InMed Pharmaceuticals Inc. (INM) Q4 2018 Earnings Report, Transcript and Summary

Good day. My name is Joanna and I will be your conference operator today. At this time, I would like to welcome everyone to InMed’s Fiscal Fourth Quarter Earnings Conference Call and Business Update for the Period Ending June 30, 2018. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Mr. Blacher, you may begin your conference.

Thank you, Joanna, and good day, ladies and gentlemen. My name is Josh Blacher, InMed’s Chief Business Officer. Welcome to InMed’s, fourth quarter and full-year fiscal 2018 financial results and business update conference call. Before we begin, we would like to go over our disclosure statements, followed by a review of the progress on our biosynthesis and R&D programs, which will be led by our President and CEO, Eric Adams. Jeff Charpentier, our CFO, will then review the financial results of operations. Following that, we will be able to take further questions and answers. Please be advised that certain statements in the following conference call regarding expectations for InMed business operations, clinical development, contractual partnerships, regulatory approvals and cash runway constitute forward-looking statements. Such statements are not historical fact, but rather predictions about the future, which inherently involve assumptions, risks and uncertainties. Actual results could differ materially from those contained in the forward-looking statements. A description of these risks can be found in our latest disclosure document and recent press releases. InMed does not undertake any obligation to update any forward-looking statements made during the call. I would now like to turn the call over to President and CEO, Eric Adams. Eric?

