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

Show all filings for ORAMED PHARMACEUTICALS INC.

Form 10-Q for ORAMED PHARMACEUTICALS INC.


10-Apr-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 the third quarter of calendar year 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. The Australian and Japanese Patent Offices issued this patent in October 2013.

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.

We originally filed an Investigational New Drug application, or IND, with the FDA in December 2012 for clearance to begin a Phase 2 clinical trial of ORMD-0801, in order to evaluate the safety, tolerability and efficacy of our oral insulin capsule on type 2 diabetic volunteers. Because the identical formulation of ORMD-0801 had not yet been studied in humans at bedtime, in February 2013 the FDA noted concerns about mitigating potential risks of severe hypoglycemia and requested that we perform a sub-study in a controlled in-patient setting for a one-week period prior to beginning the larger multi-centered Phase 2 trial. As a result, we withdrew the original IND and, in April 2013, we submitted a new IND for the Phase 2a sub-study. Following the FDA's clearance to proceed in May 2013, we began the Phase 2a sub-study in July 2013. As we announced in January 2014, the Phase 2a sub-study met all primary and secondary endpoints. Specifically, the Phase 2a study evaluated the pharmacodynamic effects of ORMD 0801 on mean nighttime glucose (determined using a continuous glucose monitor). The results show that the ORMD-0801, has exhibited a sound safety profile, led to reduced mean daytime and nighttime glucose readings, when compared to placebo and lowered fasting blood glucose concentrations, when compared to placebo. In addition, no serious adverse events occurred during the Phase 2a study, and the only adverse events that occurred during the study were not drug related. In light of these results, we believe that we should move forward with the Phase 2b clinical trial, which we anticipate beginning in the third quarter of calendar year 2014. This clinical trial will be designed to assess the safety and efficacy of ORMD-0801 and its structure is still under design by us.

In December 2013, we entered into a Placement Agency Agreement with Aegis Capital Corp., or Aegis, pursuant to which Aegis agreed to use its 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 $14,887,085, after deducting Placement Agents' commissions and estimated offering expenses.


In February 2014, we submitted a protocol to the FDA to initiate a Phase 2a trial of our oral insulin capsule for type 1 diabetes volunteers. The protocol was submitted under our existing IND to include both type 1 and type 2 diabetes indications. The double-blind, randomized, placebo controlled, seven-day study design will be carried out at an inpatient setting on twenty-four type 1 diabetic patients. We began this study in March 2014.

In January 2014, we received Notices of Allowance from the Israeli and Australian Patent Offices for the patent entitled "Methods and Compositions for Oral Administrations of Proteins". In March 2014, we were granted a patent entitled "Methods and Compositions for Oral Administration of Exenatide" from the Australian Patent Office.

Results of Operations

Comparison of six and three month periods ended February 28, 2014 and 2013

The following table summarizes certain statements of operations data for the
Company for the six and three month periods ended February 28, 2014 and 2013:

                                                  Six months ended               Three months ended
                                                    February 28,                    February 28,
                                                2014            2013            2014            2013

Research and development expenses, net       $ 1,423,844     $ 1,141,622     $   673,334     $   748,996
General and administrative  expenses             929,979         850,047         512,252         510,834
Financial (income) expense, net                 (114,661 )       192,958         (70,744 )       (33,956 )
Net loss for the period                      $ 2,239,162     $ 2,184,627     $ 1,114,842     $ 1,225,874
Loss per common share - basic  and diluted   $     (0.26 )   $     (0.31 )   $     (0.12 )   $     (0.17 )
Weighted average common shares outstanding     8,531,150       7,018,766       9,127,799       7,212,767

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 six months ended February 28, 2014, research and development expenses totaled $1,423,844, compared to $1,141,622 for the six months ended February 28, 2013. The increase is mainly attributed to the increase in research and development staff and to cash bonuses to research and development staff for the Company's 2013 achievements, as well as to the increase in stock based compensation costs, which during the six months ended February 28, 2014 totaled $295,284, as compared to $169,501 during the six months ended February 28, 2013. The increase in stock based compensation costs is attributed to awards granted to research and development staff.

During the three months ended February 28, 2014, research and development expenses totaled $673,334, compared to $748,996 for the three months ended February 28 2013. The decrease in research and development expenses during the three months ended February 28, 2014, as compared to the three months ended February 28, 2013, is mainly attributable to the decrease in expenses related to the preparation to the Phase 2b clinical trial that was planned to begin in early calendar year 2013.

