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MD&A (Item 7)
16,773 words
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read together with the consolidated financial statements and related notes thereto included elsewhere in this Annual Report on Form 10-K. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from these forward-looking statements as a result of certain factors. We discuss factors that we believe could cause or contribute to these differences below and elsewhere in this Annual Report on Form 10-K, including those set forth in the sections of this Annual Report on Form 10-K titled “Risk Factors” and “ Note Regarding Forward-Looking Statements.”
Cautionary
On April 15, 2025, we effected a reverse stock split of our Common Stock at a ratio of 1-for-35 (the “Reverse Stock Split”). Unless otherwise noted, the share and per share information in this Annual Report on Form 10-K reflects the effect of the Reverse Stock Split.
Overview
We are an innovative revenue-generating company focused on acquiring, developing and commercializing non-opioid pain management products for the treatment of acute and chronic pain. We believe that our innovative non-opioid product portfolio has the potential to provide effective pain management therapies that can have a transformative impact on patients’ lives. We target indications with high unmet needs and large market opportunities with non-opioid therapies for the treatment of patients with acute and chronic pain and are dedicated to advancing and improving patient outcomes. We launched our first commercial product in October 2018, in-licensed two commercial products in 2022 and 2023, and are developing our late-stage pipeline. Our commercial product, ZTlido (lidocaine topical system) 1.8% (“ZTlido”), is a prescription lidocaine topical product approved by the “FDA” for the relief of neuropathic pain associated with post-herpetic neuralgia (“PHN”), which is a form of post-shingles nerve pain. ZTlido possesses novel delivery and adhesion technology designed to address many of the limitations of current prescription lidocaine patches by providing significantly improved adhesion and continuous pain relief throughout the 12-hour administration period. We market ZTlido through a third-party dedicated sales force of over 30 people, targeting 10,000 primary care physicians, pain specialists, neurologists and palliative care physicians who we believe treat the majority of PHN patients. We also in-licensed the exclusive right to commercialize GLOPERBA (colchicine USP) oral solution (“GLOPERBA”), an FDA-approved prophylactic treatment for painful gout flares in adults, in the United States of America (“U.S.” or the “United States”). We launched GLOPERBA in June 2024 and believe we are well-positioned to market and distribute the product. In January 2025, we in-licensed the rights to commercialize GLOPERBA outside of the U.S. In February 2023, we acquired the rights to patents, trademarks, regulatory approvals and other rights related to ELYXYB (celecoxib oral solution) (“ELYXYB”) and its commercialization in the U.S. and Canada. In April 2023, we launched ELYXYB in the U.S. for the treatment of acute migraine, with or without aura, in adults. In January 2025, we received approval from Health Canada’s Pharmaceutical Drugs Directorate, Bureau of Cardiology, Allergy and Neurological Sciences for ELYXYB for the acute treatment of migraine with or without aura in Canada.
Our development pipeline consists of three product candidates, (i) SP-102 (“SEMDEXA”) (10 mg, dexamethasone sodium phosphate viscous gel), a novel, viscous gel formulation of a widely used corticosteroid for epidural injections to treat lumbosacral radicular pain or sciatica, which is in the second Phase 3 study initiated in September 2025, (ii) SP-103 (lidocaine topical system) 5.4% (“SP-103”), a Phase 2, next-generation, triple-strength formulation of ZTlido for the treatment of chronic neck pain associated with muscle spasms and for which we have completed a Phase 2 trial in acute low back pain (“LBP”), and (iii) SP-104 (4.5 mg, low-dose naltrexone hydrochloride delayed-release capsules) (“SP-104”), a novel low-dose delayed-release naltrexone hydrochloride formulation for the treatment of fibromyalgia, for which Phase 1 trials were completed.
SEMDEXA has been granted fast track designation by the FDA and, if approved, could become the first FDA-approved alternative to off-label epidural steroid injections, which are administered over 12 million times annually in the United States. We have completed a pivotal Phase 3 study with final results received in March 2022, which results reflected achievement of primary and secondary endpoints, and initiated the second Phase 3 study in September 2025. SP-103 has also been granted fast track designation by the FDA for LBP. We received our SP-103 Phase 2 top-line results in August 2023, and the trial achieved its objectives characterizing safety, tolerability and preliminary efficacy of SP-103 in acute LBP associated with muscle spasms. SP-103 was safe and well tolerated. The increase of lidocaine load in topical system by three times, compared with approved ZTlido, 5.4% vs. 1.8%, did not result in signs of systemic toxicity or increased application site reactions with daily applications over one month treatment. We will continue to analyze the SP-103 Phase 2 trial data along with an investigator study of ZTlido in patients with neck pain completed in the second half of 2023, which also has shown promising top-line efficacy and safety results. SP-103, if approved, could become the first FDA-approved lidocaine topical product for the treatment of chronic neck pain associated with muscle spasms. SP-103 is a triple-strength lidocaine topical system designed to deliver a dose of lidocaine three times higher than any lidocaine topical product that we are aware of, either approved or in development. We are examining SP-103 as a treatment for chronic neck pain associated with muscle spasms, a condition with high unmet need which we expect could affect over 20 million patients in the United States as of 2023. On October 20, 2024, we announced
the successful end of a Phase 2 meeting with the FDA, leading to an agreed path forward to a new drug application (including other marketing applications, an “NDA”) for our product candidate, SP-103.
We currently contract with third parties for the manufacture, assembly, testing, packaging, storage and distribution of our products. We obtain our commercial supply of certain of our products, the clinical supply of our product candidates and certain of the raw materials used in our product candidates from sole or single source suppliers and manufacturers. Prior to April 2022, we relied on a single third-party logistics distribution provider, Cardinal Health 105, for ZTlido distribution in the United States. Cardinal Health 105 purchased and shipped ZTlido to customer wholesale distribution centers. Cardinal Health 105 also performed order management services on our behalf. On April 2, 2022, we announced the expansion of our direct distribution network to national and regional wholesalers and pharmacies. Cardinal Health 105 will continue to provide traditional third-party logistics functions for us.
Since our inception, we have invested substantial efforts and financial resources into acquiring product and technology rights while building our intellectual property portfolio and infrastructure. In June 2022, we in-licensed the exclusive right to commercialize GLOPERBA oral solution, an FDA-approved prophylactic treatment for painful gout flares in adults, in the U.S. In February 2023, we acquired rights to FDA-approved ELYXYB in the U.S. and Canada for the acute treatment of migraine. We intend to continue to explore and evaluate additional opportunities such as these to grow our business. We have incurred significant operating losses as a result of such investment efforts, including the development of SEMDEXA, conducting of Phase 3 trials for SEMDEXA, and the development of SP-103 and SP-104. Our ability to generate sufficient revenue to achieveprofitability will depend on the successful commercialization of our products, ZTlido, GLOPERBA and ELYXYB, and the development of our product candidates. We had a net loss of $374.1 million and $72.8 million for the years ended December 31, 2025, and 2024, respectively. As of December 31, 2025, we had an accumulated deficit of approximately $921.8 million . As of December 31, 2025, we had cash and cash equivalents of approximately $5.0 million. Our management has concluded that there is substantial doubt about our ability to continue as a going concern for one year after the date that the consolidated financial statements are issued. See Note 2 titled “ Liquidity and Going Concern ” to our consolidated financial statements and our independent registered public accounting firm report included elsewhere in this Annual Report on Form 10-K for additional information.
We expect to continue to make investments in our sales and marketing organization and expand digital marketing efforts to broaden awareness of ZTlido, GLOPERBA and ELYXYB and in research and development, clinical trials and regulatory affairs to develop our product candidates, SEMDEXA, SP-103 and SP-104. As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until we can generate significant revenue, if ever, we expect to finance our operations through a combination of equity offerings, debt financings, collaborations, government contracts or other strategic transactions. We may be unable to raise additional funds or enter into such agreements or arrangements when needed on favorable terms, or at all. If adequate funds on acceptable terms are not available when needed, we may be required to reduce the scope of the commercialization of ZTlido, GLOPERBA and ELYXYB or delay, scale back or discontinue the development of one or more of our product candidates.
We have adopted a cryptocurrency treasury strategy in which we intend to invest in bitcoin, Ethereum and other blockchain-linked cryptocurrencies. We intend to accumulate such cryptocurrencies as a long-term treasury asset. Our goal is to acquire and grow our overall cryptocurrency position and utilize professional treasury strategies to both increase our cryptocurrency holdings, while driving revenue via a range of staking and related yield-generating activities. In the future, we plan to evaluate additional cryptocurrency holdings and transactions, including but not limited to strategic investments and/or acquisitions of operating companies that we view as aligned with our cryptocurrency treasury strategy.
On September 25, 2025, we entered into a Securities Purchase Agreement (the “Datavault SPA”) with Datavault AI Inc., a Delaware corporation (“Datavault”), pursuant to which Datavault agreed to issue and sell, and we agreed to purchase, 15.0 million shares (the “Datavault Shares”) of common stock of Datavault (“Datavault Common Stock”) in the initial closing which occurred on September 26, 2025 (the “Initial Datavault Closing”) and a pre-funded warrant (the “Datavault Pre-Funded Warrant”) to purchase 263,914,094 shares of Datavault Common Stock in a subsequent closing (the “Subsequent Closing”), for an aggregate purchase price of $150 million in Bitcoin (“BTC”) (based on the spot exchange rate for BTC as published by Coinbase.com at 8:00 p.m. (New York City time) on the trading day immediately prior to the date of the Initial Datavault Closing, or September 25, 2025 (such rate, the “Spot Exchange Rate”)). Pursuant to the Datavault SPA, the Subsequent Closing was subject to the satisfaction of the condition that the stockholders of Datavault approve the issuance of the shares of Datavault Common Stock underlying the Datavault Pre-Funded Warrant. On November 24, 2025, Datavault obtained such stockholder approval at its annual meeting. On November 25, 2025, the Subsequent Closing was consummated with us transferring an amount of BTC (based on the Spot Exchange Rate) in satisfaction of the payment of the remainder of the aggregate purchase price to Datavault and Datavault issuing the Datavault Pre-Funded Warrant to us. On November 25, 2025, following
the Subsequent Closing, we exercised the Datavault Pre-Funded Warrant in full for an aggregate exercise price of approximately $26.4 thousand, paid in cash.
