Item 2: Managements Discussion and Analysis of Financial
Condition and Results of Operations
Introduction to Managements Discussion and Analysis
This Managements Discussion and Analysis of Financial
Condition and Results of Operations (MD&A) comments on our business
operations, performance, financial position and other matters for the
three-month and six-month periods ended June 30, 2016 and 2015.
Unless otherwise indicated, all financial and statistical
information included herein relates to continuing operations of the Company.
Unless otherwise indicated or the context otherwise requires, the words,
IntelGenx, Company, we, us, and our refer to IntelGenx Technologies
Corp. and its subsidiaries, including IntelGenx Corp.
This MD&A should be read in conjunction with the
accompanying unaudited Consolidated Financial Statements and Notes thereto. We
also encourage you to refer to the Companys MD&A for the year ended
December 31, 2015. In preparing this MD&A, we have taken into account
information available to us up to August 11, 2016, the date of this MD&A,
unless otherwise indicated.
Additional information relating to the Company, including our
Annual Report on Form 10-K for the fiscal year ended December 31, 2015 (the
2015 Form 10-K), is available on SEDAR at www.sedar.com and on the U.S.
Securities and Exchange Commission (the SEC) website at www.sec.gov.
All dollar amounts are expressed in U.S. dollars, unless
otherwise noted.
Cautionary Statement Concerning Forward-Looking Statements
Certain statements included or incorporated by reference in
this MD&A constitute forward-looking statements within the meaning of
applicable securities laws. All statements contained in this MD&A that are
not clearly historical in nature are forward-looking, and the words
anticipate, believe, continue, expect, estimate, intend, may,
plan, will, shall and other similar expressions are generally intended to
identify forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
All forward-looking statements are based on our beliefs and assumptions based on
information available at the time the assumption was made. These forward-looking
statements are not based on historical facts but on managements expectations
regarding future growth, results of operations, performance, future capital and
other expenditures (including the amount, nature and sources of funding
thereof), competitive advantages, business prospects and opportunities.
Forward-looking statements involve significant known and unknown risks,
uncertainties, assumptions and other factors that may cause our actual results,
levels of activity, performance or achievements to differ materially from those
implied by forward-looking statements. These factors should be considered
carefully and you should not place undue reliance on the forward-looking
statements. Although the forward-looking statements contained in this MD&A
or incorporated by reference herein are based upon what management believes to
be reasonable assumptions, there is no assurance that actual results will be
consistent with these forward-looking statements. These forward-looking
statements are made as of the date of this MD&A or as of the date specified
in the documents incorporated by reference herein, as the case may be.
We
undertake no obligation to update any forward looking statements to reflect
events or circumstances after the date on which such statements were made or to
reflect the occurrence of unanticipated events, except as may be required by
applicable securities laws.
The factors set forth in Item 1A., "Risk
Factors" of the 2015 Form 10-K, as well as any cautionary language in this
MD&A, provide examples of risks, uncertainties and events that may cause our
actual results to differ materially from the expectations we describe in our
forward-looking statements. Before you invest in the common stock, you should be
aware that the occurrence of the events described as risk factors and elsewhere
in this report could have a material adverse effect on our business, operating
results and financial condition.
16
Company Background
We are a drug delivery company established in 2003 and
headquartered in Montreal, Quebec, Canada. Our focus is on the development of
novel oral immediate-release and controlled-release products for the
pharmaceutical market. Our business strategy is to develop pharmaceutical
products based on our proprietary drug delivery technologies and, once the
viability of a product has been demonstrated, to license the commercial rights
to partners in the pharmaceutical industry. In certain cases, we rely upon
partners in the pharmaceutical industry to fund development of the licensed
products, complete the regulatory approval process with the U.S. Food and Drug
Administration (FDA) or other regulatory agencies relating to the licensed
products, and assume responsibility for marketing and distributing such
products.
In addition, we may choose to pursue the development of certain
products until the project reaches the marketing and distribution stage. We will
assess the potential for successful development of a product and associated
costs, and then determine at which stage it is most prudent to seek a partner,
balancing such costs against the potential for additional returns earned by
partnering later in the development process.
