What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-05-15 compared with 2024-11-14 · 68 added, 130 removed, 118 unchanged (63% of the section changed)

7 unchanged sentences

Finance Receivables Portfolio Overview

The table below provides an overview of our outstanding finance receivables transactions as of, and for the three and nine months ended September 30, 2024 (in thousands, except rate, share and per share data):

Revenue (Loss) Recognized

Royalty Purchases Licensed Technology Funded Amount GAAP Balance Q3 2024

The table below provides an overview of our outstanding finance receivables transactions as of and for the three months ended March 31, 2025 (in thousands, except rate, share and per share data):

Revenue Recognized

Royalty Purchases Licensed Technology Funded Amount GAAP Balance Year-to-Date

Besivance® (1)

Ophthalmic antibiotic $ 6,000 $ — $ 2

Forfivo XL® (7)

Depressive disorder treatment 6,000 1,110 506

Coflex®/Kybella® (7)

Spinal stenosis/submental fullness 4,350 2,702 48

Cambia® (4) (7)

NSAID migraine treatment 8,500 — 98

Duo Royalty (7)

Japanese Women's health/cystic fibrosis 15,353 10,083 591

Immune Globulin (7)

Immune Globulin Therapeutics 14,100 10,452 443

Rare Disease Portfolio 7,701 7,331 336

Best ABT, Inc.

Oncology diagnosis 5,784 2,347 —

Coflex®/Kybella® Spinal stenosis/submental fullness 4,350 3,117 125 207

NSAID migraine treatment 8,500 — 108 319

Duo Royalty Japanese Women's health/cystic fibrosis 15,353 12,652 597 1,775

Flowonix Medical, Inc.

(2), (3), (5)

Drug delivery device

12,455 7,433 —

Forfivo XL® Depressive disorder treatment 6,000 1,285 277 1,002

Ideal Implant, Inc.

Aesthetics 4,025 3,039 —

Immune Globuin (8)

Immune Globulin Therapeutics 14,100 11,689 414 1,301

Diabetic macular edema 16,501 — 519

Relief Rare Disease Portfolio 7,701 7,839 161 161

Women's health 10,000 3,290 (228) 387

Revenue (Loss) Recognized

Term Loans Type Maturity Date Principal GAAP Balance Rate Q3 2024

First lien 12/31/24 $ 23,736 $ 26,329 11.3% $ 1,143 $ 3,655

Revenue Recognized

Term Loans Type Maturity Date Principal GAAP Balance Rate Year-to-Date

First lien 06/30/25 $ 20,336 $ 23,238 12.8% $ 944

First lien 03/21/27 8,478 8,674 11.2% 342

BIOLASE, Inc.

First lien 08/10/27 21,045 24,351 12.0% 891

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CDMO Manufacturer First lien 09/13/27 5,000 5,368 13.3% 195

Epica International, Inc.

First lien 07/23/24 — — 11.5% 221 957

eTon Pharmaceuticals, Inc.

1 unchanged sentence

Journey Medical Corporation First lien 12/27/27 25,000 25,068 12.8% 901

First lien 07/01/27 4,558 4,538 12.8% — 8

MedMinder Systems, Inc.

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SKNV First lien 11/15/28 15,997 16,385 12.0% 494

Trio Healthcare Ltd.

First lien 07/01/26 1,497 1,473 12.5% — —

Revenue (Loss) Recognized

Marketable Investments Number of Shares Funded Amount GAAP Balance Q3 2024

Triple Ring First lien 12/06/28 8,000 7,967 12.0% 278

ImpediMed First lien 02/05/30 10,000 9,675 13.8% 235

Loss Recognized

Marketable Investments Number of Shares Funded Amount GAAP Balance Year-to-Date

Secured Royalty Financing (Marketable Investment) (2), (3)

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Change in Fair Value

Warrants to Purchase Stock Number of Shares Exercise Price per Share ($) GAAP Balance Q3 2024

Warrants to Purchase Stock Number of Shares Exercise Price per Share ($) GAAP Balance Year-to-Date

TBD $ — $ — $ —

ImpediMed 12,491,870 0.05 169 (134)

Aziyo Biologics, Inc.

157,895 6.65 348 (188) 65

Tranche 1 157,895 6.65 196 (157)

Aziyo Biologics, Inc.

30,075 6.65 66 (36) 13

BIOLASE, Inc.

22,039 9.80 1 — —

Tranche 2 30,075 6.65 37 (30)

Biotricity, Inc.