Recent Developments
Vivasor Business Combination
On December 5, 2025 (the “VHC Transaction Date”), the Company entered into a Share Transfer Agreement with EAR SPV LLC, a Delaware corporation (“EAR SPV”) and Vivasor Holding Company (“VHC”), a privately held biotechnology company, pursuant to which, among other things, EAR SPV agreed to sell, and the Company agreed to buy, all 6,101,468 shares of VHC’s Series A-1 Preferred Stock, par value $0.00001 per share, held by EAR SPV, for an aggregate purchase price of $9.0 million (“VHC Business Combination”). The Company evaluated VHC under the VIE model in accordance with ASC 810 and accounted for the transaction as a business combination using the acquisition method of accounting in accordance with ASC 805. The identifiable assets acquired and liabilities assumed of VHC were recorded at their estimated fair values as of the VHC Transaction Date.
Q Scan Convertible Promissory Note
On January 29, 2026, we entered into a convertible promissory note (the “Q Scan Note”) with Quantum Scan Holdings, Inc. (“Q Scan”). Pursuant to the Q Scan Note, the Company loaned Q Scan an aggregate of $20 million. The Q Scan Note had a maturity date of October 29, 2026, and would commence accruing interest at a rate of 3.66% per annum commencing on April 29, 2026.
The Company and Q Scan entered into a common stock purchase agreement, dated January 29, 2026 (the “Q Scan Stock Purchase Agreement”). Pursuant to the Q Scan Stock Purchase Agreement, Q Scan agreed to sell to the Company, and the Company agreed to purchase from Q Scan, an aggregate of 193,021,436 shares of common stock of Q Scan (the “Q Scan Stock Purchase”) for an aggregate purchase price of approximately $27.5 million. The closing of the Q Scan Stock Purchase shall occur within five business days of written notice delivered by Q Scan to the Company. The Q Scan Stock Purchase Agreement contains customary representations, warranties and covenants of the Company and Q Scan.
Oramed Warrant
On February 19, 2026, we entered into a warrant agreement (the “Oramed Warrant”) with Oramed Pharmaceuticals, Inc. (“Oramed”) pursuant to which Oramed deferred its right to receive an amortization payment related to the Tranche B Notes in exchange for our issuance of a new warrant to purchase an aggregate of 100,000 shares of Common Stock (the “February 2026 Warrant”) at an initial exercise price of $20.00 per share. The deferred amortization payment was made to Oramed in November 2025. For more information, please see the sections titled “ Management’s Discussion and Analysis of Financial Condition and Results of Operations — Tranche B Notes ” and “ Management’s Discussion and Analysis of Financial Condition and Results of Operations — Oramed Warrant .”
Components of Our Results of Operations
Net Revenue
Net revenue consists of product sales of ZTlido, ELYXYB and GLOPERBA in the United States. For product sales of ZTlido, ELYXYB and GLOPERBA, we record gross-to-net sales adjustments for government and commercial rebates, chargebacks, wholesaler and distributor fees, sales returns, special marketing programs, and prompt payment discounts. We expect that any net revenue we generate will fluctuate from year to year as a result of the unpredictability of the demand for our product.
Operating Costs and Expenses
Cost of Revenue
Cost of revenue consists of the cost of purchasing ZTlido, ELYXYB and GLOPERBA from our manufacturing partners, inventory write-downs related to expiration dates for on-hand inventory, cost of shipments, and royalty payments to our manufacturers. We expect the cost of revenue to fluctuate with related net sales revenue.
Research and Development
Research and development expenses are expensed when incurred and consist primarily of costs incurred for our research activities, including the development of our product candidates, and include:
costs related to clinical trials;
salaries, benefits and other related costs, including stock-based compensation expense for personnel engaged in research and development functions; and
costs related to outside consultants.
We expect our research and development expenses to increase, as we will incur incremental expenses associated with our product candidates that are currently under development and in clinical trials. Product candidates in later stages of clinical development generally have higher development costs, primarily due to the increased size and duration of later-stage clinical trials. Accordingly, we expect to incur significant research and development expenses in connection with our clinical trials for SEMDEXA, SP-103 and SP-104.
Selling, General and Administrative
Selling, general and administrative expenses consist primarily of costs related to our contract sales force, salaries and other related costs, including stock-based compensation, for personnel in our executive, marketing, finance, corporate and business development and administrative functions. Selling, general and administrative expenses also include professional fees for legal, patent, accounting, auditing, tax and consulting services, travel expenses and facility-related expenses, which include direct depreciation costs.
We expect that our selling, general and administrative expenses will vary year over year in the future as we adapt our commercial strategies to changes in the business environment. We also expect to incur increased expenses as a result of operating as a public company, including expenses related to compliance with the rules and regulations of the SEC, listing standards applicable to companies listed on a national securities exchange, additional insurance expenses, investor relations activities and other administrative and professional services. We also expect to adjust the size of our administrative, finance and legal functions to adapt to the changes above and the anticipated growth of our business.
Goodwill Impairment
Goodwill impairment is recorded in connection with the impairment testing of our goodwill, and is performed at least annually and more frequently if changes in facts and circumstances indicate that the fair value of our reporting units may be less than their carrying amount. In connection with the preparation of our financial statements for the fourth quarters of 2025, we performed quantitative goodwill impairment tests which resulted in a total goodwill impairment of $73.4 million related to business combination with Vivasor. See Note 7 to our consolidated financial statements for additional information.
Intangible Amortization
Intangible amortization expense consists of the amortization expense of intangible assets recognized on a straight-line basis over the estimated useful lives of the assets. Our intangible assets, excluding goodwill, are composed of patent rights, acquired technology, acquired licenses and assembled workforce.
Legal Settlements
Legal settlements consist of gains on litigation settlements that were entered into during the first quarter of 2024. See Note 13 titled “ Commitments and Contingencies ” of the Notes to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.
Other (Income) Expense
(Gain) loss on Derivative Liability
(Gain) loss on derivative liability includes the remeasurement of the derivative warrant liability. See Note 5 titled “Fair Value Measurements” to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.
Change in Fair Value of Debt and Liability Instruments
Change in fair value of debt and liability instruments includes the remeasurement of the (i) Oramed Note with $7.7 million principal amount outstanding as of December 31, 2025, (ii) non-refundable deposit in the aggregate principal amount of $10.0 million (the “FSF Deposit”) and satisfied in November 2024 by the delivery of the Additional Product to Endeavor, (iii) senior secured convertible notes issued in October 2024 in the principal amount of $50.0 million (the “Tranche B Notes”) with $17.9 million principal amount outstanding as of December 31, 2025, and (iv) purchased revenue liability associated with the Purchase and Sale Agreement (the “ZTlido Royalty Purchase Agreement”) that we entered into in October 2024 with certain institutional investors (collectively, the “ZTlido Royalty Investors”) and Oramed and (v) purchased revenue liability associated with the Purchase and Sale Agreement (the “Gloperba-Elyxyb Royalty Purchase Agreement”) that we entered into in February 2025 with certain institutional investors (collectively, the “Gloperba-Elyxyb Royalty Investors”) and Oramed. See Note 5 titled “Fair Value Measurements” to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.
(Gain) loss on Debt Extinguishment
(Gain) loss on debt extinguishment related to (gain) loss related to debt extinguishment during the period. See Note 5 titled “Fair Value Measurements” to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.
Interest Expense, Net
Interest expense, net for the twelve months ended December 31, 2025, primarily consists of interest on Scilex-St. James Loans, Vivasor debts, interest on the balances due for government and commercial rebate programs, and interest related to the deferred consideration for GLOPERBA license acquired from Romeg in 2022. Government rebate programs include state Medicaid drug rebate programs and commercial rebate programs relate to contractual agreements with commercial healthcare providers, under which we pay rebates for access to and position on that provider’s patient drug formulary. Interest expense, net for the twelve months ended December 31, 2024 consists of interest related to the loans in an aggregate principal amount of up to $30.0 million (the “Revolving Facility”) made available by eCapital Healthcare Corp. pursuant to a Credit and Security Agreement (the “eCapital Credit Agreement”) that “Scilex Pharma”, entered into on June 27, 2023.
(Gain) Loss on Foreign Currency Exchange
(Gain) Loss on foreign currency exchange relates to foreign exchange (gain) losses on payments made to our foreign supplier, “Itochu”, a manufacturer and supplier of lidocaine tape products, including ZTlido and SP-103.
Unrealized (Gain) Loss on Digital Assets, net
Unrealized (Gain) Loss on digital assets related to unrealized (gain) losses on our digital assets held during the period. See Note 5 titled “Fair Value Measurements” to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.
Realized (Gain) Loss on Digital Assets, net
Realized (Gain) Loss on digital assets related to realized (gain) losses on our digital assets held during the period. See Note 5 titled “Fair Value Measurements” to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.
Equity and Equity method investments
Unrealized (Gain) Loss on Equity Investments, net
Unrealized (Gain) Loss on equity investments related to unrealized (gain) losses on our investment in Datavault held during the period, prior to obtaining significant influence. See Note 5 titled “Fair Value Measurements” to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.
Realized (Gain) Loss on Equity Investments, net
Realized (Gain) Loss on equity investments related to realized (gain) losses on our investment in Datavault held during the period, prior to obtaining significant influence. See Note 5 titled “Fair Value Measurements” to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.
The Company utilizes the equity method to account for investments when the Company has the ability to exercise significant influence, but not control over the investees. In determining whether the Company has significant influence, the Company considers its ownership
levels, whether it has the right to nominate board members, and whether it has the ability to participate in the policy-making process of the investee, among other criteria.
Investments granting significant influence are generally accounted for using the equity method unless the fair value option is elected.
Unrealized (Gain) Loss on Equity Method Investments, net
Unrealized (Gain) Loss on equity method investments (or “EMI”) related to unrealized (gain) losses on our investment in Datavault accounted for using the equity method. See Note 5 titled “Fair Value Measurements” to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.
Realized (Gain) Loss on Equity Method Investments, net
Realized (Gain) Loss on equity method investments (or “EMI”) related to realized (gain) losses on our investment in Datavault accounted for using the equity method. See Note 5 titled “Fair Value Measurements” to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.