Thank you, Josh, and good day to everyone. We thank you for joining our inaugural quarterly conference call. We believe this teleconference will serve as a positive step in our ongoing initiative of improving our transparency and facilitating more frequent discussions of our advancements and ongoing strategic initiatives. I’d like to open the call today by discussing developments in our biosynthesis program, as well as our upcoming goals and initiatives. As you know, we are developing our biosynthesis program in order to allow InMed and potentially other companies through licensing partnerships to access cannabinoids that are typically found in only very limited quantities in the plant. However, these cannabinoids, which we often refer to as minor cannabinoids may nevertheless hold significant potential to treat human diseases This process involves manipulating the genetic makeup of a bacteria called E. coli, in order to enable the laboratory-based production of cannabinoids in a pure form that is identical to what the plant makes, but in much larger quantities. There are three main components of our biosynthesis development program that will take us from where we are now, which is laboratory scale process development to where we hope to be with – within a year from now, which is having the defined production process leading to commercial scale-up. The first component of our program is being conducted in collaboration with our partners at the University of British Columbia, or UBC. We have been working with the laboratories of Dr. Vikram Yadav for – at UBC for over three years now, and the work there is to understand the genetic sequence needed to optimally produce cannabinoids in bacteria. This work has led to several novel scientific findings for which we are in the process of seeking patent protection. These patent applications will cover steps needed to assemble a sequence of several genes, which are assembled into a vector to optimally produce individual cannabinoids. These gene sequences have been tested at UBC at benchtop scale to demonstrate their functionality and to establish proof-of-concept. As we continue to explore the gene sequence for the 90-plus different cannabinoids, our collaboration with UBC will continue into the foreseeable future. Second, we are in the process of finalizing our selection of certain contract manufacturing organizations, or CMOs, to assist us in optimizing the fermentation conditions needed to maximize cannabinoid production in a bacterial system. We referred to fermentation as the upstream manufacturing component. The process of using bacteria to manufacture pharmaceutical products is very well-established. The CMO that we ultimately select will enable us to expedite the fermentation optimization stage of our development program. The third component of our biosynthesis process is to take the fermentation broth and separate the cannabinoid drugs from the other materials in the mixture. We refer to this as downstream purification. Here too, we have been vetting a number of reputable and experienced potential CMO partners and are nearing our final decision. We will be working with the selected CMO to identify the best purification process and then test the process at increasing scale. At that point, we will then combine the up and downstream components into one complete manufacturing process. To reiterate, in both manufacturing components I discussed above, we are in advanced contract discussions with CMOs. The culmination of these activities will result in the identification and initial validation of a patented process for the bacteria-based manufacturing of cannabinoids. I’d now like to report on our progress with our most advanced R&D program, INM-750, for the treatment of a severe orphan disease called epidermolysis bullosa, or EB. During the quarter, we continue to optimize the formulation for INM-750, as well as ongoing IND-enabling pharmacology and toxicology studies. Towards that end, we have begun or plan to begin shortly a number of preclinical studies, and I’d like to highlight just a few of these studies for you. Number one, the selection of a final topical formulation, which we expect to complete by the end of December 2018. We continue to develop the INM-750 formulation to achieve the optimal skin penetration levels for targeting EB. Number two, the completion of pharmacology studies, which we also expect to complete by the end of December 2018. As previously mentioned, we are conducting additional experiments to augment our understanding of the pharmacological roles of each component in INM-750. And three, the completion of preclinical studies in preparation for a pre-IND meeting with regulatory authorities and the subsequent IND filing, seeking permission to initiate human clinical trials. We are significantly engaged in designing and executing a comprehensive suite of preclinical pharmacology and toxicology studies. There are two different sets of these studies. The first group that we will complete prior to meeting with regulatory authorities, which will serve as the basis for detailed scientific discussions. These are slated to be completed by the end of December 2018. Examples of this first set include initial in vitro toxicity and dose range finding studies. The second set of studies to be completed in calendar year 2019 will be based on the outcome of those regulatory discussions to prepare and enable an IND submission. Examples of the second set of studies include additional safety pharmacology studies and GLP repeat dose studies. I should point out that we use the term IND generically to refer to the initial discussions and filing procedures with any regulatory authority, and that the company has not yet determined in which jurisdiction we will seek to conduct our initial clinical trials. We continue to believe that we’re on track to begin discussions of our clinical development plans with regulatory authorities in the first-half of 2019, and for an IND filing for INM-750 in the second-half of 2019. With regard to human resources, the company is currently well-staffed with a highly experienced and capable team. Dr. Ado Mohammed, who has acted as our Chief Medical Officer over the past years has transitioned to the title of Senior Consultant for Medical Affairs. However, his role with InMed remains essentially unchanged. In addition due to our recent R&D growth, we have initiated recruiting process to add a senior level individual for Chemistry, Manufacturing, and Control, or CMC, to help lead the numerous formulation development activities and to assist in preparation of the documentation leading to the IND filing in the second-half of 2019. I’d now like to turn the call over to our CFO, Jeff Charpentier, for a review of our financials. Jeff?

