Oramed Pharmaceuticals Inc. — Form 10-Q
Business context and reporting period. Oramed is a development-stage pharmaceutical company focused on oral insulin (ORMD-0801) and oral delivery of other drugs. This report covers the three months ended November 30, 2018, the first quarter of Oramed’s fiscal 2019; financial amounts below are in U.S. dollars and, unless stated otherwise, thousands.
Financial performance and liquidity
| Metric | Quarter ended Nov. 30, 2018 | Prior-year quarter |
|---|---|---|
| Revenue | $674 | $611 |
| Cost of revenue | $35 | $0 |
| Research and development expense | $4,347 | $2,327 |
| General and administrative expense | $932 | $1,016 |
| Operating loss | $4,640 | $2,732 |
| Net financial income | $338 | $201 |
| Net loss | $4,302 | $2,531 |
| Loss per share, basic and diluted | $0.25 | $0.18 |
| Net cash used in operating activities | $4,131 | $2,728 |
Revenue increased 10%, while R&D expense rose 87% and net loss widened. The company attributed higher R&D costs primarily to its Phase IIb dose-ranging trial and food-effect and glucose-clamp studies. G&A expense declined 8%, mainly due to lower stock-based compensation. Financial income increased, reflecting deposit and bond interest and fair-value gains on equity investments.
At November 30, 2018, cash and cash equivalents were $3,861; short- and long-term bank deposits totaled $31,533; and marketable securities totaled $7,433. Current assets were $29,651 and current liabilities $4,164, yielding working capital of $25,487. Total assets were $43,593 and stockholders’ equity $28,858. The filing reports no material debt balance; contract liabilities were $11,390 in total. Cash declined $1,135 during the quarter. Investing activities provided $2,995, while financing activities provided no cash.
Material changes and accounting
- Compared with the prior-year quarter, R&D spending and operating cash use increased, and the net loss widened. Revenue growth was modest and partly reflected the adoption of ASC 606.
- ASC 606 adoption on September 1, 2018 increased opening equity by $1,773 through a reduction in accumulated deficit, principally due to earlier recognition of milestone-related variable consideration. The company reported that adoption increased quarterly revenue by $63 and cost of revenue by $35 versus the prior accounting basis.
- Adoption of ASU 2016-01 moved $702 of cumulative unrealized gains on equity investments from accumulated other comprehensive income to accumulated deficit; subsequent fair-value changes are recognized in earnings.
- Cash used in operations was $4,131 versus $2,728 a year earlier. The prior-year quarter included $5,160 of financing proceeds from share issuance and warrant and option exercises; the current quarter had no financing proceeds.
Outlook, developments, and risks
- ORMD-0801’s U.S. Phase IIb, 90-day trial in approximately 285 people with type 2 diabetes was underway. Management projected completion in the fourth quarter of calendar 2019. It said two six-month Phase III trials would follow if the Phase IIb results support progression; the filing’s pipeline table projected Phase III starts in the third quarter of 2020. Management anticipated a potential FDA filing and approval in the second half of 2023, subject to successful development and regulatory review.
- Other programs included an ORMD-0801 glucose-clamp study in type 1 diabetes, a food-effect trial, a six-month toxicology study requested by FDA, and an exploratory NASH study. FDA cleared the ORMD-0901 oral GLP-1 IND in September 2018; management reported initiating a Phase I pharmacokinetic study in the first quarter of calendar 2019.
- The HTIT license covers China, Macau, and Hong Kong. Oramed had received $17.5 million in milestone payments through November 30, 2018 and disclosed an additional $3 million received in January 2019. Further payments depend on milestones and conditions; royalties are generally 10% of net sales, subject to possible reductions. Royalties depend on future commercialization, which is not assured.
- Management believed existing resources and commitments could support planned activity for at least the next 12 months and beyond, but cautioned that unexpected expense increases could require financing sooner. The company has a history of operating losses, expects R&D to remain its main expense, and depends on clinical success, regulatory approvals, licensing or partnerships, and access to capital. No assurance was given that products will obtain approval or generate sufficient revenue.
- Other disclosed exposures include clinical development and vendor commitments, IIA grant-related royalties, and market risk in deposits, bonds, and equity investments. Management reported effective disclosure controls and no material change in internal control apart from controls implemented for ASC 606.
Most important facts for investors to verify
- Progress, enrollment, timing, and results of the ORMD-0801 Phase IIb trial and related studies, and whether results support Phase III plans.
- Actual cash burn, the duration of available funding, and whether additional capital will be needed; management’s runway statement is not a guarantee.
- HTIT milestone conditions, future receipts, and the effect of ASC 606 on reported revenue and deferred contract liabilities.
- Development and regulatory timelines for ORMD-0801, ORMD-0901, and other candidates, including the assumptions underlying management’s projections.
- Potential obligations under clinical and development contracts, IIA royalties, and the company’s investment portfolio.