ORAMED PHARMACEUTICALS INC. 10-K

ITEM 7. 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 audited consolidated financial statements and the related notes included elsewhere herein and in our audited consolidated financial statements. In addition to our audited consolidated financial statements, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in “Cautionary Statement Regarding Forward-Looking Statements” and “Item 1A. Risk Factors.” Overview of Operations We are a pharmaceutical company engaged in the research and development of innovative pharmaceutical solutions with a technology platform that allows for the oral delivery of therapeutic proteins. We have developed an oral dosage form intended to withstand the harsh environment of the gastrointestinal tract and effectively deliver active insulin or other proteins. The formulation is not intended to modify the proteins chemically or biologically, and the dosage form is designed to be safe to ingest. On January 11, 2023, we announced that the Phase 3 oral insulin trial (ORA-D-013-1) did not meet its primary or secondary endpoints. As a result, we terminated this trial and a parallel Phase 3, ORA-D-013-2 clinical trial. In 2023, we completed an analysis of the ORA-D-013-1 Phase 3 trial data and found that subpopulations of patients with pooled specific parameters, such as BMI, baseline HbA1c and age, responded well to oral insulin. Based on this analysis, we submitted a protocol for a new Phase 3 clinical trial to the FDA. We are additionally examining our existing pipeline and have commenced an evaluation process of potential strategic opportunities, with the goal of enhancing value for our stockholders. As detailed above, in September 2023, we entered into the 2023 Scilex Transaction, which included a senior secured promissory note (Tranche A Note) and warrants. In October 2024, we participated in the 2024 Refinancing, purchasing a portion of the Tranche B Note and acquiring royalty rights under a Purchase and Sale Agreement. Additional agreements secured the right to receive royalties from certain products of Scilex. We believe that these transactions collectively strengthened our financial position and expanded our commercial interests. 36 Results of Operations The table and discussion that follows includes a comparison of our results of operations and liquidity and capital resources for the years ended December 31, 2024 and 2023. For a comparison of our results of operations and financial condition for the year ended December 31, 2023 and the year ended December 31, 2022, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 6, 2024. Year ended December 31, 2024 2023 (dollar amounts in thousands, except per share data) Revenues $ - $ 1,340 Research and development expenses (6,324 ) (8,971 ) Sales and marketing - 287 General and administrative expenses (6,457 ) (8,425 ) Interest expenses (853 ) (2,037 ) Financial income (expenses), net (2,286 ) 22,894 Income (loss) before taxes on income (15,920 ) 5,088 Taxes on income (3,183 ) - Net income (loss) for the year (19,103 ) 5,088 Net income (loss) attributable to Company’s stockholders (19,060 ) 5,525 Net loss attributable to non-controlling interest (43 ) (437 ) Net income (loss) for the year (19,103 ) 5,088 Basic income (loss) per share of common stock $ (0.48 ) $ 0.14 Diluted income (loss) per share of common stock $ (0.48 ) $ 0.14 Weighted average shares of common stock outstanding used in computing basic income (loss) per share of common stock 40,828,380 40,315,068 Weighted average shares of common stock outstanding used in computing diluted income (loss) per share of common stock 40,828,380 40,566,901 Revenues Revenues consist of proceeds related to the Amended and Restated Technology License Agreement, dated December 21, 2015, between us and HTIT, or as further amended by the parties on June 3, 2016 and July 24, 2016, 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 by HTIT of June 2023. We did not recognize revenues for the year ended December 31, 2024, compared to revenues of approximately $1,340,000 for the year ended December 31, 2023. The decrease was due to recognition of revenues through June 30, 2023, the product submission date by HTIT. 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 trials. Clinical activities which relate principally to clinical sites and other administrative functions to manage our clinical trials are performed primarily by CROs. CROs typically perform most of the start-up activities for our trials, including document preparation, site identification, screening and preparation, pre-study visits, training and program management. Clinical trial and preclinical trial expenses include regulatory and scientific consultants’ compensation and fees, research expenses, purchase of materials, cost of manufacturing of the oral insulin and exenatide capsules, payments for patient recruitment and treatment, as well as salaries and related expenses of research and development staff. 37 Research and development expenses for the year ended December 31, 2024 decreased by 30% to approximately $6,324,000, compared to approximately $8,971,000 for the year ended December 31, 2023. The decrease was mainly due to lower expenses related to our Phase 3 trials that were terminated and was partially offset by stock-based compensation expenses and costs related to the new Phase 3 clinical trial preparations. Government Grants The Government of Israel encourages research and development projects through the IIA, pursuant to the R&D Law. Under the R&D Law, a research and development plan that meets specified criteria is generally eligible for a grant of up to 50% of certain approved research and development expenditures. Each plan must be approved by the IIA. From August 2009 to March 2014, our subsidiary Oramed Ltd. was awarded five government grants amounting to a total net amount of NIS 8,000,000 (approximately $2,214,000 during such period) from the IIA. We used these funds to support further research and development and clinical trials of our oral insulin capsule and oral GLP-1 analog candidate