ORMP: Second quarter financial results; Strengthens Advisory Board; Positive EoP2 meeting with the FDA

By Anita Dushyanth, PhD

NASDAQ:ORMP

READ THE FULL ORMP RESEARCH REPORT

Financial Update

Oramed ORMP reported second quarter financial results on 6th April, 2020 and provided a business update.

The company reported revenues of $674k for the quarter. These revenues are related to the license agreement with Hefei Tianhui Incubator of Technologies Co., Ltd. (HTIT) signed in 2015 and are recognized through June 2023.

R&D expenses for the quarter was $3.3 million, which was related to the completion of Phase IIb clinical trial (including regulatory expenses) and anticipatory Phase III trial. As Phase III clinical studies are expected to commence in the near-term, we expect R&D spend to increase during the year. G&A expenses came in around $1.3 million. The company recorded a net loss of about $3.7 million.

During the quarter, Oramed also received close to $6 million from the exercise of warrants and options. The company exited the quarter with $29 million in cash, short-term bank deposits and marketable securities. Subsequent to quarter end, Oramed raised additional capital in the amount of $21 million. The company's current cash balance is roughly $50 million which offers runway for the next 18 months.

Business Update

The Phase IIb trial investigating ORMP-0801, an oral insulin capsule as a treatment for diabetes, achieved the primary end point (reduction in HbA1c levels compared to placebo at week 12) successfully. Subsequently, the company met with the regulatory authorities in February for an End-of-Phase-II (EoP2) meeting. The meeting with the FDA was productive and has clarified the path forward for ORMD-0801 to obtain a future NDA submission. The focus of this meeting was to confirm two key elements to the continued development of ORMD-0801. First, the FDA provided detailed guidance regarding the Chemistry Manufacturing and Control (CMC) of ORMD-0801. Secondly, the company expects to have another meeting with the regulatory agency to discuss Phase III trial design. This meeting represents the completion of another important milestone for Oramed. Management is also planning to obtain marketing approval in Europe and therefore intends to meet with the European Medicines Agency (EMA) regarding the Phase III study design.

Due to SARS-CoV-2 outbreak causing COVID-19, several clinical studies have been suspended and have not commenced as originally planned. Oramed's exploratory trials have also been delayed due to the cascade of effects from COVID-19. While we are disappointed with the current situation, we understand that the company intends to protect the safety of study participants as well as staff at clinical trial sites and ensure regulatory compliance. We think that studies could commence once there is sufficient control of the spread of virus.

Exploratory NASH Trial

Oramed initiated an exploratory proof-of-concept study to evaluate ORMD-0801 in patients suffering from nonalcoholic steatohepatitis (NASH). The study will test the ability of ORMD-0801 to reduce liver fat, inflammation, and fibrosis in NASH patients. The company has expanded the trial to 30 patients and we expect the data from this study in the near term.

NASH is inflammation and damage to the liver brought about by a buildup of fat and is the most severe form of nonalcoholic fatty liver disease (NAFLD). It is often a "silent" liver disease as most patients with NASH feel well and are not aware that they have a liver problem. However, NASH can be severe and ultimately lead to cirrhosis, liver failure, and hepatocellular carcinoma. NASH is currently estimated to affect two to five percent of the U.S. population (NIDDK) with the global market estimated to reach $20 billion by 2025 (Allied Market Research).

Oral Leptin Trial

Oramed is planning to conduct an exploratory, proof-of-concept trial to evaluate an oral leptin product for the reduction of glucagon in patients with T1D. Leptin is a 16-kDa peptide hormone that is primarily produced by adipose tissue. It is an essential hormone for maintaining energy homeostasis and body weight, with leptin resistance identified as a key risk factor for obesity (Zhou et al., 2013). The single-dose safety trial is scheduled to begin later this year in 10 patients with T1D and we anticipate topline results soon after. The ultimate goal of the project is to address weight loss in overweight patients.

Strengthened Advisory Board…

In the beginning of the year, Oramed bolstered its advisory board with the addition of Dr. Alexander Fleming and Dr. Julio Rosenstock. Oramed has appointed these two strategic advisors with relevant experience to deepen the board's expertise.

Dr. Fleming previously held various positions at the FDA in which he was responsible for the therapeutic areas of diabetes and other metabolic and endocrine disorders. He led reviews of landmark approvals, including metformin and the first statin, insulin analog, PPAR-agonist, and growth hormone for non-GH deficiency indications. Dr. Fleming oversaw clinical review of the earliest biotech products, including human insulin. Dr. Fleming also helped to shape FDA policies and practices related to therapeutic review and regulatory communication.

Dr. Rosenstock's clinical research efforts focus on exploring novel agents and therapeutic strategies to improve glycemic control. Over the last 30 years, he has participated in hundreds of clinical trials and has had an active role in the development of new oral agents and insulin preparations acting often as a lead clinical investigator and scientific advisor. Dr. Rosenstock is a member of the National Board of Directors of the American Diabetes Association (ADA) and is currently an Associate Editor of Diabetes Care.

Valuation

We're glad to see the results for the Phase IIb HbA1c trial in patients with T2D. While we anticipate data from a couple of other studies in 2020, we view the data from the Phase IIb study of ORMD-0801 as the most important for the company. It seems likely that the company might jumpstart partnership negotiations since we believe Oramed will seek a development partner before moving into a Phase III trial.

We value Oramed using a probability adjusted discounted cash flow model that takes into account potential future revenues from ORMD-0801 and ORMD-0901. We currently model for approval of ORMD-0801 in 2024 with first sales in 2025 and approval of ORMD-0901 in 2025 with first sales in 2026. We estimate for peak U.S. sales of ORMD-0801 of approximately $400 million and peak U.S. sales of ORMD-0901 of approximately $500 million. Using a 12% discount rate and a 64% probability of approval for ORMD-0801 and a 45% probability of approval for ORMD-0901 leads to a net present value for those two programs of $213 million and $152 million, respectively. When including the current cash total, potential cash from warrant exercises, and dividing by the fully diluted share count leads to a net present value for Oramed of approximately $23 per share.

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