Business context and reporting period
Imprimis Pharmaceuticals, Inc. (the registrant named in the filing; not Harrow, Inc.) filed this unaudited Form 10-Q for the quarter and nine months ended September 30, 2012. It describes itself as a development-stage specialty pharmaceutical company developing topical products using its Accudel technology. Its lead candidate, Impracor, is a topical ketoprofen product for pain; the company had no commercial product sales.
The company resumed operations after its Chapter 11 case was dismissed in December 2011. In February 2012 it changed its name from Transdel Pharmaceuticals and effected a 1-for-8 reverse stock split.
Financial performance and position
| Metric | Q3 2012 / September 30, 2012 | Comparable period / prior balance |
|---|---|---|
| Revenue | $0 for the quarter; $100,000 for the first nine months, recognized from non-refundable advances under a terminated cosmetic-product license | No revenue in Q3 2011 or the first nine months of 2011 |
| Net loss | $1.246 million for Q3; $3.931 million for nine months. Nine-month loss attributable to common stockholders was $4.131 million, or $0.22 per share, including a $200,000 deemed preferred-stock dividend. | Q3 2011 loss: $85,400; nine-month 2011 loss: $682,178, or $0.34 per share |
| Operating expenses | Q3 SG&A $946,381 and R&D $303,666; nine-month SG&A $2.240 million and R&D $580,240 | Q3 2011 SG&A $66,496 and R&D $0; nine-month 2011 SG&A $514,529 and R&D $111,554 |
| Cash flow | Nine-month operating cash use $1.287 million; investing cash use $15,308; financing cash provided $12.147 million | Nine-month 2011 operating cash use $316,845 and financing cash provided $27,537 |
| Cash and liquidity | Cash and equivalents $10.991 million; current assets $11.451 million; current liabilities $669,843; working capital approximately $10.781 million | Cash $146,160 and current liabilities $1.861 million at December 31, 2011 |
| Debt and equity | No notes payable or accrued note interest remained on the September 30 balance sheet. Stockholders’ equity was $10.794 million. | December 31, 2011 notes and accrued interest included $1.0 million convertible debt and $300,000 related-party debt; total stockholders’ deficit was $1.700 million. |
Gross margin is not meaningful because the filing reports no product sales. The accumulated development-stage deficit was $22.651 million. The company reported approximately $10.1 million of cash deposits above FDIC insurance limits.
Material changes and unusual items
- SG&A and R&D rose substantially year over year as operations, staffing, clinical planning, and supportive Impracor studies restarted. Nine-month stock-based compensation was $1.502 million, versus $149,162 in 2011.
- The company raised approximately $7.93 million net in an April private placement and approximately $3.98 million net from PCCA in August. It also converted prior related-party and convertible debt to equity; the line of credit was terminated.
- Nine-month results include a $1.195 million loss on debt extinguishment, associated with conversions and modification of debt. The company issued 10.058 million shares in the April placement and 4.163 million shares to PCCA; common shares outstanding were 33,859,627 at September 30.
- The PCCA strategic license grants exclusive rights to certain formulations, technologies, and data. Royalties on covered future product net sales range from 4.5% to 9%, subject to minimum royalties and development milestones that can affect termination.
Outlook, risks, and contingencies
Management said existing cash was expected to fund operations for the next 12 months. The filing separately estimates total expenditures of approximately $9.3 million over the next 12 months and says additional financing will be needed to complete planned trials and pursue further development. Management’s estimates are not a guarantee of funding sufficiency.
The FDA required two additional confirmatory Phase 3 trials and supportive dermal-safety studies for Impracor. Supportive studies began in September 2012; the company intended, subject to sufficient financing and FDA feedback, to start Phase 3 trials in early 2013 and anticipated an NDA filing in 2014 if trials were successful. Trial outcomes, timing, regulatory approval, and commercialization are uncertain.
The company reported recurring losses and negative operating cash flows; its 2011 auditor’s report included a going-concern explanatory paragraph. It cited risks including capital availability and dilution, clinical and regulatory failure or delay, dependence on CROs and manufacturers, competition, and the need to rebuild its operations after bankruptcy. Disclosure controls were reported ineffective at September 30, 2012 due to unremediated material weaknesses; remediation was ongoing. No material adverse legal proceedings were identified.
Important facts for investors to verify
- Confirm the issuer identity: this supplied filing is for Imprimis Pharmaceuticals, Inc., despite the request metadata naming Harrow, Inc.
- Track cash burn against the stated $9.3 million next-12-month expenditure estimate and confirm whether management can finance operations beyond its stated 12-month runway.
- Verify clinical-trial commencement, enrollment, results, FDA feedback, and any changes to the Impracor NDA timetable.
- Review share dilution from outstanding options, warrants, and restricted stock units, as well as any subsequent financing or offering.
- Monitor remediation of the disclosed material weaknesses and whether disclosure controls become effective.
- Assess the PCCA license’s development deadlines, minimum royalty obligations, and the potential effect of the uninsured cash concentration.