Thank you, Eric, and thank you all for joining the call. As a Canadian-based and regulatory company, the figures that I will present in today’s call are expressed in Canadian dollars. Also, please recall that our fiscal year-end is June 30, so together with our quarterly financials, I will also be reporting our full-year fiscal 2018 financials. For the three and 12 months ended June 30, 2018, we recorded a net loss of $3.03 million and $8.52 million, or $0.02 and $0.06 per share, respectively. This compares with a net loss of $1.88 million and [$4.47][ph] million, or $0.02 and $0.05 per share, for the three and 12 months ended June 30, 2017. R&D expenses were $0.58 million for the three months ended June 30, compared with $0.38 million for the three months ended June 30, in 2017. For the 12 months ended June 30, 2018, R&D expenses totaled $1.93 million, which compares with a $0.75 million for the corresponding period in 2017. The substantial increase in R&D expenses in 2018 was primarily due to increased spending with external contractors for expenditures related to the advancement of INM-750 for the treatment for EB and our biosynthesis program, as well as higher R&D personnel compensation as a result of increased R&D staffing. G&A expenses were $0.98 million for the three months ended June 30, 2018, compared with $0.75 million for the three months ended June 30, 2017. For the 12 months ended June 30, 2018, G&A expenses totaled $3.37 million, which compares with $2.32 million for the corresponding period of 2017. Again, the substantial increase was driven by increased personnel compensation, which reflects increased staffing, reflective of the growth in our expanded R&D efforts and general operations. Shifting now to our balance sheet. At June 30, 2018, our cash position was $26.5 million, an increase of $19.8 million during the year, which was the byproduct of three things. First, the net cash proceeds of $22.1 million from our June 2018 bought deal financing and the January 2018 non-brokered private placement. Number two, $2.3 million proceeds from the exercise of warrants and stock options during the year and those two inflows were netted by $4.7 million cash outflows from operating activities. During the most recent quarter ended June 30, 2018, we issued an aggregate of 18,1 million common shares, 16.6 million pursuant to our $15 million bought deal financing. completed on June 21, 2018, and the balance from the exercise of warrants and stock options. Net proceeds from the bought deal financing totaled $13.5 million. At June 30, 2018, the company’s total issued and outstanding shares were $171 million and $221 million on a diluted basis. Based on the funds available at June 30, 2018, the company estimates that it has cash resources for approximately the next two years, which will fund a significant increase in R&D spending. We continue developments of our drug product candidates, including the preclinical and early clinical program for INM-750 and further optimization and scale-up of the biosynthesis program, among other R&D activities. With that, I now like to turn the call back over to Joanna for questions-and-answer session. Joanna?

Thank you. [Operator Instructions] And your first question is from Max Jacobs from Edison Group. Max, please go ahead.

Hi, guys, thanks for taking my questions. That run down was actually really good, so you took care of a lot of them. So I’ve noticed that there has been some selling from insiders. I was just wondering if you guys could comment on that?

Sure. Max, thanks. This is Josh, and that’s a good question. First, before I answer the question directly, I would like to reiterate that both the management team and the Board of Directors has never been more bullish on the company. As you may be aware, a large portion of executive compensation is stock-based compensation. And it’s really up to the management’s own decision, the Board member’s own decision as to how they choose to diversify their personal portfolio. It’s not a signal of their enthusiasm for the company whatsoever. So people make decisions based on their personal needs and intentions to diversify their portfolios, and we are fully supportive of that.

Okay, great. That was helpful. And just question, do you have any comments on the Cronos deal with Ginkgo Bioworks?

Yes, sure. I’ll be glad to take that one. This is Eric. Well, I think that the deal between Cronos and Ginkgo, which is a biosynthesis deal really just validates what we’ve been saying for several years now. This has always been our story all along is that, these minor cannabinoids are going to be important to treating human health and we need a way to access them. So we’ve been developing our biosynthesis platform for over three years now. I haven’t seen any of Ginkgo’s patents. So I can’t really speak specifically to what they’re trying to do. But I believe it’s a yeast-based system. We think that E. coli system is superior. We’re much further down the road than anybody else in this area. And again, I think it’s a strong validation of our approach and what we’re attempting to do.

Hey, wonderful. Yes, that’s all my questions. Thank you.

Thank you, Max.

Thank you. Your next question is from [George Ingram], [ph] an Investor. Please go ahead, George.

Yes. This is George Ingram. Thank you for taking my question. Quick question. You touched upon it briefly. But I would like some additional information is the yeast-based system versus your process system?

Sure. Well, when we started this research with University of British Columbia a number of years ago, we were agnostic as to which system we wanted to pursue. So we looked at all of them. We looked at two different yeast-based systems and we looked at the E. coli. Very early on, it became apparent to us that the E. coli system was going to be much more robust. It was going to enable us to look at a wider range of cannabinoids. And we felt that, as we optimize that, the yields would be much greater. So that’s why we pursued this E. coli-based system. There’s a number of other people out there pursuing yeast-based systems. You should talk to them about why they feel there that’s better. But in our discussions with these contract manufacturing organizations, many of whom have worked with both E. coli and yeast in the past they kind of validated our our thinking that yeast is not the way to go when you scale-up to full commercial scale.

