v3.26.1
NOTES PAYABLE
 3 Months Ended
Mar. 31, 2026
Debt Disclosure [Abstract]  
NOTES PAYABLE NOTES PAYABLE (AS RESTATED)
Senior Secured Loan Facility
On January 12, 2026 (the “Venture Loan and Security Agreement Closing Date”), the Company, LNHC and CPC, as co-borrowers (together with the Company, the “Borrowers”), entered into a Venture Loan and Security Agreement (the “Venture Loan and Security Agreement”) by and among the Borrowers and Horizon Technology Finance Corporation, a Delaware corporation, as lender and collateral agent (“Horizon”). The Venture Loan and Security Agreement provides for a senior secured term loan facility in an aggregate principal amount of up to $50,000 (collectively, the “Term Loans”). The proceeds of the Term Loans will be used to support the commercialization of the Company’s existing commercialized pharmaceutical product, to prepare for launch its two recently acquired assets, and for working capital and general corporate purposes. The Borrowers borrowed $30,000 of Term Loans on the Venture Loan and Security Agreement Closing Date. The remaining $20,000 of Terms Loans may be borrowed under the Venture Loan and Security Agreement upon the achievement by the Company of certain milestones set forth in the agreement.
Borrowings under the Venture Loan and Security Agreement accrue interest at a rate equal to the prime rate plus 3.75% with the prime rate having a floor of 6.75%. For the three months ended March 31, 2026, the effective interest rate on the Term Loans was 16.0%. The Term Loans are repayable in monthly interest-only payments from February 1, 2026 until February 1, 2029 (the “Interest-Only Payment Period”). After the expiration of the Interest-Only Payment Period, beginning on March 1, 2029, the Term Loans will be repayable in 24 equal monthly payments of principal and accrued interest until maturity. Alternatively, if the Borrowers achieve a trailing twelve-month consolidated net revenue of at least $75,000, the Term Loans will be repayable in monthly interest-only payments from February 1, 2026 until February 1, 2030 (the “Extended Interest-Only Payment Period”). After the expiration of the Extended Interest-Only Payment Period, beginning on March 1, 2030, the Term Loans will be repayable in 12 equal monthly payments of principal and accrued interest until maturity. The Term Loans will mature on January 31, 2031 (the “Venture Loan and Security Agreement Maturity Date”). As of March 31, 2026, the Term Loans are classified as noncurrent liabilities, as no principal payments are due within the next twelve months.
The Borrowers paid a commitment fee in the amount of $300 on the Venture Loan and Security Agreement Closing Date. The Borrowers will pay an additional commitment fee in the amount of 1.0% of the principal amount of the remaining undrawn Term Loans concurrently with the funding of those Term Loans. Upon the payment in full of the outstanding Term Loans, the Borrowers will pay Horizon a final payment in the amount of 5.0% of the aggregate original principal amount of the Term Loans made under the Venture Loan and Security Agreement.
At the Borrowers’ option, the Borrowers may prepay all of the outstanding Term Loans, subject to a prepayment premium equal to (a) 3.0% of the Term Loans being prepaid if the prepayment is made during the Interest-Only Period or Extended Interest-Only Period, as applicable; (b) 2.0% of the Term Loans being prepaid if the prepayment occurs within twelve months after the Interest-Only Period or Extended Interest-Only Period, as applicable; and (c) 1.0% of the Term Loans being prepaid if the prepayment occurs any time thereafter.
The Borrowers’ obligations under the Venture Loan and Security Agreement are secured by substantially all of the Borrowers’ assets, including intellectual property, subject to certain customary exceptions.
In connection with the Venture Loan and Security Agreement, the Company issued to Horizon warrants to purchase up to 65,488 shares of common stock, par value $0.0001 per share, at an exercise price of $27.49 per share (the “Initial Horizon Warrants”). The Initial Horizon Warrants are exercisable for 10 years from the Venture Loan and Security Agreement Closing Date. The Company also agreed to issue additional warrants at the time of each additional Term Loan, in an amount of shares equal to 6.0% of the Term Loan divided by the exercise price then in effect.