Results of Operations
The following tables summarize our results of operations for the years ended December 31, 2025, and 2024 (in thousands) :
Year Ended December 31,
Changes
Statements of Operations Data:
Net revenue
Net operating costs and expenses:
Cost of revenue
Research and development
Selling, general and administrative
Goodwill impairment
Intangible amortization
Legal settlements
Total net operating costs and expenses
Loss from operations
Other (income) expense, net:
(Gain) loss on derivative liability
Change in fair value of debt and liability instruments
Loss on debt extinguishment, net
Interest expense, net
Loss on foreign currency exchange
Unrealized loss on digital assets, net
Realized loss on digital assets, net
Unrealized (gain) on equity investment, net
Realized (gain) on equity investments, net
Unrealized (gain) on equity method investments carried at fair value, net
Realized (gain) on equity method investments carried at fair value, net
Realized (gain) on securities
Total other (income) expense, net
Loss before income taxes
Income tax expense (benefit)
Net loss
Comparison of the Years Ended December 31, 2025, and 2024:
Net Revenue
The following table summarizes net revenue by product for the years ended December 31, 2025 and 2024 (in thousands):
Year Ended December 31,
Increase
(Decrease)
ZTlido
Net Revenue
ELYXYB
Net Revenue
GLOPERBA
Net Revenue
Vivasor Contract Revenue
Net Revenue
Total Net Revenue
Net revenue for the years ended December 31, 2025 and 2024 was $30.3 million and $56.6 million, respectively. The decrease of $26.3 million comprised of $26.4 million, $0.5 million and $0.1 million decrease in net product sales of ZTlido, ELYXYB and GLOPERBA, respectively, with GLOPERBA sales commencing in June 2024. The decrease in net sales of ZTlido and ELYXYB was driven by a decrease in gross sales of approximately 26% and 7%, respectively, as a result of a decrease in the sales volume and a decrease in sales rebate for inflation, partially offset by an increase in sales returns and a standard industry annual price increase, effective January 1, 2025.
Cost of Revenue
The following table summarizes cost of revenue by product for the years ended December 31, 2025 and 2024 (in thousands):
Year Ended December 31,
Increase
(Decrease)
ZTlido
Cost of Revenue
Cost of Revenue - Royalties
Other Cost of Revenue
Total ZTlido
ELYXYB
Cost of Revenue
Cost of Revenue - Royalties
Total ELYXYB
GLOPERBA
Cost of Revenue
Total GLOPERBA
Vivasor Contract Revenue
Cost of Revenue - Services
Total Vivasor Contract Revenue
Total Cost of Revenue
Cost of revenue for the years ended December 31, 2025 and 2024 was $10.6 million and $16.7 million, respectively. Cost of revenue for ZTlido decreased by $7.1 million due to decrease in gross product sales of approximately 25%, driven by decrease in sales demand.
Research and Development Expenses
The following table summarizes research and development expenses by project for the years ended December 31, 2025 and 2024 (in thousands):
Year Ended December 31,
Increase
(Decrease)
Contracted R&D
Personnel
Other
Total SP-102
Contracted R&D
Personnel
Other
Total SP-103
Contracted R&D
Personnel
Other
Total SP-104
GLOPERBA
Contracted R&D
Personnel
Other
Total GLOPERBA
ELYXYB
Contracted R&D
Personnel
Other
Total ELYXYB
R&D Discovery Project
Contracted R&D
Personnel
Other
Total Discovery Project
Total Research and Development Expenses
Research and development expenses for the years ended December 31, 2025, and 2024 were $20.7 million and $9.6 million, respectively. The increase was primarily attributed to higher development costs related to SP-102 and additional expenses related to the development of KDS2010 by Scilex Bio.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the years ended December 31, 2025 and 2024 were $266.9 million and $119.0 million, respectively. The increase of approximately $147.9 million was primarily due to a $148.7 million increase related to issuance costs for reverse recapitalization with Denali and other financing activities, a $18.6 million increase in advisory and financing expenses, a $4.0 million increase in contracted services, a $0.2 million increase in allowances for expected credit losses on accounts receivable, partially offset by a $5.7 million decrease in rebate expense related to future shipments of the Additional Product (as defined below) under the Satisfaction Agreement, a $1.0 million decrease in insurance costs, a $1.3 million decrease in legal fees, a $6.1 million decrease in personnel expense, a $4.1 million decrease in travel expenses, a $5.4 million decrease in marketing expenses.
Goodwill Impairment
In connection with preparing our financial statements for the year ended December 31, 2025, we evaluated the carrying value of goodwill for impairment in response to impairment indicators identified during our business combination with Vivasor. As such, we performed a quantitative goodwill impairment test on each of our newly consolidated subsidiary and as a result, we concluded that Vivasor had a carrying value that exceeded its estimated fair value. As a result, we recorded a goodwill impairment charge of $73.4 million during the year ended December 31, 2025, which was the entire goodwill balance for Vivasor. See Note 7 to our consolidated financial statements for additional information.
Intangible Amortization Expense
Intangible amortization expense for the years ended December 31, 2025 and 2024 was $4.4 million and $4.0 million, respectively. The increase of $0.4 million is related to the amortization of the Datavault acquired license (see Note 7 titled “ Goodwill and Intangible Assets ” to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information).
Legal Settlements Expense
Legal settlements for the years ended December 31, 2025 and 2024 were $0.3 million and $(9.4 million), respectively. The increased expense in 2025 compared to 2024 is primarily due to payments received by the Company from the litigation settlement that was entered into during the first quarter of 2024. See Note 13 titled “ Commitments and Contingencies ” to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.
(Gain) Loss on Derivative Liability
(Gain) loss on derivative liability for the years ended December 31, 2025 and 2024 were $22.7 million and ($17.4 million), respectively. The loss recognized during the year ended December 31, 2025 was attributed to the change in the fair value of the derivative warrant liability associated with the Private Warrants, the February 2024 BDO Firm Warrants, the April 2024 RDO Common Warrants, the Deposit Warrant, the October 2024 Noteholder Warrants, the December 2024 RDO Common Warrants, the Exchange Warrants (as defined below), September 2025 Warrants and November 2025 Warrants (each as defined below). The gain recognized during the year ended December 31, 2024 was attributed to the change in the fair value of the derivative warrant liability associated with the Private Warrants, the February 2024 BDO Firm Warrants, the April 2024 RDO Common Warrants, the Deposit Warrant, the October 2024 Noteholder Warrants and the December 2024 RDO Common Warrants.
Change in Fair Value of Debt and Liability Instruments
Change in fair value of debt and liability instruments for the years ended December 31, 2025 and 2024 was $25.4 million and $4.8 million, respectively. The loss recognized during the year ended December 31, 2025 was attributed to losses of $8.4 million for the Oramed Note, $2.4 million for the purchased revenue liability pursuant to the ZTlido Royalty Purchase Agreement, $1.8 million for the purchased revenue liability pursuant to the Gloperba-Elyxyb Royalty Purchase Agreement, totaling $4.4 million, a $12.9 million in change in fair value of the Tranche B Notes and a $0.3 million gain in change in fair value remeasurement gain related to the termination of the Tumim Purchase Agreement. The loss recognized during the year ended December 31, 2024, was attributed to losses of $4.4 million for the Convertible Debentures and $2.8 million for the Oramed Note. The Convertible Debentures were issued in March and April 2023 in an aggregate principal amount of $25.0 million, which were fully repaid during the first quarter of 2024. The Oramed Note was issued in September 2023 in the principal amount of $101.9 million, of which the principal amount of $28.2 million remained outstanding as of December 31, 2025. The FSF Deposit was received in June 2024 in the principal amount of $10.0 million and was satisfied in November 2024 by the delivery of the Additional Product (as defined below) to Endeavor. The Tranche B Notes were issued in October 2024 in the principal amount of $50.0 million, of which the principal amount of $17.5 million remained outstanding as of December 31, 2025. The Scilex-St. James Loans were received in December 2025 in the principal amount of $22.6 million, of which the principal amount $22.6 million remained outstanding as of December 31, 2025.
(Gain) loss on debt extinguishment, net
(Gain) loss on debt extinguishment, net for the years ended December 31, 2025 and 2024 was $7.4 million and nil, respectively. Loss recognized during the year ended December 31, 2025 was attributed to the loss associated with the exchange of October 2024 Warrant
for the Exchange Warrants (as defined below), and exchange of April 2024 RDO Common Warrants and December 2024 RDO Common Warrants for the November 2025 Warrants (each as defined below).
Interest Expense, Net
Interest expense, net for the years ended December 31, 2025 and 2024 was $11.5 million and $2.0 million, respectively. Interest expense of $11.5 million primarily consists of interest on the balances due for government and commercial rebate programs. Interest expense of $2.0 million consists of interest related to the Revolving Facility.
Unrealized (Gain) Loss on Digital Assets, net
Unrealized loss on digital assets for the years ended December 31, 2025 and 2024 was $12.2 million, and nil, respectively. The unrealized loss during the twelve months ended December 31, 2025, was attributed to the unrealized loss on digital assets held, which had depreciated in value.
Realized (Gain) Loss on Digital Assets, net
Realized loss on digital assets for the years ended December 31, 2025 and 2024 was $30.2 million, and nil, respectively. The realized loss during the twelve months ended December 31, 2025, was attributed to the realized loss on digital assets sold, which had depreciated in value.
Unrealized (Gain) Loss on Equity Investments, net
Unrealized (gain) on equity investments for the year ended December 31, 2025 and 2024 was $2.7 million and nil, respectively. The unrealized (gain) during the twelve months ended December 31, 2025, was attributed to the unrealized (gain) on Datavault investment held that had appreciated in value.
Realized (Gain) Loss on Equity Investments, net
Realized (gain) on equity investments for the year ended December 31, 2025 and 2024 was $19.2 million and nil, respectively. The realized (gain) during the twelve months ended December 31, 2025, was attributed to the realized (gain) on Datavault investment sold that had appreciated in value.
Unrealized (Gain) Loss on Equity Method Investments, net
Unrealized (gain) on equity method investments for the year ended December 31, 2025 and 2024 was $54.8 million and nil, respectively. The unrealized (gain) during the twelve months ended December 31, 2025 was attributed to the unrealized (gain) on Datavault investment held that had appreciated in value.
Realized (Gain) Loss on Equity Method Investments, net
Realized (gain) on equity method investments for the year ended December 31, 2025 and 2024 was $4.7 million and nil, respectively. The realized (gain) during the twelve months ended December 31, 2025 was attributed to the realized (gain) on Datavault investment sold that had appreciated in value.
Liquidity and Capital Resources
As of December 31, 2025, we had cash and cash equivalents of approximately $5.0 million.
