Oramed Pharmaceuticals Inc. — Form 10-Q
Business context and period: Biotechnology-stage company developing oral insulin and other oral peptide therapies. This unaudited report covers the fiscal third quarter and nine months ended May 31, 2018; amounts are U.S. dollars. The company had no significant operating revenue from product sales: reported revenue primarily reflects recognition over time of payments under its China-region ORMD-0801 license.
Financial results and liquidity
| Metric | Three months ended May 31, 2018 | Nine months ended May 31, 2018 | Comparable 2017 period |
|---|---|---|---|
| Revenue | $0.617 million | $1.832 million | $0.617 million quarterly; $1.838 million nine months |
| Research and development | $4.194 million | $9.245 million | $2.267 million quarterly; $7.745 million nine months |
| General and administrative | $1.043 million | $3.050 million | $0.505 million quarterly; $1.824 million nine months |
| Operating loss | $4.534 million | $10.377 million | $2.155 million quarterly; $7.918 million nine months |
| Net loss | $4.354 million | $9.801 million | $1.965 million quarterly; $7.784 million nine months |
| Basic and diluted loss per share | $0.30 | $0.68 | $0.15 quarterly; $0.59 nine months |
- For the nine months, operating cash used was $10.009 million, compared with $3.783 million in 2017. Investing activities provided $3.549 million and financing activities provided $6.161 million, including $5.164 million net stock-sale proceeds and $0.997 million from warrant and option exercises. Cash and cash equivalents declined $0.296 million to $3.673 million.
- At May 31, 2018, cash and cash equivalents were $3.673 million; short- and long-term deposits totaled $24.742 million; marketable securities totaled $6.003 million. Current assets were $23.582 million, current liabilities $5.637 million, and working capital $17.945 million.
- Total assets were $34.659 million and stockholders’ equity $16.657 million. The balance sheet reports no borrowings or conventional debt. Deferred revenue totaled $14.454 million, of which $2.449 million was current.
- Management stated that available resources and commitments were expected to support planned activities for at least the next 12 months and beyond. Subsequent to quarter-end, the July 2018 registered offering generated approximately $16.5 million in net proceeds.
Material changes and notable items
- Nine-month revenue was essentially flat year over year, while net loss increased $2.017 million. R&D expense rose 19%, principally due to the Phase IIb dose-ranging trial; quarterly R&D rose 85% year over year.
- G&A rose 67% for the nine months and 106% for the quarter. Management cited higher stock-based compensation and CEO relocation-related travel and costs. Nine-month stock-based compensation across the company was $1.202 million.
- Cost of revenue was a credit of $0.086 million for the 2018 nine-month and quarterly periods, versus expense of $0.187 million for the 2017 nine-month period. The company attributed the change to a reduction in Israel Innovation Authority royalty rates from 3.5% to 3% and, for the nine-month comparison, no new license milestone receipts.
- During the nine months, the company issued stock for net proceeds of $5.164 million and shares for services, and its shares outstanding increased. The July offering sold 2.892 million units at $6.25 each, with one share and one warrant per unit; warrants have a $7.25 exercise price. The placement agent also received warrants.
Outlook, developments, and risks
- Oramed initiated a 90-day, placebo-controlled Phase IIb ORMD-0801 trial in approximately 240 patients with type 2 diabetes in April 2018. Management said two six-month Phase III trials were anticipated if the study meets its primary endpoints, followed by an expected regulatory filing; these remain plans dependent on trial outcomes and regulatory review.
- In June 2018, the company initiated a type 1 diabetes glucose-clamp study and a food-effect trial for ORMD-0801. It also planned an exploratory NASH study and an oral leptin proof-of-concept study. For oral GLP-1 candidate ORMD-0901, it expected to file an IND and begin a pharmacokinetics study; the filing describes these as forward-looking plans.
- The FDA had advised that ORMD-0801’s regulatory pathway would be a Biologics License Application. No assurance is given that product candidates will succeed in trials, obtain approvals, or generate sufficient future revenue. The company says continued operations depend on obtaining adequate funding and anticipates R&D will remain its largest operating expense.
- The HTIT license covers China, Macau, and Hong Kong and provides for up to $37.5 million in aggregate payments, subject to agreements, milestones, and conditions, plus royalties generally at 10% of net sales. The company reported receiving $17.5 million in milestone payments through May 31, 2018; substantial deferred license revenue remains to be recognized.
- Subsequent event: Entera Bio began Nasdaq trading in June 2018. The filing states the company will measure its retained investment at fair value from that date; the stated June 28 closing price was $6.28 per share. This event occurred after the reporting date.
Investor verification priorities
- Check progress, enrollment, results, and timing for the Phase IIb trial and the other clinical studies; assess what results would be required before Phase III plans proceed.
- Review cash burn, committed trial and development spending, and financing needs against the stated liquidity outlook; account for the July offering’s proceeds, dilution, and warrants.
- Verify the conditions and timing for remaining HTIT payments and potential royalties, and how deferred license revenue is recognized.
- Track regulatory requirements, trial risks, and the company’s dependence on external financing given recurring losses and limited product-sales revenue.