Why Shares of Scilex Slumped This Week

What happened

Shares of Scilex Holding (NASDAQ:SCLX) fell 27.8% this week as of early Friday afternoon, according to data provided by S&P Global Market Intelligence. The healthcare stock closed at $10.27 last week, then fell to as low as $6.66 on Monday.

The company, which is majority owned by Sorrento Therapeutics (OTC:SRNE.Q), saw its shares fall after it said late last week that it planned to sell $300 million worth of stock. On top of that, on Wednesday, Sorrento was told by a bankruptcy court in Texas that it had extended the expiration of the restrictions on transfer on the shares of common stock of Scilex that were distributed by Sorrento to its stockholders as a dividend on Jan. 19.

Scilex closed at $10.27 last week and then fell to as low as $6.66 on Monday. Sorrento began voluntary Chapter 11 bankruptcy proceedings in February.

So what

The continued uncertainty regarding its parent company and likely dilution of Scilex stock will continue to weigh on the stock.

Scilex focuses on developing and selling nonopioid pain management products to treat chronic and acute pain. The company's lead product, ZTlido, a topical system of lidocaine, is approved by the Food and Drug Administration to treat post-herpetic neuralgia (PHN), a type of post-shingles nerve pain. The company said it has two other products that it plans to launch in the U.S. this year: Gloperba to treat gout, and Elyxyb to treat acute migraines.

Now what

While Scilex is majority-owned by Sorrento, Scilex is not a debtor in Sorrento Therapeutics' voluntary Chapter 11 filing. Scilex stock actually gained when Sorrento first announced its bankruptcy proceeding.

However, the confusion doesn't help investors, and Scilex has had plenty of negative news this month. It has delayed its annual shareholder meeting twice, and the stock sale will dilute the value of the stock to current shareholders.

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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.