57,536 6.26 1 (1) (3)

Tranche 1 57,356 37.56 2 —

Biotricity, Inc.

Tranche 2 600,000 0.50 196 33

CDMO Manufacturer 211,442 1.42 — —

CeloNova BioSciences, Inc.

DxTerity Diagnostics, Inc.

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Eton Pharmaceuticals, Inc.

1 51,239 5.86 106 56 9

Tranche 1 51,239 5.86 403 (21)

Eton Pharmaceuticals, Inc.

2 18,141 6.62 38 19 2

Tranche 2 18,141 6.62 141 (7)

Eton Pharmaceuticals, Inc.

3 289,736 — 1,072 — —

EyePoint Pharmaceuticals, Inc.

40,910 11.00 — — 127

EyePoint Pharmaceuticals, Inc.

7,773 19.30 — — 22

Tranche 3 289,736 5.32 2,922 (86)

Shield Warrant 8,910,540 0.14 179 (22)

MedMinder, System, Inc.

Tranche 1 57,859 10.37 — —

MedMinder Systems, Inc.

72,324 — — — —

Tranche 2 14,465 10.37 — —

Neolight, LLC 52,524 7.62 — —

MolecuLight, Inc.

Revenue (Loss) Recognized

Assets 3Q 2024 Year-to-Date

Revenue Recognized

Assets Year-to-Date

Total finance receivables, gross $ 231,861 $ 8,688

Total finance receivables and related interest receivable held for sale 33,990 2,024

Total marketable investments 455 —

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Total $ 270,551 $ 10,712

(1) US royalty was paid off during the year ended December 31, 2021.

SWK continues to receive insignificant royalties on international sales.

(1) US royalty was paid off continues to receive insignificant royalties on international sales.

(2) Investment considered partially impaired.

(3) Investment on non-accrual.

(4) Investment was paid off during the nine months ended September 30, 2023.

SWK continues to receive royalties on actual sales.

(5) Flowonix Medical assets were sold to a medical device company during the nine months ended September 30, 2023.

(4) Investment was paid off and SWK continues to receive royalties on actual sales.

(5) Flowonix Medical assets were sold to a medical device company in a prior period.

In exchange for releasing its lien, SWK received cash at close and is expected to receive royalties on sales of two products.

The finance receivable is now classified as a royalty.

(6) In July 2023, Ideal Implant assets were sold to an aesthetics company, which is expected to pay SWK a mid-single digit, capped royalty on implant sales in 2024.

(6) AOTI warrants exercised and converted to shares.

(8) During each of the three months ended June 30, 2024 and September 30, 2024, the Company identified errors relating to prior periods (three months ended March 31, 2024 and June 30, 2024) which were immaterial and corrected in those respective periods.

See Note 1 for more details.

(7) As of March 31, 2025 these royalties are included in finance receivables held for sale

(8) Investment was paid off during the three months ended March 31, 2025

Unless otherwise specified, our senior secured debt assets generally are repaid by a revenue interest that is charged on a company’s quarterly net sales and royalties.

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Our critical accounting policies and estimates are described in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report.

We believe there have been no new critical accounting policies or material changes to our existing critical accounting policies and estimates during the nine months ended September 30, 2024, compared to those discussed in our Annual Report.

We believe there have been no new critical accounting policies or material changes to our existing critical accounting policies and estimates during the three months ended March 31, 2025, compared to those discussed in our Annual Report.

Recent Accounting Pronouncements

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Financial Statements, Note 1 of the notes to the unaudited condensed consolidated financial statements for a listing of recent accounting pronouncements and their potential impact to our consolidated financial statements.

Comparison of the three months ended September 30, 2024 and 2023 ( in millions )

Comparison of the three months ended March 31, 2025 and 2024 ( in millions )

Three Months Ended

September 30,

2025 2024 Change $

Revenues $ 11.8 $ 11.4 $ 0.4

Provision for credit losses 1.4 0.2 1.2

Interest expense 1.1 0.2 0.9

Pharmaceutical manufacturing, research and development expense 0.6 0.6 —

Depreciation and amortization expense 0.2 0.7 (0.5)

General and administrative expense 3.0 3.0 —

Other income (expense), net 0.3 (0.2) 0.5

Income tax expense (benefit) 0.9 (0.4) 1.3

Net income 3.5 4.5 (1.0)

Revenues increased to $10.4 million for the three months ended September 30, 2024 from $9.0 million for the three months ended September 30, 2023.

