Introduction – SCLX and the Datavault AI Deal

Scilex Holding Company (SCLX) – a small-cap pharma focused on non-opioid pain treatments – just made a striking pivot outside its core business. On September 25, Scilex announced an agreement to invest $150 million (paid in Bitcoin) into Datavault AI Inc. (NASDAQ: DVLT) (^[1]) (^[2]). In return, Scilex will receive up to 278.9 million shares of Datavault (at an effective $0.5378 per share) in two tranches: an initial ~$8.1 million (15 million DVLT shares) closed on September 26, and a second ~$141.9 million tranche pending Datavault shareholder approval (^[2]). This unconventional, crypto-funded investment aims to boost Datavault’s supercomputing platform and data-trading exchanges – and by extension, position Scilex to capitalize on biotech data monetization opportunities (^[2]). Scilex’s CEO Henry Ji framed the deal as leveraging “Datavault’s patented tech” to unlock new revenue streams in biotech, using blockchain and AI to tokenize real-world data assets in life sciences (^[1]) (^[2]). It’s a bold strategic move – signaling a bid to diversify beyond pharmaceuticals – but it raises questions given Scilex’s financial strain and narrow focus to date. Below, we dive into Scilex’s fundamentals (dividends, leverage, coverage, valuation) and assess the risks and open questions around this Datavault foray.

Dividend Policy & Shareholder Yield

Scilex does not pay any dividend, nor has it historically. The company has explicitly stated “we have not paid cash dividends in the past and we do not expect to pay cash dividends in the foreseeable future.” (^[3]). This is unsurprising for a clinical-stage and early-commercial pharma with ongoing losses – any cash is reinvested into product development and operations rather than shareholder payouts. As a result, Scilex’s dividend yield is 0%, and investors’ returns hinge entirely on stock price appreciation (if any) (^[3]). In fact, Scilex originated as a spinoff from Sorrento Therapeutics (via a stock dividend of Scilex shares to Sorrento shareholders in early 2023), but Scilex itself hasn’t returned capital to its own shareholders (^[4]). Given the company’s negative earnings and cash needs, no dividends are likely for the foreseeable future (^[3]). Traditional REIT metrics like FFO or AFFO don’t apply here – Scilex is a biotech/pharma concern, so investors focus on product sales and pipeline value rather than funds-from-operations. In short, shareholders seeking income won’t find it in SCLX, which is squarely a speculative growth (or turnaround) play.

Leverage and Debt Maturities

Scilex’s balance sheet is heavily leveraged relative to its size, with substantial debt coming due soon. The company inherited a large senior secured promissory note owed to Oramed Pharmaceuticals, stemming from a complex financing during Sorrento’s bankruptcy. Initially $105 million, this “Oramed Note” required Scilex to make six principal installments from Dec 2023 to Mar 2025 (^[5]) (^[6]). Scilex managed to pay down a chunk – including a $5 million payment in Dec 2023 and $15 million in Mar 2024 – but by late 2024 it became clear Scilex could not meet the remaining schedule (^[6]) (^[6]). In October 2024, Scilex struck a refinancing deal: it issued new two-year convertible notes (“Tranche B” notes) and used the proceeds to partially retire the Oramed debt (^[6]) (^[6]). Under this plan, Scilex raised $22.5 million cash from outside investors and Oramed agreed to convert $22.5 million of its loan into the new convertible notes (^[6]). This reduced the Oramed Note’s balance, allowing Scilex to pay a $12.5 million installment (using the new funds) and defer the rest (^[6]) (^[6]). As of January 2025, the remaining Oramed Note principal (~$25.7 million plus interest) had its maturity extended to December 31, 2025 (^[6]) (^[6]). In exchange for this extension, Scilex even had to sweeten the deal by giving Oramed 92,857 Scilex shares as a fee (^[6]).

