ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial
condition and results of operations should be read in conjunction with the condensed consolidated financial statements and the related
notes included elsewhere herein and in our consolidated financial statements, accompanying notes and “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” contained in our Annual Report (as defined below).
Forward-Looking Statements
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. 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:
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the
expected development and potential benefits from our products in treating diabetes;
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the
prospects of entering into additional license agreements, or other partnerships or forms
of cooperation with other companies or medical institutions;
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future
milestones, conditions and royalties under the license agreement with Hefei Tianhui Incubator
of Technologies Co., Ltd., or HTIT, as well as our disagreements with HTIT;
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expected
timing of a clinical study for the potential Oravax vaccine and its potential to protect
against the coronavirus, or COVID-19, pandemic;
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our consideration of ways in which our shareholders could benefit more directly from Oravax, including the potential issuance of some of our shares in Oravax to our shareholders as a dividend;
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our
research and development plans, including pre-clinical and clinical trials plans and the
timing of enrollment, obtaining results and conclusion of trials, and our expectation to
file a Biologics License Application, or BLA thereafter;
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our
belief that our technology has the potential to deliver medications and vaccines orally that
today can only be delivered via injection;
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the
competitive ability of our technology based product efficacy, safety, patient convenience,
reliability, value and patent position;
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the
potential market demand for our products;
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our
expectation that in upcoming years our research and development expenses, net, will continue
to be our major expenditure;
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our
expectations regarding our short- and long-term capital requirements;
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our
outlook for the coming months and future periods, including but not limited to our expectations
regarding future revenue and expenses;
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information
with respect to any other plans and strategies for our business; and
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our
expectations regarding the impact of COVID-19, including on our clinical trials and operations.
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Although forward-looking statements in this Quarterly Report
on Form 10-Q reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known
by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may
differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Factors that could cause
or contribute to such differences in results and outcomes include, without limitation, those specifically addressed under the heading
“Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended August 31, 2020, or our Annual
Report, as filed with the Securities and Exchange Commission, or the SEC, on November 24, 2020, 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.
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 for delivery of other polypeptides. We utilize clinical research
organizations, or CROs, to conduct our clinical studies.
Recent business developments
Product Candidates
Oral insulin: Our proprietary flagship
product, an orally ingestible insulin capsule, or ORMD-0801, allows insulin to travel from the gastrointestinal tract via the portal
vein to the bloodstream, revolutionizing the manner in which insulin is delivered. It enables the passage in a more physiological manner
than current delivery methods of insulin.
FDA Guidance: In
August 2017, the U.S. Food and Drug Administration, or FDA, instructed us that the regulatory pathway for the submission of ORMD-0801
would be a BLA. If approved, the BLA pathway would grant us 12 years of marketing exclusivity for ORMD-0801, from the approval date,
and an additional six months of exclusivity would be granted to us if the product also receives approval for use in pediatric patients.
Phase 2b Trial: In May 2018, we initiated a
three-month dose-ranging Phase 2b clinical trial of ORMD-0801 (Cohort A). This placebo controlled, randomized, 90-day treatment clinical
trial was conducted on 269 type 2 diabetic patients in multiple centers throughout the United States pursuant to an Investigational New
Drug application, or IND, with the FDA. The primary endpoints of the trial were to assess the safety and evaluate the effect of ORMD-0801
on HbA1c levels over a 90-day treatment period. Secondary endpoints of the trial included measurements of fasting plasma glucose, or
FPG, post-prandial glucose, or PPG levels, during a mixed-meal tolerance test, or MMTT, and weight. In May 2019, we initiated an extension
of this protocol for approximately 75 type 2 diabetic patients, who were dosed using a lower dosage of insulin (Cohort B).
