Oramed Pharmaceuticals Inc. — FY2019 Form 10-K
Reporting period: Fiscal year ended August 31, 2019; this is an annual report, not a standalone fourth-quarter report. Financial figures below are in U.S. dollars unless noted.
Business context
Oramed is a clinical-stage pharmaceutical company developing oral insulin (ORMD-0801) and oral GLP-1 (ORMD-0901), alongside other oral peptide candidates. It had no product sales; reported revenue primarily reflects recognition of payments under its China, Macau and Hong Kong license agreement with HTIT.
Financial results and liquidity
| Metric | FY2019 / August 31, 2019 | FY2018 / August 31, 2018 |
|---|---|---|
| Revenue | $2.703 million | $2.449 million |
| Research and development | $13.522 million | $11.979 million |
| General and administrative | $3.722 million | $4.083 million |
| Net loss | $14.355 million | $12.727 million |
| Loss per share, basic and diluted | $0.82 | $0.86 |
| Operating cash used | $12.940 million | $14.657 million |
| Cash and cash equivalents | $3.329 million | $4.996 million |
| Working capital | $28.016 million | $26.484 million |
| Total assets | $34.663 million | $47.397 million |
| Stockholders’ equity | $19.393 million | $31.112 million |
Revenue rose 10%, mainly because of a $3.0 million HTIT milestone received in January 2019 and recognized over time. R&D expense increased 13%, largely due to the Phase IIb trial and oral leptin development. The net loss widened approximately 13%; lower G&A and a lower loss per share partly offset the increase. Net financial income was $576,000, versus $800,000 in FY2018; the FY2019 total included a $436,000 loss on securities. No debt balance is identified in the supplied financial statements; liabilities primarily comprise deferred revenue, payables and accruals.
At year-end, current assets were $33.324 million against current liabilities of $5.308 million. In addition to cash, the company held $25.252 million in short-term deposits and $4.996 million in marketable securities, including long-term securities. Operating activities used $12.940 million; investing activities provided $11.259 million according to the cash flow statement, and financing activities were nil. The company reported no material off-balance-sheet arrangements. Contractual obligations totaled $6.569 million, mostly clinical research and purchase/technology-transfer commitments due within one year.
Material changes and notable items
- Operating cash use declined from FY2018, while year-end cash and cash equivalents fell by $1.667 million. Short-term deposits increased.
- There were no financing cash proceeds in FY2019, compared with $22.654 million in FY2018, which included a registered offering.
- Oramed adopted ASC 606 in FY2019. The adoption increased opening equity by $1.773 million; the company reported FY2019 revenue of $2.703 million versus $2.910 million under the stated no-adoption comparison.
- HTIT had paid Oramed $20.5 million in aggregate milestone payments through August 31, 2019. The license provides for up to $37.5 million in aggregate payments and royalties on future sales, subject to conditions and possible rate reductions.
Outlook, development, and risks
- Management said available resources and commitments were expected to fund planned development activities for at least 12 months, while warning that additional financing could be needed sooner if expenses rise. R&D is expected to remain the principal operating expense.
- After year-end, in November 2019, Oramed announced Phase IIb ORMD-0801 results: once- and twice-daily groups had statistically significant HbA1c reductions versus baseline; placebo-adjusted reductions were 0.54% and 0.53%, respectively. The thrice-daily group was not statistically significant. The filing notes that 36 participants at two sites were excluded from statistical analysis because of treatment-by-center interaction; the cause remained under investigation. Of 269 enrolled, 209 completed the 12-week endpoint.
- The company anticipated two six-month Phase III trials in type 1 and type 2 diabetes and a subsequent BLA filing, with potential FDA approval targeted by the end of calendar 2024. This is management’s forecast, not an assured outcome. Results for several exploratory studies were expected in calendar 2020.
- Key risks include clinical failure or delay, regulatory uncertainty, need for substantial additional capital, dependence on partners and third-party suppliers, competition, patent protection, foreign-exchange exposure and operations in Israel. Oramed reported no material legal proceedings, but disclosed a shareholder derivative claim and putative class action concerning the validity of its 2008 stock plan; the company disputed the claims and adopted a 2019 plan as a precaution.
- Subsequent to year-end, Oramed entered an equity distribution agreement allowing up to $15 million of stock sales; no shares had been sold under it as of August 31, 2019.
Important facts for investors to verify
- Whether the Phase IIb site-interaction issue is resolved and whether full, unexcluded trial data support the announced findings.
- Actual timing, design, funding and results of the planned Phase III trials, and whether the 2024 approval target remains feasible.
- Cash runway, future financing needs, and any share issuance under the $15 million equity distribution agreement.
- HTIT milestone conditions, remaining payments, applicable royalty rate and progress toward Chinese regulatory and commercial milestones.
- The status and potential consequences of the stock-plan litigation, and the effect of the ASC 606 change on revenue comparisons.
Source note: The MD&A narrative describes FY2019 investing activities as cash used, but the audited cash flow statement reports $11.259 million provided; the summary uses the audited statement figure. The filing’s selected financial data also contains an accumulated-loss figure inconsistent with the audited balance sheet; the audited balance sheet reports $81.103 million at August 31, 2019.