UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 2017March 31, 2024
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 000-50298001-35813
ORAMED PHARMACEUTICALS INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware | 98-0376008 | |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
| ||
1185 Avenue of the Americas, Third Floor, New York, NY | 10036 | |
(Address of Principal Executive Offices) | (Zip Code) |
+ 972-2-566-0001844-967-2633
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading symbol | Name of each exchange on which registered | ||
Common Stock, par value $0.012 | ORMP | The Nasdaq Capital Market, Tel Aviv Stock Exchange |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
Non-accelerated filer | Smaller reporting company | ☒ | |
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
As of January 10, 2018,May 9, 2024, there were 14,370,93040,628,924 shares of the issuer’s common stock, $0.012 par value per share, outstanding.
ORAMED PHARMACEUTICALS INC.
FORM 10-Q
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION | 1 | ||
ITEM 1 - FINANCIAL STATEMENTS | 1 | ||
ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 18 | ||
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 28 | ||
ITEM 4 - CONTROLS AND PROCEDURES | 28 | ||
PART II - OTHER INFORMATION | 29 | ||
ITEM 6 - EXHIBITS | 29 |
As used in this Quarterly Report on Form 10-Q, the terms “we,” “us,” “our”“our,” “Oramed” and the “Company” mean Oramed Pharmaceuticals Inc. and our wholly-owned Israeli subsidiary, Oramed Ltd.,subsidiaries, unless otherwise indicated. All dollar amounts refer to U.S. Dollars unless otherwise indicated.
On November 30, 2017,March 31, 2024, the exchange rate between the New Israeli Shekel, or NIS, and the dollar, as quoted by the Bank of Israel, was NIS 3.4993.681 to $1.00. Unless indicated otherwise by the context, statements in this Quarterly Report on Form 10-Q that provide the dollar equivalent of NIS amounts or provide the NIS equivalent of dollar amounts are based on such exchange rate.
i
Cautionary Statement Regarding Forward-Looking Statements
The statements contained in this Quarterly Report on Form 10-Q that are not historical facts are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and other federal securities laws and the Israeli securities law. Words such as “expects,” “anticipates,” “intends,” “plans,” “planned expenditures,” “believes,” “seeks,” “estimates,” “considers” 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. We remind readers that forward-looking statements are merely predictions and therefore inherently subject to uncertainties and other factors and involve known and unknown risks that could cause the actual results, performance, levels of activity, or our achievements, or industry results, to be materially different from any future results, performance, levels of activity, or our achievements, or industry results, expressed or implied by such forward-looking statements. Such forward-looking statements include, among other statements, statements regarding the following:
● | our comprehensive analysis of data from our ORA-D-013-1 Phase 3 trial and plans to move forward with a protocol for a new Phase 3 clinical trial to be submitted to the U.S. Food and Drug Administration, or FDA; |
● | our plan to evaluate potential strategic opportunities; |
● | our ability to recover the proceeds and/or collateral under the Note (as defined herein) and related agreements from Scilex Holding Company, or Scilex; |
● | the fluctuating market price and liquidity of the common stock of Scilex underlying the warrants we hold; |
● | the possibility that the anticipated benefits of the Scilex Transaction (as defined herein) are not realized when expected or at all, including as a result of the impact of, or problems arising from, the ability of Scilex to repay the Note and the ability of the Company to realize the value of the warrants; |
● | the ability of Oramed, Hefei Tianhui Biotech Co., Ltd., or HTIT Biotech, and Technowl Limited to reach agreement and enter into additional agreements within a three-month period of the signing of the JV Agreement (as defined herein), and the ability of the parties to succeed in the goals set out for the joint venture; |
● | our exposure to potential litigation; |
● | our ability to enhance value for our stockholders; |
● | the expected development and potential benefits from our products; |
● | the prospects of entering into additional license agreements, or other partnerships or forms of cooperation with other companies or medical institutions; |
● | future milestones, conditions and royalties under our license agreements; |
● | the potential of the Oravax Medical Inc., or Oravax, vaccine to protect against the coronavirus, or COVID-19; |
● | our research and development plans, including preclinical and clinical trials plans and the timing of enrollment, obtaining results and conclusion of trials; |
ii
● | our belief that our technology has the potential to deliver medications and vaccines orally that today can only be delivered via injection; |
● | the competitive ability of our technology based on product efficacy, safety, patient convenience, reliability, value and patent position; |
● | the potential market demand for our products; |
● | our ability to obtain patent protection for our intellectual property; |
● | our expectation that our research and development expenses will continue to be our major expenditure; |
● | our expectations regarding our short- and long-term capital requirements; |
● | our outlook for the coming months and future periods, including but not limited to our expectations regarding future revenue and expenses; and |
● | information with respect to any other plans and strategies for our business. |
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 December 31, 2023, or our Annual Report, as filed with the Securities and Exchange Commission, or the SEC, on March 6, 2024, as well as those discussed elsewhere in our Annual Report and expressed from time to time in our other filings with the SEC. In addition, historic results of scientific research, clinical and preclinical trials do not guarantee that the conclusions of future research or trials would not suggest different conclusions. Also, historic results referred to in this Quarterly Report on Form 10-Q could be interpreted differently in light of additional research, clinical and preclinical trials results. 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.
iii
PART I – FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
ORAMED PHARMACEUTICALS INC.
INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF NOVEMBER 30, 2017MARCH 31, 2024
TABLE OF CONTENTS
Page | ||
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS: | ||
Balance sheets | 2 | |
Statements of comprehensive | 3 | |
4 | ||
Statements of cash flows | 5 | |
Notes to financial statements | 6-17 |
ORAMED PHARMACEUTICALS INC.
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
U.S. Dollars in thousands (except share and per share data)
(UNAUDITED)
November 30, | August 31, | |||||||
2017 | 2017 | |||||||
Assets | ||||||||
CURRENT ASSETS: | ||||||||
Cash and cash equivalents | $ | 1,258 | $ | 3,969 | ||||
Short-term deposits | 14,992 | 13,293 | ||||||
Marketable securities | 2,722 | 2,860 | ||||||
Restricted cash | - | 16 | ||||||
Prepaid expenses and other current assets | 163 | 159 | ||||||
Total current assets | 19,135 | 20,297 | ||||||
LONG-TERM ASSETS: | ||||||||
Long-term deposits and investment | 17,780 | 16,232 | ||||||
Marketable securities | 4,598 | 2,151 | ||||||
Amounts funded in respect of employee rights upon retirement | 14 | 14 | ||||||
Property and equipment, net | 17 | 18 | ||||||
Total long-term assets | 22,409 | 18,415 | ||||||
Total assets | $ | 41,544 | $ | 38,712 | ||||
Liabilities and stockholders’ equity | ||||||||
CURRENT LIABILITIES: | ||||||||
Accounts payable and accrued expenses | $ | 2,599 | $ | 2,716 | ||||
Deferred revenues | 2,449 | 2,449 | ||||||
Payable to related parties | 76 | - | ||||||
Total current liabilities | 5,124 | 5,165 | ||||||
LONG-TERM LIABILITIES: | ||||||||
Deferred revenues | 13,226 | 13,837 | ||||||
Employee rights upon retirement | 19 | 18 | ||||||
Provision for uncertain tax position | 11 | 11 | ||||||
Other liabilities | 423 | 443 | ||||||
Total long-term liabilities | 13,679 | 14,309 | ||||||
COMMITMENTS (note 2) | ||||||||
STOCKHOLDERS’ EQUITY: | ||||||||
Common stock, $0.012 par value (30,000,000 authorized shares; 14,307,890 and 13,668,530 shares issued and outstanding as of November 30, 2017 and August 31, 2017, respectively) | 170 | 163 | ||||||
Additional paid-in capital | 80,871 | 75,170 | ||||||
Accumulated other comprehensive income | 727 | 401 | ||||||
Accumulated loss | (59,027 | ) | (56,496 | ) | ||||
Total stockholders’ equity | 22,741 | 19,238 | ||||||
Total liabilities and stockholders’ equity | $ | 41,544 | $ | 38,712 |
March 31, | December 31, | |||||||
2024 | 2023 | |||||||
Assets | ||||||||
CURRENT ASSETS: | ||||||||
Cash and cash equivalents | $ | 18,576 | $ | 9,055 | ||||
Short-term deposits | 80,285 | 95,279 | ||||||
Investments at fair value | 77,733 | 57,713 | ||||||
Prepaid expenses and other current assets | 501 | 537 | ||||||
Total current assets | 177,095 | 162,584 | ||||||
LONG-TERM ASSETS: | ||||||||
Long-term deposits | 7 | 7 | ||||||
Investments at fair value | 19,544 | 51,035 | ||||||
Marketable securities | 2,026 | 1,807 | ||||||
Other non-marketable equity securities | 3,524 | 3,524 | ||||||
Amounts funded in respect of employee rights upon retirement | 29 | 27 | ||||||
Property and equipment, net | 819 | 873 | ||||||
Operating lease right-of-use assets | 608 | 694 | ||||||
Total long-term assets | 26,557 | 57,967 | ||||||
Total assets | $ | 203,652 | $ | 220,551 | ||||
Liabilities and stockholders’ equity | ||||||||
CURRENT LIABILITIES: | ||||||||
Accounts payable and accrued expenses | $ | 1,267 | $ | 1,609 | ||||
Short-term borrowings | 32,034 | 51,013 | ||||||
Payable to related parties | 1 | 325 | ||||||
Operating lease liabilities | 254 | 267 | ||||||
Total current liabilities | 33,556 | 53,214 | ||||||
LONG-TERM LIABILITIES: | ||||||||
Long-term deferred revenues | 4,000 | 4,000 | ||||||
Employee rights upon retirement | 29 | 28 | ||||||
Provision for uncertain tax position | 11 | 11 | ||||||
Operating lease liabilities | 272 | 342 | ||||||
Other liabilities | 63 | 63 | ||||||
Total long-term liabilities | 4,375 | 4,444 | ||||||
COMMITMENTS (note 3) | ||||||||
Equity | ||||||||
EQUITY ATTRIBUTABLE TO COMPANY’S STOCKHOLDERS: | ||||||||
Common stock, $0.012 par value (60,000,000 authorized shares; 40,519,160 and 40,338,979 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively) | 487 | 485 | ||||||
Additional paid-in capital | 322,172 | 320,892 | ||||||
Accumulated deficit | (156,020 | ) | (157,556 | ) | ||||
Total stockholders’ equity | 166,639 | 163,821 | ||||||
Non-controlling interests | (918 | ) | (928 | ) | ||||
Total equity | 165,721 | 162,893 | ||||||
Total liabilities and equity | $ | 203,652 | $ | 220,551 |
The accompanying notes are an integral part of the condensed consolidated financial statements.
ORAMED PHARMACEUTICALS INC.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSINCOME (LOSS)
U.S. Dollars in thousands (except share and per share data)
(UNAUDITED)
Three months ended | ||||||||
November 30, | November 30, | |||||||
2017 | 2016 | |||||||
REVENUES | $ | 611 | $ | 610 | ||||
COST OF REVENUES | - | 187 | ||||||
RESEARCH AND DEVELOPMENT EXPENSES, NET | 2,327 | 2,353 | ||||||
GENERAL AND ADMINISTRATIVE EXPENSES | 1,016 | 468 | ||||||
OPERATING LOSS | 2,732 | 2,398 | ||||||
FINANCIAL INCOME | 222 | 186 | ||||||
FINANCIAL EXPENSES | 21 | 24 | ||||||
LOSS BEFORE TAXES ON INCOME | 2,531 | 2,236 | ||||||
TAXES ON INCOME | - | 400 | ||||||
NET LOSS FOR THE PERIOD | $ | 2,531 | $ | 2,636 | ||||
UNREALIZED LOSS (GAIN) ON AVAILABLE FOR SALE SECURITIES | (326 | ) | 63 | |||||
TOTAL OTHER COMPREHENSIVE LOSS (GAIN) | (326 | ) | 63 | |||||
TOTAL COMPREHENSIVE LOSS FOR THE PERIOD | $ | 2,205 | $ | 2,699 | ||||
LOSS PER SHARE OF COMMON STOCK: | ||||||||
BASIC AND DILUTED LOSS PER SHARE OF COMMON STOCK | $ | 0.18 | $ | 0.20 | ||||
WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK USED IN COMPUTING BASIC AND DILUTED LOSS PER SHARE OF COMMON STOCK | 14,239,346 | 13,205,971 |
Three months ended March 31, | ||||||||
2024 | 2023 | |||||||
REVENUES | $ | - | $ | 666 | ||||
RESEARCH AND DEVELOPMENT EXPENSES | (1,179 | ) | (4,427 | ) | ||||
SALES AND MARKETING EXPENSES | - | (184 | ) | |||||
GENERAL AND ADMINISTRATIVE EXPENSES | (1,783 | ) | (1,263 | ) | ||||
OPERATING LOSS | (2,962 | ) | (5,208 | ) | ||||
INTEREST EXPENSES | (592 | ) | - | |||||
FINANCIAL INCOME, NET | 5,088 | 1,597 | ||||||
NET INCOME (LOSS) | $ | 1,534 | $ | (3,611 | ) | |||
NET INCOME (LOSS) ATTRIBUTABLE TO NON-CONTROLLING INTERESTS | (2 | ) | (216 | ) | ||||
NET INCOME (LOSS) ATTRIBUTABLE TO STOCKHOLDERS | $ | 1,536 | $ | (3,395 | ) | |||
BASIC INCOME (LOSS) PER SHARE OF COMMON STOCK | $ | 0.04 | $ | (0.08 | ) | |||
DILUTED INCOME (LOSS) PER SHARE OF COMMON STOCK | $ | 0.04 | $ | (0.08 | ) | |||
WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK USED IN COMPUTING BASIC INCOME (LOSS) PER SHARE OF COMMON STOCK | 40,835,953 | 40,041,258 | ||||||
WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK USED IN COMPUTING DILUTED INCOME (LOSS) PER SHARE OF COMMON STOCK | 41,564,007 | 40,041,258 |
The accompanying notes are an integral part of the condensed consolidated financial statements.
