HARROW, INC. - Annual Report: 2013 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended December 31, 2013

OR

For the transition period from __________ to __________

Commission File Number: 001-35814

IMPRIMIS PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

12626 High Bluff Drive, Suite 150

San Diego, CA 92130

(Address of Principal Executive Offices)(Zip Code)

(858) 704-4040

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [  ] No [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes [  ] No [X]

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [  ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

As of June 28, 2013, the last business day of the Registrant’s most recently completed second fiscal quarter, the aggregate market value of the common stock held by non-affiliates of the Registrant was approximately $57 million, based on the closing price of $8.48 for the Registrant’s common stock as quoted on The NASDAQ Capital Market on that date (adjusted to reflect a one-for-five reverse stock split of the Registrant’s common stock on February 7, 2013). For purposes of this calculation, it has been assumed that shares of common stock held by each director, each officer and each person who owns 10% or more of the outstanding common stock are held by affiliates. The treatment of these persons as affiliates for purposes of this calculation is not conclusive as to whether such persons are, in fact, affiliates of the Registrant.

As of March 27, 2014, there were 9,085,715 shares of the Registrant’s common stock outstanding.

Documents incorporated by reference: Portions of the Registrant’s proxy statement for its 2014 Annual Meeting of Stockholders (the “Proxy Statement”) are incorporated by reference in Part III of this annual report on Form 10-K (“Annual Report”), to the extent stated herein.

TABLE OF CONTENTS

Imprimis Pharmaceuticals, Inc. has pending trademark applications for Imprimis, Imprimis Pharmaceuticals, Accudel, Impracor and Go Dropless. All other trademarks, trade names and service marks included in this Annual Report are the property of their respective owners.

PART I

ITEM 1. BUSINESS

The following discussion should be read in conjunction with our consolidated financial statements and the related notes and other financial information appearing elsewhere in this Annual Report. This Annual Report contains forward-looking statements that involve risks, uncertainties and assumptions. In some cases, you can identify forward-looking statements by terminology such as “will”, “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. All statements made in this Annual Report other than statements of historical fact could be deemed forward-looking statements. By their nature, forward-looking statements speak only as of the date they are made, are neither statements of historical fact nor guarantees of future performance. These statements are only predictions and are subject to risks, uncertainties, assumptions, changes in circumstances and other factors that can be difficult to predict or quantify, including the risks identified in the section entitled “Risk Factors” in Part I, Item IA of this Annual Report, and similar discussions in our other SEC filings. If such risks or uncertainties materialize or such assumptions prove incorrect, our results could differ materially from those expressed or implied by such forward-looking statements. Risks that could cause actual results to differ from those contained in the forward-looking statements include but are not limited to risks related to: our ability to successfully implement our business plan, develop and commercialize our proprietary formulations, identify and acquire additional proprietary formulations, manage our pharmacy operations, obtain financing necessary to operate our business recruit and retain qualified personnel, manage any growth we may experience and successfully complete and realize the benefits of potential acquisitions and collaborative arrangements; competition from pharmaceutical companies and compounding pharmacies; general economic and business conditions; regulatory and legal risks and uncertainties related to the pharmacy and pharmaceutical business; market acceptance of our current and any future formulations and compounding pharmacies generally; and our limited operating history. You should not place undue reliance on forward-looking statements. Unless required to do so by law, we do not intend to update or revise any forward-looking statement, because of new information or future developments or otherwise.

As used in this Annual Report and unless indicated or the context requires otherwise, the terms “the Company”, “Imprimis” “we”, “us” and “our” refer to Imprimis Pharmaceuticals, Inc..

General

Our mission is to navigate the realities of the current healthcare economy and solve unmet patient needs through the development and commercialization of proprietary sterile and topical drug formulations that have been prescribed by a physician for individually identified patients and have shown promise for patients in a clinical setting. We seek to develop proprietary, customizable compounded drug formulations and related technologies, patent them and make them available to physicians and patients through a network of compounding pharmacies, or alternatively, seek U.S. Food and Drug Administration (FDA) approval to market and sell certain drug formulations.

We strive to deliver high quality, novel, and customizable medicines to physicians and patients at accessible prices. Working with leading inventor physicians and pharmacists, we evaluate intellectual property related to innovative compounded drug formulations in several areas, conduct a market-related review, and validate the clinical experience of a development candidate outside of the inventor’s medical or pharmacy practice. For development opportunities that pass our proprietary review methodology, we engage in development and commercialization activities in order to advance the expansion and ultimate commercial success of our growing proprietary compounded drug formulations portfolio. We now own formulations in ophthalmology, wound management and urology that we believe may offer both humans and animals unique advantages over commercially available formulations, and we are actively pursuing additional development opportunities.

Our company began its life as a traditional specialty pharmaceutical company and through that experience evolved to our current business. Through the development of customer relationships with our high quality and novel products, we hope to continue to serve our customers’ needs with additional compounded formulations in our product portfolio, and in turn grow our business. Our hope is that through the success of our business, we will reduce healthcare costs and provide Americans with access to high quality, novel and previously unavailable medicines to meet patients’ individual medical needs.

Compounding Pharmacy Strategy

One of our key strategies is the use of compounding pharmacies to formulate our proprietary compounded drug formulations and technologies and distribute them to physicians and patients. Governed by state and federal statutes and regulations, including the Drug Quality and Security Act of 2013 (DQSA), compounding pharmacies work with physicians to develop medications for individually identified patients. Examples of compounded formulations include medications with alternative dosage strengths or unique dosage forms, such as topical creams or gels, suspensions or solutions with more tolerable drug delivery vehicles. A physician may also work together with a pharmacist to repurpose or reformulate FDA-approved drugs via the compounding process to meet a patient’s specific medical needs. We are strategically attentive to the ideas generated by pharmacists dealing directly with doctors and their patients to address specific and often unmet patient needs, and we believe in and support the important role and contribution of the compounding pharmacist and compounding pharmacies in the U.S. healthcare system.

Acquisition of Pharmacy Creations, LLC

On February 10, 2014, we entered into a Membership Interest Purchase Agreement to acquire all of the outstanding membership interests of Pharmacy Creations, LLC, a compounding pharmacy located in Randolph, New Jersey. We expect to close the acquisition of Pharmacy Creations on April 1, 2014. This acquisition will permit us to make and distribute our patent-pending customizable proprietary formulations pursuant to physician prescriptions for individually identified patients in those states in which Pharmacy Creations is licensed to operate. Pharmacy Creations serves both the human and animal markets. With this acquisition we will also gain access to the significant expertise of innovative pharmacists who are the inventors of the ophthalmic formulations we now own. In addition to new intellectual property, our acquisition of Pharmacy Creations will also provide us with our own research and development resources to assist in our assessment of and development of new product candidates.

We plan to continue to pursue opportunities to acquire or collaborate with additional compounding pharmacies in order to establish a network of compounding pharmacies with a national footprint. In addition to making available our proprietary formulations and technologies, we also expect to offer a broader portfolio of non-proprietary customizable compounded formulations to physicians and patients through Pharmacy Creations and, potentially, through a broader network of compounding pharmacies. We expect to continue to operate the Pharmacy Creations business under Section 503A of the Federal Food Drug and Cosmetic Act (FDCA) and applicable state pharmacy laws.

Outsourcing Facility Strategy

The recently enacted DQSA provides that a pharmacy engaged in preparing sterile compounded drug formulations for humans may voluntarily elect to register as an “outsourcing facility,” a new entity governed by Section 503B of the FDCA. Outsourcing facilities must comply with certain requirements under Section 503B, including satisfying cGMP (current good manufacturing practices) standards, and are permitted to compound large quantities of drug formulations if the drug formulations appear on the FDA’s drug shortage list or the component bulk drug substances appear on a “clinical need” list to be established by the FDA. Outsourcing facilities may prepare drug formulations in advance of a prescription and distribute formulations across state lines without limitation. The FDA has proposed draft guidance and requested comments with respect to key aspects of Section 503B of the FDCA. Although we currently expect to establish a network of compounding pharmacies under Section 503A of the FDCA in order to distribute our proprietary formulations, we could choose to register any facility we may acquire or establish as an outsourcing facility under Section 503B or partner with an existing outsourcing facility, particularly if the FDA were to establish a favorable regulatory environment for outsourcing facilities and adopt an expansive “clinical need” list under Section 503B.

Our Business Model

Our business model is focused on assessing new development opportunities using a four-step proprietary process which includes the identification, evaluation, validation, and ultimately the commercialization of selective opportunities. Our relationships with inventive physicians and pharmacists provide us with access to numerous formulation candidates and technologies to evaluate and validate. These compounded drug formulations are initially made for individual patients and come from the physician’s and pharmacist’s experience formulating a new therapy to address an unmet need. As a result of our review process, we focus our commercialization efforts on a select group of promising formulations that we believe may be patentable and that could have broad appeal to patients and physicians.

Identify

Our innovation model, which serves as our research and development pipeline, relies on our relationships and partnerships with inventors to identify and secure new development assets. We believe that going forward, our growing group of collaborative relationships with physicians and pharmacists will bring additional clinically and commercially relevant formulation opportunities to our company.

Evaluate

After we have identified potential formulations and technology for acquisition or licensing, we subject them to our proprietary evaluation process. We invest heavily in intellectual property review and analysis at this stage, which includes analyzing the patentability of each formulation and, more generally, gaining an understanding of the surrounding intellectual property landscape. We also evaluate any existing supportive clinical data, identify one or more appropriate commercialization pathways to make the therapy available to patients and ultimately seek to acquire development rights through ownership or licensing of promising formulations.

Validate

Following the identification and evaluation process and our acquisition of development rights, we seek to validate potential drug formulations through a review of existing clinical data, documented patient experience, and through supporting investigator-initiated studies funded by us and conducted by leading physician groups. We are currently in the process of conducting or supporting several such feasibility assessments in order to validate several of our proprietary formulations. Any clinical data we obtain may be used to support a development program in connection with the pursuit of FDA approval to market and sell a drug formulation or technology, or to support clinical confidence for physicians prescribing our proprietary compounded formulations. The cost associated with our validation approach may be significantly lower than a traditional FDA approval process because to the extent we consider and support a commercialization pathway for compounded formulations dispensed pursuant to individually identified prescriptions, our approach would not require FDA approval for their marketing and sale.

Commercialize

Following successful results in the first three steps of our assessment, we focus on commercialization. As part of the development of potential formulations, we evaluate and select an appropriate commercialization pathway to make these therapies available to patients. We consider multiple commercialization pathways, including dispensing formulations through a network of compounding pharmacies pursuant to a prescription for an individually identified patient and pursuing FDA approval to market and sell a drug formulation or technology, including through the approval pathway provided by Section 505(b)(2) of the FDCA. For any non-drug assets we consider, such as drug-delivery vehicles, we may choose to seek partnerships with wholesalers in order to make these technologies available to pharmacies. Depending on the selected commercialization pathway, we expect to build appropriately targeted commercialization teams in order to make our sterile and topical formulations available.

During 2014 we expect to focus our efforts on U.S. commercial opportunities. However, we believe our proprietary drug formulations could have commercial appeal in other markets. We may choose to pursue commercialization of our proprietary formulations in selected international markets through licensing or collaborative arrangements with strategic partners.

Proprietary Compounded Formulations

Ophthalmic Formulations

Anti-Inflammatory and Anti-Bacterial Combination Formulations.

During the third quarter of 2013, we acquired intellectual property related to ophthalmic compounded formulations for intraoperative ocular injection of anti-inflammatory and anti-bacterial agents. These proprietary ophthalmic formulations use patent-pending technologies to uniquely allow for the combination of drugs such as triamcinolone and moxifloxacin that do not typically mix into a homogenous injectable suspension with good content uniformity and small particle size. We believe these formulations have the potential to significantly impact the fast-growing global cataract surgery drug market and other markets in ophthalmology for procedures where there is a risk of inflammation and infection. Our formulations have been used as an injection, but have also been used topically as an eye drop, depending on the procedure being administered.

Our formulations utilize a new technology that provides another choice for physicians to address the primary ocular complications of ophthalmic surgery: infection risk and post-operative inflammation. Although our patent applications also include other claims, we have focused our development and commercialization efforts on the following formulations:

The relative strengths of each of the active ingredients included in these formulations can be prescribed by the physician and tailored to individual patients. Through March 2014, our proprietary formulations have been prescribed by physicians in thousands of ocular surgeries.

The current treatment regimen for the prevention of post-intraocular surgery complication is primarily a pre-operative and post-operative self-administered eye drop regimen, which requires strict patient compliance and careful adherence to a prescribed dosing schedule. Physicians have reported and recent studies have shown that eye drop regimens can be confusing to patients, creating non-compliance and incorrect dosing (See, e.g., Hennessy AL, Ophthalmology, 2010). Two large studies conducted in the U.S. and Europe showed that antibiotics administered into the eye at the time of cataract surgery significantly reduced the risk of developing endophthalmitis (Shorstein, N. Journal of Cataract Refractive Surgery, 2013 and Barry, P. Journal of Cataract Refractive Surgery, 2006). Physicians using our formulations in the form of intraocular injections at the time of ocular surgery have reported that reducing reliance on eye drops may reduce staff time and chair time spent on instructions and follow-up with post-operative surgical patients, as well as calls from pharmacists.

Mydriatic Formulations.

Compounding pharmacists mix different ingredients to create specialized preparations ordered by a physician to treat an individually identified patient. Often this is because a standard medication approved by the FDA is not appropriate for individual patients. It can also help during FDA-recognized shortages of key drugs, because compounding pharmacies can prepare compounded alternatives to commercially available drugs when drugs are in short supply. These shortages are becoming more common: According to the FDA, prescription drug shortages rose from 56 in 2006 to 251 in 2011 to 311 in 2013.

Eye surgeons are concerned about drug shortages, especially for drugs such as epinephrine or phenylephrine, which are commonly used to dilate the pupil prior to and during intraocular procedures (among other things). During 2013, we acquired intellectual property related to lyophilized (or freeze-dried), preservative-free, sulfite-free epinephrine, phenylephrine and lidocaine. Although our patent applications also include other claims, we have focused our development and commercialization efforts on the following mydriatic formulations:

Although following our expected acquisition of Pharmacy Creations we expect to make our ophthalmic formulations available to patients pursuant to a physician prescription through Pharmacy Creations, we may choose to pursue FDA approval of one or more of these formulations through Section 505(b)(2) of the FDCA.

