8-K: Scilex Secures $50 Million Financing, Oramed Restructures Debt

Scilex Holding Company has finalized a $50 million financing round, while Oramed Pharmaceuticals restructures its existing debt with Scilex, gaining new convertible notes and warrants.

Summary

• Scilex Holding Company has secured a $50 million financing through the issuance of new senior secured convertible notes and warrants.
• Oramed Pharmaceuticals is restructuring its existing debt with Scilex, converting $22.5 million of its senior secured promissory note into a new note and warrants.
• The new Scilex notes have a 10% original issue discount, bear interest at 5.5% per annum, and are convertible into common stock at $1.09 per share, subject to adjustments.
• Oramed will receive warrants to purchase 3.75 million shares of Scilex common stock at an exercise price of $1.09, also subject to adjustments.
• Scilex will use $12.5 million of the financing proceeds to repay a portion of Orameds existing note and another $12.5 million to pay off its revolving credit facility with eCapital Healthcare Corp.
• Oramed and other investors will also acquire an 8% royalty on net sales of certain Scilex products, with Oramed receiving 50% of such proceeds, and will reduce the outstanding principal balance of the Senior Secured Promissory Note by $2.5 million.
• The new notes are secured by a first priority lien on substantially all of Scilexs assets, ranking pari passu with existing Tranche A Notes and senior to all other outstanding and future indebtedness of the Company and its Subsidiaries.

Sentiment

Score: 7

Explanation: The document presents a positive outlook for Oramed and Scilex, with a focus on restructuring debt and securing new financing. While there are some risks associated with the transactions, the overall tone is optimistic.

Positives

• Scilex has secured significant funding to address its debt obligations and support its operations.
• Oramed has restructured its debt with Scilex, potentially improving its investment returns through new convertible notes and warrants.
• The royalty agreement provides Oramed with a stake in the future sales of Scilex products.
• The new notes are secured by a first priority lien on substantially all of Scilexs assets, providing security for the investors.

Negatives

• The new Scilex notes have a 10% original issue discount, which reduces the initial value of the investment.
• The conversion price of the new notes and the exercise price of the warrants are subject to adjustments, which could dilute existing shareholders.
• The new notes are secured by a first priority lien on substantially all of Scilexs assets, which could limit the flexibility of the company.

Risks

• The conversion price of the new notes and the exercise price of the warrants are subject to adjustments, which could dilute existing shareholders.
• The new notes are secured by a first priority lien on substantially all of Scilexs assets, which could limit the flexibility of the company.
• The success of the royalty agreement depends on the future sales of Scilex products.
• The value of the warrants and convertible notes is subject to the volatility of the stock market.

Future Outlook

The document indicates that the new financing and royalty agreement are expected to enhance the potential value of Orameds investment in Scilex, while also supporting innovative healthcare solutions. The document also notes that the new notes are convertible into shares of Scilex common stock at the option of the holder, which could provide further upside potential.

Management Comments

• We believe that this restructuring significantly enhances the potential value of our investment in Scilex, said Nadav Kidron, CEO of Oramed Pharmaceuticals.
• While slightly extending the payment schedule of a portion of our investment, it offers us substantial potential upside, including through warrants and conversion options.
• We are also excited to have a stake in the growth and prospects of ZTlido. This aligns perfectly with our strategy of maximizing value for our shareholders while supporting innovative healthcare solutions.

Industry Context

This announcement reflects a trend in the pharmaceutical industry where companies seek to optimize their capital structure through debt restructuring and strategic partnerships. The royalty agreement also highlights the growing importance of revenue-sharing models in the sector.

Comparison to Industry Standards

• The use of convertible notes and warrants is a common financing strategy in the biotech and pharmaceutical industries, particularly for companies in the development stage.
• The 5.5% interest rate on the new notes is relatively low compared to some other debt financings in the sector, which may reflect the secured nature of the notes.
• The 10% original issue discount is a common feature of convertible notes, which provides an incentive for investors to participate in the financing.
• The royalty agreement is similar to other revenue-sharing deals in the pharmaceutical industry, where companies seek to monetize their intellectual property assets.
• The specific terms of the financing and royalty agreement are unique to Scilex and Oramed, but the overall structure is consistent with industry standards.

Related Party Transactions

• Oramed is restructuring its existing debt with Scilex, converting $22.5 million of its senior secured promissory note into a new note and warrants.
• Oramed and other investors will also acquire an 8% royalty on net sales of certain Scilex products, with Oramed receiving 50% of such proceeds.

Stakeholder Impact

• Shareholders of Oramed may benefit from the potential upside of the new convertible notes and warrants.
• Shareholders of Scilex may be diluted by the issuance of new shares upon conversion of the notes and exercise of the warrants.
• Creditors of Scilex may be impacted by the new financing and the restructuring of existing debt.
• Employees of Scilex may be affected by the changes in the companys financial structure.

Next Steps

• The closing of the new financing and royalty transaction is expected to occur on or about October 7, 2024, subject to satisfaction of certain closing conditions.
• The parties will negotiate in good faith additional agreements required to effectuate this Term Sheet, including the License Agreement and related documents.

Key Dates

Keywords

Scilex Holding Company, Oramed Pharmaceuticals, convertible notes, warrants, debt restructuring, financing, royalty agreement, senior secured notes, Tranche B Notes, Tranche A Notes