Oramed Pharmaceuticals Inc. — Form 10-Q summary
Business context and reporting period
Oramed is a development-stage pharmaceutical company focused on oral delivery of insulin and other peptide drugs. This fiscal second-quarter report covers the three and six months ended February 28, 2019; comparative periods ended February 28, 2018. Financial amounts below are U.S. dollars in thousands, except per-share data.
Financial results and liquidity
| Metric | Three months ended Feb. 28, 2019 | Six months ended Feb. 28, 2019 |
|---|---|---|
| Revenue | $666 | $1,340 |
| Cost of revenue | $55 | $90 |
| Gross profit / approximate gross margin | $611 / 91.7% | $1,250 / 93.3% |
| Research and development expense | $3,114 | $7,461 |
| General and administrative expense | $1,065 | $1,997 |
| Operating loss | $3,568 | $8,208 |
| Net loss | $3,701 | $8,003 |
| Basic and diluted loss per share | $0.21 | $0.46 |
Revenue primarily reflects recognition over time of consideration under the HTIT China license, not product sales. For the six-month period, revenue increased 10% year over year, while net loss increased from $5,447 to $8,003. R&D expense rose 48%, mainly due to clinical-trial costs; G&A was nearly flat. The quarter’s revenue rose 10% year over year, and net loss increased from $2,916 to $3,701.
At February 28, 2019, cash and cash equivalents were $3,429; short- and long-term deposits totaled $30,868; and marketable securities totaled $6,525. Current assets were $29,601 versus current liabilities of $5,104, yielding working capital of $24,497. Total assets were $41,810 and stockholders’ equity was $25,348. The filing reports no borrowings; contract liabilities totaled $13,723. Cash used in operations was $6,015 for the six months, compared with $6,204 a year earlier. Investing activities provided $4,445; there was no financing cash flow, versus $5,878 provided in the prior-year period. Cash and cash equivalents fell by $1,567 to $3,429.
Material changes, outlook and risks
- Oramed adopted ASC 606 on September 1, 2018 using the modified retrospective method. Adoption increased opening equity by $1,773 and changed the timing of license-related revenue recognition. For the six months, reported revenue was $2 lower than it would have been without adoption; for the quarter, reported revenue was $65 lower and cost of revenue $35 lower. Prior-year periods were not restated.
- R&D plans include ORMD-0801 Phase IIb dose-ranging testing in type 2 diabetes, with the initial study portion projected to finish in Q4 2019 and interim analysis to follow. Management said two six-month Phase III trials could begin if the Phase IIb trial is successful; the filing anticipates a potential NDA afterward. A six-month toxicology study was completed in March 2019, with results expected in Q1 2020.
- Oramed completed a Phase I pharmacokinetic study of oral GLP-1 candidate ORMD-0901 in February 2019 and expected results in Q2 2019. The FDA had cleared its IND in September 2018. A NASH exploratory study and an oral leptin proof-of-concept study were also in development.
- In March 2019, HTIT informed Oramed that China’s drug-evaluation authority had approved its IND for two ORMD-0801 doses; HTIT expected to begin trials in China in Q2 2019. Oramed had received $20.5 million of the license agreement’s potential $37.5 million milestone payments through February 28, 2019. Future milestones are conditional; royalties depend on future commercial sales.
- Management expects R&D to remain the main operating expense and believes existing resources and commitments can support planned activity for at least 12 months and beyond, while noting that additional financing may be needed if expenses rise unexpectedly. The company has not generated significant operating revenue and depends on clinical progress, regulatory approvals, licensing and/or future financing.
- Key risks include clinical-trial delay or failure, regulatory uncertainty, the need for further funding, and reliance on third parties conducting trials and development work. The company reported no material change in market-risk exposure and no material off-balance-sheet arrangements.
Important facts for investors to verify
- Phase IIb ORMD-0801 enrollment, interim results, endpoints and timing; also the stated potential Phase III and NDA timetable.
- Whether expected ORMD-0901 study results and China trial initiation occurred, and what subsequent regulatory or clinical developments followed.
- Cash burn, committed development costs, financing needs and the basis for management’s at-least-12-month liquidity assessment.
- HTIT milestone conditions and receipts, deferred contract-liability balance, and the effect of ASC 606 on reported revenue and comparability.
- Clinical, regulatory and commercialization risks, including dependence on external CROs and other third parties.