Oramed Pharmaceuticals Inc. — Form 10-Q Summary
Reporting period: Fiscal quarter and six months ended February 28, 2021; comparisons are to the periods ended February 29, 2020. Unaudited financial amounts below are in U.S. dollars. Oramed is a clinical-stage pharmaceutical company developing oral insulin and other orally delivered drugs; it has not generated significant operating revenue.
Financial performance
| Metric | Three months ended Feb. 28, 2021 | Six months ended Feb. 28, 2021 | Prior-year comparable |
|---|---|---|---|
| Revenue | $0.665 million | $1.339 million | $0.674 million and $1.348 million, respectively |
| Research and development | $3.869 million | $9.643 million | $3.320 million and $5.342 million |
| General and administrative | $1.664 million | $2.391 million | $1.391 million and $2.472 million |
| Operating loss | $4.868 million | $10.695 million | $4.037 million and $6.466 million |
| Net loss | $4.608 million | $10.178 million | $3.688 million and $6.231 million |
| Basic and diluted loss per share | $0.17 | $0.40 | $0.21 and $0.35 |
There was no cost of revenue, so reported gross margin was effectively 100%; this is not representative of a commercial product business. Net financial income was $0.260 million for the quarter and $0.517 million for the six months, primarily reflecting changes in the fair value of investments. No income tax expense was reported.
Cash, liquidity and capitalization
- At February 28, 2021, cash and cash equivalents were $33.805 million; short-term deposits were $13.116 million; and marketable securities totaled $13.008 million, including $3.140 million classified as long-term.
- Current assets were $57.472 million and current liabilities were $5.932 million, yielding working capital of $51.540 million, versus $35.975 million at August 31, 2020.
- Six-month operating cash use was $9.401 million, compared with $6.625 million a year earlier. Investing activities used $2.111 million; financing activities provided $26.013 million, principally from stock issuance and option exercises. Cash and cash equivalents rose by $14.509 million over the six months.
- The filing does not disclose material interest-bearing borrowings. Liabilities include deferred revenue, accounts payable and operating lease liabilities; total lease liabilities were $0.608 million.
- Equity issuance materially funded the period: the company reported $22.265 million of net proceeds from common-stock issuance in cash flows. Shares outstanding increased from 23.7 million at August 31, 2020 to 28.3 million at February 28, 2021; 30.2 million were outstanding as of April 13, 2021.
Changes and operating developments
- Six-month R&D expense increased 80% year over year, mainly due to Phase III trial costs. Quarterly R&D rose 17%. Six-month G&A declined 3%, while quarterly G&A increased 20%, primarily because of legal and directors’ and officers’ insurance costs.
- Revenue was nearly flat year over year and mainly represents recognition over time of consideration under the HTIT license agreement, not product sales. The company recognized $0.666 million of HTIT-related revenue in the quarter and reported $8.309 million of deferred revenue at period-end.
- Management stated that existing resources and commitments were expected to support planned development and spending for at least 12 months, while noting that unexpected expense increases could require additional financing. R&D is expected to remain the principal operating expense.
Outlook, risks and unusual items
- ORMD-0801: Two Phase III studies for type 2 diabetes were underway. The company reported in March 2021 that 25% of the 675-patient U.S. study had been enrolled and randomized; the second study began in the U.S. in the first calendar quarter of 2021. Topline results were expected in 2022, with a BLA filing anticipated in 2023. These are forward-looking expectations, not assured outcomes.
- The company also reported a 40-patient follow-on ORMD-0801 NASH trial initiated in December 2020 and expected a follow-on ORMD-0901 GLP-1 trial to start in the first half of 2021.
- HTIT dispute: HTIT disputed pending payment obligations under the license agreement. Oramed said it wholly disputes HTIT’s claims and was seeking resolution; management estimated the disputed obligation at $2 million to $6 million. The agreement provides for potential aggregate consideration of $37.5 million, of which $20.5 million in milestone payments had been received through February 28, 2021. Collection and further milestone payments remain uncertain.
- Oravax subsequent event: On March 18, 2021, Oramed entered into a license agreement relating to oral COVID-19 and other coronavirus vaccines. Terms include 7.5% royalties on net sales, 15% of certain sublicense consideration, and $25 million to $100 million in sales-milestone payments. Oramed also agreed to invest $1.5 million for 63% of Oravax. The company was still evaluating the transaction’s accounting treatment; commercial and regulatory outcomes are uncertain.
- Key risks include clinical-trial results and execution, regulatory approval, substantial continuing development costs, need for future financing, and the HTIT disagreement. Management cautioned that no assurance exists that product candidates will be approved or generate sufficient revenue.
Important facts for investors to verify
- Enrollment, execution and results for both ORMD-0801 Phase III studies, including the projected 2022 topline results and 2023 BLA filing.
- Status and resolution of the HTIT payment dispute, remaining contractual milestones, and the assumptions underlying deferred-revenue recognition through the expected June 2023 product-submission date.
- Cash runway and actual future cash burn as Phase III and other clinical programs progress; management’s 12-month liquidity assessment is an estimate.
- Capital-raising activity and resulting dilution: the filing reports further sales under the $40 million equity distribution agreement through April 13, 2021.
- Oravax’s development and financing progress, Oramed’s control and accounting treatment of its investment, and whether license milestones or royalties become achievable.