The Tranche B convertible notes issued in October 2024 total approximately $45 million and carry a two-year term (maturing Oct 8, 2026) (^[6]). They are convertible into SCLX stock at $36.40/share (reflecting a reverse-split adjusted price) and came with warrants for additional shares (^[6]). However, with SCLX stock now trading around $0.30–$0.40, this conversion price is deeply out-of-the-money – meaning these notes function effectively as high-interest debt unless the terms are adjusted. Notably, the Tranche B notes require monthly amortization payments starting Jan 2025, forcing Scilex to either pay cash or issue stock (at a potentially adjusted price) to the noteholders over time (^[4]) (^[4]). In practice, Scilex’s crashing share price has made equity conversion impractical, putting pressure on cash payments and raising dilution risk if terms are renegotiated.

Beyond these major obligations, Scilex also engaged in smaller financings. It has revenue interest liabilities (royalty-like obligations) tied to acquired products, valued at ~$7–15 million on the books (^[6]) (^[6]). In total, Scilex’s debt load is substantial relative to its operations. As of March 31, 2025, the company’s current liabilities far exceeded current assets – working capital was negative $247 million – reflecting the short-term portions of debt coming due (^[6]). With only $5.8 million cash on hand at that time, Scilex’s ability to service its debt hinges on external funding or asset sales (^[6]). The next big maturity is end-of-2025 (the $25+ million due to Oramed), followed by late 2026 (when the convertible notes mature, if not converted sooner). These ticking clocks underscore the urgency for Scilex to find cash – whether through partnerships, equity issuances, or asset monetizations – to avoid default.

Earnings, Cash Flow & Coverage

Scilex’s earnings and cash flow are currently insufficient to cover its fixed charges, highlighting significant financial stress. The company is generating some revenue from its marketed products – notably ZTlido® (a lidocaine pain patch) and two recently acquired products (migraine spray Elyxyb® and gout medicine Gloperba®). However, sales have been declining and remain modest. In Q1 2025, Scilex’s net revenue was just $5.0 million, down 54% year-over-year (^[6]) (^[6]). ZTlido sales fell sharply ($6.3 million lower than the prior-year quarter) amid increased competition and pricing pressure (^[6]). Even after cost of goods, gross profit for the quarter was only about $3.6 million – nowhere near covering the company’s large operating expenses. Scilex’s SG&A and R&D costs are significant due to maintaining a salesforce, clinical trials, and public company overhead. In Q1 2025, Scilex incurred an operating loss of $27.9 million (^[6]). This operating deficit means interest and debt payments are being funded out of financing transactions, not earnings.

Indeed, interest coverage is effectively zero – Scilex has negative EBITDA, so it cannot cover interest expense from operations. The Oramed Note, for example, carries a hefty interest rate of 12.5% (Term SOFR + 8.5%, with a 4% floor) (^[5]), all of which Scilex has mostly been paying “in kind” or accruing. The newly issued convertible notes likely feature high effective yields or embedded discounts as well. As a result, cash burn is a major concern. Scilex had only ~$6 million in cash in early 2025 and some incoming cash from its October financing, but those funds were largely used to pay down debt and fund ongoing losses (^[6]) (^[6]). The company’s own words in early 2025 warned that it “has plans to obtain additional resources to fund its operations and to service its debt” – essentially an acknowledgement that current cash flows won’t suffice (^[6]). Unless Scilex dramatically improves product sales or cuts costs, it must keep raising capital or selling assets to meet interest and principal obligations. The Datavault AI investment adds an additional strain (if Scilex is funding $150 million outlay), intensifying questions about how it will juggle investing in Datavault with covering its lenders.

Valuation and Sum-of-the-Parts Perspective

Valuing SCLX is challenging given its distressed balance sheet, collapsing stock price, and mix of speculative assets. The stock has been extraordinarily volatile. After a 35-to-1 reverse stock split in late 2023 (aimed at shoring up its Nasdaq listing) (^[5]) (^[6]), Scilex’s share price briefly traded in the teens of dollars. But by mid-2025 it had plunged into penny-stock territory – around $0.37 per share as of July 2025 (^[7]) – reflecting a ~98% drawdown from post-spinoff highs (^[8]) (^[8]). Even after the Datavault AI deal announcement, SCLX remains under $1 (as of late September 2025), giving the company a market capitalization of only a few million dollars at the prevailing share count (~7 million shares outstanding) (^[6]) (^[7]). This rock-bottom equity value signals investors’ skepticism about Scilex’s solvency and future. On a price-to-sales basis, the stock trades at a fraction of 1× trailing revenue – e.g. ~$3 million market cap vs. $30+ million annual sales – but such a metric is of limited use when the company is deeply unprofitable and laden with debt.

