Oramed Pharmaceuticals Inc.: Form 10-Q for the period ended Sep 30, 2024

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.

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 body mass index (BMI), baseline HbA1c and age, responded well to oral insulin. Based on this analysis, we have 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.

2023 Scilex Transaction

On September 21, 2023, we entered into and consummated the transactions, or, collectively, the 2023 Scilex Transaction, contemplated by a securities purchase agreement, or the Scilex-Oramed SPA, with Scilex Holding Company, or Scilex, pursuant to which Scilex issued to us:

a. A senior secured promissory note, or the Tranche A Note, with a principal amount of $101,875, maturing on March 21, 2025 and bearing interest of SOFR plus 8.5%, payable in-kind. Scheduled principal payments are due on December 21, 2023, March 21, 2024, June 21, 2024, September 21, 2024, and December 21, 2024, with the balance due on March 21, 2025. As per the Tranche A Note terms, if the Tranche A Note is not repaid in full on or prior to March 21, 2024, an exit fee of $3,056 is due. Since the Tranche A Note was not repaid by that date, we entitled to the above-mentioned exit fee at the maturity date of the Tranche A Note. As of September 30, 2024, Scilex has repaid $41,700 of the amount due under the Tranche A Note. See the description of the Extension Agreement (as defined below).

b. Warrants to purchase up to 4,500,000 shares of Scilex common stock with an exercise price of $0.01 per share, or the Closing Penny Warrants, and four additional warrants, or the Subsequent Penny Warrants, each for 2,125,000 shares of Scilex common stock with an exercise price of $0.01 per share. The Closing Penny Warrants were vested on September 21, 2023, and each of the Subsequent Penny Warrants shall vest on each of March 19, 2024, June 17, 2024, September 15, 2024 and December 14, 2024. The Closing Penny Warrants and the Subsequent Penny Warrants shall become exercisable on the earliest of (i) March 14, 2025 and (ii) the date on which the Tranche A Note has been repaid in full. As of September 30, 2024, 4,500,000 Closing Penny Warrants were vested according to the terms of Tranche A Note, 6,375,000 Subsequent Penny Warrants were vested according to the terms of the Tranche A Note and additional 1,062,500 Subsequent Penny Warrants were vested as per the Extension Agreement (as defined below). As of September 30, 2024, 4,500,000 Closing Penny Warrants and 2,000,000 Subsequent Penny Warrants are exercisable (see below).

c. Transferred warrants, or the Transferred Warrants, to purchase 4,000,000 shares of Scilex common stock at $11.50 per share, fully exercisable and expiring on November 10, 2027. On September 20, 2024, we sold the Transferred Warrants for consideration of $300,000 (see below). As a result, as of September 30, 2024 we do not hold any Transferred Warrants.

On August 30, 2024, Scilex agreed that 4,500,000 Closing Penny Warrants and 937,500 Subsequent Penny Warrants became exercisable as of such date.

On September 20, 2024, we and Scilex entered into an extension agreement, or the Extension Agreement, to extend the due date of the September 21, 2024 payment under the Tranche A Note. Pursuant to the Extension Agreement, Scilex paid us $2,000,000 on September 23, 2024, which payment is to be applied as follows: (i) $1,700,000 to the payment due under the Tranche A Note on March 21, 2025 and (ii) $300,000 to purchase the Transferred Warrants. In addition, 1,062,500 Subsequent Penny Warrants were accelerated from December 15, 2024 and became exercisable into shares of Scilex common stock at any time after September 20, 2024.

Scilex Refinancing

On October 7, 2024, we entered into a securities purchase agreement, or the Convertible Notes SPA, with certain institutional investors, or the Investors, and together with us, the Buyers, and Scilex, pursuant to which the Buyers purchased in a registered offering (i) a new tranche B of senior secured convertible notes of Scilex in the aggregate principal amount of $50,000,000, or the Tranche B Notes, which Tranche B Notes are convertible into shares of Scilex common stock and (ii) warrants, or the Tranche B Warrants, to purchase up to 7,500,000 shares of Scilex common stock. In the transaction, Scilex refinanced a portion of the Tranche A Note issued to us and paid off certain other indebtedness of Scilex. The transactions contemplated by the Convertible Notes SPA were consummated on October 8, 2024.

