Good morning, HnBadger. Hope all is well! Here

Good morning, HnBadger. Hope all is well!

Here is what Scrips said in its first quarter report about WholesaleRx and PIMD:

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In 2013, we entered into an agreement with WholesaleRx, Inc., which that represents over 700 such independent pharmacy operations and is DEA and State-licensed to store and distribute controlled substances (which are drugs that have the potential for abuse or dependence and are regulated under the federal Controlled Substances Act). WholesaleRx orders the goods from the manufacturers and has them shipped to its warehouse facility. WholesaleRx then ships the goods to the pharmacies in the bottles as received by the manufacturer. Upon receiving orders from the pharmacies, goods will be sent to them COD which will eliminate any accounts receivable issues. Under the November 1, 2013 Agreement, ScripsAmerica agreed to provide purchase order financing to WholesaleRx and purchased a 20% equity stake in WholesaleRx and as of March 31, 2014 our equity purchase is only 14%. In consideration for providing financing for WholesaleRx’s purchaser orders, and to cover the Company’s costs in administering the purchase order financing, WholesaleRx has agreed to pay the Company on or before the 15th calendar day of each month 14% of the gross profit (as described above) for the prior calendar month. If WholesaleRx is late in paying such 14% fee, then the amount owed will accrue interest at the rate of 18% per annum until paid.

In December, 2013, the Company revised an October 2013 purchase agreement to acquire 90% of the Membership Units in P.I.M.D. International, LLC (“PIMD”), a start-up limited liability company based in, and proposing to do business in, Florida. Although founded approximately 4 years ago, PIMD has had no sales, but has the necessary licenses for operation of a drug wholesale operation. The purchase of the Membership Units in PIMD was subject to certain conditions precedent, of which the most important was that the Company obtain the necessary licenses from Florida (and the DEA) for the ownership of a drug distribution company like PIMD. However, it was determined that securing the licenses was going to require a substantially longer period of time than the parties had anticipated. Consequently, in order to preserve the business opportunity, it was necessary to change the structure of the relationship. Accordingly, the original purchase agreement was cancelled and voided. The funds already advanced by ScripsAmerica to PIMD were converted to a loan and the relationship between PIMD and ScripsAmerica became a Sourcing and Marketing Agreement

Under this Sourcing and Marketing Agreement, which the Company entered into with PIMD in December 2013, the Company will assist PIMD by helping PIMD to (1) secure advantageous sources of drugs and (2) secure marketing and sales assistance in selling the drugs. For these services, the Company will receive a “Sourcing and Marketing Fee” which is 45% of the “Calculated Basis” to be calculated under a formula in the Sourcing and Marketing Agreement. PIMD has no material sales in fiscal 2013 and no sales as of the three months ended March 31, 2014, but should be operational by the end of June 2014. Under our agreement with PIMD, we have no authority or control with respect to PIMD’s business - the purchase of the drugs and the sale of the drugs. Additionally, we do not have any authority to bind PIMD for any transaction relating to the purchase, sale or transfer of pharmaceutical products.

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The Company is the primary beneficiary of P.I.M.D. International, LLC (“PIMD”), a start-up limited liability company based in, and proposing to do business in, Florida, which is considered to be a Variable Interest Entity (VIE). Our determination that PIMD is a variable interest entity (VIE) was based on the fact that PIMD’s equity at risk is insufficient to finance its activities. The Company would be considered the primary beneficiary of the VIE as it has both of the following characteristics: (a) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (b) the obligation to absorb losses of the VIE that could potentially be significant or the right to receive benefits from the VIE that could potentially be significant. ScripsAmerica receives a majority of PIMD’s expected profits and losses. We also will provide the primary financing for inventory purchases through related parties.

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Implex, a related party, borrowed $272,000 from ScripsAmerica at an interest rate of 2% and it has re-loaned the funds to PIMD at an interest rate of 5%. Implex will keep the 3% differential. The Company’s loan to Implex and Implex’s loan to PIMD are both for a 5-year period. Implex will be entering into a “Business Development and Retention Agreement” with PIMD to assist PIMD with the development of its business.

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While the drug supply chain management and distribution business appears to be moving backwards (e.g., 14% from WRx instead of 20%, 45% from PIMD instead of 90%, though the VIE status and loan to Implex are interesting disclosures considering that SCRC is entitled to only 45%), I suspect that the cash from the specialty pharmacy business will help kickstart this business and help it emerge into a solid contributor to SCRC's bottom line toward the end of the year. I have not given up on this business, nor do I believe has Scrips. Indeed, I believe there are possible synergies between the specialty pharmacy and drug supply and distribution businesses that could serve each business well and possibly feed of each other to grow revenues for both.


Here are some quotes from the Scrips 10Q on your RapiMeds questions:

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On March 10, 2014, we received a $200,000 purchase order for our children’s pain relief rapid orally disintegrating 80mg tablets from Global Pharma Hub for the China market. As of May 20, 2014, no shipments have been made and we do not expect to make any shipments until sometime in the third quarter of 2014...

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Clearly, RapiMeds China has been extremely slow to develop, and the product launch projections continue to be pushed further into the future. There have been some opinions that the $200K order was cancelled due to the long period that has lapsed since March 10th. I am still somewhat hopeful that the company will succeed with RapiMeds China, but do not expect significant revenues until next year, possibly strong revenues in Q4 this year. I will also note that per p. 15 of the Q1 report, Scrips prepaid the RapiMeds manufacturer $275K for the manufacture of RapiMeds. Recall that when the company announced the deal with IR, it said it intended to use part of the proceeds toward the RapiMeds China launch. So, perhaps, at least one good thing has come from the Ironridge deal (e.g., no more will be used to manufacture the first $200K shipment, and maybe the company will have prepaid credit remaining for additional orders).

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...and we estimate that we will need approximately $1.5 million of incremental funding to launch RapiMed® products in the United States. The funding for launching the rapid orally disintegrating products in the U.S. is expected to come from the sale of equity securities, and/or debt financing. However, such financing has not yet been secured.

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ScripsAmerica has already commenced the sales and marketing of its RapiMed® pediatric acetaminophen product in China and, subject to securing financing, we hope to roll out this product in the United States during 2014. Our target market for this RapiMed® product is 2-11 year olds and we anticipate that the formula for our orally disintegrating tablets will be more effective than existing products due to its ability to melt faster, taste better and provide more accurate dosing.

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I believe I have always been clear that I'm not a huge fan of launching RapiMeds in the U.S., and would have no problems if the company focused its RapiMed focus abroad.