We have funded our operations in the years ended December 2025 and 2024 primarily through equity and debt financings pursuant to the A&R Yorkville Purchase Agreement, and the B. Riley Purchase Agreement, together as the “Standby Equity Purchase Agreements”) with B. Riley Principal Capital II, LLC (“B. Riley”), the Sales Agreement (the “ATM Sales Agreement”) with B. Riley Securities, Inc., Cantor Fitzgerald & Co. and H.C. Wainwright & Co., LLC (the “Sales Agents”), the Oramed Note and Tranche B Notes, various registered direct offerings and private placements and the Scilex-St. James Loans, as well as deferred consideration related to the GLOPERBA license acquired from Romeg in 2022. The following table summarizes the aggregate carrying value indebtedness of these issuances as of December 31, 2025, and December 31, 2024 (in thousands):
December 31, 2025
December 31, 2024
Oramed Note (outstanding principal balance and paid in kind interest: $28.2 million and $25.0 million as of December 31, 2025 and 2024, respectively)
Tranche B Notes (outstanding principal balance: $17.9 million and $38.0 million as of December 31, 2025 and 2024, respectively)
Promissory Notes
Purchased Revenue Liability
Deferred Consideration with Romeg
Scilex-St. James Loans (outstanding principal balance: $22.6 million and nil as of December 31, 2025 and 2024, respectively)
Vivasor Related Debt (outstanding principal balance: $47.0 million and nil as of December 31, 2025 and 2024, respectively)
Total indebtedness
The Oramed Note
As of December 31, 2025, the fair value of the Oramed Note outstanding was $28.2 million pursuant to the Scilex-Oramed SPA (see Note 8 titled “ Debt ” to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information).
Tranche B Notes
As of December 31, 2025, the fair value of the Tranche B Notes outstanding was $17.5 million pursuant to the Tranche B Securities Purchase Agreement (see Note 8 titled “ Debt ” to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information).
Promissory Notes
As of December 31, 2025, the carrying value of the Promissory Notes outstanding was $3.5 million pursuant to the Promissory Notes (see Note 8 titled “ Debt ” to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information).
Purchased Revenue Liability
As of December 31, 2025, the fair value of the purchased revenue liability was $8.4 million pursuant to the ZTlido Royalty Purchase Agreement and Gloperba-Elyxyb Royalty Purchase Agreement (see Note 8 titled “ Debt ” to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information).
Deferred Consideration
As of December 31, 2025, we have $2.4 million of deferred consideration related to minimum royalty payments that were included in the initial measurement of consideration transferred for the GLOPERBA license. Deferred consideration minimum royalty payments began in July 2023.
Vivasor Related Debt
As of December 31, 2025, the aggregated outstanding principal balance of the Vivasor-related debt was $47.0 million pursuant to the Vivasor-related debt agreement (see Note 8 titled “ Debt ” to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information).
Scilex-St. James Loans
As of December 31, 2025, the carrying value of the Scilex-St. James Loans outstanding was $21.5 million pursuant to the Scilex-St. James Loan Agreement (see Note 8 titled “ Debt ” and Note 16 titled “ Subsequent Events ” to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information).
ZTlido, ELYXYB and GLOPERBA Royalties
In February 2013, Scilex Pharma became a party to a product development agreement (as amended, the “Product Development Agreement”) with Itochu and Oishi (together, the “Developers”), pursuant to which the Developers will manufacture and supply lidocaine tape products, including ZTlido and SP-103, for Scilex Pharma. Pursuant to the Product Development Agreement, Scilex Pharma is required to make aggregate royalty payments between 25% and 35% to the Developers based on net profits. During each of the years ended December 31, 2025, and 2024, Scilex Pharma made royalty payments in the amount of $6.3 million and $8.3 million, respectively. As of December 31, 2025, and 2024, Scilex Pharma had ending balances of accrued royalty payables of $2.1 million and $4.0 million, respectively.
In February 2023, we entered into an asset purchase agreement to acquire the rights to certain patents, trademarks, regulatory approvals, data, contracts, and other rights related to ELYXYB and its commercialization in the United States and Canada (the “ELYXYB Territory”). We are obligated to make quarterly royalty payments on net sales of ELYXYB in the ELYXYB Territory that range from high single digits to the low double digits on net sales based on the volume of sales. In April 2023, we launched ELYXYB in the U.S. During the year ended December 31, 2025, and 2024, we made royalty payments in the amount of $0.2 million and $0.3 million, respectively. As of December 31, 2025, and December 31, 2024, we had ending balances of accrued royalty payables of $0.2 million and $0.1 million.
In June 2022, we entered into the Romeg License Agreement with Romeg, which agreement was subsequently amended in January 2025, to acquire certain rights to GLOPERBA and the exclusive license to use the trademark “GLOPERBA®”. As consideration for the license under the Romeg License Agreement, we are obligated to make royalty payments on net sales of GLOPERBA that range from low-single digit to mid-single digit percentages based on annual net sales. During each of the years ended December 31, 2025, and 2024, we made royalty payments in the amount of $0.6 million.
Contingent Consideration
We have $280.0 million, $13.0 million and $23.0 million in aggregate contingent consideration obligations in connection with the SEMDEXA, GLOPERBA and SP-104 acquisitions, respectively, that are contingent upon achieving certain specified milestones or the occurrence of certain events. Contingent consideration obligations are comprised of regulatory milestones and additional payments that will be due upon the achievement of certain amounts of net sales (see Note 3 titled “ Acquisitions ” to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information).
At-the-Market Sales Agreement
On December 22, 2023, we entered into a Sales Agreement (the “ATM Sales Agreement”) with B. Riley Securities, Inc., Cantor Fitzgerald & Co. and H.C. Wainwright & Co., LLC (the “Sales Agents”), which agreement was voluntarily terminated by us effective as of March 5, 2025. Pursuant to the ATM Sales Agreement, we were able to offer and sell (the “Offering”) shares of Common Stock up to $170,000,000 (the "ATM Shares"), through or to the Sales Agents as part of the Offering. We had no obligation to sell any shares of Common Stock under the ATM Sales Agreement and could suspend offers at any time. The ATM Shares offered and sold in the Offering were issued pursuant to our Shelf S-3 Registration Statement. The ATM Shares were offered by means of a prospectus forming a part of the Shelf S-3 Registration Statement. The Sales Agents were entitled to a commission equal to 3.0% of the gross proceeds from each sale of shares of Common Stock. We also agreed to reimburse the Sales Agents for certain expenses and provide indemnification and contribution to the Sales Agents against certain civil liabilities, including liabilities under the Securities Act. During the year ended December 31, 2025, no sales of Common Stock had been made under the ATM Sales Agreement. During the year ended December 31, 2024, we sold 78,976 shares of Common Stock pursuant to the ATM Sales Agreement for net proceeds of approximately $2.7 million.
February 2024 Bought Deal Offering
On February 29, 2024, we entered into an underwriting agreement (the “February 2024 BDO Underwriting Agreement”) with Rodman & Renshaw LLC and StockBlock, as the representatives (the “Representatives”) of the underwriters named in Schedule A (the “Underwriters”). Pursuant to the February 2024 BDO Underwriting Agreement, we sold, in an underwritten offering (the “February 2024 BDO”), 168,068 shares (the “February 2024 BDO Firm Shares”) of the Common Stock, and accompanying common warrants to purchase up to an aggregate of 168,068 shares of Common Stock (the “February 2024 BDO Firm Warrants”). Each February 2024 BDO Firm Share was sold together with a February 2024 BDO Firm Warrant at a combined public offering price of $59.50. The combined price per Firm Share and accompanying February 2024 BDO Firm Warrant paid by the Underwriters was $54.74, which amount reflects the combined public offering price of $59.50, less underwriting discounts and commissions.
Subject to certain ownership limitations, the February 2024 BDO Common Warrants are exercisable immediately, will expire on the five-year anniversary of the date of issuance and have an exercise price of $59.50 per share. The exercise price of the February 2024
BDO Common Warrants is subject to certain adjustments, including (but not limited to) stock dividends, stock splits, combinations and reclassifications of the Common Stock.
In connection with the February 2024 BDO, pursuant to the February 2024 BDO Underwriting Agreement, we issued to the Representatives warrants (the “February 2024 BDO Representative Warrants”, and together with the February 2024 BDO Common Warrants, the “February 2024 BDO Warrants”) to purchase up to an aggregate of 13,446 shares of Common Stock (which represents 8.0% of the aggregate number of February 2024 BDO Firm Shares sold in the February 2024 BDO). The February 2024 BDO Representative Warrants are immediately exercisable and have the same terms as the February 2024 BDO Common Warrants described above, except that the exercise price of the February 2024 BDO Representative Warrants is $74.38 per share, which represents 125% of the combined public offering price per Firm Share and accompanying February 2024 BDO Firm Warrant. We also agreed to pay certain expenses of the Representatives in connection with the February 2024 BDO, including their legal fees and out-of-pocket expenses up to $200,000 and up to $15,950 for clearing expenses.
The February 2024 BDO Shares, the February 2024 BDO Warrants and the shares of Common Stock issuable upon exercise of the February 2024 BDO Warrants were offered and sold by us pursuant to an effective shelf registration statement on Form S-3 (which was initially filed with the SEC on December 22, 2023, as amended, and was declared effective on January 11, 2024 (File No. 333-276245) (the “Shelf S-3 Registration Statement”)), a base prospectus dated January 11, 2024 and a prospectus supplement dated February 29, 2024.
April 2024 Registered Direct Offering
On April 23, 2024, we entered into a securities purchase agreement (the “April 2024 RDO Purchase Agreement”) with the investor named therein, pursuant to which we sold and issued, in a registered direct offering (the “April 2024 RDO”): (i) an aggregate of 428,572 shares (the “April 2024 RDO Shares”) of Common Stock, and (ii) common warrants to purchase up to 428,572 shares of Common Stock (the “April 2024 RDO Common Warrants”). The offering price per share and accompanying April 2024 RDO Common Warrant to purchase one share of Common Stock was $35.00, for aggregate gross proceeds to us of $15,000,000, before deducting the placement agent fees and other offering expenses.
Subject to certain ownership limitations, the April 2024 RDO Common Warrants are exercisable on the six-month anniversary from the date of issuance, will expire on the five-year anniversary of the date of issuance and have an exercise price of $38.50 per share. The exercise price of the April 2024 RDO Common Warrants is subject to certain adjustments, including stock dividends, stock splits, combinations and reclassifications of the Common Stock.
StockBlock and its affiliate, Rodman & Renshaw LLC acted as exclusive placement agents (the “Placement Agents”) in connection with the April 2024 RDO. As compensation for such placement agent services, we paid the Placement Agents an aggregate cash fee equal to 8.0% of the gross proceeds actually received by us from the April 2024 RDO. We also reimbursed the Placement Agents $100,000 for actual, reasonable and documented fees and expenses, inclusive of fees and expenses of legal counsel and out-of-pocket expenses and $15,950 for clearing expenses. We also issued to the Placement Agents or their respective designees common warrants, substantially in the form of the April 2024 RDO Common Warrants, to purchase up to 34,286 shares of Common Stock (the “April 2024 RDO Placement Agent Warrants” and together with the “April 2024 RDO Common Warrants”, the “April 2024 RDO Warrants”), representing up to 8.0% of the total number of the April 2024 RDO Shares issued in the April 2024 RDO. The April 2024 RDO Placement Agent Warrants have an exercise price of $43.75 per share (which represents 125% of the combined offering price per share of Common Stock and the April 2024 RDO Common Warrant sold in the April 2024 RDO), will become exercisable on the six-month anniversary of the date of issuance and expire five years from the commencement of sales in the April 2024 RDO.
