c-Met interaction in various cancers including c-Met kinase inhibitors, HGF inhibitors, and mAbs aimed at c-Met or HGF. However, for safety and efficacy reasons, mAbs may prove to be superior to other treatment types. Figure 19 provides a list of some of these mAbs that are in clinical development. Figure 19: Clinical Development of Anti-c-Met mAbs Monoclonal Antibody

Company

Phase of Development

AMG 102

Amgen

Phase III

MetMAb

Genentech

Phase III

AV-299

Aveo Pharmaceuticals

Phase Ib/II

HuL2G7

Millennium Pharmaceuticals

Phase I (complete)

MvDN30

Metheresis Translational Research

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Comments/Update Currently recruiting patients; results expected in 2016 Phase II results included doubling survival in NSCLC patients when combined with Tarceva Phase II results showed promise for increasing OS, PFS, and ORR. No Phase II currently scheduled

Promising results in cancer studies; collaboration with Wacker Biotech for production Source: LifeSci Advisors Preclinical

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Market Information for Oncology The National Cancer Institute’s Surveillance Epidemiology and End Results (SEER) program provides 5-year survival rates for a number of major cancer categories. These data are based on relative survival, which is a measure of the survival of US cancer patients in comparison to the general population. Figure 20 gives the 5-year survival rate for each stage of cancer at time of diagnosis. Figure 20: US 5-Year Survival Rates for Various Cancer Stages (2003-2009) Cancer Type Melanoma Kidney Cancer Non-Small Cell Lung Cancer Ovarian Cancer Prostate Cancer Pancreatic Cancer Colorectal Cancer Breast Cancer

Localized

Regional

Distant

Unknown

98.3 % 91.7% 53.5% 91.9% 100% 24.1% 90.3% 98.6%

62.4 % 64.2% 26.1% 72.0% 100% 9.0% 70.4% 84.4%

16.0 % 12.3% 3.9% 27.3% 27.9% 2.0% 12.5% 24.3%

76.5 % 33.5% 7.8% 21.5% 72.9% 4.1% 33.6% 50.0%

Source: LifeSci Advisors Figure 21 lays out a variety of epidemiological and market data for these same cancer types. Figure 21: US Epidemiological and Market Data for Various Cancers

Cancer Type Melanoma Kidney Cancer All Lung Cancer Ovarian Cancer Prostate Cancer Pancreatic Cancer Colorectal Cancer Breast Cancer

Prevalence

Incidence Rate (per 100,000)

Mortality Rate (per 100,000)

Market Size (E2020)

CAGR (20132020)

Market Size (E2020)

922,000 342,000 399,000 186,000 2,618,000 41,600 1,155,000 2,829,000

27.4 15.3 74.3 12.5 152.0 12.2 45.0 123.8

4.1 4.0 63.5 8.1 23.0 10.9 16.4 22.6

1,732,000 789,000 431,000 199,000 3,005,000 45,500 1,241,000 3,133,000

16.6 % 5.0 2.77 13.8 9.0 4.1 2.1 9.1

$ 2.83 B $ 0.8 $ 5.4 $ 0.13 $ 21.75 $ 1.47 $ 8.8 $ 6.14

Source: LifeSci Advisors

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Receptor-Targeted Drugs Currently on the Market Pfizer – Xalkori Xalkori (crizotinib) is a tyrosine kinase inhibitor that was approved by the FDA in 2011 in the US, and is also approved in other countries, for the treatment of locally advanced or metastatic nonsmall cell lung cancer in patients that are positive for anaplastic lymphoma kinase (ALK) as determined with an FDA approved test. This diagnostic kit is called the Vysis ALK Break Apart FISH Probe Kit and was approved in August, 2011. This drug inhibits the c-Met/HGF receptor tyrosine kinase resulting in loss of the receptor’s ability to cause tumor proliferation, angiogenesis, invasion and migration of malignant cells. Clinical results of Xalkori for this indication in 82 ALK-positive patients resulted in a decrease or stabilization in tumor size in 90% of these patients. In addition, the overall response rate was 50% and disease control rate was 87%. These results proved dramatic enough in comparison with standard chemotherapeutic treatments for metastatic non-small cell lung cancers for eventual FDA approval in 2011.35 In 2012, sales of Xalkori were estimated to be approximately $71.5 million, and analysts predict that it will reach sales of $898 million by 2016. Bacterial Quorum Sensing Target in MRSA Infections For some time now, it has been understood that Gram-positive and Gram-negative bacteria have a mechanism for communicating with one another through the use of small diffusible molecules called autoinducers. These molecules are involved in a number of microbial processes including gene expression in response to local population density and virulence factors. With the rise of antibioticresistant bacteria such as methicillin-resistant Staphylococcus aureus (MRSA), and given the escalation in antibiotic limitations, alternative approaches to fighting infections are being developed. Overview of Staphylococcus aureus. Staphylococcus aureus is a Gram-positive bacterium that is commonly found in the respiratory tract and on the skin of humans. While not always pathogenic, this organism is frequently the cause of infections ranging from minor skin infections such as boils, carbuncles, and folliculitis to serious infections including meningitis, endocarditis, toxic shock syndrome and pneumonia. In addition, S. aureus also plays a major role in many food poisonings, and is one of the five most common nosocomial infections, including post-surgical wound

