Oramed Pharmaceuticals Inc. — Form 10-Q summary
Business context and reporting period. The filing covers the quarter and six months ended February 29, 2016 (the company’s fiscal second quarter). Oramed is a development-stage pharmaceutical company focused on oral insulin (ORMD-0801) and oral exenatide (ORMD-0901); it had not generated significant operating revenue.
Financial performance and position
Amounts below are U.S. dollars in thousands, except per-share data.
| Metric | Six months ended Feb. 29, 2016 | Comparable 2015 period |
|---|---|---|
| Revenue | $125 | $0 |
| Research and development expense, net | $3,208 | $2,438 |
| General and administrative expense | $1,278 | $1,138 |
| Operating loss | $4,361 | $3,576 |
| Net loss | $4,208 | $3,533 |
| Basic and diluted loss per share | $0.35 | $0.34 |
| Operating cash flow | $77 provided | $3,003 used |
For the three months ended February 29, 2016, revenue was $125,000, net loss was $1.818 million, and loss per share was $0.14, compared with no revenue, a $1.637 million net loss, and $0.15 loss per share in the prior-year quarter. Gross margin is not meaningful for this pre-commercial business.
At February 29, 2016, cash and cash equivalents were $3.230 million; short- and long-term deposits totaled $30.846 million; marketable securities totaled $3.843 million; and total assets were $38.372 million. Current assets of $26.035 million exceeded current liabilities of $1.519 million, giving working capital of $24.519 million. Total liabilities were $5.667 million, primarily deferred revenue; the balance sheet reports no borrowings. Stockholders’ equity was $32.705 million and accumulated losses were $39.260 million.
Six-month investing cash outflow was $11.942 million, mainly from purchases of deposits and securities; financing provided $11.880 million, including the HTIT share investment and warrant and option exercises. Cash and cash equivalents increased by $17,000. Operating cash flow benefited substantially from $4.258 million of deferred revenue, so it should not be read as evidence of recurring operating cash generation.
Material changes and unusual items
- Revenue of $125,000 was recognized under the HTIT license arrangement; the filing says the company recognizes license consideration over the period through expected product submission in June 2023. At period-end, $4.758 million of related revenue remained deferred.
- HTIT invested $12 million for 1,155,367 shares, closing December 28, 2015. The license agreement grants exclusive commercialization rights for ORMD-0801 in China, Macau, and Hong Kong; it provides for approximately $37.5 million in total license payments, subject to agreements, milestones, and conditions, plus royalties generally at 10% of net sales. The initial $3 million payment was received in January 2016.
- R&D expense increased 32% for the six-month period, mainly because of clinical-trial costs, particularly the Phase IIb trial. G&A expense rose 12%, reflecting employee and consultant bonuses, partly offset by lower stock compensation and public-relations expense.
- Unrealized losses on D.N.A. Biomedical shares were $328,000 for the six months and reduced other comprehensive income; the filing attributes the change to the shares’ fair-value decline.
- Shares outstanding increased from 11.563 million at August 31, 2015 to 13.110 million at February 29, 2016, primarily reflecting the HTIT placement and warrant exercises.
Outlook, risks, and contingencies
Management estimated approximately $14.6 million in expenditures for the 12 months beginning March 1, 2016: $12.670 million for R&D, $2.080 million for G&A, offset by $160,000 of expected net financial income. It said existing resources and commitments were expected to support planned activity for at least 12 months, while acknowledging that additional financing might be needed, including if expenses rise unexpectedly. The company reported cumulative losses of $39.260 million and remains dependent on financing while its products are in development.
Management reported that follow-up visits in the approximately 180-patient, 28-day Phase IIb ORMD-0801 trial were completed in April 2016 and expected top-line results in calendar Q2 2016. A glucose-clamp study was expected to complete in calendar Q3 2016. A non-FDA-approved ORMD-0901 trial was expected to complete in calendar Q2 2016; IND-enabling studies were expected to begin in calendar Q1 2017. These are forward-looking expectations, not reported outcomes.
Key risks include clinical-trial results, FDA and foreign regulatory approvals, development timing and costs, and the ability to obtain sufficient financing. The HTIT payments beyond the initial $3 million depend in part on specified agreements, milestones, and conditions; royalties may also be reduced under stated circumstances. The company disclosed no material off-balance-sheet arrangements and said disclosure controls were effective.
Important facts for investors to verify
- Whether the Phase IIb ORMD-0801 results and the other clinical milestones occurred on the expected timelines, and what the data showed.
- Whether HTIT’s remaining license payments’ conditions and milestones are met, and how much consideration is actually collected and recognized over time.
- Whether management’s $14.6 million 12-month expenditure estimate and stated funding runway remain current, including any subsequent financing needs.
- The liquidity, valuation, and any further fair-value changes in the D.N.A. Biomedical investment and other securities.
- Current share count and potential dilution from outstanding options, warrants, and restricted stock units; 2,592,117 such securities were excluded from diluted loss per share as anti-dilutive.