Senior Convertible Notes

The aggregate purchase price for the Tranche B Note issued to us and the related Tranche B Warrants was $22,500,000. The Tranche B Note issued to us bears an initial principal balance of $25,000,000 and an original issue discount of 10.0%. As consideration for the Tranche B Note and Tranche B Warrants, we exchanged a portion of the Tranche A Note resulting in a reduction of the principal outstanding balance under the Tranche A Note of $22,500,000. Additionally, Scilex used $12,500,000 of the net proceeds from the offering for the repayment and satisfaction of the outstanding balance under the Tranche A Note.

The Tranche B Notes bear interest at a rate of 5.5% per annum, payable in arrears on the first trading day of each calendar quarter, beginning January 2, 2025, payable, at Scilex’s option, either in cash or in shares of Scilex common stock, subject to certain conditions. Unless earlier converted or redeemed, the Tranche B Note will mature on the two-year anniversary of the issuance date, subject to extension at the option of us in certain circumstances as provided in the Tranche B Note. The Tranche B Notes will be Scilex’s senior secured obligation (alongside and under certain circumstances subordinate to, the Tranche A Note) and will rank senior to the right to payment of the holders of Scilex’s subordinated debt and will be pari passu with all other indebtedness of Scilex.

At any time after issuance, all amounts due under the Tranche B Notes are convertible, in whole or in part, and subject to certain beneficial ownership limitations, at our option, into Scilex common stock at the initial fixed conversion price of $1.09 per share, which is subject to adjustments provided that the conversion price cannot be lower than $1.04 unless Scilex shareholder approval is obtained. The Tranche B Notes may not be converted to the extent such conversion would result in our beneficially owning in excess of 4.99%, or the Maximum Percentage, of shares of the Scilex common stock outstanding immediately after giving effect to such conversion. At our option, the Maximum Percentage may be raised up to 9.99%, except that any increase will only be effective upon 61 days’ prior notice to Scilex.

Scilex has the right (assuming no failure of certain specific conditions relating to Scilex’s equity) to redeem in cash all, but not less than all, of the amount then outstanding under the Tranche B Notes at a 35% redemption premium to the greater of (i) the amount then outstanding under the Tranche B Notes to be redeemed and (ii) the equity value of the Scilex common stock underlying such Tranche B Notes. Scilex has a mandatory obligation to redeem the Tranche B Notes upon an event of default relating to bankruptcy. The Tranche B Notes are subject to redemption at the election of each holder in certain circumstances, including, a change of control of Scilex, a subsequent placement of certain securities of Scilex, and asset sales by Scilex. The Tranche B Notes contain affirmative and negative covenants binding on Scilex and its subsidiaries and prohibit Scilex from entering into specified fundamental transactions unless the successor entity assumes all of Scilex’s obligations under the Tranche B Notes.

The Tranche B Notes contain certain customary events of default, including, without limitation, a cross-default to other specified indebtedness or any other indebtedness involving an obligation of $5,000,000 or more. The interest rate of the Tranche B Notes will automatically increase to 15.0% per annum upon the occurrence and during the continuance of an event of default. Scilex is also required to pay a late charge of 15.0% on any amount of principal or other amounts that are not paid when due (solely to the extent such amounts are not then accruing interest at the default rate of 15.0% per annum).

In connection with any amortization, certain redemptions or other repayment of the Tranche B Notes, Scilex will also pay an amount equal to the amount of additional interest that would accrue under such Tranche B Notes at the interest rate then in effect assuming that the amount so converted, redeemed, amortized or otherwise repaid on such date of determination instead remained outstanding through and including the maturity date of such Tranche B Notes.

Scilex’s obligations under the Tranche A Note and Tranche B Notes are secured by a security interest in all or substantially all of the property of Scilex and each of its subsidiaries, respectively, pursuant to an amended and restated security agreement, or the Amended and Restated Security Agreement, with Scilex and its subsidiaries.

Tranche B Warrants

The Tranche B Warrants are exercisable for a period of five years from the date of issuance. The Tranche B Warrants issued to us at Closing will initially be exercisable for 3,750,000 shares of Scilex common stock, subject to the Maximum Percentage limitation.