ORAMED PHARMACEUTICALS INC.
INTERIM CONDENSED CONSOLIDATED STATEMENTSTATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
U.S. Dollars in thousands (except share data)
(UNAUDITED)
Accumulated | ||||||||||||||||||||||||
Additional | other | Total | ||||||||||||||||||||||
Common Stock | paid-in | comprehensive | Accumulated | stockholders’ | ||||||||||||||||||||
Shares | $ | capital | income | loss | equity | |||||||||||||||||||
In thousands | ||||||||||||||||||||||||
BALANCE AS OF AUGUST 31, 2017 | 13,668 | $ | 163 | $ | 75,170 | $ | 401 | $ | (56,496 | ) | $ | 19,238 | ||||||||||||
CHANGES DURING THE THREE-MONTH PERIOD ENDED NOVEMBER 30, 2017: | ||||||||||||||||||||||||
SHARES ISSUED FOR SERVICES | 3 | * | 24 | - | - | 24 | ||||||||||||||||||
ISSUANCE OF COMMON STOCK, NET | 454 | 5 | 4,225 | - | - | 4,230 | ||||||||||||||||||
EXERCISE OF WARRANTS AND OPTIONS | 178 | 2 | 928 | - | - | 930 | ||||||||||||||||||
STOCK-BASED COMPENSATION | 5 | * | 524 | - | - | 524 | ||||||||||||||||||
NET LOSS | - | - | - | - | (2,531 | ) | (2,531 | ) | ||||||||||||||||
OTHER COMPREHENSIVE INCOME | - | - | - | 326 | - | 326 | ||||||||||||||||||
BALANCE AS OF NOVEMBER 30, 2017 | 14,308 | $ | 170 | $ | 80,871 | $ | 727 | $ | (59,027 | ) | $ | 22,741 |
Common Stock | Additional paid-in | Accumulated | Total stockholders’ | Non- controlling | Total | |||||||||||||||||||||||
Shares | $ | capital | deficit | equity | interests | equity | ||||||||||||||||||||||
In thousands | ||||||||||||||||||||||||||||
BALANCE AS OF DECEMBER 31, 2023 | 40,339 | $ | 485 | $ | 320,892 | $ | (157,556 | ) | $ | 163,821 | $ | (928 | ) | $ | 162,893 | |||||||||||||
CHANGES DURING THE THREE MONTH PERIOD ENDED MARCH 31, 2024 | ||||||||||||||||||||||||||||
STOCK-BASED COMPENSATION | 180 | 2 | 1,280 | - | 1,282 | - | 1,282 | |||||||||||||||||||||
STOCK-BASED COMPENSATION OF SUBSIDIARY | - | - | - | - | - | 12 | 12 | |||||||||||||||||||||
NET INCOME | - | - | - | 1,536 | 1,536 | (2 | ) | 1,534 | ||||||||||||||||||||
BALANCE AS OF MARCH 31, 2024 | 40,519 | $ | 487 | $ | 322,172 | $ | (156,020 | ) | $ | 166,639 | $ | (918 | ) | $ | 165,721 |
Common Stock | Additional paid-in | Accumulated | Total stockholders’ | Non- controlling | Total | |||||||||||||||||||||||
Shares | $ | capital | deficit | equity | interests | equity | ||||||||||||||||||||||
In thousands | ||||||||||||||||||||||||||||
BALANCE AS OF DECEMBER 31, 2022 | 39,564 | $ | 476 | $ | 314,417 | $ | (163,081 | ) | $ | 151,812 | $ | (656 | ) | $ | 151,156 | |||||||||||||
CHANGES DURING THE THREE MONTH PERIOD ENDED MARCH 31, 2023 | ||||||||||||||||||||||||||||
ISSUANCE OF COMMON STOCK, NET | 193 | 2 | 2,428 | - | 2,430 | - | 2,430 | |||||||||||||||||||||
STOCK-BASED COMPENSATION | 213 | 3 | 120 | - | 123 | - | 123 | |||||||||||||||||||||
STOCK-BASED COMPENSATION OF SUBSIDIARY | - | - | - | - | - | 50 | 50 | |||||||||||||||||||||
NET LOSS | - | - | - | (3,395 | ) | (3,395 | ) | (216 | ) | (3,611 | ) | |||||||||||||||||
BALANCE AS OF MARCH 31, 2023 | 39,970 | $ | 481 | $ | 316,965 | $ | (166,476 | ) | $ | 150,970 | $ | (822 | ) | $ | 150,148 |
* Represents an amount of less than $1.
The accompanying notes are an integral part of the condensed consolidated financial statements.
ORAMED PHARMACEUTICALS INC.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
(UNAUDITED)
Three months ended | ||||||||
November 30, | ||||||||
2017 | 2016 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net loss | $ | (2,531 | ) | $ | (2,636 | ) | ||
Adjustments required to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||
Depreciation | 1 | 1 | ||||||
Exchange differences and interest on deposits and held to maturity bonds | (71 | ) | (112 | ) | ||||
Stock-based compensation | 524 | 158 | ||||||
Shares issued for services | 24 | 17 | ||||||
Changes in operating assets and liabilities: | ||||||||
Prepaid expenses and other current assets | (4 | ) | (232 | ) | ||||
Accounts payable, accrued expenses and related parties | (41 | ) | 825 | |||||
Deferred revenues | (611 | ) | 3,366 | |||||
Liability for employee rights upon retirement | 1 | - | ||||||
Other liabilities | (20 | ) | 111 | |||||
Total net cash provided by (used in) operating activities | (2,728 | ) | 1,498 | |||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Purchase of short-term deposits | (2,039 | ) | (1,000 | ) | ||||
Purchase of long-term deposits | (3,540 | ) | (3,000 | ) | ||||
Purchase of held to maturity securities | (2,879 | ) | (1,056 | ) | ||||
Proceeds from sale of short-term deposits | 2,455 | 1,320 | ||||||
Proceeds from maturity of held to maturity securities | 857 | 300 | ||||||
Total net cash used in investing activities | (5,146 | ) | (3,436 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Proceeds from issuance of common stock, net of issuance costs | 4,230 | - | ||||||
Proceeds from exercise of warrants and options | 930 | 320 | ||||||
Total net cash provided by financing activities | 5,160 | 320 | ||||||
EFFECT OF EXCHANGE RATE CHANGES ON CASH | 3 | 1 | ||||||
DECREASE IN CASH AND CASH EQUIVALENTS | (2,711 | ) | (1,617 | ) | ||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 3,969 | 3,907 | ||||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 1,258 | $ | 2,290 | ||||
SUPPLEMENTARY DISCLOSURE ON CASH FLOWS - | ||||||||
Interest received | $ | 133 | $ | 56 |
Three months ended | ||||||||
March 31, | ||||||||
2024 | 2023 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net income (loss) | $ | 1,534 | $ | (3,611 | ) | |||
Adjustments required to reconcile net income (loss) to net cash used in operating activities: | ||||||||
Depreciation | 56 | 37 | ||||||
Exchange differences and interest on deposits and held to maturity bonds | (5 | ) | (1,267 | ) | ||||
Changes in fair value of investments | (3,748 | ) | (65 | ) | ||||
Stock-based compensation | 1,294 | 173 | ||||||
Gain on amounts funded in respect of employee rights upon retirement | (2 | ) | - | |||||
Accrued interest on short-term borrowings to maturity | 21 | - | ||||||
Changes in operating assets and liabilities: | ||||||||
Prepaid expenses and other current assets | 36 | (34 | ) | |||||
Accounts payable, accrued expenses and related parties | (666 | ) | (103 | ) | ||||
Net changes in operating lease | 3 | (16 | ) | |||||
Deferred revenues | - | (666 | ) | |||||
Liability for employee rights upon retirement | 1 | 5 | ||||||
Other liabilities | - | (2 | ) | |||||
Total net cash used in operating activities | (1,476 | ) | (5,549 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Purchase of short-term deposits | (4,000 | ) | (19,000 | ) | ||||
Proceeds from short-term deposits | 19,000 | 4,500 | ||||||
Proceeds from maturity of held to maturity securities | - | 1,496 | ||||||
Proceeds from long-term investments | 15,000 | - | ||||||
Purchase of property and equipment | (2 | ) | (199 | ) | ||||
Total net cash provided by (used in) investing activities | 29,998 | (13,203 | ) | |||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Proceeds from issuance of common stock, net of issuance costs | - | 2,430 | ||||||
Loans repaid | (19,000 | ) | - | |||||
Total net cash provided by (used in) financing activities | (19,000 | ) | 2,430 | |||||
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS | (1 | ) | (38 | ) | ||||
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 9,521 | (16,360 | ) | |||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 9,055 | 40,464 | ||||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 18,576 | $ | 24,104 | ||||
(A) SUPPLEMENTARY DISCLOSURE ON CASH FLOWS - | ||||||||
Interest received | $ | 1,341 | $ | 308 | ||||
Interest paid | $ | (571 | ) | $ | - |
The accompanying notes are an integral part of the condensed consolidated financial statements.
ORAMED PHARMACEUTICALS INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands (except share and per share data)
(UNAUDITED)
(UNAUDITED)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES:GENERAL:
a. |
Oramed Pharmaceuticals Inc. (collectively with its subsidiary,subsidiaries, the “Company”, unless the context indicates otherwise), a Delaware corporation, was incorporated on April 12, 2002, under the laws of the State of Nevada. From incorporation until2002.
On March 3, 2006, the Company was an exploration stage company engaged in the acquisition and exploration of mineral properties. On February 17, 2006,18, 2021, the Company entered into ana license agreement (the “Oravax License Agreement”) with HadasitOravax Medical ServicesInc. (“Oravax”) and Developmentinto a stockholders agreement (the “Stockholders Agreement”) with Akers Biosciences Inc., Premas Biotech Pvt. Ltd. (“Hadasit”), Cutter Mill Capital LLC and Run Ridge LLC. According to acquire the provisional patent relatedStockholders Agreement, Oravax issued 1,890,000 shares of its capital stock to an orally ingestible insulin capsule to be used for the treatment of individuals with diabetes.
On May 14, 2007, the Company, representing 63% of the issued and outstanding share capital of Oravax as of the date of issuance. Consequently, Oramed consolidates Oravax in its consolidated financial statements since that time.
On November 23, 2021, Oravax incorporated a wholly-owned subsidiary in Israel, OramedOravax Medical Ltd. (the “Subsidiary”), which is engaged in research and development. Effective January 1, 2022, Oravax transferred its rights and obligations under the Oravax License Agreement to Oravax Medical Ltd.
On MarchJanuary 11, 2011,2023, the Company announced that the ORA-D-013-1 Phase 3 trial did not meet its primary and secondary endpoints. As a result, the Company terminated this trial and a parallel Phase 3, ORA-D-013-2 clinical trial. As these results are considered a triggering event, the Company evaluated all of its long lived assets which include fixed assets and operating lease right-of-use assets in the first quarter of 2023 and concluded that no impairment was reincorporatedrequired. The Company completed an analysis of the data from the StateORA-D-013-1 Phase 3 trial and found that subpopulations of Nevadapatients with pooled specific parameters, such as body mass index (BMI), baseline HbA1c, age, gender and body weight, responded well to oral insulin. These subsets exhibited an over 1% placebo adjusted, statistically significant, reduction in HbA1c. Based on this analysis, the Company is working on a protocol for a new Phase 3 clinical trial to be submitted to the State of Delaware.FDA.
On November 30, 2015,January 22, 2024, the Company and its wholly-owned subsidiary, Oramed Ltd., entered into a Technology License Agreementjoint venture agreement (the “JV Agreement”), with Hefei Tianhui Incubation of TechnologiesBiotech Co., Ltd. (“HTIT”HTIT Biotech”) and on December 21, 2015,Technowl Limited, a wholly-owned indirect subsidiary of HTIT Biotech (“HTIT Sub” and together with HTIT Biotech, “HTIT”), pursuant to which, subject to the terms and conditions set forth in the JV Agreement, the parties entered into an Amendedwill establish a joint venture (the “JV”), based on the Company’s oral drug delivery technology.
The JV will focus on the development and Restated Technology License Agreement that was further amended by the partiesworldwide commercialization of innovative products based on June 3, 2016 and July 24, 2016 (the “License Agreement”). According to the License Agreement, the Company granted HTIT an exclusive commercialization license in the territory of the People’s Republic of China, Macau and Hong Kong (the “Territory”), related to the Company’s oral insulin capsule, ORMD-0801 (the “Product”). Pursuantand POD™ (Protein Oral Delivery) pipeline and HTIT’s manufacturing capabilities and technologies. The parties intend for the JV to use the protocol the Company is currently working on to initiate a Phase 3 oral insulin trial in the United States.
The Company and HTIT will initially hold equal shares in the JV, with each owning 50% of the equity. The board of directors will initially consist of equal representation from HTIT and the Company. HTIT will contribute to the License Agreement,JV $70,000 in cash, while the Company will contribute $20,000 (comprised of $10,000 in cash and $10,000 in shares of the Company’s common stock that will be subject to certain registration rights) and will transfer intellectual property related to its oral insulin and POD™ technology, as well as other assets in the Company’s pipeline. HTIT will conduct, athave an option to invest additional funds into the JV up to an aggregate amount of $20,000, thereby increasing its own expense, certain pre-commercializationequity holdings and regulatory activities with respectgranting the right to increase its board representation. The Company will be entitled to receive a 3% royalty on gross revenues of the JV generated from Company-related assets.