Our primary growth strategies include: (1) identifying
lifecycle management opportunities for existing market leading pharmaceutical
products, (2) repurposing existing drugs for new indications, (3) developing
generic drugs where high technology barriers to entry exist in reproducing
branded films, (4) manufacturing our VersaFilm products for commercial sale and
(5) development of new drug delivery technologies.
Lifecycle Management Opportunities
We are seeking to position our delivery technologies as an
opportunity for lifecycle management of products for which patent protection of
the active ingredient is nearing expiration. While the patent for the underlying
substance cannot be extended, patent protection can be obtained for a new and
improved formulation by filing an application with the FDA under Section
505(b)(2) of the U.S. Federal Food, Drug and Cosmetic Act. Such applications,
known as a 505(b)(2) NDA, are permitted for new drug products that incorporate
previously approved active ingredients, even if the proposed new drug
incorporates an approved active ingredient in a novel formulation or for a new
indication. A 505(b)(2) NDA may include information regarding safety and
efficacy of a proposed drug that comes from studies not conducted by or for the
applicant. The first formulation for a respective active ingredient filed with
the FDA under a 505(b)(2) application may qualify for up to three years of
market exclusivity upon approval. Based upon a review of past partnerships
between third party drug delivery companies and pharmaceutical companies,
management believes that drug delivery companies which possess innovative
technologies to develop these special dosage formulations present an attractive
opportunity to pharmaceutical companies. Accordingly, we believe 505(b)(2)
products represent a viable business opportunity for us.
Repurposing Existing Drugs
We are working on the repurposing of already approved drugs for
new indications using our VersaFilm film technology. This program represents a
viable growth strategy for us as it will allow for reduced development costs,
improved success rates and shorter approval times. We believe that through our
repurposing program we will be able minimize the risk of developmental failure
and create value for us and potential partners.
Generic Drugs with High Barriers to Entry
We plan to pursue
the development of generic drugs that have certain barriers to entry, e.g.,
where product development and manufacturing is complex and can limit the number
of potential entrants into the generic market. We plan to pursue such projects
only if the number of potential competitors is deemed relatively
insignificant.
VersaFilm Manufacturing
We are in the process of establishing a state-of-the-art
manufacturing facility for the future manufacture of our VersaFilm products.
Construction of the manufacturing and laboratories are now completed and
equipment is being prepared to begin manufacturing in 2017. We believe that
this (1) represents a profitable business opportunity, (2) will reduce our
dependency upon third-party contract manufacturers, thereby protecting our
manufacturing process know-how and intellectual property, and (3) allows us to
offer our development partners a full service from product conception through to
supply of the finished product.
17
Development of New Drug Delivery Technologies
The rapidly disintegrating film technology contained in our
VersaFilm, and our AdVersa mucosal adhesive tablet, are two examples of our
efforts to develop alternate technology platforms. As we work with various
partners on different products, we seek opportunities to develop new proprietary
technologies.
We continue to develop the existing products in our pipeline
and may also perform research and development on other potential products as
opportunities arise.
As previously announced, we have financed the project from cash
in hand and a government-backed bank financing of up to CAD$3.5 million with the
Bank as well as a CAD$1 million loan from Investissement Québec (IQ).
We plan to hire new personnel, primarily in the areas of
research and development, manufacturing, and administration on an as-needed
basis as we enter into partnership agreements, establish our VersaFilm
manufacturing capability, and increase our research and development activities.
Most recent key developments
We are actively pursuing late-stage discussions with the global
pharmaceutical company for up to three products with the potential goal of
concluding a definitive agreement to be finalized in the third quarter of
2016.
Also, just following the end of the quarter, on July 5, 2016,
the Company announced the signing of the definitive agreement with Grupo Juste
S.A.Q.F. for the commercialization of RIZAPORT
, a unique oral thin
film for the treatment of acute migraines, in the country of Spain. All
commercial manufacturing of RIZAPORT
will take place at our new
state-of-the-art manufacturing facility in Canada. Grupo Juste is a prominent
private Spanish company with over 90 years of experience in the research,
development and commercialization of proprietary pharmaceutical products,
including migraine and other central nervous system drugs, in Europe, Latin
America and other territories.
According to the definitive agreement, Grupo Juste has obtained
exclusive rights to register, promote and distribute RIZAPORT
in
Spain. In exchange, we and Redhill Biopharma will receive upfront and milestone
payments, together with a share of the net sales of RIZAPORT
.
