Imprimis Management Discovers And Adds Significant Value In Bankrupt Company Restart

Wall Street is littered with failed companies that had great business plans, but did not have management capable of fulfilling the plan's promise. Good investors know management teams make or break companies. When investors identify a company with a solid business plan and strong, competent management, they should strongly consider investing in that company. Good management teams not only design and effectively implement business plans, they do so while increasing corporate value for their investors.

Imprimis Pharmaceuticals, Inc. (IMMY) has such a management team. The co-founders of Imprimis Pharmaceuticals found what they believed was a good corporate restart opportunity in a bankrupt company, the summer of 2011. Mark L. Baum, co-founder and CEO along with Robert J. Kammer, co-founder and chairman of the board of Imprimis proceeded to analyze the company's assets, develop a wholly new strategy to build a large pharmaceutical company, re-capitalize the company, bring on new senior managers and begin operating the reformed company. Baum and Kammer put together a pharmaceutical company with a drug entering Phase III clinical trials, a proprietary topical drug delivery product, a powerful, low-cost, drug discovery platform partnership and about $19 million in cash in less than eighteen months. Since completing the initial stage of the makeover the co-founders have created substantial shareholder value in this revitalized company and are just getting started. Imprimis Pharmaceuticals is at the beginning of what looks to be a very promising future with the potential for shareholders and new investors to benefit.

Imprimis Corporate Restart Accomplishments

On June 26, 2011, the predecessor company to Imprimis, Transdel Pharmaceuticals, Inc., suspended operations and filed for Chapter 11 reorganization. On November 21, 2011 Transdel entered into a line of credit and securities purchase agreement with DermaStar International, LLC, which was controlled by Mr. Baum and Mr. Kammer, and petitioned Bankruptcy Court to dismiss the Chapter 11 case. The Bankruptcy Court entered the order to dismiss the case on December 8, 2011. That is when Mr. Baum and Mr. Kammer began to transform Transdel into what is now Imprimis Pharmaceuticals.

The new management spent 2012 and the beginning of 2013 building the corporate and capital structure of the company. On February 28, 2012 they changed the name to Imprimis Pharmaceuticals, Inc. and completed a 1 for 8 reverse split. On April 25, 2012 the company raised about $7.95 million in a private placement, and converted the DermaStar line of credit principal and accrued unpaid interest to equity, and terminated the line of credit. In the midst of these transactions management came to an agreement with the holders of Transdel's convertible note to exchange the outstanding balance for equity. Management quickly laid the foundation for a successful company. In a few months management eliminated the company's debt, created a workable share structure and raised Imprimis enough money to begin planning and implementing the business plan including restarting the clinical development program for the lead drug candidate. By the end of April 2012, management had already led Imprimis from bankruptcy to a company with significant value.

On August 30, 2012, Imprimis' management completed what could be their most value creating and important transaction, when Imprimis entered into a licensing transaction with Professional Compounding Centers of America (PCCA). The details of the relationship with PCCA are as follows, according to Imprimis' 10-K, released March 18, 2013, "PCCA has granted to us and our affiliates certain exclusive rights under PCCA's proprietary formulations, other technologies and data, and we have agreed to pay PCCA certain royalties on net sales relating to the sale of certain future products, which royalties range from 4.5% to 9% for each product, subject to certain minimum royalty payments. PCCA may terminate the PCCA License Agreement if we fail to commence efforts to research and develop future products within certain time periods." Additionally, PCCA invested $4,000,000 in Imprimis at $4.80/share, and now owns 9.4% of Imprimis, and has a member of the PCCA management team on the Imprimis Board of Directors. This transaction provided Imprimis with a cost effective drug discovery platform with over 10,000 drug formulations currently utilized for patient use by PCCA's compounding pharmacist members, which management can mine for potential large market drugs.

Imprimis began trading on NASDAQ Capital Markets on February 8, 2013 one day after completing a 1 for 5 reverse split. On February 13, 2013 Imprimis completed a Public Offering of 1,840,000 shares with net proceeds of about $8,140,000. The company reported on March 18, 2013 that they had about 175 shareholders of record not including shares held in street name. At the end of the 1st quarter 2013 Imprimis reported $18,979,031 in cash and a $50,000 restricted short term investment, with liabilities of $848,549. The company reported 8,888,250 shares of common stock outstanding, 766,732 warrants outstanding and exercisable with an average strike price of $7.00/share and 889,526 options outstanding. In less than eighteen months, management has put together a capital structure for the company that has positioned Imprimis for future success.