The Tranche B Warrants will initially be exercisable for cash at an exercise price equal to $1.09 per share of Scilex common stock, subject to adjustments upon the occurrence of any stock split, stock dividend, stock combination, recapitalization, similar transactions and/or full-ratchet adjustment in connection with a subsequent offering at a per share price less than the fixed conversion price then in effect subject to a floor price of $1.04 unless shareholder approval is obtained. If at the time of exercise, there is no effective registration statement registering the shares of Scilex common stock underlying the Tranche B Warrants, such warrants may be exercised on a cashless basis pursuant to their terms.

Amendment to Scilex-Oramed SPA

In connection with the execution of the Convertible Notes SPA, on October 8, 2024, we, Scilex and the Agent amended the Scilex-Oramed SPA to account for the issuance of the Tranche B Notes and the execution of certain related documents, including the Subordination Agreement (as defined herein) and an agreement, or the Agreement Among Holders, pursuant to which we and the Investors agreed that, subject to certain conditions and exceptions, the payment of the obligations in respect of the Tranche B Notes will be subject to the prior payment in full of all obligations in respect of the Tranche A Note up to the Maximum First Out Amount (as defined in the Agreement Among Holders).

Royalty Transaction

On October 8, 2024, we and certain institutional investors, or, collectively, the RPA Purchasers, entered into a Purchase and Sale Agreement, or the Royalty Purchase Agreement, with Scilex and Scilex Pharmaceuticals Inc., or Scilex Pharma. Pursuant to the Royalty Purchase Agreement, the RPA Purchasers acquired the right to receive, in the aggregate, 8.0% of net sales worldwide for 10 years, or the Purchased Receivables, with respect to ZTlido (lidocaine topical system) 1.8%, SP-103 (lidocaine topical system) 5.4%, and any related, improved, successor, replacement or varying dosage forms of the foregoing, or the Covered Products. We have acquired the right to receive 50% of the Purchased Receivables, as more fully described in the Royalty Purchase Agreement.

In full consideration for the sale, transfer, conveyance and granting of the Purchased Receivables, and subject to the terms and conditions set forth in the Royalty Purchase Agreement, the aggregate purchase price paid by the RPA Purchasers for the Purchased Receivables was $5,000,000 (net of expenses of the RPA Purchasers). In consideration for our interest in the Purchased Receivables, we exchanged and reduced $2,500,000 of the principal balance under the Tranche A Note.

The Royalty Purchase Agreement terminates six months following receipt by the RPA Purchasers of all payments of the Purchased Receivables to which each RPA Purchaser is entitled thereunder during the period commencing on the date of closing and expiring on the tenth anniversary of such closing date.

Pursuant to the terms of the Royalty Purchase Agreement, Scilex Pharma entered into a security agreement with the collateral agent (as identified therein) for the benefit of the RPA Purchasers, dated as of October 8, 2024, or the Royalty Security Agreement. Under the Royalty Security Agreement, Scilex’s and Scilex Pharma’s due performance and payment under the Royalty Purchase Agreement is secured by certain collateral, including a collection account and certain material contracts, intellectual property rights and the regulatory approvals, in each case related to the Covered Products. Scilex Pharma, the collateral agent and the Agent also entered into a subordination agreement, or the Subordination Agreement, whereby the parties agreed that all obligations, liabilities and indebtedness under the Royalty Purchase Agreement will be secured by first priority liens on the collateral under the Royalty Security Agreement, or the Royalty Collateral, and all obligations under the Amended and Restated Security Agreement, including in respect of the Tranche A Note and the Tranche B Notes, will be secured by second priority liens on the Royalty Collateral and first priority liens on all other collateral granted under the Amended and Restated Security Agreement.

Binding Term Sheet Regarding Rest of World License Agreement

On October 8, 2024, we, certain other institutional investors and Scilex entered into a binding term sheet, or the ROW License Term Sheet, regarding a license and development agreement, or the Lido License Agreement, with respect to services, compositions, products, dosages and formulations comprising lidocaine, including without limitation, the product and any future product defined as a “Product” under Scilex Pharma’s existing (i) Product Development Agreement, dated as of May 11, 2011, with Oishi Koseido Co., Ltd., or Oishi, and Itochu Chemical Frontier Corporation, or Itochu, as amended, and (ii) the associated Commercial Supply Agreement, dated February 16, 2017, between Scilex, Oishi and Itochu, as amended. Subject to determination of a final structure for the transactions contemplated by the ROW License Term Sheet, it is anticipated that we and such institutional investors will hold the Lido License Agreement through a joint venture, Lido Dev Co.