The Venture Loan and Security Agreement contains customary affirmative and negative covenants, including covenants limiting the ability of the Borrowers and their subsidiaries to, among other things, dispose of assets, enter into certain licensing arrangements, effect certain mergers, incur debt, grant liens, pay dividends and distributions on their capital stock, make investments and acquisitions, and enter into transactions with affiliates, in each case subject to customary exceptions for a loan facility of this size and type. The Venture Loan and Security Agreement also includes customary events of default, including, among others, payment defaults, material misrepresentations, breaches of covenants following any applicable cure period, cross defaults with certain other indebtedness, bankruptcy and insolvency events, judgment defaults and the occurrence of certain events that could reasonably be expected to have a “material adverse effect.” The occurrence of an event of default could result in the acceleration of the Borrowers’ obligations under the Venture Loan and
Security Agreement, the termination of the Horizon’s commitments, a 4.0% increase in the applicable rate of interest and the exercise by Horizon of other rights and remedies provided for under the Venture Loan and Security Agreement.
Convertible Notes
On November 6, 2025, the Company entered into a securities purchase agreement (the “Convertible Securities Purchase Agreement”) with certain investors, including Ligand (collectively, the “Convertible Investors”), pursuant to which, among other things, on the closing date, the Convertible Investors purchased for cash, and the Company issued and sold to the Convertible Investors, senior secured convertible notes of the Company (the “Convertible Notes”) in the aggregate original principal amount of $18,000, which are convertible into shares of the Company’s common stock (such transaction, the “Convertible Note Financing”). The gross proceeds from the Convertible Note Financing were approximately $18,000, before paying estimated expenses. The Convertible Securities Purchase Agreement generally prohibits the Company from issuing securities without the written consent of the Required Holders (as defined in the Convertible Securities Purchase Agreement), but includes exceptions for specific issuances of securities, including in connection with the independent funding and development of the Company’s historical assets relating to the sodium-ion channel known as NaV1.7 for the treatment of various types of systemic chronic pain, acute and chronic eye pain and post-surgical nerve blocks. The Investors have approved Ligand to serve as collateral agent (the “Convertible Collateral Agent”).
The Convertible Notes rank senior to current and future indebtedness of the Company and its subsidiaries, excluding (i) any credit facility with one or more financial institutions in form and substance reasonably satisfactory to the Required Holders and with an aggregate amount of indebtedness that does not exceed $50,000 or (ii) an asset-based loan facility that does not exceed $10,000, subject to certain conditions (together, the “Permitted Senior Indebtedness”). The Venture Loan and Security Agreement, described above, meets the definition of Permitted Senior Indebtedness under the Convertible Notes. The Convertible Notes accrue interest at a rate of 8.5% per annum (which increases to 18.0% in the event of a default) and mature on November 6, 2027 (the “Convertible Maturity Date”).
The Convertible Notes are convertible by the holders thereof in whole or in part at any time after issuance and prior to the Convertible Maturity Date into shares of common stock based on a conversion price (the “Convertible Conversion Price”) of $34.442 per share (the “Convertible Conversion Shares”), which cannot be reduced below $34.442 per share without obtaining the approval of the shareholders of the Company (the “Convertible Shareholder Approval”), and is subject to customary adjustments for stock splits, stock dividends, recapitalization and other similar transactions. On the later of December 1, 2025 and the date the Company obtains the Convertible Shareholder Approval, if any, if the Convertible Conversion Price then in effect was greater than $29.73, the Convertible Conversion Price would automatically lower to $29.73. Effective December 17, 2025, the date the Company obtained the requisite Convertible Shareholder Approval, the Convertible Conversion Price was adjusted to $29.73. In addition, on the maturity date of the Convertible Notes, if the Company’s Permitted Senior Indebtedness does not permit the Company to make the cash payment then due under the Convertible Notes, the Convertible Conversion Price will automatically adjust to a price equal to the average volume weighted average price of the common stock for the five trading days ending immediately prior to the Convertible Maturity Date.
In general, a holder of a Convertible Note may not convert any portion of a Convertible Note if the holder, together with its affiliates, would beneficially own more than 49.9% in the case of Ligand, or 4.99% or 9.99%, in in the case of the other Investors (the “Convertible Maximum Percentage”), of the number of shares of the Company’s common stock outstanding immediately after giving effect to such exercise; provided, however, that a holder may increase or decrease the Convertible Maximum Percentage by giving 61 days’ notice to the Company, but not to any percentage in excess of 9.99% (except for Ligand, whose Convertible Maximum Percentage already exceeds 9.99%).