The consummation of the JV Agreement is subject to and contingent upon the parties entering into additional agreements within a three-month period from the signature of the JV Agreement, including an asset transfer agreement for the transfer of the Company’s intellectual property to the Subsidiary’s technologyJV, a commercial supply agreement for the manufacture and ORMD-0801 capsule,supply of products by HTIT to the JV, as well as other documents and agreements to regulate the relationship of the parties and the JV to be formed pursuant to the JV Agreement. There is no assurance that the parties will complete and sign these additional agreements within the agreed timeline or at all. If such agreements are not signed within the agreed timeframe, then either party may apply a 30-day extension, after which the JV Agreement may be terminated and voided by either party. The 30-day extension was applied by the Company on April 18, 2024 and will pay tolast until May 22, 2024. Thereafter, the Subsidiary (i) royalties of 10% on net salesconsummation of the related commercialized products to be sold by HTIT in the Territory (“Royalties”), and (ii) an aggregate of $37,500, of which $3,000 was payable immediately, $8,000 will be paidJV transaction is further subject to the Company entering into certain agreements with certain third parties, and $26,500 will be paid upon achievementsatisfaction or waiver of certain milestones and conditions. Inother closing conditions within a three-month period following the event thatcompletion of the Company doesaforesaid ancillary agreements. If the closing conditions are not meet certain conditions,met within the Royalties rateagreed timeframe, then either party may apply a 30-day extension, after which the JV Agreement may be reduced to a minimum of 8%. Following the final expirationterminated and voided by either party. In addition, completion of the Company’s patents coveringtransactions contemplated under the technology inJV Agreement is subject to the Territory in 2033, the Royalties rate may be reduced, undersatisfaction or waiver of customary and certain circumstances, to 5%.other closing conditions.
The royalty payment obligation shall apply during the period of time beginning upon the first commercial sale of the Product in the Territory, and ending upon the later of (i) the expiration of the last-to-expire licensed patents in the Territory; and (ii) 15 years after the first commercial sale of the Product in the Territory (the “Royalty Term”).
The License Agreement shall remain in effect until the expiration of the Royalty Term. The License Agreement contains customary termination provisions.
ORAMED PHARMACEUTICALS INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands (except share and per share data)
(UNAUDITED)
(UNAUDITED)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIESGENERAL (continued):
Among others, the Company’s involvement through the product submission date will include consultancy for the pre-commercialization activities in the Territory, as well as advisory services to HTIT on an ongoing basis.
The initial payment of $3,000 was received in January 2016. Following the achievement of certain milestones, the second and third payments of $6,500 and $4,000, respectively, were received in July 2016 and the fourth milestone payment of $4,000 was received in October 2016.
In addition, on November 30, 2015, the Company entered into a Stock Purchase Agreement with HTIT (the “SPA”). According to the SPA, the Company issued 1,155,367 shares of common stock to HTIT for $12,000. The transaction closed on December 28, 2015.
The License Agreement and the SPA were considered a single arrangement with multiple deliverables. The Company allocated the total consideration of $49,500 between the License Agreement and the SPA according to their fair value, as follows: $10,617 was allocated to the issuance of common stock (less issuance expenses of $23), based on the quoted price of the Company’s shares on the closing date of the SPA on December 28, 2015, and $38,883 was allocated to the License Agreement. Given the Company’s continuing involvement through the expected product submission (June 2023), amounts received relating to the License Agreement are recognized over the period from which the Company is entitled to the respective payment, and the expected product submission date using a time-based model approach over the periods that the fees are earned.
In July 2015, according to the letter of intent signed between the parties or their affiliates, HTIT’s affiliate paid the Subsidiary a non-refundable amount of $500 as a no-shop fee. The no-shop fee was deferred and the related revenue is recognized over the estimated term of the License Agreement.
Amounts that were allocated to the License Agreement as of November 30, 2017 aggregated $19,383, all of which were received through the balance sheet date. Through November 30, 2017, the Company recognized revenue in the amount of $3,708, and deferred the remaining amount of $15,675.
ORAMED PHARMACEUTICALS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands (except share and per share data)
(UNAUDITED)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES(continued):
The following table summarizes the movement in deferred revenues balances for the three-month period ended November 30, 2017 and the year ended August 31, 2017:
Three months ended November 30, | Year ended August 31, | ||||||||
2017 | 2017 | ||||||||
Deferred revenue at the beginning of period | $ | 16,286 | $ | 14,766 | |||||
Amounts received | - | 4,000 | |||||||
Amounts due to the Company | - | (24 | ) | ||||||
Revenue recognized | (611 | ) | (2,456 | ) | |||||
Deferred revenue at the end of period | 15,675 | 16,286 | |||||||
Less – current deferred revenue portion | (2,449 | ) | (2,449 | ) | |||||
Non-current deferred revenue portion | $ | 13,226 | $ | 13,837 |
Development and |
The Company is engaged in research and development in the biotechnology field for 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 for delivery of other polypeptides, and has not generated significant revenues from its operations. Continued operationFollowing the termination of the ORA-D-013-1 and ORA-D-013-2 Phase 3 trials, the Company’s research and development activities have been significantly reduced while it conducts a strategic review process. As a result, the Company is contingent upon obtaining sufficient funding until it becomes profitable. Successful completion ofcurrently incurring lower research and development and sales and marketing expenses.
Based on the Company’s development programscurrent cash resources and commitments, the Company believes it will be able to maintain its transition to normal operations is dependent upon obtaining necessary regulatory approvals fromcurrent planned activities and the U.S. Food and Drug Administration prior to selling its products withincorresponding level of expenditures for at least the United States, obtaining foreign regulatory approvals to sell its products internationally, or entering into licensing agreements with third parties. Therenext 12 months, although no assurance can be no assurancegiven that the Company will receive regulatory approval of anynot need additional funds prior to such time. If there are unexpected increases in its operating expenses, the Company may need to seek additional financing during the next 12 months. The Company may also need additional funds to realize the decisions made as part of its product candidates, and a substantial amount of time may pass before the Company achieves a level of revenues adequate to support its operations, if at all. The Company also expects to incur substantial expenditures in connection with the regulatory approval process for each of its product candidates during their respective developmental periods. Obtaining marketing approval will be directly dependent on the Company’s ability to implement the necessary regulatory steps required to obtain marketing approval in the United States and in other countries.strategic review process. The Company cannot predict the outcome of these activities.
BasicOn August 7, 2023, the Company entered into a Stock Purchase Agreement, as subsequently amended on August 9, 2023 and diluted net loss per common shareAugust 21, 2023, (the “Sorrento SPA”), with Sorrento Therapeutics, Inc. (“Sorrento”), to acquire certain equity securities of Scilex Holding Company (“Scilex”), owned by Sorrento (the “Purchased Securities”), for a purchase price of $105,000. Sorrento and its affiliated debtor, Scintilla Pharmaceuticals, Inc. (“Scintilla” and together with Sorrento, the “Debtors”) are computedin Chapter 11 bankruptcy proceedings.
On August 9, 2023, the Company entered into a Senior Secured, Super-Priority Debtor-in-Possession Loan and Security Agreement (the “Senior DIP Loan Agreement”) with the Debtors in the principal amount of $100,000, which included a non-refundable closing fee of $450 paid in full out of the proceeds. This amount was subsequently drawn in full by dividing the net lossDebtors and was intended to be used by the Company as a credit for the periodconsideration for the Purchased Securities, with an additional $5,000 in cash to be paid by the weighted average numberCompany at closing. Thereafter, the Company and Sorrento continued discussions and negotiations relating to the sale contemplated under the Sorrento SPA.
On September 21, 2023, the Company entered into and consummated the transactions contemplated by a Securities Purchase Agreement (the “Scilex SPA”) with Scilex and Acquiom Agency Services LLC. Pursuant to the Scilex SPA, in exchange for Scilex assuming outstanding obligations of sharesSorrento under the Senior DIP Loan Agreement (the “DIP Assumption”) and for the ability to credit the amounts assumed under the DIP Assumption in exchange for certain equity securities of common stock outstanding for each period. Outstanding stock options, warrants and restricted stock units (“RSUs”) have been excludedScilex owned by Sorrento, Scilex (i) issued to the Company (A) a Senior Secured Promissory Note due 18 months from the calculationdate of issuance in the principal amount of $101,875 (the “Note”), which includes accrued and unpaid interest of $875 under the Senior DIP Loan Agreement and $1,000 of fees added to the principal amount of the diluted loss per share because all such securities are anti-dilutive for all periods presented. The total numberNote, (B) the Closing Penny Warrant (as defined herein), and (C) the Subsequent Penny Warrants (as defined herein), and (ii) caused the Transferred Warrants (as defined herein) to be transferred to the Company. For further details, see note 7.
On August 8, 2023, the Company borrowed an aggregate of common stock options, warrants and RSUs excluded$99,550 pursuant to loan agreements from the calculation of diluted net loss was 1,424,029 and 2,470,494 for the three-month periods ended November 30, 2017 and 2016, respectively.Israel Discount Bank Ltd. For further details, see note 6.
ORAMED PHARMACEUTICALS INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands (except share and per share data)
(UNAUDITED)
NOTE 12 - SIGNIFICANT ACCOUNTING POLICIESPOLICIES:(continued):
a. | Condensed |
The condensed consolidated financial statements included herein have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAPGAAP”) and, on the same basis as the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended AugustDecember 31, 20172023 (the “2017“2023 Form 10-K”). These condensed consolidated financial statements reflect all adjustments that are of a normal recurring nature and that are considered necessary for a fair statement of the results of the periods presented. Certain information and disclosures normally included in annual consolidated financial statements have been omitted in this interim period report pursuant to the rules and regulations of the Securities and Exchange Commission. Because the condensed consolidated interim financial statements do not include all of the information and disclosures required by U.S. GAAP for annual financial statements, they should be read in conjunction with the audited consolidated financial statements and notes included in the 20172023 Form 10-K. The results for interim periods are not necessarily indicative of a full fiscal year’s results.
b. | Earnings (loss) per common share |
Basic net earnings (loss) per common share are computed by dividing the net earnings (loss) attributable to stockholders for the period by the weighted average number of shares of common stock outstanding for each period, including vested restricted stock units (“RSUs”). Outstanding stock options, warrants and RSUs have been excluded from the calculation of the diluted loss per share because all such securities are anti-dilutive for the three month period ended March 31, 2023.
For the diluted earnings per share calculation for the three month period ended March 31, 2024, the weighted average number of shares outstanding during the three month period ended March 31, 2024 is adjusted for the potential dilution that could occur in connection with employee share-based payment, using the treasury stock method.
The weighted average number of stock options, warrants and RSUs that has been excluded from the calculation of the diluted income per share as of March 31, 2024 was 4,846,474 shares.
The weighted average number of stock options, warrants and RSUs excluded from the calculation of diluted net loss was 3,357,911 for the three month period ended March 31, 2023.
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09 (Topic 606) “Revenue from Contracts with Customers” that will supersede most current revenue recognition guidance, including industry-specific guidance. The underlying principle of this ASU is that an entity will recognize revenue upon the transfer of goods or services to customers in an amount that the entity expects to be entitled to in exchange for those goods or services. The guidance provides a five-step analysis of transactions to determine when and how revenue is recognized. Other major provisions include capitalization of certain contract costs, consideration of the time value of money in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. The guidance also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. The guidance is effective in annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. The Company will implement the guidance for the annual period ending on August 31, 2019. The Company is currently evaluating the impact of the guidance on its consolidated financial statements.
ORAMED PHARMACEUTICALS INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands (except share and per share data)
(UNAUDITED)
NOTE 2 - COMMITMENTS:
As part of this agreement, the Subsidiary entered into a patent transfer agreement according to which the Subsidiary assigned to Entera all of its right, title and interest in and to the patent application that it has licensed to Entera since August 2010. Under this agreement, the Subsidiary is entitled to receive from Entera royalties of 3% of Entera’s net revenues (as defined in the agreement) and a license back of that patent application for use in respect of diabetes and influenza. As of November 30, 2017, Entera had not yet realized any revenues and had not paid any royalties to the Subsidiary.
In addition, as part of a consulting agreement with a third party, dated February 15, 2011, the Subsidiary is obliged to pay this third party royalties of 8% of the net royalties received in respect of the patent that was sold to Entera in March 2011.
The annual lease payment is New Israeli Shekel (“NIS”) 119,000 ($34) from October 2016 through September 2018 and NIS 132,000 ($38) from October 2018 through September 2021, and is linked to the increase in the Israeli consumer price index (“CPI”) (as of November 30, 2017, the future lease payments until the expiration of the lease agreement will be $142, based on the exchange rate as of November 30, 2017).
As security for its obligation under this lease agreement, the Company provided a bank guarantee in an amount equal to three monthly lease payments.
ORAMED PHARMACEUTICALS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands (except share and per share data)
(UNAUDITED)
NOTE 2 - COMMITMENTSSIGNIFICANT ACCOUNTING POLICIES (continued):
c. | Recently issued accounting pronouncements, not yet adopted |
In November 2023, the Financial Accounting Standard Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2023-07 “Segment Reporting: Improvements to Reportable Segment Disclosures.” This guidance expands public entities’ segment disclosures primarily by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items, and interim disclosures of a reportable segment’s profit or loss and assets. Public entities with a single reportable segment are required to provide the new disclosures and all the disclosures required under ASC 280 “Segment Reporting”. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The amendments are required to be applied retrospectively to all prior periods presented in an entity’s financial statements. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements related disclosures.