In consideration for the rights to be provided under the proposed Lido License Agreement, as more fully described in the ROW License Term Sheet, (a) Lido Dev Co. will invest (whether through cash consideration or in-kind payment through the provision of services) $200,000 per year toward expanding the Product, (b) Scilex will grant Lido Dev Co. a worldwide, exclusive right, license and interest to all products rights for the development, out-licensing, commercialization of any Product outside of the United States and other territories, other than certain excluded designated territories, or the ROW Territory, and (c) each of Lido Dev Co. and Scilex will receive fifty percent of the net revenue (less expenses) generated from any Product in the ROW Territory.

Scilex is required to use its commercially reasonable efforts to obtain the consent of Oishi and Itochu to the Lido License Agreement. If that consent is not obtained within 30 days of execution of the ROW License Term Sheet, Lido Dev Co. has the right to designate an agent to continue negotiations directly with Oishi and Itochu. Definitive documents for the Lido License Agreement and related matters are subject to ongoing negotiation among the parties thereto.

Oral Insulin

Type 2 Diabetes: We conducted the ORA-D-013-1 Phase 3 trial on patients with type 2 diabetes, or T2D, with inadequate glycaemic control who were on two or three oral glucose-lowering agents. The primary endpoint of the trial was to evaluate the efficacy of our oral insulin capsule, ORMD-0801, compared to placebo in improving glycaemic control as assessed by HbA1c, with a secondary efficacy endpoint of assessing the change from baseline in fasting plasma glucose at 26 weeks. On January 11, 2023, we announced that the ORA-D-013-1 Phase 3 trial did not meet its primary or secondary endpoints. Following the results of the ORA-D-013-1 Phase 3 trial, we also terminated the ORA-D-013-2 Phase 3 trial, a second Phase 3 trial that included T2D patients with inadequate glycaemic control who were attempting to manage their condition with either diet alone or with diet and metformin. In 2023, we completed an analysis of the data from the ORA-D-013-1 Phase 3 trial and found that subpopulations of patients with pooled specific parameters, such as BMI, baseline HbA1c and age, responded well to oral insulin. These subsets exhibited an over 1% placebo adjusted, statistically significant, reduction in HbA1c. Based on this analysis, we have submitted a protocol for a new Phase 3 clinical trial to the FDA.

Joint Venture Agreement: On January 22, 2024, Oramed and its wholly-owned subsidiary, Oramed Ltd., entered into a joint venture agreement, or the JV Agreement, with HTIT Biotech and Technowl Limited, a wholly-owned indirect subsidiary of HTIT Biotech and together with HTIT Biotech, HTIT, pursuant to which, subject to the terms and conditions set forth in the JV Agreement, the parties will establish a joint venture, or the JV, based on Oramed’s oral drug delivery technology.

The JV will focus on the development and worldwide commercialization of innovative products based on Oramed’s oral insulin and POD™ (Protein Oral Delivery) pipeline and HTIT’s manufacturing capabilities and technologies. The JV expects to conduct a Phase 3 oral insulin clinical trial in the United States.

Oramed and HTIT will initially hold equal shares in the JV, with each owning 50% of the equity. The board of directors will initially consist of equal representation from HTIT and Oramed. HTIT will contribute to the JV cash and credit to purchase materials, while Oramed will contribute cash and shares of Oramed common stock (that will be subject to certain registration rights) and will transfer intellectual property related to its oral insulin and POD™ technology, as well as other assets in the Oramed pipeline.

The consummation of the JV Agreement is subject to and contingent upon the parties entering into additional agreements pursuant to the JV Agreement. There is no assurance that the parties will complete and sign these additional agreements.

Oral Vaccine

On March 18, 2021, we entered into a license agreement with Oravax, a 63% owned joint venture to commercialize oral vaccines for COVID-19 and other novel coronaviruses based on Premas Biotech Pvt. Ltd.’s proprietary vaccine technology involving a triple antigen virus like particle.