As partial consideration for the Convertible Notes, the Company granted to each of the Convertible Investors (i) a 5.0% royalty on net sales of XEPI (ozenoxacin) cream, for topical use, and all other derivatives and modifications thereof, to be shared pro rata among all the Convertible Investors and (ii) the Company’s right to receive all royalty payments and milestone payments paid by Sato in respect of net sales of ZELSUVMI (less 50.0% of the milestone payment payable by Sato in respect of the first commercial sale of ZELSUVMI in Japan, which will be kept by the Company), to be shared pro rata among all the Convertible Investors. See Note 10 — “License and Other Agreements” for detail.
The Convertible Notes contain certain customary events of default provisions, including failure to timely issue the Convertible Conversion Shares, failure to maintain the listing of the common stock on an Eligible Market (as defined in the Convertible Notes) for a period of five consecutive trading days, failure to maintain sufficient authorized shares for the issuance of Convertible Conversion Shares, a breach of any representation or warranty by the Company under the Convertible Securities Purchase Agreement and the Convertible Notes, the failure of any Security Document to create a separate valid and perfected first priority lien in favor of the Convertible Collateral Agent (subject to certain exceptions), and the occurrence of a Material Adverse Effect (as defined in the Convertible Securities Purchase Agreement), as well as certain customary events of default set forth in the Convertible Notes, including, among others, breach of covenants, including the incurrence of subsequent indebtedness or issuance of dividends, representations or warranties, insolvency, bankruptcy, liquidation and failure by the Company to pay the principal, interest late charges and other payments due under the Convertible Notes, in each case subject to certain cure periods, as applicable.
Upon an event of default, a holder has the option to require the Company to redeem a Convertible Note at a conversion price equal to the greater of (i) the Convertible conversion amount to be redeemed multiplied by (B) 115% (the “Redemption Premium”) and (ii) the product of (X) the conversion rate with respect to the conversion amount in effect at such time as the holder delivers to the Company a notice requiring the Company to redeem the Convertible Note upon an event of default (the “Convertible Event of Default Redemption Notice”) multiplied by (Y) the greatest closing price of the common stock on any trading day during the period commencing on the date immediately preceding such event of default and ending on the date the Company makes the entire payment therefor (the “Convertible Event of Default Redemption Price”). In the event of a Bankruptcy Event of Default (as defined in the Convertible Notes), the Company will immediately pay the holder an amount in cash representing (i) all outstanding principal, accrued and unpaid interested and accrued unpaid late charges on such principal and interest, multiplied by (ii) the Redemption Premium, in addition to any and all other amounts due under the Convertible Note, without the requirement for any notice or demand or other action by any person or entity.
No sooner than twenty trading days nor later than ten trading days prior to the consummation of a Change of Control (as defined in the Convertible Notes) (the “Convertible Change of Control Date”), but not prior to the public announcement of such Convertible Change of Control, the Company must deliver written notice of such Convertible Change of Control to the Holder (a “Convertible Change of Control Notice”). At any time during the period beginning after the holder’s receipt of a Convertible Change of Control Notice or the holder becoming aware of a Convertible Change of Control (if a Convertible Change of Control Notice is not delivered) and ending twenty trading days after the later of (A) the date of consummation of such Convertible Change of Control, (B) the date of receipt of such Convertible Change of Control Notice or (C) the date of the announcement of such Convertible Change of Control, the holder may require the Company to redeem all or any portion of the Convertible Note by delivering written Notice thereof (the “Convertible Change of Control Redemption Notice”) to the Company. A Convertible Note may be redeemed by the holder in cash at a price equal to the greatest of (i) the product of (w) 125% (the “Convertible Change of Control Redemption Premium”) multiplied by (y) the conversion amount being redeemed, (ii) the product of (A) the conversion amount being redeemed multiplied by (B) the quotient determined by dividing (I) the greatest closing price of the shares of common stock during the period beginning on the date immediately preceding the earlier to occur of (1) the consummation of the applicable Convertible Change of Control and (2) the public announcement of such Convertible Change of Control and ending on the date the holder delivers the Convertible Change of Control Redemption Notice by (II) the conversion price then in effect, and (iii) the product of (A) the conversion amount being redeemed multiplied by (B) the quotient of (I) the aggregate cash consideration and the aggregate cash value of any non-cash consideration per share of common stock to be paid to the holders of the shares of common stock upon consummation of such Convertible Change of Control, divided by (II) the conversion price then in effect (the “Convertible Change of Control Redemption Price”). At any time prior to the date on which such redemption payment is paid in full as a result of such Convertible Change of Control, the Convertible Notes may be converted in accordance with their terms.