In December 2023, the FASB issued ASU 2023-09 “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” This guidance is intended to enhance the transparency and decision-usefulness of income tax disclosures. The amendments in ASU 2023-09 address investor requests for enhanced income tax information primarily through changes to disclosure regarding rate reconciliation and income taxes paid both in the U.S. and in foreign jurisdictions. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024 on a prospective basis, with the option to apply the standard retrospectively. Early adoption is permitted. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements disclosures.
The Subsidiary is committed to pay royalties to Bio-Jerusalem on proceeds from future sales at a rate of 4% and up to 100% of the amount of the grant received (Israeli CPI linked) at the total amount of $65. The Company received no grants from Bio-Jerusalem since fiscal year 2013.
Through November 30, 2017, total milestone payments received which are related to the funded project aggregated $17,500 and all related royalty expenses were recognized in cost of revenues in prior periods.
Under the terms of the Company’s funding from the IIA, royalties of 3.5% are payable on sales of products developed from a project so funded, up to a maximum amount equaling 100%-150% of the grants received (dollar linked) with the addition of interest at an annual rate based on LIBOR.
At the time the grants were received, successful development of the related projects was not assured.
The total amount that was received through November 30, 2017 was $2,194.
Through November 30, 2017, total milestone payments received which are related to the funded project aggregated $17,500. The royalty expenses were recognized in cost of revenues in prior periods and will be paid over the term of the License Agreement in accordance with the revenue recognized from the related project.
ORAMED PHARMACEUTICALS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands (except share and per share data)
(UNAUDITED)
NOTE 3 - FAIR VALUE:
The Company measures fair value and discloses fair value measurements for financial assets and liabilities. Fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In order to increase consistency and comparability in fair value measurements, the guidance establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described as follows:
Level 1: | Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs. |
Level 2: | Observable prices that are based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. |
Level 3: | Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs. |
As of November 30, 2017,March 31, 2024, the assets or liabilities measured at fair value are comprised of available for salemarketable equity securities (Level 1).
In determiningas presented in note 4 and of the Transferred Warrants included in the Scilex SPA as presented in note 7 were based on a Level 1 measurement. The fair value of the Company utilizes valuation techniques that maximizeClosing Penny Warrant as presented in note 7 were based on a Level 2 measurement. The fair value of the useinvestment in non-marketable equity securities as presented in note 5, of observable inputsthe Subsequent Penny Warrants as presented in note 7 and minimizeof the use of unobservable inputs to the extent possible.Note as presented in note 7 were based on a Level 3 measurement.
As of November 30, 2017,March 31, 2024, the carrying amountamounts of cash and cash equivalents, short-term deposits, Short-Term Borrowings (as defined herein) and other current assets, accounts payable and accrued expenses approximate their fair values due to the short-term maturities of these instruments.
As of November 30, 2017, the carrying amount of long-term deposits approximates their fair values due to the stated interest rates which approximate market rates.
The fair value of held to maturity bonds as presented in note 4 was based on a Level 1 measurement.
The amounts funded in respect of employee rights are stated at cash surrender value which approximates its fair value.
There were no Level 3 items for the three-month periods ended November 30, 2017 and 2016.
ORAMED PHARMACEUTICALS INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands (except share and per share data)
(UNAUDITED)
NOTE 3 - COMMITMENTS:
(UNAUDITED)
a. | Medicox License Agreement On November 13, 2022, the Company entered into a distribution license agreement (“Medicox License Agreement”) with Medicox Co., Ltd. (“Medicox”). The Medicox License Agreement grants Medicox an exclusive license to apply for regulatory approval and distribute ORMD-0801 in the Republic of Korea. The Medicox License Agreement is for ten years, but the parties have the right to terminate it upon 180 days’ notice. Medicox will comply with agreed distribution targets and will purchase ORMD-0801 at an agreed upon transfer price per capsule. In addition, Medicox will pay the Company up to $15,000 in developmental milestones, $2,000 of which have already been received by the Company, and up to 15% royalties on gross sales. Medicox will also be responsible for obtaining a regulatory approval in the Republic of Korea. The Company is currently evaluating with Medicox a path forward to continue its collaboration, following the results of the ORA-D-013-1 Phase 3 trial. |
b. | Grants from the Israel Innovation Authority (“IIA”) |
Under the terms of the Company’s funding from the IIA, royalties of 3% are payable on sales of products developed from a project so funded, up to a maximum amount equaling 100%-150% of the grants received (dollar linked) with the addition of interest at an annual rate based on SOFR.
At the time the grants were received, successful development of the related projects was not assured. The total amount received through March 31, 2024 was $2,213 ($2,570 including interest).
As of March 31, 2024, the liability to the IIA was $59.
ORAMED PHARMACEUTICALS INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands (except share and per share data)
(UNAUDITED)
NOTE 4 - MARKETABLE SECURITIES:
The Company’s marketable securities include investments in equity securities of DNA GROUP (T.R.) Ltd. (formerly D.N.A Biomedical Solutions Ltd.) (“DNA”), Entera Bio Ltd. (“Entera”), and in held to maturity bonds.the Transferred Warrants (as defined herein; for further details, see note 7).
a. |
November 30, 2017 | August 31, 2017 | ||||||||
Short-term: | |||||||||
D.N.A (see b below) | $ | 1,322 | $ | 996 | |||||
Held to maturity bonds (see c below) | 1,400 | 1,864 | |||||||
$ | 2,722 | $ | 2,860 | ||||||
Long-term: | |||||||||
Held to maturity bonds (see c below) | $ | 4,598 | $ | 2,151 |
March 31, 2024 | December 31, 2023 | |||||||
Long-term: | ||||||||
DNA (see b below) | $ | 367 | $ | 297 | ||||
Entera (see c below) | 195 | 70 | ||||||
Transferred Warrants (see note 7) | 1,464 | 1,440 | ||||||
$ | 2,026 | $ | 1,807 |
b. |
The investment in D.N.A is reported at fair value, with unrealized gains and losses, recorded as a separate component of other comprehensive income in equity until realized. Unrealized losses that are considered to be other-than-temporary are charged to statement of operations as an impairment charge and are included in the consolidated statement of operations under impairment of available-for-sale securities.
The D.N.ADNA ordinary shares are traded on the Tel Aviv Stock Exchange. The fair value of those securities is measured at the quoted prices of the securities on the measurement date.
During the three month periods ended March 31, 2024 and March 31, 2023, the Company did not sell any of DNA’s ordinary shares. As of November 30, 2017,March 31, 2024, the Company owns approximately 6.9%1.4% of D.N.A’sDNA’s outstanding ordinary shares.
The cost of the securities as of November 30, 2017both March 31, 2024 and AugustDecember 31, 2017 is2023 was $595.
c. | Entera |
Entera ordinary shares have been traded on the Nasdaq Capital Market since June 28, 2018. The Company measures the investment at fair value from such date, since it has a readily determinable fair value (prior to such date the investment was accounted for as a cost method investment (amounting to $1)).
ORAMED PHARMACEUTICALS INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands (except share and per share data)
(UNAUDITED)
(UNAUDITED)
NOTE 45 - MARKETABLE SECURITIESOTHER NON-MARKETABLE EQUITY SECURITIES: (continued):
On August 26, 2022, the Company entered into a stock purchase agreement with Diasome Pharmaceuticals, Inc. (“Diasome”), a privately-held company, pursuant to which the Company purchased shares of Series B preferred stock of Diasome for an aggregate purchase price of approximately $2,700. Following the purchase, the Company holds less than 5% of the issued and outstanding stock of Diasome. The amortizedstock purchase agreement provides the Company with the option to purchase additional preferred shares of stock on a pro rata basis at similar terms to the terms and conditions of that round contingent upon Diasome achieving certain milestones.
The Company accounts for the investment under the measurement alternative in Accounting Standards Codification (“ASC”) 321 “Investments – Equity Securities,” whereby the equity investment is recorded at cost, and estimatedless impairment. The carrying amount is subsequently remeasured to its fair value in accordance with the provisions of held-to-maturity securitiesASC 820 “Fair Value Measurement” when observable price changes occur as of November 30, 2017,the date the transaction occurred, or it is impaired. Any adjustments to the carrying amount are as follows:recorded in the statements of comprehensive income or loss.
November 30, 2017 | |||||||||||||
Amortized cost | Gross unrealized losses |
Estimated fair value | |||||||||||
Short-term: | |||||||||||||
Commercial bonds | $ | 1,359 | $ | (2 | ) | $ | 1,357 | ||||||
Accrued interest | 41 | - | 41 | ||||||||||
Long-term | 4,598 | (27 | ) | 4,571 | |||||||||
$ | 5,998 | $ | (29 | ) | $ | 5,969 |
The Company’s non-marketable equity securities are an investment in a company without a readily determinable fair value. During fiscal year 2023, the Company recorded an $824 increase in value due to the closing in June 2023 of a Series C investment round in Diasome. The change was recorded using the transaction price of similar securities issued by Diasome, adjusted for contractual rights and obligations of the securities held by the Company.
NOTE 6 - SHORT-TERM BORROWINGS:
On August 8, 2023, the Company borrowed an aggregate of $99,550 pursuant to loan agreements from Israel Discount Bank Ltd. (the “Short-Term Borrowings”). The Short-Term Borrowings mature on dates ranging from August 11, 2023 to May 24, 2024, bear interest ranging from 6.66% to 7.38%, and are secured by certificates of deposits issued by Israel Discount Bank Ltd. having an aggregate face amount of $99,550. The net proceeds of the Short-Term Borrowings were used to fund the Note (for further details, see note 7). The Short-Term Borrowings are paid in one payment of principal and interest at each respective maturity. As of November 30, 2017,March 31, 2024, $70,146 was repaid under the contractual maturities ofShort-Term Borrowings.
The aggregate remaining annual principal payments on debt securities classified as held-to-maturity are as follows: after one year through two years, $4,598, and the yield tountil maturity rates vary between 1.40% to 1.90%.is $30,550.
The amortized cost and estimated fair value of held-to-maturity securities as of August 31, 2017, are as follows:
August 31, 2017 | |||||||||||||
Amortized cost | Gross unrealized losses |
Estimated fair value | |||||||||||
Short-term: | |||||||||||||
Commercial bonds | $ | 1,823 | $ | (1 | ) | $ | 1,822 | ||||||
Accrued interest | 41 | - | 41 | ||||||||||
Long-term | 2,151 | - | 2,151 | ||||||||||
$ | 4,015 | $ | (1 | ) | $ | 4,014 |
As of August 31, 2017, the contractual maturities of debt securities classified as held-to-maturity are as follows: after one year through two years, $2,151 and the yield to maturity rates vary between 1.30% to 1.87%.
Held to maturity securities which will mature during the 12 months from the balance sheet date are included in short-term marketable securities. Held to maturity securities with maturity dates of more than one year are considered long-term marketable securities.
ORAMED PHARMACEUTICALS INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands (except share and per share data)
(UNAUDITED)
(UNAUDITED)
NOTE 5 - LONG-TERM DEPOSITS AND INVESTMENTS:
Composition:
November 30, | August 31, | ||||||||
2017 | 2017 | ||||||||
Bank deposits (1) | $ | 17,778 | $ | 16,230 | |||||
Lease car deposits | 1 | 1 | |||||||
Investment | 1 | 1 | |||||||
$ | 17,780 | $ | 16,232 |
NOTE 6 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Composition:
November 30, | August 31, | ||||||||
2017 | 2017 | ||||||||
Accounts payable | $ | 1,582 | $ | 571 | |||||
Payroll and related accruals | 54 | 97 | |||||||
Institutions | 24 | 228 | |||||||
Accrued liabilities | 645 | 1,593 | |||||||
Other | 294 | 227 | |||||||
$ | 2,599 | $ | 2,716 |
NOTE 7 - STOCKHOLDERS’ EQUITY:INVESTMENTS, AT FAIR VALUE:
Scilex Transaction
On April 2, 2015,September 21, 2023 (the “Closing Date”), the Company entered into and consummated the transactions (collectively, the “Transaction”) contemplated by the Scilex SPA with Scilex and Acquiom Agency Services LLC. Pursuant to the Scilex SPA, in exchange for the DIP Assumption and for the ability to credit the amounts assumed under the DIP Assumption in exchange for certain equity securities of Scilex owned by Sorrento, Scilex (i) issued to the Company (A) the Note, (B) a warrant to purchase up to an At The Market Issuance Sales Agreement (the “Sales Agreement”) with B. Riley FBR, Inc., as successor to FBR Capital Markets & Co.aggregate of 4,500,000 shares of common stock of Scilex, par value $0.0001 per share (“FBR”Scilex Common Stock”), as amended,with an exercise price of $0.01 per share and containing certain restrictions on exercisability (the “Closing Penny Warrant”), and (C) warrants to purchase up to an aggregate of 8,500,000 shares of Scilex Common Stock (the “Subsequent Penny Warrants” and together with the Closing Penny Warrant, the “Penny Warrants”), each with an exercise price of $0.01 per share and each with certain restrictions on exercisability, and (ii) caused certain outstanding warrants to purchase up to an aggregate of 4,000,000 shares of Scilex Common Stock with an exercise price of $11.50 per share to be transferred to the Company (the “Transferred Warrants” and together with the Penny Warrants, the “Warrants”). In addition, on the Closing Date, Scilex reimbursed $1,910 of the Company’s Transaction expenses pursuant to whichthe Scilex SPA.
Pursuant to the terms of the Scilex SPA, Scilex agreed to certain restrictions on additional issuances of equity securities. In connection with the Transaction, the Company and Sorrento mutually agreed to terminate the Sorrento SPA and to release all claims the Company and Sorrento may from timehave against one another, and Scilex completed the acquisition of the Purchased Securities.