35

HemOnc Today – Crizotinib Clinical Trial Results, June 2010.

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infections, and each year approximately 500,000 patients in the US contract a S. aureus infection every year.36 The pathogenicity of S. aureus can be attributed to a number of virulence factors including toxins that destroy cell membranes, surface proteins that promote colonization of host tissue, invasins that promote bacterial spread, surface factors that inhibit phagocytic engulfment, and immunological disguises.37 Early methods to treat S. aureus infections included the use of the β-lactam antibiotic penicillin. However, selective pressure over time has resulted in in the development of penicillinase, an enzyme that cleaves the β-lactam ring rendering the antibiotic useless. In light of this, other antibiotics were developed to treat these infections but, as expected, the organism developed resistant to those. The last of these were the most powerful to date, and included methicillin and vancomycin. In addition to the fact that antibiotics are becoming less effective due to bacterial resistance, they are also somewhat non-selective and have toxicity issues. Thus, alternative methods for treating MRSA infections include the use of mAbs aimed at the inhibition of quorum sensing. Quorum Sensing Mechanism of Action. The surfaces of bacteria have receptors for detecting signaling molecules called autoinducers. Binding of the autoinducer activates the transcription of certain genes, some of which are responsible for producing toxins and other virulence factors. Autoinducer concentration increases as a function of cell density. The autoinducer peptide (AIP) released from a cell binds with the transmembrane AgrC receptor and activates the regulatory mRNA molecule, RNA III, which transcriptionally initiates toxin production. 38 Therefore, by inhibiting the release or binding of these AIPs, quorum sensing is constrained and, thus, the pathogenicity of the organism is obstructed. Evidence of Quorum Sensing Targeting in the Treatment of MRSA Infections There have been numerous studies showing that using mAbs to block the quorum sensing mechanism is a powerful and alternative way to develop new treatments for MRSA and other pathogenic bacteria. In addition, mAbs do not exhibit the toxicities and could remove some of the selective pressure from the use of antibiotics. Two studies discussed here are from The Scripps Research Institute and Sorrento’s internal research using a mAb candidate discovered using the GMAB® technology.

Bowersox, John. Experimental Staph Vaccine Broadly Protective in Animal Studies. NIH. Archived from the original on 5 May 2007. Retrieved 28 July 2007. 37 Todar’s Online Textbook of Bacteriology 38 Kiran, M.D. et al. Discovery of a Quorum-Sensing Inhibitor of Drug-Resistant Staphylococcal Infections by Structure-Based Virtual Screening. Molecular Pharmacology. May 2008; 73(5): 1578-86. 36