Cohort A: In November 2019, we announced
positive results from the initial cohort of the Phase 2b trial. Patients randomized in the trial to once-daily ORMD-0801 achieved a statistically
significant (p-value 0.036) reduction from baseline in HbA1c of 0.60% (0.54% with placebo adjustment). This 0.54% reduction in HbA1c
is clinically meaningful. Treatment with ORMD-0801 demonstrated an excellent safety profile, with no serious drug-related adverse events
and with no increased frequency of hypoglycemic episodes when compared to placebo. In addition, during this 90-day trial, no weight gain
was observed. In the initial cohort, 269 U.S.-based patients were enrolled and treated with a dose-increasing approach: 16 mg initial
dose, titrated to 24 mg per dose, and then titrated to 32 mg per dose. Patients were randomized into three groups to assess dosing frequency:
once-daily (32 mg per day), twice-daily (64 mg per day), thrice daily (96 mg per day). There was a corresponding placebo for each treatment
arm. Two hundred nine (209) patients completed treatment to the 12-week endpoint and were included in the data analysis (24 subjects
did not complete the full 12 weeks of treatment). The twice-daily arms achieved statistically significant (p-value 0.042) reductions
from baseline in HbA1C of 0.59% (0.53% with placebo adjustment). The thrice-daily arm did not meet statistical significance (p-value
0.093). In addition, due to evidence of treatment-by-center interaction, two sites (36 patients (13.4% of enrolled subjects)) were excluded
from the statistical analysis as they showed results opposite from the rest of the statistically significant results. Our internal investigation
as well as an independent investigation did not find a cause for such discrepancy.
Cohort B: In February 2020, we announced
positive topline data from the second and final cohort of the Phase 2b trial with a different regimen across three daily dose ranges
(8 mg, 16 mg, 32 mg). Patients randomized in the trial treated with 8 mg of ORMD-0801 once-daily achieved a statistically significant
(p-value 0.028) observed mean reduction of 1.29% from baseline and a least square mean reduction of 0.95% from baseline, or 0.81% adjusted
for placebo. Patients who had HbA1c readings above 9% at baseline and received 8 mg of oral insulin once-daily experienced a 1.26% reduction
in HbA1c by week 12. Treatment with ORMD-0801 at all doses demonstrated an excellent safety profile, with no serious drug-related adverse
events and with no increased frequency of hypoglycemic episodes or weight gain compared to placebo. The primary efficacy endpoint was
a reduction in HbA1c at week 12.
Phase 3 Trial: Based on guidance received from
the FDA as part of the End-of-Phase 2 meeting process for our oral insulin candidate, ORMD-0801, we have submitted to the FDA the protocols
for our upcoming pivotal Phase 3 studies. In line with the FDA’s expectations and recommendations, we intend to conduct two Phase
3 studies concurrently in patients with type 2 diabetes, or T2D. These studies involve about 1,125 patients to provide evidence of ORMD-0801’s
safety and efficacy in T2D patients over a treatment period of 6 to 12 months. A geographically diverse patient population will be recruited
from multiple sites throughout the U.S., European Union countries, and Israel. Our Phase 3 trial will be composed of two protocols:
ORA-D-013-1: This trial will treat
T2D patients with inadequate glycemic control who are currently on 1, 2, or 3 oral glucose-lowering agents. This U.S. trial will recruit
675 patients from 75 clinical sites located throughout the U.S. Patients will be randomized 1:1:1 in this double-dummy trial into cohorts
of: 8 mg ORMD-0801 once-daily at night and placebo 45 minutes before breakfast; 8 mg ORMD-0801 twice-daily, at night and 45 minutes before
breakfast; and placebo twice-daily, at night and 45 minutes before breakfast. The primary endpoint of the trial is to evaluate the efficacy
of ORMD-0801 compared to placebo in improving glycemic control as assessed by HbA1c, with a secondary efficacy endpoint of assessing
the change from baseline in fasting plasma glucose at 26 weeks. We initiated this trial in the fourth quarter of 2020. In June 2021,
we announced that 50% of the 675 patients were enrolled and randomized.
ORA-D-013-2: This trial will include
T2D patients with inadequate glycemic control who manage their condition with either diet alone or with diet and metformin monotherapy.
