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

Show all filings for ORAMED PHARMACEUTICALS INC.

Form 10-Q for ORAMED PHARMACEUTICALS INC.


14-Jul-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

Product Candidates

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 non-U.S. based Phase 1a and 1b trials and IND-enabling studies in the third quarter of calendar year 2014.

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 believed that we should move forward with the Phase 2b clinical trial on approximately 180 type 2 diabetic patients, which we are preparing to initiate in the fourth 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 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. Results are anticipated in the fourth quarter of calendar year 2014.

The table below gives an overview of our product pipeline:

                               [[Image Removed]]
                             Phase I  Phase II Phase III  Timeline
                                                         Q4, '13: Phase 2a completed
             Type 2 diabetes                             Q4, '14: Phase 2b multi-center study
ORMD-0801                                                projected initiation
oral insulin                                             Q1, '14: Phase 2a initiated
             Type 1 diabetes                             Q1, '15: Phase 2b multi-center study
                                                         projected initiation
                                                         Q3, '14: Preclinical/IND studies
                                                         projected initiation
ORMD-0901    Type 2 diabetes                             Q3, '14: Phase 1b ex-US study
oral GLP-1                                               projected initiation
                                                         Q2, '15: Phase 2 multi-center study
                                                         projected initiation


Intellectual Property

During the months September 2013 through January 2014, we received allowances for a patent entitled "Methods and Compositions for Oral Administrations of Proteins," which was filed under the Patent Cooperation Treaty in 2006, from the Australian, Canadian, Japanese and European Patent Offices. The Australian Patent Office issued this patent in October 2013, and this patent was granted by the Hong Kong patent office in April 2014.

During the months September 2013 through January 2014, we received allowances for a patent entitled "Methods and Compositions for Oral Administrations of Proteins," which was filed under the Patent Cooperation Treaty in 2009, from the Australian, Chinese, Israeli, Russian and Japanese Patent Offices. The Japanese Patent Office issued this patent in October 2013.

In December 2013 and February 2014, we received allowances for a patent entitled "Methods and Compositions for Oral Administration of Exenatide," from the Israeli and Australian Patent Offices, respectively. The Israeli Patent was granted in May 2014.

Results of Operations

Comparison of nine and three month periods ended May, 2014 and 2013

The following table summarizes certain statements of operations data for the
Company for the nine and three month periods ended May 31, 2014 and 2013:

                                          Nine months ended              Three months ended
                                               May 31,                         May 31,
                                        2014            2013            2014            2013

Research and development expenses,
net                                  $ 2,513,142     $ 1,977,258     $ 1,089,298     $   835,636
General and
administrative expenses                1,743,902       1,349,081         813,923         499,034
Financial (income) expense, net         (189,980 )       114,629         (75,319 )       (78,329 )
Net loss for the period              $ 4,067,064     $ 3,440,968     $ 1,827,902     $ 1,256,341
Loss per common share - basic and
diluted                              $     (0.45 )   $     (0.49 )   $     (0.18 )   $     (0.17 )
Weighted average common shares
outstanding                            8,988,446       7,087,831       9,888,126       7,223,377


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 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, as well as salaries and related expenses of research and development staff.

During the nine months ended May 31, 2014, research and development expenses totaled $2,513,142, compared to $1,977,258 for the nine months ended May 31, 2013. The increase is attributed to expenses related to the increase in clinical trials and preparation for the Phase 2b clinical trial, as well as 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 is attributed to awards granted to officers and directors in April 2014. During the nine months ended May 31, 2014, stock based compensation costs totaled $665,321, as compared to $301,804 during the nine months ended May 31, 2013.

During the three months ended May 31, 2014, research and development expenses totaled $1,089,298, compared to $835,636 for the three months ended May 31, 2013. The increase in research and development expenses during the three months ended May 31, 2014, as compared to the three months ended May 31, 2013, is mainly attributable to the increase in stock based compensation costs, which is attributed to awards granted to officers and directors during the three months ended May 31, 2014.