during the period from February 2009 to December 2014. In the years ended December 31, 2024 and 2023, we did not recognize any research and development grants. Under the terms of the grants we had received from the IIA, we were obligated to pay royalties of 3% on all revenues derived from the sale of the products developed pursuant to the funded plans, including revenues from licensed ancillary services. Royalties were generally payable up to a maximum amount equaling 100% of the grants received (dollar linked) with the addition of interest at an annual rate based on the SOFR rate. On February 27, 2025, we paid approximately $2,031,000 to the IIA, and, as result, we are free of our obligations to the IIA. The R&D Law generally requires that a product developed under a program be manufactured in Israel. However, when applying for a grant, the applicant may declare that part of the manufacturing will be performed outside of Israel or by non-Israeli residents and if the IIA is convinced that performing some of the manufacturing abroad is essential for the execution of the program, it may still approve the grant. This declaration will be a significant factor in the determination of the IIA as to whether to approve a program and the amount and other terms of the benefits to be granted. If a company wants to increase the volume of manufacturing outside of Israel after the grant has been approved, it may transfer up to 10% of the company’s approved Israeli manufacturing volume, measured on an aggregate basis, outside of Israel after first notifying the IIA thereof (provided that the IIA does not object to such transfer within 30 days). In addition, upon the approval of the IIA, a portion greater than 10% of the manufacturing volume may be performed outside of Israel. In any case of transfer of manufacturing out of Israel, the grant recipient is required to pay royalties at an increased rate, which may be substantial, and the aggregate repayment amount is increased up to 120% or 150% of the grant received (dollar linked) with the addition of interest at an annual rate based on the SOF R rate, depending on the portion of the total manufacturing volume that is performed outside of Israel. The approval we received from the IIA for the License Agreement was subject to payment of increased royalties and an increased ceiling, all in accordance with the provisions of the R&D Law. The R&D Law further permits the IIA, among other things, to approve the transfer of manufacturing rights outside of Israel in exchange for the import of different manufacturing into Israel as a substitute, in lieu of the increased royalties. The R&D Law also provides that know-how developed under an approved research and development program and any derivatives thereof may not be transferred or licensed to third parties in Israel without the approval of the research committee, which approval may be subject to the payment of royalties from the sale. Such approval is not required for the sale or export of any products resulting from such research or development. The R&D Law further provides that the know-how developed under an approved research and development program and any derivatives thereof may not be transferred or licensed to any third parties outside Israel absent IIA approval which may be granted in certain circumstances as follows: (a) the grant recipient pays to the IIA a portion of the sale or license price paid in consideration for the purchase or license of such IIA-funded know-how or the price paid in consideration for the sale of the grant recipient itself, as the case may be, in accordance with certain formulas included in the tracks published under the R&D Law; (b) the grant recipient receives know-how from a third party in exchange for its IIA-funded know-how; or (c) such transfer of IIA-funded know-how is made in the context of IIA approved research and development cooperation projects or consortia. 38 The R&D Law imposes reporting requirements with respect to certain changes in the ownership of a grant recipient. The R&D Law requires the grant recipient to notify the IIA of any change in control of the recipient or a change in the holdings of the means of control of the recipient that results in a non-Israeli entity or person becoming an interested party in the recipient, and requires the new non-Israeli interested party to undertake to the IIA to comply with the R&D Law. In addition, the rules of the IIA may require the provision of additional information or representations in respect of certain such events. For this purpose, “control” is defined as the ability to direct the activities of a company other than any ability arising solely from serving as an officer or director of the company. A person is presumed to have control if such person holds 50% or more of the means of control of a company. “Means of control” refers to voting rights or the right to appoint directors or the chief executive officer. An “interested party” of a company includes a holder of 5% or more of its outstanding share capital or voting rights, its chief executive officer and directors, someone who has the right to appoint its chief executive officer or at least one director, and a company with respect to which any of the foregoing interested parties holds 25% or more of the outstanding share capital or voting rights or has the right to appoint 25% or more of the directors. Failure to meet the R&D Law’s requirements may subject us to mandatory repayment of grants received by us (together with interest and penalties), as well as expose us to criminal proceedings. In addition, the Israeli government may from time to time audit sales of products which it claims incorporate technology funded through IIA programs which may lead to additional royalties being payable on additional products. Sales and Marketing Expenses Sales and marketing expenses include the salaries and related expenses of our commercial functions, consulting costs and other general expenses. We did not recognize any sales and marketing expenses for the year ended December 31, 2024, compared to an income of