Scilex Holding Company — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Financial amounts below are in U.S. dollars; statements are unaudited. Scilex develops and commercializes non-opioid pain products. Its marketed products were ZTlido and ELYXYB; GLOPERBA was expected to launch in the first half of 2024. Its pipeline includes SEMDEXA, SP-103 and SP-104.
Key financial results
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Net revenue | $10.9 million | $10.6 million |
| Gross profit / margin | $7.0 million / 64.7% | $7.0 million / 66.1% |
| Operating loss | $19.5 million | $25.5 million |
| Net loss | $24.4 million | $30.8 million |
| Basic and diluted loss per share | $0.24 | $0.22 |
| Net cash from (used in) operations | $9.4 million | $(7.7) million |
Revenue increased 2.9%; management attributed the change to approximately 28% growth in gross ZTlido sales and ELYXYB sales, which began in April 2023, partly offset by higher rebates. Cost of revenue rose to $3.8 million from $3.6 million. The lower operating loss included a $6.9 million gain recorded as negative legal-settlement expense. Net loss improved year over year, while loss per share increased from $0.22 to $0.24; weighted-average shares fell to 102.4 million from 141.7 million.
Financial position, debt and liquidity
- At March 31, cash and cash equivalents were $1.8 million; restricted cash was another $1.0 million. Negative working capital was $215.0 million, total current liabilities were $252.7 million, and stockholders’ deficit was $189.8 million.
- Reported total indebtedness was $112.5 million, including the Oramed Note at a $92.9 million fair value and the eCapital revolving facility at $16.3 million. The Oramed Note’s outstanding principal was $81.9 million; its fair value includes valuation effects. The company repaid the remaining convertible debentures in March.
- The Oramed Note matures March 21, 2025, carries interest in kind, and requires principal installments of $20 million each in June, September and December 2024, followed by the remaining balance at maturity. A roughly $3.1 million exit fee had been earned. The eCapital facility matures July 1, 2026 and requires at least $1.0 million of cash on hand.
- Management concluded that substantial doubt exists about the company’s ability to continue as a going concern for one year after issuance of the statements. It plans to seek additional capital through equity or debt financing, collaborations or other strategic transactions; those plans depend on factors outside its control.
Operating cash flow was positive despite the net loss, helped by changes in operating assets and liabilities, including a $14.4 million increase in accrued rebates and fees. Financing activities used $11.2 million, including repayments of borrowings. Investing activities used $0.2 million.
Changes, outlook and risks
- The company raised $10.0 million gross in a March bought-deal offering of 5.9 million shares with accompanying warrants. Yorkville and B. Riley standby equity purchase agreements were terminated in March and February, respectively. The ATM program allowed sales up to $170 million, but only about $0.1 million of net proceeds had been raised under it by quarter-end.
- After quarter-end, a registered direct offering closed April 25, issuing 15 million shares and warrants for gross proceeds of $15 million before fees. The filing says $9.6 million, representing 70% of the offering’s net cash proceeds, was paid to Oramed under the mandatory prepayment provision.
- Management expects continued losses and investment in commercialization and research and development. It may reduce commercial spending or delay, scale back or discontinue development programs if adequate funding is unavailable. No numerical revenue or earnings guidance is provided.
- Three customers accounted for 85% of Q1 revenue and 94% of receivables. The company also relies on sole suppliers for key products, creating customer and supply concentration risks.
- A Change Healthcare cyberattack disrupted insurance-claim processing and copay-card operations; Scilex reported that copay processing for ZTlido and ELYXYB had returned to normal by the filing date.
- Litigation developments included settlements with Sanofi and Hisamitsu, and a Takeda settlement and patent license relating to GLOPERBA; a final consent judgment was entered May 3, 2024. Virpax agreed to pay $3.5 million initially and $2.5 million by July 1, 2024; the initial payment was received, but the latter receivable was fully reserved. Litigation against former executive Anthony Mack remained ongoing. A ZTlido patent trial was scheduled for July 8, 2024.
- Other material risks include dependence on ZTlido sales, early-stage commercialization of ELYXYB, regulatory and clinical-development uncertainty, debt covenants and repayment requirements, potential dilution from share and warrant issuance, and the risk that financing may not be available on acceptable terms.
Important facts for investors to verify
- Cash runway and financing actually available, considering the going-concern warning, negative working capital and upcoming Oramed installments.
- Commercial sales, rebates and reimbursement trends for ZTlido and ELYXYB, and the actual timing and results of GLOPERBA commercialization.
- Terms and net proceeds of post-quarter financing, including the Oramed mandatory sweep, and any resulting dilution.
- Customer and supplier concentration, accrued rebate obligations, and collection prospects for the fully reserved Sorrento and Virpax receivables.
- Outcomes of the ZTlido patent litigation and remaining litigation against Mr. Mack, along with progress and funding needs for the pipeline.