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ORMP > SEC Filings for ORMP > Form 10-Q on 11-Apr-2013All Recent SEC Filings

Show all filings for ORAMED PHARMACEUTICALS INC.

Form 10-Q for ORAMED PHARMACEUTICALS INC.


11-Apr-2013

Quarterly Report


ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and the related notes included elsewhere herein and in our consolidated financial statements, accompanying notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in our Annual Report (as defined below).

Forward-Looking Statements

This Quarterly Report on Form 10-Q (including the section regarding Management's Discussion and Analysis of Financial Condition and Results of Operations) contains forward-looking statements within the meaning of the federal securities laws regarding our business, clinical trials, financial condition, expenditures, results of operations and prospects. Words such as "expects," "anticipates," "intends," "plans," "planned expenditures," "believes," "seeks," "estimates" and similar expressions or variations of such words are intended to identify forward-looking statements, but are not deemed to represent an all-inclusive means of identifying forward-looking statements as denoted in this Quarterly Report on Form 10-Q. Additionally, statements concerning future matters are forward-looking statements.

Although forward-looking statements in this Quarterly Report on Form 10-Q reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, without limitation, those specifically addressed under the heading "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended August 31, 2012, or our Annual Report, as filed with the Securities and Exchange Commission, or the SEC, on December 12, 2012, as amended on December 21, 2012, as well as those discussed elsewhere in our Annual Report and in this Quarterly Report on Form 10-Q. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. Except as required by law, we undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this Quarterly Report on Form 10-Q. Readers are urged to carefully review and consider the various disclosures made throughout the entirety of this Quarterly Report on Form 10-Q which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.

Overview of Operations

We are a pharmaceutical company currently engaged in the research and development of innovative pharmaceutical solutions, including an orally ingestible insulin capsule to be used for the treatment of individuals with diabetes, and the use of orally ingestible capsules or pills for delivery of other polypeptides.


Recent business developments and financing activities

In September 2012, we entered into a Master Services Agreement with Medpace, Inc., or Medpace, to retain Medpace as a contract research organization, or CRO, for our upcoming Phase 2 clinical trial for an oral insulin capsule that was expected to start in the first calendar quarter of 2013 in the United States. As consideration for its services, we will pay Medpace a total amount of approximately $3,500,000 during the term of the engagement, based on the achievement of certain milestones. In March 2013, due to a request from the U.S. Food and Drug Administration, or FDA, for us to perform a sub study before proceeding with the Phase 2 clinical trial, we instructed Medpace to temporarily cease all work under the Master Services Agreement. We intend to resume the clinical trial at such time as we receive approval from the FDA.

In October 2012, we entered into a Securities Purchase Agreement with D.N.A Biomedical Solutions Ltd., or D.N.A, an Israeli company listed on the Tel Aviv Stock Exchange, according to which we issued to D.N.A 199,172 shares of our common stock in consideration for an option to purchase up to 21,637,611 ordinary shares of D.N.A, or the D.N.A Option. We had previously acquired 8,404,667 ordinary shares of D.N.A issued in March 2011. In February 2013, we exercised the D.N.A Option. In addition, in February and March 2013 we sold a total amount of 7,000,000 of our D.N.A ordinary shares, of which 5,250,000 ordinary shares were issued to us in March 2011 and 1,750,000 ordinary shares were issued to us in February 2013 upon our exercise of the D.N.A Option. The ordinary shares were sold in private transactions for a total of NIS 840,000 (or approximately $226,670, based on the exchange rate between the NIS and the U.S. dollar, as quoted by the Bank of Israel on the dates of sale), before brokerage fees. As of April 10, 2013, we own approximately 11.1% of D.N.A's outstanding ordinary shares.

Between September and November 2012, we completed private placements pursuant to which we sold to certain investors an aggregate of 335,477 "units" at a purchase price of $4.44 per unit for total consideration of $1,489,518. Each unit consisted of one share of common stock and a five-year warrant to purchase 0.50 of a share of common stock at an exercise price of $6.00 per share. In connection with such private placements, we paid cash compensation of $12,885 as a finder's fee. We also issued 1,127 shares of common stock and warrants to purchase 564 shares of common stock as a finder's fee to a third-party in connection with the private placements and issued 12,745 shares of common stock and warrants to purchase 6,373 shares of common stock as a finder's fee to one of our directors, Leonard Sank.

