Business Context and Reporting Period
This Form 8-K, filed on September 11, 2023, by Oramed Pharmaceuticals Inc. (the "Company"), reports on significant developments regarding its acquisition of Scilex Holding Company ("Scilex"). The filing details the execution of non-binding term sheets on September 11, 2023, which supersede a previously announced Stock Purchase Agreement with Sorrento Therapeutics, Inc. ("Sorrento"). The transactions are subject to definitive documentation and were approved by the Bankruptcy Court on September 12, 2023.
Key Financial Metrics and Transaction Structure
The filing outlines a revised transaction structure involving the following financial components:
- Total Purchase Price: Approximately $110 million in cash/credit plus the assumption of legal fees and a credit bid.
- Payment Breakdown:
- $5 million cash advance payment.
- $100 million payable at closing (either in cash via Option 1 or via assumption of the Senior DIP Loan Facility under Option 2).
- $5 million cash payable at closing.
- Assumption of approximately $12.25 million in legal fees and expenses.
- Credit bid of all amounts owed under the Junior Secured, Super-Priority Debtor-in-Possession Loan.
- Financing Options:
- Option 1: Hudson Bay Capital Management LP funds $115 million to Scilex.
- Option 2: Scilex assumes the $100 million Senior DIP Loan Facility obligations from the Debtors.
- Senior Secured Note (if Option 2 applies):
- Initial principal: Equal to unpaid principal and accrued interest under the Senior DIP Loan Facility.
- Interest Rate: SOFR + 8.5% (SOFR floor 4.0%), paid in-kind.
- Maturity: 18 months from closing.
- Exit Fee: 3.0% of initial principal if not repaid within 6 months.
- Collateral: Senior lien on substantially all of Scilex's assets.
- Equity Consideration:
- Warrants to purchase 13 million shares of Scilex common stock at $0.01 per share.
- Transfer of warrants to purchase 4 million shares of Scilex common stock at $11.50 per share.
Note: This filing does not provide Oramed's standalone revenue, profit, cash flow, or liquidity metrics for a specific reporting period.
Material Changes Versus Prior Period
The filing represents a material change from the August 7, 2023, Stock Purchase Agreement:
- Termination of Prior Agreement: The original agreement with Sorrento to acquire Scilex securities for $105 million is to be terminated upon the closing of the new transactions.
- Change in Buyer: Under the new Term Sheets, Scilex itself is declared the winning bidder to purchase its own stock from Sorrento, rather than Oramed directly purchasing the stock from Sorrento as originally structured.
- Release of Claims: Oramed and Sorrento agreed to mutually release claims, including any breakup fees or expense reimbursements under the original agreement.
- Waivers: Oramed and Sorrento waived certain closing conditions and termination rights related to permitted debt financings and Standby Equity Purchase Agreements.
Guidance, Outlook, Risks, and Contingencies
Outlook and Timeline:
- The transactions are expected to close on or about September 19, 2023.
- The Bankruptcy Court entered a final order approving the Term Sheets on September 12, 2023.
- Restrictions on certain transfers of Scilex common stock held by Sorrento have been extended to March 31, 2024.
- Closing Risk: The transactions are contingent upon the execution of definitive documentation and satisfaction of closing conditions.
- Financing Risk: Option 1 relies on Hudson Bay Capital Management LP providing $115 million in funding; failure to do so triggers Option 2.
- Recovery Risk: Risks associated with Oramed's ability to recover proceeds or collateral under the Senior DIP Loan Agreement or the Senior Secured Note.
- Operational Distraction: Potential diversion of management attention from ongoing business operations.
- Litigation: Exposure to potential litigation in connection with the transactions.
Management emphasizes that the Term Sheets are subject to definitive documentation. The Company has secured a non-voting observer seat on Scilex's board until the Note obligations are repaid in full.
Important Facts for Investor Verification
- Verify the execution of definitive documentation for the Securities Transfer and Note Term Sheets.
- Confirm whether Hudson Bay Capital Management LP funds the $115 million (Option 1) or if Scilex assumes the Senior DIP Loan (Option 2).
- Monitor the closing date, currently expected around September 19, 2023.
- Review the final terms of the Senior Secured Note, specifically the interest rate floor and mandatory prepayment schedule.
- Confirm the formal termination of the August 2023 Stock Purchase Agreement and the release of all associated claims.