Business Context and Reporting Period
Company: Transdel Pharmaceuticals, Inc. (filing as Transdel; renamed Imprimis Pharmaceuticals, Inc. in subsequent events).
Reporting Period: Fiscal year ended December 31, 2010.
Business Overview: A specialty pharmaceutical company developing non-invasive, topically delivered products using its proprietary Transdel™ cream formulation technology. The lead product candidate is Ketotransdel® (ketoprofen), a topical NSAID for acute pain. The company is in the development stage and has not generated product revenue.
Subsequent Events: The company filed for Chapter 11 bankruptcy on June 26, 2011, which was dismissed on December 9, 2011, following a failed asset sale to Cardium Healthcare. Post-bankruptcy, the company secured a line of credit and underwent a change in control via the issuance of Series A Convertible Preferred Stock to DermaStar International, LLC.
Key Financial Metrics
| Metric | 2010 | 2009 |
|---|---|---|
| Revenue | $0 | $0 |
| Net Loss | $(2,531,228) | $(4,553,636) |
| Accumulated Deficit (Inception to 2010) | $(17,466,797) | $(14,935,569) |
| Cash and Cash Equivalents (Year End) | $291,462 | $1,589,773 |
| Net Cash Used in Operating Activities | $(2,298,311) | $(3,570,758) |
| Total Liabilities | $1,390,514 | $1,094,873 |
| Convertible Note Payable | $1,055,479 | $0 |
Working Capital: The company reported a working capital deficiency as of December 31, 2010, with current liabilities of $335,035 exceeding current assets of $351,954 (excluding the convertible note which was classified as long-term at year-end but became due upon bankruptcy filing).
Material Changes vs. Prior Period
- Operating Expenses: Selling, general, and administrative (SG&A) expenses increased by $709,603 (44%) to $2.31 million, primarily due to a $416,000 one-time separation agreement for the former CEO and increased investor relations costs. Research and development (R&D) expenses decreased significantly by $2.77 million (93%) to $194,588, as the Phase 3 clinical trial for Ketotransdel concluded in 2009.
- Financing: In April 2010, the company issued a $1,000,000 Senior Convertible Promissory Note, resulting in $1,000,000 of cash provided by financing activities in 2010 compared to $49,500 in 2009.
- Cash Position: Cash reserves declined by approximately $1.3 million year-over-year due to operating losses and a lack of new equity financing in 2010.
Guidance, Outlook, Risks, and Unusual Items
Going Concern: The independent auditor issued a "going concern" modification. The company has incurred recurring losses and has a substantial accumulated deficit. Continuation as a going concern is dependent on obtaining additional financing.
Capital Needs: Management estimates a need for an additional $6 million to execute the business plan for 2012, specifically to fund a second Phase 3 clinical trial and supportive studies required for FDA approval of Ketotransdel®.
Clinical Status: The initial Phase 3 trial failed to meet its primary endpoint, though post-hoc analysis showed statistical significance. The FDA requires two adequate and well-controlled Phase 3 studies for approval. The company anticipates initiating the second trial in 2012 or 2013 pending financing.
Unusual Items / Subsequent Events:
- Bankruptcy: Voluntary Chapter 11 filing in June 2011; dismissed in December 2011 after a proposed asset sale was denied by the court.
- Change in Control: DermaStar International, LLC acquired a controlling interest (approx. 65% to 79% on an as-converted basis) through the purchase of Series A Preferred Stock and a secured line of credit ($750,000 limit; $300,000 drawn).
- Debt Settlement: Agreements reached to convert a $1.14 million convertible note and accounts payable into common stock, pending an increase in authorized shares.
- Corporate Actions: Stockholders approved a name change to Imprimis Pharmaceuticals, Inc., a reverse stock split (1-for-8), and an increase in authorized shares to 395 million.
Investor Verification Checklist
- Financing Status: Verify if the company has secured the estimated $6 million required to fund the second Phase 3 trial, as failure to do so could force a cessation of operations.
- Dilution Impact: Assess the impact of the mandatory conversion of the $1.14 million convertible note and the Series A Preferred Stock, which could result in the issuance of over 73 million additional shares.
- Regulatory Path: Confirm the FDA's stance on the post-hoc analysis of the first Phase 3 trial and the specific requirements for the second trial.
- Related Party Transactions: Review the terms of the line of credit and preferred stock issuance to DermaStar, which now controls the majority of the company.
- Internal Controls: Note the disclosure of material weaknesses in internal controls over financial reporting due to insufficient segregation of duties and limited personnel.