InMed Pharmaceuticals Inc. — Form 10-Q Summary
Business Context and Reporting Period
InMed is a clinical-stage pharmaceutical company developing rare cannabinoid and cannabinoid-analog therapies, including INM-755 for epidermolysis bullosa and INM-088 for glaucoma. Through BayMedica, its wholly owned subsidiary, the Company also sells bulk rare cannabinoids for the health and wellness market.
This unaudited Form 10-Q covers the three months ended September 30, 2023, the Company’s fiscal first quarter, and presents results in U.S. dollars under U.S. GAAP. The comparable period is the three months ended September 30, 2022.
Key Financial Metrics
| Metric | Q1 FY2024 | Q1 FY2023 | Change |
|---|---|---|---|
| Sales | $901,862 | $320,788 | 181% increase |
| Gross profit (loss) | $21,242 | $(491,018) | Improved by $512,260 |
| Gross margin | Approximately 2.4% | Approximately (153.1%) | Improved |
| Operating expenses | $2,694,113 | $3,084,969 | 13% decrease |
| Interest and other income | $136,043 | $72,587 | Increase |
| Net loss | $(2,536,828) | $(3,510,200) | Loss decreased by $973,372 |
| Basic and diluted loss per share | $(0.76) | $(4.06) | Improved |
| Cash used in operating activities | $(2,174,213) | $(2,255,543) | Use decreased by $81,330 |
Sales were generated entirely by BayMedica; the InMed pharmaceutical segment reported no sales. Research and development and patent expense was $1.29 million, general and administrative expense was $1.30 million, amortization and depreciation was $54,832, and foreign exchange loss was $48,457.
Cash and cash equivalents were $6.74 million at September 30, 2023, compared with $8.91 million at June 30, 2023. Short-term investments were $42,942, producing cash, cash equivalents and short-term investments of approximately $6.8 million. Total current assets were $8.30 million and total assets were $10.92 million.
Total liabilities were $1.34 million, consisting primarily of $1.05 million of accounts payable and accrued liabilities and $293,000 of current lease obligations. The Company reported no debt facility or other funded debt. Shareholders’ equity was $9.58 million, and accumulated deficit was $103.94 million.
Material Changes Versus the Prior Comparable Period
- BayMedica sales increased 181% to $901,862, although management stated that revenue declined 61% sequentially from the preceding quarter because of distributor order-pattern fluctuations.
- Cost of sales increased to $787,690 from $235,034, while the inventory write-down declined to $92,930 from $576,772. Lower demand and pricing pressure continued to affect inventory realizable values.
- Gross profit improved to $21,242 from a gross loss of $491,018, but the Company remained near breakeven at the gross-profit level.
- Research and development and patent expense decreased 6%, primarily because of lower research supplies, stock-based compensation and personnel costs, partly offset by higher external contractor fees.
- General and administrative expense decreased 17% overall, with the InMed segment reporting a 31% decrease. The reduction reflected lower office, accounting, legal, regulatory, consulting and related costs.
- Net loss narrowed by 28%, while operating cash use decreased modestly. The prior-year period included $5.43 million of net financing proceeds; no financing cash was received in the current quarter.
- Weighted average shares outstanding increased to 3.33 million from 865,619, reflecting prior-period equity issuances and warrant exercises.
Guidance, Outlook, Risks, Contingencies and Unusual Items
- Going concern: Management disclosed substantial doubt about the Company’s ability to continue as a going concern within one year after issuance of the financial statements. The Company expects continuing operating losses and negative operating cash flow and will need additional financing.
- Liquidity outlook: Management estimated that September 30 cash and short-term investments of approximately $6.8 million, together with approximately $4.7 million of net proceeds from an October 26, 2023 private placement, should fund operating expenses and capital requirements into the third quarter of calendar 2024. This estimate depends on BayMedica revenue timing and operating expenses.
- Subsequent financing: On October 26, 2023, the Company completed an offering involving 3,012,049 common shares or pre-funded warrants at $0.83 per share, together with preferred investment options. Existing preferred investment options covering 3,272,733 shares were also exercised for cash at $0.83 per share, with additional preferred investment options issued. The transaction creates significant potential dilution.
- Planned spending: The Company had approximately $2.2 million of commitments for contract research services and materials and approximately $0.3 million of commitments for contract materials and equipment expected during the following twelve months.
- Revenue volatility: BayMedica revenue is affected by distributor ordering patterns, product mix and pricing pressure. Management expects fluctuations to continue and is evaluating structured supply arrangements and collaborations.
- Clinical and regulatory risk: The pharmaceutical candidates have not been commercialized. Future costs, development timing, regulatory approvals, clinical outcomes, manufacturing scale-up, reimbursement and commercialization remain uncertain.
- Legal contingency: A BayMedica licensor alleged a breach of a patent license agreement. BayMedica disputes the interpretation and stated that no lawsuit had been initiated as of the filing. Any dispute would be subject to binding arbitration under Ontario law, and a potential loss could not be reasonably estimated.
- Nasdaq listing deficiency: Nasdaq notified the Company on September 19, 2023 that its average closing bid price had fallen below $1.00. The Company had 180 calendar days to regain compliance, with possible delisting and appeal risks if it fails to do so.
- Internal controls: Management concluded that disclosure controls and procedures were not effective because of a material weakness in internal control over financial reporting, primarily related to insufficient personnel and inadequate segregation of duties. Remediation was in progress, with completion expected before the end of fiscal 2024.
- Customer concentration: Three customers accounted for 34%, 20% and 11% of quarterly revenue. Three customers represented 35%, 22% and 11% of accounts receivable at September 30, 2023.
Important Facts for Investors to Verify
- Whether the October 2023 financing proceeds and potential warrant or investment-option exercises materially extend the Company’s cash runway and how much dilution results.
- Whether BayMedica can sustain or grow revenue and improve gross margins despite distributor concentration, order volatility and pricing pressure.
- The timing, cost and clinical progress of INM-755, INM-088 and other development programs, none of which had generated pharmaceutical product revenue by the reporting date.
- Whether the Company can resolve its Nasdaq minimum-bid-price deficiency within the applicable cure period.
- Whether the disclosed internal-control material weakness is remediated and independently tested as effective.
- Any litigation, arbitration demand or settlement arising from the BayMedica license dispute.
- The Company’s ability to obtain additional capital on acceptable terms before its projected runway ends.