Inmed Pharmaceuticals Inc. quarterly report, Q2 FY2022

InMed Pharmaceuticals Inc. — Form 10-Q Summary

Reporting period: Three and six months ended December 31, 2021, filed February 14, 2022. Amounts are in U.S. dollars and financial statements are unaudited and prepared under U.S. GAAP.

Business context

InMed is a clinical-stage pharmaceutical company developing rare-cannabinoid and cannabinoid-analog products, including INM-755 for epidermolysis bullosa and INM-088 for glaucoma. It also develops manufacturing technologies and, following the October 13, 2021 acquisition of BayMedica, sells bulk rare cannabinoids to business-to-business customers in the health and wellness sector.

Financial performance and position

Metric	Three months ended Dec. 31, 2021	Six months ended Dec. 31, 2021	Comparable prior period
Sales	$265,092	$265,092	$0
Gross profit	$111,555	$111,555	$0
Gross margin	42.1%	42.1%	Not meaningful
Research and development and patent expense	$2,537,070	$4,028,322	$937,948 and $1,849,104
General and administrative expense	$1,836,786	$3,209,653	$959,554 and $1,584,342
Net loss	$(4,282,814)	$(7,254,429)	$(2,243,782) and $(3,842,861)
Loss per share	$(0.31)	$(0.56)	$(0.37) and $(0.68)

• Six-month operating expenses increased to $7.3 million from $3.5 million, primarily due to higher INM-755 clinical-trial activity, BayMedica expenses, personnel, legal, investor-relations and public-company costs.
• Six-month operating cash use was $6.2 million, compared with $3.2 million in the prior year.
• Six-month financing cash inflow was $10.0 million, including $12.0 million of gross private-placement proceeds, partly offset by issuance costs and debt settlements.
• Cash and cash equivalents were $11.3 million at December 31, 2021, compared with $7.4 million at June 30, 2021. Cash, cash equivalents and short-term investments totaled $11.3 million; working capital surplus was $7.9 million.
• Total assets were $19.4 million and total liabilities were $5.2 million at December 31, 2021. The balance sheet included $58,624 of short-term debt, $990,447 of lease obligations and $800,457 of acquisition consideration payable.
• Accumulated deficit was $82.1 million. The Company has generated recurring losses and negative operating cash flows since inception.

Material changes versus the prior comparable period

• BayMedica generated $265,092 of sales and $111,555 of gross profit after its acquisition; there was no comparable revenue in 2020.
• BayMedica contributed approximately $0.9 million of operating losses from the acquisition date through December 31, 2021, including approximately $0.1 million of revenue.
• On July 2, 2021, InMed completed a $12.0 million private placement and received approximately $11.0 million of net proceeds. The financing included common shares, pre-funded warrants and warrants.
• On October 13, 2021, InMed acquired 100% of BayMedica for 2.05 million common shares valued at $3.0 million and cash consideration initially estimated at $1.0 million, subject to adjustments and indemnification claims. The preliminary allocation included $1.25 million of in-process research and development and $2.0 million of goodwill.
• Shares outstanding increased to 14,137,034 at December 31, 2021 from 8,050,707 at June 30, 2021. Warrants and options create additional potential dilution.

Guidance, outlook, risks and unusual items

• Management expects operating losses and expenses to increase as it advances clinical programs, expands manufacturing capabilities, integrates BayMedica and supports public-company infrastructure. No profitability timetable or product-candidate revenue guidance was provided.
• Management expects the December 31, 2021 cash balance to fund operating expenses and capital expenditures into the first quarter of fiscal 2023, but concluded that substantial doubt exists about the Company’s ability to continue as a going concern within one year after issuance of the financial statements. Additional financing will be required thereafter and may not be available on acceptable terms.
• The Company had approximately $2.0 million of committed contract research services and materials expected during the twelve months following December 31, 2021, and accrued $300,000 for deferred minimum royalty payments under a patent license agreement.
• Customer concentration is significant: three customers represented 76% of sales for both the three- and six-month periods, although they represented 17% of accounts receivable at December 31, 2021.
• BayMedica’s purchase-price allocation remained preliminary and may change during the measurement period, affecting goodwill and other acquired assets or liabilities.
• COVID-19 had no material reported impact during the period, but future effects remain uncertain. Key business risks include clinical and regulatory failure, manufacturing scale-up, third-party supply dependence, intellectual-property protection, competition, customer concentration and the need for additional capital.
• Disclosure controls and procedures were not effective as of December 31, 2021 because of a previously reported material weakness in internal control over financial reporting related to insufficient finance-function resources. Management expected remediation before the end of fiscal 2022, but the weakness had not yet been remediated.

Most important facts for investors to verify

• Whether BayMedica can scale commercial sales and improve profitability beyond the initial $265,092 of quarterly revenue.
• The timing, cost and clinical results of the INM-755 and INM-088 programs and any related regulatory milestones.
• Cash burn, financing needs and whether additional equity or other capital can be raised before the projected fiscal 2023 funding point.
• The final BayMedica purchase-price allocation, including potential changes to goodwill, acquired intangibles and liabilities.
• The status and effectiveness of remediation of the material weakness in internal controls.
• Potential dilution from 6,509,327 share purchase warrants, 302,725 agents’ warrants and 1,597,704 outstanding options at December 31, 2021.