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The Scripps Research Institute – AP4-24H11. In a study published in 2007, researchers at The Scripps Research Institute developed an anti-autoinducer mAb, AP4-24H11, which effectively inhibited quorum sensing in vitro through the binding and sequestration of the S. aureus autoinducer peptide, AIP-4. This resulted in suppression of pathogenicity in an in vivo mouse model, including inhibition of cellular apoptosis and blocking of dermal injury. Also, AP4-24H11 provided complete protection against an 8-day lethal challenge, where 0% of untreated mice lived, and 100% of mice treated with this mAb survived.39 Sorrento Internal Study – STI-C0205. Sorrento conducted a study included the inoculation of ten mice with 1 mg aliquots of either a control antibody or G-MAB®-identified anti-AIP-2 mAb, STI-C0205. This was performed one hour before infection with MRSA, and the mice were then monitored every six hours for three days. The control group resulted in 0% survival after 15 hours, while the mice inoculated with STI-C0205 resulted in an 80% survival rate. Anti-Quorum Sensing Programs at Sorrento Targeting MRSA and C. difficile are Supported by NIH Notably, the anti-MRSA antibody program at Sorrento is supported by a STTR NIH fast-track grant that covers expenses during the preclinical development. In a similar vein, Sorrento has obtained NIH funding via a STTR Phase 1 grant to embark on an analogous program targeting quorum sensing and toxin expression Clostridium difficile (“Cdiff”), another important bacterial pathogen in hospitals.

Market Information for MRSA Infections As of 2004 there were approximately 4.1 million individuals in the US were colonized in the nose with MRSA, and approximately 278,000 of those were hospitalized for MRSA infection in 2005.40 As of 2007, an estimated 880,000 individuals are infected with MRSA each year in the US. In addition, 2.4% of hospital inpatients are infected each year and 20,000 – 40,000 (~5%) of MRSA infected individuals die each year. The additional cost per MRSA infection was estimated to be over $10,000, resulting in a total cost of MRSA infections each year around $8 billion.41 According to a report done by Research and Markets in 2011, the MRSA market in high growth trajectory mode and is expected to mature around 2017. The global MRSA market is estimated to be

Park, J. et al. Infection Control by Antibody Disruption of Bacterial Quorum Sensing Signaling. Chemistry & Biology. October 2007; 14(10): 1119-27. 40 Center for Disease Control and Prevention – MRSA Surveillance 41 Stibich, Mark. MRSA Infection Statistics. March 2009. 39

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worth approximately $900 million in 2010 and is expected to grow at a CAGR of 4.8% reaching $1.25 billion by 2017.42

G-MAB®-Enabled Targeted Drug Delivery Technologies for Cancer Therapies Sorrento is pursuing a two-pronged strategy to leverage its G-MAB® library for targeted drug delivery. Taking advantage of its proprietary anti-cancer antibodies, Sorrento is developing its lead anti-VEGFR2 mAb as an ADC targeting tumor vasculature. Other Sorrento mAbs are also being evaluated for their potential as ADCs. The AfDC technology is a platform for identifying antibody formulated drug conjugates and ‘bio-better’ drugs aimed at cancer therapies utilizing the G-MAB® technology. Sorrento has a single source, in-house mechanism for generating AfDCs, which may reduce development costs and time. Also, Sorrento isn’t limited to a single mAb or drug species per AfDC project potentially enabling higher target specificity and delivery of more potent drug payload combinations. Antibody Drug Conjugates Antibody Drug Conjugates (ADCs) are comprised of a mAb or mAb fragment linked to a cytotoxic agent. The ADC binds to a receptor on the cell surface of the tumor and is internalized, subsequently releasing the cytotoxic agent into the cell resulting in apoptosis. This method of cancer treatment provides for a more selective therapy, resulting in less adverse side effects than using chemotherapy. Sorrento is pursuing a two-pronged ADC approach, namely utilizing non-proprietary drugs and linkers as well as pioneering new ADC technologies, which will further empower the GMAB® library. In proof-of-concept studies, Sorrento’s ADCs have demonstrated significant in vitro activity against tumor antigen-expression cells. Antibody Formulated Drug Conjugates AfDCs involve a mAb linked to a cytotoxic agent-containing payload. The AfDC binds to a tumor receptor, and upon binding the payload releases cytotoxic agent into the tumor resulting in apoptosis of tumor cells and subsequent tumor reduction. The advantages of AfDCs over ADCs are that it provides for a simple linkage. The G-MAB® library can be leveraged to provide selection and development of biospecific conjugates, with the ability to deliver a payload containing a variety of diverse drugs. In addition, with the purchase of the micellar nanoparticle technology TOCOSOL® in March 2013 from IgDraSol, the AfDC platform may include a highly adaptable micellar formulation payload technology that they can combine with the mAbs identified using the G-MAB® technology.