In November 2012, we entered into a letter agreement, or the Agreement, with Regals Fund LP, or Regals, in connection with (1) the warrant originally issued in January 2011, as amended in August 2012 and November 2012, to purchase up to 290,459 shares of our common stock, (2) the warrant dated August 28, 2012, to purchase up to 112,613 shares of our common stock and (3) the warrant dated November 5, 2012, to purchase up to 16,892 shares of our common stock , or together, the Warrants. Pursuant to the Agreement, we and Regals agreed to amend the Warrants to provide that the anti-dilution protection of the Warrants shall be deleted in its entirety. In addition, as to the warrants issued in August and November 2012, the parties agreed to reduce the exercise price to $3.7656 per share, the current exercise price per share of the warrants originally issued in January 2011. At such time, we also issued to Regals a warrant, or the New Warrant, pursuant to which Regals shall have the right to purchase up to 137,311 shares of our common stock over a period of four years at an exercise price of $7.20 per share.


In connection with the New Warrant, Nadav Kidron, our President, Chief Executive Officer and a director, in his personal capacity as one of our shareholders, agreed that following the execution and delivery of the Agreement, in the event that an adjustment pursuant to the anti-dilution protection of the Warrants (had they not been amended by the Agreement) would have been triggered and the number of shares of our common stock that Regals would have been able to purchase under the Warrants would have increased by an aggregate number in excess of 137,311 common shares, then Regals shall have the right to purchase from Mr. Kidron such number of shares of our common stock owned by Mr. Kidron, up to a maximum of 112,690 shares of our common stock. This right shall survive until the termination of the Warrants.

In December 2012 and March 2013, we were issued patents by the South African and Japanese Patent Offices, respectively, which cover part of our technology with respect to the oral delivery of peptides.

In December 2012, we filed an Investigational New Drug, or IND, application with the FDA to begin a Phase 2 clinical trial of our orally ingested insulin capsule, in order to evaluate the safety, tolerability and efficacy of our oral insulin capsule on type 2 diabetic volunteers. We have been communicating with the FDA regarding our IND, and, according to the FDA's request as discussed above, conducted a sub study before we may proceed with the main clinical trial.

In January 2013, we began a clinical trial for our oral exenatide capsule on healthy volunteers and type 2 diabetic patients. We expect to receive results from such trial in the second quarter of calendar year 2013.

In January 2013, we effected a reverse stock split of our shares of common stock at a ratio of one-for-twelve.

In February 2013, we commenced a first human clinical trial on healthy volunteers with our oral insulin capsule delivered in combination with our oral exenatide capsule.

In February 2013, our common stock began trading on The Nasdaq Capital Market under the symbol ORMP.

In April 2013, we filed a new IND application with the FDA for the above discussed sub study on our oral insulin capsule.

Results of Operations

Comparison of six and three month periods ended February 28, 2013 and February
29, 2012

The following table summarizes certain statements of operations data for the
Company for the six and three month periods ended February 28, 2013 and February
29, 2012:

                                                    Six months ended                 Three months ended
                                              February 28,     February 29,     February 28,      February
                                                  2013             2012             2013          29, 2012

Research and development expenses             $  1,141,622     $    894,663     $    748,996     $   710,647
General and administrative  expenses               850,047          511,605          510,834         229,704
Impairment of available for sale securities              -           43,111                -          43,111
Financial (income) expense, net                    192,958           14,515          (33,956 )         1,913
Net loss for the period                       $  2,184,627     $  1,463,894     $  1,225,874     $   985,375


Research and development expenses

Research and development expenses include costs directly attributable to the conduct of research and development programs, including the cost of salaries, payroll taxes, employee benefits, costs of registered patents materials, supplies, the cost of services provided by outside contractors, including services related to our clinical trials, clinical trial expenses, the full cost of manufacturing drug for use in research, preclinical development. All costs associated with research and development are expensed as incurred.

Clinical trial costs are a significant component of research and development expenses and include costs associated with third-party contractors. We outsource a substantial portion of our clinical trial activities, utilizing external entities such as CROs, independent clinical investigators, and other third-party service providers to assist us with the execution of our clinical studies.

Clinical activities which relate principally to clinical sites and other administrative functions to manage our clinical trials are performed primarily by CROs. CROs typically perform most of the start-up activities for our trials, including document preparation, site identification, screening and preparation, pre-study visits, training, and program management.