Commercial launch in Spain is estimated to take place in the second half of
2017. The initial term of the definitive agreement shall be for ten years from
the date of first commercial sale of the product and shall automatically renew
for one additional two-year term. The agreement will give Grupo Juste the right
to market the product in the territory of Spain, with the right of first refusal
for a predefined term for certain Latin American and Middle East countries.
On July 13, 2016, the company announced the initiation of a
phase 1 clinical trial of montelukast, a unique drug repurposing opportunity for
the treatment of degenerative diseases of the brain, such as: mild cognitive
impairment and Alzheimers disease, the most prominent form of dementia. The
objectives of the trial are to demonstrate that IntelGenx oral film product will
provide therapeutically effective blood levels of montelukast, and that
montelukast when delivered using IntelGenx oral film crosses the blood brain
barrier.
We are collaborating with Dr. Ludwig Aigner, a neuroscientist
who is a member of IntelGenx Scientific Advisory Board and head of the Institute
of Molecular Regenerative Medicine at the Paracelsus Medical University in
Salzburg, Austria. Dr. Aigner has made major contributions in the field of brain
and spinal cord regeneration over the last 25 years. He was the first to develop
tools to visualize neurogenesis in living animals and identified signaling mechanisms that are crucially involved in limiting brain
regeneration. One of these mechanisms, leukotriene signaling, is related to
asthma. In consequence, Dr. Aigner and his team recently demonstrated that the
anti-asthmatic drug montelukast structurally and functionally rejuvenates the
aged brain. His main aim is to develop molecular and cellular therapies for
patients with neurodegenerative diseases and for the aged population.
18
We expect results from the phase 1 trial to be available in
September 2016. Following the completion of the phase 1 results, the Company
will begin preparation work to initiate a phase 2 study where patients will be
enrolled. We will be actively seeking a partnership or alliance opportunity to
complete the remaining developmental work and commercialization of this product.
Product related developments
Anti-depressant tablet, Forfivo
XL
®
Forfivo XL
®
, our first FDA approved product, was
launched in October 2012 and is being marketed in the United States under the
terms of a license agreement between us and Edgemont Pharmaceuticals. Forfivo
XL
®
is indicated for the treatment of Major Depressive Disorder
(MDD) and is the only extended-release bupropion HCl product to provide a
once-daily, 450mg dose in a single tablet. The active ingredient in Forfivo
XL
®
is bupropion, the same active ingredient used in the well-known
antidepressant product Wellbutrin XL
®
. Prior to the launch of Forfivo
XL
®
, most patients in the U.S. requiring a 450mg dose of bupropion
had been taking multiple tablets to achieve their 450mg dose requirement. With
Forfivo XL
®
now available in the U.S., these patients can simplify
their dosing regimen to a single Forfivo XL
®
tablet, once-daily.
According to the official Edgemont Pharmaceuticals sales
report, net sales of Forfivo XL
®
totaled $3.1 million in the second
quarter ended June 30, 2016, representing an increase of 24% compared to $2.5
million recorded in the first quarter ended March 31, 2016 and an increase of
48% compared to $2.1 million recorded in last years corresponding period.
Corporate related developments
New Manufacturing Facility with increased R&D and
Administration space
On April 24, 2015, we entered into an agreement to lease
approximately 17,000 square feet in a property located at 6420 Abrams,
St-Laurent, Quebec (the Lease). The Lease has a 10 year and 6 month term which
commenced on September 1, 2015 and we have retained two options to extend the
Lease, with each option being for an additional five years. Under the terms of
the Lease we will be required to pay base rent of approximately CAD$110 thousand
(approximately $85 thousand) per year, which will increase at a rate of CAD$0.25
($0.19) per square foot /per year, every two years. We plan to use the newly
leased space to manufacture our oral film VersaFilm products, to enlarge our
research and development capabilities, and for administration purposes.
We also finalised negotiations on April 29, 2015 for an
agreement for the construction of manufacturing facilities, laboratories, and
offices within the property located at 6420 Abrams, St-Laurent, Quebec, at an
aggregate cost of CAD$2.9 million (approximately $2.5 million). The construction
agreement was awarded to BTL Construction Inc. (BTL) in Quebec following a
tender process that was completed in December 2014. BTL specializes in the
construction and renovation of facilities for the pharmaceutical industry, and
has completed projects for various major pharmaceutical companies. We funded
this project from cash on hand as well as a CAD$1 million loan from IQ.
