Business Overview
Oramed Pharmaceuticals Inc. (NASDAQ:ORMP) is a clinical-stage pharmaceutical company focused on developing innovative oral drug delivery platforms. The company's flagship product, ORMD-0801, an oral insulin capsule, has been the primary focus of its research and development efforts. However, Oramed has also strategically diversified its business by entering into collaborations and transactions that have the potential to generate royalty streams and bolster its balance sheet.
Oramed Pharmaceuticals Inc. was incorporated in Delaware on April 12, 2002. The company's core focus has been on developing an oral dosage form that can effectively deliver active insulin or other proteins. This innovative approach aims to revolutionize the administration of traditionally injected medications.
In March 2021, Oramed expanded its portfolio by establishing Oravax Medical Inc., a 63% owned joint venture. This new entity was created to commercialize oral vaccines for COVID-19 and other novel coronaviruses, demonstrating Oramed's ability to adapt to emerging healthcare challenges and diversify its product pipeline. The oral vaccine is based on Premas Biotech Pvt. Ltd.'s proprietary vaccine technology involving a triple antigen virus like particle.
The company's lead product candidate, ORMD-0801, an oral insulin capsule designed for the treatment of diabetes, has been at the forefront of Oramed's research efforts. However, in January 2023, Oramed faced a significant setback when its Phase 3 ORA-D-13-1 trial for ORMD-0801 did not meet its primary or secondary endpoints. As a result, the company made the decision to terminate both the ORA-D-13-1 trial and a parallel ORA-D-13-2 trial.
Despite this setback, Oramed demonstrated resilience and scientific rigor by conducting a thorough analysis of the ORA-D-13-1 data. This analysis revealed promising results in specific subpopulations of patients. Particularly, patients with certain body mass index, baseline HbA1c, and age parameters exhibited a statistically significant reduction in HbA1c compared to placebo. These findings have led Oramed to submit a protocol for a new Phase 3 clinical trial for ORMD-0801 to the FDA, showcasing the company's commitment to advancing its oral insulin program.
Diversifying the Business
While Oramed continues to focus on advancing its oral insulin program, the company has also taken steps to diversify its revenue streams and strengthen its balance sheet. In September 2023, Oramed entered into the 2023 Scilex Transaction, which involved the issuance of a senior secured promissory note and warrants to purchase shares of Scilex Holding Company (NASDAQ:SCLX), a company focused on non-opioid pain management products.
Under the terms of the 2023 Scilex Transaction, Oramed received a senior secured promissory note with a principal amount of $101.88 million, maturing in March 2025 and bearing interest of SOFR plus 8.5%. Oramed also received warrants to purchase up to 4.5 million shares of Scilex common stock with an exercise price of $0.01 per share, as well as four additional warrants for 2.12 million shares each, vesting over time.
In October 2024, Oramed further restructured its relationship with Scilex, exchanging a portion of the Tranche A Note for a new Tranche B of senior secured convertible notes issued by Scilex in the aggregate principal amount of $50 million. Oramed acquired $25 million of the Tranche B Notes and related warrants to purchase up to 3.75 million shares of Scilex common stock.
Additionally, in October 2024, Oramed and certain institutional investors entered into a Royalty Purchase Agreement with Scilex, under which they acquired the right to receive, in the aggregate, 8% of net sales worldwide for 10 years with respect to certain Scilex products, including ZTlido and SP-103. Oramed acquired the right to receive 50% of the Purchased Receivables.
Joint Venture with HTIT
On January 22, 2024, Oramed entered into a joint venture agreement with Hefei Tianhui Biotech Co., Ltd. (HTIT Biotech) and Technowl Limited, a wholly-owned indirect subsidiary of HTIT Biotech, to establish a joint venture focused on the development and commercialization of innovative products based on Oramed's oral insulin and POD technology, as well as HTIT's manufacturing capabilities and technologies. The joint venture expects to conduct a Phase 3 oral insulin clinical trial in the United States.
Under the terms of the agreement, Oramed and HTIT Biotech will initially hold equal shares in the joint venture, with each owning 50%. The joint venture's board of directors will also be equally represented by HTIT and Oramed. HTIT will contribute cash and credit to purchase materials, while Oramed will contribute cash, shares of its common stock, and intellectual property related to its oral insulin and POD technology, as well as other assets in its pipeline.
Financials and Liquidity
Oramed has not generated significant revenues from its operations to date. For the fiscal year 2023, the company reported annual revenue of $1.34 million, annual net income of $5.53 million, annual operating cash flow of -$10.30 million, and annual free cash flow of -$10.55 million.
In the most recent quarter (Q3 2024), Oramed reported no revenue, compared to $1.34 million in the same period of 2023. The decrease in revenue was due to the recognition of revenues until the product submission date by HTIT of June 2023. The company's net loss for Q3 2024 was $19.62 million, which was primarily due to lower interest income, higher tax expenses, and the revaluation of investments in Scilex.
Research and development expenses decreased by 33% to $4.86 million for the nine-month period ended September 30, 2024, while general and administrative expenses decreased by 32% to $4.32 million. The company had a net loss of $8.90 million for the nine months ended September 30, 2024, compared to a net loss of $8.21 million in the same period of 2023.
As of September 30, 2024, Oramed had $42.10 million in cash and cash equivalents and $42.74 million in short-term deposits. The company had a working capital surplus of $137.50 million. Oramed's liquidity position remains strong, with a current ratio of 27.08 and a quick ratio of 27.08. The company's debt-to-equity ratio stands at 0.003, indicating a very low level of debt.
Oramed believes it will be able to maintain its current planned activities and the corresponding level of expenditures for at least the next 12 months based on its current cash resources and commitments.
Outlook and Potential Catalysts
Oramed's near-term focus remains on advancing its oral insulin program, with the company preparing to initiate a new Phase 3 clinical trial for ORMD-0801 based on the positive subpopulation data from the previous trial. The successful completion of this trial and potential regulatory approval of ORMD-0801 could be a significant catalyst for the company.
Additionally, the agreements Oramed has entered into with Scilex and the joint venture with HTIT Biotech have the potential to generate royalty streams and diversify the company's revenue sources. The Scilex transactions, in particular, have strengthened Oramed's balance sheet and provided the company with access to additional capital to fund its development efforts.
The company is also examining its existing pipeline and has commenced an evaluation process of potential strategic opportunities, with the goal of enhancing value for its stockholders.
Risks and Challenges
Oramed faces several risks and challenges, including the inherent uncertainties associated with clinical development and regulatory approval processes. The failure of the ORA-D-13-1 trial was a setback, and there is no guarantee that the company's revised clinical strategy will be successful.
Additionally, Oramed's reliance on collaborative partnerships and transactions, such as the Scilex and HTIT Biotech agreements, introduces execution risks and potential dependencies on the success of its partners. The company's ability to generate meaningful royalty streams from these agreements remains to be seen.
Conclusion
Oramed Pharmaceuticals has demonstrated its ability to navigate setbacks and diversify its business model to create potential new revenue streams. The company's focus on advancing its oral insulin program, coupled with its strategic investments and collaborations, positions Oramed to capitalize on the significant market opportunity in the diabetes and pain management spaces. While challenges remain, Oramed's innovative approach and diversified business strategy provide a foundation for potential future growth and value creation for shareholders.
The company's financial position remains stable, with sufficient cash resources to maintain its current planned activities for the near future. However, Oramed will need to successfully advance its clinical programs and execute on its strategic partnerships to achieve sustainable revenue growth and profitability in the long term.