ORAMED PHARMACEUTICALS INC. 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the audited consolidated financial statements and the related notes included elsewhere herein and in our audited consolidated financial statements. In addition to our audited consolidated financial statements, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in “Cautionary Statement Regarding Forward-Looking Statements” and “Item 1A. Risk Factors.” Overview of Operations We are a pharmaceutical company engaged in the research and development of innovative pharmaceutical solutions with a technology platform that allows for the oral delivery of therapeutic proteins. We have developed an oral dosage form intended to withstand the harsh environment of the stomach and effectively deliver active biological insulin or other proteins. The excipients in the formulation are not intended to modify the proteins chemically or biologically, and the dosage form is designed to be safe to ingest. On January 11, 2023, we announced that the ORA-D-013-1 Phase 3 trial did not meet its primary or secondary endpoints. As a result, we terminated this trial and a parallel Phase 3, ORA-D-013-2 clinical trial. In 2023, we completed an analysis of the data from the ORA-D-013-1 Phase 3 trial and found that subpopulations of patients with pooled specific parameters, such as BMI, baseline HbA1c and age, responded well to oral insulin. Based on this analysis, we are working on a protocol for a new Phase 3 clinical trial to be submitted to the FDA. We are additionally examining our existing pipeline and have commenced an evaluation process of potential strategic opportunities, with the goal of enhancing value for our stockholders. 28 On September 21, 2023, we entered into and consummated the Transaction. Pursuant to the Scilex SPA, in exchange for the DIP Assumption and for the ability to credit the amounts assumed under the DIP Assumption in exchange for certain equity securities of Scilex owned by Sorrento, Scilex (i) issued to us (A) the Note, (B) the Closing Penny Warrant, and (C) the Subsequent Penny Warrants, and (ii) caused the Transferred Warrants to be transferred to us. In addition, on the Closing Date, Scilex reimbursed $1,910,000 of the Company’s Transaction expenses pursuant to the Scilex SPA. For further details, see “Item 1 – Business – Description of Business – Scilex Transaction.” On January 22, 2024, we entered into the JV Agreement with HTIT, pursuant to which, subject to the terms and conditions set forth in the JV Agreement, the parties will establish the JV based on Oramed’s oral drug delivery technology. The JV will focus on the development and worldwide commercialization of innovative products based on Oramed’s oral insulin and POD™ (Protein Oral Delivery) pipeline and HTIT’s manufacturing capabilities and technologies. The parties intend for the JV to use the protocol we are currently working on to initiate a Phase 3 oral insulin trial in the United States. For further details, see “Item 1 – Business – Research and Development – Oral Insulin.” Results of Operations The table and discussion that follows includes a comparison of our results of operations and liquidity and capital resources for the years ended December 31, 2023 and 2022. For a comparison of our results of operations and financial condition for the year ended December 31, 2022 and the year ended December 31, 2021, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 6, 2023. Year ended December 31, 2023 2022 (dollar amounts in thousands, except per share data) Revenues $ 1,340 $ 2,703 Cost of revenues - - Research and development expenses (8,971 ) (27,639 ) Sales and marketing 287 (1,851 ) General and administrative expenses (8,425 ) (13,811 ) Interest expenses (2,037 ) - Financial income (expenses), net 22,894 2,934 Income (loss) before taxes on income 5,088 (37,664 ) Taxes on income - 100 Net income (loss) for the year 5,088 (37,764 ) Net income (loss) attributable to Company’s stockholders 5,525 (36,561 ) Net loss attributable to non-controlling interest (437 ) (1,203 ) Net income (loss) for the year 5,088 (37,764 ) Basic income (loss) per share of common stock $ 0.14 $ (0.94 ) Diluted income (loss) per share of common stock $ 0.14 $ (0.94 ) Weighted average shares of common stock outstanding used in computing basic income (loss) per share of common stock 40,315,068 38,997,649 Weighted average shares of common stock outstanding used in computing diluted income (loss) per share of common stock 40,566,901 38,997,649 29 Revenues Revenues consist of proceeds related to the HTIT License Agreement that are recognized on a cumulative basis when it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur, through the expected product submission date by HTIT of June 2023, using the input method. Revenues for the year ended December 31, 2023 decreased by 50% to $1,340,000, compared to $2,703,000 for the year ended December 31, 2022. The decrease was mainly due to recognition of revenues until the product submission date by HTIT in June 2023. Cost of Revenues Cost of revenues consists of royalties related to the HTIT License Agreement that will be paid over the term of the HTIT License Agreement in accordance with revenue recognition accounting and the Law for the Encouragement of Industrial Research, Development and Technological Innovation, 1984, as amended, including any regulations or tracks promulgated thereunder, or