Construction was successfully completed in Q1, 2016.
As of June 30, 2016, we have received CAD$3.5 million in cash
as part of a credit facility of up to CAD$3.5 million (approximately $3.0
million) negotiated with the Bank. The credit facility is supported by a 50%
guarantee under the Export Guarantee Program from Export Development Canada,
Canadas export credit agency. The financial covenants of the credit facility
require us to maintain a Minimum Debt Service Coverage ratio of 1.25:1, and a
Maximum Total Debt to Tangible Net Worth ratio of 2.5:1. As part of securing the
credit facility, we will maintain our operating bank account with the Bank and
we will conduct all future banking transactions related to our business
operations through the Bank. We used the funds for the purchase and installation
of new equipment for our new, state-of the-art, manufacturing facility.
19
On March 16, 2015 we placed an order for two packaging machines
to be manufactured by Harro Höfliger Verpackungsmaschinen GmbH (Harro
Höfliger). Harro Hofliger is widely recognized as a technological leader in the
supply of production and packaging equipment to the pharmaceutical and medical
device industries. Our purchase order consisted of one commercial scale
packaging machine for the commercial packaging of our VersaFilm products, and
one smaller machine for our R&D laboratories to be used for clinical trials,
submission batches and manufacturing scale up. The purchase order, in the
aggregate amount of approximately €1.5 million (approximately $1.7 million),
required a payment of a 20% deposit with a further 70% to be paid upon delivery
of each machine and the balance of 10% to be paid upon satisfactory completion
of a Site Acceptance Test of each machine. The laboratory packaging machine was
delivered in Q4, 2015 and the commercial packaging machine was delivered and
installed in our new state-of-the-art facility in Q2, 2016. We financed the
acquisition of these two machines with the credit facility negotiated with the
Bank, as discussed above.
All amounts are expressed in thousands of U.S. dollars
unless otherwise stated.
Currency rate fluctuations
Our operating currency is Canadian dollars, while our reporting
currency is U.S. dollars. Accordingly, our results of operations and balance
sheet position have been affected by currency rate fluctuations. In summary, our
financial statements for the six-month period ended June 30, 2016 report an
accumulated other comprehensive loss due to foreign currency translation
adjustments of $653 due to the fluctuations in the rates used to prepare our
financial statements, $73 of which positively impacted our comprehensive loss
for the six-month period ended June 30, 2016. The following Management
Discussion and Analysis takes this into consideration whenever material.
Reconciliation of Comprehensive Income (Loss) to Adjusted
Earnings before Interest, Taxes, Depreciation and Amortization (Adjusted
EBITDA)
Adjusted EBITDA is a non-US GAAP financial measure. A
reconciliation of the Adjusted EBITDA is presented in the table below. The
Company uses adjusted financial measures to assess its operating performance.
Securities regulations require that companies caution readers that earnings and
other measures adjusted to a basis other than US-GAAP do not have standardized
meanings and are unlikely to be comparable to similar measures used by other
companies. Accordingly, they should not be considered in isolation. The Company
uses Adjusted EBITDA to measure its performance from one period to the next
without the variation caused by certain adjustments that could potentially
distort the analysis of trends in our operating performance, and because the
Company believes it provides meaningful information on the Companys financial
condition and operating results.
IntelGenx obtains its Adjusted EBITDA measurement by adding to
comprehensive income (loss), finance income and costs, depreciation and
amortization, income taxes and foreign currency translation adjustment incurred
during the period. IntelGenx also excludes the effects of certain non-monetary
transactions recorded, such as share-based compensation, for its Adjusted EBITDA
calculation. The Company believes it is useful to exclude these items as they
are either non-cash expenses, items that cannot be influenced by management in
the short term, or items that do not impact core operating performance.
Excluding these items does not imply they are necessarily nonrecurring.