The April 2024 RDO Shares, the April 2024 RDO Warrants, and the shares of Common Stock issuable upon exercise of such warrants were offered and sold by us pursuant to the Shelf S-3 Registration Statement, a base prospectus dated January 11, 2024, and a prospectus supplement dated April 23, 2024. The April 2024 RDO closed on April 25, 2024.
Commitment Letter
On June 11, 2024, we entered into that certain Commitment Letter with FSF Lender, pursuant to which the FSF Lender committed to provide us a loan in the aggregate amount of $100 million (the “Commitment Amount”). The Commitment Amount shall be payable as follows: (i) $85 million no later than the date that is 70 days following the date on which we receive the FSF Deposit (the “Outside Date” and the funding of the initial $85 million, the “Initial Commitment Closing”) and (ii) the remaining $15 million within 60 days following the Initial Commitment Closing. Pursuant to the Commitment Letter, the FSF Lender provided us the non-refundable FSF Deposit in immediately available funds in the aggregate principal amount of $10 million on June 18, 2024 (the “Deposit Date”), which amount will be creditable towards the $85 million required to be funded by FSF Lender at the Initial Commitment Closing. On the Deposit Date, we issued to FSF Lender a warrant to purchase up to an aggregate of 3,250,000 shares of Common Stock (subject to
adjustment for any stock dividend, stock split, reverse stock split or similar transaction) (the “Deposit Warrant”), with an exercise price of $1.20 per share. Subject to certain ownership limitations, the Deposit Warrant is immediately exercisable and will expire five years from the date of issuance.
In connection with the transactions contemplated by the Commitment Letter, we also entered into a letter agreement with FSF Lender and the FSF Lender’s strategic consultant, IVI 66766 LLC (“IVI”), dated July 16, 2024, pursuant to which we agreed to reimburse the actual, reasonable and documented consulting fees incurred by the FSF Lender in connection with the preparation, negotiation and execution of the Commitment Letter and the definitive documents with respect to the transactions contemplated thereby, which fees were satisfied in full by us issuing to IVI a warrant to purchase up to an aggregate of 250,000 shares of Common Stock (the “Fee Warrant”) on July 16, 2024, with an exercise price of $1.20 per share. Subject to certain ownership limitations, the Fee Warrant is immediately exercisable and will expire five years from the date of issuance.
The shares of Common Stock issuable upon exercise of the Deposit Warrant and the Fee Warrant were offered and sold by us in a private placement and were subsequently registered for resale on our registration statement on Form S-3 (the “Perigrove Form S-3 Registration Statement”) (which was initially filed with the SEC on July 18, 2024, and was declared effective on July 25, 2024 (File No. 333-280882)).
On September 17, 2024, we entered into the Satisfaction Agreement with FSF Lender and Endeavor, pursuant to which the remaining obligations in respect of the FSF Deposit shall be fully satisfied by our delivery of 28,000 cartons of ZTlido to Endeavor (the “Additional Product”), which delivery shall occur no later than December 31, 2024. Upon satisfaction of such remaining obligations, the Commitment Letter shall be terminated and of no further force or effect and neither FSF Lender nor we shall have any further liability or obligations thereunder. In consideration of Endeavor assuming our payment obligation in respect of the FSF Deposit, Endeavor will not be responsible for making any payment to us for (i) the product already delivered as of the date of such agreement in an amount of approximately $13.2 million and (ii) the Additional Product. In November 2024, we delivered the Additional Product to Endeavor and fully satisfied the remaining obligations in respect of the FSF Deposit.
Tranche B Notes
On October 8, 2024, we entered into the Tranche B Securities Purchase Agreement to refinance a portion of the Oramed Note and pay off certain other indebtedness. Pursuant to the Tranche B Securities Purchase Agreement, we agreed to issue and sell, in a registered offering directly to the Tranche B Noteholders: (i) the “Tranche B Notes”), which will mature on the two-year anniversary of the issuance date and will be convertible into shares of our Common Stock at a conversion price equal to $38.15 per share (which was automatically reduced to $36.40 per share of Common Stock subsequent to the December 2024 RDO (as defined below) in accordance with the terms of such notes) and (ii) warrants (the “October 2024 Noteholder Warrants”) to purchase up to 214,284 shares of our Common Stock directly to the Tranche B Noteholders.
We received in exchange for the issuance of the Tranche B Notes to the Tranche B Investors an aggregate amount in cash of $22,500,000, excluding fees and expenses payable by us. We received from Oramed in consideration for the Tranche B Notes issued to Oramed an exchange and reduction of the principal balance under the Oramed Note of $22,500,000.
The October 2024 Noteholder Warrants are immediately exercisable for cash at an exercise price equal to $38.15 per share of Common Stock (which was automatically reduced to $36.44 per share of Common Stock subsequent to the December 2024 RDO (as defined below) in accordance with the terms of such warrants) and will expire five years from the issuance date. The October 2024 Noteholder Warrants issued to the Tranche B Investors are initially exercisable for 107,142 shares of Common Stock in the aggregate. The October 2024 Noteholder Warrants issued to Oramed are initially exercisable for 107,142 shares of Common Stock.
Pursuant to the terms and conditions contained in the Tranche B Securities Purchase Agreement, we also agreed to reimburse the Tranche B Investors for all reasonable costs and expenses incurred by it or its affiliates in connection with the Tranche B Securities Purchase Agreement, the Tranche B Notes, the October 2024 Noteholder Warrants, the ZTlido Royalty Purchase Agreement (as defined below) and certain other transaction documents, and an aggregate amount of $950,000 non-accountable legal fees of outside counsel and special finance and collateral counsel, which shall be withheld by the Tranche B Investors from its purchase price at the closing of the transaction, less $20,000 previously paid by us. We shall also be responsible for the payment of a $2,000,000 fee to the placement agent in addition to the payment of any placement agent’s reasonable fees, financial advisory fees relating to or arising out of the transactions contemplated by the Tranche B Securities Purchase Agreement. In addition, in conjunction with and pursuant to the letter agreement we entered into with Oramed, dated as of October 2, 2024 (the “Tranche B Letter Agreement”), we are also responsible for the payment of legal fees of outside counsel for Oramed relating to or arising out of the transactions contemplated hereby and the payment date extensions described under the Tranche B Letter Agreement. We shall also be responsible for the payment of any fees of the Agent and the legal fees incurred thereby relating to or arising out of the transactions contemplated by the Tranche B Securities Purchase Agreement.
In connection with the offering of the Tranche B Notes, we issued to StockBlock Securities LLC (“StockBlock”) and its affiliate, Rodman & Renshaw LLC (the “Placement Agents”) or their respective designees, (i) 2,197,802 shares of Common Stock (the “Placement Agent Shares”) and (ii) Placement Agent Warrants to purchase up to 104,848 shares of Common Stock (the “October 2024 Placement Agent Warrants”). The Placement Agent Shares were subject to a 120-day lock-up, which is now expired. In addition, during such 120-day period, the Placement Agents (whether directly or indirectly through their respective affiliates) shall be prohibited from hedging, pledging or similar transactions and from short-selling our securities, subject to certain exceptions. The October 2024 Placement Agent Warrants will have the same terms as the October 2024 Noteholder Warrants, except that the Placement Agents have agreed not to exercise the October 2024 Placement Agent Warrants for a period of 180 days following the date of issuance.
Pursuant to the Tranche B Notes, commencing on January 2, 2025, we were required to redeem in cash (the “First Amortization Payment”) such portion of the principal amount of the Tranche B Notes equal to each Tranche B Noteholder’s Holder Pro Rata Amount (as defined in the Tranche B Notes) of $6,250,000 per fiscal quarter at a redemption price equal to 100% of such Amortization Amount (as defined in the Tranche B Notes).
On January 2, 2025, we entered into a deferral and consent letter with each of (i) Nomis Bay Ltd and BPY Limited (the “Nomis Bay Consent”), (ii) Oramed (the “Oramed Consent”) and (iii) 3i, LP (the “3i Consent” and, collectively with the Nomis Bay Consent and the Oramed Consent, the “Tranche B Consents”), respectively, pursuant to which the Tranche B Noteholders agreed to defer our obligation to make the First Amortization Payment until January 31, 2025 and then further to October 8, 2026. In consideration of such deferral, (i) SCLX JV delivered to the Tranche B Noteholders an aggregate of 142,855 shares of Common Stock held by SCLX JV, (ii) we paid an aggregate of $1.1 million in respect of a portion of the First Amortization Payment and related make-whole interest, and (iii) we entered into the Gloperba-Elyxyb Royalty Purchase Agreement.
Oramed Warrant
Pursuant to the Tranche B Notes, we were required to make an amortization payment on October 1, 2025 (the “Second Amortization Payment”) to Oramed. On December 31, 2025, the Company enter into a commitment letter with Oramed to purchase 50,000 shares of common stock of Scilex, par value 0.0001 per share, with an exercise price of $20.00 per share (in each case subject to adjustment for recapitalizations, stock splits, stock dividends and similar types of transactions) and a verbal commitment for Oramed to purchase an additional 50,000 shares for a total of 100,000 shares of common stock of Scilex to which Oramed deferred its right to receive this amortization payment. On February 19, 2026, the Company issued to Oramed a new warrant to purchase an aggregate of 100,000 shares of Common Stock (the “February 2026 Warrant”) at an initial exercise price of $20.00 per share. The deferred amortization payment was made to Oramed in November 2025.
December 2024 Registered Direct Offering
On December 11, 2024, we entered into a securities purchase agreement (the “December 2024 RDO Purchase Agreement”) with the investors named therein, pursuant to which we agreed to sell and issue, in a registered direct offering (the “December 2024 RDO”): (i) an aggregate of 753,009 shares of Common Stock, (ii) pre-funded warrants to purchase up to 68,604 shares of Common Stock (the “December 2024 RDO Pre-Funded Warrants”) and (iii) common warrants to purchase up to 1,642,871 shares of Common Stock (the “December 2024 RDO Common Warrants” and together with the December 2024 RDO Pre-Funded Warrants and the warrants issued to StockBlock pursuant to certain contractual obligations between us and StockBlock (the “StockBlock Warrants”), the “December 2024 RDO Warrants”). The combined offering price (a) per share of Common Stock and accompanying December 2024 RDO Common Warrants was $20.65 and (b) per Pre-Funded Warrant and accompanying December 2024 RDO Common Warrants was $20.6499. We received approximately $17.0 million in gross proceeds from the December 2024 RDO, before deducting offering fees and expenses. We intend to use the net proceeds from the December 2024 RDO for working capital and general corporate purposes, which may include capital expenditures, commercialization expenditures, research and development expenditures, regulatory affairs expenditures, clinical trial expenditures, acquisitions of new technologies and investments, business combinations and the repayment, refinancing, redemption or repurchase of indebtedness or capital stock.
