What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-08-14 compared with 2025-05-15 · 90 added, 36 removed, 150 unchanged (46% of the section changed)

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Finance Receivables Portfolio Overview

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):

The table below provides an overview of our outstanding finance receivables transactions as of and for the three and six months ended June 30, 2025 (in thousands, except rate, share and per share data):

Revenue Recognized

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

Royalty Purchases Licensed Technology Funded Amount GAAP Balance Q2 2025

Besivance® (1)

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Spinal stenosis/submental fullness 4,350 — — 48

Cambia® (4) (7)

NSAID migraine treatment 8,500 — — 98

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Revenue Recognized

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

Term Loans Type Maturity Date Principal GAAP Balance Rate Q2 2025

First lien 07/14/25 $ 19,886 $ 22,953 12.8% $ 913 $ 1,857

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ImpediMed First lien 02/05/30 10,000 9,717 13.8% 391 626

Loss Recognized

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

Gain (Loss) Recognized

Marketable Investments Number of Shares Funded Amount GAAP Balance Q2 2025

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

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402,634 N/A 498 37 (68)

Elutia, Inc (8)

50,000 N/A $ 99 $ 17 $ 17

Privately Held Shares Number of Shares

Epica International, Inc 25,000

Sincerus Pharmaceuticals, Inc 26,575

MolecuLight, Inc 250,000

Change in Fair Value

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

Warrants to Purchase Stock Number of Shares Exercise Price per Share GAAP Balance Q2 2025

TBD $ — $ — $ — $ —

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Epica International, Inc.

TBD $ — — — —

Eton Pharmaceuticals, Inc.

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Tranche 3 289,736 $ 5.32 3,289 367 281

Nicoya Lifesciences, Inc 276,630 C$ 1.81 — — —

Nicoya Lifesciences, Inc 117,305 C$ 6.26 — — —

Shield Warrant 8,910,540 $ 0.14 173 (13) (35)

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MolecuLight, Inc.

394,322 C$ 0.84 — — —

Revenue Recognized

Assets Year-to-Date

Assets Q2 2025

Total finance receivables, gross $ 246,430 $ 8,543 $ 19,255

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

Total marketable investments 603 — —

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(3) Investment on non-accrual.

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

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

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(5) AOTI warrants exercised and converted to shares.

(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

(6) Royalties sold as of June 30, 2025

(7) Investment was paid off during the six months ended June 30, 2025

(8) Elutia common stock received as part of amendment to term loan.

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 three months ended March 31, 2025, 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 six months ended June 30, 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 March 31, 2025 and 2024 ( in millions )

Comparison of the three months ended June 30, 2025 and 2024 ( in millions )

Three Months Ended

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Revenues $ 10.1 $ 10.8 $ (0.7)

Provision for credit losses 0.8 4.1 (3.3)

Loss on impairment of intangible assets — 5.8 (5.8)

Interest expense 1.2 1.1 0.1

Pharmaceutical manufacturing, research and development expense 0.6 0.5 0.1

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

Depreciation and amortization expense — 0.4 (0.4)

General and administrative expense 2.8 2.9 (0.1)

Other income (expense), net (0.1) 3.8 (3.9)

Income tax expense 1.0 1.0 —

Net income 3.5 3.7 (0.2)

Revenues decreased to $10.1 million for the three months ended June 30, 2025 from $10.8 million for the three months ended June 30, 2024.

The $0.7 million decrease in revenue for the three months ended June 30, 2025 was primarily due to a $1.2 million decrease in Finance Receivables segment revenue and a $0.5 million increase in Pharmaceutical Development segment revenue.

The finance receivables segment revenue decreased primarily due to the sale of the majority of the Company's royalty portfolio.

The increase in pharmaceutical development revenues was due to the collaboration agreement with Aptar.

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 $0.8 million and $4.1 million during the three months ended June 30, 2025 and 2024, respectively.

The decrease is primarily due to impairments totaling $4.3 million during the same period in the prior year.

Interest Expense

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 consistent for the three months ended June 30, 2025 as compared to the same period in the previous period.

Pharmaceutical Manufacturing, Research and Development Expense

Pharmaceutical manufacturing, research and development expense remained consistent for the three months ended June 30, 2025 as compared to the same period in the previous year resulting in an immaterial change in total expense.

Depreciation and Amortization Expense

The $0.4 million decrease in depreciation and amortization expense for the three months ended June 30, 2025 primarily related to no longer amortizing intangible assets related to the Cara license as the intangible assets were fully impaired.