Share-based compensation costs are a component of employee and consultants
remuneration and can vary significantly with changes in the market price of the
Companys shares. Foreign currency translation adjustments are a component of
other comprehensive income and can vary significantly with currency fluctuations
from one period to another. In addition, other items that do not impact core
operating performance of the Company may vary significantly from one period to
another. As such, Adjusted EBITDA provides improved continuity with respect to
the comparison of the Companys operating results over a period of time. Our
method for calculating Adjusted EBITDA may differ from that used by other
corporations.
20
Reconciliation of Non-US-GAAP Financial Information
|
|
Three-month period
|
|
|
Six-month period
|
|
|
|
|
|
|
ended June 30,
|
|
|
|
|
|
ended June 30,
|
|
In U.S.$ thousands
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
$
|
|
$
|
$
|
|
$
|
$
|
|
$
|
$
|
|
Comprehensive loss
|
|
(806
|
)
|
|
(220
|
)
|
|
(1,513
|
)
|
|
(596
|
)
|
Add (deduct):
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
100
|
|
|
16
|
|
|
187
|
|
|
32
|
|
Finance costs
|
|
46
|
|
|
17
|
|
|
86
|
|
|
95
|
|
Finance income
|
|
-
|
|
|
(3
|
)
|
|
-
|
|
|
(13
|
)
|
Share-based compensation
|
|
29
|
|
|
59
|
|
|
92
|
|
|
80
|
|
Foreign currency
translation adjustment
|
|
(34
|
)
|
|
(55
|
)
|
|
(73
|
)
|
|
268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
(665
|
)
|
|
(186
|
)
|
|
(1,221
|
)
|
|
(134
|
)
|
Adjusted Earnings before Interest, Taxes, Depreciation and
Amortization (Adjusted EBITDA)
Adjusted EBITDA decreased by $479 for the three-month period
ended June 30, 2016 to ($665) compared to ($186) for the three-month period
ended June 30, 2015. Adjusted EBITDA decreased by $1,087 for the six-month
period ended June 30, 2016 to ($1,221) compared to ($134) for the six-month
period ended June 30, 2015. The decrease in Adjusted EBITDA of $479 for the
threemonth period ended June 30, 2016 is mainly attributable to an increase in
selling, general and administrative expenses of $315 as well as an increase in
research and development expenses of $174. The decrease in Adjusted EBITDA of
$1,087 for the sixmonth period ended June 30, 2016 is mainly attributable to an
increase in selling, general and administrative expenses of $813 as well as an
increase in research and development expenses of $538 partially offset by an
increase in revenues of $280.
21
Results of operations for the three-month and six-month
periods ended June 30, 2016 compared with the three-month and six-month periods
ended June 30, 2015.
|
|
Three-month
period
|
|
|
Six-month
period ended
|
|
|
|
ended June
30,
|
|
|
June 30,
|
|
|
|
|
In U.S.$ thousands
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Revenue
|
$
|
672
|
|
$
|
585
|
|
$
|
1,490
|
|
|
1,210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Royalty and License
Revenue
|
|
66
|
|
|
19
|
|
|
131
|
|
|
103
|
|
Research and Development Expenses
|
|
426
|
|
|
252
|
|
|
907
|
|
|
369
|
|
Selling, General and
Administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
874
|
|
|
559
|
|
|
1,765
|
|
|
952
|
|
Depreciation of tangible
assets
|
|
100
|
|
|
6
|
|
|
187
|
|
|
13
|
|
Amortization of intangible assets
|
|
-
|
|
|
10
|
|
|
-
|
|
|
19
|
|
Operating loss
|
|
(794
|
)
|
|
(261
|
)
|
|
(1,500
|
)
|
|
(246
|
)
|
Net loss
|
|
(840
|
)
|
|
(275
|
)
|
|
(1,586
|
)
|
|
(328
|
)
|
Comprehensive loss
|
|
(806
|
)
|
|
(220
|
)
|
|
(1,513
|
)
|
|
(596
|
)
|
Revenue
Total revenues for the three-month period ended June 30, 2016
amounted to $672, representing an increase of $87 or 15% compared to $585 for
the three-month period ended June 30, 2015. Total revenues for the six-month
period ended June 30, 2016 amounted to $1,490, representing an increase of $280
or 23% compared to $1,210 for the six-month period ended June 30, 2015. The
increase for the three-month period ended June 30, 2016 compared to the last
years corresponding period is mainly attributable to an increase in royalties
of $480 due to the Companys recording of both Q1 and Q2 royalty amounts in the
present quarter. Edgemont reported the Q2 royalties to the Company shortly after
the end of the quarter which allowed the Company to record the revenues in the
second quarter. The increase was offset by a decrease in deferred revenues
recognized of $393. The increase for the six-month period ended June 30, 2016
compared to the last years corresponding period is mainly attributable to an
increase in royalties of $625 as just previously explained offset by a decrease
in deferred revenues recognized of $345.