approximately $287,000 for the year ended December 31, 2023. The income primarily resulted from the reversal of previously recognized expenses related to forfeited employee stock options, following the termination of an executive officer in fiscal year 2023. General and Administrative Expenses General and administrative expenses include the salaries and related expenses of our management, consulting expenses, legal and professional fees, travel expenses, business development expenses, insurance expenses and other general expenses. General and administrative expenses for the year ended December 31, 2024 decreased by 23% to approximately $6,457,000, compared to approximately $8,425,000 for the year ended December 31, 2023. This decrease was mainly due to the reversal of previously recognized expenses following the resignation of certain executive officers. Interest Expenses Interest expenses were approximately $853,000 for the year ended December 31, 2024, compared to approximately $2,037,000 for the year ended December 31, 2023, since the Short-Term Borrowings (as defined below) received from Discount Bank Ltd. were terminated during the second quarter of 2024 (see below). Financial Income, Net Net financial loss was approximately $2,286,000 for the year ended December 31, 2024, compared to approximately $22,894,000 net financial income for the year ended December 31, 2023. The change was mainly due to the revaluation of the investments in Scilex and lower interest income on deposits. 39 Liquidity and Capital Resources From our inception through December 31, 2024, we have incurred losses in an aggregate amount of approximately $176,616,000. During that period and through December 31, 2024, we have financed our operations through several private placements of our common stock, as well as public offerings of our common stock, raising a total of approximately $255,384,000, net of transaction costs. During that period, we also received cash consideration of approximately $28,001,000 from the exercise of warrants and options. We expect to seek additional financing through similar sources in the future, as needed. As of December 31, 2024, we had approximately $54,420,000 of available cash and approximately $55,281,000 of short-term bank deposits. In addition, we hold various of interest in certain investments, including in Scilex and others, as further detailed in this report. From inception through December 31, 2024, we have not generated significant revenues from our operations. Although, we have increased the research and development activities related to the new Phase 3 clinical trial, our research and development activities have been significantly reduced while we conducted a strategic review process, following the termination of the ORA-D-013-1 and ORA-D-013-2 Phase 3 trials. Following the preparation and expected initiation of the revised phase 3 trial (ORA-D-013-3) we expect to increase our research and development expenses, either directly or through OraTech. Based on our current cash resources and commitments, we believe we will be able to maintain our current planned activities and the corresponding level of expenditures for at least the next 12 months, although no assurance can be given that we will not need additional funds prior to such time. If there are increases in our operating expenses, we may need to seek additional financing during the next 12 months. We may also need additional funds to realize the decisions made as part of our strategic review process. We cannot predict the outcome of these activities. On August 8, 2023, we borrowed an aggregate of $99,550,000 pursuant to loan agreements from Israel Discount Bank Ltd., or the Short-Term Borrowings. The Short-Term Borrowings mature on dates ranging from August 11, 2023 to May 24, 2024, bear interest ranging from 6.66% to 7.38%, were secured by certificates of deposits issued by Israel Discount Bank Ltd. having an aggregate face amount of $99,550,000. The net proceeds of the Short-Term Borrowings were used to fund the Tranche A Note. The Short-Term Borrowings were paid in one payment of principal and interest at each respective maturity. As of December 31, 2024, we repaid the entire Short-Term Borrowings amount. 40 As of December 31, 2024, our total current assets were approximately $143,221,000 and our total current liabilities were approximately $5,685,000. On December 31, 2024, we had a working capital surplus of approximately $137,536,000 and an accumulated loss of approximately $176,616,000. As of December 31, 2023, our total current assets were approximately $162,584,000 and our total current liabilities were approximately $53,214,000. On December 31, 2023, we had a working capital surplus of approximately $109,370,000 and an accumulated loss of approximately $157,556,000. The increase in working capital surplus was mainly due an increase in cash and cash equivalents together with a decrease in short-term borrowings that was partially offset by a decrease in short-term deposits and investments at fair value. During the year ended December 31, 2024, cash and cash equivalents increased to approximately $54,420,000 from approximately $9,055,000 as of December 31, 2023. The increase was mainly due to the reasons described below. Operating activities used cash of approximately $8,412,000 in the year ended December 31, 2024, compared to approximately $10,295,000 used in the year ended December 31, 2023. Cash used in operating activities consisted mainly of changes in fair value of investments partially offset by net loss resulting from research and development and general and administrative expenses. Investing activities provided cash of approximately $105,817,000 in the year ended December 31, 2024, compared to cash used for investing activities of approximately $73,038,000 in the year ended December 31, 2023. Cash provided by investing activities in the year ended December 31, 2024 consisted primarily of proceeds from short-term deposits and proceeds from repayments by Scilex under the Tranche A Note. Cash used by investing activities in the year ended