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What happened

Shares of Scilex (NASDAQ: SCLX) were down more than 14% as of 1 p.m. ET on Monday, despite the company announcing positive phase 2 trial results for its non-opioid pain therapy SP-103. The healthcare stock is down more than 50% so far this year.

So what

Scilex makes non-opioid pain management products to treat acute and chronic pain. Its products include topical lidocaine Ztlido, approved to treat pain associated with post-herpetic neuralgia (PHN), a type of post-shingles nerve pain; Elyxyb, approved to treat acute migraines; and Gloperba, approved to treat flares from gout in adults. The company, which is majority owned by Sorrento Therapeutics, saw its shares fall after it announced last week phase 2 trials for SP-103 to treat acute lower back pain. In the trials, the product showed good safety and efficacy, the company said.

The timing is confusing, but the reason for the drop had nothing to do with the trial and everything to do with Sorrento, which filed for bankruptcy back in February. Sorrento got court approval last week to sell its shares of Scilex back to Scilex for $110 million, including a $5 million payment in advance. As part of the deal, Scilex is on the hook for $12 million of legal fees that Sorrento must pay the law firm Paul Hastings. The deal is expected to close on Sept. 19.

Now what

In the long run, this is a good thing as it enables Scilex to get out from under the cloud formed by the struggling Sorrento. In the short run, the extra expense of buying back its own shares and paying for legal fees will cut into capital. The company’s finances appear to be improving. In August, Scilex released preliminary monthly data that showed product sales rose between 13% and 23% year over year, to a range of between $4.5 million and $4.9 million. Year-to-date preliminary numbers said product revenue was between $26.3 million and $32.2 million, compared to $21.3 million in revenue for the same period last year. However, it is worth noting the company continues to lose money. Through six months, it reported an earnings-per-share (EPS) loss of $0.40 compared to an EPS loss of $0.20 in the first six months of 2022.

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Jim Halley has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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