Amendment to Common Stock Purchase Warrant
On December 11, 2024, we entered into a warrant amendment (the “Warrant Amendment”) with one of the investors to exercise the outstanding amount of certain warrants that we issued to such investor in the February 2024 BDO on March 5, 2024. Pursuant to the Warrant Amendment, the investor agreed to exercise outstanding warrants to purchase an aggregate of 1,764,706 shares of Common Stock in cash at an amended exercise price of $0.59 per share. The gross proceeds to us from such exercise was approximately $1.0 million.
Tumim Purchase Agreement
In July 2025, we entered into a common stock purchase agreement (the “Tumim Purchase Agreement”) and a related registration rights agreement (the “Tumim Registration Rights Agreement”) with Tumim Stone Capital, LLC (“Tumim”). Pursuant to the Tumim Purchase Agreement, we had the right but not the obligation, to sell, from time to time, to Tumim up to $100.0 million in aggregate gross purchase price of shares of Common Stock in our sole discretion, subject to certain conditions and limitations, during the term of 24 months. Through December 31, 2025, there were no sales of shares of Common Stock under the Tumim Purchase Agreement.
In connection with the Tumim Purchase Agreement, we incurred an obligation to issue 150,000 shares of Common Stock (“Commitment Shares Obligation”) to Tumim. The Commitment Shares Obligation was determined to be an equity-linked contract and met all the conditions for equity classification. We recognized an amount of $3.0 million in expense and in accrued expenses. As part of the termination, no shares were issued and instead Tumim was paid an aggregate of $2.7 million.
During the twelve months ended December 31, 2025, there were no sales of shares of Common Stock under the Tumim Purchase Agreement. As of December 31, 2025, Tumim Purchase Agreement has been terminated.
Warrant Exchange Agreements
On July 22, 2025, the Company entered into Warrant Exchange Agreements (each, a “Warrant Exchange Agreement” and collectively, the “Warrant Exchange Agreements”) with certain holders of the Company’s then-existing Tranche B warrants (such certain holders (excluding Oramed), the “Exchanging Warrant Holders”) to purchase shares of Common Stock (such Tranche B warrants held by the Exchanging Warrant Holders, the “Existing Tranche B Warrants”). Pursuant to the Warrant Exchange Agreements, the Company and the Exchanging Warrant Holders effected a voluntary securities exchange whereby the Exchanging Warrant Holders exchanged the Existing Tranche B Warrants, which were then exercisable for an aggregate of 107,142 shares of Common Stock at an exercise price of $36.40 per share, originally issued pursuant to the Tranche B Securities Purchase Agreement, for warrants to purchase an aggregate of 500,000 shares of Common Stock (the “Exchange Warrants”) at an exercise price of $40.00 per share (the “Exchange Warrant Exercise Price”).
Warrant Exercise Agreement
On September 30, 2025, we entered into a Warrant Exercise Agreement (the “Warrant Exercise Agreement”) with certain holders of the December 2024 RDO Common Warrants, pursuant to which, among other things, such holders exercised the December 2024 RDO Common Warrants to purchase 179,236 shares and deferred, for a deferral fee of $7.72 per share being exercised, their right to receive an amortization payment scheduled to be paid by us on October 1, 2025 as set forth in the amortization schedule included in the Tranche B Notes in exchange for our agreement to issue new warrants to purchase an aggregate of 275,000 shares of Common Stock (the “September 2025 Warrants”) at an exercise price of $20.00 per share.
Warrant Inducement Agreement
On November 23, 2025, we entered into a warrant inducement agreement (the “Warrant Inducement Agreement”) with a certain institutional investor, pursuant to which the investor agreed to exercise (the “Exercise”) (i) a warrant to purchase shares of Common Stock issued to the investor on April 25, 2024, which was then exercisable for 428,572 shares and has an exercise price of $38.50 per share (the “Existing April 2024 Warrants”) and (ii) a warrant to purchase shares of Common Stock issued to the investor on December 13, 2024, which was then exercisable for 475,824 shares and has an exercise price of $22.72 per share (together with the Existing April 2024 Warrants, the “Existing Warrants”). As consideration for the Exercise, the Company agreed to (i) reduce the exercise price of the Existing Warrants to $22.51 per share and (ii) issue to the investor the “November 2025 Investor Warrant”) to purchase up to an aggregate of 1,356,594 shares of Common Stock with an exercise price of $29.00 per share (the “November 2025 Investor Warrant Exercise Price”) in a private placement pursuant to Section 4(a)(2) of the Securities Act. The November 2025 Investor Warrant shall be immediately exercisable and in certain circumstances may be exercised on a cashless basis. The November 2025 Investor Warrant shall expire five years from the date of its issuance. The November 2025 Investor Warrant Exercise Price shall be subject to adjustment for any stock split, stock dividend, stock combination, recapitalization or similar event. Further, in connection with a warrant inducement agreement and pursuant to the terms of an engagement agreement by and between the Company and StockBlock, dated as of March 22, 2024 (as amended and supplemented from time to time, the “Engagement Agreement”), the Company has agreed to issue the placement agents or their designees, warrants to purchase up to an aggregate of 72,352 shares of Common Stock (the “November 2025 Placement Agent Warrants” and, together with the November 2025 Investor Warrant, the "November 2025 Warrants"). The Placement Agent Warrants have substantially the same terms of the November 2025 Warrant, including exercise price and expiration.
Future Liquidity Needs
We have based our anticipated operating capital requirements on assumptions that may prove to be incorrect and we may use all our available capital resources sooner than we expect. The amount and timing of our future funding requirements will depend on many factors, some of which are outside of our control, including but not limited to:
the costs and expenses associated with our ongoing commercialization efforts for ZTlido, GLOPERBA and ELYXYB;
the degree of success we experience in commercializing ZTlido, GLOPERBA and ELYXYB;
the revenue generated by sales of ZTlido, GLOPERBA, ELYXYB and other products that may be approved, if any;
the scope, progress, results and costs of conducting studies and clinical trials for our product candidates, SEMDEXA, SP-103 and SP-104;
the timing of, and the costs involved in, obtaining regulatory approvals for our product candidates;
the costs of manufacturing ZTlido, GLOPERBA, ELYXYB and our product candidates;
the timing and amount of any milestone, royalty or other payments we are required to make pursuant to any current or future collaboration or license agreements;
our ability to maintain existing, and establish new, strategic collaborations, licensing or other arrangements and the financial terms of any such agreements, including the timing and amount of any future milestone, royalty or other payments due under any such agreement;
the extent to which ZTlido, GLOPERBA, ELYXYB or any of our product candidates, if approved for commercialization, is adopted by the physician community;
our need to expand our research and development activities;
the costs of acquiring, licensing or investing in businesses, product candidates and technologies;
the effect of competing products and product candidates and other market developments;
the number and types of future products we develop and commercialize;
any product liability or other lawsuits related to our products;
the expenses needed to attract, hire and retain skilled personnel;
the costs associated with being a public company;
our need to implement additional internal systems and infrastructure, including financial and reporting systems;
the costs of preparing, filing and prosecuting patent applications and maintaining, enforcing and defending intellectual property-related claims;
the costs related to servicing of our debt; and
the extent and scope of our general and administrative expenses.
Should our sales of ZTlido, GLOPERBA, ELYXYB and other product candidates not materialize at the anticipated rate contemplated in our business plan, we will need to raise additional capital in order to continue to fund our research and development, including our plans for clinical and preclinical trials and new product development, as well as to fund operations generally. We will seek to raise additional funds through various potential sources, such as equity and debt financings and license agreements.
However, our ability to generate proceeds will depend on the market price of our Common Stock. In addition to the liquidity provided by revenue generating products, as of December 31, 2025, we would receive up to an aggregate of approximately $80.0 million from the exercise of the Private Warrants and public warrants to purchase Common Stock (the “Public Warrants”, and together with the Private Warrants, the “ SPAC Warrants”) (at an exercise price of $402.50 per share of Common Stock), assuming the exercise in full of all of the SPAC Warrants for cash, but will not receive any proceeds from the sale of the shares of our Common Stock issuable upon such exercise. If the price of our Common Stock remains below $402.50 per share, we believe warrant holders will be unlikely to cash exercise their SPAC Warrants, resulting in little or no cash proceeds to us. To the extent any of the February 2024 BDO Firm Warrants, February 2024 BDO Representative Warrants, April 2024 RDO Placement Agent Warrants, Deposit Warrant, October 2024 Noteholder Warrants, October 2024 Placement Agent Warrants, December 2024 RDO Common Warrants, StockBlock Warrants, the Exchange Warrants, the September 2025 Warrants, the November 2025 Warrants and the February 2026 Warrants is exercised, we will receive additional proceeds.
We can give no assurances that we will be able to secure additional sources of funds to support our operations on acceptable terms, or at all, or, if such funds are available to us, that such additional financing will be sufficient to meet our needs. These conditions, among others, raise substantial doubt about our ability to continue as a going concern. If we raise additional funds by issuing equity or convertible debt securities or as we have done pursuant to the Oramed Note and the Tranche B Notes, it could result in dilution to our existing stockholders or increased fixed payment obligations. In addition, as a condition to providing additional funds to us, future investors may demand, and may be granted, rights superior to those of existing stockholders. If we incur additional indebtedness, we could become subject to covenants that would restrict our operations and potentially impair our competitiveness, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating
restrictions that could adversely impact our ability to conduct our business. Additionally, any future collaborations we enter into with third parties may provide capital in the near term, but we may have to relinquishvaluable rights to ZTlido, GLOPERBA, ELYXYB, or our product candidates or grant licenses on terms that are not favorable to us. Any of the foregoing could significantly harm our business, financial condition and results of operations. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may be required to reduce the scope of the commercialization of ZTlido, GLOPERBA or ELYXYB or delay, scale back or discontinue the development of one or more of our product candidates.