Because of the near-term opportunities in the ophthalmology formulations area, we have begun to build a commercialization team to execute in this specialized market. This team brings a wealth of experience from leading companies in the industry in developing and commercializing ophthalmic FDA-approved drugs, as well as expertise in operating compounding pharmacies and developing compounded drug formulations. We currently expect to make our proprietary compounded formulations available to physicians and patients through Pharmacy Creations following the expected closing of the acquisition. Our recent activities have included attendance at a number of key industry conferences, including the American Academy of Ophthalmology in New Orleans, Louisiana, “Cataract Surgery: Telling It Like It Is” in Sarasota, Florida and the ACES/SEE Caribbean Eye Meeting. We have also held several Ophthalmic Advisory Board meetings with national leaders in the field. Each of these events provides the opportunity to build relationships and gain valuable insight on our innovations and business model from the perspective of the participating surgeons.

Other Proprietary Formulations

In addition to our proprietary ophthalmic formulations, during 2013 we acquired intellectual property assets, including provisional patent applications, related to topical formulations comprising tranexamic acid and an antibiotic which has been prescribed for wound healing, as well as injectable formulations comprising pentoxifylline for treatment of fibrotic conditions. We are currently pursuing obtaining additional supporting data with respect to these formulations as part of our assessment process. Although compounded formulations utilizing our proprietary technology are currently available through Pharmacy Creations with a physician prescription, we do not expect to actively market any of these non-ophthalmic formulations in the absence of a successful commercial assessment. Our planned acquisition of Pharmacy Creations may also bring new and exciting intellectual property assets that could add value to our ophthalmology portfolio.

Impracor™ Program

Historically, our business focused on developing and commercializing our former product candidate Impracor™ through the regulatory pathway provided by Section 505(b)(2) of the FDCA. Impracor™ utilizes our patented Accudel™ topical cream formulation to deliver ketoprofen, a non-steroidal anti-inflammatory drug, through the skin directly into the underlying tissues. After considering the totality of circumstances surrounding the development of and clinical trial requirements for Impracor™, including certain manufacturing and formulation issues that we previously reported, in November 2013 we announced our discontinuation of the planned Phase 3 clinical trial for Impracor™. We do not expect to resume a Phase 3 clinical trial for Impracor™ or otherwise invest in the commercial development of this asset.

Competition

The pharmaceutical and pharmacy industries are highly competitive. We compete against branded drug companies, generic drug companies, outsourcing facilities and other compounding pharmacies. We expect to focus our efforts on making available innovative, proprietary compounded formulations through a network of compounding pharmacies. The drug products available through branded and generic drug companies with which our formulations compete have been approved for marketing and sale by the FDA and are required to be manufactured in facilities compliant with cGMP standards. As a result, although we expect to prepare our compounded formulations in accordance with the standards provided by United States Pharmacopoeia (USP) <795> and USP <797> and applicable state and federal law, some physicians may be unwilling to prescribe them. Because our proprietary compounded formulations compounded in accordance with FDCA Section 503A are not required to be, and have not been, approved for marketing and sale by the FDA, our business may be subject to limitations our competitors with FDA-approved drugs may not face. In addition, we compete against compounding pharmacies that make compounded formulations available to their customers.

In addition to product safety and efficacy considerations, other competitive factors in the pharmacy and pharmaceutical markets include product quality and price, reputation, service and access to scientific and technical information. The competitive environment requires an ongoing, extensive search for medical and technological innovations and the ability to develop those innovations into products and market those products effectively. Developments by our competitors could make our formulations or technologies uncompetitive or obsolete. In addition, because we are significantly smaller than our primary competitors, we may lack the financial and other resources and experience needed to identify and acquire rights to, develop, produce, distribute, market and commercialize any of the formulations we seek to make available or compete for market share in these markets.

Intellectual Property

Our success and ability to compete depends upon our ability to protect our intellectual property. We conduct a comprehensive analysis of the intellectual property landscape prior to acquiring rights to formulations and filing patent applications. As of December 31, 2013, we had one issued U.S. patent and one issued Canadian patent, which cover our Accudel™ technology and Impracor™. Our existing patents expire in 2016 in the U.S. and 2018 in Canada, and we do not expect the life of these patents to be extended beyond these dates. In addition, as of March 27, 2014, we have ten U.S. patent applications pending, including three utility and seven provisional patent applications. We expect to file additional patent applications in the U.S., as well as pursue patent protection for certain of our formulations in other important international jurisdictions.  As of March 27, 2014, we have eight pending U.S. trademark applications, including applications for Imprimis™, Accudel™ and Go Dropless™. We may choose to pursue trademark protection in other jurisdictions for one or more of these or other marks.

Governmental Regulation

Our business is subject to federal, state and local laws, regulations, and administrative practices, including, without limitation: federal, state and local licensure and registration requirements concerning the operation of pharmacies and the practice of pharmacy; the Health Insurance Portability and Accountability Act (HIPAA); the Patient Protection and Affordable Care Act (ACA); statutes and regulations of the U.S. Food and Drug Administration, the U.S. Federal Trade Commission, the U.S. Drug Enforcement Administration and the U.S. Consumer Product Safety Commission, as well as regulations promulgated by comparable state agencies concerning the sale, advertisement and promotion of the products we sell.

Among the various federal and state laws and regulations which may govern or impact our current and planned operations are the following:

Pharmacy Regulation

Our pharmacy operations are regulated by both individual states and the federal government. Every state has laws and regulations addressing pharmacy operations, including regulations relating specifically to compounding pharmacy operations. These regulations generally include licensing requirements for pharmacists and pharmacies, as well as regulations related to compounding processes, safety protocols, purity, sterility, storage, controlled substances, recordkeeping and regular inspections, among other things. State rules and regulations are updated periodically, generally under the jurisdiction of individual state boards of pharmacy. Failure to comply with the state pharmacy regulations of a particular state could result in a pharmacy being prohibited from operating in that state, financial penalties and/or becoming subject to additional oversight from that state’s board of pharmacy. In addition, many states are considering imposing, or have already begun to impose, more stringent requirements on compounding pharmacies. If our pharmacy operations become subject to additional licensure requirements, are unable to maintain their required licenses or if states place burdensome restrictions or limitations on pharmacies, our ability to operate in some states could be limited, which may have an adverse impact on our business.

Many of the states into which we deliver pharmaceuticals have laws and regulations that require out-of-state pharmacies to register with, or be licensed by, the boards of pharmacy or similar regulatory bodies in those states. These states generally permit the dispensing pharmacy to follow the laws of the state within which the dispensing pharmacy is located. However, various state pharmacy boards have enacted laws and/or adopted rules or regulations directed at restricting or prohibiting the operation of out-of-state pharmacies by, among other things, requiring compliance with all laws of the states into which the out-of-state pharmacy dispenses medications, whether or not those laws conflict with the laws of the state in which the pharmacy is located, or requiring the pharmacist-in-charge to be licensed in that state. To the extent that such laws or regulations are found to be applicable to our operations, we believe we comply with them. Furthermore, Section 503A of the FDCA seeks to limit the amount of compounded products that a pharmacy can dispense interstate. The interpretation and enforcement of that provision is dependent on FDA entering into a Memorandum of Understanding with each state describing limits on interstate compounding. FDA has stated in guidance that it will not enforce interstate restrictions until 90 days after a draft Memorandum of Understanding is presented to states. Until such time as a Memorandum of Understanding is issued, the extent of such interstate dispensing restrictions is unknown. To the extent that any of the foregoing laws or regulations prohibit or restrict the operation of out-of-state pharmacies and are found to be applicable to us, they could have an adverse effect on our operations.

Certain provisions of the FDCA govern the preparation, handling, storage, marketing and distribution of pharmaceutical products. The recently enacted Drug Quality and Security Act (DQSA) clarifies and strengthens the federal regulatory framework governing compounding pharmacies. Title 1 of the DQSA, the Compounding Quality Act, modifies provisions of the Section 503A of the FDCA that were found to be unconstitutional by the U.S. Supreme Court in 2002. In general, Section 503A provides that pharmacies are exempt from the provisions of the FDCA requiring compliance with cGMP, labeling with adequate directions for use and FDA approval prior to marketing if the pharmacy complies with certain other requirements. Among other things, to comply with Section 503A, a compounded drug must be compounded by a licensed pharmacist for an identified individual patient on the basis of a valid prescription. Pharmacies may only compound in limited quantities before receipt of a prescription for an individual patient and are subject to limitations on anticipatory compounding, the distribution of compounded drug products outside of the state in which the pharmacy is located.

The DQSA also provides for a new Section 503B of the FDCA. Section 503B provides that a pharmacy engaged in preparing sterile compounded drug formulations may voluntarily elect to register as an “outsourcing facility,” a new entity permitted to compound large quantities of drug formulations without a prescription if the drug formulations appear on the U.S. Food and Drug Administration’s drug shortage list or the bulk drug substances contained in a formulation appear on a “clinical need” list to be established by the FDA, as well as distribute these formulations out of state without limitation. Entities voluntarily registering as outsourcing facilities are subject to cGMP requirements and regular FDA inspection. Currently, we expect to operate our pharmacy business under Section 503A and applicable state pharmacy laws. However, we may choose to register any facility we may acquire or establish as an outsourcing facility under Section 503B, or partner with an existing outsourcing facility. FDA has proposed draft guidance and requested comments with respect to key aspects of Section 503A and Section 503B of the FDCA. The scope of the regulations and guidance ultimately adopted by the FDA could have a significant impact on our business.

FDA New Drug Application Process

We may choose to pursue FDA approval to market and sell one or more of our formulations through FDA’s new drug application (NDA) process. Since the active pharmaceutical ingredients in all of our formulations have already been approved by the FDA, we could choose to pursue FDA approval of one or more of our formulations under Section 505(b)(2) of the FDCA. Section 505(b)(2) permits the submission of an NDA where 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. The applicant may rely upon certain published nonclinical or clinical studies conducted for an approved product or the FDA’s conclusions from prior review of such studies. FDA may also require companies to perform additional studies or measurements to support any changes from the approved product. FDA may then approve the new product for all or some of the label indications for which the referenced product has been approved, as well as for any new indication sought by the Section 505(b)(2) applicant. While references to nonclinical and clinical data not generated by the applicant or for which the applicant does not have a right of reference are allowed, all development, process, stability, qualification and validation data related to the manufacturing and quality of the new product must be included in the NDA.

To the extent that the Section 505(b)(2) applicant is relying on the FDA’s conclusions regarding studies conducted for an already approved product, the applicant is required to certify to the FDA concerning any patents listed for the approved product in the FDA’s Orange Book publication (titled “Approved Drug Products with Therapeutic Equivalence Evaluations”). As a condition of approval, the FDA or other regulatory authorities may require further studies, including Phase 4 post-marketing studies to provide additional data. Other post-marketing studies may be required to gain approval for the use of a product as a treatment for clinical indications other than those for which the product was initially tested and approved. Also, the FDA or other regulatory authorities require post-marketing reporting to monitor the adverse effects of the drug. Results of post-marketing programs may limit or expand the further marketing of the products.

The FDA closely regulates the post-approval marketing and promotion of drugs, including standards and regulations for direct-to-consumer advertising, off-label promotion, industry-sponsored scientific and educational activities and promotional activities involving the Internet. A company can make only those claims relating to safety and efficacy that are approved by the FDA. Failure to comply with these requirements can result in adverse publicity, warning letters, corrective advertising and potential civil and criminal penalties. Physicians may prescribe legally available drugs for uses that are not described in the drug’s labeling and that differ from those tested by us and approved by the FDA. Such off-label uses are common across medical specialties. Physicians may believe that such off-label uses are the best treatment for many patients in varied circumstances. The FDA does not regulate the behavior of physicians in their choice of treatments. The FDA does, however, impose stringent restrictions on manufacturers’ communications regarding off-label use.

Confidentiality, Privacy and HIPAA

Our pharmacy operations involve the receipt, use and disclosure of confidential medical, pharmacy or other health-related information. In addition, we use aggregated and blinded (anonymous) data for research and analysis purposes. The federal privacy regulations under Health Insurance Portability and Accountability Act of 1996 (HIPAA) are designed to protect the medical information of a healthcare patient or health plan enrollee that could be used to identify the individual. Among other things, HIPAA limits certain uses and disclosures of protected health information. HIPAA also requires compliance with the federal security regulations regarding the storage, utilization of, access to and transmission of electronic protected health information. The requirements imposed by HIPAA are extensive. In addition, most states have enacted privacy and security laws that protect identifiable patient information which is not health related. Further, several states have enacted more protective and comprehensive pharmacy-related privacy legislation that not only applies to patient records but also prohibits the transfer or use for commercial purposes of pharmacy data that identifies prescribers. And, in 2009, the Health Information for Economic and Clinical Health Act (HITECH) modified certain provisions of HIPAA to strengthen its privacy and security provisions. These regulations impose substantial requirements on covered entities and their business associates regarding the storage, utilization of, access to and transmission of electronic personal health information. Many of these laws apply to our business.

Medicare and Medicaid Reimbursement

Medicare is a federally funded program that provides health insurance coverage for qualified persons age 65 or older and for some disabled persons with certain specific conditions. State-funded Medicaid programs provide medical benefits to groups of low-income and disabled individuals, some who may have inadequate or no medical insurance. Currently, all of our commercially available formulations are sold in cash transactions. Our customers may choose to seek available reimbursement opportunities to the extent that they exist. However, in the future we may pursue reimbursement from third party payors and/or Medicare or Medicaid. We may be unable to satisfy the requirements of Medicare or Medicaid and may never be able to obtain reimbursement from Medicare and/or Medicaid for any of our formulations. To the extent we pursue third party reimbursement for our compounded formulations, we may become subject to Medicare, Medicaid and other publicly financed health benefit plan regulations prohibiting kickbacks, beneficiary inducement and the submission of false claims.

International Regulation

If we pursue commercialization of our proprietary formulations in countries other than the United States, then we would need to obtain the approvals required by the regulatory authorities of such foreign countries comparable to the FDA and state boards of pharmacy, and we would be subject to a variety of other foreign statutes and regulations comparable to those described in this section relating to our U.S. operations. The regulatory framework and requirements vary by country and could involve additional licensing requirements and product testing and review periods.