A total of 450 patients will be recruited through 36 sites in the U.S. and 25 sites in Western Europe and Israel. Patients will be randomized
1:1 into two cohorts dosed with 8 mg ORMD-0801 at night; and placebo at night. The primary endpoint is to evaluate the efficacy of ORMD-0801
compared to placebo in improving glycemic control as assessed by HbA1c over a 26-week treatment period, with a secondary efficacy endpoint
of assessing the change from baseline in fasting plasma glucose at 26 weeks. We initiated this trial in the U.S. in the first calendar
quarter of 2021.
We expect to receive the efficacy data from the trials after patients
have completed the first 6-months of treatment. Safety will be further monitored as patients will be exposed to the drug over an additional
6 months (total 12 months). The trial’s topline results are expected in 2022 and we anticipate filing a BLA with the FDA in 2023.
A BLA would grant us 12 years of marketing exclusivity from the date of approval in the U.S..
NASH trial: In June 2020, we presented topline
data of 8 patients from an open-label trial that assessed the safety, tolerability, and early effects of 16 mg ORMD-0801 (2x8 mg capsules)
on liver fat in T2D patients with nonalcoholic steatohepatitis, or NASH. The 12-week dosing had no serious adverse events and it induced
an observed mean 6.9±6.8% reduction in liver fat content (p-value: 0.035), and the relative reduction of 30%, as measured by MRI-derived
proton density fat fraction, or MRI-PDFF. In parallel, concentrations of gamma-glutamyltransferase (GGT), a key marker of chronic hepatitis,
were significantly lower after 12 weeks of treatment as compared to baseline (-14.6±13.1 U/L; p value: 0.008).
In September 2020, we initiated an open label clinical
trial of our oral insulin capsule ORMD-0801, for the treatment of NASH. This 10 patient multi-center trial is comprised of three clinical
sites in Belgium. The trial will measure change and percent change in MRI-PDFF from Baseline to Week 12.
In December 2020, we initiated a double blind,
placebo controlled clinical trial of our oral insulin capsule ORMD-0801 for the treatment of NASH. This 30 patients multi-center trial
is comprised of five clinical sites: three in the U.S. and two in Israel. The trial will measure change and percent change in MRI-PDFF
from Baseline to Week 12.
Oral Glucagon-Like Peptide-1: GLP-1
is an incretin hormone, which stimulates the secretion of insulin from the pancreas. In addition to our flagship product, the ORMD-0801
insulin capsule, we use our technology for an orally ingestible GLP-1 capsule, or ORMD-0901.
In February 2019, we completed a Phase I pharmacokinetic
trial to evaluate the safety and pharmacokinetics of ORMD-0901 compared to placebo in healthy volunteers. We initiated a follow-on trial
in T2D patients, in June 2021 in the U.S. under an IND submitted to the FDA.
Oral Vaccine
On March 18, 2021, we entered into a License Agreement,
or the Oravax License Agreement, with Oravax Medical Inc., or Oravax. For more information about the Oravax License Agreement, please
see below under “Out-Licensed Technology” section.
Oravax, Oramed’s 63% owned joint venture that
combines Oramed’s proprietary POD™ oral delivery technology and Premas Biotech’s novel vaccine technology, is preparing
to begin clinical trials of an oral COVID-19 vaccine in second half of 2021 calendar year. We are considering ways in which our shareholders
could benefit more directly from Oravax, including potentially issuing some of our shares in Oravax to our shareholders as a dividend,
which would make Oravax a publicly held company that may in turn apply for listing on a stock exchange.
A single dose of Oravax’s oral vaccine produced a
significant antibody response in a preclinical in-vivo study. Oravax’s novel vaccine technology may be a candidate for protection
against COVID-19 and its variants due to triple antigen targeting, easier distribution, and ease of use. We are now in discussions with
potential partners for pre-orders of Oravax’s vaccine candidate.
Other Products
We are developing a new drug candidate, a weight loss treatment in
the form of an oral leptin capsule. During the third quarter of 2020, we finalized a proof of concept single-dose trial for this candidate
to evaluate its pharmacokinetics and pharmacodynamics (glucagon reduction) in 10 type 1 adult diabetic patients without any safety issues.