The Note
The principal of the Note issued on September 21, 2023 is $101,875, which includes accrued and unpaid interest of $875 under the Senior DIP Loan Agreement and $1,000 of fees added to time and at its option, issue and sell sharesthe principal amount of its common stock havingthe Note. The Note matures on March 21, 2025 or upon an aggregate offering priceuncured event of up to $25,000 through FBR as its sales agent,default, subject to certain termsmandatory prepayments, and conditions. Any shares sold willbears interest at a rate per annum equal to Term SOFR (as defined in the Note) plus 8.5% (subject to a Term SOFR floor of 4.0%), to be sold pursuantpaid in-kind, by being capitalized and added to the Company’s effective shelf registration statementprincipal amount of the Note on Form S-3 including a prospectus dated February 2, 2017, as supplementedmonthly basis. The Scilex SPA provides for principal payments of (i) $5,000 on December 21, 2023, (ii) $15,000 on March 21, 2024, and (iii) $20,000 on each of June 21, 2024, September 21, 2024, and December 21, 2024, and for the entire remaining principal balance of the Note to be paid on March 21, 2025. If the Note is not repaid in full on or prior to March 21, 2024, an exit fee equal to approximately $3,056 shall be payable upon repayment of the Note in full.
The Note constitutes senior secured indebtedness of Scilex and is guaranteed by all existing or future formed, direct and indirect, domestic subsidiaries of Scilex and is secured by a prospectus supplement dated April 5, 2017. The Company will pay FBR a commission of 3.0%first priority security interest in and liens on all of the gross proceedsassets of Scilex, subject to customary and mutually agreed permitted liens and except for certain specified exemptions.
Mandatory prepayments under the Note are required following the earlier of (a) April 1, 2024 and (b) the date upon which certain of Scilex’s outstanding indebtedness are repaid in full. Mandatory prepayments may be triggered by certain future equity and debt issuances by Scilex. Voluntary prepayments may be made at Scilex’s discretion; provided that, if made prior to the one-year anniversary of the saleClosing Date, Scilex will also be required to pay a 50% interest make-whole on the portion of any shares sold through FBR. Asthe Note so prepaid.
The Note includes customary events of November 30, 2017, 456,889 shares were solddefault, upon which the Note will bear interest at a default rate of Term SOFR plus 15.0%, which shall be payable in-kind, by being capitalized and added to the principal amount of the Note on a monthly basis. If the Note is accelerated upon an event of default, Scilex is required to repay the principal amount of the Note at a mandatory default rate of 125% of such principal amount (together with 100% of accrued and unpaid interest thereon and all other amounts due in respect of the Note).
Until the obligations under the Sales Agreement for aggregate net proceedsNote are repaid in full, the Company has the right to designate one non-voting observer to attend meetings of $4,256the board of directors and an additional 50,000 shares were subsequently sold duringcommittees of Scilex and its subsidiaries.
Pursuant to the terms of the Note, the Company received the first principal payment of $5,000 on December 2017 for aggregate net proceeds21, 2023 and the second principal payment of $441.
$15,000 prior to March 21, 2024. On May 2, 2024, the Company received a payment of approximately $9,600 from Scilex in accordance with the mandatory prepayment requirements under the Note.
ORAMED PHARMACEUTICALS INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands (except share and per share data)
(UNAUDITED)
NOTE 7 - INVESTMENTS, AT FAIR VALUE (continued):
Closing Penny Warrant
(UNAUDITED)
The Closing Penny Warrant will be exercisable upon the earliest of (i) March 14, 2025, (ii) the date on which the Senior Secured Note has been repaid in full and (iii) the Management Sale Trigger Date (as defined therein), if any, and will expire on the date that is the fifth anniversary of the issuance date (i.e., September 21, 2028). For purposes of the Penny Warrants, the Management Sale Trigger Date is generally the first date that either Dr. Henry Ji, Scilex’s Executive Chairperson, or Mr. Jaisim Shah, Scilex’s Chief Executive Officer and President and a member of Scilex’s Board of Directors, engages in certain sales or other similar transfers of shares of Common Stock or other of the Issuer’s or any of its subsidiaries’ securities, subject to certain exceptions in connection with financings or similar transactions. The exercise price of the Closing Penny Warrant is $0.01 per share, subject to adjustment.
Subsequent Penny Warrants
Scilex issued four Subsequent Penny Warrants to the Company, each for 2,125,000 shares of Scilex Common Stock, one of which shall vest and become exercisable on the date that is the later of (i) each of March 19, 2024, June 17, 2024, September 15, 2024 or December 14, 2024 (the “Subsequent Penny Warrant Vesting Date”) and (ii) the earliest of (A) March 14, 2025, (B) the date on which the Senior Secured Note has been repaid in full and (C) the Management Sale Trigger Date (as defined therein), if any. Each Subsequent Penny Warrant will expire on the date that is the fifth anniversary of the issuance date; provided that, if the Senior Secured Note is repaid in full prior to the Subsequent Penny Warrant Vesting Date applicable to such Subsequent Penny Warrant, such Subsequent Penny Warrant will expire on the date the Senior Secured Note is repaid in full. The Company may exercise the Penny Warrants by means of a “cashless exercise.”
The Penny Warrants may not be exercised if the Company, together with its affiliates, would beneficially own in excess of 9.9% of the number of shares of Scilex Common Stock outstanding immediately after giving effect to such exercise; provided, that the Company may increase or decrease such limitation upon 61 days’ prior notice to Scilex.
Transferred Warrants
The Transferred Warrants are listed on the Nasdaq Capital Market, have an exercise price of $11.50 per share, are fully exercisable and expire on November 10, 2027.
The Company accounted for the Transferred Warrants as derivatives measured at fair value.
The Company elected the fair value option for the Note and the Penny Warrants in order to reduce operational complexity of bifurcating embedded derivatives. Changes in value are recorded under financial income, net and include interest income on the Note.
The valuation was performed based on several scenarios which some of them took into account a partial or full early repayment of the Note. Each scenario took into consideration the present value of the Note’s cash flows (including the exit fee and the prepayment premium) and the Warrants’ value. The total value of the Transaction (and of each of its components) was valued on a weighted average of the different scenarios.
The discount rate of the Note was based on the B- rating Zero curve in addition to a risk premium which takes into account the credit risk of Scilex and ranged between 53.67% to 53.92%.
The fair value of the Transferred Warrants was based on their closing price on the Nasdaq Capital Market.
The fair value of the Penny Warrants was calculated based on the closing price of the Scilex Common Stock on the Nasdaq Capital Market, taking into account several scenarios which assume a partial or full early repayment of the Note, when applicable.
On the Closing Date, the fair value of the Transaction was $101,875. As of March 31, 2024, and following the aforementioned repayments of $20,000, the fair value of the Transaction was $98,741, split between the Note ($77,733, presented under short-term investments at fair value), the Closing Penny Warrant ($7,155), the Subsequent Penny Warrants ($12,389), both presented under long-term investments at fair value and the Transferred Warrants ($1,464) presented under long-term marketable securities. This resulted in a gain of $3,552 during the first quarter of 2024, attributed mainly to the change in fair value of the Warrants. The difference between the Note’s fair value and aggregate unpaid principal balance (which includes interest payable on maturity) is $7,654.
ORAMED PHARMACEUTICALS INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands (except share and per share data)
(UNAUDITED)
NOTE 8 - RELATED PARTIES - TRANSACTIONS:STOCKHOLDERS’ EQUITY:
1. | On January 4, 2024, the Company granted an aggregate of 150,000 RSUs representing a right to receive shares of the Company’s common stock to the Company’s board members. The RSUs granted to the board members will vest in three equal annual installments on each of January 1, 2025, 2026 and 2027. The total fair value of these RSUs on the date of grant was $359, using the quoted closing market share price of $2.39 on the Nasdaq Capital Market on the date of grant. |
2. | On January 4, 2024, the Company granted an aggregate of 37,610 RSUs representing a right to receive shares of the Company’s common stock to the Company’s board members. The RSUs granted to certain board members will vest in four quarterly installments on each of April 1, 2024, July 1, 2024, October 1, 2024 and January 1, 2025. The total fair value of these RSUs on the date of grant was $90, using the quoted closing market share price of $2.39 on the Nasdaq Capital Market on the date of grant. |
3. | On January 4, 2024, the Company granted an aggregate of 950,500 RSUs representing a right to receive shares of the Company’s common stock to the Company’s executive officers and one employee. The RSUs granted to executive officers and one employee will vest in twelve equal quarterly installments starting January 8, 2024. The total fair value of these RSUs on the date of grant was $2,272, using the quoted closing market share price of $2.39 on the Nasdaq Capital Market on the date of grant. |
4. | On January 4, 2024, the Company granted an aggregate of 294,000 PSUs representing a right to receive shares of the Company’s common stock to executive officers of the Company. The PSUs shall vest upon the Company’s common stock achieving and maintaining a specified price per share. The total fair value of these PSUs on the date of grant was $691, using the Monte-Carlo model. |
5. | On January 30, 2024, the Company granted an aggregate of 3,750 RSUs representing a right to receive shares of the Company’s common stock to one of the Company’s board members. The RSUs granted to the board member will vest in four quarterly installments on each of April 1, 2024, July 1, 2024, October 1, 2024 and January 1, 2025. The total fair value of these RSUs on the date of grant was $11, using the quoted closing market share price of $2.98 on the Nasdaq Capital Market on the date of grant. |
6. | On March 18, 2024, the Company entered into an at the market offering agreement (the “ATM Agreement”) with Rodman & Renshaw LLC and StockBlock Securities LLC, as agents, pursuant to which the Company may issue and sell shares of its common stock having an aggregate offering price of up to $75,000, through the sales agents, subject to certain terms and conditions. Any shares sold will be sold pursuant to our effective shelf registration statement on Form S-3 including a prospectus dated July 26, 2021 and prospectus supplement dated March 18, 2024. As of March 31, 2024 and through May 9, 2024, no shares were issued under the ATM Agreement. |
ORAMED PHARMACEUTICALS INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands (except share and per share data)
(UNAUDITED)
NOTE 9 - LEASES:
The Company has various operating leases for office space and vehicles that expire through 2027. Below is a summary of the Company’s operating right-of-use assets and operating lease liabilities as of March 31, 2024 and December 31, 2023:
March 31, 2024 | December 31, 2023 | |||||||
Operating right-of-use assets | $ | 608 | $ | 694 | ||||
Operating lease liabilities, current | 254 | 267 | ||||||
Operating lease liabilities long-term | 272 | 342 | ||||||
Total operating lease liabilities | $ | 526 | $ | 609 |
Lease payments for the Company’s right-of-use assets over the remaining lease periods as of March 31, 2024 and December 31, 2023 are as follows:
March 31, 2024 | December 31, 2023 | |||||||
2024 | 200 | 282 | ||||||
2025 | 217 | 222 | ||||||
2026 | 118 | 120 | ||||||
2027 | 10 | 10 | ||||||
Total undiscounted lease payments | 545 | 634 | ||||||
Less: Interest* | (19 | ) | (25 | ) | ||||
Present value of lease liabilities | $ | 526 | $ | 609 |
* | Future lease payments were discounted by 3%-5.75% interest rate. |
ORAMED PHARMACEUTICALS INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
U.S. Dollars in thousands (except share and per share data)
(UNAUDITED)
NOTE 10 - RELATED PARTY TRANSACTIONS:
On July 1, 2008, the SubsidiaryCompany’s wholly-owned subsidiary, Oramed Ltd. (the “Subsidiary”), entered into twoa consulting agreementsagreement with KNRY Ltd. (“KNRY”), an Israeli company owned by the Chief Scientific Officer, (the “CSO”), whereby the Chief ExecutiveScientific Officer, (the “CEO”) and the CSO, through KNRY, provideprovides services to the Company (the “Consulting Agreements”Agreement”). The Consulting Agreements are bothAgreement is terminable by either party upon 140 days prior written notice. The Consulting Agreements,Agreement, as amended, provide that KNRY will be reimbursed for reasonable expenses incurred in connection with the performance of the Consulting AgreementsAgreement and that the monthly consulting fee paid to the CEO and the CSOChief Scientific Officer is NIS 127,570117,040 ($35) and NIS 80,454 ($22), respectively.32).
In addition toEffective November 1, 2022, the Consulting Agreement, based onCompany entered into a relocation cost analysis prepared by consulting company ORI - Organizational Resources Internationalagreement with Shnida Ltd., whereby the Company paysPresident and Chief Executive Officer, through Shnida Ltd., provides services as President and Chief Executive Officer of the Company. The agreement is terminable by either party upon 140 days prior written notice. The agreement, as amended, provides that Shnida Ltd. will be reimbursed for certain direct costs andreasonable expenses incurred in connection with the relocationperformance of the CEOagreement and that the President and Chief Executive Officer will receive a monthly consulting fee of NIS 96,825 ($26), plus value added tax. Pursuant to New York, upthe agreement, Shnida Ltd. and the President and Chief Executive Officer each agree that during the term of the agreement and for a 12-month period thereafter, none of them will compete with the Company nor solicit employees of the Company.
In addition, the Company, through the Subsidiary, has entered into an employment agreement with the President and Chief Executive Officer, effective as of November 1, 2022, as amended, pursuant to an aggregate yearly amountwhich the President and Chief Executive Officer receives gross monthly salary of $332.NIS 51,591 ($14) in consideration for his services as President and Chief Executive Officer of the Subsidiary. In addition, the President and Chief Executive Officer is provided with a cellular phone and a company car pursuant to the terms of his agreement.
NOTE 9 - SUBSEQUENT EVENT:
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).Report.
