ORAMED PHARMACEUTICALS INC. annual report, FY2020

Oramed Pharmaceuticals Inc. — FY2020 Form 10-K

Reporting period: Fiscal year ended August 31, 2020; filed November 24, 2020. Figures below are U.S. dollars unless noted. This is an annual report, not a standalone fourth-quarter report.

Business context

Oramed is a clinical-stage pharmaceutical company developing oral insulin (ORMD-0801) and oral delivery candidates for other polypeptides, including GLP-1 (ORMD-0901) and leptin. It had no product sales; reported revenue was principally recognized over time under its licensing arrangement with HTIT for China, Macau and Hong Kong.

Financial performance and liquidity

Metric	FY2020	FY2019
Revenue	$2.710 million	$2.703 million
Research and development expense	$10.235 million	$13.522 million
General and administrative expense	$4.232 million	$3.722 million
Operating loss	$11.757 million	$14.631 million
Net loss	$11.511 million	$14.355 million
Loss per share, basic and diluted	$0.56	$0.82
Cash used in operating activities	$12.440 million	$12.940 million

• Revenue was nearly flat. R&D expense fell 24%, mainly as the Phase IIb trial concluded; G&A rose 14%, largely due to insurance, legal and stock-compensation costs.
• Operating loss margin was approximately negative 434% of revenue, versus negative 541% in FY2019; net loss margin was approximately negative 425%, versus negative 531%. These ratios reflect the company’s low licensing revenue relative to development costs.
• At August 31, 2020, cash and cash equivalents were $19.296 million, short-term deposits $11.060 million, and marketable securities $13.472 million. Total current assets were $40.511 million against current liabilities of $4.536 million, giving working capital of $35.975 million and a current ratio of approximately 8.9x.
• Cash and cash equivalents increased by $15.967 million during the year. Operating activities used $12.440 million; investing activities provided $4.626 million; financing activities provided $23.786 million, principally from equity offerings.
• Total liabilities were $11.754 million, including deferred revenue and other operating liabilities. The balance sheet does not show conventional interest-bearing borrowings. Total contractual obligations disclosed were $5.806 million, mainly clinical research obligations.

Material changes and notable items

• Net loss narrowed by $2.844 million year over year, while weighted-average shares increased to 20.53 million from 17.45 million, reflecting equity issuance and dilutive financing activity.
• Oramed raised net proceeds of approximately $19.894 million from a public offering, including partial exercise of the underwriter’s over-allotment option, and approximately $3.879 million under its equity distribution program.
• The company reported a $2.000 million HTIT payment received but carried as deferred revenue that HTIT disputed, plus a further $2.000 million milestone payment Oramed said was achieved after year-end. Oramed disputed HTIT’s claims; the filing warned that up to $2.000 million of deferred revenue could need to be reversed and an additional $4.000 million might not be received.
• Management stated that existing resources and commitments were expected to support planned development spending for at least 12 months from the filing, but also said additional financing could be needed. The company has incurred cumulative losses of $92.614 million.

Outlook, clinical development and risks

• Phase IIb ORMD-0801 results included statistically significant HbA1c reductions in selected dosing groups. In the initial cohort, two sites involving 36 patients were excluded from statistical analysis because of treatment-by-center interaction; investigations did not identify a cause. The second cohort reported a statistically significant result for the 8 mg once-daily group. These are clinical-trial findings, not evidence of approval or commercial efficacy.
• At filing, Oramed planned two concurrent pivotal Phase III studies in type 2 diabetes, involving approximately 1,125 patients. It expected the U.S. study to start in Q4 2020 and the second study in the first half of 2021; those were forward-looking plans, not reported completions. A BLA would follow successful pivotal trials and FDA review.
• Preliminary data from the first eight patients in a planned 40-patient NASH pilot showed no serious adverse events and a reported mean reduction in liver fat after 12 weeks; the small, open-label sample is preliminary. The type 1 diabetes study found no statistically significant or clinically meaningful difference between once- and three-times-daily dosing.
• Other pipeline work included a planned follow-up Phase I study of oral GLP-1 and a single-dose oral leptin study for which final lab results were pending.
• Key risks include clinical failure or delay, FDA and foreign regulatory uncertainty, need for substantial future capital and potential shareholder dilution, dependence on CROs and limited suppliers, lack of in-house commercialization capacity, patent and competitive risks, and the HTIT dispute. COVID-19 had delayed one trial; management said no material long-term impact was then expected but acknowledged uncertainty around enrollment, trial conduct and supplies.
• FY2020 financial statements received an unqualified audit opinion. Management reported effective disclosure controls and internal control over financial reporting; the auditor was not engaged to provide an opinion on internal control.

Important facts for investors to verify

• Whether the HTIT dispute was resolved, and the collectability and accounting treatment of the disputed milestone amounts and deferred revenue.
• Whether the two planned Phase III trials started on schedule, their enrollment and progress, and whether results support a BLA submission.
• Current cash, investment values and operating cash burn relative to the stated 12-month funding outlook and future clinical commitments.
• Whether financing needs will result in additional equity issuance or dilution, and the status of the HTIT commercialization license and milestones.
• Whether COVID-19, suppliers, CRO capacity, or clinical-site variability affect trial timelines or the reliability of reported efficacy findings.