Impact of Current Events

On October 7, 2023, the State of Israel was attacked by and subsequently declared war on Hamas. Israel has been in an ongoing state of war with Hamas since that time. Following the attack by Hamas, Hezbollah has also launched attacks against Israel and Israel has been responding to these attacks with targeted air strikes. It is possible that other terrorist organizations, including Palestinian military organizations in the West Bank, as well as other hostile countries, will join the hostilities. As of November 7, 2024, we believe that there is no immediate risk to our business operations related to these events. For further information, see “Item 1A. Risk Factors,” under “We are affected by the political, economic and military risks of having operations in Israel” in our Annual Report.

Results of Operations

Comparison of nine and three month periods ended September 30, 2024 and September 30, 2023

The following table summarizes certain statements of operations data of the Company for the nine and three month periods ended September 30, 2024 and September 30, 2023 (in thousands of dollars except share and per share data):

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, using the input method.

There were no revenues for the nine month period ended September 30, 2024 while revenues were $1,340,000 for the nine month period ended September 30, 2023. The decrease was due to recognition of revenues until the product submission date by HTIT of June 2023.

There were no revenues for the three month periods ended September 30, 2024 and 2023.

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 contract research organizations, or 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-trial 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.

Research and development expenses for the nine month period ended September 30, 2024 decreased by 33% to $4,863,000, compared to $7,205,000 for the nine month period ended September 30, 2023. The decrease was mainly due to lower expenses related to the Phase 3 trials that were terminated and was partially offset by higher stock-based compensation expenses.

Research and development expenses for the three month period ended September 30, 2024 increased by 134% to $2,242,000, compared to $957,000 for the three month period ended September 30, 2023. The increase was due to costs related to the new Phase 3 clinical trial preparations.

Government grants

In the nine month periods ended September 30, 2024 and September 30, 2023, we did not receive any research and development grants. As of September 30, 2024, we had incurred liabilities to pay royalties to the Israel Innovation Authority of the Israeli Ministry of Economy and Industry of $59,000.

Sales and Marketing Expenses

Sales and marketing expenses include the salaries and related expenses of our commercial functions, consulting expenses and other general expenses.

We did not recognize any sales and marketing expenses for the nine month period ended September 30, 2024, compared to an income of $287,000 for the nine period ended September 30, 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.

We did not recognize any stock-based compensation expenses for the nine month period ended September 30, 2024, compared to an income of $440,000 for the nine month period ended September 30, 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.

We did not recognize any sales and marketing expenses for the three month periods ended September 30, 2024, compared to an income of $663,000 for the three month period ended September 30, 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 nine month period ended September 30, 2024 decreased by 32% to $4,323,000 compared to $6,314,000 for the nine month period ended September 30, 2023. This decrease was mainly due to the reversal of previously recognized expenses following the resignation of certain executive officers.

General and administrative expenses for the three month period ended September 30, 2024 decreased by 67% to $847,000 compared to $2,599,000 for the three month period ended September 30, 2023. This decrease was mainly due to the reversal of previously recognized expenses following the resignation of an executive officer.

Interest Expenses

Interest expenses were $853,000 for the nine month period ended September 30, 2024, compared to $826,000 for the nine month period ended September 30, 2023. The increase was mainly due to interest on the Short-Term Borrowings (as defined below).

There were no interest expenses for the three month period ended September 30, 2024, compared to interest expenses of $826,000 for the three month period ended September 30, 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 (Loss), Net

Net financial income decreased by 14% to $3,902,000 for the nine month period ended September 30, 2024, compared to $4,510,000 for the nine month period ended September 30, 2023. The decrease was mainly due to the lower interest income on deposits.

Net financial loss was $15,420,000 for the three month period ended September 30, 2024, compared to $435,000 net financial income for the three month period ended September 30, 2023. The change was mainly due to the revaluation of the investments in Scilex.

Tax expenses

During the nine and three month periods ended September 30, 2024, we recognized tax expenses totaling $2,767,000 and $1,133,000, respectively. The tax expenses are primarily attributable to the 2023 Scilex Transaction. The provision for income taxes in the interim period is determined using an estimated annual effective tax rate (taking into account utilization of our carryforward tax losses).

During the three and nine month periods ended September 30, 2023, we did not recognize any tax expenses.

Liquidity and Capital Resources

From inception through September 30, 2024, we have incurred losses in an aggregate amount of $166,427,000. During that period and through September 30, 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 $255,384,000, net of transaction costs. During that period, we also received cash consideration of $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 September 30, 2024, we had $42,104,000 of available cash and $42,741,000 of short-term bank deposits.

