InMed Pharmaceuticals Inc. — Form 10-Q Summary
Reporting period: Three and six months ended December 31, 2022; filed February 17, 2023. The filing corresponds to the company’s fiscal 2023 second quarter, although the request metadata labels it “2022 Q2.” Amounts are in U.S. dollars unless otherwise stated.
Business Context
InMed is a clinical-stage pharmaceutical company developing rare-cannabinoid and cannabinoid-analog therapies, including INM-755 for epidermolysis bullosa, INM-088 for glaucoma and the INM-900 series for neurodegenerative diseases. Through wholly owned BayMedica, the company also sells bulk rare-cannabinoid products and develops manufacturing technologies, including IntegraSyn.
InMed has not commercialized its pharmaceutical candidates and has funded operations primarily through equity offerings. BayMedica generated all reported revenue during the periods presented.
Financial Performance and Position
| Metric | Three months ended December 31, 2022 | Three months ended December 31, 2021 | Six months ended December 31, 2022 | Six months ended December 31, 2021 |
|---|---|---|---|---|
| Sales | $469,783 | $265,092 | $790,571 | $265,092 |
| Gross profit (loss) | $131,163 | $111,555 | $(359,855) | $111,555 |
| Operating expenses | $2,365,284 | $4,423,653 | $5,353,462 | $7,316,304 |
| Net loss | $(2,101,087) | $(4,282,814) | $(5,611,287) | $(7,254,429) |
| Basic and diluted loss per share | $(0.91) | $(7.73) | $(3.54) | $(14.03) |
| Cash used in operating activities | Not separately provided for the quarter | Not separately provided for the quarter | $(4,968,639) | $(6,187,725) |
- Quarterly gross margin was approximately 28%; six-month gross margin was negative because of a $576,772 inventory write-down related to lower demand and pricing pressure.
- Quarterly sales increased approximately 77% year over year, while six-month sales increased approximately 198%. The comparison is affected by BayMedica’s acquisition on October 13, 2021, meaning the prior-year periods included only approximately two and one-half months of BayMedica results.
- Cash and cash equivalents were $11.45 million at December 31, 2022, compared with $6.18 million at June 30, 2022. Cash and short-term investments totaled $11.50 million.
- Current assets were $14.02 million and current liabilities were $2.40 million, producing reported working capital of $11.62 million.
- Total liabilities were $2.58 million, consisting primarily of accounts payable, accrued liabilities and lease obligations. The filing reports no credit facility or committed sources of capital.
- Accumulated deficit was $99.06 million at December 31, 2022, compared with $93.45 million at June 30, 2022.
- Shares issued and outstanding increased to 1,589,992 at December 31, 2022 from 650,667 at June 30, 2022, reflecting private placements and exercises of pre-funded warrants. The company effected a one-for-25 reverse stock split on September 7, 2022.
Material Changes Versus the Prior Comparable Period
- Research and development and patent expense decreased 67% to $851,356 in the quarter and 45% to $2.23 million for the six months, primarily because INM-755 moved from preclinical toxicology into less capital-intensive early human clinical trials.
- General and administrative expense decreased 20% to $1.46 million in the quarter and 6% to $3.03 million for the six months.
- Quarterly net loss improved by $2.18 million year over year; six-month net loss improved by $1.64 million.
- BayMedica sales increased to $469,783 in the quarter and $790,571 for the six months, but the segment remained loss-making. Six-month BayMedica results included the $576,772 inventory write-down.
- Operating cash burn declined to $4.97 million for the six months from $6.19 million in the prior-year period.
- Financing activities provided $10.74 million during the six months, including $12.0 million of gross proceeds from equity offerings, partially offset by $1.26 million of issuance costs.
- In September and November 2022, InMed completed private placements totaling approximately $12.0 million gross. The November placement generated approximately $5.4 million of net proceeds and included preferred investment options to purchase up to 3,272,733 common shares.
Guidance, Outlook, Risks and Unusual Items
- Management expects the $11.5 million of cash at December 31, 2022 to fund operating and capital requirements into the last quarter of calendar 2023, depending on BayMedica inventory sales and operating expense levels.
- The company concluded that substantial doubt exists about its ability to continue as a going concern within one year after issuance of the financial statements. Additional financing is expected to be required through equity, debt, collaborations, government contracts or strategic transactions.
- Management expects operating losses and negative operating cash flows to continue, with research and development expenses expected to rise as clinical programs and manufacturing technologies advance.
- Contractual commitments included approximately $2.35 million for contract research services and materials and $526,704 for contract materials and equipment, largely expected within the following twelve months.
- BayMedica paid $300,000 of minimum payments under a patent license agreement. In February 2023, the licensor alleged a breach and asserted a right to monies. BayMedica disputes the interpretation; any dispute would be subject to binding arbitration. A potential loss cannot currently be reasonably estimated.
- Four customers represented approximately 67% of quarterly sales, and three customers represented approximately 49% of six-month sales. Three customers represented approximately 55% of gross receivables at December 31, 2022.
- The company reported a material weakness in internal control over financial reporting caused primarily by inadequate resources for non-routine financial reporting matters. Remediation includes additional finance resources, outside consultants and enhanced review procedures; management expected remediation before the end of fiscal 2023.
- In January 2023, the remaining 70,019 September pre-funded warrants and 1,668,185 November pre-funded warrants were exercised, resulting in the issuance of 1,738,204 common shares for nominal cash proceeds.
Most Important Facts for Investors to Verify
- Whether BayMedica can convert inventory into sustained sales without further write-downs, given lower demand, pricing pressure and customer concentration.
- The timing and terms of additional financing required before or during the last quarter of calendar 2023, including potential dilution or restrictive terms.
- Progress, cost and clinical outcomes for INM-755, INM-088 and other development programs.
- The status and potential financial impact of the BayMedica patent-license dispute and arbitration risk.
- Whether management remediates the disclosed material weakness in internal control by the stated target date.
- The fully diluted share count following the January 2023 warrant exercises and the outstanding investment options, warrants and stock options.
- Whether the going-concern uncertainty is resolved through financing, increased revenue or reduced operating requirements.