Filing summary
Entity and period: The supplied filing is Imprimis Pharmaceuticals, Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2012, filed August 14, 2012. The filing does not identify Harrow, Inc. as the registrant; confirm that this is the intended filing.
Business context and financial results
Imprimis described itself as a development-stage specialty pharmaceutical company developing topical products using its Accudel platform. Its lead candidate, Impracor (topical ketoprofen), required further Phase 3 trials and supportive safety studies; the company had not yet resumed those trials.
| Metric | Three months ended June 30, 2012 | Six months ended June 30, 2012 | Prior comparable period |
|---|---|---|---|
| Revenue | $0 | $100,000 | $0 in both 2011 periods |
| Operating expenses | $1.118 million | $1.570 million | $146,000 and $560,000, respectively |
| Net loss | $1.306 million | $2.685 million | $164,000 and $597,000, respectively |
| Net loss attributable to common stockholders | $1.506 million | $2.885 million | $164,000 and $597,000, respectively |
| Basic and diluted loss per share | $0.08 | $0.23 | $0.08 and $0.30, respectively |
| Cash used in operating activities | Not separately stated | $617,405 | $285,909 used in the first half of 2011 |
The $100,000 of first-half revenue was recognition of non-refundable royalty advances under a cosmetic license that the company terminated; it was not product-sales revenue. No gross margin or operating margin is meaningfully reported. Selling, general and administrative expense was $1.294 million and research and development expense was $277,000 in the first half, up from $448,000 and $112,000, respectively, in 2011. Management attributed much of the increase to restarting operations, staffing and stock-based compensation.
Financial position and material changes
- At June 30, cash and cash equivalents were $7.717 million, versus $146,160 at December 31, 2011. Total assets were $7.895 million; current liabilities were $491,199; and stockholders’ equity was $7.404 million.
- Cash increased by $7.571 million during the first half, primarily from financing. Net cash provided by financing activities was $8.204 million; net cash used in investing activities was $15,308.
- The April private placement issued 10.06 million common shares and warrants for 2.51 million shares, generating approximately $7.93 million net proceeds. A related-party line of credit and the prior convertible note were converted or settled in stock; no notes payable remained at June 30.
- First-half other expense included a $1.195 million loss on extinguishment of debt. The common-stockholder loss also included a $200,000 deemed dividend arising from the Series A preferred-stock conversion and cash payment.
- Common shares outstanding rose to 29.70 million from 1.99 million at year-end, following debt conversions, the private placement and conversion of preferred stock. The filing also reports 2.85 million warrants outstanding and 4.50 million options outstanding at June 30.
Outlook, risks and unusual matters
- Management said June-end cash was expected to support operations through 2012 and elsewhere stated that current cash was expected to support at least the next 12 months. It also estimated that at least $7 million of additional funding would be needed to fully execute the business plan and planned clinical work. These statements do not remove the disclosed substantial doubt about the company’s ability to continue as a going concern.
- Subject to financing and FDA feedback, management anticipated starting supportive studies and Phase 3 trials in late 2012 or early 2013, and potentially filing an Impracor New Drug Application in 2014 if the trials succeeded. These were forward-looking expectations, not completed milestones.
- The company reported recurring losses, negative operating cash flow, no significant ongoing product revenue, and dependence on further equity, debt, partnership or licensing financing. It warned that financing might be unavailable or dilutive and that failure to raise funds could delay or halt operations.
- Disclosure controls and procedures were reported ineffective at June 30 because of unremediated material weaknesses in internal control over financial reporting. Remediation efforts were underway.
- Other significant risks included FDA approval and clinical-trial uncertainty, reliance on outside research and manufacturing providers, limited post-bankruptcy operating history, competition, and potential dilution. The Accudel U.S. patent was disclosed as providing protection through 2016; the company said extension was uncertain.
- Subsequent events included performance-based restricted stock unit grants to the CEO and an advisor, an increase in the proposed equity-plan share pool, and changes to board and executive arrangements.
Important facts for investors to verify
- Confirm the issuer and filing match the intended company: this 2012 report names Imprimis Pharmaceuticals, Inc., not Harrow, Inc.
- Check the actual cash runway, spending against plan, and whether the additional financing required for Impracor trials was obtained.
- Verify FDA feedback, trial start dates, study enrollment and results, and any subsequent change to the projected NDA timetable.
- Review subsequent equity issuance, warrant and option dilution, and the terms of related-party transactions and executive compensation.
- Track remediation of the material weaknesses and whether later filings report effective disclosure controls.