Clinical trial and pre-clinical trial expenses include regulatory and scientific consultants' compensation and fees, research expenses, purchase of materials, cost of manufacturing of the oral insulin capsules, payments for patient recruitment and treatment, costs related to the maintenance of our registered patents, costs related to the filings of patent applications, as well as salaries and related expenses of research and development staff.

During the six months ended February 28, 2013, research and development expenses totaled $1,141,622, compared to $894,663 for the six months ended February 29, 2012. The increase is mainly attributed to the preparation for the FDA approved Phase 2 clinical trial as well as to the increase in stock based compensation costs, which during the six months ended February 28, 2013 totaled $169,801, as compared to $36,820 during the six months ended February 29, 2012.

During the three months ended February 28, 2013, research and development expenses totaled $748,996, compared to $710,647 for the three months ended February 29, 2012. The increase in research and development expenses during the three months ended February 28, 2013, as compared to the three months ended February 29, 2012, is attributable to the same reason discussed above.


Government grants

In May 2012, Oramed Ltd. was granted a third grant amounting to a total net amount of NIS 595,000 (approximately $148,000) from the Office of the Chief Scientist of the Ministry of Industry, Trade and Labor of Israel, or OCS, which was designated for research and development expenses for the period of September 2012 to December 2012. We used the funds to support further research and development and clinical studies of our oral insulin capsule and oral GLP-1 analog.

In the six months ended February 28, 2013, we recognized research and development grants in an amount of $22,378. We did not recognize any grants in the three months ended February 28, 2013. In the six and three months ended February 29, 2012, we recognized research and development grants in an amount of $57,038 and $15,781, respectively. As of February 28, 2013, we had no contingent liabilities to the OCS.

Grants from the Bio-Jerusalem fund

We are committed to pay royalties to the Bio-Jerusalem fund on proceeds from future sales at a rate of 4% and up to 100% of the amount of the grant received by the Company (Israeli CPI linked) in the total amount of $65,053. As of February 28, 2013, we had not yet realized any revenues since inception and thus did not incur any royalty liability to the Bio-Jerusalem fund.

For the six month periods ended February 28, 2013 and February 29, 2012, we received $12,320 and $0, respectively, from the Bio-Jerusalem fund.

General and administrative expenses

General and administrative expenses include the salaries and related expenses of our management, consulting costs, legal and professional fees, traveling, business development costs, insurance expenses and other general costs.

For the six months ended February 28, 2013, general and administrative expenses totaled $850,047 compared to $511,605 for the six months ended February 29, 2012. The increase in costs incurred related to general and administrative activities during the six months ended February 28, 2013, reflects an increase in stock based compensation costs, arising from options granted to employees and consultants, of $225,367, as well as an increase in legal fees and consulting expenses. During the six months ended February 28, 2013, as part of our general and administrative expenses, we incurred $271,583 related to stock options granted to employees and consultants, as compared to $46,216 during the six months ended February 29, 2012.

For the three months ended February 28, 2013, general and administrative expenses totaled $510,834 compared to $229,704 for the three months ended February 29, 2012. The increase in general and administrative expenses during the three months ended February 28, 2013, as compared to the three months ended February 29, 2012, is attributable to the same reasons discussed above.


Financial income/expense, net

Financial expenses for the six months ended February 28, 2013 includes an expense of $296,982 resulting mainly from the removal of the anti-dilution protections from warrant liabilities and the grant of new warrants.

In the six months ended February 28, 2013, we incurred income from exchange rate differences resulting from the decrease in the exchange rate between the NIS and the dollar during the period and its effect on our NIS linked bank deposits, as well as interest income on available cash and cash equivalents that were partially offset by bank charges. In the six months ended February 29, 2012, we received a higher amount of interest income on available cash and cash equivalents, as compared to the six months ended February 28, 2013, which was offset by bank charges.

During the three months ended February 28, 2013, financial income totaled $33,956, compared to financial expenses of $1,913 for the three months ended February 29, 2012. Financial income during the three months ended February 28, 2013, as compared to the three months ended February 29, 2012, is attributable to the same reasons discussed above.

Other comprehensive income

Subsequent increase in the fair value of available for sale securities previously written down as impaired for the six months ended February 28, 2013 of $122,977, resulted from the increase in fair value of our D.N.A ordinary shares, at the amount of the impairment that was recognized in previous periods. Reclassification adjustment for gains included in net loss for the six months ended February 28, 2013 of $50,687, resulted from the sale of 3,500,000 of our D.N.A ordinary shares in February 2013. Unrealized gain on available for sale securities for the six months ended February 28, 2013 of $172,218, resulted from the increase in fair value of our D.N.A ordinary shares.