Patients who received leptin on average had a decrease in glucose as compared to the placebo group during the first 30-180 minutes following
dosing. At different time periods, the leptin treated patients on average had glucagon values that were either lower than or similar to,
those in the placebo group. We are currently in the middle of a second study of 15 type 1 adult diabetic patients who serve as both the
active and placebo arms in this study, with anticipated results in the fourth quarter of 2021.
Out-Licensed Technology
HTIT License
On November 30, 2015, we, our Israeli subsidiary and
HTIT entered into a Technology License Agreement, or TLA, 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 HTIT License Agreement.
According to the HTIT 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 HTIT
License Agreement, HTIT will conduct, at its own expense, certain pre-commercialization and regulatory activities with respect to our
subsidiary’s 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 was payable immediately,
$8 million will be paid subject to our entry into certain agreements with certain third parties, and $26.5 million will be paid 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 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, or the Royalty Term. The
HTIT License Agreement shall remain in effect until the expiration of the Royalty Term. The HTIT License Agreement contains customary
termination provisions. Through May 31, 2021, we received aggregate milestone payments of $20.5 million out of the aggregate amount of
$37.5 million.
On August 21, 2020, we received a letter from HTIT,
disputing certain pending payment obligations of HTIT (we estimate this obligation between $2 million to $6 million) under the TLA. We
wholly dispute said claims and we are in discussions with HTIT in an attempt to reach a mutually agreeable solution.
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 HTIT License Agreement and the SPA, we received a non-refundable
payment of $500,000 as a no-shop fee.
Oravax License
On March 18, 2021, we entered into the Oravax License
Agreement with Oravax, pursuant to which we will grant to Oravax an exclusive, worldwide license , or the License, under our rights in
certain patents and related intellectual property in which Oravax will receive certain rights relating to our proprietary oral delivery
technology to further develop, manufacture and commercialize oral vaccines for COVID-19 and other novel coronaviruses based on Premas
Biotech Pvt.’s, or Premas, proprietary vaccine technology involving a triple antigen virus like particle, or the Oravax Product
which was previously owned by Cystron Biotech LLC, or Cystron, and later acquired by Akers Biosciences Inc., or Akers.
In consideration for the grant of the License, the
Oravax License Agreement provides that we will receive (i) royalties equal to 7.5% on net sales, as defined in the Oravax License Agreement,
of each product commercialized by Oravax, its affiliates and permitted sublicensees related to the License during the term specified
in the Oravax License Agreement, (ii) sublicensing fees equal to 15% of any non-sales-based consideration received by Oravax from a permitted
sublicensee and (iii) other payments ranging between $25 million to $100 million, based on certain sales milestones being achieved by
Oravax. The parties further agreed to establish a development and steering committee, which will consist of three members, of which two
members will be appointed by us, that will oversee the ongoing research, development, clinical and regulatory activity with respect to
the Oravax Product. In addition, we agreed to buy and Oravax agreed to issue to us 1,890,000 shares of common stock of Oravax, representing
63% of the common stock of Oravax for the aggregate amount of $1.5 million. Akers agreed to contribute to Oravax $1.5 million in cash
and substantially all of the assets of Cystron, including a license agreement to the Premas novel vaccine technology. Nadav Kidron, the
Company’s President and Chief Executive Officer, was one of the former members of Cystron.