Okay. Thank you.

Thank you.

Thank you. Your next question is from [Bill Wright], [ph] an Investor. Bill, please go ahead.

Eric, you mentioned that we were been approached by a lot of the cannabis growers interested in the biosynthesis program. What are we doing on that front? There’s a lot of mergers and acquisitions being made out there, a lot of joint ventures with large players like Canopy, Aurora and so forth. What are we doing on that front to increase shareholder value?

Well, I think the most important thing we can do to increase shareholder value at this point is continue to develop, optimize the system that we’re working on. And so we’re very aggressively pursuing that. In the past, I have had discussions with some of the growing organizations. They weren’t specifically asking me about biosynthesis. They were simply asking, can I supply bulk THC or CBD for their needs. And we weren’t at that stage and are not in a position to do this at commercial scale yet. So we put those discussions on hold. But over the course of the next year, we’re aggressively pursuing the scale-up of our technology and we’ll be in a much better position to have those conversations a year from now.

And what as far as the supplements and those kinds of things like – is there any plans ongoing into the recreational market as a separate standalone business?

Well, I think when we talk about a standalone business at some point, the question will become, do we continue to have the biosynthesis as an integrated part of InMed, or do we spin that out into its own entity? And so that it can grow and – at its own rate, and that may be the best way to maximize shareholder value. We haven’t done any analysis on that yet. But at some point, I guess, it comes down to which cannabinoids people need to access and what the production costs of those are? For supplements or the edible market, I think, costs will be an overriding factor. So as we learn more about our system, we’ll understand the cost structure much better and we’ll be able to answer those kinds of questions later on.

Okay, great. And then one last final question. Is the cannabinoids that we’re synthesizing, are they water soluble?

That’s above my pay grade.

[Multiple Speakers] I mean, some of these liked to be used in the food and beverage markets?

Yes, I can’t really comment on that, sorry.

Okay, great. Thanks.

Your next question comes from Terry Jones, an Investor. Please go ahead.

Yes. Is Dr. Ado Mohammed still with the company? And will he continue to play a pivotal role in bringing some of the cannabinoid-based drugs to the market, as he has done with GW Pharmaceuticals?

Yes, I already addressed that in my discussion. He has transitioned to the role of a Senior Consultant, and his role with the company remains essentially unchanged.

Okay. Thank you.

Thank you. Your next question is from Michael Freeman from Paradigm Capital. Michael, please go ahead.

Hi, guys, Michael Freeman here. I’m wondering if you could comment on your recent patent applications and the scope of IP that you are – that you’ve intended to protect through those applications?

Absolutely. Well, the company currently has three PCT filings, patent application filings. One for diseases related to EB, the second one for our Hydrogel Formulation for Glaucoma. And the most recent one was the conversion of a provisional patent for the biosynthesis program. Going forward, and over the course of the next year, we’re going to have additional patents, PCT filings, as well as provisional patents. They’re all in the work and in the hopper now. And as this data becomes available, we’ll be seeking patent protection for that. In particular, there’s a number of different patents that we will be seeking for the biosynthesis program, in particular. We are formulating those now. Those are very novel, deep science-type patents that we think will provide adequate protection for the use of E. coli in the production of cannabinoids. So that’s going to be a very valuable patent family. In addition to that, we have a patent for pain that’s coming up for conversion, and some other ones that I can’t go into detail on, but we will be – we’re seeking protection over the course of the next year.

Yes, very good. I expect these to be crucial. Thank you for giving some color on that.

All right. Thank you, Michael.

Thank you. [Operator Instructions] At this time, there are no further questions. I will now turn it back over for closing comments.

Well, thanks so much everybody for calling in. If you have further questions or comments, please feel free to e-mail me directly at jblacher@inmedpharma.com. Have a nice day.

Ladies and gentlemen, this concludes today’s conference call. We thank you for participating, and we ask that you please disconnect your lines.