Environmental and Other Matters

We are or may become subject to environmental laws and regulations governing, among other things, any use and disposal by us of hazardous or potentially hazardous substances in connection with our research and use of our drug products. In addition, we are subject to work safety and labor laws that govern certain of our operations and our employee relations. In each of these areas, as above, the FDA and other government agencies have broad regulatory and enforcement powers, including, among other things, the ability to levy fines and civil penalties, suspend or delay issuance of approvals or licenses or permits, seize or recall products, and withdraw approvals, any one or more of which could have a material adverse effect on us.

Research and Development

Our research and development expenses primarily include expenses related to the development of intellectual property acquired during the fiscal year ended December 31, 2013, including our ophthalmic formulations and our Impracor clinical program, including costs for our contract research organization. Also included are personnel costs including wages and stock-based compensation, contract manufacturing, non-clinical studies, consulting and other costs related to the clinical program.

During the year ended December 31, 2013, we incurred $1,616,082 in research and development expenses, as compared to $1,298,503 during the year ended December 31, 2012. We expect research and development activities to decrease during the 2014 fiscal year as a result of our shift in business strategy away from our Impracor Phase 3 development program.

Employees

As of March 27, 2014, we employed seventeen full-time employees. Our employees are engaged in research, development, pharmacy operations, marketing, and general and administrative functions. We believe that our current staff is sufficient to carry out our business plan in the coming twelve months; however, if our operations in the future require it, we will consider the employment of additional staff or the use of additional consultants. We are not party to any collective bargaining agreements with any of our employees. We have never experienced a work stoppage, and we believe our employee relations are good. We hire independent contractor labor and consultants on an as needed basis.

Company Information

We were incorporated in Delaware in January 2006 as Bywater Resources, Inc. in order to conduct mineral exploration activities. We changed our name to Transdel Pharmaceuticals, Inc. on September 11, 2007. On September 17, 2007, Transdel Pharmaceuticals, Inc. entered into an Agreement of Merger and Plan of Reorganization by and among Transdel Pharmaceuticals, Inc., Transdel Pharmaceuticals Holdings, Inc., a privately held Nevada corporation (“Transdel Holdings”), and Trans-Pharma Acquisition Corp., a newly formed, wholly-owned Delaware subsidiary of Transdel (“Acquisition Sub”). Upon closing of the merger transaction contemplated under the merger agreement, Acquisition Sub merged with and into Transdel Holdings, Transdel Holdings, as the surviving corporation, became our wholly-owned subsidiary, and the former owners of Transdel Holdings became our controlling stockholders. Upon completion of the merger, we began our operations as a specialty pharmaceutical company.

On June 26, 2011, we suspended our operations and filed a voluntary petition for reorganization relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of California (the “Bankruptcy Court”), Case No. 11-10497-11 (the “Chapter 11 Case”). On November 21, 2011, in connection with our entry into a line of credit agreement and securities purchase agreement with DermaStar International, LLC, we requested that the Bankruptcy Court dismiss the Chapter 11 Case. On December 8, 2011, the Bankruptcy Court entered an order dismissing the Chapter 11 Case.

On February 28, 2012, we changed our name to Imprimis Pharmaceuticals, Inc. and effected a one-for-eight reverse split of our authorized, issued and outstanding common stock, and on February 7, 2013 we effected a one-for-five reverse split of our authorized, issued and outstanding common stock. The information in this Annual Report and the accompanying consolidated financial statements for the periods presented have been retroactively adjusted to reflect the effects of these reverse stock splits.

Our common stock is currently traded on The NASDAQ Capital Market under the symbol IMMY. Our executive offices are located at 12626 High Bluff Drive, Suite 150 San Diego, CA 92130 and our telephone number at such office is (858) 704-4040. Our website address is imprimispharma.com. Information contained on our website is not deemed part of this Annual Report.

ITEM 1A. RISK FACTORS

You should carefully consider the following risk factors in addition to the other information contained in this Annual Report. This Annual Report contains forward-looking statements. Our business, financial condition, results of operations and stock price could be materially adversely affected by any of these risks.

We have incurred losses in every year of our operations, and we may never generate revenue or become profitable.

We have incurred losses in every year of our operations, including net losses of $(7,643,124) and $(5,383,535) for the years ended December 31, 2013 and 2012, respectively. As of December 31, 2013, our deficit accumulated during the development stage was $(31,747,392). On June 26, 2011, we suspended our operations and filed a voluntary petition for reorganization relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of California (the “Bankruptcy Court”), Case No. 11-10497-11 (the “Chapter 11 Case”). On December 8, 2011, the Bankruptcy Court entered an order dismissing the Chapter 11 Case following our entry into a line of credit agreement and securities purchase agreement with DermaStar International, LLC. Since the dismissal of the Chapter 11 Case we have focused on resuming our operations and developing and implementing our business plan. We expect to incur increasing operating losses for the foreseeable future as we continue to incur costs for research and development and commercialization activities. Our ability to generate revenue and achieve profitability depends upon our ability, alone or with others, to complete the development and commercialization of our compounded formulations, successfully acquire and operate Pharmacy Creations, comply with federal and state laws related to pharmaceutical compounding and, if applicable, FDA regulations for any formulations for which we pursue FDA approval, and prepare, market and sell our proprietary formulations. These activities are costly and require significant investment.

Our ability to generate revenues from any of our proprietary formulations will depend on a number of factors, including our ability to satisfy applicable regulatory requirements, identify appropriate commercialization strategies, interest physicians and health care organizations in our formulations, establish a network of pharmacies to sell our proprietary formulations, enter into arrangements with third parties, and market and sell any of our proprietary formulations. Our ultimate success will depend on many factors, including factors outside of our control. We may never successfully commercialize or achieve and sustain market acceptance of any of our proprietary formulations, our pharmacy operations may not generate sufficient revenue to support our business, and we may never reach the level of sales and revenues necessary to achieve and sustain profitability.

Currently, we expect to sell certain of our proprietary formulations primarily through a network of compounding pharmacies and we may not be successful in our efforts to establish such a network or integrate these businesses into our operations.

We expect to market and sell certain of our proprietary formulations, including our ophthalmic sterile injectable formulations, through a network of compounding pharmacies. We may also choose to pursue FDA approval to market and sell certain drug formulations. A key aspect of this business strategy is to establish a compounding pharmacy network, whether through acquisitions, establishing new pharmacies or entering into licensing arrangements with other pharmacies. On February 10, 2014, we entered into a Membership Interest Purchase Agreement for the acquisition of Pharmacy Creations, LLC, a New Jersey-based compounding pharmacy. We expect to close the transaction on April 1, 2014. We may be unable to complete the acquisition of Pharmacy Creations, or acquire any additional pharmacy businesses on reasonable terms or at all. Our business could suffer if we are unable to acquire or collaborate with one or more pharmacies that are licensed to operate as pharmacies in states important to our business plan.

We have no experience acquiring, building, operating or licensing products to pharmacies and we may not be successful in our efforts to build a pharmacy network. Even if we are successful in acquiring pharmacies, we may not be able to integrate pharmacy operations, including the operations of Pharmacy Creations, into our business or realize the benefits we expect from any such acquisition. If we elect to establish new pharmacies, we may not be able to satisfy applicable federal and state licensing and other requirements in a timely manner or at all, or achieve a sufficient physician and patient customer base to sustain operations. If we elect to license our proprietary formulations to one or more unaffiliated pharmacies, we may not be able to enter into licensing agreements on acceptable terms or at all. Acquiring, integrating, building or establishing licensing or other relationships with pharmacies could be expensive and time consuming, would disrupt our other operations, require significant capital expenditures and distract management and our other employees from other aspects of our business.

We have limited experience operating compounding pharmacies and we may be unable to implement our business plan successfully or generate sufficient revenue to operate our business.

We expect to complete our acquisition of Pharmacy Creations on April 1, 2014. We intend to retain all pre-acquisition employees of Pharmacy Creations, including four experienced pharmacists, and have hired a new Vice President of Pharmacy Operations to manage the operations of our pharmacy business. However, we have no experience operating pharmacies or commercializing our formulations through ownership of or licensing arrangements with compounding pharmacies. To the extent we pursue additional acquisitions, we will need to expand our operations and personnel in the pharmacy operations area, which we may be unable to do successfully. In addition to the other risks we identify elsewhere in these Risk Factors, we may experience unanticipated difficulties implementing this strategy, including difficulties that arise as a result of our lack of experience in this area. Even if we are successful, we may be unable to generate sufficient revenue to recover our costs.

We are dependent on market acceptance of compounding pharmacies and compounded formulations.

Although we may pursue FDA approval of some of our proprietary formulations, we currently expect to pursue commercialization of many of our formulations, including our presently available ophthalmic formulations, through compounding pharmacies. Formulations prepared and dispensed by compounding pharmacies contain FDA-approved ingredients, but are not themselves approved by the FDA. As a result, these formulations have not undergone the FDA approval process and only limited data, if any, may be available with respect to the safety and efficiency of our formulations for any particular indication. Some physicians may be hesitant to prescribe, and some patients may be hesitant to purchase and use, these non-FDA approved compounded formulations. Additionally, many third party payors, including the government Medicare and Medicaid programs, do not provide reimbursement for compounded formulations. Any failure by physicians, patients and/or third party payors to accept and embrace compounded formulations could substantially limit our market and cause our operations to suffer.

We may never receive sufficient revenue to fund our operations and recover our development costs.

Our business plan with respect to certain of our formulations involves the sale of our proprietary formulations through a network of compounding pharmacies, whether through the acquisition of pharmacies such as Pharmacy Creations, or through licensing our formulations to a pharmacy or network of pharmacies. We are in the processing of establishing an internal sales force to pursue sales of our proprietary and other formulations in the states in which Pharmacy Creations is authorized to operate under federal and state pharmacy laws. We are also pursuing additional strategic transactions to broaden our geographic reach. Our company has limited experience operating pharmacies and commercializing compounded formulations. We may be unable to successfully manage this business or generate sufficient revenue to recover our development costs and operational expenses.

We may have only limited success in marketing and selling our proprietary formulations through any network of compounding pharmacies we may develop. Because any of our formulations being commercialized through a compounding pharmacy distribution model will not have gone through the FDA approval process, only limited data will be available, if any, with respect to the safety and efficacy of our formulations for any particular indication. As a result, physicians may not be interested in prescribing our formulations to their patients. In addition, we would be substantially dependent on Pharmacy Creations or any other pharmacy partners we may contract with to compound and sell our formulations in sufficient volumes to accommodate the number of prescriptions they receive. We may be unable to enter into agreements with pharmacies of sufficient size, reputation and quality to implement our business plan, and our pharmacy partners may be unable to compound our formulations successfully. If physicians and healthcare organizations were to request our formulations in quantities our pharmacy partners are unable to fill, our business would suffer.

Our business strategy is significantly impacted by existing and new state and federal legislation and regulations.

All of our proprietary formulations are comprised of active pharmaceutical ingredients (APIs) that are components of drugs that have received marketing approval from the FDA, although our proprietary formulations have not themselves received FDA approval. FDA approval of a compounded formulation is not required in order to market and sell the compounded formulations, although in select instances we may choose to pursue FDA approval to market and sell certain potential product candidates. As we describe further in “Business – Governmental Regulation,” the marketing and sale of compounded formulations is subject to and must comply with extensive state and federal statutes and regulations governing compounding pharmacies. These statutes and regulations include, among other things, restrictions on compounding in advance of receiving a patient-specific prescription, compounding drugs that are essentially copies of FDA-approved drugs, prohibitions on compounding drug products for office use without a prescription for an individually identified patient, limitations on the volume of compounded formulations that may be sold across state lines, and prohibitions on wholesaling or reselling, among other things. These and other restrictions on the activities of compounding pharmacies may significantly limit the extent of the market available to us, as compared to the market available for FDA-approved drugs.

Our business is impacted by federal and state laws and regulations governing, among other things: the purchase, distribution, management, compounding, dispensing, reimbursement, marketing and labeling of prescription drugs and related services; FDA and/or state regulation affecting the pharmacy and pharmaceutical industries; rules and regulations issued pursuant to HIPAA and other state and federal laws related to the use, disclosure and transmission of health information; and statutes and regulations related to FDA approval for the sale and marketing of new drugs and medical devices. Our business could be affected by changes in these or any newly enacted laws and regulations, as well as federal and state agency interpretations of such statutes and regulations. Such statutory or regulatory changes could require that we make changes to our business model and operations. Untimely compliance or noncompliance with applicable laws and regulations could adversely affect our business, including loss of required government certifications and approvals, loss of licensure and a limited ability to market and sell our proprietary formulations.

In addition, the failure to comply with Section 503A by any pharmacies we establish or acquire, or to whom we license our formulations could result in complaints or adverse actions by respective state boards of pharmacy, FDA inspection of the facility to comply with FDCA, loss of FDCA exemptions provided under Section 503A, Warning Letters, injunctions or prosecution.

There are many competitive risks related to the marketing and sale of our proprietary formulations and operating a compounding pharmacy business.

The pharmacy and pharmaceutical industries are highly competitive. Our proprietary formulations compete with FDA-approved drugs, as well as other compounded formulations prepared by pharmacies. It is possible that developments by our competitors will make our formulations or technologies uncompetitive or obsolete. In addition, the competitive ophthalmology environment requires an ongoing, extensive search for medical and technological innovations and the ability to market products effectively. Physicians may be unwilling to prescribe our proprietary customizable compounded formulations for a number of reasons, including but not limited to the following: our proprietary formulations and other formulations that may be prepared by Pharmacy Creations or other pharmacy partners are not required to be, and have not been, approved for marketing and sale by the FDA; there may be limited or no data available with respect to the clinical efficacy or safety of the specific compounded formulations the physician is prescribing; to the extent there is such data available, we are limited in our ability to discuss the effectiveness or safety of our formulations; our pharmacy operations are currently operating on a cash-pay basis; and our formulations are not presently being prepared in a manufacturing facility governed by FDA-mandated cGMP requirements. In addition, certain compounding pharmacies have been the subject of widespread negative media coverage in recent years, and the actions of these pharmacies have resulted in increased scrutiny of compounding pharmacy activities from FDA and state governmental agencies. As a result, physicians may be unwilling to prescribe a compounded formulation when an FDA-approved alternative is available, even if they believed the compounded formulation to be superior and less expensive.