Results of Operations
Comparison of nine and three month periods ended
May 31, 2021 and May 31, 2020
The following table summarizes certain statements
of operations data of the Company for the nine and three month periods ended May 31, 2021 and May 31, 2020 (in thousands of dollars except
share and per share data):
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Nine months ended
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Three months ended
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May 31,
2021
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May 31,
2020
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May 31,
2021
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May 31,
2020
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Revenues
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$
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2,020
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|
|
$
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2,029
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|
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$
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681
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$
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681
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Cost of revenues
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-
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|
|
|
-
|
|
|
|
-
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|
|
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-
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Research and development expenses
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15,145
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7,267
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5,502
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1,925
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General and administrative expenses
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|
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3,688
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|
|
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3,502
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|
|
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1,297
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|
|
|
1,030
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Financial income (expenses), net
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|
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1,010
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|
|
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225
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|
|
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493
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|
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|
(10
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)
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Taxes on income
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-
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-
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-
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-
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Net loss for the period
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$
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15,803
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$
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8,515
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$
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5,625
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$
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2,284
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Loss per common share - basic and diluted
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$
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0.57
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$
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0.44
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$
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0.17
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|
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$
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0.10
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Weighted average common shares outstanding
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|
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26,899,914
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|
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19,496,205
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|
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29,929,606
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23,215,205
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Revenues
Revenues consist of proceeds related to the HTIT
License Agreement that are recognized on a cumulative basis when it is probable that a significant reversal in the amount of
cumulative revenue recognized will not occur, through the expected product submission date of June 2023 using the input method.
Revenues were $2,020,000 and $2,029,000 for the nine
month periods ended May 31, 2021 and May 31, 2020, respectively.
Revenues were $681,000 for each of the three month
periods ended May 31, 2021 and May 31, 2020.
Cost of revenues
Cost of revenues consists of royalties related to
the HTIT License Agreement that will be paid over the term of the License Agreement in accordance with revenue recognition accounting
and the Law for the Encouragement of Industrial Research, Development and Technological Innovation, 1984, as amended, including any regulations
or tracks promulgated thereunder.
There was no cost of revenues for the three and the
nine month periods ended May 31, 2021 and May 31, 2020.
Research and development expenses
Research and development expenses include costs directly
attributable to the conduct of research and development programs, including the cost of salaries, 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 CROs, independent clinical investigators and other third-party service
providers to assist us with the execution of our clinical studies.
Clinical activities, which relate principally to clinical
sites and other administrative functions to manage our clinical trials, are performed primarily by CROs. CROs typically perform most
of the start-up activities for our trials, including document preparation, site identification, screening and preparation, pre-study
visits, training, and program management.
Clinical trial and pre-clinical trial expenses include
regulatory and scientific consultants’ compensation and fees, research expenses, purchase of materials, cost of capsule manufacturing,
payments for patient recruitment and treatment, as well as salaries and related expenses of research and development staff.
Research and development expenses for the nine
month period ended May 31, 2021 increased by 108% to $15,145,000, from $7,267,000 for the nine month period ended May 31, 2020. The increase
is primarily due to an increase in expenses related to our Phase 3 clinical trial in addition to expenses related to the in process research
and development costs related to Oravax partially offset by a decrease in expenses related to our Phase 2 clinical trial. Stock-based
compensation costs for the nine month period ended May 31, 2021 totaled $713,000, as compared to $356,000 during the nine month period
ended May 31, 2020. The increase is mainly attributable to awards granted to employees and a consultant during the nine month period ended
May 31, 2021.
Research and development expenses for the three month period ended
May 31, 2021 increased by 186% to $5,502,000, from $1,925,000 for the three month period ended May 31, 2020. The increase is primarily
due to an increase in expenses related to our Phase 3 clinical trial in addition to expenses related to the in process research and development
costs related to Oravax. Stock-based compensation costs for the three month period ended May 31, 2021 totaled $408,000, as compared to
$138,000 during the three month period ended May 31, 2020. The increase is mainly attributable to awards granted to employees and a consultant
during fiscal year 2021.
Government grants
In the nine month periods ended May 31, 2021 and May
31, 2020, we did not recognize any research and development grants. As of May 31, 2021, we incurred liabilities to pay royalties to the
Israel Innovation Authority of the Israeli Ministry of Economy & Industry of $243,000.
General and administrative expenses
General and administrative expenses include the salaries
and related expenses of our management, consulting costs, legal and professional fees, travel expenses, business development costs, insurance
expenses and other general costs.