The $1.4 million increase in revenue for the three months ended September 30, 2024 was primarily due to a $0.9 million increase in Finance Receivables segment revenue and a $0.3 million increase in Pharmaceutical Development segment revenue.

The $0.9 million increase in Finance Receivables segment revenue was primarily due to an increase of $2.1 million in interest and fees earned due to funding new and existing loans offset by $1.2 million decrease in interest, fees and royalties earned on finance receivables that were paid off during the period.

Provision for Credit Losses

Our provision for credit losses is established through charges or credits to income in the form of the provision in order to bring our allowance for credit losses for loans and unfunded commitments to a level deemed appropriate by management.

We recognized a net provision for credit losses of $1.4 million during the three months ended September 30, 2024 and $0.2 million during three months ended September 30, 2023, respectively.

See Note 3 to the unaudited condensed consolidated financial statements for further information on the allowance for credit losses.

Interest Expense

Interest expense consists of interest accrued on our revolving line of credit, 9.00% Senior Notes due 2027, unused line of credit and maintenance fees, as well as amortization of debt issuance costs.

Interest expense increased to $1.1 million for the three months ended September 30, 2024 from $0.2 million for the three months ended September 30, 2023.

The $0.9 million increase in interest expense was due to issuing approximately $32.9 million of Notes in an underwritten public offering in October of 2023.

See Note 5 for further information on the Notes, new Credit Agreement, and Prior Credit Agreement.

Pharmaceutical Manufacturing, Research and Development Expense

Pharmaceutical manufacturing, research and development expense remained consistent for the three months ended September 30, 2024 as compared to the same period in the previous year resulting in an immaterial change in total activity.

Depreciation and Amortization Expense

The $0.5 million decrease in depreciation and amortization expense for the three months ended September 30, 2024 primarily consisted of a decrease in amortization expense related to no longer amortizing intangible assets related to the Cara license as the intangible assets were fully impaired during the three months ended June 30, 2024.

Amortization expense is aligned with the expected future cash flows of the intangible assets.

General and Administrative Expense

General and administrative expenses consist primarily of compensation;

stock-based compensation and related costs for management, staff and Board;

legal and audit expenses;

and corporate governance expenses.

General and administrative expenses stayed flat at $3.0 million for the three months ended September 30, 2024 and 2023 resulting in an immaterial change in total activity between the periods.

Other Income (expense), Net

Other income, net increased to $0.3 million for the three months ended September 30, 2024 from other expense, net of $0.2 million for the three months ended September 30, 2023.

The $0.5 million increase includes gains on foreign currency transactions and unrealized gains on warrants related to changes in fair value of warrant assets.

Income Tax Expense

During the three months ended September 30, 2024 we recognized $0.9 million of income tax expense, for the three months ended September 30, 2023 we recognized an income tax benefit of $0.4 million.

Income tax expense increased period over period due to the release of valuation allowance on deferred tax assets of $1.1 million during the three months ended September 30, 2023 and an increase in the Company's effective tax rate, which was 22.8% and 13.6% as of September 30, 2024 and 2023, respectively.

Comparison of the nine months ended September 30, 2024 and 2023 ( in millions )

Nine Months Ended

September 30,

2024 2023 Change $

Revenues $ 32.6 $ 27.9 $ 4.7

Provision (benefit) for credit losses (1.5) 5.3 (6.8)

Loss on impairment of intangible assets 5.8 — 5.8

Interest expense 1.1 1.3 (0.2)

Pharmaceutical manufacturing, research and development expense 0.8 0.5 0.3

Change in fair value of acquisition-related contingent consideration (4.9) — (4.9)

Depreciation and amortization expense — 0.5 (0.5)

3 unchanged sentences

Net income 4.5 0.5 4.0

Revenues increased to $32.6 million for the nine months ended September 30, 2024 from $27.9 million for the nine months ended September 30, 2023.

The $4.7 million increase in revenue for the nine months ended September 30, 2024 consisted of a $3.7 million increase in Finance Receivables segment revenue and a $1.1 million increase in Pharmaceutical Development segment revenue.

The $3.7 million increase in Finance Receivables segment revenue was primarily due to a $6.3 million increase in interest and fees earned due to funding new and existing loans offset by $2.4 million decrease in interest, fees and royalties earned on finance receivables that were paid off during the period.

The increase in the Pharmaceutical Development segment was primarily due to the Aptar collaboration agreement.

Revenues increased to $11.8 million for the three months ended March 31, 2025 from $11.4 million for the three months ended March 31, 2024.