Forward-Looking StatementsOverview of Operations
We are a pharmaceutical company engaged in the research and development of innovative pharmaceutical solutions with a technology platform that allows for the oral delivery of therapeutic proteins.
We have developed an oral dosage form intended to withstand the harsh environment of the stomach and effectively deliver active biological insulin or other proteins. The statements containedexcipients in this Quarterly Report on Form 10-Q thatthe formulation are not historical facts are “forward-looking statements” withinintended to modify the meaningproteins chemically or biologically, and the dosage form is designed to be safe to ingest.
On January 11, 2023, we announced that the ORA-D-013-1 Phase 3 trial did not meet its primary or secondary endpoints. As a result, we terminated this trial and a parallel Phase 3, ORA-D-013-2 clinical trial. In 2023, we completed an analysis of the Private Securities Litigation Reform Actdata from the ORA-D-013-1 Phase 3 trial and found that subpopulations of 1995 and other federal securities laws. Wordspatients with pooled specific parameters, such as “expects,” “anticipates,” “intends,” “plans,” “planned expenditures,” “believes,” “seeks,” “estimates”body mass index, or BMI, baseline HbA1c and similar expressionsage, responded well to oral insulin. Based on this analysis, we are working on a protocol for a new Phase 3 clinical trial to be submitted to the FDA. We are additionally examining our existing pipeline and have commenced an evaluation process of potential strategic opportunities, with the goal of enhancing value for our stockholders.
Scilex Transaction
On August 7, 2023, we entered into a Stock Purchase Agreement, as subsequently amended on August 9, 2023 and August 21, 2023, or variationsthe Sorrento SPA, with Sorrento Therapeutics, Inc., or Sorrento, to acquire certain equity securities of such wordsScilex owned by Sorrento, or the Purchased Securities, for a purchase price of $105 million. Sorrento and its affiliated debtor, Scintilla Pharmaceuticals, Inc., or Scintilla and together with Sorrento, the Debtors, are in Chapter 11 bankruptcy proceedings.
On August 9, 2023, we entered into a Senior Secured, Super-Priority Debtor-in-Possession Loan and Security Agreement, or the Senior DIP Loan Agreement, with the Debtors in the principal amount of $100 million, which included a non-refundable closing fee of $450,000 paid in full out of the proceeds. This amount was subsequently drawn in full by the Debtors and was intended to identify forward-looking statements, but are not deemed to representbe used by us as a credit for the consideration for the Purchased Securities, with an all-inclusive means of identifying forward-looking statements as denotedadditional $5,000,000 in this Quarterly Report on Form 10-Q. Additionally, statements concerning future matters are forward-looking statements. We remind readers that forward-looking statements are merely predictions and therefore inherently subject to uncertainties and other factors and involve known and unknown risks that could cause the actual results, performance, levels of activity, or our achievements, or industry results,cash to be materially differentpaid by us at closing. Thereafter, we and Sorrento continued discussions and negotiations relating to the sale contemplated under the Sorrento SPA.
On September 21, 2023, or the Closing Date, we entered into and consummated the transactions, or, collectively, the Transaction, contemplated by a Securities Purchase Agreement, or the Scilex SPA, with Scilex and Acquiom Agency Services LLC. Pursuant to the Scilex SPA, in exchange for Scilex assuming Sorrento’s outstanding obligations under the Senior DIP Loan Agreement, or the DIP Assumption, and for the ability to credit the amounts assumed under the DIP Assumption in exchange for certain equity securities of Scilex owned by Sorrento, Scilex (i) issued to us (A) a Senior Secured Promissory Note due 18 months from any future results, performance, levelsthe date of activity,issuance in the principal amount of $101,875,000, or our achievements,the Note, which includes accrued and unpaid interest of $875,000 under the Senior DIP Loan Agreement and $1,000,000 of fees added to the principal amount of the Note, (B) a warrant to purchase up to an aggregate of 4,500,000 shares of common stock of Scilex, par value $0.0001 per share, or industry results, expressedthe Scilex Common Stock, and containing certain restrictions on exercisability, or implied by such forward-looking statements. Such forward-looking statements include, among other statements, statements regarding the following:Closing Penny Warrant, and (C) warrants to purchase up to an aggregate of 8,500,000 shares of Scilex Common Stock, or the Subsequent Penny Warrants, and, together with the Closing Penny Warrant, the Penny Warrants, each with an exercise price of $0.01 per share and each with certain restrictions on exercisability, and (ii) caused certain outstanding warrants to purchase up to an aggregate of 4,000,000 shares of Scilex Common Stock with an exercise price of $11.50 per share to be transferred to us, or the Transferred Warrants and together with the Penny Warrants, the Warrants. In addition, on the Closing Date, Scilex reimbursed $1,910,000 of the Company’s Transaction expenses pursuant to the Scilex SPA.
Pursuant to the terms of the Scilex SPA, Scilex agreed to certain restrictions on additional issuances of equity securities. In connection with the Transaction, we and Sorrento mutually agreed to terminate the Sorrento SPA and to release all claims we and Sorrento may have against one another, and Scilex completed the acquisition of the Purchased Securities.
Senior Secured Promissory Note
The Note matures on March 21, 2025 or upon an uncured event of default, subject to certain mandatory prepayments, and bears interest at a rate per annum equal to Term SOFR (as defined in the Note) plus 8.5% (subject to a Term SOFR floor of 4.0%), to be paid in-kind, by being capitalized and added to the principal amount of the Note on a monthly basis. The Scilex SPA provides for principal payments of (i) $5 million on December 21, 2023, (ii) $15 million on March 21, 2024, and (iii) $20 million on each of June 21, 2024, September 21, 2024, and December 21, 2024, and for the entire remaining principal balance of the Note to be paid on March 21, 2025. If the Note is not repaid in full on or prior to March 21, 2024, an exit fee equal to $3,056,250 shall be payable upon repayment of the Note in full.
The Note constitutes senior secured indebtedness of Scilex and is guaranteed by all existing or future formed, direct and indirect, domestic subsidiaries of Scilex and is secured by a first priority security interest in and liens on all of the assets of Scilex, subject to customary and mutually agreed permitted liens and except for certain specified exemptions.
Mandatory prepayments under the Note are required following the earlier of (a) April 1, 2024 and (b) the date upon which certain of Scilex’s outstanding indebtedness is repaid in full). Voluntary prepayments may be made at Scilex’s discretion; provided that, if made prior to the one-year anniversary of the Closing Date, Scilex will also be required to pay a customary 50% interest make-whole on the portion of the Note so prepaid.
The Note includes customary events of default, upon which the Note will bear interest at a default rate of Term SOFR plus 15.0%, which shall be payable in-kind, by being capitalized and added to the principal amount of the Note on a monthly basis. If the Note is accelerated upon an event of default, Scilex is required to repay the principal amount of the Note at a mandatory default rate of 125% of such principal amount (together with 100% of accrued and unpaid interest thereon and all other amounts due in respect of the Note).
Until the obligations under the Note are repaid in full, we have the right to designate one non-voting observer, to attend meetings of the board of directors and committees of Scilex and its subsidiaries.
Although forward-looking statementsPursuant to the terms of the Note, we received the first principal payment of $5 million on December 21, 2023 and the second principal payment of $15 million prior to March 21, 2024. On May 2, 2024, we received a payment of approximately $9.6 million from Scilex in this Quarterlyaccordance with the mandatory prepayment requirements under the Note.
Warrants
The Closing Penny Warrant will be exercisable upon the earliest of (i) March 14, 2025, (ii) the date on which the Note has been repaid in full and (iii) the Management Sale Trigger Date (as defined therein), if any, and will expire on the date that is the fifth anniversary of the issuance date. For purposes of the Penny Warrants, the Management Sale Trigger Date is generally the first date that either Dr. Henry Ji, Scilex’s Executive Chairperson, or Mr. Jaisim Shah, Scilex’s Chief Executive Officer and President and a member of Scilex’s Board of Directors, engages in certain sales or other similar transfers of shares of Scilex Common Stock or other of Scilex’s or any of its subsidiaries’ securities, subject to certain exceptions as are customary for lock-up agreements executed by directors and officers in connection with financings or similar transactions. The exercise price of the Closing Penny Warrant is $0.01 per share, subject to adjustment.
Report
Oral Insulin
Type 2 Diabetes: We conducted the ORA-D-013-1 Phase 3 trial on Form 10-Q reflectpatients with type 2 diabetes, or T2D, with inadequate glycaemic control who were on two or three oral glucose-lowering agents. The primary endpoint of the good faith judgmenttrial was to evaluate the efficacy of our management,oral insulin capsule, ORMD-0801, compared to placebo in improving glycaemic control as assessed by HbA1c, with a secondary efficacy endpoint of assessing the change from baseline in fasting plasma glucose at 26 weeks. On January 11, 2023, we announced that the ORA-D-013-1 Phase 3 trial did not meet its primary or secondary endpoints. Following the results of the ORA-D-013-1 Phase 3 trial, we also terminated the ORA-D-013-2 Phase 3 trial, a second Phase 3 trial that included T2D patients with inadequate glycaemic control who were attempting to manage their condition with either diet alone or with diet and metformin. In 2023, we completed an analysis of the data from the ORA-D-013-1 Phase 3 trial and found that subpopulations of patients with pooled specific parameters, such statements can onlyas BMI, baseline HbA1c and age, responded well to oral insulin. These subsets exhibited an over 1% placebo adjusted, statistically significant, reduction in HbA1c. Based on this analysis, we are working on a protocol for a new Phase 3 clinical trial to be submitted to the FDA.
Joint Venture Agreement: On January 22, 2024, Oramed and its wholly-owned subsidiary, Oramed Ltd., entered into a joint venture agreement, or the JV Agreement, with HTIT Biotech and Technowl Limited, a wholly-owned indirect subsidiary of HTIT Biotech, or HTIT Sub, and together with HTIT Biotech, HTIT, pursuant to which, subject to the terms and conditions set forth in the JV Agreement, the parties will establish a joint venture, or the JV, based on factsOramed’s oral drug delivery technology.
The JV will focus on the development and factorsworldwide commercialization of innovative products based on Oramed’s oral insulin and POD™ (Protein Oral Delivery) pipeline and HTIT’s manufacturing capabilities and technologies. The parties intend for the JV to use the protocol we are currently known by us. Consequently, forward-looking statements are inherentlyworking on to initiate a Phase 3 oral insulin trial in the United States.
Oramed and HTIT will initially hold equal shares in the JV, with each owning 50% of the equity. The board of directors will initially consist of equal representation from HTIT and Oramed. HTIT will contribute to the JV $70 million in cash, while Oramed will contribute $20 million (comprised of $10 million in cash and $10 million in shares of Oramed common stock that will be subject to riskscertain registration rights) and uncertaintieswill transfer intellectual property related to its oral insulin and actual resultsPOD™ technology, as well as other assets in the Oramed pipeline. HTIT will have an option to invest additional funds into the JV up to an aggregate amount of $20 million, thereby increasing its equity holdings and outcomesboard representation. Oramed will be entitled to receive a 3% royalty on gross revenues of the JV generated from Oramed related assets.
The consummation of the JV Agreement is subject to and contingent upon the parties entering into additional agreements within a three-month period, including an asset transfer agreement for the transfer of Oramed’s intellectual property to the JV, a commercial supply agreement for the manufacture and supply of products by HTIT to the JV, as well as other documents and agreements to regulate the relationship of the parties and the JV to be formed pursuant to the JV Agreement. There is no assurance that the parties will complete and sign these additional agreements within the agreed timeline or at all. If such agreements are not signed within the agreed timeframe, then either party may differ materially fromapply a 30-day extension, after which the resultsJV Agreement may be terminated and outcomes discussed in or anticipatedvoided by either party. The 30-day extension was applied by the forward-looking statements. Factors that could causeCompany on April 18, 2024 and will last until May 22, 2024. Thereafter, the consummation of the JV transaction is further subject to the satisfaction or contribute to such differences in resultswaiver of certain other closing conditions within a three-month period following the completion of the aforesaid ancillary agreements. If the closing conditions are not met within the agreed timeframe, then either party may apply a 30-day extension, after which the JV Agreement may be terminated and outcomes include, without limitation, those specifically addressedvoided by either party. In addition, completion of the transactions contemplated under the headingJV Agreement is subject to the satisfaction or waiver of customary and certain other closing conditions.
Oral Vaccine
On March 18, 2021, we entered into a license agreement, or the Oravax License Agreement, with Oravax, a 63% owned joint venture to commercialize oral vaccines for COVID-19 and other novel coronaviruses based on Premas Biotech Pvt. Ltd.’s proprietary vaccine technology involving a triple antigen virus like particle.
In October 2022, Oravax reported positive preliminary Phase 1 data for Cohort A of a Phase 1 clinical trial, meeting primary or secondary endpoints of safety and immunogenicity. These results included significant antibody response (2-6 fold over baseline) as measured by multiple markers of immune response to virus like particle vaccine antigens observed in the majority of the patients dosed, and no safety issues were observed, including mild symptoms. Cohort B completed dosing in January 2023. Cohort B measured Immunoglobulin G, or IGG, against the spike (S) protein, showing positive IGG in approximately 55% of the patients dosed. We are currently evaluating our path forward for Oravax’s oral vaccines for COVID-19.
PeriTech Acquisition and License
In December 2023, we executed and completed an agreement with PeriTech Pharma Ltd., or PeriTech, acquiring the rights to their film-forming technology tailored for the delivery of topical/dermatology agents. This includes a once-daily over-the-counter treatment for hemorrhoids. The PeriTech pipeline extends its potential applications to include indications such as pruritus ani, anal warts, anal fissures and herpes labialis.