Management's plan of operation for the upcoming twelve months as stated in their 10-K is as follows: "For the next twelve months, our current plan is focused on the development of our lead product candidate, Impracor, for the indication of acute musculoskeletal pain, inflammation and swelling associated with soft tissue injuries, and limited development of other potential product candidates and the pursuit of co-development opportunities in other therapeutic areas, in each case utilizing our Accudel platform technology." Management estimated their expenditures will be around $9 million, thus the company is positioned well financially to meet their goals for 2013 and beyond. The amount and quality of work management has completed to put Imprimis in position for success, financially, structurally, and product wise, proves they know what they are doing. Investors should take notice of the extent of work management has done and expect that work to continue to add value in the future.

Impracor

Impracor is Imprimis' lead drug candidate that was developed by the predecessor company. The drug is a topical formulation of ketoprofen, a non-steroidal anti-inflammatory drug (NSAID), and Imprimis' proprietary Accudel topical drug delivery system. Impracor is being developed for the treatment of sprains strains and joint pain. According to the company, Impracor "penetrates the skin barrier to reach the targeted underlying tissues where it exerts its localized anti-inflammatory and analgesic effect." The topical delivery of the drug focuses the drug's effect at the treatment site while minimizing systemic exposure. The company recently completed a clinical study measuring the amount ketoprofen in the bloodstream and commented about the study in their Form 10-K filed on March 18, 2013:

"The study included a total of 40 healthy volunteers (36 of which completed the study) assigned to one of two cohorts (2g or 4g applications). Subjects were dosed according to a four-sequence, four-treatment randomization schedule in which they received topical Impracor applications under each of the three conditions and an oral ketoprofen dose in weekly intervals. Overall the pharmacokinetic parameters were observed to be consistent between the two different dose cohorts. The application of an occlusive knee bandage with either heat or exercise following topical administration showed faster initial, but lower overall plasma exposure of ketoprofen relative to non-occluded topical administration with no heat or exercise. The extent of bioavailability over 48 hours as measured by the area under the concentration curve from time zero to the time of last measurable concentration (AUC0-t) was 2% or less in cohort 1 (2 g single dose applied to one knee) and 4% or less in cohort 2 (2 g single dose applied to each knee) for the topical treatments relative to the oral treatment. All treatments were observed to be well tolerated."

This is an important study for Impracor as oral NSAIDs have well documented adverse side effects including liver and kidney injury, as well as, cardiovascular events and potentially severe gastrointestinal problems. Studies from the American Journal of Medicine and other prominent health publications indicate that there are annually over $2 billion of hospitalizations costs in the U.S. from over 100,000 cases of gastrointestinal bleeding and 17,000 deaths caused by the adverse effects of oral NSAIDs. The numbers of these major adverse gastrointestinal events attributed to oral NSAIDs have not diminished over the past decade when this subject was first studied. This information is referenced in the article An Evidence-Based Update on Non-steroidal Anti-Inflammatory Drugs, and in an article in the Health Sentinel. Topical deliveries of NSAIDs have shown less adverse effects than other oral NSAIDs, which could lead to lower overall healthcare costs.

In June of 2008, Transdel initiated a randomized, double-blinded, placebo-controlled multi-center Phase III clinical trial that enrolled 364 patients with acute soft tissue injuries of the upper or lower extremities. The trial failed, although there was plenty of positive data to indicate the drug could be viable. Upon studying the results the management team determined mistakes were made in the management and design of the Phase III trial. An interview with Mr. Baum printed March 14, 2012 in BioWorld Today, described an example of one of the mistakes in the trial. One mistake was lack of immediate screening for recreational drugs. 30 participants out of the 364 trial participants tested positive for recreational drugs, confounding the trial results. There were other violations of protocol besides not screening for recreational drugs as well. The trial would have achieved statistical significance if the violators of the protocol were excluded from the trial results according to the article.

In the March 18th Form 10-k management gave facts of further studies they conducted of the Phase III trial results. The comments on the studies are as follows:

In February 2012, our management conducted an additional analysis of the ITT data and a body weight adjusted modified per protocol ("mPP") analysis of those participants who complied with the Phase 3 Study protocol. This analysis excluded 52 participants from the mITT group who did not take a minimum therapeutic quantity of the study drug, and 20 patients who did not have a valid Day 3 primary end point assessment and 4 patients who were misdiagnosed. This mPP analysis on 250 patients demonstrated statistical significance of the primary endpoint (p=0.034).