Research and Markets. Methicillin-Resistant Staphylococcus Aureus Pipeline Assessment & Forecasts to 2017: MRSA Market in High Growth Trajectory Expected to Mature by 2017. March 2011. 42

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Clinical Development of ADCs There are approximately 33 ADC drugs currently in clinical development. Figure 22 details some of the leading programs. Figure 22: Clinical Development of Various ADC Drugs ADC Product

Company

Phase of Comments/Update Development

CDX-011

Celldex Therapeutics

Phase II (complete)

FDA granted fast track designation in 2010 for breast cancer

IMGN901 ImmunoGen

Phase I/II

Clinical benefit rate of 25% in small-cell lung cancer patients

Phase I/II

Estimated study completion date in March, 2013; results pending

CAT-8015 MedImmune

Source: LifeSci Advisors

ADC Drugs Currently on the Market While there are approximately 33 ADC drugs currently in clinical development, Adcetris and Kadcyla are the only ones that have been approved by the FDA and are currently available on the market. Seattle Genetics – Adcetris Adcetris (brentuximab vedotin) is an anti-CD30 ADC is indicated for the treatment of relapsed/refractory (R/R) anaplastic large cell lymphoma (ALCL) and R/R Hodgkin lymphoma, and received accelerated approval by the FDA in 2011 for these two indications. The ADC is comprised of the chimeric mAb, brentuximab, linked to a cytotoxic antimitotic agent, monomethyl auristatin E. The linker was developed to remain stable in the bloodstream but upon proteolytic cleavage, release the cytotoxic agent upon cancer cell internalization. In a 2010 Phase II clinical trial, patients with ALCL treated with Adcetris had 80% of their tumors decrease at least by half, and 97% had some tumor reduction. For Hodgkin lymphoma patients, 34% with refractory disease achieved complete remission and 40% achieved partial remission.

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In January 2012 the FDA issued a boxed warning stating that patients infected with John Cunningham virus, a human polyomavirus, who are taking Adcetris could develop progressive multifocal leukoencephalopathy and also result in death. US Sales for Adcetris were $94.8 million in 2011 and increased to $138 million in 2012. ImmunoGen – Kadcyla Kadcyla (ado-trastuzumab emtansine) is the first approved ADC for patients with HER-2-positive metastatic breast cancer who were not previously responsive to Herceptin (trastuzumab) and taxane chemotherapy, separately or in combination, and was given FDA approval in February 2013. Kadcyla is comprised of trastuzumab, the mAb used in Herceptin, conjugated to three chemotherapy agent molecules bound by a plasma-stable linker. Similar to Adcetris, the mAb binds to HER-2 receptors and is internalized, releasing the cytotoxic agent and destroying the cancer cell. An open-label, randomized Phase III study compared Kadcyla to lapatinib in combination with Xeloda (capecitabine). 991 HER-2-positive patients with locally advanced or metastatic breast cancer who were previously treated with Herceptin and taxane chemotherapy showed remarkable results. An overview of these results include: OS = 30.9 vs 25.1 months; 32% reduction in death risk; PFS = 9.6 vs 6.4 months; fewer people with Grade 3 or 4 AE’s = 43.1% vs 59.2%.43 Just as for Adcetris, the FDA issued a boxed warning for Kadcyla stating that the drug could cause liver and heart toxicities, death, and life-threatening birth defects for women who are pregnant. US Sales for Herceptin were approximately $1.66 billion in 2011 and $1.80 billion in 2012. Kadcyla peak sales have been estimated to be between $2 billion and $5 billion.44 Opportunities for ADCs/AfDCs As with the G-MAB® generated mAbs, the range of possible targets for Sorrento’s ADC/AfDC drug candidates is very wide. Initial opportunities include development of biosimilar versions of blockbuster drugs such as Erbitux, Herceptin, and Rituxan. Other targets that Sorrento is considering for development of AfDCs include VEGFR2, EGFR, c-Met, ErbB3, CXCR5, and CXCR3. Recombinant Intravenous Immunoglobulin (rIVIG) Immunoglobulins, most commonly delivered intravenously and referred to generally as IVIG (intravenous immune globulins), are human blood products derived from the extracted plasma of at 43 44

FDA Press Release – February 22, 2013. FiercePharma – Information on Kadcyla Market, 2013.

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least over 1000 healthy donors delivered to patients for the treatment of a broad range of conditions. Global sales currently exceed $6 billion, and medical applications include the treatment for immune deficiencies, autoimmune diseases, specific pathogens, or other uses. Although its clinical utility is well accepted, broader use of IVIG is severely constrained by a number of critical factors including limitations of human donor supply, cost, batch-to-batch variability, contamination risk, and limited specificity. Sorrento has assembled several key technologies and capabilities enabling the effective production of recombinant intravenous immunoglobulins (“rIVIG”). It is anticipated that rIVIG would not only duplicate the attributes of plasma derived IVIG, but allow for refinements enabling novel and more effective treatments, including several conditions not currently addressable by IVIG or other means. rIVIG would also have distinct advantages in that production would not be limited by donor supply, disease contamination risk would be removed, and batch-to-batch variability would be much better controlled. Sorrento will leverage the unique G-MAB® platform technology and other key intellectual property with the specific clinical development focus of a dedicated team to commercialize rIVIG products. rIVIG not only has the potential to supplant plasma-derived IVIG due to its many advantages, but may also address important diseases for which neither donor IVIG nor monoclonal antibody strategies are able to adequately treat. Using the G-MAB® platform with novel production methods, polyclonal rIVIG can be purposefully designed with superior binding profiles and effector functions. Additionally, rIVIG would remove the contamination risk as well as significantly reduce the batch variability intrinsic to donor derived IVIG. Consequently, there are several development pathways towards commercial success. Existing commercial IVIG products cost up to $10,000 per treatment, and for many conditions, must be administered chronically. The heavy burden on limited worldwide supply necessitates rationing, and many patients cannot receive the benefit of IVIG if their condition is not deemed sufficiently serious, even if cost is not the limiting factor. An IVIG supply not contingent upon the availability of donor plasma would expand global usage of this valuable treatment. This is especially true in countries where donor plasma has traditionally been scarce. G-MAB® library and other key innovations for Sorrento may allow for the creation of antibodies with much greater diversity and superior binding than competing antibody libraries. Importantly, Sorrento’s technology also enables specific antibody class selection, thereby allowing for the sole production of IgG antibodies, excluding IgA and other antibody classes. An important danger of administering donor-derived IVIG to patients is that there are trace amounts of IgA within the predominately IgG product; for those patients with auto-IgA sensitivity, this can trigger a hypersensitivity reaction. Conversely, traces of IgA in plasma IVIG are insufficient to protect mucosal surfaces (lung, eye, urogenital tract, GI). Sorrento’s platform would allow for the development of an IgA product to address this unmet need for patients without IgA sensitivity.

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Additionally, Sorrento will be able to generate antibodies of a particular subclass (for instance, IgG3) depending upon whether complement activation or other attributes should be enhanced for the intended clinical indication. This ability has the potential to vastly increase the prospective potency and dramatically reduce required dosing compared to plasma IVIG. The ability to manufacture rIVIG specific against particular antigens may also enable the creation of “hyperimmune” immunoglobulins designed against specific pathogens for which it is simply not possible to generate an equivalent human donor product. For example, antibody products for neutralization of certain venoms and toxins are currently created by immunizing animals with the toxin of interest. However, these hyper-immune anti-venoms have limited efficacy while creating serious sensitivity reactions as common adverse events due to interspecies differences in antibody sequence structure. Specially designed hyperimmune rIVIG products would not only address such needs with much more potent and specific antibodies, but also remove the complications of delivering animal-derived biologics to patients. There is also potential application for biodefense products, especially against agents for which it is not feasible or sufficiently effective to develop a vaccine strategy, a monoclonal antibody (mAb), or animal-derived product. Such hyperimmune rIVIG development might receive accelerated regulatory approval as there is a lack of acceptable alternatives and such applications intrinsically cannot be tested via traditional efficacy studies. Sorrento has the flexibility of spinning out or partnering the rIVIG development after manufacturing and in vivo proof-of-concept has been obtained.

Intellectual Property In July 2008, the US Patent and Trade Office issued a patent for the Sorrento G-MAB® library technology. Sorrento has also filed patent applications for the screening, generation and display of the mAb libraries, and these patents are pending. In addition, the Company has filed patent applications for major improvements that are continuously added to the initial Sorrento technology concerning their ability to constantly advance the technology in its capacity to generate greater library diversity and single-class libraries. A number of strategies Sorrento use to protect their intellectual property fall under the use of proprietary know-how and trade secrets. License Agreement with The Scripps Research Institute In January 2010, Sorrento entered into a license agreement with The Scripps Research Institute (TSRI) for exclusive, worldwide rights which includes those concerning patents and materials dealing with quorum sensing for the prevention and treatment of infections caused by S. aureus and MRSA. In return, TSRI receives an annual royalty, a running royalty based on licensed products sold by Sorrento or their affiliate members, and a royalty on revenues produced through Sorrento or any

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sublicenses that are tied to licensed products. Also, TSRI received a warrant to purchase Sorrento common stock.

Management Team Henry Ji, Ph.D. President and CEO Dr. Ji co-founded Sorrento Therapeutics and served as director since January 2006 and Chief Scientific Officer from November 2008 to September 2012, before serving as President and Chief Executive Officer since September 2012. Prior to Sorrento, Dr. Ji co-founded Stratagene Genomics, Inc. in 1997, served as Vice President of Stratagene Corporation in 2001, where he was responsible for technology and product licensing and development, and served as Vice President from 2001 to 2002 at CombiMatrix Corporation, a publicly traded biotechnology company which developed technologies for drug development, genetic analysis, nanotechnology and molecular diagnostics. Also, in 2002 he founded and served as President of BioVentage, Inc., a research and development company aimed at commercializing innovative life science products. He is the inventor of Sorrento’s G-MAB technology, and holds a number of issued and pending patents in the life science field. Dr. Ji received his PhD in Animal Physiology from the University of Minnesota, and a B.S. in biochemistry from Fudan University. Vuong Trieu, Ph.D. Chief Scientific Officer Dr. Trieu joined Sorrento following the acquisition of IgDraSol, where he previously served as Chief Executive Officer. He has more than 20 years of post-grad and industry experience. He has broad drug discovery and development experience having directly supported seven drug candidates from preclinical to clinical to commercialization, as well as broad regulatory experience across various territories: US, EMEA, KIKO, and others. He has 34 peer-reviewed scientific articles and 30 patents and patent applications. He is also an active member of various professional societies including Endocrine Society, ASCO, and AACR. Dr. Trieu obtained his doctorate in Microbiology/Molecular Biology from University of Oklahoma in 1989. He completed postdoctoral training at University of Chicago pediatric transplantation unit and Oklahoma Medical Research Foundation lipoprotein department. He then held successively higher management positions at Genetic Therapy Inc/Sandoz (Group Leader leading the adenoviral gene therapy program against atherosclerosis); AME/Lily (Group Leader leading the expression, purification, and preclinical testing of mAb therapeutics); Parker Hughes Center (Director of Cardiovascular Biology program evaluating a series of small molecules and biologics against preclinical models of atherosclerosis, dyslipidemia, stroke, ALS, and restenosis); Cenomed (Board LIFESCI ADVISORS Equity Research

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Member); and Abraxis Bioscience/Celgene (Sr. Director of Pharmacology/Biology leading the drug discovery and preclinical development as well as pharmacokinetic and biomarker programs supporting Abraxis pipeline and its commercial product- Abraxane®). While at Abraxis he led the preclinical, clinical and PK/biomarker development of Abraxane®, and was the co-inventor of the intellectual property covering Abraxane®. Richard G. Vincent Director and Chief Financial Officer Richard Vincent joined Sorrento in 2010 as a part-time CFO before coming on as a full-time CFO in 2012 and Executive Vice President in 2013, and has over 20 years of accounting experience. Prior to this, Richard has served as a part-time CFO for a number of small to mid-size pharmaceutical companies over the years, and from 2001 to 2003 as Senior Director of Finance for Elan Pharmaceuticals, a publicly-traded biopharmaceutical company engaged in R&D and commercialization of neuroscience, autoimmune and severe chronic pain products. Richard began his career at Deloitte & Touche specializing in emerging growth and publicly-reporting companies. In addition, Richard has experience raising over $450 million in equity funding, has participated in a number of divestures and acquisition valued at over $1.1 billion, and was involved in a $310 million sale of Verus Asthma to Astra Zeneca. He received his CPA license in California in 1989, and received his B.S. in business with emphasis on accounting from San Diego State University. George Uy Chief Commercial Officer George Uy joined Sorrento following the acquisition of IgDraSol, where he previously served as Chief Commercial Officer. Mr. Uy has 20 years of oncology marketing and leadership experience working for both small and large pharmaceutical companies including Abraxis, Spectrum Pharma, Hana Biosciences and Roche Labs. In addition to directing the successful launch of Xeloda and Fusiley, George was also involved in launching Abraxane® which had first year sales of over $100 million. He has also been a part of building commercial infrastructures and organizations in startup companies. George graduated in 1982 with a B.A. in medical technology from the Cebu Institute of Medicine.

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Risk to an Investment An investment in Sorrento Therapeutics is considered a high-risk investment. The Company currently has no marketed products and is pursuing the clinical development of multiple products. Failure of Sorrento to successfully complete clinical studies, achieve regulatory approval from the FDA or achieve commercial success once approved could negatively impact their stock price. Additionally, as a developmental-stage biopharmaceutical company, Sorrento is not profitable and may not have sufficient funds to complete the development and commercialization of their products. The Company may need to seek additional financing from the public markets, which may result in dilution to existing shareholders and negatively impact its stock price.

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DISCLOSURES The material presented in this report is provided for information purposes only and is not to be used or considered as a recommendation to buy, hold or sell any securities or other financial instruments. Information contained herein has been compiled by LifeSci Advisors and prepared from various public and industry sources that we believe to be reliable, but no representation or warranty, expressed or implied is made by LifeSci Advisors, its affiliates or any other person as to the accuracy or completeness of the information. Such information is provided with the expectation that it will be read as part of a broader analysis and should not be relied upon on a stand-alone basis. Past performance should not be taken as an indication or guarantee of future performance, and we make no representation or warranty regarding future performance. The opinions expressed in this report reflect the judgment of LifeSci Advisors as of the date of this report and are subject to change without notice. This report is not an offer to sell or a solicitation of an offer to buy any securities. The offer and sale of securities are regulated generally in various jurisdictions, particularly the manner in which securities may be offered and sold to residents of a particular country or jurisdiction. Securities discussed in this report may not be eligible for sale in some jurisdictions. To the full extent provided by law, neither LifeSci Advisors nor any of its affiliates, nor any other person accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or the information contained herein. No LifeSci Advisors directors, officers or employees are on the Board of Directors of a covered company and no one at a covered company is on the Board of Directors of LifeSci Advisors. Neither the analyst who authored this report nor any of LifeSci Advisors’ directors, officers, employees invest in the securities of the company that is the subject of this report. LifeSci Advisors has been compensated by the company that is the subject of this report for this and future research reports, investor relations services, and general consulting services.

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Sorrento Therapeutics, Inc.

All values in Thousands of Dollars ($)

217 217

427 951 1,378

135 135

(1,757)

716 1,163 1,879

122 122

7 7

(4,852)

1,606 3,830 5,436

584 584

(2,503)

2 10 12

(2,515)

1,250 1,399 2,649

134 134

(4,736)

(22) 2 (20)

(4,716)

1,508 3,351 4,859

143 143

10/25/13

110 110

245 918 1,163

(1,243)

2 2

(4,845)

-

(4,736)

2Q13A

329 200 529 219 799 1,018

(946)

2 2

(1,755)

-

(2,503)

(0.35)

1Q13A

1,201 2,570 3,771 (908)

2 2

(1,241)

-

(4,845)

(0.01)

13,443

FY12A

(3,242)

2 2

(944)

-

(1,755)

(0.02)

307,809

4Q12A

6 6

(906)

-

(1,241)

(0.01)

285,126

3Q12A

REVENUES Grants Collaboration Agreements Reimbursable R&D Costs Total Revenues

(3,236)

-

(944)

(0.00)

299,894

2Q12A

SG&A R&D Total Operating Expense

-

(906)

(0.00)

299,093

1Q12A

Operating Income Operating Margin

(3,236)

(0.00)

280,625

FY11A

Income Tax

(0.01)

260,893

EPS - Basic & Diluted

Net Income (loss) Before Taxes

Interest Income Interest Expense Total Other Income (expense)

Net Income

248,048

Weighted Avg Shares Out - Basic & Diluted

Page 55

LIFESCI ADVISORS Equity Research

November 11, 2013

LIFESCI ADVISORS