Government grants

In May 2013, Oramed Ltd., or the Subsidiary, was granted a fourth grant amounting to a total 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 2014, the Subsidiary was also granted a fifth grant amounting to a total 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 nine months ended May 31, 2014, we recognized research and development grants in an amount of $333,522, and in the nine months ended May 31, 2013, we recognized research and development grants in an amount of $101,639. As of May 31, 2014, we had not yet realized any revenues from the said project and did not incur any royalty liability 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 nine months ended May 31, 2014, general and administrative expenses totaled $1,743,902 compared to $1,349,081 for the nine months ended May 31, 2013. The increase in costs incurred related to general and administrative activities during the nine months ended May 31, 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 professional expenses. During the nine months ended May 31, 2014, as part of our general and administrative expenses, we incurred $374,841 related to stock options granted to employees and consultants, as compared to $325,707 during the nine months ended May 31, 2013.

For the three months ended May 31, 2014, general and administrative expenses totaled $813,923 compared to $499,034 for the three months ended May 31, 2013. The increase in general and administrative expenses during the three months ended May 31, 2014, as compared to the three months ended May 31, 2013, is attributable to the increase in stock based compensation costs, which is attributed to awards granted to officers and directors during the three months ended May 31, 2014.

Financial (income) expense, net

Net financial expense decreased from net expense of $114,629 for the nine months ended May 31, 2013 to net income of $189,980 for the May 31, 2014 period. 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 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 May 31, 2014, net financial income totaled $75,319, compared to $78,329 for the three months ended May 31, 2013. The decrease in net financial income during the three months ended May 31, 2014, as compared to the three months ended May 31, 2013, is attributable to decrease in exchange rate differences expenses.

Other comprehensive income

Subsequent increase in the fair value of available for sale securities previously written down as impaired for the nine months ended May 31, 2014 of $34,156 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 nine months ended May 31, 2014 of $80,017, resulted from the sale of 2,625,989 of our D.N.A ordinary shares in October and November 2013 and January and March 2014. Unrealized gains on available for sale securities for the nine months ended May 31, 2014 of $210,432, resulted from the increase in fair value of our D.N.A ordinary shares.

Liquidity and capital resources

From inception through May 31, 2014, we have incurred losses in an aggregate amount of $26,190,653. 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 $1,860,763 from exercise of warrants and options. We will seek to obtain additional financing through similar sources in the future as needed. As of May 31, 2014, we had $2,474,839 of available cash, $12,005,172 of short term bank deposits, $6,508,269 of long term bank deposits and $1,063,409 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 $11 million to finance our activities during the 12 months following May 31, 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. Based on our current cash resources and commitments, including cash received in public offerings in the period ended May 31, 2014, we believe we will be able to maintain our current planned development activities and the corresponding level of expenditures for at least the next 12 months and beyond.

During the nine month period ended May 31, 2014, cash and cash equivalents increased to $2,474,839 from the $2,272,228 reported as of August 31, 2013, which is due to the reasons described below.

Operating activities used cash of $3,266,135 in the nine month period ended May 31, 2014, as compared to $3,115,165 used in the nine months May 31, 2013. Cash used for operating activities in the nine months ended May 31, 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 nine months May 31, 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 nine month period ended May 31, 2014, we received $124,784 in OCS grants towards our research and development expenses, while we recognized the amount of $333,522 during such period and $58,237 was recognized in the year ended August 31, 2013. Most of the amounts that were recognized but not received during the nine month period ended May 31, 2014, were received from the OCS in June 2014. The amounts that were recognized but not received during the nine month period ended May 31, 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 $13,179,411 in the nine month period ended May 31, 2014, as compared to $1,643,828 that was used in the nine month period ended May 31, 2013. Cash used in investing activities in the nine months ended May 31, 2014 consisted primarily of the acquisition of short-term and long term bank deposits, while cash used in investing activities in the nine months ended May 31, 2013 consisted primarily of the acquisition of short-term bank deposits.

Financing activities provided cash of $16,638,273 in the nine month period ended May 31, 2014, as compared to $1,450,936 of cash provided by financing activities during the nine months ended May 31, 2013, which consisted of proceeds from our issuance of common stock and proceeds from exercise of warrants and options in the nine months ended May 31, 2014 and of proceeds from our issuance of common stock and warrants in the nine months ended May 31, 2013.

Off-balance sheet arrangements

As of May 31, 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 June 1, 2014 are as follows:

                         Category                                        Amount

                         Research and development, net of OCS funds   $  8,291,000
                         General and administrative expenses             2,772,000
                         Financial income, net                             (67,000 )
                         Total                                        $ 10,996,000

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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