In the event that the Company does not pay the applicable redemption price to the Holder within the time period required, until such unpaid redemption price is paid, the Holder has the option to notify the Company that it promptly return all or any portion of the Convertible Note representing the conversion amount that was submitted for redemption. Upon the Company’s receipt of such notice, the Company will immediately return the Convertible Note (or issue a new convertible note), and the principal amount of the Convertible Note or such new convertible note will be increased by an amount equal to the difference between (1) the applicable redemption price minus (2) the principal portion of the conversion amount submitted for redemption.
Convertible Notes Subordination Agreement
In January 2026, the Convertible Investors entered into a subordination agreement with Horizon (“Convertible Notes Subordination Agreement”) in connection with the Venture Loan and Security Agreement. Pursuant to the Convertible Notes Subordination Agreement, all payment obligations under the Convertible Notes, including principal and accrued interest, are subordinated to the Company’s obligations under the Term Loans. Until the 90-days after the Term Loans have been repaid in full, the Company is prohibited from making payments on the Convertible Notes, except for certain limited payments related to legal expenses. Prior to the execution of the Convertible Notes Subordination Agreement, the terms of the Convertible Notes permitted the Company to satisfy accrued interest either through cash payments or by capitalizing such interest as payment-in-kind (“PIK”), at the Company's election. As the Convertible Notes Subordination Agreement prohibits cash payments of interest while the Term Loans remain outstanding, accrued interest on the Convertible Notes is treated as PIK and added to the outstanding principal balance of the Convertible Notes at each interest due date. The Company expects to continue to PIK interest in this manner until cash payments are permitted under the terms of the Convertible Notes Subordination Agreement.

Fair Value
The Company had no assets or liabilities that are remeasured on a recurring basis using level 1 or level 2 inputs for the three months ended March 31, 2026 or 2025. The Company’s Venture Loan and Security Agreement was initially measured using level 3 inputs. The Company’s Convertible Notes are measured on a recurring basis using level 3 inputs.
Senior Secured Loan Facility
The Company analyzed the terms of the Venture Loan and Security Agreement and its embedded features concluding it appropriate to account for the Initial Horizon Warrants as freestanding financial instruments with equity classification. As the Initial Horizon Warrants are equity classified, the proceeds from the Venture Loan and Security Agreement were allocated based on the relative fair values of the Term Loans and the Initial Horizon Warrants, with the amount allocated to the Initial Horizon Warrants recorded as additional paid-in-capital. The Term Loans were recorded at the proceeds received, less applicable discounts. The final payment, debt issuance costs and allocation of fair value of the Initial Horizon Warrants will be amortized to interest expense over the term of the loan.
The following table summarizes the allocation of fair value of the Venture Loan and Security Agreement, as determined by Level 3 inputs for the Initial Horizon Warrants, as of January 12, 2026:
Fair ValueAllocationAllocated Fair ValueLender Fees3rd Party FeesTotal
Term Loans$30,000 95 %$28,638 $663 $1,814 $26,161 
Initial Horizon Warrants1,427 5 %1,362 — — 1,362 
$31,427 100 %$30,000 $663 $1,814 $27,523 
The following table presents the significant inputs and valuation methodologies used for the Company’s fair value of the Initial Horizon Warrants as of as of January 12, 2026:
Valuation methodologyBlack-Scholes
Expected volatility85.67 %
Risk-free interest rate4.19 %
Expected term (in years)10
Expected dividend yield— %
Weighted-average fair value per option$21.79 
The following table presents the carrying value of the Venture Loan and Security Agreement as of January 12, 2026 and March 31, 2026:
March 31, 2026January 12, 2026
Term Loan$30,000 $30,000 
Final Payment1,500 1,500 
Venture Loan and Security Agreement, gross$31,500 $31,500 
Debt Discount(5,144)(5,339)
Venture Loan and Security Agreement, net$26,356 $26,161 
The following table presents the maturity of the Term Loan, including the final payment fee, under the Venture Loan and Security Agreement as of March 31, 2026:
Term Loan
2026 (April 1 - December 31)$— 
2027— 
2028— 
202912,500 
203015,000 
2031 and thereafter4,000 
Total $31,500 
Convertible Notes
The Company analyzed the terms of the Convertible Notes and its embedded features concluding it appropriate to account for the Convertible Notes at fair value under the allowable fair value option. Accordingly, the Company initially recognized the Convertible Notes at fair value and will subsequently measure the Convertible Notes at fair value with changes in fair value recorded in current period earnings, or other comprehensive income if specific to Company credit risk.