Biotechnology and related pharmaceutical technologies have undergone and continue to be subject to rapid and significant change. Our future will depend in large part on our ability to maintain a competitive position with respect to these technologies. Developments by our competitors could render our products and technologies obsolete or unable to compete. Any products that we develop may become obsolete before we recover expenses incurred in developing those products, which may require that we raise additional funds to continue our operations. Our proprietary formulations will also compete with other compounded formulations created by pharmacies, which may develop alternative formulations or technologies. It is possible that developments by competing compounding pharmacies and drug developers will make our formulations or technologies uncompetitive or obsolete. The competitive environment requires an ongoing, extensive search for medical and technological innovations and the ability to develop and market these innovations effectively, and we may not be competitive with respect to these factors. Other competitive factors that may limit the market acceptance of our proprietary formulations include the timing of market entry relative to competitive products, the availability of alternative compounded formulations or approved drugs, the price of our formulations and services relative to these alternative products, the availability of third party reimbursement and the success of our sales and marketing efforts.

In addition, under state and federal laws applicable to compounding pharmacies, we are not permitted to prepare significant amounts of a specific formulation in advance of a prescription, compound quantities for office use or utilize a wholesaler for our formulations; instead, our compounded formulations must be prepared and dispensed in connection with a physician prescription for an individually identified patient. In general, pharmaceutical companies typically sell most of their products to large pharmaceutical wholesalers, who in turn sell to and supply hospitals and retail pharmacies. As a result, our business is not scalable on the scope available to our competitors with FDA-approved drugs. In addition, we are significantly smaller than our primary competitors, we may lack the financial and other resources needed to develop, produce, distribute, market and commercialize any of our proprietary formulations or compete for market share in these sectors. If our proprietary formulations are unable to compete with the products of our competitors, we may never gain market share or achieve profitability.

We may be subject to liability claims for damages and other expenses, and such claims may not be covered by insurance or may otherwise harm our business.

The success of our business, including our proprietary formulations and pharmacy operations, will be highly dependent upon medical and patient perceptions of us and the safety and quality of our products. We could be adversely affected if we or any other pharmacies or our formulations and technologies are subject to negative publicity. We could also be adversely affected if any of our formulations or technologies, any similar products sold by other companies, or any products sold by other compounding pharmacies prove to be, or are asserted to be, harmful to patients. Also, because of our dependence upon medical and patient perceptions, any adverse publicity associated with illness or other adverse effects resulting from the use or misuse of our products, any similar products sold by other companies or any products sold by compounding pharmacies could have a material adverse impact on our business. If significant adverse events or deaths or a product recall, either voluntarily or by the FDA, were associated with one of our proprietary formulations, or any compounds prepared by Pharmacy Creations or any other pharmacy partner, physicians may be unwilling to prescribe our proprietary formulations or order prescriptions from Pharmacy Creations or any other partner pharmacy. Although we expect that Pharmacy Creations and any future pharmacy partners will comply with high standards for manufacturing quality and quality assurance, including United States Pharmacopeia 795 and 797, we cannot ensure that they will comply with such requirements.

We may become subject to product and professional liability lawsuits related to the preparation and sale of our compounded formulations or testing of our product candidates. An individual could bring a liability claim against us if one of our proprietary formulations or product candidates causes, or appears to have caused, an injury. If we cannot successfully defend ourselves against such claims, we may incur substantial liabilities in excess of the amount of any contractual indemnity or insurance coverage. Such claims could result in decreased demand for our formulations, injury to our reputation, withdrawal of clinical trial participants, significant litigation costs, substantial monetary awards to or costly settlement with patients, product recalls, loss of revenue and the inability to further develop and commercialize our proprietary formulations. In addition, should any of our compounded products not achieve the therapeutic benefit for which the product is marketed, we could be subject to claims alleging, among other things, violations of consumer protection, trade practice and false advertising laws.

Although we have secured product and professional liability insurance that will cover our pharmacy operations and the marketing and sale of our formulations, our current or future insurance coverage may prove insufficient to cover any liability claims brought against us. Because of the increasing costs of insurance coverage, we may not be able to maintain insurance coverage at a reasonable cost or obtain insurance coverage that will be adequate to satisfy any liability that may arise.

We are not pursuing further development of Impracor, our historical product candidate, and we do not expect to receive any revenue from Impracor.

Historically, our business has focused on developing and commercializing our product candidate Impracor under the regulatory pathway provided by Section 505(b)(2) of the FDCA. In August 2013, we were notified by our contract manufacturer that placebo and active bulk batches that were to be used in a planned Phase 3 clinical trial of Impracor had demonstrated out of specification stability test results with respect to the placebo and decreasing stability test results for Impracor, which we believe would likely have resulted in the materials being unusable for the duration of the planned Impracor clinical trial. After considering the totality of circumstances surrounding Impracor, including these unexpected manufacturing and formulation issues, other strategic and competitive considerations related to the Impracor program, the optimal use of our capital and other resources and other potential commercialization opportunities, we have discontinued the previously planned Phase 3 study for Impracor and terminated all development programs for Impracor. We do not expect we will identify or pursue a successful commercialization pathway for Impracor. Even if we were to pursue commercialization of Impracor or sell compounded formulations utilizing the Impracor technology through Pharmacy Creations or one or more other compounding pharmacies, we would not expect to achieve sales and revenues necessary to recover our historical costs associated with the Impracor development program.

We may not be able to correctly estimate our future operating expenses, which could lead to cash shortfalls.

Our estimates of our future operating and capital expenditures are based upon our current business plan, the anticipated expenses associated with our expected Pharmacy Creations operations and our current expectations regarding the commercialization of our proprietary formulations. Our projections have varied significantly in the past as a result of changes to our business model and strategy, our acquisition of additional product development opportunities and changes to the historical Impracor clinical program. Our company has never operated a pharmacy or successfully commercialized proprietary compounded formulations, and we may not accurately estimate expenses and potential revenue associated with our planned pharmacy operations. We may be unable to correctly estimate the amount of cash necessary to fund our business, and we could spend our available financial resources much faster than we currently expect. If we do not have sufficient funds to continue to operate and develop our business, we could be required to seek additional financing earlier than we expect or be forced to delay, scale back or eliminate some or all of our proposed operations.

Our operating expenses may fluctuate significantly in the future as a result of a variety of factors, some of which are outside of our control. These factors include, among other things:

If we do not have sufficient funds to continue to operate and develop our business, we will be forced to delay, scale back or eliminate some or all of our proposed operations.

We are dependent on third party relationships to assist in our identification, research, assessment and acquisition of new formulations. If we do not successfully identify and acquire rights to potential formulations and successfully integrate them into our operations, our growth opportunities may be limited.

We do not plan to conduct basic research or pre-clinical product development. Until we complete our planned acquisition of Pharmacy Creations, we will not have an internal research and development team and must rely on third parties to assist us with assessing potential acquisitions and licensing opportunities, as well as conducting research and development on both potential acquisitions and existing product candidates. We expect Pharmacy Creations to provide us with limited research and development support and access to additional novel compounded formulations; however, we expect to continue to rely upon third parties to provide us with additional opportunities. Under our Strategic Alliance Agreement with PCCA, PCCA may refer us to PCCA member pharmacies or customers with potential development opportunities, in exchange for certain recovery fees and commissions. We have entered into three asset purchase agreements for development opportunities since May 2013 as a result of these referrals. The term of the Strategic Alliance Agreement currently extends until February 18, 2015 and automatically extends for successive one year periods unless either party provides 30 day prior written notice of non-renewal. Although we have developed independent relationships with pharmacists and other inventors and are not reliant upon PCCA for access to pharmacists, if PCCA were to terminate the Strategic Alliance Agreement, it could have a significant impact on our ability to identify and acquire additional opportunities.

We have limited resources to acquire additional potential product development assets and integrate them into our business. Acquisition opportunities may involve competition among several potential purchasers, which could include large multi-national pharmaceutical companies and other competitors that have access to greater financial resources than we do. We may face financial and operational risks and uncertainties in connection with any such future acquisitions. We may not be able to engage in future product acquisitions, and those we do complete may not be beneficial to us in the long term.

In addition, PCCA and our other pharmacist, physician and research consultants and advisors provide us with significant assistance in our evaluation of product development opportunities. These third parties generally engage in other business activities and may not devote sufficient time and attention to our research and development activities. If these third parties were to terminate their relationships with us, we may be unable to find other, equally qualified consultants and advisors on commercially reasonable terms or at all, and we may have significant difficulty evaluating potential opportunities and developing and commercializing our product candidates.

We may participate in strategic transactions that could impact our liquidity, increase our expenses and present significant distractions to our management.

From time to time we consider strategic transactions, such as out-licensing or in-licensing of compounds or technologies, acquisitions of companies and asset purchases. Additional potential transactions we may consider include a variety of different business arrangements, including strategic partnerships, joint ventures, spin-offs, restructurings, divestitures, business combinations and investments. In addition, another entity may pursue us or certain of our assets or aspects of our operations as an acquisition target. Any such transactions may require us to incur non-recurring or other charges, may increase our near and long-term expenditures, may pose significant integration challenges, and may require us to hire or otherwise engage personnel with additional expertise, any of which could harm our operations and financial results. Such transactions may also entail numerous other operational and financial risks, including, among others, exposure to unknown liabilities, disruption of our business and diversion of our management’s time and attention in order to develop acquired products, product candidates or technologies or businesses.

As part of an effort to enter into any significant transaction, we must conduct business, legal and financial due diligence with the goal of identifying and evaluating material risks involved in the transaction. Despite our efforts, we may be unsuccessful in ascertaining or evaluating all such risks and, as a result, might not realize the expected benefits of any such transaction. If we fail to realize the expected benefits from any transaction we may complete, whether as a result of unidentified risks, integration difficulties, regulatory setbacks or other events, our business, results of operations and financial condition could be adversely affected. In addition, we may encounter difficulties and additional unexpected costs in combining the operations and personnel of any acquired businesses with our operations and personnel, or if we are unable to retain key employees of any acquired businesses.

We may be unable to successfully develop and commercialize our proprietary formulations, or develop and commercialize any other assets we may acquire.

Our future results of operations will depend to a significant extent upon our ability to successfully develop and commercialize in a timely manner any of the assets we have acquired or to which we will acquire rights in the future. We have entered into three asset purchase agreements for assets related to compoundable formulations since May 2013. We are currently pursuing development and commercialization opportunities with respect to certain of those formulations and we are in the process of assessing certain other assets in order to determine whether to pursue development or commercialization. In addition, we expect to consider the acquisition of additional intellectual property in the future. There are numerous difficulties inherent in acquiring, developing and commercializing new formulations and product candidates, including the risks identified elsewhere in these Risk Factors.

Once we determine to pursue a potential product candidate, we assess the commercialization strategy with respect to the product candidate. These commercialization strategies could include, among others, marketing and selling the formulation in compounded form through a network of compounding pharmacies, or pursuing FDA approval of the product candidate. We may incorrectly assess the risks and benefits of our commercialization options with respect to one or more formulations or technologies, and we may not pursue a successful commercialization strategy. If we are unable to successfully commercialize one or more of our proprietary formulations, our operating results would be adversely affected. Even if we are able to successfully sell one or more proprietary formulations, we may never recoup our investment. Our failure to identify and expend our resources on formulations and technologies with commercial potential and execute an effective commercialization strategy for each of our formulations would negatively impact the long-term profitability of our business.

We may need additional capital in order to continue operating our business, and such additional funds may not be available on acceptable terms or at all.

We do not generate any cash from operations and, although we believe we have sufficient cash reserves to operate our business for at least the next twelve months, we may spend our cash reserves faster than we expect and need significant additional capital to execute our business plan and fund our proposed business operations. If we pursue acquisitions of pharmacies or other strategic transactions or experience growth more quickly or on a larger scale than expected, we may be required to raise additional capital to fund these activities. We may seek to raise additional capital through, among other things, public and private equity offerings and debt financings. If we are unable to raise additional capital when necessary, we may be required to forego pursuit of potentially valuable product development opportunities and reduce our expenses and cash expenditures to a material extent, which would impair or delay our ability to execute our business plan

We have raised $21.5 million in funds through equity financings since April 2012. To the extent we require additional capital, we may fund our operations through additional equity and/or debt financings, and could also pursue funding from corporate partnerships or licensing arrangements or similar transactions. If additional capital is not available when necessary, we may not be able to continue to operate our business pursuant to our business plan or we may have to discontinue our operations entirely. If we issue equity or convertible debt securities to raise additional funds, our existing stockholders may experience substantial dilution, and the new equity or debt securities may have rights, preferences and privileges senior to those of our existing stockholders. In addition, if we raise additional funds through collaboration and licensing arrangements, we may be required to relinquish potentially valuable rights to our product candidates or proprietary technologies, or grant licenses on terms that are not favorable to us. If we raise funds by incurring debt, it may increase our leverage relative to our earnings or to our equity capitalization, requiring us to pay additional interest expenses. Obtaining commercial loans, assuming those loans would be available, would increase our liabilities and future cash commitments. Further, we may incur substantial costs in pursuing future capital and/or financing, including investment banking fees, legal fees, accounting fees, printing and distribution expenses and other costs. We may also be required to recognize non-cash expenses in connection with certain securities we may issue, such as options, convertible notes and warrants, which would adversely impact our financial results.

If we are unable to establish, train and maintain an effective sales and marketing infrastructure, we will not be able to commercialize our product candidates successfully.

We plan to build an internal sales and marketing infrastructure to implement our business plan. We may also engage third parties to provide sales and marketing services for us. We may not be able to secure sales personnel or organizations that are adequate in number or expertise to successfully market and sell our proprietary formulations and pharmacy services. If we are unable to establish our sales and marketing capability, train our sales force effectively or provide any other capabilities necessary to our business, we will need to contract with third parties to provide these services. In addition, we must train our employees on proper regulatory compliance. If we are unable to establish and maintain compliant and adequate sales and marketing capabilities, we may be unable to sell our formulations or services or generate revenue.

We may never obtain rights to any product candidates or receive any benefits under our License Agreement with PCCA.

Under our License Agreement with PCCA, PCCA has granted to us certain exclusive rights to PCCA’s proprietary formulations, other technologies and data, and we have agreed to pay to PCCA certain royalties on net sales relating to the sale of certain future products. PCCA may terminate the License Agreement if we fail to commence efforts to research and develop at least one product opportunity provided to us by PCCA by February 29, 2016. Our rights under the License Agreement apply to development and commercialization opportunities within the prescription drug field and do not apply to compounding pharmacy activities. We may not be able to meet the requirements of the License Agreement within the required time periods or at all, particularly in light of our re-focused business strategy aimed at developing compounded formulations and our relationship with PCCA could be terminated. If we do commence clinical trials of any potential product candidates we obtain through PCCA, such product candidates may never be approved by the FDA. Even if we do develop and obtain approval to market and sell such product candidates, we may be unable to compete against the many products and treatments currently being offered or under development by other more established, well-known and well-financed health care and pharmaceutical companies, and that competition and our royalty obligations to PCCA may prevent us from recouping our investment in these product candidates.