the R&D Law. There was no cost of revenues for the years ended December 31, 2023 and 2022. Research and Development Expenses Research and development expenses include costs directly attributable to the conduct of research and development programs, including the cost of salaries, employee benefits, costs of materials, supplies, the cost of services provided by outside contractors, including services related to our clinical trials, clinical trial expenses, the full cost of manufacturing drugs for use in research and preclinical development. All costs associated with research and development are expensed as incurred. Clinical trial costs are a significant component of research and development expenses and include costs associated with third-party contractors. We outsource a substantial portion of our clinical trial activities, utilizing external entities such as CROs, independent clinical investigators and other third-party service providers to assist us with the execution of our clinical trials. Clinical activities which relate principally to clinical sites and other administrative functions to manage our clinical trials are performed primarily by CROs. CROs typically perform most of the start-up activities for our trials, including document preparation, site identification, screening and preparation, pre-study visits, training and program management. Clinical trial and pre-clinical trial expenses include regulatory and scientific consultants’ compensation and fees, research expenses, purchase of materials, cost of manufacturing of the oral insulin and exenatide capsules, payments for patient recruitment and treatment, as well as salaries and related expenses of research and development staff. Research and development expenses for the year ended December 31, 2023 decreased by 68% to $8,971,000, compared to $27,639,000 for the year ended December 31, 2022. The decrease was mainly due to a decrease in expenses related to our Phase 3 clinical trials and in stock-based compensation expenses. Stock-based compensation expenses for the year ended December 31, 2023, were $1,718,000, compared to $3,176,000 for the year ended December 31, 2022. This decrease was mainly due to performance equity awards that expired because they did not meet their performance conditions during the year ended December 31, 2023 and to awards that were granted and issued during the year ended December 31, 2022. Following the results of the ORA-D-013-1 Phase 3 trial, which did not meet its primary or secondary endpoints, we terminated both ORA-D-013-1 and ORA-D-013-2 Phase 3 clinical trials. In 2023, we completed an analysis of the data from the ORA-D-013-1 Phase 3 trial and found that subpopulations of patients with pooled specific parameters responded well to oral insulin. Based on this analysis, we are working on a protocol for a new Phase 3 clinical trial to be submitted to the FDA. We are also examining our existing pipeline and have commenced an evaluation process of potential strategic opportunities, with the goal of enhancing value for our stockholders. 30 Government Grants The Government of Israel encourages research and development projects through the IIA, pursuant to the R&D Law. Under the R&D Law, a research and development plan that meets specified criteria is generally eligible for a grant of up to 50% of certain approved research and development expenditures. Each plan must be approved by the IIA. From August 2009 to March 2014, our subsidiary Oramed Ltd. was awarded five government grants amounting to a total net amount of NIS 8 million (approximately $2,194,000 during such period) from the IIA. We used these funds to support further research and development and clinical trials of our oral insulin capsule and oral GLP-1 analog candidate during the period from February 2009 to December 2014. The five grants are subject to repayment according to the terms determined by the IIA and applicable law. In the years ended December 31, 2023 and 2022, we did not recognize any research and development grants. As of December 31, 2023, we had incurred liabilities to pay royalties to the Israel Innovation Authority of the Israeli Ministry of Economy and Industry of $59,000. Under the terms of the grants we received from the IIA, we are obligated to pay royalties of 3% on all revenues derived from the sale of the products developed pursuant to the funded plans, including revenues from licensed ancillary services. Royalties are generally payable up to a maximum amount equalling 100% of the grants received (dollar linked) with the addition of interest at an annual rate based on the SOFR rate. The R&D Law generally requires that a product developed under a program be manufactured in Israel. However, when applying for a grant, the applicant may declare that part of the manufacturing will be performed outside of Israel or by non-Israeli residents and if the IIA is convinced that performing some of the manufacturing abroad is essential for the execution of the program, it may still approve the grant. This declaration will be a significant factor in the determination of the IIA as to whether to approve a program and the amount and other terms of the benefits to be granted. If a company wants to increase the volume of manufacturing outside of Israel after the grant has been approved, it may transfer up to 10% of the company’s approved Israeli manufacturing volume, measured on an aggregate basis, outside of Israel after first notifying the IIA thereof (provided that the IIA does not object to such transfer within 30 days). In addition, upon the approval of the IIA, a portion greater than 10% of the manufacturing volume may be performed outside of Israel. In any case of transfer of manufacturing out of Israel, the grant recipient is required to pay royalties at an increased rate, which may be substantial, and the aggregate repayment amount is increased up to 120% or 150% of the grant received (dollar linked) with the addition of interest at an annual rate based on the SOF R rate, depending on the portion of the total manufacturing volume that is performed outside of Israel. The approval we received from the IIA for the License Agreement was subject to payment of increased royalties and an increased ceiling, all in accordance with the provisions of the R&D Law. The R&D Law further permits the IIA, among other things, to approve the transfer of manufacturing rights outside of Israel in exchange for the import of different manufacturing into Israel as a substitute, in lieu of the increased royalties. The R&D Law also provides that know-how developed under an approved research and development program and any derivatives thereof may not be transferred or licensed to third parties in Israel without the approval of the research committee, which approval may be subject to the payment of royalties from the sale. Such approval is not required for the sale or export of any products resulting from such research or development. The R&D Law further provides that the know-how developed under an approved research and development program and any derivatives thereof may not be transferred or licensed to any third parties outside Israel absent IIA approval which may be granted in certain circumstances as follows: (a) the grant recipient pays to the IIA a portion of the sale or license price paid in consideration for the purchase or license of such IIA-funded know-how or the price paid in consideration for the sale of the grant recipient itself, as the case may be, in accordance with certain formulas included in the tracks published under the R&D Law; (b) the grant recipient receives know-how from a third party in exchange for its IIA-funded know-how; or (c) such transfer of IIA-funded know-how is made in the context of IIA approved research and development cooperation projects or consortia. 31 The R&D Law imposes reporting requirements with respect to certain changes in the ownership of a grant recipient. The R&D Law requires the grant recipient to notify the IIA of any change in control of the recipient or a change in the holdings of the means of control of the recipient that results in a non-Israeli entity or person becoming an interested party in the recipient, and requires the new non-Israeli interested party to undertake to the IIA to comply with the R&D Law. In addition, the rules of the IIA may require the provision of additional information or representations in respect of certain such events. For this purpose, “control” is defined as the ability to direct the activities of a company other than any ability arising solely from serving as an officer or director of the company. A person is presumed to have control if such person holds 50% or more of the means of control of a company. “Means of control” refers to voting rights or the right to appoint directors or the chief executive officer. An “interested party” of a company includes a holder of 5% or more of its outstanding share capital or voting rights, its chief executive officer and directors, someone who has the right to appoint its chief executive officer or at least one director, and a company with respect to which any of the foregoing interested parties holds 25% or more of the outstanding share capital or voting rights or has the right to appoint 25% or more of the directors. Failure to meet the R&D Law’s requirements may subject us to mandatory repayment of grants received by us (together with interest and penalties), as well as expose us to criminal proceedings. In addition, the Israeli government may from time to time audit sales of products which it claims incorporate technology funded through IIA programs which may lead to additional royalties being payable on additional products. Sales and Marketing Expenses Sales and marketing expenses include the salaries and related expenses of our commercial functions, consulting costs and other general expenses. We recorded sales and marketing income of $287,000 for the year ended December 31, 2023, compared to expenses of $1,851,000 for the year ended December 31, 2022. This was primarily due to termination of the employment of an executive officer, which led to the forfeiture of his unvested options and RSUs, resulting in a reversal of the previously recorded expense. We recorded stock-based compensation income of $440,000 for the year ended December 31, 2023, compared to expenses of $1,172,000 for the year ended December 31, 2022. This was mainly due to termination of the employment of an executive officer, which led to the forfeiture of his unvested options and RSUs. General and Administrative Expenses General and administrative expenses include the salaries and related expenses of our management, consulting expenses, legal and professional fees, travel expenses, business development expenses, insurance expenses and other general