Business context and reporting period
Oramed Pharmaceuticals Inc. is a clinical-stage biotechnology company developing oral insulin (ORMD-0801) and oral exenatide (ORMD-0901), with no operating revenue to date. This unaudited Form 10-Q covers the fiscal quarter and nine months ended May 31, 2014; comparisons are with the periods ended May 31, 2013.
Financial results and liquidity
| Metric | Three months ended May 31 | Nine months ended May 31 |
|---|---|---|
| Revenue | None | None |
| Research and development, net | $1.089 million (2013: $0.836 million) | $2.513 million (2013: $1.977 million) |
| General and administrative | $0.814 million (2013: $0.499 million) | $1.744 million (2013: $1.349 million) |
| Net financial income | $75,319 (2013: $78,329) | $189,980 (2013: $114,629 net expense) |
| Net loss | $1.828 million (2013: $1.256 million) | $4.067 million (2013: $3.441 million) |
| Basic and diluted loss per share | $0.18 (2013: $0.17) | $0.45 (2013: $0.49) |
There are no revenue-based margins to report. Nine-month operating cash use was $3.266 million, versus $3.115 million a year earlier. Investing activities used $13.179 million, primarily reflecting purchases of bank deposits; financing activities provided $16.638 million, principally from stock offerings and exercises of warrants and options. Cash and cash equivalents increased by $0.203 million to $2.475 million.
At May 31, 2014, the company reported $12.005 million in short-term deposits, $6.508 million in long-term deposits, $1.063 million in marketable securities, and $61,000 in restricted cash, in addition to cash and cash equivalents. Current assets were $15.970 million and current liabilities were $495,044. Total liabilities were $526,986; no debt balance was reported. Accumulated deficit was $26.191 million. The filing reports no off-balance-sheet arrangements.
Material changes versus prior comparable periods
- Nine-month net loss increased by $626,096; quarterly net loss increased by $571,561. The company attributed higher R&D primarily to expanded clinical work, Phase 2b preparation, staffing, bonuses, and stock compensation. Higher G&A reflected employee compensation and, for the quarter, increased stock-based compensation.
- Net financial results improved year over year for the nine-month period, chiefly because the prior-year period included a $296,982 warrant-related cost and the company earned interest on increased cash balances.
- The company raised $14.887 million net in a December 2013 registered offering and received $1.751 million from warrant and option exercises during the nine months. Shares issued and outstanding rose from 7,937,872 at August 31, 2013 to 9,955,991 at May 31, 2014.
- Marketable securities generated $210,432 in unrealized gains in other comprehensive income for the nine months; $80,017 in gains was reclassified to financial income on sales of D.N.A Biomedical shares.
Outlook, commentary, risks and unusual items
- Management estimated expenditures of approximately $10.996 million for the 12 months beginning June 1, 2014, including $8.291 million of net R&D and $2.772 million of G&A. It anticipated requiring approximately $11 million to fund activity over the 12 months following May 31, 2014. Management said existing resources and commitments were expected to support planned activity for at least 12 months and beyond, while also stating that additional financing and grants may be needed and are not assured.
- Management planned to initiate a Phase 2b, multicenter ORMD-0801 study in type 2 diabetes in Q4 2014, and projected a Phase 2b type 1 diabetes study in Q1 2015. Results from the seven-day Phase 2a type 1 study, begun in March 2014, were anticipated in Q4 2014. The company reported that its earlier type 2 Phase 2a sub-study met primary and secondary endpoints, with no serious adverse events reported.
- For ORMD-0901, the company expected non-U.S. Phase 1a/1b trials and IND-enabling work to begin in Q3 2014; its pipeline also projected a Phase 2 multicenter study in Q2 2015. These are forward-looking targets, not assurances.
- Key risks include clinical and regulatory uncertainty, the need for additional funding, and the possibility that products may never obtain approvals or generate adequate revenue. Marketable securities may be difficult to sell in volume and their sale price may decline. The company had received $1.784 million in OCS grants; royalties of 3%–3.5% may be due on future product sales up to grant amounts plus interest. No related royalty liability was recorded because there were no sales.
- Commitments included CRO agreements for type 2 and type 1 trials, process-development and production agreements with milestone payments (including up to $600,000 in bonuses under one agreement), and a $214,100 insulin-capsule supply agreement. A $214,000 agreement and the $214,100 supply agreement were not fully paid or recognized by May 31. The company also reported a $23,210 provision for an uncertain tax position.
- The company early adopted ASU 2014-10 in the quarter. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether the company can finance its estimated roughly $11 million of planned 12-month activity without material delay or further dilution.
- Actual timing, enrollment, results, safety, and regulatory status of the planned ORMD-0801 and ORMD-0901 clinical programs.
- Whether the higher R&D and compensation costs, including stock-based compensation, continue to increase the cash burn.
- The liquidity and realizable value of deposits and D.N.A Biomedical securities, including any market or sale-volume limitations.
- Remaining milestone obligations under clinical, manufacturing, and grant agreements, and any future royalty or tax exposure.