In addition, MOD3 was classified as held for sale for the current period resulting in no depreciation on fixed assets included in held for sale.

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 remained consistent for the three months ended June 30, 2025 as compared to 2024.

Other Income (Expense), Net

Other income (expense), net decreased to an expense of $0.1 million for the three months ended June 30, 2025 from other income of $3.8 million for the three months ended June 30, 2024.

The $3.9 million decrease primarily relates to the gain on revaluation of finance receivables and gain on exercise of warrants in the same period the prior year.

Income Tax Expense

Income tax expense remained consistent for the three months ended June 30, 2025 as compared to the same period in the previous year resulting in an immaterial change in total expense.

Comparison of the six months ended June 30, 2025 and 2024 ( in millions )

Six Months Ended

2025 2024 Change $

Revenues $ 21.9 $ 22.2 $ (0.3)

Provision (benefit) for credit losses (0.7) 9.4 (10.1)

Loss on impairment of intangible assets — 5.8 (5.8)

Interest expense 2.3 2.4 (0.1)

Pharmaceutical manufacturing, research and development expense 1.4 1.1 0.3

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

Depreciation and amortization expense — 0.9 (0.9)

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Net income 8.1 4.1 4.0

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.

Revenues decreased to $21.9 million for the six months ended June 30, 2025 from $22.2 million for the six months ended June 30, 2024.

The $0.3 million decrease in revenue for the six months ended June 30, 2025 consisted of a $1.5 million decrease in Finance Receivables segment revenue offset by a $1.2 million increase in Pharmaceutical Development segment revenue.

The $1.5 million decrease in Finance Receivables segment revenue was primarily due to a decrease in interest, fees and royalties earned on finance receivables that were paid off or sold during the period.

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

Provision (Benefit) 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.

We recognized a net benefit for credit losses of $0.7 million during the six months ended June 30, 2025 and a $9.4 million provision during the six months ended June 30, 2024.

The decrease was primarily due to impairments included within the provision for credit losses during the six months ended June 30, 2024.

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

Interest Expense

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

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 remained consistent for the six months ended June 30, 2025 as compared to the six months ended June 30, 2024.

Pharmaceutical Manufacturing, Research and Development Expense

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.

Pharmaceutical manufacturing, research and development expense increased from $1.1 million for the six months ended June 30, 2024 to $1.4 million for the six months ended June 30, 2025.

The $0.3 million increase was primarily due to increased compensation costs due to additional headcount during the period.

Depreciation and Amortization Expense

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.

The $0.9 million decrease in depreciation and amortization expense for the six months ended June 30, 2025 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.

In addition, MOD3 was classified as held for sale for the current period resulting in no depreciation on fixed assets included in held for sale.

General and Administrative Expense

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and corporate governance expenses.

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.

General and administrative expenses increased to $6.1 million for the six months ended June 30, 2025 from $5.6 million for the six months ended June 30, 2024 primarily due to an increase in compensation costs during the period.

Other Income (Expense), Net

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.

Other income (expense), net decreased to an expense of $2.4 million for the six months ended June 30, 2025 from an income of $3.4 million for the six months ended June 30, 2024.

The $5.8 million decrease is primarily due to net losses on finance receivables in the current period compared to net gains on finance receivables during the same period in the prior year.

Income Tax Expense

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.

During the six months ended June 30, 2025 and 2024 we recognized $2.3 million and $1.3 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 six months ended June 30, 2024 and a decrease in the Company's provision for credit losses compared to the same period in the prior year.

Liquidity and Capital Resources

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.

As of June 30, 2025, we had $8.0 million in cash and cash equivalents, compared to $5.9 million as of December 31, 2024.

The primary driver of the $2.1 million increase in our cash balance was primarily related to interest, fees, principal and royalty payments received on finance receivables, and proceeds from the sale of finance receivables.

The increase in cash and cash equivalents was partially offset by the payment of dividends, 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.

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

As of June 30, 2025, there was $0.3 million outstanding amount under the new Credit Agreement.

The $60.0 million Credit Agreement contains a $5.0 million liquidity covenant, bringing the total amount available for borrowing to $54.7 million.

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

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.

As of June 30, 2025, our finance receivables portfolio contains $237.6 million of net finance receivables and $0.6 million of marketable investments.

We expect these assets to generate positive cash flows during the remainder of 2025.

We continuously monitor the short and long-term financial position of our finance receivables portfolio.

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

As of June 30, 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