expenses. General and administrative expenses for the year ended December 31, 2023 decreased by 39% to $8,425,000, compared to $13,811,000 for the year ended December 31, 2022. The decrease was mainly due to lower stock-based compensation costs and legal expenses, partially offset by higher consulting expenses. Stock-based compensation expenses for the year ended December 31, 2023 were $2,933,000, compared to $7,160,000 for the year ended December 31, 2022. The decrease was mainly due to equity awards granted to employees during 2022, and performance equity awards that did not meet their performance conditions during the year ended December 31, 2023. Interest Expenses Interest expenses were $2,037,000 for the year ended December 31, 2023, while there were no interest expenses for the year ended December 31, 2022. The increase was mainly due to interest on the Short-Term Borrowings (as defined herein). Financial Income, Net Net financial income was $22,894,000 for the year ended December 31, 2023, compared to $2,934,000 for the year ended December 31, 2022. The increase was mainly due to revaluation of the Transaction (as defined herein), interest from short-term bank deposits and revaluation of non-marketable equity securities. 32 Basic and Diluted Income and Loss Per Share of Common Stock Basic and diluted income per share of common stock for the year ended December 31, 2023 was $0.14 per share, compared to a basic and diluted loss of $0.94 per share for the year ended December 31, 2022. This was primarily due to the changes discussed above that caused us to have income in the year ended December 31, 2023, compared to a loss in the year ended December 31, 2022. Weighted Average Shares of Common Stock Outstanding Weighted average shares of common stock outstanding used in computing basic income (loss) per share of common stock for the year ended December 31, 2023 were 40,315,068 compared to 38,997,649 for the year ended December 31, 2022. The increase was mainly due to RSUs that vested during the year ended December 31, 2023. Weighted average shares of common stock outstanding used in computing diluted income (loss) per share of common stock for the year ended December 31, 2023 were 40,566,901 compared to 38,997,649 for the year ended December 31, 2022. The increase was mainly due to RSUs that vested during the year ended December 31, 2023. For the diluted earnings per share calculation, the weighted average number of shares outstanding during the year is adjusted for the average number of shares that are potentially issuable in connection with employee share-based payment, using the treasury stock method. Liquidity and Capital Resources From our inception through December 31, 2023, we have incurred losses in an aggregate amount of $157,556,000. During that period and through December 31, 2023, we have financed our operations through several private placements of our common stock, as well as public offerings of our common stock, raising a total of $255,384,000, net of transaction costs. During that period, we also received cash consideration of $28,001,000 from the exercise of warrants and options. We expect to seek additional financing through similar sources in the future, as needed. As of December 31, 2023, we had $9,055,000 of available cash and $95,279,000 of short-term bank deposits. From inception through December 31, 2023, we have not generated significant revenues from our operations. Management continues to evaluate various financing alternatives for funding new strategic activities, future research and development activities and general and administrative expenses through fundraising in the public or private equity markets. Although there is no assurance that we will be successful with those initiatives, management believes that it will be able to secure the necessary financing as a result of future third party investments. Following the termination of the ORA-D-013-1 and ORA-D-013-2 Phase 3 trials, the Company’s research and development activities have been significantly reduced while it conducted a strategic review process. As a result, we are currently incurring lower research and development and sales and marketing expenses. We are working on a protocol for a new Phase 3 clinical trial to be submitted to the FDA. Concurrently, we are examining our existing pipeline and have commenced an evaluation process of potential strategic opportunities. Based on our current cash resources and commitments, we believe we will be able to maintain our current planned activities and the corresponding level of expenditures for at least the next 12 months, although no assurance can be given that we will not need additional funds prior to such time. If there are increases in our operating expenses, we may need to seek additional financing during the next 12 months. We may also need additional funds to realize the decisions made as part of our strategic review process. We cannot predict the outcome of these activities. On August 9, 2023, we entered into the Senior DIP Loan Agreement with the Debtors in the principal amount of $100,000,000. On September 21, 2023, we entered into and consummated the Transaction. Pursuant to the Scilex SPA, in exchange for the DIP Assumption and for the ability to credit the amounts assumed under the DIP Assumption in exchange for certain equity securities of Scilex owned by Sorrento, Scilex (i) issued to us (A) the