The $0.4 million increase in revenue for the three months ended March 31, 2025 was primarily due to a $0.3 million decrease in Finance Receivables segment revenue and a $0.7 million increase in Pharmaceutical Development segment revenue.

The increase in Pharmaceutical development revenues was due to the collaboration agreement with a strategic partner.

Provision (benefit) for Credit Losses

We recognized a net provision for credit losses of $10.8 million during the nine months ended September 30, 2024 and a $0.5 million benefit during nine months ended September 30, 2023, respectively.

Most of the change was related to a $8.1 million impairment on the Trio loan and $2.2 million impairment on the Exeevo loan that were included within the provision for credit losses during the nine months ended September 30, 2024.

See Note 3 to the unaudited condensed consolidated financial statements for further information on the allowance for credit losses.

We recognized a net benefit for credit losses of $1.5 million during the three months ended March 31, 2025 and a net provision of $5.3 million during three months ended March 31, 2024.

The benefit was primarily due to a release of the allowance for credit losses associated with finance receivables held for sale, compared to the same period in the prior year in which there was additional provision recognized on certain receivables.

Interest Expense

Interest expense consists of interest accrued on our revolving line of credit, 9.00% Senior Notes due 2027, unused line of credit and maintenance fees, as well as amortization of debt issuance costs.

Interest expense increased to $3.5 million for the nine months ended September 30, 2024 from $0.7 million for the nine months ended September 30, 2023.

The $2.8 million increase in interest expense was mainly due to issuing approximately $32.9 million of Notes in an underwritten public offering in October of 2023.

See Note 5 for further information on the Notes, new Credit Agreement, and Prior Credit Agreement.

Interest expense consists mostly of interest accrued on our revolving line of credit, 9.00% Senior Notes due 2027, unused line of credit and maintenance fees, as well as amortization of debt issuance costs.

Interest expense remained flat compared for for the three months ended March 31, 2025 as compared to the same period in the previous period.

Pharmaceutical Manufacturing, Research and Development Expense

Pharmaceutical manufacturing, research and development expense decreased from $2.8 million for the nine months ended September 30, 2023 to $1.6 million for the nine months ended September 30, 2024.

The $1.2 million decrease was primarily due to a reduction in research and development and clinical trial expenditures related to cancelled projects during the period and bonus expense during the previous year.

Pharmaceutical manufacturing, research and development expense remained consistent for the three months ended March 31, 2025 as compared to the same period in the previous year resulting in an immaterial change in total expense.

Depreciation and Amortization Expense

The $0.7 million decrease in depreciation and amortization expense for the nine months ended September 30, 2024 primarily consists of a decrease in amortization expense related to no longer amortizing intangible assets related to the Cara license as the intangible assets were fully impaired during the three months ended June 30, 2024.

Amortization expense is aligned with the expected future cash flows of the intangible assets.

See Note 4 for more information on the impairment of the Cara license.

The $0.5 million decrease in depreciation and amortization expense for the three months ended March 31, 2025 primarily consisted of a decrease in amortization expense related to no longer amortizing intangible assets related to the Cara license as the intangible assets were fully impaired.

General and Administrative Expense

3 unchanged sentences

and corporate governance expenses.

General and administrative expenses increased to $8.6 million for the nine months ended September 30, 2024 from $8.5 million for the nine months ended September 30, 2023 resulting in an immaterial change in total activity between the periods.

General and administrative expenses increased by $0.6 million for the three months ended March 31, 2025 as compared to 2024.

The increase is primarily due to increased compensation costs as well as legal costs associated with the Company's royalty sale.

Other Income (Expense), Net

Other income (expense), net increased to $3.7 million for the nine months ended September 30, 2024 from an expense of $0.3 million for the nine months ended September 30, 2023.

The $4.0 million increase includes a $2.5 million gain on revaluation related to the Iluvien royalty after a contractual re-negotiation, a $1.0 million gain on unrealized foreign currency transactions, a gain of $0.5 million due to the exercise of warrants.

Other income (expense), net decreased to an expense of $2.3 million for the three months ended March 31, 2025 from other expense, net of $0.4 million for the three months ended March 31, 2024.

The $1.9 million decrease primarily relates to the loss on revaluation of finance receivables and related interest receivable held for sale, offset by a gain on the early payoff of the Iluvien royalty.

Income Tax Expense

During the nine months ended September 30, 2024 and 2023 we recognized $2.2 million and $1.0 million of income tax expense, respectively.