General and administrative expenses for the nine month
period ended May 31, 2021 increased by 5% to $3,688,000 from $3,502,000 for the nine month period ended May 31, 2020. The increase in
costs related to general and administrative activities is primarily attributable to an increase in stock-based compensation expenses
and costs related to directors and officer’s insurance policy. Stock-based compensation costs for the nine month period ended May 31,
2021 totaled $997,000, as compared to $532,000 during the nine month period ended May 31, 2020. The increase is mainly attributable to
awards granted to employees and a consultant during the nine month period ended May 31, 2021.
General and administrative expenses for the three month period ended
May 31, 2021 increased by 26% to $1,297,000 from $1,030,000 for the three month period ended May 31, 2020. The increase in costs related
to general and administrative activities is primarily attributable to an increase in stock-based compensation expenses and costs related
to directors and officer’s insurance policy partially offset by a decrease in costs related to patents’ expenses. Stock-based
compensation costs for the three month period ended May 31, 2021 totaled $573,000, as compared to $182,000 during the three month period
ended May 31, 2020. The increase is mainly attributable to awards granted to employees and a consultant during fiscal year 2021.
Financial income (expense), net
Net financial income increased by 349% from net financial
income of $225,000 for the nine month period ended May 31, 2020 to net financial income of $1,010,000 for the nine month period ended
May 31, 2021. The increase is primarily attributable to an increase in fair value of the ordinary shares of D.N.A Biomedical Solutions
Ltd. and Entera Bio Ltd.
Net financial income increased from net financial
expense of $10,000 for the three month period ended May 31, 2020 to net financial income of $493,000 for the three month period ended
May 31, 2021. The increase is primarily attributable to the decrease in fair value of the ordinary shares of D.N.A Biomedical Solutions
Ltd. and Entera Bio Ltd.
Liquidity and capital resources
From inception through May 31, 2021, we have incurred
losses in an aggregate amount of $107,999,000. During that period and through July 14, 2021, 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 $168,125,000, net
of transaction costs. During that period, we also received cash consideration of $16,304,000 from the exercise of warrants and options.
We expect to seek to obtain additional financing through similar sources in the future, as needed. As of May 31, 2021, we had $57,414,000 of
available cash, $5,017,000 of short-term bank deposits and $14,498,000 of marketable securities.
Management continues to evaluate various financing
alternatives for funding 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. 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.
As of May 31, 2021, our total current assets were
$72,233,000 and our total current liabilities were $5,750,000. On May 31, 2021, we had a working capital surplus of $66,483,000 and an
accumulated loss of $107,999,000. As of August 31, 2020, our total current assets were $40,511,000 and our total current liabilities
were $4,536,000. On August 31, 2020, we had a working capital surplus of $35,975,000 and an accumulated loss of $92,614,000. The increase
in working capital from August 31, 2020 to May 31, 2021 was primarily due to capital raising.
During the nine month period ended May 31, 2021, cash
and cash equivalents increased to $57,414,000 from the $19,296,000 reported as of August 31, 2020, which is due to the reasons described
below.
Operating activities used cash of $15,039,000 in the
nine month period ended May 31, 2021, as compared to $9,982,000 used in the nine month period ended May 31, 2020. Cash used in operating
activities primarily consisted of net loss resulting from research and development and general and administrative expenses, as well as
changes in deferred revenue due to the License Agreement and is partially offset by changes in accounts payable and accrued expenses.
Investing activities provided cash of $5,283,000 in the nine month
period ended May 31, 2021, as compared to investing activities use of cash of $6,337,000 in the nine month period ended May 31, 2020.
Cash used in investing activities in the nine month period ended May 31, 2021 consisted primarily of the purchase of short-term deposits
and held to maturity securities and is partially offset by the proceeds of short-term deposits and held to maturity securities. Cash provided
by investing activities in the nine month period ended May 31, 2020 consisted primarily of the proceeds from the sale of held to maturity
securities and is partially offset by the purchase of short term deposits.
Financing activities provided cash of $47,869,000
in the nine month period ended May 31, 2021, as compared to $22,308,000 provided in the nine month period ended May 31, 2020. Cash provided
by financing activities consisted primarily proceeds from the issuance of our common stock as well as proceeds from the exercise of options
and warrants.