December 31, 2023 is mainly due to our investment in Scilex and the purchase of short-term deposits, partially offset by the proceeds of short-term deposits. Financing activities used cash of approximately $52,036,000 in the year ended December 31, 2024, compared to cash of approximately $51,978,000 provided in the year ended December 31, 2023. Cash used for financing activities in the year ended December 31, 2024, consisted primarily of repayments of the Short-Term Borrowings and repurchases of our shares. Cash provided by financing activities in the year ended December 31, 2023, consisted primarily of the Short-Term Borrowings. Our primary financing activities for the year ended December 31, 2024, were as follows: ● In March 2024, we entered into the ATM Agreement with Rodman & Renshaw LLC and StockBlock Securities LLC as sales agents, or the Agents, pursuant to which we may issue and sell in transactions that are deemed to be “at the market” offerings as defined in Rule 415 under the Securities Act of 1933, as amended, or the Securities Act, shares of our common stock, par value $0.012 per share, having a maximum aggregate offering price of up to $75,000,000 from time to time through the Agents. Any sales of shares of common stock pursuant to the ATM Agreement will be made pursuant to an effective shelf registration statement on Form S-3 (File No. 333-257926), which was declared effective by the SEC on July 26, 2021, the prospectus contained therein and a prospectus supplement related thereto dated March 18, 2024, filed with the SEC. The Agents may sell our common stock (A) in privately negotiated transactions with our consent; (B) as block transactions; or (C) by any other method permitted by law deemed to be an “at the market offering” as defined in Rule 415(a)(4) promulgated under the Securities Act, including sales made directly on The Nasdaq Capital Market or sales made into any other existing trading market for our common stock. As of December 31, 2024, no shares had been issued under the ATM Agreement. ● In June 2024, our Board authorized a stock buyback program pursuant to which we may, from time to time, repurchase and retire up to $20,000,000 in maximum value of our common stock. During the year ended December 31, 2024, we repurchased and retired 1,036,976 shares of our common stock under this program for approximately $2,494,000, including approximately $10,000 excise tax, at an average price of $2.36 per share. All repurchases were funded with cash on hand. ● On August 8, 2023, we borrowed an aggregate of $99,550,000 pursuant to loan agreements from Israel Discount Bank Ltd., or the Short-Term Borrowings. The Short-Term Borrowings mature on dates ranging from August 11, 2023 to May 24, 2024, bear interest ranging from 6.66% to 7.38%, were secured by certificates of deposits issued by Israel Discount Bank Ltd. having an aggregate face amount of $99,550,000. The net proceeds of the Short-Term Borrowings were used to fund the Tranche A Note. The Short-Term Borrowings were paid in one payment of principal and interest at each respective maturity. As of December 31, 2024, we repaid the entire Short-Term Borrowings amount. 41 Trend Information Following the results of the Phase 3 trials for our oral insulin capsule candidate, ORMD-0801, we conducted a comprehensive analysis of the data to understand if there is a path forward for our oral insulin candidate, and we worked on a protocol for a new Phase 3 clinical trial that was submitted to the FDA. Conducting this clinical trial, whether independently or as part of OraTech, will require significant funds and resources. Concurrently, we are examining our existing pipeline and have commenced an evaluation process of potential strategic opportunities, with the goal of enhancing value for our stockholders. At this time, we cannot foresee how these strategic decisions will impact our financial results and operations. Planned Expenditures In previous years, we primarily invested in research and development. If we proceed to conduct a new clinical trial for our oral insulin candidate, we expect that in the upcoming years our research and development expenses will continue to be our major operating expense; however, if this clinical trial is conducted through OraTech, these costs will be borne by Oratech and not by us. Critical Accounting Estimates Our significant accounting policies are more fully described in the notes to our accompanying consolidated financial statements. We believe that the accounting policy below is critical for one to fully understand and evaluate our financial condition and results of operations. The discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which we prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported revenues and expenses during the reporting periods. On an ongoing basis, we evaluate such estimates and judgments. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. 42 Investments at fair value : On September 21, 2023 and on October 7, 2024 we entered into the 2023 Scilex Transaction and 2024 Refinancing, respectively. We elected the fair value option for each of the components under 2023 Scilex Transaction and 2024 Refinancing in order to reduce operational complexity of bifurcating embedded derivatives. Changes in value are recorded under financial income, net and include interest income on the Notes and Royalties received. Determining the fair value of the components above required significant judgment with regards to the expected repayment date of the Notes which also impacts the number of Subsequent Penny Warrants to be issued to us. The total value of the 2023 Scilex Transaction (and of each of its components) was valued on a weighted average of the different scenarios. On September 4, 2024, we entered into a loan agreement to finance a real estate project or the Profit Sharing Loan Agreement. We decided to designate the Profit Sharing Loan Agreement as a whole under the fair-value option. The valuation of the Profit Sharing Loan Agreement was based on various project profit scenarios derived from the appraiser’s report.