Oramed Pharmaceuticals Inc. — Form 10-Q
Reporting period: Fiscal third quarter and nine months ended May 31, 2012; filed July 2012. Oramed was a development-stage biotechnology company developing oral insulin and other oral peptide-delivery products and reported no operating revenue.
Financial results and position
| Metric | Three months ended May 31, 2012 | Nine months ended May 31, 2012 | Comparable 2011 period |
|---|---|---|---|
| Revenue | None reported | None reported | None reported |
| Net research and development expense, after grants | $249,752 | $1,144,415 | $241,350 and $869,166, respectively |
| General and administrative expense | $290,668 | $802,273 | $350,127 and $971,143, respectively |
| Net income (loss) | $(550,365) | $(2,014,259) | $457,370 income and $(788,205) loss, respectively |
| Operating cash used | Not separately reported | $1,959,262 | $1,283,698 |
- At May 31, 2012, cash and cash equivalents were $1.30 million, short-term deposits $500,005, marketable securities $357,323, and restricted cash $16,000. Total current assets were $2.46 million.
- Total assets were $2.47 million; total liabilities $502,688, including $355,857 of current liabilities and a $138,054 provision for uncertain tax position. No interest-bearing debt balance was reported.
- Cash declined by $213,500 during the nine months. Investing activities provided $1.75 million, principally from sales of short-term investments and the Entera investment; financing activities provided no cash.
- Accumulated development-stage deficit was $16.56 million. Stockholders’ equity was $1.97 million. Issued and outstanding shares increased to 70,403,583 from 70,104,583 at August 31, 2011.
Changes versus the prior comparable periods
- Nine-month net loss rose to $2.01 million from $788,205. The 2011 period included a $1.03 million gain on the sale of an investment; 2012 included a $43,111 impairment of available-for-sale securities.
- Net R&D expense increased 32% for the nine months, which management attributed mainly to preparation for an FDA Phase 2 study, partly offset by lower share-based compensation. Nine-month G&A expense declined about 17%, primarily due to lower professional-fee and share-based compensation costs, partly offset by investor-relations expense.
- Third-quarter results shifted from $457,370 net income in 2011 to a $550,365 net loss in 2012; the prior-year quarter also included the $1.03 million investment-sale gain. Quarterly R&D expense increased slightly, while G&A expense declined.
Outlook, risks and notable items
- Going concern: Management said existing resources were insufficient for liquidity needs over the 12 months following May 31, 2012. Estimated spending commitments were approximately $5.1 million, versus $1.30 million cash and $500,005 short-term deposits. The filing states that this raises substantial doubt about the company’s ability to continue as a going concern. Management was pursuing equity financing and further Office of the Chief Scientist (OCS) funding; success was not assured.
- Planned spending: For June 2012–May 2013, the company estimated $3.94 million net R&D, $1.124 million G&A, and $6,000 net financial expense, totaling $5.07 million. Spending and planned clinical work depend on obtaining financing and additional grants.
- Development plans: Oramed planned to file an IND for oral insulin in the fourth calendar quarter of 2012, followed by an FDA-approved Phase 2 study if there were no FDA comments within 30 days. These are plans, not assured outcomes. A May 2012 OCS award provided a net NIS 2 million, approximately $540,000, for R&D and clinical studies through December 2012.
- Business developments: The company reported patent filings and patents covering aspects of oral peptide delivery, and a supply agreement for insulin capsules of approximately $424,000. It also reported favorable preclinical pig results for combining oral insulin and oral exenatide; this was not a human clinical result.
- Commitments and contingencies: The company had contractual R&D, manufacturing, consulting, and lease commitments. OCS grants are generally repayable through royalties on future product sales, but no OCS royalty liability had been incurred because there were no product sales. A $200,000 Hadasit agreement had not been paid or recognized by May 31, 2012.
- Controls: Management concluded disclosure controls and procedures were ineffective, citing the company’s small size and lack of segregation of duties; the CFO was the sole qualified internal accounting and financial-reporting employee. No material change in internal control was reported for the quarter.
- Subsequent events: In July 2012, an investor-relations advisory agreement was extended and its share-based compensation schedule amended; 50,000 shares were issued after quarter-end.
Important facts for investors to verify
- Whether Oramed subsequently obtained enough financing and OCS support to meet its stated approximately $5.1 million spending needs and address the going-concern uncertainty.
- Whether the IND was filed in the planned fourth quarter of 2012, and the FDA’s response and any resulting Phase 2 timing or costs.
- Actual cash burn, grant receipts, R&D commitments, and available liquidity, including the liquidity and valuation of the marketable securities.
- Whether clinical, manufacturing, supplier, and patent milestones were achieved; development-stage plans and early study findings do not establish regulatory approval or commercial viability.
- The effects of share-based service arrangements and other equity issuance on dilution, and whether the disclosed control weaknesses were subsequently remediated.