We believe that the weight of evidence of a treatment effect in this study is further strengthened by another endpoint (pain intensity recorded three times daily on patient diary cards) that supports the primary endpoint. The patient diary data which yield pain curves over time show separation between treatment groups reaching statistical significance in favor of Impracor using both the original and modified ITT population. Furthermore, the physician's global assessment, using a 7 Point Likert Scale on day 3, produced statistically significant results (p=0.037), and a later exploratory analysis of the patient's global assessment of treatment satisfaction, using a binomial method, produced statistically significant results (p=0.023).

With this information in hand Imprimis management decided to move forward with the Phase III clinical trial. Management expects to begin enrolling patients for the new Phase III Trial in the 3rd quarter of 2013. If the required clinical trials are successful, management intends to file the NDA for Impracor under section 505(b)(2) of the Hatch-Waxman Act of 1984. The 505(b)(2) pathway is known to reduce the development time to FDA approval greatly lowering costs by requiring fewer pre-clinical and clinical trials. According to the FDA's Guidance for Industry, Applications Covered by Section 505(b)(2), the 505(b)(2) is a NDA that contains full safety and efficacy reports from clinical trials, but allows, "at least some of the information required for approval comes from studies not conducted by or for the applicant and for which the applicant has not obtained a right of reference." Imprimis plans on utilizing the 505(b)(2) pathway to achieve faster and lower cost FDA approvals for most of their future drugs, as well as Impracor.

According to the Wolters-Kluwer PHAST report the U.S. pain market was about $39.8 billion in 2011 and the total NSAID market was about $13.5 billion including around 155 million prescriptions. The topical NSAID market in the U.S. was around $500 million in 2011 with all the approved topical NSAID's being diclofenac based, the first of which was approved in 2007. Topical ketoprofen has been available and safely prescribed in Europe for many years in a 2.5% gel format. The European Review for Medical and Pharmacological Sciences published a clinical overview of topical ketoprofen (tKP) usage titled Ketoprofen 2.5% gel: a clinical overview by S.Coaccioli. The overview includes data from clinical trials and "real life" clinical practices in regards to 2.5% tKP. The Conclusion is very promising for Impracor and all topical ketoprofen products. The overview states, "In conclusion, a topical application of KP 2.5% gel appears to offer a more favourable therapeutic profile than oral NSAIDs in the management of soft tissue injuries. It provides a good symptom relief at low plasma concentration, a favourable risk/benefit ratio and a low incidence of AEs (Adverse Effects)." If Impracor is approved it will be the first topical ketoprofen approved in the U.S. and have the potential to become one of the leaders in the topical pain space in the U.S. Impracor could provide shareholders significant value in a short amount of time.

Impracor has an interesting road ahead of it. The company will begin the Phase III clinical trials in the next few months, with a trial size between 300 and 500 patients. If the trial stays on schedule, and the company receives favorable results, it is possible that the drug could be on the market for patient use by the end of 2015, if not sooner. The company has not released an estimated time frame for the FDA approval of Impracor. assuming the completion of two positive, adequate and well-controlled clinical trials. As previously mentioned, topical ketoprofen is used for the treatment of pain in Europe and studies have shown that topical ketoprofen performs as well as oral NSAIDs to treat musculoskeletal pain. It appears only to be a matter of time before a topical ketoprofen pain product becomes available in the U.S., as topical ketoprofen has proven to be effective in millions of patients outside the U.S. Additionally, topical ketoprofen does not have the same adverse events profile as oral NSAIDs, which can bring down the cost of healthcare overall. Imprimis management, through their analysis and subsequent studies has determined that Impracor is worth the risk of the cost of new clinical trials. Impracor has the potential to become a large market drug in the U.S. as the market for topical pain therapies and topical NSAIDs continues to grow.

