Oramed Pharmaceuticals Inc. — Form 10-Q Summary
Reporting period: Third quarter and nine months ended May 31, 2017. Amounts are U.S. dollars; financial statement amounts are in millions unless noted.
Business context
Oramed is a clinical-stage pharmaceutical company developing oral insulin (ORMD-0801) and other orally delivered drug candidates. It had not generated significant operating revenues; reported revenue primarily reflects recognition over time of payments under its China, Macau and Hong Kong license agreement with HTIT.
Key financial metrics
| Metric | Three months ended May 31, 2017 | Nine months ended May 31, 2017 | Comparable 2016 period |
|---|---|---|---|
| Revenue | $0.617 million | $1.838 million | $0.163 million and $0.288 million, respectively |
| Research and development expense | $2.267 million | $7.745 million | $1.710 million and $4.914 million, respectively |
| General and administrative expense | $0.505 million | $1.824 million | $0.555 million and $1.833 million, respectively |
| Operating loss | $2.155 million | $7.918 million | $2.110 million and $6.471 million, respectively |
| Net loss | $1.965 million | $7.784 million | $1.996 million and $6.204 million, respectively |
| Basic and diluted loss per share | $0.15 | $0.59 | $0.15 and $0.50, respectively |
For the nine months, net financial income was $0.534 million and income taxes were $0.400 million. The tax charge related to withholding on license-agreement revenue that the Company did not expect to utilize within five years. Revenue and expense figures do not provide a meaningful conventional operating margin for this development-stage business, given the license-payment revenue recognition and continuing R&D costs.
At May 31, 2017, cash and cash equivalents were $1.733 million; short- and long-term deposits totaled $33.405 million; and marketable securities totaled $4.481 million. Current assets were $26.348 million, current liabilities $5.036 million, and working capital $21.312 million. Total assets were $39.792 million and stockholders’ equity $19.810 million. The balance sheet lists no borrowings; liabilities included $16.904 million of deferred revenue, in addition to payables and other obligations.
Operating activities used $3.783 million of cash in the nine months, compared with $2.148 million used in the prior-year period. Investing activities provided $1.288 million, while financing activities provided $0.320 million. Cash and cash equivalents declined by $2.174 million from August 31, 2016. Accumulated losses were $53.800 million. No off-balance-sheet arrangements were reported.
Material changes versus prior periods
- Nine-month revenue rose to $1.838 million from $0.288 million, reflecting recognition of HTIT license payments received in earlier periods and during the reporting period. Management reported $17.5 million of milestone payments received during 2016 and the first quarter of 2017.
- Nine-month R&D expense increased 58%, primarily due to capsule and ingredient process development, production, and toxicology work; completion of the Phase IIb trial partly offset the increase.
- Nine-month net loss increased to $7.784 million from $6.204 million, while quarterly net loss was slightly lower year over year.
- Working capital fell from $27.609 million at August 31, 2016, primarily because of operating cash use and investments in long-term deposits and marketable securities. Cash used in operations also increased year over year.
Outlook, developments and risks
- Management said available resources, including investments and HTIT milestone payments, were expected to support planned activities and spending for at least the next 12 months and beyond, while also noting that future financing may be needed and is not assured. R&D is expected to remain the principal operating expense.
- ORMD-0801 Phase IIb and Phase IIa dose-finding studies were completed. The Company expected an FDA End-of-Phase II meeting on August 31, 2017, projected a Phase III type 2 diabetes trial start in Q4 2017, and projected a Phase III type 1 trial start in Q1 2018. A six-month toxicology study was underway, with a final report expected in Q4 2017.
- For ORMD-0901, the Company expected a toxicology report and projected a U.S. clinical study start in Q4 2017. Israel’s Ministry of Health had approved a small proof-of-concept study of an oral leptin candidate.
- HTIT holds an exclusive license for ORMD-0801 in China, Macau and Hong Kong. The agreement provides for 10% royalties on net sales, potentially reduced under specified conditions, and up to approximately $37.5 million in payments subject to agreements, milestones and other conditions. $16.904 million remained deferred at May 31, 2017.
- Key risks include clinical and preclinical outcomes, regulatory approval, substantial ongoing development costs, the timing and availability of financing, and uncertainty that products will achieve adequate revenue. The filing states that regulatory approval and eventual self-sustaining revenues are not assured.
- Commitments include vendor agreements for clinical, toxicology and product-development work; the filing reports amounts recognized through May 31, 2017, but does not present a single total for all remaining commitments. An at-the-market sales agreement permits up to $25 million of stock sales; no shares had been sold under it as of the filing.
Important facts for investors to verify
- Whether the FDA meeting and projected clinical and toxicology milestones occurred on the stated timelines, and what results and regulatory guidance followed.
- How much of the potential HTIT payments is actually earned and collected, and whether license revenue recognition and related royalties match the agreement’s milestones and conditions.
- Cash burn, investment maturities and restrictions, remaining vendor commitments, and the financing required to sustain planned trials.
- Whether clinical efficacy and safety findings support further development and eventual regulatory approval for ORMD-0801 and other candidates.
- The effects of share-based compensation, option exercises and any future equity issuance on dilution.