We may also need to take certain other actions to allow us to maintain our projected cash and projected financial position including but not limited to, additional reductions in general and administrative costs, sales and marketing costs, suspension or winding down of clinical development programs for SP-102, SP-103 and SP-104 and other discretionary costs. Although we believe such plans, if executed and coupled with the above-described sources of liquidity, should provide us with financing to meet our needs, successful completion of such plans is dependent on factors outside of our control.
We anticipate that we will continue to incur net losses into the foreseeable future as we support our clinical development to expand approved indications, continue our development of, and seek regulatory approvals for, our product candidates, and expand our corporate infrastructure. As a result, we have concluded that there is substantial doubt about our ability to continue as a going concern within one year after the date that the consolidated financial statements are issued. See Note 2 titled “ Liquidity and Going Concern ” to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information. Our existing cash and cash equivalents may be insufficient to enable us to fund our operating expenses, capital expenditure requirements, and to service our debt obligations (whether under the Oramed Note, the Tranche B Notes or otherwise) for at least the next 12 months. If these sources are insufficient to satisfy our liquidity requirements, we may seek to raise additional funds through equity offerings, debt financings, collaborations, government contracts or other strategic transactions.
Cash Flows
The following table summarizes our cash flows for each of the periods presented (in thousands):
Year Ended December 31,
Cash Flow Data:
Net cash proceeds from operating activities
Net cash proceeds from (used for) investing activities
Net cash (used for) financing activities
Effect of exchange rate changes on cash
Net change in cash, cash equivalents and restricted cash
Cash Flows from Operating Activities
Net cash provided by operating activities was $3.8 million, for the year ended December 31, 2025 compared to net cash provided by operating activities of $19.3 million for the same period in 2024.
Significant changes impacting net cash provided by operating activities for the year ended December 31, 2025 compared to the same period in 2024 were as follows:
Net loss of $374.1 million for the year ended December 31, 2025 compared to a net loss of $72.8 million for the year ended December 31, 2024.
A loss on derivative liability of $22.7 million for the year ended December 31, 2025 compared to a gain of $17.4 million for the prior year period, a difference of $40.1 million. The change is primarily due to change in fair value of derivative liability.
Transaction costs related to the Semnur Business Combination of $140.0 million for the year ended December 31, 2025 and nil for the prior year period, a difference of $140.0 million. The change is primarily due to the closing of the Semnur Business Combination that occurred in September 2025.
A loss on digital assets of $42.4 million for the year ended December 31, 2025 and nil for the prior year period, a difference of $42.2 million. The change is primarily due to the digital assets held, which had depreciated in value.
A loss on convertible debentures of $25.4 million for the year ended December 31, 2025 compared to a $4.8 for the prior year period, a difference of $28.3 million. The change is primarily due to change in fair value of debt and liability instruments.
A loss on equity method investment of $59.4 million for the year ended December 31, 2025 and nil for the prior year period, a difference of $446.1 million. The change is primarily due to the Datavault investment, which had depreciated in value.
A loss on debt extinguishment of $7.4 million for the year ended December 31, 2025 and nil for the prior year period, a difference of $7.4 million. The change is primarily due to the loss associated with the exchange of October 2024 Warrant for the Exchange Warrants (as defined below) and exchange of April 2024 RDO Common Warrants and December 2024 RDO Common Warrants for the November 2025 Warrants (each as defined below).
A gain on purchase of pre-funded warrants of $– million for the year ended December 31, 2025 compared to a $1.2 million gain for the prior year period, a difference of $472.0 million. The change is primarily due to gain on purchase of Datavault pre-funded warrants.
A gain on equity investment of $21.9 million for the year ended December 31, 2025 and nil for the prior year period, a difference of $21.9 million. The change is primarily due to the Datavault investment, which had appreciated in value.
Other non-cash reconciling items of approximately $33.1 million and $38.7 million for the year ended December 31, 2025 and 2024, respectively, a difference of approximately $5.4 million related to depreciation and amortization and non-cash operating lease cost, financing costs, allocated expense for financial instrument at fair value, in-process research and development expense and stock-based compensation and changes in operating assets and liabilities that provided $114.0 million of cash, partially offset by our net loss of $374.1 million, compared to changes in operating assets and liabilities that provided $64.8 million of cash, partially offset by our net loss of $72.8 million for the year ended December 31, 2024.
Cash Flows from Investing Activities
For the year ended December 31, 2025, net cash provided by investing activities was approximately $4.1 million and was primarily related to $39.6 million related to sale of Datavault shares, partially offset by $15.8 million related to purchase of Bitcoin with cash, $9.2 million related to cash paid to settle Datavault obligation, $1.0 million related to repayments on promissory note, $0.6 million payments of deferred consideration for Romeg intangible asset acquisition under the Romeg License Agreement, and $0.2 million related to purchase of Gloperba Ex-U.S. rights, in-process research and development assets.
For the year ended December 31, 2024, net cash used for investing activities was approximately $2.7 million and was related to $0.6 million payments of deferred consideration for Romeg intangible asset acquisition under the Romeg License Agreement, $2.0 million purchase of the Class B ordinary shares of Denali and $0.1 million purchase of a convertible promissory note from Denali (see Note 6 titled “ Balance Sheet Components ” to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information).
Cash Flows from Financing Activities
For the year ended December 31, 2025 , net cash used for financing activities was approximately $5.5 million and is primarily related to the repayment of an aggregate of $20.5 million of the Tranche B Notes, a $2.7 million payment for the termination of the Tumim Purchase Agreement, a $0.9 million payment of excise tax on stock repurchases, and a payment of $27.0 million cash consideration paid in connection with Penny Warrants repurchase, an aggregate of $3.2 million payment under the ZTlido Royalty Purchase Agreement and Gloperba-Elyxyb Royalty Purchase Agreement , $0.1 million in payment of debt issuance costs, a $1.7 million transaction costs paid in connection with issuance of Common Stock and exchange of April 2024 RDO Warrants and December 2024 RDO Warrants for November 2025 Warrants, $1.0 million transaction costs paid in connection with share repurchase, partially offset by $20.4 million in gross proceeds from the exercise of April 2024 RDO Warrants and December 2024 RDO Warrants, together, the Original Warrants, $10.2 million in proceeds from the exercise of December 2024 Warrants, $21.5 million in proceeds from borrowings pursuant to the Scilex-St. James Loan Agreement.
For the year ended December 31, 2024 , net cash used for financing activities was approximately $18.1 million and is primarily related to the repayment of an aggregate of $184.6 million of borrowings under the Revolving Facility, the Oramed Note, the Convertible Debentures and the Tranche B Notes, the payment of an aggregate of $4.4 million of transaction costs related to the February 2024 BDO, the April 2024 RDO and the December 2024 RDO, the payment of an aggregate of $4.2 million of transaction cost related to the Tranche B Notes and the ZTlido Royalty Purchase Agreement, a $1.4 million payment of deferred transaction costs related to the Semnur Business Combination, a $0.5 million payment of excise tax on stock repurchases, and a payment of $0.3 million cash in consideration of the repurchase of a certain portion of the SPAC Warrants, partially offset by $95.5 million in gross proceeds from the Revolving Facility, an aggregate of $42.2 million in gross proceeds from the issuance of shares under the February 2024 BDO, April 2024 RDO, December 2024 RDO and the exercise of the February 2024 BDO Firm Warrants, an aggregate of $25.5 million in gross proceeds from issuance of Tranche B Notes and ZTlido Royalty Purchase Agreement, $10.7 million in proceeds from receiving the FSF Deposit, an aggregate of $2.7 million in proceeds from the Standby Equity Purchase Agreements and the ATM Sales Agreement and an aggregate of $2.1 million in proceeds from the exercise of stock options and warrants and purchases under the ESPP.
Critical Accounting Estimates
This management’s discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements which are prepared in accordance with “U.S. GAAP”. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and the reported amounts of revenue and expenses during the reporting period. We continually evaluate our estimates and judgments and base them on historical experience and other factors that we believe to be reasonable under the circumstances. Materially different results can occur as circumstances change and additional information becomes known.
There have been no material changes in our critical accounting estimates as compared to the critical accounting estimates disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, except for the accounting treatment for the cryptocurrency assets, noncontrolling interests and equity method investment as discussed in Note 1 to the audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
We believe the following accounting policies and estimates are most critical to aid in understanding and evaluating our reported financial results.
Revenue Recognition
Our revenue to date has been generated from product sales of ZTlido, ELYXYB and GLOPERBA in the United States. We do not have significant costs associated with obtaining contracts with our customers.
We recognize revenue when control of the products is transferred to the customers in an amount that reflects the consideration we expect to receive from the customers in exchange for those products. In accordance with FASB ASC Topic 606 “ Revenue from Contracts with Customers ” , this process involves identifying the contract with a customer, determining the performance obligations in the contract and the contract price, allocating the contract price to the distinct performance obligations in the contract and recognizing revenue when the performance obligations have been satisfied. A performance obligation is considered distinct from other obligations in a contract when it provides a benefit to the customer either on its own or together with other resources that are readily available to the customer and is separately identified in the contract. We consider a performance obligation satisfied once we have transferred control of a good or service to the customer, meaning the customer has the ability to use and obtain the benefit of the good or service. We recognize revenue for satisfied performance obligations only when we determine there are no uncertainties regarding payment terms or transfer of control.
Our performance obligations with respect to sales of ZTlido, ELYXYB and GLOPERBA are satisfied at a certain point in time, and we consider control to have transferred upon delivery to the customer, because, upon delivery, the customer has legal title to the asset, physical possession of the asset has been transferred to the customer, the customer has significant risks and rewards in connection with ownership of the asset, and we have a present right to payment from the customer at that time. Invoicing typically occurs upon shipment and the length of time between invoicing and the date on which payment is due is not significant.
Revenues from product sales are recorded net of reserves established for commercial and government rebates, fees, and chargebacks, wholesaler and distributor fees, sales returns and prompt payment discounts. Such variable consideration is estimated in the period of the sale and is estimated using a most likely amount approach based primarily upon provisions included in our customer contracts, customary industry practices and current government regulations.
Deductions from Revenues
The Company’s gross product revenues are subject to a variety of deductions, which generally are estimated and recorded in the same period that the revenues are recognized. Such variable consideration represents chargebacks, rebates, sales allowances and sales returns. These deductions represent estimates of the related obligations and, as such, knowledge and judgment are required when estimating the impact of these product revenue deductions on net sales for a reporting period.