Reclassification adjustment for gains included in net loss and unrealized gain on available for sale securities for the three months ended February 28, 2013, resulted from the same reasons discussed above.

Impairment of available for sale securities for the six months ended February 29, 2012 of $43,111 resulted from the decrease in fair value of our D.N.A ordinary shares.

Liquidity and capital resources

From inception through February 28, 2013, we incurred losses in an aggregate amount of $20,076,404. We have financed our operations through the private placements of equity financing, raising a total of $16,595,571, net of transaction costs. We will seek to obtain additional financing through similar sources in the future as needed. As of February 28, 2013, we had $2,039,905 of available cash, $2,317,198 of short term bank deposits and $987,353 of marketable securities. Marketable securities are presented at fair value, are based on their quoted price and their realization is subject to certain limitations if sold through the market, and are exposed to market risk. There is no assurance that at the time of sale of the marketable securities the price per share will be the same or higher, nor that we will be able to sell all of the securities at once given the volume of securities we hold. We anticipate that we will require approximately $3.9 million to finance our activities during the 12 months following February 28, 2013.


Management is in the process of evaluating various financing alternatives as we will need to finance future research and development activities and general and administrative expenses through fund raising in the public or private equity markets. Although there is no assurance that we will be successful with those initiatives, management believes that it will be able to secure the necessary financing as a result of ongoing financing discussions with third party investors and existing stockholders as well as through additional funding from the OCS.

During the six month period ended February 28, 2013, cash and cash equivalents decreased to $2,039,905 from the $4,430,740 reported as of August 31, 2012, which is due to the reasons described below.

Operating activities used cash of $2,065,590 in the six months ended February 28, 2013, as compared to $1,075,580 in the six months ended February 29, 2012. Cash used for operating activities in the six months ended February 28, 2013 primarily consisted of net loss resulting from research and development and general and administrative expenses, partially offset by stock based compensation adjustments and exchange of warrants, while cash used by operating activities in the six months ended February 29, 2012 primarily consisted of net loss resulting from research and development and general and administrative expenses.

During the six month period ended February 28, 2013, of the $22,378 in OCS grants we recognized during such period, we received none towards our research and development expenses, while in the six months ended February 29, 2012, we received $52,155 towards our research and development expenses. The amounts that were recognized but not received during the six months ended February 28, 2013 are expected to be received from the OCS following the submission of periodic and final reports by Oramed Ltd., and their examination by the OCS. The OCS has supported our activity in the past three years.

Investing activities used cash of $1,750,018 in the six months ended February 28, 2013, as compared to $1,405,536 that was provided in the six months ended February 29, 2012. Cash used in investing activities in the six months ended February 28, 2013 consisted primarily of acquisition of short-term bank deposits. Cash provided by investing activities in the six months ended February 29, 2012 consisted primarily of proceeds from the sale of our investment in Entera Bio Ltd.

Financing activities provided cash of $1,450,936 in the six months ended February 28, 2013, as compared to $0 for the six months ended February 29, 2012. Cash provided by financing activities during the six months ended February 28, 2013 consisted of proceeds from our issuance of common stock and warrants as further discussed above under "Overview of Operations-Recent business developments and financing activities".

Off-balance sheet arrangements

As of February 28, 2013, we had no off balance sheet arrangements that have had or that we expect would be reasonably likely to have a future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.


Planned Expenditures

The estimated expenses referenced herein are in accordance with our business
plan. Since our technology is still in the development stage, it can be expected
that there will be changes in some budgetary items. Our planned expenditures for
the twelve months beginning March 1, 2013 are as follows:

             Category                                       Amount

             Research and development, net of OCS funds   $ 2,360,000
             General and administrative expenses            1,507,000
             Financial income, net                            (12,000 )
             Total                                        $ 3,855,000

As indicated above, in December 2012 and April 2013, we filed IND applications with the FDA for our orally ingested insulin and we are conducting, or planning to conduct, further clinical studies with our exenatide capsule and the combination therapy, respectively, and others. We expect to have a significant increase in research and development expenses during the term of the FDA approved Phase 2 study that is expected to be conducted during fiscal year 2013. Our ability to complete these expected activities is dependent on several major factors including the ability to attract sufficient financing on terms acceptable to us and receiving additional grants from the OCS.

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