Note, (B) the Closing Penny Warrant, and (C) the Subsequent Penny Warrants, and (ii) caused the Transferred Warrants to be transferred to us. In addition, on the Closing Date, Scilex reimbursed $1,910,000 of the Company’s Transaction expenses pursuant to the Scilex SPA. 33 Pursuant to the terms of the Scilex SPA, Scilex agreed to certain restrictions on additional issuances of equity securities. In connection with the Transaction, we and Sorrento mutually agreed to terminate the Sorrento SPA and to release all claims the Company and Sorrento may have against one another, and Scilex completed the acquisition of the Purchased Securities. On August 8, 2023, we borrowed an aggregate of $99,550,000 pursuant to loan agreements from Israel Discount Bank Ltd., or the Short-Term Borrowings. The Short-Term Borrowings mature on dates ranging from August 11, 2023 to May 24, 2024, bear interest ranging from 6.66% to 7.38%, are secured by certificates of deposits issued by Israel Discount Bank Ltd. having an aggregate face amount of $99,550,000. The net proceeds of the Short-Term Borrowings were used to fund the Note. The Short-Term Borrowings are paid in one payment of principal and interest at each respective maturity. As of December 31, 2023, $50,000,000 was repaid under the Short-Term Borrowings. As of December 31, 2023, our total current assets were $162,584,000 and our total current liabilities were $53,214,000. On December 31, 2023, we had a working capital surplus of $109,370,000 and an accumulated loss of $157,556,000. As of December 31, 2022, our total current assets were $157,109,000 and our total current liabilities were $5,746,000. On December 31, 2022, we had a working capital surplus of $151,363,000 and an accumulated loss of $163,081,000. The decrease in working capital surplus from December 31, 2022 to December 31, 2023 was mainly due to the Short-Term Borrowings. During the year ended December 31, 2023, cash and cash equivalents decreased to $9,055,000 from $40,464,000 as of December 31, 2022. The decrease was mainly due to the reasons described below. Operating activities used cash of $10,295,000 in the year ended December 31, 2023, compared to $27,918,000 used in the year ended December 31, 2022. Cash used in operating activities consisted mainly of changes in fair value of investments partially offset by net loss resulting from research and development and general and administrative expenses. Investing activities used cash of $73,038,000 in the year ended December 31, 2023, compared to cash provided by investing activities of $30,211,000 in the year ended December 31, 2022. Cash used in investing activities is mainly due to our investment in the Transaction and the purchase of short-term deposits, partially offset by the proceeds of short-term deposits. Financing activities provided cash of $51,978,000 in the year ended December 31, 2023, compared to $10,779,000 in the year ended December 31, 2022. Cash provided by financing activities consisted mainly of the Short-Term Borrowings. Our primary financing activities since the beginning of the year ended December 31, 2023, were as follows: ● During the year ended December 31, 2023, no warrants and options were exercised. During the year ended December 31, 2022, 4,200 warrants were exercised and 71,607 options were exercised, resulting in the issuance of 38,651 shares of common stock. Out of these exercised options, 10,750 options were exercised for cash and 60,857 via a cashless method. The cash consideration received for the exercise of options and warrants was $62,490. ● During the year ended December 31, 2023, we received $5,156,000 of income, mainly from interest on short-term and long-term deposits. During the year ended December 31, 2022, we received $1,844,000 of income, mainly from interest on short-term and long-term deposits. ● On September 1, 2021, we entered into a controlled equity offering agreement, or the Cantor Equity Distribution Agreement, with Cantor Fitzgerald & Co., as agent, pursuant to which we may issue and sell shares of our common stock having an aggregate offering price of up to $100,000,000, through a sales agent, subject to certain terms and conditions. Any shares sold will be sold pursuant to our effective shelf registration statement on Form S-3, including a prospectus dated July 26, 2021 and prospectus supplement dated September 1, 2021. We paid the sales agent a cash commission of 3.0% of the gross proceeds of the sale of any shares sold through the sales agent under the Cantor Equity Sales Agreement. As of December 31, 2023 and through March 6, 2024, 1,971,447 shares were issued under the Cantor Equity Distribution Agreement for aggregate net proceeds of $26,253,000. 