From inception through September 30, 2024, we have not generated significant revenues from our operations. Following the termination of the ORA-D-013-1 and ORA-D-013-2 Phase 3 trials, our research and development activities have been significantly reduced while it conducts a strategic review process. However, in the three month period ended September 30, 2024 we increased the research and development activities that related to the new Phase 3 clinical trial.

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.

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 matured on dates ranging from August 11, 2023 to May 24, 2024, bore 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 September 30, 2024, we repaid the entire Short-Term Borrowings amount.

As of September 30, 2024, our total current assets were $142,774,000 and our total current liabilities were $5,274,000. On September 30, 2024, we had a working capital surplus of $137,500,000 and an accumulated loss of $166,427,000. As of December 31, 2023, our total current assets were $162,584,000 and our total current liabilities were $53,214,000. On December 31, 2023, we had a working capital surplus of $109,370,000 and an accumulated loss of $157,556,000. The increase in working capital from December 31, 2023 to September 30, 2024 was mainly due to an increase in cash and cash equivalents and in investments at fair value, together with a decrease in short-term borrowings partially offset by a decrease in short-term deposits.

During the nine month period ended September 30, 2024, cash and cash equivalents increased to $42,104,000, from $9,055,000 as of December 31, 2023. The increase was mainly due to the reasons described below.

Operating activities used cash of $6,500,000 in the nine month period ended September 30, 2024, compared to $8,877,000 used in the nine month period ended September 30, 2023. Cash used in operating activities primarily consisted research and development, general and administrative expenses, partially offset by interest received from short-term deposits, an increase in accounts payable and accrued expenses and stock based compensation.

Investing activities provided cash of $90,393,000 in the nine month period ended September 30, 2024, compared to used cash of $103,035,000 in the nine month period ended September 30, 2023. Cash provided by investing activities in the nine month period ended September 30, 2024 consisted primarily of proceeds from short-term deposits and proceeds from long-term investments. Cash used by investing activities in the nine month period ended September 30, 2023 consisted primarily of the purchase of short-term deposits, partially offset by proceeds from short-term investing activities.

Financing activities used cash of $50,842,000 in the nine month period ended September 30, 2024, compared to cash of $76,978,000 provided in the nine month period ended September 30, 2023. Cash used by financing activities in the nine month period ended September 30, 2024, consisted primarily of repayments of the Short-Term Borrowings and repurchases of our shares. Cash provided by financing activities in the nine month period ended September 30, 2023, consisted primarily of proceeds from the issuance of our common stock.

On March 18, 2024, we entered into an at the market offering agreement, or the ATM Agreement, with Rodman & Renshaw LLC and StockBlock Securities LLC, as agents, pursuant to which we may issue and sell shares of our common stock having an aggregate offering price of up to $75,000,000 through a sales agent, subject to certain terms and conditions. The ATM is not currently active since we do not have an effective shelf registration statement covering the shares of common stock issuable thereunder. As of September 30, 2024 and through November 7, 2024, no shares were issued under the ATM Agreement.

On September 4, 2024, we entered into a loan agreement, or the Profit Sharing Loan Agreement, with Rabi Binyamin 4 Tama 38 Ltd., or the Borrower, to finance a real estate project, or the Project. According to the terms of the Profit Sharing Loan Agreement, we agreed to loan NIS 5.5 million ($1,523), or the Loan Principal, to the Borrower. NIS 4.7 million ($1,307) was loaned upon signing the Profit Sharing Loan Agreement and the remaining NIS 0.8 million ($216) will be loaned upon certain milestones which are expected to occur in the first half of 2025. Upon completion of the Project, the we are entitled to receive the Loan Principal and the greater of: (i) 20% annual interest of the Loan Principal and (ii) 40% of the Project profits.

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 have invested 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.

Following the results of the Phase 3 trials, and the new Phase 3 clinical trial for our oral insulin capsule candidate, ORMD-0801 and the current strategic review initiated by us, our obligations may change.

There has been no significant change in our exposure to market risk during the quarter ended September 30, 2024. For a discussion of our exposure to market risk, refer to Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” contained in our Annual Report.

Disclosure Controls and Procedures

Our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2024. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.