Business context and reporting period
Oramed Pharmaceuticals Inc. filed this unaudited Form 10-Q for the quarter ended September 30, 2023. The company is a clinical-stage pharmaceutical developer focused on oral delivery of insulin and other therapeutic proteins; it has not generated significant operating revenue.
After its ORA-D-013-1 Phase 3 trial failed to meet primary and secondary endpoints, Oramed terminated that trial and the parallel ORA-D-013-2 trial. It is reviewing trial data, its pipeline and strategic alternatives.
Financial performance and liquidity
Amounts below are in U.S. dollars; financial-statement amounts are in millions unless otherwise stated.
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $0 | $0.682 | $1.340 | $2.022 |
| Research and development expense | $0.957 | $5.347 | $7.205 | $20.362 |
| Operating loss | $2.893 | $8.189 | $11.892 | $30.858 |
| Net loss | $3.284 | $7.253 | $8.208 | $29.028 |
| Net loss per share | $0.08 | $0.18 | $0.19 | $0.72 |
- Revenue came from the HTIT license agreement and declined as recognition was tied to HTIT’s expected product-submission date in June 2023. No revenue was recognized in Q3 2023.
- Cost of revenue was zero in both comparison periods. Sales and marketing was reported as income of $0.663 million for Q3 and $0.287 million for the nine months, principally due to reversal of previously recorded compensation after an executive’s departure.
- Nine-month net financial income was $4.510 million, versus $1.930 million in 2022; it included deposit interest and investment revaluations, partly offset by transaction costs and changes in the fair value of Scilex-related instruments. Q3 net financial income was $0.435 million, down from $1.036 million.
- Cash and cash equivalents were $5.468 million at quarter-end, with short-term deposits of $120.158 million. Working capital was $97.530 million, compared with $151.363 million at December 31, 2022. Total assets were $230.893 million and total equity was $148.230 million.
- Operating activities used $8.877 million cash in the first nine months, compared with $19.856 million in 2022. Investing activities used $103.035 million; financing activities provided $76.978 million. Cash declined by $34.996 million from year-end.
- Oramed had $75.363 million of short-term borrowings outstanding at September 30, 2023, secured by bank certificates of deposit. These borrowings carried 6.66%–7.38% interest and mature through May 2024. The company reported $826,000 of interest expense for the nine months.
Material changes and unusual items
- Research and development expense fell 65% for the first nine months, largely because the Phase 3 trials were terminated and related activity declined. Management said research and development and sales and marketing spending were reduced during its strategic review.
- In September, Oramed completed a transaction with Scilex after initially arranging a $100 million debtor-in-possession loan to Sorrento Therapeutics. Scilex assumed the obligations and issued Oramed a senior secured note with $101.875 million principal, plus warrants. The note’s stated principal is not the same as its September 30 fair value: the note was valued at $80.404 million, and the overall transaction instruments at $98.819 million.
- The Scilex note bears interest at Term SOFR (subject to a 4% floor) plus 8.5%, generally paid in kind, and matures March 21, 2025. Scheduled principal payments begin in December 2023. Oramed’s own short-term bank borrowings were used to fund the transaction.
- The Scilex note and warrants are exposed to fair-value changes and counterparty credit risk. Oramed disclosed that Scilex had reported substantial doubt about its ability to continue as a going concern; there is no assurance the note will be repaid or that the warrants will realize value.
- The August 2023 HTIT joint-venture term sheet is non-binding. It contemplated equal ownership, an HTIT investment of $60 million and an Oramed investment of $10 million, subject to a definitive agreement.
Outlook, risks and management commentary
Management believes existing resources and commitments can support current planned activities and expenditures for at least 12 months from the filing, but cautions that additional funding may be needed sooner if costs rise or to pursue strategic-review outcomes. The company expects research and development to remain a major operating expense, although spending plans may change following the trial results and strategic review.
Management reported a post-trial analysis identifying patient subgroups with a statistically significant, placebo-adjusted HbA1c reduction of more than 1%; it has not determined whether this creates a viable development path. The company is also evaluating its NASH and oral-vaccine programs. A potential Korean ORMD-0801 collaboration with Medicox is under review following the Phase 3 results; revenue under that agreement has not yet been recognized. Oramed stated that, as of November 9, 2023, the Israel conflict presented no immediate risk to its operations.
Important facts for investors to verify
- Whether the oral-insulin subgroup analysis supports further clinical development, and what additional trials would require in cost and time.
- Scilex’s ability to meet scheduled note payments, the value and recoverability of Oramed’s secured claim, and the liquidity and realizable value of the warrants.
- Completion and funding terms of any definitive HTIT joint-venture agreement, and whether Medicox continues its regulatory and commercialization work.
- Oramed’s actual cash runway, financing needs and spending plans as the strategic review proceeds.
- The composition and valuation assumptions for Scilex-related investments, including the significant difference between the note’s fair value and its unpaid principal balance.