Oramed Pharmaceuticals Inc. — Form 10-Q Summary
Reporting period: Fiscal first quarter ended November 30, 2016; comparative period is the three months ended November 30, 2015. Figures are in U.S. dollars; financial-statement amounts are generally in thousands. Oramed is a clinical-stage pharmaceutical company developing oral insulin and other oral peptide-delivery products.
Financial results and position
| Metric | Three months ended Nov. 30, 2016 | Three months ended Nov. 30, 2015 |
|---|---|---|
| Revenue | $610,000 | None |
| Cost of revenues | $187,000 | None |
| Research and development expense | $2.353 million | $1.901 million |
| General and administrative expense | $468,000 | $548,000 |
| Net loss | $2.636 million | $2.390 million |
| Basic and diluted loss per share | $0.20 | $0.21 |
| Operating cash flow | $1.498 million provided | $2.247 million used |
The filing’s income statement displays revenue as $(610,000), while MD&A describes revenue of $610,000; the company says it relates to recognition of proceeds under the HTIT license arrangement. Based on reported revenue and cost of revenues, gross profit was approximately $423,000, or about 69% of revenue.
At November 30, 2016, cash and cash equivalents were $2.290 million; short-term and long-term deposits totaled $38.126 million; and marketable securities totaled $4.040 million. Current assets were $30.495 million, current liabilities $4.734 million, and working capital $25.761 million. Total assets were $44.928 million and stockholders’ equity $23.986 million. The balance sheet reports no borrowings or other debt.
Cash and cash equivalents declined $1.617 million during the quarter. Operating cash generation primarily reflected a $3.366 million increase in deferred revenue, rather than profitable operations. Investing activities used $3.436 million, mainly for deposits and securities; financing activities provided $320,000 from option exercises. The company reported an accumulated deficit of $48.652 million.
Material changes and business developments
- R&D expense rose 23.8%, mainly from capsule and ingredient process development and production; lower clinical-trial spending after completion of the Phase IIb study partly offset the increase.
- G&A expense fell 14.6%, primarily due to lower stock-based compensation. Net financial income increased to $162,000 from $59,000.
- The company recorded $400,000 in income taxes, attributed to withholding tax on HTIT license receipts that management did not expect to use within five years.
- Oramed recognized $610,000 of license revenue and $187,000 of related royalty costs. At quarter-end, $18.132 million of received license consideration remained deferred.
- For ORMD-0801, the company reported that its 180-patient Phase IIb trial met its primary and most secondary and exploratory endpoints, with statistically significant blood-glucose lowering versus placebo. A Phase IIa dose-finding study in approximately 30 adults with type 2 diabetes began in October 2016. A type 1 diabetes glucose-clamp study had completed recruitment, with results anticipated in calendar Q1 2017.
- For oral GLP-1 candidate ORMD-0901, a non-FDA-approved type 2 diabetes study completed in Q2 2016 and showed the product was safe and well tolerated with encouraging efficacy trends. A toxicology study began in June 2016; the company projected initiating a U.S. Phase II study in Q3 2017.
Outlook, risks and contingencies
HTIT holds an exclusive ORMD-0801 commercialization license for China, Macau and Hong Kong. The agreement provides for 10% royalties on net sales, potentially reduced to 8% under specified conditions and, in certain circumstances after patent expiration, to 5%. Of approximately $37.5 million in potential license payments, the company reported receiving $3 million initially, $6.5 million and $4 million in July 2016, and $4 million in October 2016; further amounts are subject to agreements, milestones and other conditions. The filing states that $19.383 million had been allocated to the license arrangement, all received, with $1.251 million recognized through November 30, 2016.
Management expects R&D to remain the principal operating expense and believes existing resources, including deposits and HTIT milestone payments, can support planned activities for at least the next 12 months and beyond. It also expects to seek additional financing; success is not assured. The company has not generated significant operating revenue and continued operations depend on funding, development progress, and regulatory approvals, which are uncertain. No material off-balance-sheet arrangements or significant change in market-risk exposure were reported. Management concluded disclosure controls were effective and reported no materially significant changes in internal control over financial reporting.
Commitments include development, manufacturing and clinical-service agreements with milestone-based payments, including up to $4.3 million for ingredient scale-up, approximately $819,000 for the ORMD-0801 Phase 2a CRO, and up to $1.2 million for ORMD-0901 toxicology work. The filing also reports $606,000 of IIA royalty liabilities. A five-year Israeli office lease, with future payments estimated at $160,000, was disclosed as entered into January 3, 2017.
Important facts for investors to verify
- Whether the anticipated glucose-clamp results and planned ORMD-0901 regulatory and trial milestones were achieved, and whether subsequent data support the company’s development plans.
- HTIT’s satisfaction of remaining license milestones and conditions, the timing and collectability of further payments, and the effect of any royalty-rate reductions.
- Whether cash, deposits and securities remain sufficient for planned clinical and development commitments, and the company’s need for additional financing.
- The timing and accounting of license revenue, deferred revenue and related royalty costs, including the withholding-tax treatment.
- Potential dilution: 13,268,226 common shares were outstanding at November 30, 2016, and 2,470,494 options, warrants and RSUs were excluded from diluted loss per share as anti-dilutive.