Income tax expense increased period over period due to the release of valuation allowance on deferred tax assets of $1.0 million during the nine months ended September 30, 2023 and an increase in the Company's effective tax rate to 22.8% as of September 30, 2024 from 13.6% for the same period in the prior year.

During the three months ended March 31, 2025 we recognized $1.3 million of income tax expense, for the three months ended March 31, 2024 we recognized an income tax expense of $0.2 million.

Income tax expense increased period over period due to an increase in net income compared to the previous period.

Liquidity and Capital Resources

As of September 30, 2024, we had $17.2 million in cash and cash equivalents, compared to $5.2 million as of December 31, 2023.

The primary driver of the $12.0 million increase in our cash balance was $57.0 million of interest, fees, principal and royalty payments received on our finance receivables and $3.3 million of cash receipts from pharmaceutical development revenues.

The increase in cash and cash equivalents was partially offset by $18.6 million of investment funding, net of deferred fees and origination expenses, a net credit facility payment of $12.4 million, a payroll and benefits expense of $4.3 million, $8.0 million of payments on accounts payable, and share repurchases of $5.2 million.

As of March 31, 2025, we had $29.8 million in cash and cash equivalents, compared to $5.9 million as of December 31, 2024.

The primary driver of the $23.9 million increase in our cash balance was primarily related to interest fees and principal and royalty payments received on finance receivables.

The increase in cash and cash equivalents was partially offset by investment funding, net of deferred fees and origination expenses, net payments of our credit facility, payments for payroll and benefits expense, payments on accounts payable, and share repurchases.

We entered into a $45.0 million revolving credit facility in June 2023 with First Horizon Bank.

1 unchanged sentence

On October 10, 2023, the Company entered into a First Amendment to Credit Agreement pursuant to which Woodforest National Bank was added as a lender under the Credit Agreement for an aggregate commitment of $15.0 million, thereby increasing the aggregate commitments under the Credit Agreement from $45.0 million to $60.0 million.

As of September 30, 2024, there was no outstanding amount under the new Credit Agreement, and $55.0 million was available for borrowing.

As of March 31, 2025, there was no outstanding amount under the new Credit Agreement, and $55.0 million was available for borrowing.

The $60.0 million Credit Agreement contains a $5.0 million liquidity covenant, bringing the total amount available for borrowing to $55.0 million.

Our Prior Credit Agreement with Cadence Bank was terminated in connection with the establishment of the new Credit Agreement (please refer to Part II, Item 8, Financial Statements and Supplementary Data, Note 6 of the notes to the consolidated financial statements for further information regarding the Credit Agreement with First Horizon Bank).

On October 3, 2023, the Company completed a registered underwritten public offering of $30.0 million of the Notes.

On October 27, 2023, the underwriters exercised their option to purchase an additional approximately $3.0 million in aggregate principal amount of the Notes.

The Notes will mature on January 31, 2027, unless earlier redeemed, and will bear interest at a rate of 9.00% per annum, payable quarterly in arrears on March 31, June 30, September 30 and December 31 of each year and at maturity, commencing on December 31, 2023.

The Company received net proceeds after discounts, commissions, expenses and fees, of approximately $30.6 million.

See Note 5 for more information.

Primary Driver of Cash Flow

Driver of Cash Flow

Our ability to generate cash in the future depends primarily upon our success in implementing our Finance Receivables business model of generating income by providing capital to a broad range of life science companies, institutions and inventors, as well as the success of our Pharmaceutical Development segment.

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Receiving interest and other income by advancing capital in the form of secured debt to companies in the life science sector;

Pharmaceutical development, manufacturing, and licensing activities utilizing the Peptelligence® platform;

Pharmaceutical development, manufacturing, and licensing activities;

To a lesser extent, realizing capital appreciation from equity-related investments in the life science sector.

As of September 30, 2024, our finance receivables portfolio contains $255.9 million of net finance receivables and $0.8 million of marketable investments.

As of March 31, 2025, our finance receivables portfolio contains $223.1 million of net finance receivables and $0.5 million of marketable investments.

We expect these assets to generate positive cash flows in 2025.

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We use the same credit policies in making commitments and conditional obligations as we do for on-balance sheet instruments.

As of September 30, 2024, we had $39.0 million in unfunded commitments.

As of March 31, 2025, we had $7.5 million in unfunded commitments.

Please refer to Item 1., Financial Statements, Note 7 of the notes to the unaudited condensed consolidated financial statements for further information regarding the Company’s commitments and contingencies.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis