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Fair Value Measurements
 12 Months Ended
Dec. 31, 2023
Fair Value Disclosures [Abstract]  
Fair Value Measurements
4. Fair Value Measurements
The following table presents the Company’s financial assets and liabilities that are measured at fair value on a recurring basis and the level of inputs used in such measurements (in thousands):
 
    
December 31, 2023
  
    
Balance
     
Quoted Prices
in Active
Markets
(Level 1)
     
Significant
Other
Observable
Inputs (Level 2)
     
Significant
Unobservable
Inputs (Level 3)
  
Liabilities
            
Oramed Note
    $ 104,089      $ —       $ —       $ 104,089  
Convertible Debentures
      4,340        —         —         4,340  
Derivative liabilities
      1,518        —         —         1,518  
Other long-term liabilities
      179        —         —         179  
  
 
 
     
 
 
     
 
 
     
 
 
  
Total liabilities measured at fair value
    $ 110,126      $ —       $ —       $ 110,126  
  
 
 
     
 
 
     
 
 
     
 
 
  
 
    
December 31, 2022
  
    
Balance
     
Quoted Prices
in Active
Markets
(Level 1)
     
Significant
Other
Observable
Inputs (Level 2)
     
Significant
Unobservable
Inputs (Level 3)
  
Liabilities
            
Derivative liabilities
    $ 1,231      $ —       $ —       $ 1,231  
Other long-term liabilities
      163        —         —         163  
  
 
 
     
 
 
     
 
 
     
 
 
  
Total liabilities measured at fair value
    $ 1,394      $ —       $ —       $ 1,394  
  
 
 
     
 
 
     
 
 
     
 
 
  
The Oramed Note
In September 2023, the Company issued a senior secured promissory note to Oramed Pharmaceuticals Inc. (“Oramed”) in the principal amount of $101.9 million (the “Oramed Note”) (see Note 7). The Company elected the fair value option to account for the Oramed Note with any changes in the fair value of the note recorded in the consolidated statements of operations. The Company uses a discounted cash flow model to determine the fair value of the Oramed Note based on Level 3 inputs. This methodology discounts the interest and principal payments using a risk-adjusted discount rate. The fair value as of December 31, 2023 was determined to be $104.1 million by applying a discount rate of 13.05%. For the year ended December 31, 2023, the Company recorded $2.8 million in change in fair value of the Oramed Note.
Convertible Debentures
In March and April 2023, the Company issued the Convertible Debentures in the principal amount of $25.0 million (see Note 7). The Convertible Debentures are measured at fair value on a recurring basis using Level 3 inputs. The Company uses the Binomial Lattice Model valuation technique to measure the fair value of the Convertible Debentures with any changes in the fair value of the Convertible Debentures recorded in the consolidated statements of operations. Interest expense related to the Convertible Debentures is included in the changes in fair value. For the year ended December 31, 2023, the Company recorded $4.4 million in change in
 
fair value of the Convertible Debentures. A summary of inputs used in valuing the Convertible Debentures is as follows:
 
    
December 31,
2023
  
Risk -Free Rate
      5.31 % 
Corporate Bond Yield
      15.60 % 
Coupon Interest Rate
      7.0 % 
Volatility
      70.0 % 
Dividend Yield
      0.0 % 
Conversion Price
    $ 8.00  
Derivative Liabilities
The Company recorded a gain of $0.5 million and $8.3 million and a loss of $0.3 million for the years ended December 31, 2023, 2022 and 2021, respectively, on derivative liabilities which was attributed to the Private Warrants that the Company assumed from Vickers in November 2022 in connection with the Business Combination and compound derivative liabilities associated with the senior secured notes issued by Scilex Pharma in September 2018 (the “Scilex Pharma Notes”), respectively. The fair value of the derivative liability associated with the Scilex Pharma Notes decreased by $30.4 million immediately after entry into Amendment No. 4 to the Scilex Pharma Notes on June 2, 2022 (“Amendment No. 4”). The fair value of the derivative liability associated with the Scilex Pharma Notes was estimated using the discounted cash flow method combined with a Monte Carlo simulation model including consideration of the terms of Amendment No. 4. Significant Level 3 assumptions used in the measurement included a 6.1% risk adjusted net sales forecast and an effective debt yield of 21.5%. The Scilex Pharma Notes were fully extinguished in September 2022 and, as such, there were no remaining loan derivative liabilities associated with the Scilex Pharma Notes as of December 31, 2022. At the closing of the Business Combination in November 2022, the Company assumed a derivative warrant liability of $2.5 million related to the Private Warrants.
As of December 31, 2023, 3,613,383 Private Warrants were outstanding, and the fair value of derivative warrant liability related to the Private Warrants was $1.5 million.
The following table includes a summary of the derivative liabilities measured at fair value during the three years ended December 31, 2023, 2022 and 2021 (in thousands):
 
    
Fair Value
  
Ending Balance as of December 31, 2020
    $ 35,400  
Re-measurement
of fair value
      300  
  
 
 
  
Ending Balance as of December 31, 2021
      35,700  
Private warrant liability acquired as part of the Business Combination
      2,545  
Forfeiture of Private Warrants
      1,696  
Change in fair value measurement
      (38,710 ) 
  
 
 
  
Ending Balance as of December 31, 2022
      1,231  
Change in fair value measurement
      512  
Forfeiture of Private Warrants
      (225 ) 
  
 
 
  
Ending Balance as of December 31, 2023
    $ 1,518  
  
 
 
  
Warrant Liability Measurement
The derivative warrant liability 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
 
warrant is the expected volatility of the Common Stock. The expected volatility assumption is based on historical volatilities of comparable companies whose share prices are publicly available as well as the implied volatility of the Public Warrants (see Note 9). A summary of the inputs used in valuing the derivative warrant liabilities is as follows:
 
    
December 31,
2023
    
December 31,
2022
  
Equity value
    $ 2.04     $ 3.99  
Exercise price
    $ 11.50     $ 11.50  
Term, in years
      3.86       4.86  
Volatility
      76.0 %      35.0 % 
Risk-free rate
      3.90 %      3.94 % 
Dividend yield
      0.0 %      0.0 % 
Call option value
    $ 0.42     $ 0.30  
Contingent Consideration Related to
SP-104
Acquisition
The Development Milestone Payment related to the
SP-104
Assets represents an obligation to potentially settle a fixed value in a variable number of shares of Common Stock and requires remeasurement at fair value through settlement.
Upon the achievement of FDA approval for a new drug application for
SP-104,
the Company will transfer $3.0 million in cash or shares of Common Stock, at the discretion of the Company. The fair value of the contingent consideration liability associated with the Development Milestone Payment was estimated using a probability-weighted discounted cash flow method. Significant unobservable inputs assumptions included the likelihood of receiving FDA approval for
SP-104,
expected timing for receipt of FDA approval for
SP-104,
and a discount rate of 10.2%. As of December 31, 2023 and December 31, 2022, the fair value of contingent consideration related to the Development Milestone Payment was $0.2 million.
There were no transfers between fair value measurement levels during the years ended December 31, 2023, 2022 and 2021.