Government grants

In May 2013, Oramed Ltd., or the Subsidiary, 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 Economy (formerly 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. In March 2014, the OCS accepted the Subsidiary's application to shorten that period to ten months, ending October 31, 2013. In March 2013, the Subsidiary was also granted a fifth grant amounting to a total net amount of NIS 1,206,990 (approximately $345,000) from the OCS, which was designated for research and development expenses for the period of November 2013 to October 2014. 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, 2014, we recognized research and development grants in an amount of $139,441, and in the six months ended February 28, 2013, we recognized research and development grants in an amount of $22,378. As of February 28, 2014, 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 six months ended February 28, 2014, general and administrative expenses totaled $929,979 compared to $850,047 for the six months ended February 28, 2013. The increase in costs incurred related to general and administrative activities during the six months ended February 28, 2014, reflects an increase in salaries and related expenses resulting from cash bonuses to employees for the Company's 2013 achievements, that was partially offset by a decrease in stock based compensation costs of options granted to employees and consultants, of $233,730. During the six months ended February 28, 2014, as part of our general and administrative expenses, we incurred $37,853 related to stock options granted to employees and consultants, as compared to $271,583 during the six months ended February 28, 2013.

For the three months ended February 28, 2014, general and administrative expenses totaled $512,252 compared to $510,834 for the three months ended February 28, 2013. The increase in general and administrative expenses during the three months ended February 28, 2014, as compared to the three months ended February 28, 2013, is attributable to the same reasons discussed above.

Financial (income) expense, net

Net financial expense decreased from net expense of $192,958 for the six months ended February 28, 2013 to net income of $114,661 for the February 28, 2014. 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 February 28, 2013, as a result of the removal of the anti-dilution provisions of the warrants, which resulted in a net 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 public offerings completed in July and December 2013.

During the three months ended February 28, 2014, financial income totaled $70,744, compared to $33,956 for the three months ended February 28, 2013. The increase in financial income during the three months ended February 28, 2014, as compared to the three months ended February 28, 2013, is attributable to a higher amount of interest income on available cash and cash equivalents, as 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, 2014 of $53,820 resulted from the increase in fair value of the ordinary shares of D.N.A Biomedical Solutions Ltd, or D.N.A, that we hold. Reclassification adjustments for gains included in net loss for the six months ended February 28, 2014 of $44,391, resulted from the sale of 1,625,989 of our D.N.A ordinary shares in October and November 2013 and January 2014. Unrealized gains on available for sale securities for the six months ended February 28, 2014 of $534,153, resulted from the increase in fair value of our D.N.A ordinary shares.


Liquidity and capital resources

From inception through February 28, 2014, we have incurred losses in an aggregate amount of $24,362,751. During that period we have financed our operations through several private placements of our common stock, as well as public offerings of our common stock in July and December 2013, raising a total of $35,746,638, net of transaction costs. During that period we also received cash consideration of $1,717,237 from exercise of warrants and options. We will seek to obtain additional financing through similar sources in the future as needed. As of February 28, 2014, we had $3,252,911 of available cash, $18,633,526 of short term bank deposits and $1,464,100 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 $12 million to finance our activities during the 12 months following February 28, 2014.

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 six month period ended February 28, 2014, cash and cash equivalents increased to $3,252,911 from the $2,272,228 reported as of August 31, 2013, which is due to the reasons described below.

Operating activities used cash of $2,230,938 in the six month period ended February 28, 2014, as compared to $2,065,590 used in the six months February 28, 2013. Cash used for operating activities in the six months ended February 28, 2014 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 six months 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.

During the six month period ended February 28, 2014, 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 six month period ended February 28, 2013, we did not receive any grants from the OCS. The amounts that were recognized but not received during the six month period ended February 28, 2013, 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 $13,293,344 in the six month period ended February 28, 2014, as compared to $1,750,018 that was used in the six month period ended February 28, 2013. Cash used in investing activities in both the six months ended February 28, 2014 and February 28, 2013 consisted primarily of the acquisition of short-term bank deposits.

Financing activities provided cash of $16,494,983 in the six month period ended February 28, 2014, as compared to $1,450,936 of cash provided by financing activities during the six months ended February 28, 2013, which consisted of proceeds from our issuance of common stock and proceeds from exercise of warrants and options in the six months ended February 28, 2014 and of proceeds from our issuance of common stock and warrants in the six months ended February 28, 2013.


Off-balance sheet arrangements

As of February 28, 2014, 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, 2014 are as follows:

            Category                                        Amount

            Research and development, net of OCS funds   $  9,206,000
            General and administrative expenses             2,738,000
            Financial income, net                            (127,000 )
            Total                                        $ 11,817,000

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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