Filing summary
Entity and period: The supplied filing is Imprimis Pharmaceuticals, Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2012, filed May 10, 2012. It is not a Harrow, Inc. filing; the company name in the request metadata does not match the filing.
Business context and reporting period
Imprimis described itself as a development-stage specialty pharmaceutical company developing topical products using its Accudel technology. Its lead candidate, Impracor, is a topical ketoprofen product for localized pain. The company had resumed operations after its Chapter 11 case was dismissed in December 2011. It changed its name from Transdel Pharmaceuticals and effected a 1-for-8 reverse stock split on February 28, 2012; share and per-share figures in the filing reflect the split.
Financial results and liquidity
| Metric | Q1 2012 | Q1 2011 |
|---|---|---|
| Revenue | $100,000 | $0 |
| Operating expenses | $451,919 | $413,820 |
| Operating loss | $351,919 | $413,820 |
| Net loss | $1,379,088 | $432,313 |
| Net loss per share, basic and diluted | $0.26 | $0.22 |
| Cash used in operating activities | $334,842 | $220,596 |
- Q1 revenue was recognition of previously received, non-refundable royalty advances under the terminated JH Direct cosmetic license, not product sales. The company expected no further revenue under that agreement.
- The Q1 2012 net loss included a $1,006,087 loss on extinguishment of debt. Excluding this unusual item, the filing does not present an adjusted earnings measure.
- SG&A declined $17,648 year over year to $308,956; R&D increased $55,747 to $142,963, primarily due to personnel and planning for additional Impracor trials.
- At March 31, cash and cash equivalents were $146,711; current assets were $210,484 and current liabilities were $930,499, implying a working capital deficit of approximately $720,000. Stockholders’ deficit was $705,812.
- Current liabilities included $608,959 of related-party notes and accrued interest. The $600,000 principal balance was under a 10% secured line of credit from DermaStar; the line was secured by company assets, including intellectual property. After quarter-end, the balance and accrued interest were converted into equity units and the line was terminated.
- Q1 investing cash use was $14,607, mainly for office equipment. Financing provided $350,000: $300,000 of related-party advances and a $50,000 payment associated with the convertible-note settlement. Cash increased by $551 during the quarter.
Material changes and subsequent events
- Compared with Q1 2011, operating loss narrowed, but net loss increased substantially because of the debt-extinguishment charge; operating cash use also increased.
- In February 2012, the company issued 9,179,150 shares to settle the former 7.5% convertible note and related amounts, including accounts payable. The settlement generated the reported $1,006,087 extinguishment loss.
- On April 25, 2012, the company closed a private placement of 10,058,455 common shares and warrants for approximately $7.95 million in gross proceeds. DermaStar separately converted $762,534 of line-of-credit principal and interest into units on the same terms.
- Management said the financing was expected to fund operations and permit clinical work, but also said approximately $7 million in additional funding would be needed to fully execute the business plan. The filing gives differing runway descriptions: it refers to resources for fiscal 2012, while elsewhere describing 12–18 months after the April financing.
- As of May 9, 2012, 22,197,713 common shares were outstanding, before considering warrants and other potential dilution.
Outlook, risks, and unusual items
- The company reported recurring losses, negative operating cash flows, an accumulated development-stage deficit of approximately $19.9 million, and substantial doubt about its ability to continue as a going concern. Continued operations and planned trials depended on additional financing; financing availability and terms were uncertain.
- Management’s plan focused on a second Phase 3 Impracor study and supportive safety studies, with initiation anticipated in 2012 or 2013 if funding became available. The FDA required at least two adequate and well-controlled Phase 3 studies. The earlier Phase 3 trial had failed its primary endpoint, although management cited favorable post-hoc analyses.
- Regulatory approval, trial execution and results, commercialization, competition, access to capital, and the ability to retain qualified personnel were significant risks. The filing also noted that the Accudel U.S. patent protection extended through 2016 and that the company had no internal sales and marketing resources.
- Disclosure controls and procedures were deemed ineffective as of March 31, 2012 because of unremediated material weaknesses. Remediation efforts were underway, but the company had not established that corrective processes were operating effectively.
- DermaStar and its members were control persons; the filing described concentrated voting control and related-party relationships involving company leadership. The April financing and conversion of the secured line materially changed the company’s capital structure after quarter-end.
- The company’s Chapter 11 case had been dismissed in December 2011 after a proposed asset sale was denied and terminated. The filing reported no legal proceedings as of the report.
Important facts for investors to verify
- Whether the April financing and stated cash runway are sufficient to fund operations and the planned Impracor trials, and what additional capital is still required.
- The FDA’s requirements and the design, timing, funding, and outcomes of the planned Phase 3 and supportive safety studies.
- The final share count and potential dilution from the April offering, related-party conversion, warrants, options, and other securities.
- Progress in remediating the disclosed material weaknesses and the effectiveness of financial reporting controls.
- Related-party governance, DermaStar’s voting influence, and the terms and accounting for debt settlements and conversions.