Accudel

The Accudel drug delivery platform includes Pluronic Lecithin Organogel (PLO) based compositions that carries drugs through the skin allowing the drug to penetrate to the problem site. Accudel can accommodate large and small molecule drugs for topical delivery. A list of over 500 drugs in over 60 therapeutic areas, which Accudel can transport, is in the patent for Accudel. According to the patent (Patent Number 5,837,289) Transdermal Delivery of Medications using a Combination of Penetration Enhancers (Imprimis' Patent for Accudel), Accudel utilizes a combination of penetration enhancers, "at least one of which facilitates the separation of the medication from the cream and at least a second of which alters the structure of the outer layers of the skin, particularly the stratum corneum, enhances migration of the drug through the stratum corneum." Imprimis says Accudel contains biocompatible components that are generally regarded as safe by the FDA, as well as, easy to apply, aesthetically acceptable and odorless. More importantly for Imprimis, Accudel can potentially produce new patentable products when combined with either established or new drugs.

PCCA

As previously mentioned, the transaction with Professional Compounding Centers of America (PCCA) may be the most important transaction the new management has completed to date.

PCCA, a private industry organization, was incorporated in 1981 and has a membership of over 3,900 pharmacists. PCCA has become the complete resource to the independent compounding pharmacists in the U.S, Canada and Australia, supplying fine chemicals, training and education and other products and services. PCCA has a library of over 10,000 drug formulations that have been pre-tested and are continuously revised and updated. Additionally, PCCA has built a database of detailed patient and prescriber clinical experience with the formulations. The data is gathered by PCCA's in house support center, which receives more than 100,000 calls a year from PCCA members. The data collected by the center reflects information on the prescribed indication and users of the formulations in the library. Imprimis will utilize this data to glean information on the market potential for the formulations in the library.

Imprimis will have exclusive access to the PCCA library and database. Imprimis will mine the PCCA library for new drug opportunities. Imprimis has established a protocol for choosing the best candidates in the library for development or partnership. Imprimis' management believes they will identify the first development candidates from PCCA's library in the 3rd quarter 2013. In essence Imprimis management has found a drug discovery platform with thousands of discoverable drugs that have already been used and evaluated in patient populations. The drug discovery phase for most pharmaceutical companies can cost millions of dollars before a drug is considered to be a viable candidate. Now Imprimis through their exclusive relationship with PCCA has over 10,000 candidates at their disposal.

Risks

When investing in pharmaceutical companies there are many risks to consider. Most of them center on the science and efficacy of the drugs, the clinical trials and money to produce the science and conduct the trials. Imprimis has a limited operating history since the dismissal of the voluntary petition for reorganization relief under Chapter 11 of the Bankruptcy Code. It is worth noting that Imprimis does not have a going concern letter from their auditors, as many small companies in the pharmaceutical and biotech industry do. Imprimis has about $19 million cash for operations and nominal debt. Investors should also consider that Imprimis has a low float, which can be beneficial during times of success, but potentially leading to swifter stock declines if the business plan does not succeed. Other risks to consider are the risk of drug development, although the relationship with PCCA does mitigate some of that risk. The risk of a competitor, as topical ketoprofen is the most common topical NSAID used in Europe. One of those products may one day file for an NDA, although there is currently no indication that one is looking to file an NDA. A competitor could take some of the potential market share away if it is approved.

Investors should look closely at the actions of this management team in regards to the transactions undertaken to bring the company out of Bankruptcy Court in 2011. The company now has a low float and share count due to these transactions. Impracor also has just under $19 million in cash, nominal debt and is expecting to burn about $10.7 million in the 12 months after they released their form 10-Q in May 2013. The $10.7 million burn rate includes money to be spent on conducting the upcoming Phase III Clinical Trial for Impracor. If the trial fails, the company's cash position will be below $9 million and Imprimis will need to focus their capital on the first drug candidates from the PCCA library. As these candidates are yet to be identified, investors should consider the overall risk to their investment and the current value of the company if Imprimis is left with earlier stage drug candidates to develop from the PCCA library and less than $9 million in cash.

Conclusion

Imprimis' highly capable management team that has systematically restructured the company and successfully implemented a business plan that has the opportunity to bring multiple large market drugs to development and partnerships over the next few years. Since Mr. Baum and his team took control of Imprimis, they have expanded the company and its value through the PCCA relationship, along with furthering the clinical studies and trials of the lead drug candidate, Impracor. Imprimis, under this management's direction, has gone from Bankruptcy Court to a market cap of over $80 million in eighteen months. The company has not yet realized the full value of Impracor or the PCCA relationship, both of which could provide significant upside to the share price. This is a management team in which investors can invest with confidence as they have proven themselves to be highly competent and value generators.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.