hen Dr. Patrick Soon-Shiong invested in the troubled media company Tronc, he was greeted as a white knight. But a lawyer for Tronc is now accusing Soon-Shiong of making an “implicit threat” that he would abandon the company unless Tronc invested in his own medical diagnostics startup, NantHealth.
Soon-Shiong helped rescue Tronc from a hostile takeover attempt last May with an investment of more than $70 million. But he first tried to convince the publishing company to invest in the initial public offering of NantHealth, according to a letter from Tronc’s attorneys filed with the Securities and Exchange Commission.
“Tronc properly declined to invest in that company, since such an investment would have had no logical connection to its business operations in the publishing industry,” the attorneys wrote.
When the company declined, Soon-Shiong insisted that Michael Ferro, Tronc’s chairman, invest in NantHealth, either personally or through his private equity firm, Merrick Ventures, the attorneys wrote.
“The implicit threat was that, if Merrick did not invest in NantHealth, Dr. Soon-Shiong would not invest in Tronc,” the Tronc legal team wrote.
Ferro bought a $10 million stake in NantHealth “so that Tronc did not have to,” according to the attorneys. NantHealth went public last June, to considerable fanfare, but its stock price has since fallen by more than 60 percent.
NantHealth did not respond to a request for comment.
The letter is the latest blow in a public feud between Ferro and Soon-Shiong for the future of Tronc, which owns a stable of newspapers including The Los Angeles Times and The Chicago Tribune. Last year, as media giant Gannett was pressuring Tronc to accept a buyout offer, Soon-Shiong bought a 13 percent stake in the company, helping to fortify its defenses.
But now Tronc appears to be forcing Soon-Shiong out of the picture. Last month, the company removed him from the list of board members up for re-election and cleared the way for Ferro to increase his stake in Tronc while capping the amount of shares available to Soon-Shiong. Last week, Soon-Shiong sent a letter to Tronc demanding his cap be raised and accusing the company of deliberately marginalizing him.
Tronc’s response to that letter, made public through the SEC filing on Monday, makes the first connection between Soon-Shiong’s investment in Tronc and his work with NantHealth, which is part of a constellation of biotech-related companies under his control.
With NantHealth, Soon-Shiong has promised to revolutionize cancer diagnostics through a proprietary technology called GPS Cancer. But the company has struggled to gain traction, posting disappointing sales numbers and losing $184 million in 2016.
And Soon-Shiong’s management of the company has come under increasing scrutiny. Last month, a STAT investigation found that he used his highly promoted cancer moonshot initiative as a marketing vehicle for GPS Cancer. A second investigation described how Soon-Shiong used a $12 million charitable gift to funnel business into NantHealth.
The company’s stock price declined after each report, and NantHealth is now facing lawsuits from investors claiming Soon-Shiong misrepresented facts and violated securities law.