We have entered into an exclusive licensing agreement with Genomma Lab Internacional S.A.B. de C.V, or Genomma Labs, pursuant to which we granted Genomma Labs the development and commercialization rights to the PeriTech pipeline, in exchange for a royalty based on net sales.
Raw Materials
We have purchased, pursuant to separate agreements with third parties, the raw materials required for the manufacturing of our oral capsule. We generally depend upon a limited number of suppliers for the raw materials. Although alternative sources of supply for these materials are generally available, we could incur significant costs and disruptions if we need to change suppliers. The termination of our relationships with our suppliers or the failure of these suppliers to meet our requirements for raw materials on a timely and cost-effective basis could have a material adverse effect on our business, prospects, financial condition and results of operations.
Impact of Current Events
On October 7, 2023, the State of Israel was attacked by and subsequently declared war on Hamas. Israel has been in an ongoing state of war with Hamas since that time. Following the attack by Hamas, Hezbollah has also launched attacks against Israel and Israel has been responding to these attacks with targeted air strikes. It is possible that other terrorist organizations, including Palestinian military organizations in the West Bank, as well as other hostile countries, such as Iran, will join the hostilities. As of May 9, 2024, we believe that there is no immediate risk to our business operations related to these events. For further information, see “Item 1A. Risk Factors”Factors,” under “We are affected by the political, economic and military risks of having operations in our Annual Report on Form 10-K for the fiscal year ended August 31, 2017, orIsrael” in our Annual Report, as filed with the Securities and Exchange Commission, or the SEC, on November 29, 2017, as well as those discussed elsewhere in our Annual Report and this QuarterlyReport on Form 10-Q and expressed from time to time in our other filings with the SEC. In addition, historic results of scientific research, clinical and preclinical trials do not guarantee that the conclusions of future research or trials would not suggest different conclusions. Also, historic results referred to in this Quarterly Report on Form 10-Q could be interpreted differently in light of additional research, clinical and preclinical trials results. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this QuarterlyReport 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 QuarterlyReport 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
Orally Ingestible Insulin
In August 2017, we had a call with the U.S. Food and Drug Administration, or FDA, regarding our proprietary flagship product, an orally ingestible insulin capsule, or ORMD-0801. During the call, the FDA advised that the regulatory pathway for the submission of ORMD-0801 would be a Biologics License Application. If approved, such a pathway would grant us 12 years of marketing exclusivity for ORMD-0801, from the approval date, and an additional six months of exclusivity may be granted if the product also receives approval for use in pediatric patients. The FDA confirmed that the approach to nonclinical toxicology, chemistry manufacturing controls and qualification of excipients would be driven by their published guidance documents. We plan to initiate in the first quarter of calendar year 2018 a three-month dose-ranging clinical trial on approximately 240 type 2 diabetic patients to assess the safety and evaluate the effect of ORMD-0801 on HbA1c, the main FDA registrational endpoint and a clamp study on six type 1 diabetic patients.
In February 2017, we completed a Phase IIa dose finding clinical trial which was initiated in October 2016. This randomized, double-blind trial was conducted on 32 type 2 adult diabetic patients in order to better define the optimal dosing of ORMD-0801 moving forward. The results of the trial indicated a positive safety profile and potentially meaningful efficacy of ORMD-0801, as the efficacy data suggest ORMD-0801 improves glucose control.
In March 2017, we initiated a six month toxicology study to allow for the use of our oral insulin capsule for a longer period than previously performed, in preparation for our proposed upcoming three-month clinical trial for type 2 diabetes. We anticipate receiving the final report of this study in the first quarter of calendar year 2018.6, 2024.
In April 2016, we completed a Phase IIb clinical trial on 180 type 2 adult diabetic patients that was initiated in June 2015 and conducted in 33 sites in the United States. This double-blind, randomized, 28-day dosing clinical trial was conducted under an Investigational New Drug application, or IND, with the FDA. The clinical trial, designed to assess the safety and efficacy of our ORMD-0801, investigated ORMD-0801 over a 28 day treatment period and had statistical power to give us greater insight into the drug’s efficacy. The trial indicated a statistically significant lowering of blood glucose levels versus placebo across several endpoints, with no serious or severe adverse issues related to the drug. The trial successfully met all of its primary and most of its secondary and exploratory endpoints for both safety and efficacy.
Should our Phase IIb three-month dose-ranging clinical trial successfully meet its primary endpoints, we anticipate initiating two six-month Phase III clinical trials on both type 1 and type 2 diabetic patients, following which we expect to file a New Drug Application with a potential FDA approval by the third quarter of calendar year 2023.
GLP-1 Analog
In September 2013, we submitted a pre-IND package to the FDA for ORMD-0901, our oral exenatide capsule, for a Phase II clinical trial on healthy volunteers and type 2 diabetic patients. In August 2015, we began a non-FDA clinical trial outside of the United States on type 2 diabetic patients. The trial was completed during the second quarter of calendar year 2016 and indicated positive results as it showed ORMD-0901 to be safe and well tolerated and demonstrated encouraging efficacy data. We completed a three-month pre-clinical toxicology study in March 2017 and the final report will be submitted to the FDA with our IND. We expect to file an IND during the first quarter of calendar year 2018 and move directly into a small pharmacokinetics study on healthy volunteers followed by a large Phase II trial on type 2 diabetic patients which will be conducted in the United States under an IND.
Other products
During the first quarter of calendar 2017, we began developing a new drug candidate, a weight loss treatment in the form of an oral leptin capsule, and in April 2017, Israel’s Ministry of Health approved our commencement of a proof of concept single dose study for our oral leptin drug candidate to evaluate its pharmacokinetic and pharmacodynamics (glucagon reduction) in 10 type 1 adult diabetic patients. The study is projected to initiate in calendar year 2018 and be completed during calendar year 2019.
In November 2017, Israel’s Ministry of Health approved us to initiate an exploratory clinical study of our oral insulin capsule, ORMD-0801, in patients with nonalcoholic steatohepatitis (NASH). The proposed three-month treatment study will assess the effectiveness of ORMD-0801 in reducing liver fat content, inflammation and fibrosis in patients with NASH. We expect to initiate the study in calendar year 2018 and complete it during calendar year 2019.
The table below gives an overview of our primary product pipeline (calendar quarters):
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Out-Licensed Technology
On November 30, 2015, we, our Israeli subsidiary and HTIT entered into a Technology License Agreement, and on December 21, 2015 these parties entered into an Amended and Restated Technology License Agreement that was further amended by the parties on June 3, 2016 and July 24, 2016, or the License Agreement. According to the License Agreement, we granted HTIT an exclusive commercialization license in the territory of the People’s Republic of China, Macau and Hong Kong, or the Territory, related to our oral insulin capsule, ORMD-0801, or the Product. Pursuant to the License Agreement, HTIT will conduct, at its own expense, certain pre-commercialization and regulatory activities with respect to our technology and ORMD-0801 capsule, and will pay (i) royalties of 10% on net sales of the related commercialized products to be sold by HTIT in the Territory, or Royalties, and (ii) an aggregate of $37.5 million, of which $3 million is payable immediately, $8 million will be paid subject to our entry into certain agreements with certain third parties, and $26.5 million will be payable upon achievement of certain milestones and conditions. In the event that we will not meet certain conditions, the Royalties rate may be reduced to a minimum of 8%. Following the final expiration of our patents covering the technology in the Territory in 2033, the Royalties rate may be reduced, under certain circumstances, to 5%. The royalty payment obligation shall apply during the period of time beginning upon the first commercial sale of the Product in the Territory, and ending upon the later of (i) the final expiration of the last-to-expire licensed patent in the Territory and (ii) 15 years after the first commercial sale of the Product in the Territory, or the Royalty Term. The License Agreement shall remain in effect until the expiration of the Royalty Term. The License Agreement contains customary termination provisions. The initial payment of $3 million was received in January 2016. Following the achievement of certain milestones, the second and third milestone payments of $6.5 million and $4 million, respectively, were received in July 2016, and the fourth milestone payment of $4 million was received in October 2016.
On November 30, 2015, we also entered into a separate Securities Purchase Agreement with HTIT, or the SPA, pursuant to which, in December 2015, we issued to HTIT 1,155,367 shares of our common stock for total consideration of $12 million. In connection with the License Agreement and the SPA, we received a non-refundable payment of $500,000 as a no-shop fee.
Results of Operations
Comparison of three month periods ended November 30, 2017March 31, 2024 and 2016March 31, 2023
The following table summarizes certain statements of operations data of the Company for the three month periods ended November 30, 2017March 31, 2024 and 2016March 31, 2023 (in thousands of dollars except share and per share data):
Three months ended | ||||||||
November 30, | ||||||||
2017 | 2016 | |||||||
Revenues | $ | 611 | $ | 610 | ||||
Cost of revenues | - | 187 | ||||||
Research and development expenses | 2,327 | 2,353 | ||||||
General and administrative expenses | 1,016 | 468 | ||||||
Financial income, net | 201 | 162 | ||||||
Taxes on income | - | 400 | ||||||
Net loss for the period | $ | 2,531 | $ | 2,636 | ||||
Loss per common share - basic and diluted | $ | 0.18 | $ | 0.20 | ||||
Weighted average common shares outstanding | 14,239,346 | 13,205,971 |
Three months ended | ||||||||
March 31, 2024 | March 31, 2023 | |||||||
Revenues | $ | - | $ | 666 | ||||
Cost of revenues | - | - | ||||||
Research and development expenses | (1,179 | ) | (4,427 | ) | ||||
Sales and marketing expenses | - | (184 | ) | |||||
General and administrative expenses | (1,783 | ) | (1,263 | ) | ||||
Interest expenses | (592 | ) | - | |||||
Financial income, net | 5,088 | 1,597 | ||||||
Net income (loss) for the period | $ | 1,534 | $ | (3,611 | ) | |||
Basic income (loss) per share of common stock | $ | 0.04 | $ | (0.08 | ) | |||
Diluted income (loss) per share of common stock | $ | 0.04 | $ | (0.08 | ) | |||
Weighted average shares of common stock outstanding used in computing basic income (loss) per share of common stock | 40,835,953 | 40,041,258 | ||||||
Weighted average shares of common stock outstanding used in computing diluted income (loss) per share of common stock | 41,564,007 | 40,041,258 |
Revenues
Revenues consist of proceeds related to the Amended and Restated Technology License Agreement, dated December 21, 2015, between the Company and HTIT, or as further amended by the parties on June 3, 2016 and July 24, 2016, the HTIT License Agreement, that are recognized overon a cumulative basis when it is probable that a significant reversal in the termamount of cumulative revenue recognized will not occur, through the License Agreement throughexpected product submission date by HTIT of June 2023.2023, using the input method.
Revenues There were no revenues for the three month period ended November 30, 2017 totaled $611,000, consistent with $610,000March 31, 2024 while revenues were $666,000 for the three month period ended November 30, 2016.March 31, 2023. The decrease was due to recognition of revenues until the product submission date by HTIT of June 2023.
Cost of revenuesRevenues
Cost of revenues consists of royalties related to the HTIT License Agreement that will be paid over the term of the HTIT License Agreement in accordance with revenue recognition accounting and the Israeli Law for the Encouragement of Industrial Research, Development and Technological Innovation, 1984, as amended, including any regulations or investment tracks promulgated thereunder.
NoThere was no cost of revenues was recognized during the three month period ended November 30, 2017 compared to cost of revenues of $187,000 for the three month periodperiods ended November 30, 2016. The decrease is due to no additional milestone payments having been received during the three month period ended November 30, 2017.March 31, 2024 and March 31, 2023.
Research and development expensesDevelopment Expenses
Research and development expenses include costs directly attributable to the conduct of research and development programs, including the cost of salaries, 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 drugs for use in research and 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.
trials.
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-studypre-trial visits, training and program management.
Clinical trial and pre-clinicalpreclinical trial expenses include regulatory and scientific consultants’ compensation and fees, research expenses, purchase of materials, cost of manufacturing of the oral insulin and exenatide capsules, payments for patient recruitment and treatment, as well as salaries and related expenses of research and development staff.
Research and development expenses for the three month period ended November 30, 2017March 31, 2024 decreased by 1%73% to $2,327,000, from $2,353,000$1,179,000, compared to $4,427,000 for the three month period ended November 30, 2016.March 31, 2023. The decrease iswas mainly due to completion of our dose finding clinical trial and is partially offset by an increase inlower expenses related to progress in toxicology studies and preparations for ourthe Phase IIb three-month clinical trial.3 trials that were terminated. Stock-based compensation costsexpenses for the three month period ended November 30, 2017 totaled $171,000, asMarch 31, 2024 were $704,000, compared to $136,000$17,000 during the three month period ended November 30, 2016. TheMarch 31, 2023. This increase iswas mainly attributabledue equity grants during the period ended March 31, 2024 and to performance equity awards grantedthat did not meet their performance conditions during the period ended March 31, 2023.
Following the results of the ORA-D-013-1 Phase 3 trial, which did not meet its primary and secondary endpoints, we terminated both ORA-D-013-1 and ORA-D-013-2 Phase 3 clinical trials. We recently completed an analysis of the data from the ORA-D-013-1 Phase 3 trial and found that subpopulations of patients with pooled specific parameters responded well to employeesoral insulin. Based on this analysis, we are working on a protocol for a new Phase 3 clinical trial to be submitted to the FDA. We are additionally examining our existing pipeline and a consultant during fiscal year 2017.have commenced an evaluation process of potential strategic opportunities, with the goal of enhancing value for our stockholders.
Government grants
In the three month periods ended November 30, 2017March 31, 2024 and 2016,March 31, 2023, we did not recognize any research and development grants. As of November 30, 2017,March 31, 2024, we had incurred liabilities to pay royalties to the Israel Innovation Authority of the Israeli Ministry of Economy &and Industry of $533,000.$59,000.
