Oramed Pharmaceuticals Inc. — Form 10-Q Summary
Business context and period: This unaudited filing covers the three months ended November 30, 2017, Oramed’s fiscal first quarter of 2018. The company is a development-stage pharmaceutical business focused on oral delivery of insulin and other drugs; reported revenue primarily reflects recognition over time of fees under its HTIT license agreement, not commercial product sales.
Financial results and position
Amounts are U.S. dollars in thousands, except per-share data.
| Metric | Q1 FY2018 | Prior-year quarter |
|---|---|---|
| Revenue | $611 | $610 |
| Cost of revenue | $0 | $187 |
| Research and development expense, net | $2,327 | $2,353 |
| General and administrative expense | $1,016 | $468 |
| Operating loss | $2,732 | $2,398 |
| Net loss | $2,531 | $2,636 |
| Basic and diluted loss per share | $0.18 | $0.20 |
| Operating cash flow | $(2,728) | $1,498 |
Financial income was $222 and financial expense was $21. Other comprehensive income was $326, principally an unrealized gain on D.N.A. securities; total comprehensive loss was $2,205.
At November 30, 2017, total assets were $41.544 million, including $1.258 million cash and cash equivalents, $32.772 million in short- and long-term bank deposits, and $7.320 million in marketable securities. Current assets were $19.135 million and current liabilities $5.124 million, yielding working capital of $14.011 million. Total liabilities were $18.803 million, largely deferred revenue; the balance sheet reports no borrowings. Accumulated losses were $59.027 million.
Investing activities used $5.146 million, mainly for deposits and securities. Financing activities provided $5.160 million, including $4.230 million net proceeds from common-stock sales and $930,000 from warrant and option exercises. Cash and cash equivalents fell $2.711 million during the quarter. The company reported no material off-balance-sheet arrangements.
Changes versus the prior comparable quarter
- Revenue was essentially unchanged. Cost of revenue fell to zero from $187,000 because no additional related milestone payments were received in the current quarter.
- R&D expense decreased about 1%, reflecting completion of a dose-finding trial, partly offset by toxicology work and preparation for another clinical trial.
- G&A expense increased 117% to $1.016 million, mainly due to higher stock-based compensation, consulting and travel costs, including expenses associated with the CEO’s relocation to New York.
- Operating cash flow shifted from $1.498 million provided to $2.728 million used, with deferred-revenue movements contributing to the comparison. Net loss improved, partly because the prior-year quarter included $400,000 of income tax expense.
- Common shares outstanding increased during the quarter through an at-the-market issuance and exercises of warrants and options.
Outlook, risks and notable items
- Management expected to fund planned development and expenditure levels for at least 12 months and beyond, based on current resources and commitments, but acknowledged that ongoing operations depend on obtaining additional financing. Management was evaluating public- and private-equity financing; success was not assured.
- For ORMD-0801 oral insulin, the company planned a three-month dose-ranging study in approximately 240 type 2 diabetes patients and a clamp study in six type 1 patients, with initiation planned for calendar Q1 2018. Further Phase III trials and a potential FDA filing depend on trial outcomes and regulatory progress. The FDA had advised that the U.S. pathway would be a Biologics License Application.
- The company expected to file an IND for oral GLP-1 candidate ORMD-0901 in calendar Q1 2018, followed by a pharmacokinetics study and a larger Phase II study. It also planned 2018 exploratory studies for oral insulin in NASH and an oral leptin candidate. These are forward-looking plans, not assurances of completion or approval.
- HTIT’s exclusive China, Macau and Hong Kong license provides for 10% royalties on net sales, subject to possible reductions, and up to $37.5 million in payments subject to agreements, milestones and other conditions. The filing reports $15.675 million in deferred revenue at quarter-end; future contingent payments and commercialization remain uncertain.
- Research and development is expected to remain the company’s major operating expense. The company cautioned that clinical, regulatory, financing and commercialization outcomes are uncertain and that future revenue may not be sufficient to support operations.
- Subsequent events included a December 2017 agreement for up to $2.9 million of capsule-ingredient development and production, the Tax Cuts and Jobs Act (whose impact was still under evaluation), and additional ATM share sales in December for net proceeds of $441,000.
Important facts for investors to verify
- Whether planned ORMD-0801 and ORMD-0901 studies began on schedule, and their eventual safety, efficacy and regulatory outcomes.
- Cash use, deposit and securities maturities, committed development spending, and whether additional financing is needed; equity financing can dilute shareholders.
- Whether HTIT satisfies conditions for further milestone payments and advances commercialization under the license.
- The drivers and sustainability of elevated G&A and stock-based compensation, along with actual clinical-development costs.
- The impact of adopting the new revenue-recognition standard and the tax-law changes; the filing says these effects were still being evaluated.