Oramed Pharmaceuticals Inc. — Form 10-Q Summary
Reporting period: Fiscal first quarter, three months ended November 30, 2015. The company is a development-stage biopharmaceutical business focused on oral insulin (ORMD-0801) and oral exenatide (ORMD-0901). It reported no operating revenue.
Financial performance and position
Amounts below are in U.S. dollars; financial statement amounts are in thousands except per-share data.
| Metric | Quarter ended Nov. 30, 2015 | Prior-year quarter |
|---|---|---|
| Revenue | None reported | None reported |
| Research and development expense, net | $1,901 | $1,302 |
| General and administrative expense | $548 | $600 |
| Operating loss | $2,449 | $1,902 |
| Net loss | $2,390 | $1,896 |
| Basic and diluted loss per share | $0.21 | $0.19 |
| Cash used in operating activities | $2,247 | $1,399 |
Net loss increased about 26% year over year, primarily reflecting higher clinical-trial-related R&D spending. R&D expense rose 46%; G&A expense declined 9%. Net financial income was $59, compared with $6 a year earlier. Other comprehensive loss was $406, largely reflecting a decline in the fair value of the company’s D.N.A. Biomedical shares; total comprehensive loss was $2,796 versus $2,255.
At November 30, cash and cash equivalents were $1,949; short- and long-term deposits totaled $19,178; and marketable securities totaled $2,607. Current assets were $15,188 and current liabilities $1,304, for working capital of $13,884. Total assets were $23,883 and stockholders’ equity $22,541. The balance sheet presents no conventional borrowings; liabilities were mainly accounts payable and accrued expenses, a $500 license-agreement advance, and smaller employee and tax provisions. Cash fell $1,264 during the quarter. Operating activities used $2,247, investing activities provided $818, and financing activities provided $164.
Material developments and outlook
- On November 30, 2015, Oramed agreed to grant HTIT an exclusive license for ORMD-0801 in China, Macau and Hong Kong. The stated consideration included royalties initially at 10% of net sales and aggregate payments of approximately $37.5 million: $3 million initially, $8 million subject to specified third-party agreements, and $26.5 million tied to milestones and conditions. The royalty rate may be reduced under specified circumstances.
- Israeli Chief Scientist approval was obtained December 21, 2015, and the amended and restated license agreement’s closing conditions were met that month. Oramed reported receiving the initial $3 million payment in January 2016. The company was evaluating revenue recognition; the filing does not report license revenue for the quarter.
- Under a separate share purchase agreement, HTIT invested $12 million for 1,155,367 restricted shares at approximately $10.39 per share. The transaction closed December 28, 2015, after quarter-end. The filing reported 13,095,661 common shares outstanding as of January 12, 2016.
- Management estimated $10.89 million of expenditures for the 12 months beginning December 1, 2015: $8.97 million R&D, $2.09 million G&A, offset by an estimated $170,000 of net financial income. It anticipated approximately $10.9 million would be needed to fund activities over the following 12 months.
- Management believed existing resources, commitments and the HTIT investment would support planned development and spending for at least 12 months, but cautioned that unexpected expense increases could require additional financing. The company had accumulated losses of $37.442 million and remained dependent on external funding.
Programs, risks and other items
- The Phase IIb ORMD-0801 trial enrolled approximately 180 type 2 diabetes patients at about 30 U.S. sites; management expected the last patient to complete the trial in the first quarter of calendar 2016. A separate glucose-clamp study was expected to finish in the second quarter of calendar 2016.
- For ORMD-0901, the company expected to begin IND-enabling studies in the second quarter of calendar 2016 and described plans to seek an IND and proceed to a U.S. Phase II trial. A non-FDA-approved patient study was expected to finish in the first quarter of calendar 2016.
- Product development, clinical results, regulatory approvals and financing are material uncertainties. The filing states that no assurance can be given that product candidates will receive regulatory approval or generate sufficient revenue. Planned activities depend on obtaining adequate financing.
- Other commitments included approximately $902,000 recognized to date under specified CRO and manufacturing arrangements, with additional payments subject to services or milestones. Future grant-related royalties may also be payable if qualifying products generate sales.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. The company reported no off-balance-sheet arrangements expected to have a material effect.
Important facts for investors to verify
- Whether and when the conditional $8 million and milestone-based $26.5 million license payments become payable, and the terms governing royalty reductions.
- Receipt and use of the post-quarter HTIT license payment and $12 million equity investment, including resulting dilution and share count.
- Clinical-trial completion, safety and efficacy results, and the timing and requirements for regulatory submissions.
- Cash burn relative to the $10.89 million spending plan and whether additional financing will be required.
- The company’s accounting treatment and timing of revenue recognition for the HTIT license agreement.