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” 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
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; and
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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 may be granted to us if the product also receives approval
for use in pediatric patients.
Phase
IIb Trial: In May 2018, we initiated a three-month dose-ranging Phase IIb 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 IIb 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 IIb 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
III 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 III 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 III trial will be composed of 2 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 March 2021, we announced that 25% of the 675 patients were enrolled and randomized.
ORA-D-013-2:
This trial will include T2D patients with inadequate glycemic control who are 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 from an open-label trial of 8 patients 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 (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
December 2020, based on the NASH trial results, we initiated a follow-on clinical trial of our oral insulin capsule ORMD-0801
for the treatment of NASH. This 40 patients multi-center trial will be comprised of eight clinical sites: three in the EU, three
in the U.S. and two in Israel. The follow-on clinical trial will measure efficacy endpoints via MRI-PDFF for 12-week dosing.
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. We intend on initiating a follow-on trial in T2D patients, which is expected to start during the first half of 2021
in the U.S. under an IND submitted to the FDA.
Other
products
We
are developing a new drug candidate, a weight loss treatment in the form of an oral leptin capsule. We anticipate initiating 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. During the third quarter of 2020, we finalized the trial 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.
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 February 28, 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 a License Agreement, or the Oravax License Agreement, with Oravax Medical Inc., or 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 $1.5 million
in cash and substantially all of the assets of Cystron, including a license agreement to the Premas novel vaccine technology.
Results
of Operations
Comparison
of six and three month periods ended February 28, 2021 and February 29, 2020
The
following table summarizes certain statements of operations data of the Company for the six and three month periods ended February
28, 2021 and February 29, 2020 (in thousands of dollars except share and per share data):
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Six months ended
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Three months ended
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February 28,
2021
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February 29,
2020
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February 28,
2021
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February 29,
2020
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Revenues
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$
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1,339
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$
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1,348
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$
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665
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$
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674
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Cost of revenues
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|
|
-
|
|
|
|
-
|
|
|
|
-
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|
|
|
-
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Research and development expenses
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|
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9,643
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|
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5,342
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|
|
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3,869
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|
|
|
3,320
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General and administrative expenses
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|
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2,391
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|
|
|
2,472
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|
|
|
1,664
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|
|
|
1,391
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Financial income, net
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|
|
517
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|
|
|
235
|
|
|
|
260
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|
|
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349
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Taxes on income
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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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10,178
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$
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6,231
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$
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4,608
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$
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3,688
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Loss per common share - basic
and diluted
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$
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0.40
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$
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0.35
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$
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0.17
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$
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0.21
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Weighted average common shares outstanding
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25,359,960
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|
|
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17,645,372
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|
|
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27,004,268
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|
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17,818,429
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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 $1,339,000 and $1,348,000 for the six month periods ended February 28, 2021 and February 29, 2020, respectively.
Revenues
for the three month period ended February 28, 2021 were $665,000 and the revenues for the three month period ended February 29,
2020 were $674,000.
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 six month periods ended February 28, 2021 and February 29, 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 six month period ended February 28, 2021 increased by 80% to $9,643,000, from $5,342,000 for the six month period ended February
29, 2020. The increase is primarily due to an increase in expenses related to our Phase III clinical trial. Stock-based compensation costs
for the six month period ended February 28, 2021 totaled $305,000, as compared to $218,000 during the six month period ended February
29, 2020. The increase is mainly attributable to awards granted to employees and a consultant during the six month period ended February
28, 2021.
Research and development expenses
for the three month period ended February 28, 2021 increased by 17% to $3,869,000, from $3,320,000 for the three month period ended February
29, 2020. The increase is primarily due to an increase in expenses related to our Phase III clinical trial. Stock-based compensation costs
for the three month period ended February 28, 2021 totaled $167,000, as compared to $122,000 during the three month period ended February
29, 2020. The increase is mainly attributable to awards granted to employees and a consultant during the three month period ended February
28, 2021.
Government
grants
In
the six month periods ended February 28, 2021 and February 29, 2020, we did not recognize any research and development grants.
As of February 28, 2021, we incurred liabilities to pay royalties to the Israel Innovation Authority of the Israeli Ministry of
Economy & Industry of $280,000.
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 six month period ended February 28, 2021 decreased by 3% to $2,391,000 from $2,472,000 for the six month period ended February
29, 2020. Stock-based compensation costs for the six month period ended February 28, 2021 totaled $424, as compared to $350 during the
six month period ended February 29, 2020. The increase is mainly attributable to awards granted to employees and a consultant during the
six month period ended February 28, 2021.
General and administrative expenses
for the three month period ended February 28, 2021 increased by 20% to $1,664,000 from $1,391,000 for the three month period ended February
29, 2020. The increase in costs related to general and administrative activities is primarily attributable to an increase in legal expenses
and costs related to our directors' and officer’s' insurance policy. Stock-based compensation costs for the three month period ended
February 28, 2021 totaled $243,000, as compared to $166,000 during the three month period ended February 29, 2020. The increase is mainly
attributable to awards granted to employees and a consultant during the three month period ended February 28, 2021.
Financial
income, net
Net
financial income increased by 120% from net financial income of $235 for the six month period ended February 29, 2020 to net financial
income of $517 for the six month period ended February 28, 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 decreased by 25% from net financial income of $349,000 for the three month period ended February 29, 2020 to
net financial income of $260,000 for the three month period ended February 28, 2021. The decrease 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 February
28, 2021, we have incurred losses in an aggregate amount of $102,792,000. During that period and through April 13, 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 $143,323,000, net of transaction costs. During that period, we also received cash consideration of $12,594,000 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 February
28, 2021, we had $33,805,000 of available cash, $13,116,000 of short-term bank deposits and $13,008,000 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 February 28, 2021, our total current assets were $57,472,000 and our total current liabilities were $5,932,000. On February
28, 2021, we had a working capital surplus of $51,540,000 and an accumulated loss of $102,792,000. 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
February 28, 2021 was primarily due to capital raising.
During
the six month period ended February 28, 2021, cash and cash equivalents increased to $33,805,000 from the $19,296,000 reported
as of August 31, 2020, which is due to the reasons described below.
Operating
activities used cash of $9,401,000 in the six month period ended February 28, 2021, as compared to $6,625,000 used in the six
month period ended February 29, 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 used cash of $2,111,000 in the six month period ended February 28, 2021, as compared to $6,900,000 provided in the
six month period ended February 29, 2020. Cash used in investing activities in the six month period ended February 28, 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 six month period ended February 29, 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 $26,013,000 in the six month period ended February 28, 2021, as compared to $2,329,000 provided in the six month period ended
February 29, 2020. Cash provided by financing activities consisted primarily of proceeds from the issuances 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 February 28, 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 February 28,
2021, 1,623,114 shares were issued under the New Sales Agreement for aggregate net proceeds of $11,852,000. As of April 13, 2021, 3,152,093
shares were issued under the New Sales Agreement for aggregate net proceeds of $27,653,000.
Off-balance
sheet arrangements
As
of February 28, 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.