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Commitments and Contingencies | 3 Months Ended
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Mar. 31, 2026
Commitments and Contingencies Disclosure [Abstract] |
Commitments and Contingencies | 13. Commitments and Contingencies Securities Purchase Agreement (the “PIPE SPA”) On August 20, 2025, the Company and Legacy Semnur entered into a securities purchase agreement ("PIPE SPA:) with the investor named therein, pursuant to which the investor agreed to purchase 1,250,000 shares of Common Stock at a price of $16.00 per share, for an aggregate purchase price of $20.0 million following the consummation of the Semnur Business Combination. On September 22, 2025, the PIPE SPA was amended to provide that unless such agreement was terminated pursuant to its terms (or otherwise by mutual agreement of the parties thereto), the closing of the transactions contemplated thereby would occur not later than the 14th business day following the closing of the Semnur Business Combination, subject to the satisfaction or waiver of the closing conditions set forth therein. As of March 31, 2026, the transaction had not closed and accordingly, the shares had not been issued and the funds had not been received. As described in Note 15, on April 20, 2026, the Company and Semnur Inc. delivered written notice terminating the PIPE SPA pursuant to Section 8 thereof. The PIPE SPA terminated as of April 20, 2026 and is no longer in effect and the transactions contemplated thereby will not be consummated (see Note 15). Product Development Agreement In February 2013, Scilex Pharma became a party to a product development agreement (as amended, the “Product Development Agreement”) with Itochu and Oishi Koseido Co., Ltd. ("Oishi," and together with Itochu, the “Developers”), pursuant to which the Developers will manufacture and supply lidocaine tape products, including ZTlido and SP-103 (the “Products”), for Scilex Pharma. The Developers initially developed and have intellectual property rights relating to the Products. Pursuant to the Product Development Agreement, Scilex Pharma acquired an exclusive right to develop and commercialize the Products worldwide except for Japan. The Developers are responsible for sourcing and supplying lidocaine for development and commercialization purposes. 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. Scilex Pharma made royalty payments in the amount of $1.2 million and $0.9 million for the three months ended March 31, 2026 and 2025, respectively. As of March 31, 2026 and December 31, 2025, Scilex Pharma had ending balances of accrued royalty payables of $1.8 million and $2.1 million, respectively. Total royalty expense recorded within cost of revenue was $0.9 million and $0.7 million for the three months ended March 31, 2026 and 2025, respectively. Net profits are defined as net sales, less cost of goods and marketing expenses. Net sales are defined as total gross sales of any Product, less all applicable deductions, to the extent accrued, paid or allowed in the ordinary course of business with respect to the sale of such Product, and to the extent that they are in accordance with GAAP. If Scilex Pharma were to sublicense the licensed technologies, the Developers will receive the same proportion of any sublicensing fees received therefrom. The Product Development Agreement will continue in full force and effect until October 2, 2028, the date that is ten years from the date of the first commercial sale of ZTlido. The Product Development Agreement will renew automatically for subsequent successive one-year renewal periods unless Scilex Pharma or the Developers terminate it upon six-months’ written notice. On February 16, 2017, Scilex Pharma entered into a Commercial Supply Agreement (as amended, the “Supply Agreement”) with the Developers to provide commercial supply of ZTlido and SP-103 to Scilex Pharma. The Supply Agreement contains standard terms regarding term, termination, payment, product quality and supply. In addition, the agreement provides additional terms regarding the calculation and amount of marketing expenses that may be deducted from net sales for purposes of determining the amount of net profit under the Product Development Agreement. Sales Operations Services In November 2014, Scilex Pharma entered into a project agreement with a vendor, pursuant to which the vendor has agreed to perform certain services in accordance with written work orders, which was subsequently superseded by a new project agreement entered into in May 2025 (the “Project Agreement”). In connection with the detailing services, the Project Agreement provides that the vendor will provide Scilex Pharma with full-time sales representatives who shall detail the Product by making calls pursuant to a call plan on targets. In connection with the sales operation services, the vendor will provide certain services required for the initial implementation and ongoing operation of the sales force. In May 2025, Scilex Pharma and the vendor entered into a work order in which the parties agreed to convert substantially all of the sales representatives allocated under the Project Agreement to become employees of the vendor. The work order shall be in effect and remain in effect until the thirty-six months