A more relevant approach is sum-of-the-parts, considering Scilex’s assets and stakes. There are two notable assets that could theoretically unlock value:

– Semnur Pharmaceuticals (pain therapy pipeline) – Scilex’s majority-owned subsidiary Semnur (developer of SEMDEXA, a Phase 3 non-opioid injectable for sciatica) was recently taken public via SPAC. In September 2025, Semnur completed its merger with Denali Capital Acquisition Corp, debuting as an independent company (^[9]). The SPAC deal initially valued Semnur’s equity up to $2.5 billion (^[10]), though actual market realization is far lower. Post-merger, Semnur trades on OTC Markets under ticker SMNR, and Scilex retained ~87.5% ownership of Semnur’s common stock (^[9]). This implies Scilex holds a very large stake in Semnur – potentially valuable if SEMDEXA wins FDA approval and commercialization. However, Semnur’s current OTC trading price and the high redemption rate of the SPAC suggest the $2.5 billion valuation was aspirational. Investors assign little credit to this asset currently, perhaps waiting for clearer progress on SEMDEXA’s NDA filing or partnership. Still, any positive development (e.g. FDA approval or uplisting of Semnur) could surface significant value for Scilex given its ~87.5% stake.

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– Datavault AI Stake – Now with the $150 million Datavault investment closing, Scilex is set to own a large block of DVLT shares (up to ~279 million shares). The economic rationale is that if Datavault’s AI/data business grows, Scilex’s stake could appreciate, providing a financial return or strategic data capabilities. In the near term, though, this looks more like an investment holding than an immediately monetizable asset. Datavault AI is a micro-cap company (its stock recently traded around $0.50), so Scilex’s stake – even if it ends up being >50% of DVLT shares – may be illiquid. Additionally, Scilex paid in Bitcoin and is effectively swapping a hard asset (crypto) for speculative equity. Unless Datavault’s market value increases substantially, Scilex might not recoup anywhere close to $150 million for this stake. There’s also the question of accounting: if Scilex ends up with control or significant influence over DVLT, it may have to consolidate or carry this investment on its books at fair value, which could introduce earnings volatility (depending on DVLT’s stock swings). In summary, the Datavault stake is hard to value – it could be a multi-bagger if Datavault’s exchange platform succeeds, or it could end up as a value-destructive diversion of precious capital.

Considering Scilex’s enterprise value (market cap plus debt), the market is effectively pricing in a high probability of failure. With ~$70–80 million in debt and other liabilities, and near-zero equity value, Scilex’s enterprise value is roughly $70–$80 million – which is about 2–3× its annual revenue, or a tiny fraction of the potential value of pipeline assets like Semnur’s SEMDEXA. This disconnect could imply upside if Scilex finds a way to survive and unlock asset value. However, it likely also reflects the dilution overhang (massive warrants and convertible securities that could balloon the share count) and the fact that creditors and preferred holders stand ahead of common stock in any value recovery. For instance, Oramed and the Tranche B noteholders have provisions that can lead to issuance of a huge number of shares if conversions/reset occur, which would dilute current shareholders severely (^[4]) (^[4]). The bottom line: Scilex’s valuation is deeply distressed, and any assessment must weigh the high risks against the latent asset potential (Semnur, Datavault stake, and Scilex’s own product pipeline).

Key Risks and Red Flags

Investors in SCLX face elevated risks on multiple fronts. Below are the major red flags and risk factors to consider:

– Liquidity and Solvency Risk: Scilex is in a precarious financial position, with negative working capital and substantial debt coming due within 12–15 months (^[6]). It does not generate positive cash flow, and current cash reserves (~$6 million) are woefully insufficient to meet upcoming obligations. This raises the risk of default or bankruptcy if new financing or extensions aren’t secured. The company’s auditor likely has raised going-concern doubts, and Scilex itself acknowledges it must obtain additional funding to continue operations (^[6]).

