Business context and reporting period
Oramed Pharmaceuticals Inc. filed this Form 10-Q for its third fiscal quarter and nine months ended May 31, 2020. The company is a clinical-stage pharmaceutical developer focused on oral insulin (ORMD-0801) and oral delivery of other drugs; reported revenue is primarily recognized over time under its China-region license agreement with HTIT, not from product sales. Amounts below are in U.S. dollars; financial-statement amounts are in thousands unless stated otherwise.
Financial performance and liquidity
| Metric | Three months ended May 31, 2020 | Nine months ended May 31, 2020 | Comparable 2019 period |
|---|---|---|---|
| Revenue | $681 | $2,029 | $682 and $2,022, respectively |
| Research and development | $1,925 | $7,267 | $3,861 and $11,322, respectively |
| General and administrative | $1,030 | $3,502 | $899 and $2,896, respectively |
| Net loss | $2,284 | $8,515 | $4,072 and $12,075, respectively |
| Basic and diluted loss per share | $0.10 | $0.44 | $0.23 and $0.69, respectively |
| Operating cash used | Not provided for the quarter | $9,982 | $9,672 for nine months |
Revenue was essentially unchanged year over year. Nine-month R&D expense fell 36%, mainly as the Phase IIb trial and toxicology work wound down; quarterly R&D declined 50%. G&A rose 21% for nine months, primarily due to legal and directors’ and officers’ insurance costs. The lower net loss also reflects the absence of the prior-year $300 income-tax expense. Net financial income was $225 for nine months versus $511 in 2019, while the quarter recorded a $10 net financial expense versus $6 of income.
At May 31, cash and cash equivalents were $9.313 million, short-term deposits $23.185 million, and short- and long-term marketable securities $13.057 million. Current assets were $41.303 million and current liabilities $4.135 million, for working capital of $37.168 million. Stockholders’ equity was $34.112 million; accumulated deficit was $89.618 million. No conventional borrowings are reported; liabilities include deferred revenue and operating lease obligations. Nine-month investing cash use was $6.337 million, largely reflecting purchases of deposits and investments. Financing provided $22.308 million, principally from equity issuance. No gross-profit margin is meaningful for this development-stage business; cost of revenue was zero in the 2020 periods reported.
Material changes, outlook and risks
- The February/March public offering and partial over-allotment generated $19.979 million net proceeds; the company also raised $2.329 million net through its at-the-market program by May 31 ($3.313 million by July 7). These issuances increased shares outstanding and diluted existing holders. The offering included underwriter warrants.
- Management said existing resources and commitments should fund planned activities for at least 12 months, but noted additional financing may be needed if expenses rise. The company has a history of losses and expects R&D to remain its largest operating expense.
- Management anticipated initiating two six-month Phase III ORMD-0801 trials in the fourth quarter of calendar 2020, subject to FDA allowance, and planned to consult the EMA on trial design. These are forward-looking expectations, not assured outcomes.
- Management reported positive Phase IIb results, but noted that two sites involving 36 patients were excluded from Cohort A’s statistical analysis after results differed from other sites; investigations found no cause for the discrepancy. Cohort B topline results showed a placebo-adjusted HbA1c reduction for the 8 mg once-daily group.
- A preliminary NASH study reported results from only the first eight of a planned 40 participants. The type 1 study and GLP-1 study reports were pending. COVID-19 restrictions delayed initiation of the oral leptin proof-of-concept study until June 2020; broader risks include trial enrollment, site operations, regulatory delays, suppliers, and access to capital. Management did not then expect a material effect on development timelines or liquidity, while cautioning that impacts remained uncertain.
- HTIT has paid $20.5 million of the $37.5 million aggregate contractual amount; further payments depend on specified agreements, milestones, and conditions. No sales-based royalty revenue had been recognized.
- The European Commission grant payment received during the nine-month period was €17.5 million; its proceeds are restricted to use in Europe, with the company intending to explore European clinical trials.
Investor verification priorities
- Confirm FDA authorization, timing, design, and funding for the planned Phase III trials, and assess the clinical-data limitations and pending study reports.
- Track cash burn, financing needs, ATM usage, share dilution, and outstanding warrants; the filing states a 12-month runway based on current plans, not a guarantee.
- Review HTIT’s remaining conditional payments, license obligations, and the timing assumptions underlying deferred revenue recognition through the expected June 2023 product-submission date.
- Reconcile a cash figure inconsistency: the financial statements report $9.313 million of cash at May 31, while one MD&A passage refers to $9.012 million. The filing text does not explain the difference.
- Monitor COVID-19 effects on trial execution and regulatory timelines, and verify permitted use and progress associated with the European grant.