InMed Pharmaceuticals Inc. — Form 10-Q Summary
Reporting period: Three and six months ended December 31, 2020, filed February 11, 2021. The filing corresponds to fiscal 2020 second quarter, although the period is labeled “2020 Q2” in the request. Amounts are in U.S. dollars unless otherwise stated. Financial statements are unaudited and prepared under U.S. GAAP.
Business Context
InMed is a clinical-stage pharmaceutical company developing non-plant-derived, cannabinoid-based therapies and the IntegraSyn manufacturing system for pharmaceutical-grade cannabinoids. Its principal candidates are INM-755 for epidermolysis bullosa and INM-088 for glaucoma. The company has not commercialized any products and has generated no product revenue.
Key Financial Metrics
| Metric | Three months ended Dec. 31, 2020 | Six months ended Dec. 31, 2020 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development and patents | $937,948 | $1,849,104 |
| General and administrative | $959,554 | $1,584,342 |
| Total operating expenses | $1,934,318 | $3,498,243 |
| Net loss | $2,243,782 | $3,842,861 |
| Loss per share, basic and diluted | $0.37 | $0.68 |
| Cash used in operating activities | Not separately provided | $3,172,949 |
There is no meaningful revenue or profit margin to report because the company is pre-commercial and recorded no revenue. Six-month comprehensive loss was $3.4 million, including a $430,443 foreign-currency translation gain.
- Cash and cash equivalents were $10.0 million at December 31, 2020, compared with $5.8 million at June 30, 2020.
- Short-term investments were $45,225, producing total cash and short-term investments of $10.1 million.
- Working capital surplus was $8.1 million, compared with $4.6 million at June 30, 2020.
- Current liabilities were $2.2 million; accounts payable and accrued liabilities were $2.1 million.
- The company reported no borrowings. Lease obligations totaled $315,304, including current and non-current portions.
- A derivative warrants liability of $1.8 million was recorded at December 31, 2020.
- Accumulated deficit was $68.5 million, compared with $64.6 million at June 30, 2020.
- Shares outstanding increased to 7,000,707 from 5,220,707 at June 30, 2020.
Material Changes Versus the Prior Comparable Period
- For the three months, net loss improved 10% to $2.24 million from $2.49 million. For the six months, net loss improved 27% to $3.84 million from $5.30 million.
- Six-month research and development and patent expense declined 48% to $1.85 million, primarily because of lower spending on the manufacturing program and INM-755, which completed Phase 1 studies during the quarter.
- Six-month general and administrative expense declined 10% to $1.58 million, mainly due to lower share-based compensation, legal costs, salaries and benefits, partly offset by higher insurance costs.
- The November 2020 public offering generated gross proceeds of $8.0 million from 1.78 million shares sold at $4.50 per share, with one warrant accompanying each share. Net cash provided by financing activities was $6.9 million after issuance costs.
- The offering resulted in a $1.8 million derivative warrants liability, $360,350 of finance expense and a $242,628 unrealized gain from subsequent fair-value remeasurement.
- Foreign-exchange loss increased to $234,291 for the six months from $11,250 in the prior-year period.
- Operating cash burn decreased to $3.17 million from $4.46 million, while the prior-year period included $3.8 million of cash inflows from maturities of short-term investments.
Guidance, Outlook, Risks and Unusual Items
- Management expects continued operating losses and negative operating cash flow for the foreseeable future and does not expect product-sales revenue for several years, if ever.
- Management estimated that the $10.0 million of cash at December 31, 2020 would 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.
- The company expects research and development expenses to increase as INM-755, INM-088 and IntegraSyn advance, and as clinical, manufacturing, regulatory and public-company activities expand.
- On February 5, 2021, the company announced a proposed private placement expected to generate approximately $4.5 million gross and $4.0 million net. Each unit includes one common share and 0.66 of a warrant. Closing was expected around February 12, 2021, subject to customary conditions and exchange approvals.
- The company is committed to approximately $938,546 of contract research services and materials, with approximately $920,158 expected within the following twelve months.
- A potential contingent liability relates to two inadvertent July 2020 disclosures in connection with the company’s public offering. If found to violate Section 5 of the Securities Act, purchasers could potentially have rescission or damages claims. The likelihood and amount are not determinable.
- COVID-19 may affect financing availability, operations and long-lived-asset valuations; the ultimate impact was not determinable at the filing date.
- Disclosure controls were not effective because of a material weakness related to insufficient finance-function resources and an overstatement of warrant valuation. Management expected remediation before the end of fiscal 2021.
Most Important Facts to Verify
- Whether the February 2021 private placement closed as planned and the amount of net proceeds actually received.
- Cash burn, remaining runway and the timing and terms of future financing.
- Progress, regulatory status and costs of INM-755, INM-088 and the IntegraSyn manufacturing program.
- Remediation of the material weakness in internal control over financial reporting.
- Potential exposure from the public-offering disclosure matter and any resulting claims.
- Future dilution from the 1.78 million November 2020 warrants, outstanding options and subsequent financing securities.