InMed Pharmaceuticals Inc. — Form 10-Q Summary
Reporting period: Three months ended September 30, 2020, the company’s fiscal first quarter. The unaudited statements are presented in U.S. dollars under U.S. GAAP. InMed is a clinical-stage biopharmaceutical company developing cannabinoid-based therapies and the IntegraSynTM manufacturing platform. Its lead programs include INM-755 for epidermolysis bullosa and INM-088 for glaucoma.
Financial position and results
| Metric | Q1 FY2021 | Q1 FY2020 |
|---|---|---|
| Product revenue | None | None |
| Research and development and patent expense | $911,156 | $1,961,912 |
| General and administrative expense | $624,788 | $887,511 |
| Total operating expenses | $1,563,925 | $2,879,650 |
| Net loss | $(1,599,079) | $(2,805,312) |
| Basic and diluted loss per share | $(0.31) | $(0.54) |
| Cash used in operating activities | $(1,371,590) | $(2,365,020) |
| Cash and cash equivalents, period end | $4,497,296 | $11,007,231 |
- Interest income was $4,345, compared with $58,406 in the prior-year quarter. Foreign exchange loss was $39,499, compared with a $15,932 gain.
- Total assets were $6.60 million and shareholders’ equity was $4.49 million at September 30, 2020.
- Cash, cash equivalents and short-term investments totaled $4.54 million. Current liabilities were $1.87 million, producing working capital of $3.24 million.
- The company had no borrowings. Lease obligations totaled $307,000, including $71,402 classified as current.
- Accumulated deficit was $66.25 million at September 30, 2020. There is no meaningful operating margin because the company has no product revenue and remains loss-making.
Material changes versus the prior comparable period
- Net loss declined by $1.21 million, or 43%, primarily because total operating expenses decreased 46%.
- Research and development and patent expense decreased 54%, primarily due to lower spending on the IntegraSyn program and INM-755, including lower purchases of active pharmaceutical ingredients.
- General and administrative expense decreased 30%, reflecting lower legal, personnel, office and relocation costs, partly offset by higher accounting fees associated with U.S. GAAP reporting and public-company preparation.
- Operating cash burn improved by approximately $993,000, although cash declined by $1.31 million during the quarter because there were no investing inflows and the company paid $64,648 of deferred financing costs.
- Cash and cash equivalents fell from $5.81 million at June 30, 2020 to $4.50 million at September 30, 2020. Accounts payable and accrued liabilities increased from $1.61 million to $1.80 million.
- Share count remained 5,220,707 during the quarter. No common shares or options were issued, although 31,818 options were forfeited or expired.
Liquidity, outlook and risks
- Management expects cash at September 30, 2020, together with the subsequent IPO proceeds, to fund operating expenses and capital expenditures into the second quarter of fiscal 2022. The filing nevertheless concludes that substantial doubt exists about the company’s ability to continue as a going concern within one year after issuance of the financial statements.
- On November 16, 2020, InMed completed a U.S. IPO of 1,780,000 common shares with accompanying warrants for gross proceeds of $8.01 million and approximately $7.3 million of net proceeds. The warrants have a $5.11 exercise price and a six-year term. The underwriters also received an option for up to 267,000 additional shares and warrants.
- The company expects continuing operating losses and negative operating cash flow and will require additional financing. Future financing may dilute existing shareholders or require the company to relinquish rights to technologies or product candidates.
- Approximately $598,193 of contract research services and materials were committed at September 30, 2020, with $580,615 expected within the following twelve months. Lease commitments excluded variable operating costs of approximately $59,983 annually through August 2024.
- A contingent liability may arise from two inadvertent July 2020 disclosures related to the IPO. If determined to violate Section 5 of the Securities Act, affected purchasers could have rescission or damages claims. The likelihood and amount are not determinable.
- COVID-19 may disrupt research, clinical trials, suppliers, financing access, and cash flows. Key operational risks include early-stage clinical development, regulatory approval, patient enrollment, manufacturing scale-up, dependence on contract manufacturers, intellectual property protection, controlled-substance regulations, currency fluctuations and competition.
- Disclosure controls were deemed ineffective because of a material weakness in internal control over financial reporting arising from limited finance resources and an overstatement of warrant valuation. Management began remediation by adding finance and external resources and expects completion before the end of fiscal 2021.
Important facts for investors to verify
- Confirm the final net IPO proceeds, use of proceeds, warrant terms and any exercise of the underwriters’ overallotment option.
- Track cash burn, remaining runway and the timing and terms of any additional equity, debt or collaboration financing.
- Monitor progress, clinical results and regulatory milestones for INM-755, INM-088 and the IntegraSyn manufacturing platform.
- Assess remediation of the material weakness and whether subsequent filings report effective disclosure and internal controls.
- Evaluate potential exposure from the IPO disclosure matter, including any rescission, damages, fines or other sanctions.
- Review outstanding options, IPO warrants and future equity issuances for dilution risk.