We may be unable to demonstrate the safety and efficacy or obtain FDA regulatory approval to market and sell any product candidates for which we seek FDA approval.

We may choose to seek FDA regulatory approval to market and sell one or more of our proprietary formulations. The process of obtaining FDA approval to market and sell pharmaceutical products is costly, time consuming, uncertain and subject to unanticipated delays. If we choose to pursue FDA approval for one or more such product candidates, the FDA or other regulatory agencies may not approve any such product candidate on a timely basis or at all. Before obtaining regulatory approvals for the sale of any of our potential product candidates, we must demonstrate through preclinical studies and clinical trials that the product candidate is safe and effective for each intended use. Preclinical and clinical studies may fail to demonstrate the safety and effectiveness of our potential product candidates. Even promising results from preclinical and early clinical studies do not always accurately predict results in later, large scale trials. A failure to demonstrate safety and efficacy would result in our failure to obtain regulatory approvals. The outcome of the final analyses of clinical trial data may vary from our initial conclusions, or the FDA may not agree with our interpretation of such results or may challenge the adequacy of our clinical trial design or the execution of the clinical trial. Moreover, even if the FDA grants regulatory approval of a product candidate, the approval may be limited to specific therapeutic areas or limited with respect to its distribution, which could limit revenues.

Delays in the conduct or completion of any clinical and non-clinical trials for any product candidates for which we seek FDA approval, or the analysis of the data from our clinical or non-clinical trials, may adversely affect our business.

Clinical trials are very expensive, time consuming and difficult to design and implement. Even if the results of clinical trials are favorable, they may continue for several years and may take significantly longer than expected to complete. Delays in the commencement or completion of clinical testing could significantly affect our product development costs and business plan with respect to any product candidate for which we seek FDA approval. For example, we experienced significant difficulties and delays with respect to initiating our now-terminated former Phase 3 trial for Impracor. We do not know whether any other pre-clinical or clinical trials related to any product development candidates we may identify will begin in a timely basis or be completed on schedule, if at all. The commencement and completion of clinical trials can be delayed and experience difficulties for a number of reasons, including delays and difficulties related to:

There may be circumstances other than the ones described above, including circumstances over which we may have no control, which could materially delay the successful completion of our clinical and non-clinical studies. Furthermore, we expect to rely on CROs to ensure the proper and timely conduct of our clinical trials, and while we expect to enter into agreements governing their committed activities, we have limited influence over their actual performance.

Although we may believe that we have planned and designed an adequate clinical trial program for any of our product candidates, the FDA could determine that it is not satisfied with our plan or the details of our clinical trial protocols and designs. Additionally, changes in applicable regulatory requirements and guidance may occur and we may need to amend clinical trial protocols to reflect these changes. Amendments may require us to resubmit our clinical trial protocols to IRBs for reexamination, which may impact the costs, timing or successful completion of a clinical trial. If we experience delays in completion of, or if we terminate, any of our clinical trials, the commercial prospects for our product candidates may be harmed, which may have a material adverse effect on our business, results of operations, financial condition and prospects.

Even if we receive FDA approval to market and sell any potential product candidates, our efforts may not be successful and we may not recoup the costs associated with these development programs.

Even if we receive FDA approval to market and sell any product candidates for which we seek FDA approval, the market may not accept such products, or the market may be smaller than we anticipate. A number of factors may limit the market acceptance of any drug products we may pursue, including the timing of market entry relative to competitive products, the availability of alternative products, the price of our drug products relative to alternative products, the availability of third party reimbursement and the success of our sales and marketing efforts, either internally or by third party distributors or agents that we retain. Any such products may not receive market acceptance in a commercially viable period of time, if at all. We may not recover any investment we make in developing our product candidates. To the extent that we expend significant resources on research and development efforts and are not able, ultimately, to introduce successful new products as a result of those efforts, our business, financial position and results of operations may be materially adversely affected.

If we choose to pursue FDA approval for any of our formulations, we will need to rely on third parties to manufacture sufficient quantities of clinical materials for use in any pre-clinical and clinical trials, and any delays and problems with the manufacturing of our clinical materials would harm our business.

We may choose to pursue pre-clinical and clinical trials for certain proprietary formulations. We do not have the ability to manufacture the materials we may use in these pre-clinical and clinical trials. Rather, we would be required to rely on various third parties to manufacture these materials. Our third-party manufacturers may encounter delays and problems in manufacturing our investigational drug preparations and other materials associated with our clinical trials. For example, in August 2013, we experienced difficulties in obtaining suitable clinical materials for our planned Phase 3 clinical trial for Impracor, which was a significant factor in our decision to discontinue the clinical trial. If any third parties we rely upon in connection with the manufacturing of clinical materials do not provide materials in a timely manner, or if they otherwise breach their agreements with us, it may be difficult to replace their services quickly or at all. There may be long lead times to obtain materials. Commercially available starting materials, reagents, excipients, and other materials may become scarce, more expensive to procure, or not meet quality standards. We may not be able to identify, qualify and obtain prior regulatory approval for additional sources of clinical materials. If interruptions in our supply chain occur for any reason, including a decision by the third parties to discontinue manufacturing, technical difficulties, labor disputes, natural or other disasters, or a failure of the third parties to follow specifications or regulations, we may encounter difficulties in timely completing any clinical trials we pursue in the future, we may be unable to obtain regulatory approvals for any investigational drug preparations we may pursue in a timely manner and, ultimately, we may be unable to successfully commercialize these investigational drug preparations. If we are unable to have our clinical materials successfully manufactured by our current or any future contract manufacturer, we would be unable to initiate any clinical program.

We are dependent on third parties to conduct clinical trials and non-clinical studies of our drug formulations.

We do not employ personnel or possess the facilities necessary to conduct many of the activities associated with our non-clinical research activities or any clinical programs we may pursue in the future. We have engaged, and expect to continue to engage consultants, advisors, clinical research organizations (“CROs”) and others to design, conduct, analyze and interpret the results of studies in connection with the research and development of our products. In addition, we expect to provide grants to physicians and other healthcare organizations to support investigator-initiated studies of our proprietary formulations. We will have only very limited contractual rights in connection with the conduct of any such studies. In addition, if we were to participate in clinical trials conducted under an approved investigator-sponsored investigational new drug application, correspondence and communication with the FDA pertaining to these trials would strictly be between the investigator and the FDA. The communication and information provided by the investigator may not be appropriate and accurate, and the investigator has the ultimate responsibility and final decision-making authority with respect to submissions to the FDA. This potential communication gap could result in reviews, audits, delays or clinical holds by the FDA that affect the timelines for these studies and potentially risk the completion of these trials. As a result, many important aspects of any studies of our proprietary formulations and clinical or non-clinical trials for any drug candidates we determine to pursue are outside of our direct control.

If the third parties we engage to perform these activities fail to devote sufficient time and resources to our studies, or if their performance is substandard, it would delay the introduction of our proprietary formulations to the market or the approval of our applications to regulatory agencies. Failure of these third parties to meet their obligations could adversely affect development of our proprietary formations and product candidates and as a result could have a material adverse effect on our business, financial condition and results of operations.

In the event that we successfully develop any FDA-approved product candidates into commercial drugs, we will be dependent on outside manufacturers to produce and supply these drugs and will have limited control of the manufacturing process.

In the event that we successfully develop any of our product candidates into commercially available FDA-approved products, we expect that third party manufacturers would manufacture all of these products. In that event, we would have a limited ability to control the manufacturing process, access to raw materials, the timing for delivery of finished products or costs related to this process. Any contract manufacturers with which we contract may not be able to produce finished products in quantities that are sufficient to meet demand, in a timely manner or at all, which could result in an inability to generate revenue from any such products. There may be delays in the manufacturing process over which we may have no control, including shortages of raw materials, labor disputes, backlog or failure to meet FDA standards. Increases in the prices we pay our manufacturers, interruptions in our supply of products or lapses in quality could adversely impact our financial condition. If we pursue the commercialization of any of our products as FDA-approved drugs, we will be reliant on the third-party manufacturers of those products to maintain their manufacturing facilities in compliance with FDA and other federal, state and/or local regulations, including health, safety and environmental standards. If they fail to maintain compliance with FDA or other critical regulations, they could be ordered to curtail operations, which would have a material adverse impact on our business, results of operations and financial condition. We would also expect to rely on outside manufacturers to assist us in the preparation of key documents such as drug master files and other relevant materials that are required by the FDA as part of the drug approval process and post-approval oversight. Failure by our outside manufacturers to properly prepare and retain these documents could cause delays in obtaining FDA approval of any drug candidates we may pursue in the future or impact our ability to continue to sell any drug candidates for which we are able to obtain approval.

If approved, failure to comply with continuing federal and state regulations could result in the loss of approvals to market our drugs.

Following initial FDA regulatory approval of any drugs we may develop, we would be subject to continuing regulatory review, including review of adverse drug experiences and clinical results that are reported after our drug products become commercially available. This would include results from any post-marketing tests or continued actions required as a condition of approval. The manufacturer and manufacturing facilities we use to make any of our drug preparations would be subject to periodic review and inspection by the FDA. If a previously unknown problem with a product or a manufacturing and laboratory facility used by us were to be discovered, the FDA could impose restrictions on that product or on the manufacturing facility, including requiring us to withdraw the product from the market. Any changes to product that may have achieved approval, including the way it is manufactured or promoted, often requires FDA approval before the product, as modified, can be marketed. In addition, we and our contract manufacturers would be subject to ongoing FDA requirements for submission of safety and other post-market information. If we or our contract manufacturers failed to comply with applicable regulatory requirements, a regulatory agency may, among other things, issue warning letters, impose civil or criminal penalties, suspend or withdraw regulatory approval, impose restrictions on our operations, close the facilities of our contract manufacturers, seize or detain products or require a product recall.

Regulatory review also covers a company’s activities in the promotion of its drugs, with significant potential penalties and restrictions for promotion of drugs for an unapproved use. Sales and marketing programs are under scrutiny for compliance with various mandated requirements, such as illegal promotions to health care professionals. We are also required to submit information on our open and completed clinical trials to public registries and databases. Failure to comply with these requirements could expose us to negative publicity, fines and penalties that could harm our business.

If our patents are determined to be unenforceable or expire, or if we are unable to obtain new patents based on current or future patent applications, we may not be able to prevent others from using our intellectual property, which may influence our commitment to continue to fund the development of assets that have limited intellectual property protection.

Our success will depend in part on our ability to obtain and maintain patent protection for our formulations and technologies and prevent third parties from infringing upon our proprietary rights. We must also operate without infringing upon patents and proprietary rights of others, including by obtaining appropriate licenses to patents or proprietary rights held by third parties if necessary. We will only be able to protect our formulations and technologies from unauthorized use by third parties to the extent that valid and enforceable patents cover them. As of March 27, 2014, we have ten patent applications pending in the United States, including three utility patent applications and seven provisional patent applications. We expect to make significant investments in certain of our proprietary formulations prior to the grant of any patents covering these formulations. However, the applications we have filed or may file may never yield patents that protect our inventions and intellectual property assets. Failure to obtain patents for our formulations and technologies would limit our protection against other compounding pharmacies and outsourcing facilities, generic drug manufacturers, pharmaceutical companies and other parties who may seek to copy or otherwise produce products substantially similar to ours or use technologies substantially similar to those we own.

The patent and intellectual property positions of pharmacies and pharmaceutical companies, including ours, are uncertain and involve complex legal and factual questions. There is no guarantee that we have or will develop or obtain the rights to products or processes that are patentable, that patents will issue from any pending applications or that claims allowed will be sufficient to protect the technology we develop or have developed or that is used by us, our contract manufacturing organizations or our other service providers. In addition, we cannot be certain that patents issued to us will not be challenged, invalidated, infringed or circumvented, including by our competitors, or that the rights granted thereunder will provide competitive advantages to us.

We also rely on unpatented trade secrets and know-how and continuing technological innovation in order to develop our formulations, which we seek to protect, in part, by confidentiality agreements with our employees, consultants, collaborators and others. We also have invention or patent assignment agreements with our current employees and certain consultants. However, our employees and consultants may breach these agreements and we may not have adequate remedies for any breach, or our trade secrets may become known or be independently discovered by competitors. In addition, inventions relevant to us could be developed by a person not bound by an invention assignment agreement with us.

We may face additional competition outside of the U.S. as a result of a lack of patent coverage in some territories and differences in patent prosecution and enforcement laws in foreign counties.

Filing, prosecuting, defending and enforcing patents on our potential investigational drug preparations throughout the world is extremely expensive. While we have filed patent applications in many countries outside the U.S., and have obtained some patent coverage for Accudel™ and Impracor™ in Canada, we do not currently have patent protection, nor have we filed patent applications, outside of the U.S. that cover any of the product formulations we are currently pursuing. Competitors may use our technologies to develop their own products in jurisdictions where we have not obtained patent protection. These products may compete with ours and may not be covered by any of our patent claims or other intellectual property rights.

Even if we were to file international patent applications for any of our current or future proprietary formulations and patents were issued or approved, it is likely that the scope of protection provided by such patents would be different from, and possibly less than, the scope provided by corresponding U.S. patents. The success of our international market opportunity would be dependent upon the enforcement of patent rights in various other countries. A number of countries in which we could file patent applications have a history of weak enforcement and/or compulsory licensing of intellectual property rights. Moreover, the legal systems of certain countries, particularly certain developing countries, do not favor the aggressive enforcement of patents and other intellectual property protection, particularly those relating to biotechnology and/or pharmaceuticals, which would make it difficult for us to stop a party from infringing any of our intellectual property rights. Even if we have patents issued in these jurisdictions, our patent rights may not be sufficient to prevent generic competition or unauthorized use. Attempting to enforce our patent rights in foreign jurisdictions could result in substantial cost and divert our efforts and attention from other aspects of our business.

The use of our technologies could potentially conflict with the rights of others.

