InMed Pharmaceuticals Inc. Form 10-Q Summary
Reporting period: Three and nine months ended March 31, 2022, compared with the corresponding 2021 periods. The filing is dated May 13, 2022; despite the request metadata referencing “2021 Q3,” the filing covers fiscal 2022 third-quarter results.
Business context
InMed is a clinical-stage pharmaceutical company developing rare-cannabinoid medicines, including INM-755 for epidermolysis bullosa and INM-088 for glaucoma. Following its October 2021 acquisition of BayMedica, the company also manufactures and sells rare cannabinoids for the health and wellness industry. BayMedica generated substantially all reported revenue during the period.
Key financial metrics
| US$ | Three months ended March 31, 2022 | Three months ended March 31, 2021 | Nine months ended March 31, 2022 | Nine months ended March 31, 2021 |
|---|---|---|---|---|
| Sales | $309,585 | $nil | $574,677 | $nil |
| Gross profit | $182,277 | $nil | $293,832 | $nil |
| Gross margin | 58.9% | Not meaningful | 51.1% | Not meaningful |
| Operating expenses | $3,721,902 | $3,133,739 | $11,038,206 | $6,631,982 |
| Net loss | $(3,475,665) | $(3,101,475) | $(10,730,094) | $(6,944,336) |
| Basic and diluted loss per share | $(0.25) | $(0.41) | $(0.81) | $(1.11) |
| Cash used in operating activities | Not separately provided | Not separately provided | $(11,536,511) | $(7,784,554) |
For the nine-month period, research and development and patent expense was $5.8 million, general and administrative expense was $5.1 million, and depreciation and amortization was $0.1 million. The nine-month net loss margin was approximately negative 1,867%, reflecting the company’s early commercial stage and substantial research and corporate costs.
Balance sheet, debt and liquidity
- Cash and cash equivalents were $5.9 million at March 31, 2022, down from $7.4 million at June 30, 2021.
- Cash and short-term investments totaled $5.94 million, versus $7.41 million at June 30, 2021.
- Current assets were $8.75 million and current liabilities were $4.11 million, producing working capital of $4.64 million, down from $6.16 million at June 30, 2021.
- Total liabilities were $4.60 million, including $29,312 of short-term debt, $893,466 of lease obligations, and $800,457 of acquisition consideration payable. The filing reports no significant conventional long-term borrowing.
- Inventory was $1.42 million at March 31, 2022, compared with none at June 30, 2021.
- The company expects its March 31 cash balance to fund operating expenses and capital expenditures into the second quarter of fiscal 2023, described as the fourth calendar quarter of 2022. Management concluded that substantial doubt exists regarding the company’s ability to continue as a going concern within one year without additional financing.
Material changes versus the prior comparable period
- Revenue began with BayMedica’s operations: $0.3 million in the quarter and $0.6 million for the nine months. No comparable revenue was reported in 2021.
- Nine-month gross profit was $0.3 million, but operating expenses increased 66% to $11.0 million, causing the net loss to increase 55% to $10.7 million.
- Nine-month research and development expense increased 60%, primarily due to increased INM-755 clinical-trial activity and BayMedica operations.
- Nine-month general and administrative expense increased 76%, reflecting higher legal, investor-relations, personnel, insurance and acquisition-related costs.
- Quarterly research and development expense decreased approximately 1%, primarily due to lower INM-755 clinical-trial activity in the InMed segment, while quarterly general and administrative expense increased 44%.
- The company completed a $12.0 million private placement in July 2021 and received approximately $11.0 million after transaction costs. It issued 2.05 million shares as consideration for BayMedica and issued or recognized substantial warrant and option-related dilution.
- BayMedica contributed $0.6 million of sales and $1.8 million of operating losses from the acquisition date through March 31, 2022.
Guidance, outlook, risks and unusual items
- Management expects substantial operating losses and negative operating cash flow for the foreseeable future as it advances clinical programs, manufacturing technologies and BayMedica’s product portfolio.
- Management expects research and development and general and administrative expenses to increase, particularly as clinical development advances, BayMedica is integrated and the company supports its U.S.-listed public-company infrastructure.
- The company has a contractual commitment of approximately $3.32 million for contract research services and materials, including approximately $3.21 million expected within twelve months after March 31, 2022.
- The company had no material active legal proceedings reported, but it accrued $300,000 for minimum payments under a patent license agreement.
- Customer concentration is significant: customers representing at least 10% individually accounted for 73% of quarterly sales and 65% of nine-month sales, and 43% of accounts receivable.
- The BayMedica purchase price allocation remains preliminary. The acquisition added $1.25 million of in-process research and development and $2.02 million of goodwill, both subject to impairment considerations; the IPR&D is not amortized.
- Subsequent to quarter-end, the company sold 268,985 shares under an at-the-market offering for net proceeds of approximately $0.3 million, paid $0.3 million from BayMedica escrow, and stated that an additional $0.5 million escrow payment may be due at the twelve-month anniversary of closing.
- Disclosure controls were deemed ineffective due to a material weakness in internal control over financial reporting related to insufficient finance-function resources. Management expected remediation before the end of fiscal 2022.
- Key business risks include clinical-trial failure or delay, regulatory approval uncertainty, manufacturing scale-up and supply risks, intellectual-property challenges, customer concentration, acquisition integration, dilution from future financings, and inability to obtain capital on acceptable terms.
Investor verification checklist
- Verify the company’s cash runway assumptions and the timing and terms of additional financing required after the fourth calendar quarter of 2022.
- Review subsequent equity issuance under the at-the-market facility and the potential dilution from approximately 6.14 million outstanding share purchase warrants, 302,725 agent warrants and 1.41 million outstanding options at March 31, 2022.
- Assess BayMedica’s revenue growth, gross margins, operating losses and integration progress separately from InMed’s clinical-stage pharmaceutical operations.
- Monitor INM-755 Phase 2 trial progress, INM-088 development and the regulatory path for future product candidates.
- Review the preliminary BayMedica purchase price allocation, goodwill and IPR&D for later revisions or impairment charges.
- Confirm remediation of the disclosed material weakness in internal control over financial reporting.