On Monday, H.C. Wainwright reaffirmed its Buy rating on Scilex Holding Co. (NASDAQ: SCLX) shares with a steady price target of $7.00. The firm's analyst highlighted recent financial maneuvers by Scilex, including the closure of a registered direct offering earlier in the month. This offering involved senior secured convertible notes totaling $50 million and warrants for purchasing up to 7.5 million shares of Scilex's common stock.
The notes issued carry an original issue discount of 10% and an annual interest rate of 5.5%. They are set to mature on the two-year anniversary of their issuance unless they are converted or redeemed earlier. As part of the transaction, Scilex received $22.5 million in cash from 3i (LON:III) LP and Murchinson affiliates, excluding fees and expenses.
Furthermore, Scilex has arranged a deal with Oramed Pharmaceuticals (NASDAQ: NASDAQ:ORMP), which holds a Neutral rating, to exchange and reduce the principal balance by $22.5 million under an existing senior secured promissory note.
The tranche B senior secured convertible notes can be converted into Scilex common stock at any time, either fully or partially, with the conversion price set at $1.09 per share, subject to adjustments. The associated warrants are exercisable at the same price of $1.09 and are valid for five years from the date of issuance.
The funds from this offering, which amount to approximately $20.5 million after deducting necessary payments, are earmarked for various purposes. Scilex plans to allocate these funds to repay $12.5 million of the outstanding balance under the Oramed note, clear the revolving credit facility with eCapital Healthcare Corp, cover certain costs, fees, and expenses related to the note purchasers and collateral agent, and support general corporate activities.
H.C. Wainwright's analyst concluded by reiterating the firm's Buy rating and 12-month price target of $7 for Scilex, signaling confidence in the company's financial strategy and future prospects.
In other recent news, Scilex Holding Company is contemplating strategic options to maximize shareholder value for its subsidiary, Scilex Pharmaceuticals. These options may include a potential spinoff or public listing outside the United States.
This decision stems from the belief that Scilex Pharma's value could surpass that of Scilex Holding, given its recent growth and FDA-approved products. Notably, ZTlido® has seen an average 50% increase in gross sales over the past two years, with projections to exceed $180 million in 2024.
Scilex Holding also reported growth in Q3 net sales for its non-opioid pain management products, with the net sales of ZTlido reaching between $11.0 million and $13.0 million. The company has also secured a $50 million convertible note offering with stakeholders such as Murchinson, 3i LP, and Oramed Pharmaceuticals to refinance existing debt and bolster long-term growth.
Recently, Scilex Holding extended a payment deadline in its agreement with Oramed Pharmaceuticals and fulfilled a $10 million loan obligation through product delivery to FSF 33433 LLC.
The U.S. Food and Drug Administration also approved updates to the labeling of GLOPERBA®, a gout treatment, for precision dosing, and Scilex received Drug Distributor Accreditation from the National Association of Boards of Pharmacy. These are among the latest developments shaping the trajectory of Scilex Holding Company.
InvestingPro Insights
Recent data from InvestingPro sheds additional light on Scilex Holding Co.'s financial situation and market performance. Despite the company's recent capital raising efforts, InvestingPro Tips indicate that Scilex is not currently profitable and analysts do not anticipate profitability this year. This aligns with the company's reported operating income margin of -195.02% for the last twelve months as of Q2 2024.
However, it is worth noting that Scilex has shown significant revenue growth, with a 30.11% increase in quarterly revenue as of Q2 2024. This growth may be a factor in H.C. Wainwright's optimistic outlook and Buy rating.
The company's market capitalization stands at $127.77 million, with a price-to-book ratio of -0.6, reflecting the challenging financial position highlighted in the article. Interestingly, an InvestingPro Tip points out that the stock has seen a significant return over the last week, with data showing a 23.28% price total return. This recent uptick could be related to the market's reaction to the company's financial maneuvers described in the article.
For investors seeking a more comprehensive analysis, InvestingPro offers 7 additional tips for Scilex Holding Co., providing a deeper understanding of the company's financial health and market position.
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