Due to the significant related-party relationships with certain investors and Ligand, the Convertible Securities Purchase Agreement is not presumed to be at arms-length. The Company estimated the initial fair value of the Convertible Notes and related royalty obligations to be in excess of the transaction price. Accordingly, the Company initially recorded both instruments, which were determined to be free standing, at the issuance date relative fair value.
The following table summarizes the change in fair value, as determined by Level 3 inputs for the Convertible Notes for the three months ended March 31, 2026:
Fair value of convertible note at December 31, 2025$31,441 
Payment-in-kind on convertible debt234 
Change in fair value recognized in other comprehensive income(2,188)
Change in fair value recognized in net loss9,632 
Fair value of convertible note at March 31, 2026$39,119 
For the three months ended March 31, 2026, the change in fair value of the Convertible Notes was due to (i) changes in the Company’s common stock price; (ii) a change in fair value related to the Convertible Notes credit risk component, recorded in accumulated other comprehensive income on the condensed consolidated balance sheet; and (iii) a change to the principal balance related to the payment-in-kind for the quarterly interest payments due January 1, 2026. The credit risk component adjustment was driven by the subordination of the Convertible Notes resulting from the Company's entry into the Venture Loan and Security Agreement. The principal balance on the Convertible Notes as of March 31, 2026 was $18,234.
The following tables present the significant inputs and valuation methodologies used for the Company’s fair value of the Convertible Notes as of March 31, 2026 and December 31, 2025:
March 31, 2026December 31, 2025
Valuation model utilizedMonte-CarloScenario-Based
Valuation methodology - PrincipalDiscounted Cash FlowsDiscounted Cash Flows
     Expected term (in years)
4.301.85
     PIK period (years)4.300.85
     Discount rate16.45 %5.94 %
Valuation methodology - Convertible featureBlack-ScholesBlack-Scholes
     Conversion price$29.73 $29.73 
     Expected volatility116.00 %152.00 %
     Risk-free interest rate3.81 %3.41 %
     Expected term (in years)4.301.85
     Expected dividend yield— %— %
As described above, on January 12, 2026 the Company entered into the Venture Loan and Security Agreement with Horizon, which met the definition of permitted senior indebtedness per the Convertible Notes. The Venture Loan and Security Agreement secured substantially all of the borrowers' assets. In addition, the Convertible Notes Subordination Agreement, also described above, subordinated all payment obligations under the Convertible Notes, including principal and accrued interest, until 90-days after the Venture Loan and Security Agreement has been repaid in full.
The Company calculated the December 31, 2025 discount rate used in the valuation of the Convertible Notes based upon a B- yield curve to approximate the Company’s estimate of a market participant’s assessment of the credit risk associated with both the Company and the instrument.
The Company calculated the March 31, 2026 discount rate used in the valuation of the Convertible Notes based on the following:
Subordination premium3.12 %
Company specific risk premium6.24 %
Bloomberg B- yield curve7.09 %
16.45 %
The following table presents the maturity of the Convertible Notes, including expected payment-in-kind, as of March 31, 2026:
Convertible Notes
2026 (April 1 - December 31)$— 
2027— 
2028— 
2029— 
2030— 
2031 and thereafter39,119 
Total$39,119 
Pledge Agreement

On the Convertible Note Financing Closing Date, the Company, as pledgor and Ligand, as secured party, in its capacity as Collateral Agent for each holder of Convertible Notes, entered into a pledge agreement (the “Pledge Agreement”). In accordance with the terms of the Pledge Agreement, the Convertible Notes are secured by a lien on, and security interest in, (i) 10.0% of all aggregate net sales of the “End Product” as defined in the Ferrer License Agreement (as defined below), including XEPI, in the United States, including Puerto Rico and the U.S. Virgin Islands; provided, however, that the Company will only accrue 5.0% of such payments as liabilities until the occurrence of an event of default (the “Covered Product Revenue Payments”), (ii) the Sato Payments, and (iii) all accounts receivable of the Company with respect to the Covered Product Revenue Payments and the Sato Payments, pursuant to a pledge agreement by and between – in each case, subject to certain permitted indebtedness of the Company.