34 Trend Information Following the results of the Phase 3 trials for our oral insulin capsule candidate, ORMD-0801, we conducted a comprehensive analysis of the data to understand if there is a path forward for our oral insulin candidate, and we are working on a protocol for a new Phase 3 clinical trial to be submitted to the FDA. Conducting this clinical trial, whether independently or as part of the JV with HTIT, will require significant funds and resources. Concurrently, we are examining our existing pipeline and have commenced an evaluation process of potential strategic opportunities, with the goal of enhancing value for our stockholders. At this time, we cannot foresee how these strategic decisions will impact our financial results and operations in 2024. Planned Expenditures In previous years, we primarily invested in research and development. If we proceed to conduct a new clinical trial for our oral insulin candidate, we expect that in the upcoming years our research and development expenses will continue to be our major operating expense; however, if this clinical trial is conducted through the JV with HTIT, this cost may be borne by the JV. Following the results of the Phase 3 trials for our oral insulin capsule candidate, ORMD-0801, the JV with HTIT and the current strategic review initiated by the Company, our obligations may change significantly. Critical Accounting Policies Our significant accounting policies are more fully described in the notes to our accompanying consolidated financial statements. We believe that the accounting policies below are critical for one to fully understand and evaluate our financial condition and results of operations. The discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which we prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported revenues and expenses during the reporting periods. On an ongoing basis, we evaluate such estimates and judgments. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Valuation of RSUs, options and warrants : We grant options to purchase shares of our common stock to employees and consultants and have and may in the future issue warrants in connection with some of our financings and to certain other consultants. We account for share-based payments to employees, directors and consultants in accordance with the guidance that requires awards classified as equity awards to be accounted for using the grant-date fair value method. The fair value of share-based payment transactions is based on the Black Scholes option-pricing model or Monte Carlo model when appropriate and is recognized as an expense over the vesting period. We elected to recognize compensation cost for awards to employees, directors and consultants that have a graded vesting schedule using the accelerated method based on the multiple-option award approach. Revenue recognition : Revenue is recognized when delivery has occurred, evidence of an arrangement exists, title and risks and rewards for the products are transferred to the customer and collection is reasonably assured. On November 13, 2022, we entered into a distribution license agreement with Medicox, or the Medicox License Agreement. The Medicox License Agreement grants Medicox an exclusive license to apply for regulatory approval and distribute ORMD-0801 in the Republic of Korea. Under Accounting Standards Certification, or ASC, 606 “Revenue from Contracts with Customers”, we identified Medicox as a customer and the Medicox License Agreement as a contract with a customer. 35 We identified a performance obligation in the Medicox License Agreement to stand-ready and provide Medicox with support in its commercialization efforts in the Republic of Korea. This performance obligation includes a non-distinct distribution license for ORMD-0801, which we view a predominant item in the combined performance obligation. We concluded that the license is not distinct, as no party other than us is capable of providing related services to Medicox, and both the license and related services are necessary for the customer to obtain a regulatory approval in the Republic of Korea. In addition, the agreement covers the terms of future manufacturing services, that are contingent on the completion and success of the commercialization efforts. The Medicox License Agreement contains a fixed consideration of $2 million, which was received by Oramed as of December 31, 2023 and is presented under long-term deferred revenues. It also contains variable consideration of contractual milestone payments and sales-based royalties. Our obligation to stand-ready and support Medicox will be recognized on a straight-line basis over the period we expect to provide support to Medicox. As of December 31, 2023, this support has not commenced, and no revenue was recognized from the Medicox License Agreement. If Medicox proceeds with the regulatory approval process in the Republic of Korea, we expect most of the revenue to be recognized in 2025, going forward. We note that our Phase 3 trial did not meet its primary or secondary endpoints. If Medicox chooses to terminate the agreement as a result of the outcome of the Phase 3 trials, we will accelerate revenue recognition and recognize it in the relevant period. Investments at fair value : On September 21, 2023. Scilex (i) issued to us (A) the Note, (B) the Closing Penny Warrant, and (C) the Subsequent Penny Warrants, and (ii) caused the Transferred Warrants to be transferred to us. We accounted for the Transferred Warrants as derivatives measured at fair value. We elected the fair value option for the Note and the Penny Warrants in order to reduce operational complexity of bifurcating embedded derivatives. Changes in value are recorded under financial income, net and include interest income on the Note. Determining the fair value of the Note required significant judgment with regards to the expected repayment date of the Note which also impacts the number of Subsequent Penny Warrants to be issued to us. The total value of the Transaction (and of each of its components) was valued on a weighted average of the different scenarios.