anniversary of the Deployment Date, as set forth in accordance with the terms of the Project Agreement, which is June 3, 2025, or until terminated in accordance with the terms of the Project Agreement or unless extended as provided therein (the “Term”). The Term may be extended for additional periods of one (1) year (each, an “Additional Term”) upon the mutual written agreement of the parties not less than sixty (60) days before the end of the Term or any Additional Term. Scilex Pharma paid a one-time implementation fee of $72.0 thousand associated with the operational setup and the recruiting of the sales representatives and will pay fixed monthly fee of $1.2 million for year one and $1.3 million for each of year two and year three. Pursuant to the terms set forth in the Project Agreement, either party may terminate this work order without cause upon ninety (90) days prior written notice to the other party; provided, however, that such termination by Scilex Pharma may not occur prior to the twelve (12) month anniversary of the Deployment Date. PA OPS Investment Agreement In August 2025, Scilex Bio entered into the Investment Agreement with Investor LLC. Pursuant to the terms of the agreement, the Company committed to providing $2.5 million (the “Committed Amount”) in future funding, contingent upon Investor LLC successfully identifying and acquiring an appropriate target company (“Target”) for investment using the Committed Amount by December 31, 2025. Although the arrangement was legally structured as if the Investor LLC had extended a $2,500,000 loan (the “Loan”) to Scilex at an annual interest rate of 4.03%, no cash was exchanged between the Investor LLC and the Company on Day 1. Accordingly, the Company concluded that, in substance, the transaction does not represent a loan. In August 2025, the LLC acquired the Target which consists of certain assets of a nursing home. However, as the Company is yet to provide the full funding of the Committed Amount, the Company has no ownership interest in the LLC or in the nursing home as of December 31, 2025. On December 31, 2025, the Company made $1.0 million in cash (the “Funding”) payment to Investor LLC out of the Committed Amount of $2.5 million, this funding was treated as a partial repayment of the Loan, therefore, no equity ownership was granted to Scilex, as the Target has already been acquired, the Funding is no longer subject to a refund. The Company considered the consolidation models provided in ASC 810 to determine if the Company should consolidate Investor LLC as of December 31, 2025 and concluded that the Funding meets the definition of a VIE but are not in scope of ASC 810, as the Company has not yet received any equity ownership in the Investor LLC, does not hold a board seat, does not have the power to direct Investor LLC's significant activities and it does not have an obligation to absorb any of the VIE's losses, or rights to receive any benefits from the VIE, further, the Company assess and concludes it does not meet the definition of a derivative under ASC 815. The Company accounted for the Funding as an equity security under ASC 321 as it provides the Company with the right to acquire equity ownership in the future at a fixed price through the payment of the remaining Committed Amount. The Company recorded the Funding in equity investment in the Company balance sheet at cost, net of any impairment, there were no indicators of impairment as of March 31, 2026. Commitment to Purchase QScan Common Stock On January 29, 2026, the Company entered into a Common Stock Purchase Agreement (the “Commitment”) with QScan, pursuant to which QScan agreed to sell and the Company agreed to purchase 193,021,436 shares of QScan Common Stock at $0.14247 per share for an aggregate purchase price of approximately $27.5 million. The closing is conditioned on the prior conversion of the QScan Note. As of March 31, 2026, the acquisition of QScan Common Stock had not been completed and the Company holds no equity ownership interest in QScan. In November 2025, the Company paid $2.5 million to QScan as a non-refundable deposit toward the Commitment (the “QScan Fee”). The QScan Fee was classified as a prepayment as of December 31, 2025 and reclassified as the cost basis of the Commitment upon execution of the agreement in January 2026. The Commitment does not meet the definition of a derivative under ASC Topic 815 and is accounted for under ASC Topic 321 using the measurement alternative, carried at cost of $2.5 million, less any impairment. No impairment was recorded as of March 31, 2026. Litigation In the normal course of business, the Company may be named as a defendant in one or more lawsuits. From time to time the Company may become involved in various legal proceedings, including those that may arise in the ordinary course of business. The Company evaluates each matter and assesses its potential financial exposure. If the potential loss from a legal proceeding is considered probable and the amount can be reasonably estimated, the Company records an accrual for the estimated loss. Because the outcome of legal proceedings is inherently uncertain, significant judgment is required in assessing the likelihood of a loss and whether the amount is reasonably estimable. The Company’s assessments and any recorded accruals are based on information available at the time of evaluation. As additional information becomes available, the Company re-evaluates its estimates and may adjust recorded liabilities accordingly. Other than the following four lawsuits, the Company is not a party to any outstanding material litigation and management is not aware of any legal proceedings that, individually or in the aggregate, are deemed to be material to the Company’s financial condition or results of operations. Former Employee Action On March 12, 2021, Scilex Pharma and Sorrento (the “Plaintiffs”) filed an action (the “Former Employee Action”) in the Delaware Court of Chancery against the former President of Scilex Pharma, Anthony Mack, and Virpax Pharmaceuticals, Inc. (“Virpax”, and together with Mr. Mack, the “Defendants”), a company founded and then headed by Mr. Mack, alleging, among other things, breach by Mr. Mack of a restrictive covenant agreement with Sorrento related to his sale of his Scilex Pharma stock to Sorrento, tortious interference with that agreement by Virpax, breach of Mr. Mack’s fiduciary duties to Scilex Pharma, aiding and abetting of that breach by Virpax, and misappropriation of Scilex Pharma’s trade secrets by Mr. Mack and Virpax. Such lawsuit sought, among other relief, damages and various forms of injunctive relief. The case was tried from September 12, 2022 to September 14, 2022. On September 1, 2023, the court found in favor of the Plaintiffs on all but three counts deemed to have been waived. In its 95-page opinion, the court instructed the parties to submit supplemental briefing on the appropriate remedy to implement its rulings. On October 18, 2023, the Plaintiffs submitted a supplemental brief on remedies. On November 29, 2023, Defendants submitted a supplemental brief on remedies. On December 21, 2023, the Plaintiffs submitted a supplemental reply brief on remedies. On February 26, 2024, the Company and Virpax entered into a term sheet regarding a mutual release and settlement agreement, pursuant to which the parties have agreed to resolve the ongoing disputes. On February 29, 2024, the Company and Virpax entered into a definitive settlement agreement, which provides for, among other things, that Virpax would be obligated to make the following payments to the Company to settle the Former Employee Action: (i) $3.5 million (the “Initial Payment”) by two business days after the Effective Date (as defined therein), which payment has been made; (ii) $2.5 million by July 1, 2024, which payment has been made on July 8, 2024 and (iii) to the extent any of the following drug candidates are ever sold, royalty payments of (a) 6% of annual Net Sales (as defined therein) of Epoladerm; (b) 6% of annual Net Sales of Probudur and (c) 6% of annual Net Sales of Envelta during the Royalty Term (as defined therein). The Company and Virpax provided mutual releases of all claims that existed as of the Effective Date, whether known or unknown, arising from any allegations set forth in the Former Employee Action. Plaintiffs’ release relates to claims against Virpax only, which does not affect the Company's claims against Mr. Mack. Plaintiffs have not released Mr. Mack, and litigation against him remains ongoing. The Court requested further briefing on the remedies solely as to the remaining defendant, Mr. Mack. The parties filed further briefing and then presented oral argument on November 15, 2024. The Court’s issued its decision on damages as to Mr. Mack on July 31, 2025, crediting Mr. Mack for settlement amounts previously paid to Plaintiffs by Virpax, on the count for which Mr. Mack was found liable, and assessing costs against Mr. Mack for one-third of Plaintiffs’ attorneys fees. On April 2, 2026, the Court entered an order awarding Plaintiffs more than $5.3 million in attorneys fees to be paid by Mr. Mack. The parties are awaiting the entry of final judgment. ZTlido Patent Litigation On June 22, 2022, the Company filed a complaint against Aveva Drug Delivery Systems, Inc. (“Aveva”), Apotex Corp., and Apotex, Inc. (together, “Apotex”) in the U.S. District Court for the Southern District of Florida (the “ZTlido Patent Litigation”) alleging infringement of certain Orange Book listed patents covering ZTlido (the “ZTlido Patents”). The ZTlido Patent Litigation was initiated following the submission by Apotex, in accordance with the procedures set out in the Hatch-Waxman Act, of an abbreviated new drug application (“ANDA”). Apotex’s ANDA seeks approval to market a generic version of ZTlido prior to the expiration of the ZTlido Patents and alleges that the ZTlido Patents are invalid, unenforceable, and/or not infringed. The Company is seeking, among other relief, an order that the effective date of any FDA approval of Apotex’s ANDA be no earlier than the expiration of the asserted patents listed in the Orange Book, the latest of which expires on May 10, 2031, and such further and other relief as the court may deem appropriate. Apotex and Aveva were subject to an automatic 30-month stay preventing them from selling a generic version of ZTlido during that time, which was extinguished by the U.S. District Court for the Southern District of Florida decision described below. Aveva received FDA approval for any generic version of ZTlido on March 25, 2025. The two Apotex entities were dismissed from the litigation without prejudice, as they no longer had an interest in the generic product that Aveva seeks to market. Before trial, Aveva dropped its challenge to the validity and enforceability of the Company’s patents. Trial in the ZTlido Patent Litigation was held from July 8, 2024 to July 11, 2024. Final post-trial briefing was submitted by the parties on July 25, 2024, and the case was submitted to the U.S. District Court for the Southern District of Florida. On August 26, 2024, that court issued a decision finding that Aveva’s product does not infringe the Company’s ZTlido Patents. The Company is appealing that decision to the U.S. Court of Appeals for the Federal Circuit, and it filed a Notice of Appeal with the U.S. District Court for the Southern District of Florida on September 25, 2024. Briefing by the parties has been completed. Oral argument was held on May 11, 2026. The parties are awaiting a decision from the Federal Circuit. Sorrento Equity Holders Litigation On April 3, 2026, a complaint was filed in the United States District Court for the Southern District of California captioned Mevi et al. v. Ji et al., Case No. 3:26-cv-02113-DMS-DEB. The plaintiffs are former equity holders of Sorrento and have named as defendants, among others, the Company and Semnur. The complaint alleges, among other things, wrongful conduct relating to Sorrento’s bankruptcy proceedings and subsequent transactions involving Sorrento’s assets, and asserts claims including aiding and abetting breach of fiduciary duty and violation of California Penal Code Section 496. The complaint seeks unspecified compensatory damages, treble damages, disgorgement, punitive damages, attorneys’ fees, costs, and other relief. The Company intends to defend the action vigorously. At this time, the Company cannot predict the outcome of this matter or reasonably estimate the possible loss or range of loss, if any. Scilex-St. James Loan Lawsuit On March 11, 2026, the Company filed a complaint against Marc Wade, St. James, Omega & Corinth Group Ltd., certain associates thereof (collectively, the “Wade Defendants”), and Bank of New York Mellon Corporation (“BNY”) in the United States District Court for the Central District of California. The complaint asserts five causes of action: (1) federal securities fraud (against all defendants); (2) state securities fraud (against the Wade Defendants); (3) fraudulent inducement (against the Wade Defendants); (4) unlawful conversion (against all defendants); and (5) negligence (against BNY). The Company seeks money damages in excess of $100 million, punitive damages, pre- and post- judgment interest, disgorgement of profits, and attorney fees. Operating Leases The Company leases administrative and research and development facilities under various non-cancelable lease agreements. Facility leases generally provide for periodic rent increases and may include options to extend. As of March 31, 2026, the Company’s leases have remaining lease terms of approximately 1.5 years. Th e terms of the Company’s leases, ranging from 1 to 13 years, include extension options that were reasonably certain to be exercised. Many of the Company’s leases are subject to variable lease payments. Variable lease payments are recognized in the period in which the obligations for those payments are incurred, are not included in the measurement of the operating lease right-of-use (“ROU”) assets or lease liabilities, and are immaterial. Additionally, the Company subleases certain properties to third parties. Sublease income is recognized on a straight-line basis and is immaterial. As the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The Company calculates the associated lease liability and corresponding ROU asset upon lease commencement using a discount rate based on a credit-adjusted secured borrowing rate commensurate with the term of the lease. As of March 31, 2026, the Company has no finance leases. Lease expense was $1.2 million and $0.3 million for the three months ended March 31, 2026 and 2025 and was primarily comprised of operating lease costs. The lease expense included variable lease costs and sublease income, which were immaterial for the periods presented. Supplemental quantitative information related to leases includes the following:
|  | Three Months Ended March 31, |
|  | 2026 |  |  | 2025 |
Cash paid for amounts included in the measurement of lease liabilities: |  |  |  |  |  |
Operating cash flows from operating leases (in thousands) |  | $ | (1,105 | ) |  | $ | (227 | )
Weighted average remaining lease term in years — operating leases |  |  | 10.4 |  |  |  | 2.5 |
Weighted average discount rate — operating leases |  |  | 13.4 | % |  |  | 11.0 | %
Approximate future minimum lease payments under operating leases were as follows (in thousands):
|  | Amount |
2026 (Remainder of 2026) |  | $ | 2,930 |
2027 |  |  | 2,997 |
2028 |  |  | 2,081 |
2029 |  |  | 2,059 |
2030 |  |  | 2,131 |
Thereafter |  |  | 17,323 |
Total lease payments |  |  | 29,522 |
Less imputed interest |  |  | 14,955 |
Total lease liabilities |  |  | 14,567 |
Less current portion of lease liability |  |  | 1,723 |
Lease liability, net of current portion |  | $ | 12,686 |

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