The preparation, use or sale of our proprietary formulations and technologies may infringe on the patent rights of others. If we are unable to avoid infringement of the patent rights of others, we may be required to seek a license, defend an infringement action or challenge the validity of the patents in court. Patent litigation is costly and time consuming and may divert management’s attention and our resources. We may not have sufficient resources to bring these actions to a successful conclusion. In such case, we may be required to alter our products, pay licensing fees or cease activities. If our products conflict with patent rights of others, third parties could bring legal actions against us claiming damages and seeking to enjoin manufacturing and marketing of affected products. If these legal actions are successful, in addition to any potential liability for damages, we could be required to obtain a license in order to continue to manufacture or market the affected products. We may not prevail in any legal action and a required license under the patent may not available on acceptable terms, if at all.

If we are unable to attract and retain key personnel and consultants, we may be unable to maintain or expand our business.

We terminated all of our employees following our filing of the Chapter 11 Case. Since the dismissal of the Chapter 11 Case in December 2011, we have focused on rebuilding our management team and engaging consultants in order to begin operating our business. However, because of this history, we may have significant difficulty attracting and retaining necessary employees. In addition, because of the specialized scientific nature of our business, our ability to develop products and to compete will remain highly dependent, in large part, upon our ability to attract and retain qualified pharmacy, scientific, technical and commercial employees and consultants. The loss of key employees or consultants or the failure to recruit or engage new employees and consultants could have a material adverse effect on our business. There is intense competition for qualified personnel in our industry, and we may be unable to continue to attract and retain the qualified personnel necessary for the development of our business.

We depend upon consultants and outside contractors for key aspects of our business.

We are substantially dependent on consultants and other outside contractors for key aspects of our business, including our research and development activities. Our agreements with our consultants typically provide that the consultant may terminate the agreement on 30 day notice to us. If any of our consultants terminates their engagement with us, or we are unable to engage highly qualified consultants as necessary for our business, we may be unable to successfully execute our business plan. We must effectively manage these consultants to ensure that they successfully carry out their contractual obligations and meet expected deadlines. However, if we are unable to effectively manage our outsourced activities or if the quality or accuracy of the services provided by consultants is compromised for any reason, our development activities may be extended, delayed or terminated, and we may not be able to commercialize our formulations or advance our business. We may not be able to manage our existing consultants or find other competent outside contractors and consultants on commercially reasonable terms, or at all.

Our ability to generate revenues will be diminished if we fail to obtain acceptable prices or an adequate level of reimbursement from third-party payors.

Currently, Pharmacy Creations operates on a cash-pay basis and does not submit any claims for reimbursement through Medicare, Medicaid or other third party payors, although our customers may choose to seek available reimbursement opportunities to the extent that they exist. Although we expect to seek approval for Medicare and third party payor reimbursement for certain of our compounded formulations, we may be unsuccessful in these efforts. Many third party payors have imposed significant restrictions on reimbursement for compounded formulations in recent years. Even if we were to pursue FDA-approval for a particular product candidate, significant uncertainty exists as to the reimbursement status of newly approved health care products. We cannot be certain that the products will be considered cost effective and that reimbursement from insurance companies and other third-party payors will be available or, if available, will be sufficient to allow us to sell the products on a competitive basis.

Third party payors, including Medicare, are challenging the prices charged for medical products and services. Government and other third-party payors increasingly are attempting to contain health care costs by limiting both coverage and the level of reimbursement for new drugs and by refusing, in some cases, to provide coverage for uses of approved products for disease indications for which the FDA has not granted labeling approval. Third party insurance coverage may not be available to patients for any formulations or technologies we develop or commercialize. If government and other third-party payors do not provide adequate coverage and reimbursement levels for our formulations, the market acceptance for our formulations may be limited.

Changes in the healthcare industry that are beyond our control may have an impact on our business.

The healthcare industry is changing rapidly as consumers, governments, medical professionals and the pharmaceutical industry examine ways to broaden medical coverage while controlling the increase in healthcare costs. The Patient Protection and Affordable Care Act, or PPACA, and the Health Care and Education Reconciliation Act of 2010, which amended PPACA (collectively, the “Health Reform Law”), may have a considerable impact on the financing and delivery of health care and conceivably could have a material effect on our business. The Health Reform Law will result in sweeping changes to the existing U.S. system for the delivery and financing of health care. The details for implementation of many of the requirements under the Health Reform Law will depend on the promulgation of regulations by a number of federal government agencies. It is impossible to predict the outcome of these changes, what many of the final requirements of the Health Reform Law will be, and the net effect of those requirements on us. As such, we cannot predict the impact of the Health Reform Law on our business, operations or financial performance.

Because of their significant stock ownership, some of our existing stockholders will be able to exert control over us and our significant corporate decisions, and sales of common stock by management and members of our Board of Directors from time to time could have an adverse effect on our stock price.

Our executive officers and directors own or have the right to acquire within 60 days of March 27, 2014, in the aggregate, approximately 16% of the shares of common stock outstanding following such issuance to them. In addition, four individual stockholders own, or have the right to acquire within 60 days of March 27, 2014, an additional approximately 35% of our common stock. The sale of even a portion of these shares will likely have a material adverse effect on our stock price. In addition, these persons, acting together, have the ability to exercise significant influence over the outcome of all matters submitted to our stockholders for approval, including the election and removal of directors and any significant transaction involving us, as well as control our management and affairs. Since our stock ownership is concentrated among a limited number of holders and our Amended and Restated Certificate of Incorporation and Bylaws permit our stockholders to act by written consent, a limited number of stockholders may approve stockholder actions without holding a meeting of stockholders and could control the outcome of actions requiring stockholder approval. This concentration of ownership may harm the market price of our common stock by, among other things:

If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results. As a result, current and potential stockholders could lose confidence in our financial reporting, which would harm our business.

Effective internal controls are necessary for us to provide reliable financial reports. If we cannot provide reliable financial reports, our operating results could be misstated, our reputation may be harmed and the trading price of our stock could be negatively affected. As we discuss in Item 9A of this Annual Report, in the fiscal year ended December 31, 2013, our management has concluded that our internal controls over financial reporting were effective as of December 31, 2013. However, our controls over financial processes and reporting may not continue to be effective, or we may identify material weaknesses or significant deficiencies in our internal controls in the future. Any failure to remediate any future material weaknesses or implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results, cause us to fail to meet our reporting obligations or result in material misstatements in our financial statements or other public disclosures. Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our stock.

A consistently active trading market for shares of our common stock may not be sustained.

Historically, trading in our common stock has been sporadic and volatile, and our common stock has been “thinly-traded”. There have been, and may in the future continue to be, extended periods when trading activity in our shares is minimal, as compared to a seasoned issuer with a large and steady volume of trading activity. The market for our common shares is also characterized by significant price volatility compared to seasoned issuers, and we expect that such volatility will continue. As a result, the trading of relatively small quantities of shares may disproportionately influence the market price of our common stock. It is possible that a consistently active and liquid trading market in our securities may never develop or be sustained.

Our stock price may be volatile.

The market price of our common stock is likely to be highly volatile and could fluctuate widely in response to various factors, many of which are beyond our control, including the following:

In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our common stock.

We have the right to issue shares of preferred stock. If we were to issue preferred stock, it is likely to have rights, preferences and privileges superior to those of our common stock.

We are authorized to issue 5,000,000 shares of “blank check” preferred stock, with such rights, preferences and privileges as may be determined from time-to-time by our board of directors. Following the conversion of our Series A Preferred Stock on June 29, 2012, we have no shares of preferred stock issued and outstanding. Our board of directors is empowered, without stockholder approval, to issue preferred stock in one or more series, and to fix for any series the dividend rights, dissolution or liquidation preferences, redemption prices, conversion rights, voting rights, and other rights, preferences and privileges for the preferred stock. We have no immediate plans to issue shares of preferred stock. The issuance of shares of preferred stock, depending on the rights, preferences and privileges attributable to the preferred stock, could adversely reduce the voting rights and powers of the common stock and the portion of our assets allocated for distribution to common stock holders in a liquidation event, and could also result in dilution in the book value per share of the common stock we are offering. The preferred stock could also be utilized, under certain circumstances, as a method for raising additional capital or discouraging, delaying or preventing a change in control of the company.

We have not paid dividends in the past and do not expect to pay dividends in the future. Any return on investment may be limited to the value of our common stock.

We have never paid cash dividends on our common stock and do not anticipate doing so in the foreseeable future. The payment of dividends on our common stock will depend on earnings, financial condition and other business and economic factors affecting us at such time as our board of directors may consider relevant. If we do not pay dividends, our common stock may be less valuable because a return on your investment will only occur if our stock price appreciates.

Offers or availability for sale of a substantial number of shares of our common stock may cause the price of our common stock to decline.

The sale by our stockholders of substantial amounts of our common stock in the public market or upon the expiration of any statutory holding period, under Rule 144, or upon expiration of lock-up periods applicable to outstanding shares, or issued upon the exercise of outstanding options or warrants, could result create a circumstance commonly referred to as an “overhang” and in anticipation of which the market price of our common stock could fall. The existence of an overhang, whether or not sales have occurred or are occurring, also could make more difficult our ability to raise additional financing through the sale of equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate.

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not Applicable.

ITEM 2. PROPERTIES

We lease approximately 3,784 square feet of office space in San Diego, California. The current lease term expires on September 30, 2016. This facility serves as our corporate headquarters.

We believe additional space will be required in the near-term as we expand our activities and hire new personnel. However, we do not currently foresee any significant difficulties in obtaining any required additional facilities.

ITEM 3. LEGAL PROCEEDINGS

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY

Market Information

Our common stock began trading on The NASDAQ Capital Market on February 8, 2013 under the symbol “IMMY”. Prior to that, our common stock was quoted for trading on several different over-the-counter quotation systems, including the OTC Marketplace Pink tier, where it was quoted from June 2011 until February 23, 2012, and OTC Marketplace QB tier, where it was quoted from February 24, 2012 until February 7, 2013.

The following table sets forth (a) the high and low last-bid prices for our common stock for the periods indicated prior to February 8, 2013, as reported by the OTC Marketplace Pink tier or the QB tier, as applicable, and (b) the high and low sale prices for our common stock on The NASDAQ Capital Market for the periods indicated commencing on February 8, 2013. The liquidity of our shares when quoted on the OTC Marketplace Pink tier and QB tier was extremely limited, and the quotations during those periods reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions.

Holders

As of March 27, 2014 we had approximately 160 stockholders of record (excluding an indeterminable number of stockholders whose shares are held in street or “nominee” name) of our common stock.

Dividends

We have not paid any dividends on our common stock since our inception and do not expect to pay dividends on our common stock in the foreseeable future.

ITEM 6. SELECTED FINANCIAL DATA

Not applicable.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the consolidated financial statements and the related notes contained in this Annual Report. In addition to historical information, the following discussion contains forward-looking statements based upon current expectations and assumptions that are subject to risks and uncertainties. Actual results may differ substantially from those referred to in any forward-looking statements due to a number of factors, including but not limited to the risks described in the section entitled “Risk Factors” and elsewhere in this Annual Report on Form 10-K (“Annual Report”).

As used in this discussion and analysis, unless indicated or the context requires otherwise, the terms “the Company”, “Imprimis” “we”, “us” and “our” refer to Imprimis Pharmaceuticals, Inc. and its consolidated subsidiaries.

On February 28, 2012, we changed our name from Transdel Pharmaceuticals, Inc. to Imprimis Pharmaceuticals, Inc. and we effected a one-for-eight reverse split of our authorized, issued and outstanding common stock. On February 7, 2013 we effected a one-for-five reverse split of our authorized, issued and outstanding common stock. The information in this discussion and analysis and the accompanying consolidated financial statements for the periods presented have been retroactively adjusted to reflect our current name and the effects of those reverse stock splits.

Overview

We are a company focused on meeting unmet patient needs through the development and commercialization of innovative proprietary sterile and topical drug formulations and technologies that are customized for patients. We expect to deliver our proprietary formulations to the market through one or more commercialization pathways, including through a network of compounding pharmacies that we seek to establish by acquisition or commercial relationships and/or, to the extent there is a reasonable development pathway, through traditional marketing and selling channels following U.S. Food and Drug Administration (“FDA”) approval of a drug formulation. Our network of innovators includes inventive physicians and pharmacists who understand patient needs in clinical settings. Working collaboratively with inventors, we identify and evaluate intellectual property related to potential drug formulations and technologies, assess the relevant market, and seek to validate the clinical experience of development candidates outside of the inventor’s medical or pharmacy practice before investing in commercialization activities. We have acquired formulations in ophthalmology, wound management and urology that we believe may offer competitive advantages over commercially available formulations, and are actively pursuing additional development opportunities.

Historically, our business has focused on developing, obtaining FDA approval for, and commercializing our topical pain management product candidate, Impracor™. After considering the totality of circumstances surrounding the development of and clinical trial requirements for Impracor, including certain manufacturing and formulation issues that we previously reported, in November 2013, we announced our discontinuation of the planned Phase 3 clinical trial for Impracor. During our 2013 fiscal year, we began re-focusing our business plan away from the development of Impracor and toward our current formulation and technology development and compounding pharmacy business model.

We have incurred recurring operating losses, have had negative operating cash flows and have not recognized any significant revenues since July 24, 1998 (inception). In addition, we have a deficit accumulated during the development stage of approximately $31.7 million at December 31, 2013. We have not generated sales revenue from any of our proprietary drug formulations and we expect to incur further losses as we continue the clinical development of our formulations and evaluate other programs. Our research and development activities are budgeted to expand over time, and we will require further capital resources to fund the continued operation of our business model for a long enough period to achieve profitable operations.

On February 28, 2012, we changed our name from Transdel Pharmaceuticals, Inc. to Imprimis Pharmaceuticals, Inc. All prior references to Transdel Pharmaceuticals, Inc. have been changed to Imprimis to reflect our current name. Unless the context otherwise requires, all references in this Report to “we,” “us,” “our,” “the Company,” or “Imprimis” refers to Imprimis Pharmaceuticals, Inc. and its subsidiaries.

On February 28, 2012, we effected a one-for-eight reverse split of our authorized, issued and outstanding common stock, and on February 7, 2013 we effected a one-for-five reverse split of our authorized, issued and outstanding common stock. The information in this Form 10-K and the accompanying consolidated financial statements for the periods presented have been retroactively adjusted to reflect the effects of those reverse stock splits.

Plan of Operations

Our operating plan for the next twelve months is focused on the development and commercialization of our proprietary ophthalmic formulations, establishing compounding pharmacy operations and the continued assessment of our non-ophthalmic formulations. We believe there are near-term opportunities for our ophthalmic formulations, and as a result we have started to build a commercialization team specifically for this specialized market.

We aim to develop a network of compounding pharmacies that deliver our proprietary compounded formulations to patients. On February 10, 2014, we entered into an agreement to acquire Pharmacy Creations, LLC, a New Jersey compounding pharmacy. We expect this transaction to close on April 1, 2014. Although we currently expect to operate Pharmacy Creations and establish a network of compounding pharmacies under Section 503A of the Federal Food, Drug and Cosmetic Act (“FDCA”), we could choose to register any facility we may acquire or establish as an outsourcing facility under Section 503B of the FDCA or partner with an existing outsourcing facility, particularly if the FDA were to establish a favorable regulatory environment for outsourcing facilities and adopt an expansive list of bulk drug substances that may be compounded in an outsourcing facility under Section 503B.

During 2014, we expect to focus our efforts on our U.S. commercial opportunities. However, we believe our proprietary drug formulations could have commercial appeal in other markets. We may choose to pursue commercialization of our proprietary formulations in selected international markets through licensing or collaborative arrangements with strategic partners.

Recent Developments

Public Offering

On February 13, 2013, we closed an underwritten public offering of 1,840,000 shares of our common stock at a per share price to the public of $5.25 (the “Public Offering”), and received net proceeds of approximately $8,140,000 after deducting underwriter fees and commissions and other offering expenses. The underwriters also exercised their option to purchase an additional 276,000 shares of common stock from the Company at $5.25 per share to cover over-allotments on March 14, 2013. Net cash proceeds from the exercise of the over-allotment were approximately $1,320,000. The shares issued upon the closing of the Public Offering and the exercise of the over-allotment were registered on a Registration Statement on Form S-1 (File No. 333-182846), which was declared effective by the SEC on February 7, 2013.

PCCA Strategic Alliance Agreement

On February 18, 2013, we entered into a Strategic Alliance Agreement with Professional Compounding Centers of America, Inc. (“PCCA”). The Strategic Alliance Agreement provides that, during its term, PCCA will not introduce any of PCCA’s compounding pharmacy members or customers meeting certain criteria (the “Member/Customers”) to any third party whereby such third party for such third party’s license or acquisition of the intellectual property rights of such Member/Customer, without first presenting such an opportunity to us. PCCA may, but is not required to, present such opportunities to us, use reasonable efforts to facilitate an introductory meeting with the Member/Customer, and provide certain key technical assistance with any potential development project associated with the Member/Customer’s intellectual property rights. In the event we and a Member/Customer introduced to us by PCCA enter into a commercial agreement for the license or acquisition of the intellectual property rights owned by the Member/Customer, PCCA will be entitled to receive certain cash fees up to an aggregate of $100,000, as well as a commission based on net sales, if any, generated by us as a result of the acquired intellectual property rights. The Strategic Alliance Agreement has a term of one year and will automatically extend for successive one year periods unless either party gives the other written notice of non-renewal.

Buderer Asset Purchase Agreement

On June 11, 2013, we acquired intellectual property rights related to certain proprietary innovations from the compounding pharmacy operations of Buderer Drug Company, Inc. (“Buderer”) pursuant to an Asset Purchase Agreement (as amended, the “Buderer Agreement”), which was subsequently amended on October 21, 2013. The Buderer Agreement provides that Buderer will cooperate with us in obtaining patent protection for the acquired intellectual property and that we will use commercially reasonable efforts to research, develop and commercialize a product based on the acquired intellectual property. In addition, under the Buderer Agreement, we have acquired a right of first refusal on additional Buderer intellectual property and drug development opportunities.

In consideration for the acquisition, we are obligated to make the following payments to Buderer: (1) one payment payable within 30 days after the issuance of the first patent in the United States arising from the acquired intellectual property (if any); (2) one payment payable within 30 days after we file the first Investigational New Drug application (“IND”) with the FDA for the first product arising from the acquired intellectual property (if any); and (3) certain royalty payments based on the net receipts received by us in connection with the sale or licensing of any product based on the acquired intellectual property (if any), after deducting (among other things) our development costs associated with such product.

If, after five years from the date of the Buderer Agreement, we have not initiated any study where data is derived or we have failed to generate royalty payments to Buderer for any product based on the acquired intellectual property, Buderer may terminate the Buderer Agreement and request that we re-assign the acquired technology to Buderer.

Novel Drug Solutions and Eye Care Northwest Asset Purchase Agreement

On August 8, 2013, we acquired intellectual property rights related to certain proprietary innovations from the compounding pharmacy operations of Novel Drug Solutions, LLC (“Novel”) and from Eye Care Northwest, Inc. (“ECN”) pursuant to an Asset Purchase Agreement (as amended, the “Novel/ECN Agreement”), which was subsequently amended on October 14, 2013. As part of this acquisition, we acquired intellectual property assets, including a provisional patent application related to injectable ophthalmological compositions having anti-bacterial and anti-inflammatory properties for the prevention of post-ophthalmic surgery complications. The Novel/ECN Agreement provides that Novel and ECN will cooperate with us in obtaining patent protection for the acquired intellectual property and that we will use commercially reasonable efforts to research, develop and commercialize a product based on the acquired intellectual property. In addition, under the Novel/ECN Agreement, we have acquired a right of first refusal on any of Novel’s or ECN’s additional intellectual property and drug development opportunities.

In consideration for the acquisition, we are obligated to make the following payments to Novel and ECN: (1) one payment payable within 30 days after the issuance of the first patent in the United States arising from the acquired intellectual property (if any); (2) one payment payable within 30 days after we file the first IND with the FDA for the first product arising from the acquired intellectual property (if any); (3) one payment payable within 30 days after we file the first New Drug application (“NDA”) with the FDA for the first product arising from the acquired intellectual property (if any); and (4) certain royalty payments based on the net receipts received by us in connection with the sale or licensing of any product based on the acquired intellectual property (if any), after deducting (among other things) our development costs associated with such product.

If, after five years from the date of the Novel/ECN Agreement, we have not initiated any study where data is derived or we have failed to generate royalty payments to Novel and ECN for any product based on the acquired intellectual property, Novel and ECN may jointly terminate the Novel/ECN Agreement and request that we re-assign the acquired technology to Novel and ECN.

Novel Drug Solutions Asset Purchase Agreement

On October 8, 2013, we exercised our right of first refusal on Novel’s intellectual property and drug development opportunities under the Novel/ECN Agreement and acquired intellectual property rights related to certain proprietary innovations from the compounding pharmacy research and development operations of Novel pursuant to an Asset Purchase Agreement (as amended, the “Novel Agreement”), which was subsequently amended on October 23, 2013. In the acquisition, we acquired compositions comprising one or more of epinephrine, Shugarcaine, phenylephrine, or lidocaine, in each case for use in the prevention or treatment of any disease, state or condition in humans, and we were assigned a provisional patent application related to the use of epinephrine compositions for intraocular administration and a provisional patent application related to pharmaceutical compositions, including those for ophthalmological applications, comprising epinephrine-based compounds, and to methods of preparing and using such compositions. The Novel Agreement provides that Novel will cooperate with us in obtaining patent protection for the acquired intellectual property and that we will use commercially reasonable efforts to research, develop and commercialize a product based on the acquired intellectual property.

In consideration for the acquisition, we are obligated to make the following payments to Novel: (1) one payment payable within 30 days after the issuance of the first patent in the United States arising from the acquired intellectual property (if any); (2) one payment payable within 30 days after the Company files the first IND with the FDA for the first product; (3) one payment payable within 30 days after we file the first NDA with the FDA for the first product (if any) arising from the acquired intellectual property (if any); and (4) certain royalty payments based on the net receipts received by us in connection with the sale or licensing of any product based on the acquired intellectual property (if any), after deducting (among other things) our development costs associated with such product.

If, after five years from the date of the Novel Agreement, we have either not filed an IND or failed to generate royalty payments to Novel for any product based on the acquired intellectual property, Novel may terminate the Agreement and request that we re-assign the acquired technology to Novel.

Pharmacy Creations Acquisition

On February 10, 2014, we entered into a Membership Interest Purchase Agreement (the “PC Purchase Agreement”) to acquire all of the outstanding membership interests of Pharmacy Creations, LLC (“Pharmacy Creations”) from J. Scott Karolchyk and Bernard Covalesky (the “Sellers”, and such transaction, the “PC Acquisition”). The acquisition of Pharmacy Creations, a compounding pharmacy located in Randolph, New Jersey, permits us to make and dispense our proprietary drug formulations and other novel pharmaceutical solutions in those states in which Pharmacy Creations is authorized to operate. We expect to close the PC Acquisition on April 1, 2014.

Under the PC Purchase Agreement, we are obligated, at closing, to pay to the Sellers an aggregate cash purchase price of $600,000. In addition, the Sellers are entitled to receive additional contingent consideration upon the satisfaction of certain conditions, as follows:

Results of Operations

The following period to period comparisons of our financial results are not necessarily indicative of future results. In particular, much of our operational expenses during the periods covered by the following comparisons were incurred in connection with our development program for Impracor, which we have discontinued and do not expect to resume. As a result, our results of operations in the periods after those covered by the following comparisons, including aggregate revenue and expense amounts and the apportionment of expenses among categories, is expected to change. In addition, to the extent we pursue pharmacy acquisitions or other such transactions as we implement our plan of operations, we may experience infrequent or one-time expenditures in connection with effecting those transactions.

Comparisons of Years Ended December 31, 2013 and 2012

Revenues

For the year ended December 31, 2013 we recognized $10,000 in license revenues compared to $100,000 in license revenues recognized during the prior year. The revenues recognized in 2012 were non-refundable royalty advances unrelated to product sales, paid to us in December 2010 and April 2011 related to a license agreement with a third party. This agreement was terminated in January 2012, and we do not expect any other revenues to be recognized from it. Revenues recognized in 2013 are related to a license agreement we entered into with ResolutionMD, LLC granting that company certain rights under our Accudel delivery technology to be used for anti-cellulite formulations.

Selling, General and Administrative Expenses

Our selling, general and administrative expenses include personnel costs including wages and stock-based compensation, and corporate facility, investor relations, consulting, insurance, filing fees, legal and accounting expenses.

The table below provides information regarding selling, general and administrative expenses.

For the year ended December 31, 2013, there was an increase of $3,100,423 in selling, general and administrative expenses, as compared to the prior year. The increase in selling, general and administrative expenses is primarily due to the increase in our operations and activity during the year ended December 31, 2013 as compared to the prior year, and is largely attributable to the hiring and compensation of additional personnel, including management and appointments to the Board of Directors, investor relations activities and consultants, and fees associated with the listing of our common stock on The NASDAQ Capital Market. The increase in personnel, investor relations and consulting costs are primarily associated with an increase of $1,016,079 in stock-based compensation for the year ended December 31, 2013, as compared to the prior year.

Research and Development Expenses

Our research and development expenses primarily include expenses related to the development of intellectual property acquired through the Strategic Alliance Agreement with PCCA and our now-discontinued Impracor clinical program, including costs for our contract research organization. Also included are personnel costs including wages and stock-based compensation, and contract manufacturing, non-clinical studies, consulting and other costs related to those activities.

The table below provides information regarding research and development expenses.

For the year ended December 31, 2013, there was an increase of $317,579, in research and development expense as compared to the prior year. The increase was primarily related to costs incurred during the planning and development of our Impracor clinical program, and the hiring or engagement and compensation of additional personnel and consultants.

Interest Income

Interest income was $43,755 and $15,410, for the years ended December 31, 2013 and 2012, respectively. The increase was due to a higher average cash balance during fiscal year 2013, as compared to the prior year.

Interest Expense

Interest expense was $0 for the year ended December 31, 2013 and $24,658 for the year ended December 31, 2012. Certain 10% promissory notes with an aggregate principal amount of $750,000 issued between December 2011 and April 20, 2012 under a secured line of credit agreement (the “Line of Credit Agreement”) with DermaStar International, LLC (“DermaStar”) accounted for $12,534 of interest expense during the year ended December 31, 2012. The principal and interest owed to DermaStar was converted into shares of our common stock and warrants to acquire our common stock in April 2012. A 7.5% Convertible Note with a principal balance of $1,000,000 issued in April 2010 (the “Note”) (and converted to shares of our common stock in February 2012) accounted for $12,124 of interest expense during the year ended December 31, 2012. See Note 5 to our consolidated financial statements in this Annual Report for more information.

Loss on Extinguishment of Debt

On January 25, 2012, we entered into separate waiver and settlement agreements with Alexej Ladonnikov, the holder of 20% of the Note and DermaStar, the holder of 80% of the Note. Pursuant to the terms of a waiver agreement, we and Mr. Ladonnikov agreed to the mandatory conversion of the twenty percent (20%) of the principal and accrued and unpaid interest of the Note held by Mr. Ladonnikov into our common stock at a conversion price of $0.60, at such time as we had a sufficient number of authorized common shares to effect such a conversion. Additionally, Mr. Ladonnikov agreed to make a one-time payment to us of $50,000 at the time of such conversion. On February 28, 2012, we received payment of $50,000 and issued 380,868 common shares to Mr. Ladonnikov as payment in full for his 20% ownership of the Note ($200,000) and its related accrued interest ($28,521). We determined this was a substantial modification to the debt instruments and applied debt extinguishment accounting to record a loss on extinguishment of debt of $150,000 ($200,000 Note principal balance less $50,000 cash payment) for the year ended December 31, 2012.

Pursuant to the terms of its waiver agreement with us, Derma Star agreed to the mandatory conversion of the 80% of the principal and accrued and unpaid interest of the Note held by Derma Star into shares of our common stock at a conversion price of $0.6667 (“Derma Star Conversion Price”), at such time as we had a sufficient number of authorized common shares to effect such a conversion. Additionally, Derma Star agreed to a mandatory conversion of an additional $56,087 in accounts payable of the Company (“AP Conversion”) held by Derma Star, at such time as we had a sufficient number of authorized common shares and were able to convert the Note. The AP Conversion was made at the Derma Star Conversion Price. On February 28, 2012, we issued 1,454,962 common shares to Derma Star as payment in full for their 80% ownership of the Note ($800,000), its related accrued interest ($114,082) and $56,087 in accounts payable. We determined this was a substantial modification to the debt instrument and applied debt extinguishment accounting to record a loss on extinguishment of debt of $856,087 for the year ended December 31, 2012.

On April 20, 2012, Derma Star agreed to convert the promissory notes issued under a line of credit agreement and their related accrued interest, totaling $762,534, into 193,046 shares of our common stock and a related warrant to purchase up to an additional 48,262 shares of our common stock at an exercise price of $5.925 per share. We determined this to be a substantial modification to the debt instrument and applied debt extinguishment accounting to record a loss on extinguishment of debt of $189,323 for the year ended December 31, 2012.

Net Loss Attributable to Common Stockholders

Net loss attributable to common stockholders for the year ended December 31, 2013, was $7,643,124, or $(0.88) per basic and diluted share, compared to a net loss attributable to common stockholders for the year ended December 31, 2012 of $5,583,535, or $(1.24), respectively, per basic and diluted share.

Liquidity and Capital Resources

Our cash and cash equivalents on hand at December 31, 2013 was $15,579,309 as compared to $10,035,615 at December 31, 2012. The increase in cash and cash equivalents on hand is primarily attributable to approximately $9,460,000 in net proceeds received by us in February and March 2013 in connection with the Public Offering. Since inception through December 31, 2013, we have incurred aggregate losses to common stockholders of approximately $(31,700,000). These losses are primarily due to selling, general and administrative and research and development expenses incurred in connection with developing and seeking regulatory approval for our drug candidate, Impracor, which activities we have now discontinued. Historically, our operations have been financed through capital contributions and debt and equity financings.

Net Cash Flow

The following table provides detailed information about our net cash flows for the years ended December 31, 2013 and 2012.

Operating Activities

Net cash used in operating activities was $4,438,944 for the year ended December 31, 2013, as compared to $1,900,840 used in operating activities during the prior year. The increase in net cash used in operating activities was mainly due to costs associated with building and expanding the operation of our business, including hiring additional employees, and the planning, development and preparation of our Impracor clinical program and Phase 3 trials.

Investing Activities

Net cash used in investing activities for the years ended December 31, 2013 and 2012 was $70,003 and $15,492, respectively. The increase in investing activities during year ended December 31, 2013 was due primarily to the purchase of a certificate of deposit required as collateral in connection with our corporate credit card agreement.

Financing Activities

Net cash provided by financing activities for the years ended December 31, 2013 and 2102 was $10,052,641 and $11,805,787, respectively. The cash provided by financing activities during the year ended December 31, 2013 is primarily attributable to aggregate proceeds received in February and March 2013 in connection with the Public Offering. We incurred offering costs of $596,281 in fiscal 2012 in connection with the Public Offering, which were offset against the proceeds received in fiscal 2013. The cash provided by financing activities during the year ended December 31, 2012 is primarily attributable to aggregate net proceeds of approximately $11,915,000 received from the issuance of common stock and warrants in private offerings to accredited investors in April and August 2012.

We expect to use our current cash position to pursue our business plan, including the development and commercialization of our current formulations and technologies and the integration and development of our proposed pharmacy operations, to pursue potential future asset and pharmacy acquisitions, and to otherwise fund our operations. If we are not able to generate significant revenues and attain profitable operations, we will need to seek additional financing, which could include equity or debt financing, funding from a corporate partnership or licensing arrangement or any similar financing transaction. In addition, estimates of our operating expenses and working capital requirements could be inaccurate, and we could be required to seek additional financing earlier than we anticipate.

We expect to require additional funds in order to commercialize our compounded drug formulations, pursue the acquisition of compounding pharmacies or outsourcing facilities, integrate and operate any acquired pharmacies or outsourcing facilities, conduct any clinical trials and any other studies that may be required to obtain FDA regulatory approval to market any potential product candidates, pursue additional development programs and explore other development opportunities. If adequate financing is not available, we may not be able to pursue some or all of those activities.

We may seek funds from equity or debt financings, corporate partnerships, licensing arrangements, or any other similar financing transaction. Any future financings through equity investments may be dilutive to existing stockholders. Also, the terms of securities we may issue in future capital transactions may be more favorable for our new investors. Newly issued securities may include preferences, or superior voting rights over our common stock, and may also include the issuance of warrants or other derivative securities, which may have additional dilutive effects on our existing stockholders. In addition, if we raise additional funds through collaboration or licensing arrangements, we may be required to relinquish potentially valuable rights to our product candidates or proprietary technologies or formulations, or grant licenses on terms that are not favorable to us. Further, we may incur substantial costs in pursuing future capital and/or financing, including investment banking fees, legal fees, accounting fees, printing and distribution expenses and other costs. We may also be required to recognize non-cash expenses in connection with certain securities we may issue, such as convertible notes and warrants, which would adversely impact our financial results.

We may be unable to obtain financing when necessary as a result of, among other things, general economic conditions and conditions in the pharmaceuticals and pharmacy industries, or as a result of our operating history, including our past bankruptcy proceedings. In addition, the fact that we are not and have never been profitable could further impact the availability or cost to us of future financings. As a result, sufficient funds may not be available when needed from any source or, if available, such funds may not be available on terms that are acceptable to us. If we are unable to raise funds to satisfy our capital needs on a timely basis, then we may not be able to pursue any or all elements of our business plan and we may be required to cease operations.

As of the date of this Annual Report, we believe that cash and cash equivalents, and restricted investments of approximately $15.6 million at December 31, 2013, together with funds expected to be generated from pharmacy operations, will be sufficient to sustain our planned level of operations for at least the next 12 months. However, our plans for that period may change, or changed circumstances may result in the depletion of capital resources more rapidly than anticipated.

Critical Accounting Policies

We rely on the use of estimates and make assumptions that impact our financial condition and results. These estimates and assumptions are based on historical results and trends as well as our forecasts as to how results and trends might change in the future. Although we believe that the estimates we use are reasonable, actual results could differ from those estimates.

We believe that the accounting policies described below are critical to understanding our business, results of operations and financial condition because they involve more significant judgments and estimates used in the preparation of our consolidated financial statements. An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and any changes in the different estimates that could have been used in the accounting estimates that are reasonably likely to occur periodically could materially impact our consolidated financial statements.

Our most critical accounting policies and estimates that may materially impact our results of operations include:

Stock-Based Compensation. All share-based payments to employees, including grants of employee stock options and restricted stock grants, to be recognized in the consolidated financial statements are based upon their fair values. We use the Black-Scholes-Merton option pricing model and Monte Carlo Simulation to estimate the grant-date fair value of share-based awards. Fair value is determined at the date of grant. The financial statement effect of forfeitures is estimated at the time of grant and revised, if necessary, if the actual effect differs from those estimates.

Our accounting policy for equity instruments issued to consultants and vendors in exchange for goods and services follows the Financial Accounting Standards Board (the “FASB”) guidance. As such, the value of the applicable stock-based compensation is periodically remeasured and income or expense is recognized during the vesting terms. The measurement date for the fair value of the equity instruments issued is determined at the earlier of (i) the date at which a commitment for performance by the consultant or vendor is reached or (ii) the date at which the consultant or vendor’s performance is complete. In the case of equity instruments issued to consultants, the fair value of the equity instrument is recognized over the term of the consulting agreement. An asset acquired in exchange for the issuance of fully vested, nonforfeitable equity instruments should not be presented or classified as an offset to equity on the grantor’s balance sheet once the equity instrument is granted for accounting purposes. Accordingly, we record the fair value of nonforfeitable equity instruments issued for future consulting services as prepaid consulting fees in our consolidated balance sheets.

Income Taxes. As part of the process of preparing our consolidated financial statements, we must estimate our actual current tax liabilities together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within the balance sheet. We must assess the likelihood that the deferred tax assets will be recovered from future taxable income and, to the extent we believe that recovery is not likely, a valuation allowance must be established. To the extent we establish a valuation allowance or increase or decrease this allowance in a period, the impact will be included in the tax provision in the statement of operations.

Research and Development. The Company expenses all costs related to research and development as they are incurred. Research and development expenses consist of expenses incurred in performing research and development activities including salaries and benefits, and other overhead expenses, clinical trials, contract services and outsource contracts.

Intellectual Property. The costs of acquiring intellectual property rights to be used in the research and development process, including licensing fees and milestone payments, are charged to research and development expense as incurred in situations where we have not identified an alternative future use for the acquired rights, and are capitalized in situations where it has identified an alternative future use. No costs associated with acquiring intellectual property rights have been capitalized to date. Costs of maintaining intellectual property rights are expensed as incurred.

Off-Balance Sheet Arrangements

Since our inception, except for standard operating leases, we have not engaged in any off-balance sheet arrangements, including the use of structured finance, special purpose entities or variable interest entities. We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.

Recent Authoritative Guidance

See Note 2, “Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements for a discussion of recently issued authoritative guidance and its effect, if any, on us.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest rate sensitivity

We are exposed to market risks related to changes in interest rates. The primary objective of our investments in securities is to preserve principal. We do not purchase financial instruments for trading purposes. Our investment portfolio consists primarily of cash invested in money market funds. We classify our short-term restricted investment, which is a certificate of deposit as of December 31, 2013 as held-to-maturity. This held-to-maturity investment is subject to interest rate risk. Based on our current low yield, any decrease in interest rates is not likely to have a material effect on interest income.

As of December 31, 2013, approximately $14,600,000 of our cash and cash equivalents was maintained in money market funds. At times, deposits held with the financial institutions may exceed the amount of insurance provided by the Federal Deposit Insurance Corporation (“FDIC”), which provides deposit coverage with limits up to $250,000 per owner. At December 31, 2013, such uninsured deposits totaled approximately $15,300,000. Generally, these deposits may be redeemed upon demand and, therefore, are believed to bear minimal risk.

Financial instruments that potentially subject us to concentrations of credit risk consist of cash and cash equivalents. However, we seek to mitigate the risk related to cash and cash equivalents by placing our cash and cash equivalents in money market funds and at financial institutions of high credit standing.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements and supplementary data required by this item are included in Part IV, Item 15 of this Report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

None.

ITEM 9A. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Vice President, Accounting and Public Reporting, of the effectiveness of our “disclosure controls and procedures” as of the end of the period covered by this report, pursuant to Rules 13a-15(b) and 15d-15(b) under the Securities Exchange Act of 1934, as amended.

In connection with that evaluation, our CEO and Vice President, Accounting and Public Reporting concluded that our disclosure controls and procedures were effective and designed to provide reasonable assurance that the information required to be disclosed is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms as of December 31, 2013. For the purpose of this review, disclosure controls and procedures means controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. These disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit is accumulated and communicated to management, including our principal executive officer, principal financial officer and principal accounting officer, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Internal control over financial reporting is a process designed by, or under the supervision of, our CEO and Vice President, Accounting and Public Reporting and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Under the supervision and with the participation of the management, our CEO and Vice President, Accounting and Public Reporting, conducted an evaluation of the effectiveness of the internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations (COSO). Based on such evaluation, management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2013.

This annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation requirements by our independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during our fourth fiscal quarter ended December 31, 2013, that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Our management, including our CEO and Vice President, Accounting and Public Reporting, do not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

ITEM 9B. OTHER INFORMATION

On March 26, 2014, the Board of Directors approved the amendment and restatement of the Company’s existing Bylaws. In addition to purely ministerial and other minor changes, the new Amended and Restated Bylaws include the following changes: (i) new sections were added to provide certain procedural requirements, as well as information and disclosure requirements, for advance notice of stockholder proposals and director nominations; and (ii) the Bylaws were amended to provide that other than as may be required by law, the Company’s Certificate of Incorporation or the Bylaws, the required vote for approval of matters by stockholders shall be the majority of the votes cast on a matter.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information relating to our directors and executive officers that is required by this item is incorporated by reference from the information under the captions “Election of Directors,” “Corporate Governance,” “Board of Directors and Committees” and “Executive Officers” contained in our definitive proxy statement (the “Proxy Statement”), which will be filed with the Securities and Exchange Commission in connection with our 2014 Annual Meeting of Stockholders.

Additionally, information relating to reporting of insider transactions in Company securities is incorporated by reference from the information under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” in the Proxy Statement.

Code of Business Conduct and Ethics

Our Board has adopted a Code of Business Conduct and Ethics that applies to all of our directors, officers and employees. The Code of Business Conduct and Ethics is available for review on our website at www.imprimispharma.com, and is also available in print, without charge, to any stockholder who requests a copy by writing to us at Imprimis Pharmaceuticals, Inc., 12626 High Bluff Dr., Suite 150, San Diego, CA 92130, Attention: Investor Relations. Each of our directors, employees and officers, including our Chief Executive Officer and Principal Financial Officer, and all of our other executive officers, are required to comply with the Code of Business Conduct and Ethics. There have not been any waivers of the Code of Business Conduct and Ethics relating to any of our executive officers or directors in the past year.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item is incorporated by reference to the information under the captions “Executive Compensation” and “Compensation Committee Interlocks and Insider Participation” and “Director Compensation” to be contained in the Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this item is incorporated by reference to the information under the captions “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information” to be contained in the Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this item is incorporated by reference to the information under the captions “Certain Relationships and Related Party Transactions,” “Director Independence” and “Board Committees” to be contained in the Proxy Statement.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this item is incorporated by reference to the information under the caption “Fees for Independent Registered Public Accounting Firm” to be contained in the Proxy Statement.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

FINANCIAL STATEMENTS

Imprimis Pharmaceuticals, Inc.

(A Development Stage Company)

Index to Consolidated Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
Imprimis Pharmaceuticals, Inc.

We have audited the accompanying consolidated balance sheets of Imprimis Pharmaceuticals, Inc. and subsidiary (a development stage company) (the “Company”) as of December 31, 2013 and 2012, and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2013 and for the period from July 24, 1998 (date of inception) through December 31, 2013. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit on its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Imprimis Pharmaceuticals, Inc. and subsidiary as of December 31, 2013 and 2012, and the consolidated results of their operations and their cash flows for each of the two years in the period ended December 31, 2013 and for the period from July 24, 1998 (date of inception) through December 31, 2013 in conformity with accounting principles generally accepted in the United States of America.

IMPRIMIS PHARMACEUTICALS, INC.

(A Development Stage Company)

CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these consolidated financial statements

IMPRIMIS PHARMACEUTICALS, INC.

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF OPERATIONS

The accompanying notes are an integral part of these consolidated financial statements

IMPRIMIS PHARMACEUTICALS, INC.

(Development Stage Company)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the years ended December 31, 2013 and 2012 and for the period from June 24, 1998 (Inception) through December 31, 2013

 The accompanying notes are an integral part of these consolidated financial statements

IMPRIMIS PHARMACEUTICALS, INC.

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS