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ORMP > SEC Filings for ORMP > Form 10-Q on 14-Jan-2014All Recent SEC Filings

Show all filings for ORAMED PHARMACEUTICALS INC.

Form 10-Q for ORAMED PHARMACEUTICALS INC.


14-Jan-2014

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 Private Securities Litigation Reform Act of 1995 and other 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, 2013, or our Annual Report, as filed with the Securities and Exchange Commission, or the SEC, on November 27, 2013, 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 oral 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 2013, we submitted a pre-Investigational New Drug, or pre-IND, package to the U.S. Food and Drug Administration, or FDA, for ORMD-0901, our oral exenatide capsule, for a Phase 2 clinical trial on healthy volunteers and type 2 diabetic patients. We expect to begin a non-U.S. based Phase 1a trial and IND-enabling studies in 2014.

During the months September through December 2013, we received allowance for a patent entitled "Methods and Compositions for Oral Administrations of Proteins," from the Australian, Chinese, Israeli, Russian, Canadian, Japanese and European Patent Offices.

In December 2013, we received allowance for a patent entitled "Methods and Compositions for Oral Administration of Exenatide," from the Israeli Patent Office.

In December 2013, we completed and reported successful results in a non-U.S. clinical trial testing the pharmacokinetic dose response of our orally ingestible insulin capsule in type 1 diabetes patients.

In December 2012, we filed an Investigational New Drug, or IND, application with the FDA to begin a Phase 2 clinical trial of our oral 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 such IND application, and, according to the FDA's request, conducted a Phase 2a sub study before we may proceed with the Phase 2b clinical trial. The Phase 2a sub study, which is an in-patient study with 30 individuals that began in July 2013, was completed in December 2013. We expect to begin the Phase 2b clinical trial in the third quarter of calendar year 2014.

In December 2013, we entered into a Placement Agency Agreement with Aegis Capital Corp., or Aegis, pursuant to which Aegis agreed to use their reasonable best efforts to arrange for the sale of up to 1,580,000 shares of our common stock. In connection therewith, on December 30, 2013, we also entered into a Securities Purchase Agreement, pursuant to which we agreed to sell an aggregate of 1,580,000 shares of common stock, at a price of $10.00 per share, to two institutional investors in a registered direct offering, or the Offering. We received all funds and issued all shares of common stock in connection with the Offering in December 2013. Our aggregate net proceeds from the offering were approximately $14,890,000, after deducting Placement Agents' commissions and estimated offering expenses.

Results of Operations

Comparison of three month periods ended November 30, 2013 and 2012

The following table summarizes certain statements of operations data for the
Company for the three month periods ended November 30, 2013 and 2012:

                                                 Three months ended
                                                    November 30,
Operations Data:                                2013            2012

Research and development expenses, net       $   750,510     $   392,626
General and administrative expenses              417,727         339,213
Financial expense (income), net                  (43,917 )       226,914
Net loss for the period                      $ 1,124,320     $   958,753
Loss per common share - basic and diluted    $     (0.14 )   $     (0.14 )
Weighted average common shares outstanding     7,941,059       6,826,896


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 contract research organizations, or 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 three months ended November 30, 2013, research and development expenses totaled $750,510, compared to $392,626 for the three months ended November 30, 2012. The increase is mainly attributable to the progress in Phase 2a clinical trials as well as to the increase in stock based compensation costs, which during the three months ended November 30, 2013 totaled $177,830, as compared to $78,438 during the three months ended November 30, 2012.

Government grants

In May 2013, Oramed Ltd. was granted a fourth grant amounting to a total net amount of NIS 975,000 (approximately $265,000) 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 January 2013 to December 2013. 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 three months ended November 30, 2013, we recognized research and development grants in an amount of $66,547, and in the three months ended November 30, 2012, we recognized research and development grants in an amount of $22,378. As of November 30, 2013, we had no contingent liabilities to the OCS.

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 three months ended November 30, 2013, general and administrative expenses totaled $417,727 compared to $339,213 for the three months ended November 30, 2012. The increase in costs incurred related to general and administrative activities during the three months ended November 30, 2013 reflects an increase in costs relating to public relations expenses. During the three months ended November 30, 2013, as part of our general and administrative expenses, we incurred $25,759 related to stock options granted to employees and consultants, as compared to $139,770 during the three months ended November 30, 2012.

Financial (income) expense, net

Net financial expense decreased from net expense of $226,914 for the three months ended November 30, 2012 to net income of $43,917 for the November 30, 2013. The decrease is mainly due to the decrease of warrant liabilities attributable to warrants held by Regals Fund LP and corresponding increase in stockholders' equity on November 29, 2012, as a result of the removal of the anti-dilution provisions of the warrants, which resulted in a cost of $296,982, and from an increase in interest income on available cash and cash equivalents primarily due to the increase in cash and cash equivalents balance that resulted from a public offering completed in July 2013.

Other comprehensive income

Subsequent increase in the fair value of available for sale securities previously written down as impaired for the three months ended November 30, 2013 of $5,322 resulted from the increase in fair value of the ordinary shares of D.N.A Biomedical Solutions Ltd ("D.N.A") that we hold. Reclassification adjustments for gains included in net loss for the three months ended November 30, 2013 of $18,454, resulted from the sale of 1,025,989 of our D.N.A ordinary shares in October and November 2013. Unrealized gains on available for sale securities for the three months ended November 30, 2013 of $43,902, resulted from the increase in fair value of our D.N.A ordinary shares.


Liquidity and capital resources

From inception through November 30, 2013, we have incurred losses in an aggregate amount of $23,247,909. During that period we have financed our operations through several private placements of our common stock, as well as a public offering of our common stock in July 2013, raising a total of $20,859,553, net of transaction costs. In December 2013 we raised approximately $14,890,000, net of transactions costs, in additional public offering. We will seek to obtain additional financing through similar sources in the future as needed. As of November 30, 2013, we had $1,370,753 of available cash, $5,459,254 of short term bank deposits and $962,392 of marketable securities. Marketable securities are presented at fair value and their realization is subject to certain limitations if sold through the market, and we are therefore 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 $8.1 million to finance our activities during the 12 months following November 30, 2013.

Management continues to evaluate various financing alternatives for funding 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, future public offerings, and additional funding from the OCS.

During the three month period ended November 30, 2013, cash and cash equivalents decreased to $1,370,753 from the $2,272,228 reported as of August 31, 2013, which is due to the reasons described below.

Operating activities used cash of $748,708 in the three months ended November 30, 2013, as compared to $792,826 used in the three months November 30, 2012. Cash used for operating activities in the three months ended November 30, 2013 primarily consisted of net loss resulting from research and development and general and administrative expenses, partially offset by stock based compensation adjustments, while cash used by operating activities in the three months ended November 30, 2012, 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.

During the three month period ended November 30, 2013, we received $124,784 in OCS grants towards our research and development expenses, of which $66,547 was recognized during such period and $58,237 was recognized in the year ended August 31, 2013. In the three months ended November 30, 2012, we did not receive any grants from the OCS. The amounts that were recognized but not received during the three months ended November 30, 2012, were received from the OCS during fiscal year 2013. The OCS has supported our activity in the past three years.

Investing activities used cash of $162,187 in the three months ended November 30, 2013, as compared to $454,227 that was provided in the three months ended November 30, 2012. Cash used in investing activities in the three months ended November 30, 2013 consisted primarily of the acquisition of short-term bank deposits. Cash provided by investing activities in the three months ended November 30, 2012 consisted primarily of proceeds from the sale of our investment in Entera Bio Ltd.

We did not receive or use any cash in connection with financing activities in the three months ended November 30, 2013, as compared to $1,458,436 cash provided by financing activities during the three months ended November 30, 2012, consisted of proceeds from our issuance of common stock and warrants.


Off-balance sheet arrangements

As of November 30, 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 December 1, 2013 are as follows:

                          Category                                       Amount

                          Research and development, net of OCS funds   $ 6,244,000
                          General and administrative expenses            1,849,000
                          Total                                        $ 8,093,000

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 oral exenatide capsule and the combination therapy, respectively, and others. 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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