Sales and Marketing Expenses
Sales and marketing expenses include the salaries and related expenses of our commercial functions, consulting expenses and other general expenses.
We did not recognize any sales and marketing expenses for the three month period ended March 31, 2024 compared to expenses of $184,000 for the three month period ended March 31, 2023. This was primarily due to the termination of the employment of an executive officer in fiscal year 2023. We did not recognize any stock-based compensation expenses for the three month period ended March 31, 2024, compared to expenses of $88,000 for the three month period ended March 31, 2023. This was primarily due to the termination of the employment of an executive officer.
General and administrative expensesAdministrative Expenses
General and administrative expenses include the salaries and related expenses of our management, consulting costs,expenses, legal and professional fees, travel expenses, business development costs,expenses, insurance expenses and other general costs.expenses.
General and administrative expenses for the three month period ended November 30, 2017March 31, 2024 increased by 117%41% to $1,016,000 from $468,000$1,783,000 compared to $1,263,000 for the three month period ended November 30, 2016.March 31, 2023. The increase in costs relatedwas mainly due to generalhigher stock-based compensation expenses. Stock-based compensation expenses for the three month period ended March 31, 2024 were $590,000, compared to $67,000 for the three month period ended March 31, 2023. This increase was mainly due to equity grants during the period ended March 31, 2024 and administrative activitiesto performance equity awards that did not meet their performance conditions during the period ended March 31, 2023.
Interest Expenses
Interest expenses were $592 for the three month period ended March 31, 2024, while there were no interest expenses for the three and three month period ended March 31, 2023. The increase was mainly due to interest on the Short-Term Borrowings.
Financial Income, Net
Net financial income increased by 219% to $5,088,000 for the three month period ended March 31, 2024, compared to $1,597,000 for the three month period ended March 31, 2023. The increase was mainly due to the revaluation of the Transaction and interest from short-term bank deposits.
Basic and Diluted Income and Loss Per Share of Common Stock
Basic and diluted income per share of common stock for the three month period ended March 31, 2024 was $0.04 per share, compared to a basic and diluted loss of $0.08 per share for the three month period ended March 31, 2023. This was primarily due to the changes discussed above that caused us to have income during the three month period ended November 30, 2017 is mainly attributableMarch 31, 2024, compared to an increasea loss during the three month period ended March 31, 2023.
Weighted Average Shares of Common Stock Outstanding
Weighted average shares of common stock outstanding used in stock-based compensation costs, consulting and travel expenses related to the relocationcomputing basic income (loss) per share of our Chief Executive Officer to New York, where the Company has leased an office since September 2017. Stock-based compensation costscommon stock for the three month period ended November 30, 2017 totaled $352,000, asMarch 31, 2024 were 40,835,953 compared to $23,00040,041,258 for the three month period ended March 31, 2023. The increase was mainly due to RSUs that vested during the three month period ended November 30, 2016. The increase is mainly attributable to awards granted to employees and a consultant during fiscal year 2017.March 31, 2024.
FinancialWeighted average shares of common stock outstanding used in computing diluted income net
Net financial income increased by 24% from net income(loss) per share of $162,000common stock for the three month period ended November 30, 2016March 31, 2024 were 41,564,007 compared to net income of $201,00040,041,258 for the three month period ended November 30, 2017.March 31, 2023. The increase iswas mainly attributabledue to an increase in income from bank deposits and held to maturity bonds as a result of an increase in interest rates.
Taxes on income
No taxes on income were recognized forRSUs that vested during the three month period ended November 30, 2017 as compared to $400,000March 31, 2024.
For the diluted earnings per share calculation, the weighted average number of shares outstanding during the year is adjusted for the three month period ended November 30, 2016. The decrease is due to a decreaseaverage number of shares that are potentially issuable in withholding tax deducted from milestone payments received related toconnection with employee share-based payment, using the License Agreement that resulted from a decrease in such proceeds. The Company estimates that withholding tax will not be utilized in the next five years, and therefore it was deducted.treasury stock method.
Other comprehensive income
Unrealized gains on available for sale securities for the three month period ended November 30, 2017 of $326,000, compared to losses of $63,000 for the three month period ended November 30, 2016, resulted from the increase in fair value of the ordinary shares of D.N.A Biomedical Solutions Ltd. that we hold.
Liquidity and capital resourcesCapital Resources
From inception through November 30, 2017,March 31, 2024, we have incurred losses in an aggregate amount of $59,027,000.$156,020,000. During that period and through March 31, 2024, we have financed our operations through several private placements of our common stock, as well as public offerings of our common stock, raising a total of $60,309,000,$255,384,000, net of transaction costs. During that period, we also received cash consideration of $5,810,000$28,001,000 from the exercise of warrants and options. We willexpect to seek to obtain additional financing through similar sources in the future, as needed. As of November 30, 2017,March 31, 2024, we had $1,258,000$18,576,000 of available cash $32,772,000and $80,285,000 of short-term and long-term bank deposits and $7,320,000 of marketable securities.deposits.
From inception through March 31, 2024, we have not generated significant revenues from our operations. Management continues to evaluate various financing alternatives for funding new strategic activities, future research and development activities and general and administrative expenses through fundraising 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 future third party investments. Following the termination of the ORA-D-013-1 and ORA-D-013-2 Phase 3 trials, the Company’s research and development activities have been significantly reduced while it conducts a strategic review process. As a result, the Company is currently incurring lower research and development and sales and marketing expenses.
Based on our current cash resources and commitments, 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, although no assurance can be given that we will not need additional funds prior to such time. If there are unexpected increases in our operating expenses, we may need to seek additional financing during the next 12 months. We may also need additional funds to realize the decisions made as part of our strategic review process. We cannot predict the outcome of these activities.
On August 9, 2023, we entered into the Senior DIP Loan Agreement with the Debtors in the principal amount of $100,000,000.
On the Closing Date, we entered into and beyond.consummated the Transaction. Pursuant to the Scilex SPA, in exchange for the DIP Assumption and for the ability to credit the amounts assumed under the DIP Assumption in exchange for certain equity securities of Scilex owned by Sorrento, Scilex (i) issued to us (A) the Note, (B) the Closing Penny Warrant, and (C) the Subsequent Penny Warrants, and (ii) caused the Transferred Warrants to be transferred to us. In addition, on the Closing Date, Scilex reimbursed $1,910,000 of the Company’s Transaction expenses pursuant to the Scilex SPA.
Pursuant to the terms of the Scilex SPA, Scilex agreed to certain restrictions on additional issuances of equity securities. In connection with the Transaction, we and Sorrento mutually agreed to terminate the Sorrento SPA and to release all claims the Company and Sorrento may have against one another, and Scilex completed the acquisition of the Purchased Securities.
On August 8, 2023, we borrowed an aggregate of $99,550,000 pursuant to loan agreements from Israel Discount Bank Ltd., or the Short-Term Borrowings. The Short-Term Borrowings mature on dates ranging from August 11, 2023 to May 24, 2024, bear interest ranging from 6.66% to 7.38%, are secured by certificates of deposits issued by Israel Discount Bank Ltd. having an aggregate face amount of $99,550,000. The net proceeds of the Short-Term Borrowings were used to fund the Note. The Short-Term Borrowings are paid in one payment of principal and interest at each respective maturity. As of November 30, 2017,March 31, 2024, approximately $70,146,000 was repaid under the Short-Term Borrowings.
As of March 31, 2024, our total current assets were $19,135,000$177,095,000 and our total current liabilities were $5,124,000.$33,556,000. On November 30, 2017,March 31, 2024, we had a working capital surplus of $14,011,000$143,539,000 and an accumulated loss of $59,027,000.$156,020,000. As of AugustDecember 31, 2017,2023, our total current assets were $20,297,000$162,584,000 and our total current liabilities were $5,165,000.$53,214,000. On AugustDecember 31, 2017,2023, we had a working capital surplus of $15,132,000$109,370,000 and an accumulated loss of $56,496,000.$157,556,000. The decreaseincrease in working capital from AugustDecember 31, 20172023 to November 30, 2017March 31, 2024 was primarilymainly due to investmentan increase in long-term depositscash and marketable securities.cash equivalents and in investments at fair value, together with a decrease in Short-term borrowings partially offset by a decrease in short term deposits.
During the three month period ended November 30, 2017,March 31, 2024, cash and cash equivalents decreasedincreased to $1,258,000$18,576,000, from the $3,969,000 reported$9,055,000 as of AugustDecember 31, 2017, which is2023. The increase was mainly due to the reasons described below.
Operating activities used cash of $2,728,000$1,476,000 in the three month period ended November 30, 2017, asMarch 31, 2024, compared to $1,498,000$5,549,000 used in the three month period ended March 31, 2023. Cash used in operating activities primarily consisted of research and development, sales and marketing and general and administrative expenses and changes in stock-based compensation expenses, interest on deposits, interest paid on the Short-Term Borrowings, accounts payable and accrued expenses.
Investing activities provided cash of $29,998,000 in the three month period ended March 31, 2024, compared to cash used in investing activities of $13,203,000 in the three month period ended March 31, 2023. Cash provided by investing activities in the three month period ended March 31, 2024 consisted primarily of proceeds from short term investing activities and a principal repayment of the Note partially offset by the purchase of short-term deposits.
Financing activities used cash of $19,000,000 in the three month period ended March 31, 2024, compared to $2,430,000 provided in the three month period ended November 30, 2016.March 31, 2023. Cash used in operating activities in the three month period ended November 30, 2017 primarily consisted of net loss resulting from research and development and general and administrative expenses, as well as changes in deferred revenues due to the License Agreement and is partially offset by changes in stock-based compensation, while cash provided by operating activities in the three month period ended November 30, 2016 primarily consisted of changes in deferred revenues and is partially offset by net loss resulting from research and development and general and administrative expenses.
Investing activities used cash of $5,146,000 in the three month period ended November 30, 2017, as compared to $3,436,000 used in the three month period ended November 30, 2016. Cash used in investing activities in the three month periods ended November 30, 2017 and 2016 consisted primarily of the purchase of short-term and long-term bank deposits and marketable securities.
Financing activities provided cash of $5,160,000 in the three month period ended November 30, 2017, as compared to $320,000 that were provided in the three month period ended November 30, 2016. Financing activities in the three month period ended November 30, 2017 consisted of aggregate net proceeds of $4,230,000 from our issuance of 453,919 common stock under an At The Market Issuance Sales Agreement, dated April 2, 2015, or the Sales Agreement, with B. Riley FBR, Inc., as successor to FBR Capital Markets & Co., or FBR, as amended, and proceeds from exercise of warrants and options while financing activities in the three month period ended November 30, 2016March 31, 2024, consisted primarily of partial repayment of the Short-Term Borrowings. Cash provided by financing activities in the three month period ended March 31, 2023, consisted primarily of proceeds from the exerciseissuance of options. Pursuantour common stock.
On March 18, 2024, the Company entered into an at the market offering agreement, or the ATM Agreement, with Rodman & Renshaw LLC and StockBlock Securities LLC, as agents, pursuant to which the Sales Agreement, weCompany may from time to time and at our option, issue and sell shares of ourits common stock having an aggregate offering price of up to $25,000,000$75,000,000 through FBR asa sales agent, subject to certain terms and conditions. Any shares sold will be sold pursuant to our effective shelf registration statement on Form S-3 including a prospectus dated February 2, 2017, as supplemented by aJuly 26, 2021 and prospectus supplement dated April 5, 2017. We will pay FBR a commission of 3.0% of the gross proceeds of the sale of any shares sold through FBR.
Off-balance sheet arrangements
March 18, 2024. As of November 30, 2017, we hadMarch 31, 2024 and through May 9, 2024, 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.shares were issued under the ATM Agreement.
Significant Accounting PoliciesCritical accounting policies and estimates
Our significantcritical accounting policies are described in the notes to the consolidated financial statements as“Management’s Discussion and Analysis of August 31, 2017 includedFinancial Condition and Results of Operations” contained in our Annual Report.
Planned Expenditures
We investhave invested heavily in research and development, and we expect that in the upcoming years our research and development expenses will continue to be our major operating expense.
Following the results of the Phase 3 trials for our oral insulin capsule candidate, ORMD-0801 and the current strategic review initiated by the Company, our obligations may change significantly.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has been no significant change in our exposure to market risk during the three month periodquarter ended November 30, 2017.March 31, 2024. For a discussion of our exposure to market risk, refer to Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” contained in our Annual Report.
ITEM 4 - CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of November 30, 2017.March 31, 2024. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the quarter ended November 30, 2017March 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On November 1, 2017, we issued 2,500 shares of our common stock to Corporate Profile, LLC, or Corporate Profile, in payment of a portion of the consulting fee for investor relations services owed to Corporate Profile pursuant to a Stock Purchase Agreement and Letter Agreement, each dated May 3, 2017, between us and Corporate Profile.
On October 24, 2017, we issued 8,750 shares of our common stock to an investor resulting from his exercise of warrants purchased in connection with our 2012 private placement for a total exercise price of $52,500.
On November 14, 2017, we issued 6,399 shares of our common stock to an investor resulting from his exercise of warrants purchased in connection with our 2012 private placement for a total exercise price of $38,394.
We issued these shares pursuant to an exemption from registration contained in Section 4(a)(2) of the Securities Act of 1933, as amended.
ITEM 6 - EXHIBITS
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104.1* | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
* | Filed herewith |
** | Furnished herewith |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
ORAMED PHARMACEUTICALS INC. | ||
Date: | By: | /s/ Nadav Kidron |
Nadav Kidron | ||
President and Chief Executive Officer | ||
Date: | By: | /s/ |
Chief Financial Officer | ||
(Principal Financial and Accounting Officer) |
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