Rebates and Chargebacks
Rebates are discounts that we pay under either government or private health care programs. Government rebate programs include state Medicaid drug rebate programs, the Medicare coverage gap discount programs and the Tricare programs. Commercial rebate and fee programs relate to contractual agreements with commercial healthcare providers, under which we pay rebates and fees for access to and position on that provider’s patient drug formulary. Rebates and chargebacks paid under government programs are generally mandated under law, whereas private rebates and fees are generally contractually negotiated with commercial healthcare providers. Both types of rebates vary over time. We record a reduction to gross product sales at the time the customer takes title to the product based on estimates of expected rebate claims. We monitor the sales trends and adjust for these rebates on a regular basis to reflect the most recent rebate experience and contractual obligations. Reserves for rebates and chargebacks are recorded as accrued rebates and fees under current liabilities within the Company’s consolidated balance sheets.
Prompt Payment Discounts
We provide our customers with prompt payment discounts which may result in adjustments to the price that is invoiced for the product transferred, in the case that payments are made within a defined period. The prompt payment discount reserve is based on actual gross sales and contractual discount rates. Reserves for prompt payment discounts are included in accounts receivable, net on the consolidated balance sheets.
Service Fees
We compensate our customers and others in the distribution chain for wholesaler and distribution services. The Company has determined such services received are not distinct from our sale of products to the customers, and therefore, these payments have been recorded as a reduction of revenue. Service fees are presented as accrued rebates and fees under current liabilities within the Company’s consolidated balance sheets.
Product Returns
We are obligated to accept the return of products sold that are damaged or do not meet certain specifications. We currently estimate our product returns using historical trends and product return rates typically experienced in the industry and record this estimate as a reduction of revenue in the period the related product revenue is recognized. Product returns are presented as accrued rebates and fees under current liabilities within the Company’s consolidated balance sheets.
The allowance for product returns is determined based on historical return rates, product shelf life, and inventory levels within the distribution channel. This estimated rate is applied to gross sales to accrue the sales allowance. Discounts, typically 2% of sales, are offered to wholesalers for prompt payment. Upon receipt of actual product returns, the Company updates its balances accordingly, while continuing to refine its estimates based on historical trends.
Co-payment Assistance
Patients who have commercial insurance or pay cash and meet certain eligibility requirements may receive co- payment assistance. We accrue for co-payment assistance based on actual program participation and estimates of program redemption using data provided by third-party administrators. Co-payment assistance is presented as accrued rebates and fees under current liabilities within the Company’s consolidated balance sheets.
Derivative Liability
Derivative liabilities are recorded on our consolidated balance sheets at their fair value on the date of issuance and are revalued on each balance sheet date until such instruments are exercised or expired, with changes in the fair value between reporting periods recorded as other income or expense. The warrant liability associated with the Private Warrants, the February 2024 BDO Firm Warrants, the April 2024 RDO Common Warrants, the Deposit Warrant, the October 2024 Noteholder Warrants and the December 2024 RDO Common Warrants was valued using the Black-Scholes option pricing model, which is considered to be Level 3 fair value measurement. The primary unobservable input utilized in determining the fair value of the warrants is the expected volatility of the Common Stock. The expected volatility assumption is a blend of our own stock volatility and historical volatilities of comparable companies whose share prices are publicly available as well as the implied volatility of the Public Warrants. The Company evaluated the Scilex-St. James Loan Agreement for embedded derivatives and identified certain features that required bifurcation because they are not clearly and closely related to the host instrument. The embedded derivatives relate to (i) default provisions that could require additional interest payments, and (ii) a provision which could require the settlement of the principal amount of the Scilex-St. James Loans through the Scilex-St. James Pledged Securities upon an uncured event of default. The Company determined that the fair value of these embedded derivatives was immaterial as of the issuance dates of the Scilex-St. James Loans and as of December 31, 2025.
Stock-Based Compensation
We account for stock-based compensation in accordance with FASB ASC Topic 718 “ Compensation – Stock Compensation ”, which establishes accounting for equity instruments exchanged for employee and consulting services. Under such provisions, stock-based compensation cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense, under the straight-line-method, over the employee’s requisite service period (generally the vesting period of the equity grant) or non-employee’s vesting period. We account for forfeitures as incurred.
For purposes of determining the inputs used in the calculation of stock-based compensation, the Company determines the expected life assumption for options issued using the simplified method, which is an average of the contractual term of the option and its ordinary vesting period since the Company does not have historic exercise behavior. Then the Company determines an estimate of option volatility based on an assessment of historical volatilities of comparable companies whose share prices are publicly available. We use these estimates as variables in the Black-Scholes option pricing model. Depending upon the number of stock options granted, any fluctuations in these calculations could have a material effect on the results presented in our consolidated statements of operations and comprehensive loss.
Convertible Debentures, the Oramed Note, Tranche B Notes and Purchased Revenue Liability
We elected the fair value option to account for the Convertible Debentures in an aggregate principal amount of up to $25.0 million that were issued in March and April 2023, the Oramed Note in the principal amount of $101.9 million that was issued in September 2023, Tranche B Notes in the principal amount of $50.0 million that were issued in October 2024 and purchased revenue liability pursuant to the ZTlido Royalty Purchase Agreement. The Convertible Debentures, the Oramed Note, the Tranche B Notes and the purchased revenue liability are discussed in Note 8 titled “ Debt” of the Notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. These instruments are measured at fair value on a recurring basis using Level 3 inputs. We employ the Binomial Lattice Model valuation technique to measure the fair value of the Convertible Debentures and Tranche B Notes, a Scenario-Based Method valuation technique to measure the fair value of the purchased revenue liability, and a discounted cash flow model to measure the fair value of the Oramed Note, respectively, with any changes in fair value recorded as change in fair value of debt and liability instruments in the consolidated statements of operations, except for changes due to instrument-specific credit risk, if any, which are recorded as a component of other comprehensive income. Interest expense related to these financial instruments is included in the changes in fair value.
Goodwill Impairment
We test for goodwill impairment at the reporting unit level. We consider our reporting units for goodwill impairment testing. When evaluating goodwill for impairment, we may first assess qualitative factors to determine whether it is more likely than not the fair value of a reporting unit is less than its carrying amount. Qualitative factors include macroeconomic conditions, industry and market conditions and overall company financial performance. If, after assessing the totality of events and circumstances, we determine that it is more likely than not the fair value of the reporting unit is greater than its carrying amount, the quantitative impairment test is unnecessary. The quantitative impairment test, if necessary, involves comparing the fair value of each reporting unit to its carrying value, including goodwill. Fair value reflects the price a market participant would be willing to pay in a potential sale of the reporting unit. If the fair value exceeds the carrying value, we conclude that no goodwill impairment has occurred. If the carrying value exceeds the fair value, we recognize an impairment charge in an amount equal to the excess, not to exceed the carrying value of the goodwill. Determining the fair value of a reporting unit when performing a quantitative impairment test involves the use of significant estimates and assumptions to evaluate the impact of operational and economic changes on each reporting unit. We estimate the fair value using the income and market valuation approaches. We apply a market approach, which develops a value correlation based on the market capitalization of similar publicly traded companies, referred to as a multiple, to apply to the operating results of the reporting units. The primary market multiples to which we compare include revenue and earnings before interest, taxes, depreciation, and amortization. We base fair value estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain. Actual future results may differ from those estimates. We confirm the reasonableness of the valuation conclusions by comparing the indicated values of all the reporting units to the overall company value indicated by the stock price and outstanding shares as of the valuation date, or market capitalization.
Impairment test
During the fiscal fourth quarter of 2025, management determined that a triggering event had occurred as a result of business combination with Vivasor, and a further decrease in our stock price. Therefore, we performed an impairment test post consolidation of Vivasor, as of the last day of fiscal December 2025.
Based on the results of our year-end impairment test, we concluded that the carrying amount of goodwill for Vivasor exceeded the estimated fair value and we recorded a non-cash impairment charge of $73.4 million, which was included in goodwill and intangible asset impairment charge on our Consolidated Statements of Operations and Comprehensive Income (Loss) for the fiscal year ended December 31, 2025. As a result of this impairment charge, $73.4 million of the total goodwill carrying value of $73.4 million for Vivasor was impaired. The goodwill impairment was primarily driven by company-specific factors following the acquisition, including a more challenging capital markets environment for early-stage biotechnology companies, increased cost of capital, and updated expectations regarding the timing and probability of future development and financing activities, which together resulted in a decline in the estimated fair value of the reporting unit below its carrying amount. Based on our year-end impairment test, we concluded that, other than goodwill impairment for Vivasor, the rest of the goodwill balance was not impaired. See Note 7: Goodwill and Intangible Assets , to our consolidated financial statements found elsewhere in this Annual Report on Form 10-K, for additional details on the 2025 goodwill impairment. There were no goodwill impairment charges recorded during fiscal 2024.
Recent Accounting Pronouncements
See Note 1 titled “ Nature of Operations and Basis of Presentation ” of the Notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for a discussion of recent accounting pronouncements.
Emerging Growth Company
An “emerging growth company” as defined in Section 2(a) of the Securities Act, as modified by the JOBS Act, is eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. As a result, changes in rules of U.S. generally accepted accounting principles or their interpretation, the adoption of new guidance or the application of existing guidance to changes in Scilex’s business could significantly affect our business, financial condition and results of operations.
In addition, we are in the process of evaluating the benefits of relying on the other exemptions and reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, as an emerging growth company we may take advantage of certain exemptions from various reporting requirements and other burdens that are otherwise applicable generally to public companies. These provisions include, but are not limited to:
an exemption from compliance with the requirement to obtain an attestation and report from our auditors on the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”);
an exemption from compliance with any new requirements adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotation;
reduced disclosure about our executive compensation arrangements in our periodic reports, proxy statements and registration statements; and
exemptions from the requirements of holding non-binding advisory votes on executive compensation or golden parachute arrangements.
Scilex qualifies and will remain as an emerging growth company until the earlier of (i) the last day of the fiscal year (a) following the fifth anniversary of the closing of the IPO, (b) in which Scilex has total annual gross revenue of at least $1.235 billion, or (c) in which Scilex is deemed to be a large accelerated filer, which means the market value of the common equity of Scilex that is held by non-affiliates equals or exceeds $700 million as of the last business day of its most recently completed second fiscal quarter; and (ii) the date on which Scilex has issued more than $1.00 billion in non-convertible debt securities during the prior three-year period. References herein to “emerging growth company” have the meaning associated with it in the JOBS Act.
Smaller Reporting Company
Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. Scilex qualifies and will remain a smaller reporting company until the last day of the fiscal year in which (i) Scilex has annual revenue of at least $100 million and a public float that equals or exceeds $700 million as of the last business day of its most recently completed second fiscal quarter or (ii) Scilex has a public float that equals or exceeds $250 million as of the last business day of its most recently completed second fiscal quarter.