– Debt Covenant and Refinancing Uncertainty: The Oramed note extension to Dec 2025 bought time, but $25+ million will need to be paid or rolled over by year-end 2025 (^[6]). Similarly, the Tranche B convertible notes mature in late 2026 and may require cash amortization in the interim (^[4]). There is no clarity on how Scilex will refinance or repay these debts. Rolling debt into new financings could come at even more punitive terms given Scilex’s distressed state (e.g. higher interest or more dilution). Any failure to meet a payment deadline could trigger defaults and creditor remedies, potentially wiping out equity holders.

– Dilution and Share Overhang: Scilex’s capital structure includes a significant overhang of dilutive securities. This includes Series A preferred stock (held by legacy investors) with voting power, millions of warrants issued to Oramed and others (some at effectively nominal exercise prices) (^[5]), and the convertible notes whose conversion price could be adjusted downward if shareholders approve (full-ratchet anti-dilution provisions are in place) (^[4]) (^[4]). The company already effected a 1-for-35 reverse split in late 2023 to cure a Nasdaq listing deficiency (^[5]) (^[6]), yet the stock fell back under $1, opening the risk of another delisting notice or further reverse splits. Any conversion of the Oramed warrants or the noteholders’ debt to equity would flood the market with new shares, likely exerting further downward pressure on SCLX’s stock price. In short, current shareholders face severe dilution as Scilex’s creditors and financiers eventually take their pound of flesh in equity.

– Strategic Diversion and Execution Risk: The Datavault AI investment is outside Scilex’s core competency and could be a major distraction for management. Running a biotech/pharma company is challenging enough; now Scilex’s leadership is venturing into crypto and data exchanges. There’s a real risk that management’s attention and resources will be diluted between the pharma business and the Datavault initiative. If Datavault AI requires further funding or strategic input, Scilex may find itself in unfamiliar territory. Moreover, executing a Bitcoin-funded deal introduces volatility and currency risk – if the value of Bitcoin fluctuates wildly between tranches, it could affect how much capital Scilex ultimately deploys or the value of DVLT shares received (^[2]). The boldness of this move could backfire if Datavault’s business doesn’t perform; Scilex might end up having effectively burned $150 million (in crypto) that it can ill afford, all while its own core products suffer from lack of focus.

– Core Business Headwinds: Scilex’s existing product portfolio is underperforming. The drastic drop in ZTlido sales in early 2025 (^[6]) suggests competitive or reimbursement challenges in the topical pain relief market. If ZTlido’s decline isn’t arrested, Scilex’s only source of revenue will continue shrinking. The newer products (Elyxyb for migraines, Gloperba for gout) have niche markets and were acquired from other companies – they may take significant marketing spend to ramp up, with no guarantee of success. These headwinds increase Scilex’s dependence on pipeline success. However, pipeline development is costly and slow: SEMDEXA (Semnur’s asset) will require FDA review and, if approved, substantial launch investment; Scilex’s own next-gen patch (SP-103) is only in Phase 2 (^[9]) (^[9]). There’s a risk that Scilex cannot fund these programs to fruition given its financial constraints, or that clinical/regulatory setbacks occur. In essence, the company is fighting a war on two fronts – trying to commercialize current products while also advancing new ones – under severe budget limitations.

– Corporate Governance and Legacy Issues: Scilex’s corporate governance has some unusual complexities stemming from its origin. The company was until recently majority-controlled by Sorrento Therapeutics, which filed Chapter 11 bankruptcy in early 2023 (^[4]). While Scilex was not a debtor in that case and Sorrento no longer holds majority voting power as of September 2023 (^[4]), the bankruptcy created entanglements (e.g. the Oramed financing was part of Sorrento’s restructuring) and may pose overhang risks. Notably, Henry Ji, Scilex’s CEO, was also CEO of Sorrento and several Scilex directors had ties to Sorrento (^[4]). This overlapping leadership could present conflicts of interest or at least raises questions about focus and decision-making. For example, did Scilex pursue the Datavault deal to inject excitement (and potentially raise funds) in the wake of Sorrento’s troubles? Additionally, any residual litigation or claims from Sorrento’s creditors related to the Scilex spinoff or share distribution could theoretically impact Scilex (though Scilex did secure certain protections via DIP financing priority (^[4])). Investors should be wary of these legacy issues and governance red flags, as they may have played a role in the aggressive and unconventional strategies now on display.

– Regulatory and Market Risk: As a pharmaceutical company, Scilex faces the standard industry risks – regulatory approvals, safety of its products, and the need for physician/payer adoption. Any unfavorable FDA decisions (for example, if SEMDEXA’s NDA is delayed or not approved) would significantly diminish the value of Scilex’s pipeline. On the commercial side, if insurers decide to limit coverage of expensive non-opioid therapies or if generic competitors emerge (e.g. generic lidocaine patches competing with ZTlido), Scilex’s revenues could further decline. These fundamental risks are amplified by Scilex’s weak financial footing – a hiccup that might be survivable for a well-capitalized pharma could be fatal for Scilex if it cannot raise additional cash in time.

In summary, Scilex is juggling high leverage, dilution threats, and an operational turnaround, all while embarking on an ambitious detour into the AI/data realm. The risk of financial distress or value destruction is very high. This is not to say there aren’t paths to success (e.g. a major pharma partnership or a buyout could inject capital, or a sharp improvement in sales could stabilize the company), but investors should recognize that SCLX is a high-risk, high-reward situation skewed currently towards risk.

Open Questions Going Forward

Given the above context, there are several open questions that will determine Scilex’s fate and the wisdom of its Datavault adventure:

– Where will the $150 million come from? Scilex committed to invest a total of $150 million in Datavault AI (^[2]) – a staggering sum relative to Scilex’s size. The deal was done in Bitcoin, but ultimately Scilex must procure that value (likely by buying BTC or using BTC from an investor/treasury). Does Scilex actually have access to $142 million for the second tranche? The initial ~$8 million was funded, but closing the remainder will require shareholder approval on DVLT’s side and a huge outlay on Scilex’s side. Will Scilex raise new debt or equity to fund this (potentially worsening its leverage or diluting shareholders)? Or might it even have to renege or renegotiate if funds prove unavailable? This question ties directly to Scilex’s solvency – funding Datavault without sinking itself will be a delicate balancing act.

– Can Scilex monetize or leverage its new Datavault stake? Now that the first tranche closed, Scilex holds 15 million DVLT shares (with up to ~264 million more to come) (^[11]). How will Scilex use this stake? Is the intention to hold long-term and integrate Datavault’s platform into Scilex’s operations, or to eventually sell some shares for cash? If Datavault’s stock surges (it jumped over 100% on the deal news) (^[12]) (^[12]), Scilex could theoretically trim its position to raise money. However, any such move might need to wait until after the second tranche and could be constrained by lock-ups or market liquidity. Conversely, if Datavault’s performance disappoints, Scilex may end up with an illiquid stake that doesn’t help its finances. Investors are left wondering how this AI investment tangibly benefits Scilex’s shareholders beyond optimistic press releases.

– Will core operations improve or deteriorate further? A critical question is whether Scilex’s base business can be stabilized in time. Should we expect ZTlido sales to rebound (perhaps through a new marketing push or improved insurance coverage), or will revenues continue sliding? Similarly, how much might Elyxyb and Gloperba contribute once fully launched? Management’s ability to boost product sales and reduce cash burn in the coming quarters will heavily influence Scilex’s ability to buy time. If operating losses remain ~$25–30 million per quarter (^[6]), no amount of clever financing will save the company indefinitely. Investors will be watching upcoming earnings reports for any sign of traction – or further erosion – in the commercial portfolio.

– Can Scilex unlock value from Semnur (SEMDEXA)? With Semnur now publicly trading (OTC: SMNR) and Scilex owning the lion’s share (^[9]), there’s an opportunity to highlight the value of SEMDEXA, a Phase 3 asset targeting a large pain market. An open question is whether Scilex will spin-off or distribute its Semnur stake (to raise cash or reward shareholders) or maybe even use it as collateral for financing. Alternatively, will Scilex keep Semnur consolidated and perhaps seek a partnership or sale for SEMDEXA to a bigger pharma? The SPAC valuation of $2 billion+ for Semnur (^[10]) suggests high expectations, but the reality of an OTC listing means the market isn’t currently according it that value. Clarity on Semnur’s development timeline (e.g. NDA filing date, partnership discussions) will be crucial. If SEMDEXA succeeds, Scilex’s 87.5% stake could be a game-changer – yet how to bridge the time and cost to get there remains unanswered.

– Will Scilex need to restructure (again)? Given all the pressures, one can’t avoid asking if Scilex will ultimately have to pursue a more drastic restructuring. This could take the form of negotiating debt-for-equity swaps (further diluting existing shareholders but reducing debt), or even exploring strategic alternatives like selling the company or filing for Chapter 11 protection to clean up the balance sheet. Management’s current strategy seems to be piecemeal financing and big-swing investments (like Datavault) to magically transform the picture. If those don’t pan out quickly, creditors may prefer a formal restructuring to salvage value. Equity holders would of course fare poorly in that scenario. It remains to be seen whether Scilex’s board has a contingency plan if the status quo doesn’t improve – or whether they will keep doubling down on high-risk bets.

– How will the Nasdaq react? Scilex only regained Nasdaq compliance in early 2025 after catching up on late filings (^[13]). Now, with the stock under $1, there’s a risk of Nasdaq deficiency notices for the share price again. Another forced reverse split or a potential delisting to OTC could further harm shareholder value and liquidity. Management needs to address how they will maintain listing standards – perhaps by improving the stock price via fundamentals or corporate actions. Maintaining investor confidence is challenging when the stock is in penny-stock range, so any concrete plan to bolster the share price (beyond hype) would be a welcome answer for shareholders.

In conclusion, Scilex’s bold foray into Datavault AI raises as many questions as it aims to solve. The coming months will be telling. Investors should watch for Datavault deal developments (e.g. DVLT shareholder approval and second tranche funding), any updates on refinancing the Oramed debt, and signals of operational turnaround in Scilex’s pharma business. Scilex has made a headline-grabbing move – now it must execute under extremely difficult conditions. Will this gamble pay off or simply hasten Scilex’s unraveling? The jury is still out, and the risk-reward gap is exceptionally wide (^[8]) (^[8]). For now, SCLX remains a speculation dominated by deep uncertainties and dramatic potential outcomes, both positive and negative. Only clear execution and prudent financial management (or lack thereof) will ultimately answer these open questions.

Sources

1. https://scilexholding.gcs-web.com/news-releases/news-release-details/scilex-holding-company-announces-150-million-strategic-bitcoin
2. https://aijourn.com/datavault-ai-secures-150-million-strategic-investment-from-scilex-holding-company-to-build-supercomputer-and-launch-independent-data-exchanges-in-the-us/
3. https://scilexholding.gcs-web.com/node/8601/html
4. https://sec.gov/Archives/edgar/data/1820190/000095017025060302/sclx-20241231.htm
5. https://sec.gov/Archives/edgar/data/1820190/000119312523242508/d537034d8k.htm
6. https://cdn.yahoofinance.com/prod/sec-filings/0001820190/000095017025071517/sclx-20250331.htm
7. https://uk.marketscreener.com/quote/stock/SCILEX-HOLDING-COMPANY-146715914/calendar/
8. https://alphacubator.com/analysis/SCLX
9. https://santelog.com/actualites-sante-nasdaq/semnur-pharmaceuticals-inc-semnur-majority-owned-subsidiary-scilex-holding-1
10. https://reuters.com/markets/deals/semnur-pharmaceuticals-go-public-via-spac-merger-with-denali-capital-25-bln-deal-2024-09-03/
11. https://stocktitan.net/news/SCLX/scilex-holding-company-announces-150-million-strategic-bitcoin-mq9m4ovyk977.html
12. https://digitaljournal.com/pr/news/accesswire/ignored-no-more-datavault-ai-1777788991.html
13. https://stocktitan.net/news/SCLX/scilex-holding-company-announces-that-it-regains-nasdaq-compliance-ootq4w5n1m4j.html

For informational purposes only; not investment advice.