On February 27, 2020, we entered into an underwriting
agreement with National Securities Corporation, or the Underwriter, in connection with a public offering, or the Offering of 5,250,000
shares of our common stock, at an offering price of $4.00 per share. We also granted the Underwriter a 45-day option to purchase from
us up to an additional 787,500 shares of common stock at the public offering price, or the Over-Allotment Option. In connection with
the Offering, we also agreed to issue to the Underwriter, or its designees, warrants, or the Underwriter’s Warrants, to purchase
up to an aggregate of 7% of the shares of common stock sold in the Offering (including any additional shares sold during the 45-day option
period), at an exercise price of $4.80 per share. The Underwriter’s Warrants issued in the Offering will be exercisable at any
time and from time to time, in whole or in part, commencing six months from issuance for a period of three years from the date of issuance.
The closing of the Offering occurred on March 2, 2020. On April 9, 2020, we issued 180,561 shares of our common stock and 12,640 Underwriter’s
Warrants pursuant to a partial exercise by the Underwriter of the Over-Allotment Option, or the Partial Over-Allotment Option Exercise.
The net proceeds to us from the Offering, including from the Partial Over-Allotment Option Exercise, after deducting the underwriting
discount and our Offering expenses were $19,894,000.
On September 5, 2019, we entered into an equity distribution
agreement, or the Sales Agreement, pursuant to which we could, from time to time and at our option, issue and sell shares of our common
stock having an aggregate offering price of up to $15,000,000, through a sales agent, subject to certain terms and conditions. Any shares
sold were sold pursuant to the Company’s effective shelf registration statement on Form S-3 including a prospectus and prospectus
supplement, each dated February 10, 2020 (which superseded a prior registration statement, prospectus and prospectus supplement that
related to shares sold under the Sales Agreement). We paid the sales agent a cash commission of 3.0% of the gross proceeds of the sale
of any shares sold through the sales agent under the Sales Agreement. As of May 31, 2021, 3,212,621 shares were issued under the Sales
Agreement for aggregate net proceeds of $14,397,000.
On December 1, 2020, we entered into an equity
distribution agreement, or the New Sales Agreement, pursuant to which we may, from time to time and at our option, issue and sell shares
of our common stock having an aggregate offering price of up to $40,000,000, through a sales agent, subject to certain terms and conditions.
Any shares sold will be sold pursuant to the Company’s effective shelf registration statement on Form S-3 including a prospectus
dated February 10, 2020 and prospectus supplement dated December 1, 2020. We will pay the sales agent a cash commission of 3.0% of the
gross proceeds of the sale of any shares sold through the sales agent under the New Sales Agreement. As of May 31, 2021, 3,448,702 shares
were issued under the New Sales Agreement for aggregate net proceeds of $30,813,000. As of July 14, 2021, 4,061,956 shares were issued
under the New Sales Agreement for aggregate net proceeds of $38,799,000.
On June 16, 2021, we entered into an equity distribution
agreement, or the 2021 Sales Agreement, pursuant to which we may, from time to time and at our option, issue and sell shares of our common
stock having an aggregate offering price of up to $28,000,000, through a sales agent, subject to certain terms and conditions. Any shares
sold will be sold pursuant to the Company’s effective shelf registration statements on Form S-3 including a prospectus dated February
10, 2020 and prospectus supplement dated June 16, 2021. We will pay the sales agent a cash commission of 3.0% of the gross proceeds of
the sale of any shares sold through the sales agent under the 2021 Sales Agreement. As of July 14, 2021, 837,419 shares were issued under
the 2021 Sales Agreement for aggregate net proceeds of $10,987,000.
Off-balance sheet arrangements
As of May 31, 2021 we had no off-balance sheet arrangements
that have had or that we expect would be reasonably likely to have a future material effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Critical accounting policies and estimates
Our critical accounting policies are described in
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in our Annual
Report.
Planned Expenditures
We invest 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.