Cost of royalty and license revenue
We recorded $66 for the cost of royalty and license revenue in
the three-month period ended June 30, 2016 compared with $19 in the same period
of 2015. We recorded $131 for the cost of royalty and license revenue in the
six-month period ended June 30, 2016 compared with $103 in the same period of
2015. This expense relates to a Project Transfer Agreement that was executed in
May 2010 with one of our former development partners whereby we acquired full
rights to, and ownership of, Forfivo XL
®
, our novel, high strength
formulation of Bupropion hydrochloride, the active ingredient in Wellbutrin
XL
®
. Pursuant to the Project Transfer Agreement, and following
commercial launch of Forfivo XL
®
in October 2012, we are required,
after recovering an aggregate $200 for management fees previously paid, to pay
our former development partner 10% of net product sales received from the sale
of Forfivo XL
®
. We recovered the final portion of the management fees
in December 2014, thereby invoking payments to our former development partner.
Research and development (R&D) expenses
R&D expenses for the three-month period ended June 30, 2016
amounted to $426, representing an increase of $174 or 69%, compared to $252 for the three-month period ended June
30, 2015. R&D expenses for the six-month period ended June 30, 2016 amounted
to $907, representing an increase of $538 or 146%, compared to $369 for the
six-month period ended June 30, 2015.
22
The increase in R&D expenses for the three-month period
ended June 30, 2016 is mainly attributable to increases in patent costs of $64,
analytical costs of $35 and lab supplies of $49. The increase in R&D
expenses for the six-month period ended June 30, 2016 is mainly attributable to
increases in patent costs of $270, study costs of $54, analytical costs of $47,
lab supplies of $96 as well as R&D salaries of $41.
In the three-month period ended June 30, 2016 we recorded
estimated Research and Development Tax Credits and refunds of $23, compared with
$24 that was recorded in the same period of the previous year. In the six-month
period ended June 30, 2016 we recorded estimated Research and Development Tax
Credits and refunds of $45, compared with $48 that was recorded in the same
period of the previous year.
Selling, general and administrative (SG&A) expenses
SG&A expenses for the three-month period ended June 30,
2016 amounted to $874, representing an increase of $315 or 56%, compared to $559
for the three-month period ended June 30, 2015. SG&A expenses for the
six-month period ended June 30, 2016 amounted to $1,765, representing an
increase of $813 or 85%, compared to $952 for the six-month period ended June
30, 2015.
The increase in SG&A expenses for the three-month period
ended June 30, 2016 is mainly attributable to an increase in salaries and
benefits of $193 attributable to the hiring of new executives as well as
employees in manufacturing and quality departments to support the beginning of
the manufacturing operations. The increase was also attributable to an increase
in business development expenses of $70 and an increase in leasehold expenses of
$40. The increase in SG&A expenses for the six-month period ended June 30,
2016 is mainly attributable to an increase in salaries and benefits of $475
attributable to the hiring of new executives as well as employees in
manufacturing and quality departments to support the beginning of the
manufacturing operations. The increase was also attributable to an increase in
business development expenses of $113 and an increase in leasehold expenses of
$65, an increase in office expenses of $53 as well as an increase in foreign
exchange loss of $136.
Depreciation of tangible assets
In the three-month period ended June 30, 2016 we recorded an
expense of $100 for the depreciation of tangible assets, compared with an
expense of $6 thousand for the same period of the previous year. In the
six-month period ended June 30, 2016 we recorded an expense of $187 for the
depreciation of tangible assets, compared with an expense of $13 thousand for
the same period of the previous year. The increases in the depreciation of
tangible assets are mainly attributable to the commencement of the depreciation
of the leasehold improvement as well as the plant equipment.
Share-based compensation expense, warrants and stock based
payments
Share-based compensation warrants and share-based payments
expense for the three-month period ended June 30, 2016 amounted to $29 compared
to $59 for the three-month period ended June 30, 2015. Share-based compensation
warrants and share-based payments expense for the six-month period ended June
30, 2016 amounted to $92 compared to $80 for the six-month period ended June 30,
2015.
We expensed approximately $25 in the three-month period ended
June 30, 2016 for options granted to our employees in 2013, 2014 and 2015 under
the 2006 Stock Option Plan, and approximately $4 for options granted to
non-employee directors in 2013, 2014 and 2015, compared with $7 and $52
respectively that was expensed in the same period of the previous year. We
expensed approximately $51 in the six-month period ended June 30, 2016 for options granted to our employees in 2013, 2014 and 2015 under
the 2006 Stock Option Plan, and approximately $41 for options granted to
non-employee directors in 2013, 2014 and 2015, compared with $25 and $55
respectively that was expensed in the same period of the previous year.
23
There remains approximately $128 in stock based compensation to
be expensed in fiscal 2016 and 2017, all of which relates to the issuance of
options to our employees and directors during 2013 to 2015. We anticipate the
issuance of additional options and warrants in the future, which will continue
to result in stock-based compensation expense.
Key items from the balance sheet
|
|
|
|
|
|
|
|
|
|
|
Percentage
|
|
|
|
June 30,
|
|
|
December
|
|
|
Increase/
|
|
|
Increase/
|
|
In U.S.$ thousands
|
|
2016
|
|
|
31, 2015
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
Current Assets
|
$
|
2,105
|
|
$
|
4,172
|
|
$
|
(2,067
|
)
|
|
(50%
|
)
|
Leasehold improvements
|
|
|
|
|
|
|
|
|
|
|
|
|
and Equipment
|
|
5,895
|
|
|
4,238
|
|
|
1,657
|
|
|
39%
|
|
Security Deposit
|
|
735
|
|
|
506
|
|
|
229
|
|
|
45%
|
|
Current Liabilities
|
|
1,734
|
|
|
1,779
|
|
|
(45
|
)
|
|
(3%
|
)
|
Long-term debt
|
|
2,813
|
|
|
1,546
|
|
|
1,267
|
|
|
82%
|
|
Capital Stock
|
|
1
|
|
|
1
|
|
|
0
|
|
|
0%
|
|
Additional Paid-in-Capital
|
|
22,938
|
|
|
22,846
|
|
|
92
|
|
|
4%
|
|
Current assets
Current assets totaled $2,105 as at June 30, 2016 compared with
$4,172 at December 31, 2015. The decrease of $2,067 is mainly attributable to a
decrease in cash and cash equivalents of approximately $1,769 and a decrease in
accounts receivable of approximately $390, partially offset by an increase in
investment tax credits receivable of $53.
Cash and cash equivalents
Cash and cash equivalents totaled $1,096 as at June 30, 2016
representing a decrease of $1,769 compared with the balance of $2,865 as at
December 31, 2015. The decrease in cash on hand relates to net cash used by
operating activities of $1,658 as well as net cash used in investing activities
of $1,844, partially offset by net cash provided by financing activities of
$1,499 and an unrealized foreign exchange gain of $234.
The cash provided by financing activities derives from an
additional loan disbursement in the amount of $1,569 negotiated with the Lender
secured by a first ranking movable hypothec on all present and future movable
property of the Company and a 50% guarantee by Export Development Canada, a
Canadian Crown corporation export credit agency.
Accounts receivable
Accounts receivable totaled $750 as at June 30, 2016
representing a decrease of $390 compared with the balance of $1,140 as at
December 31, 2015. The main reason for the decrease is related to the remaining
balance of $1,000 received in Q1 2016 from Edgemonts $3,000 milestone payment.
24
Prepaid expenses
As at June 30, 2016 prepaid expenses totaled $109 compared with
$70 as of December 31, 2015. The increase in prepaid expenses is attributable to
the advance payment in January 2016 of certain expenses that relate to services
to be provided in the remainder of the year.
Investment tax credits receivable
R&D investment tax credits receivable totaled approximately
$150 as at June 30, 2016 compared with $97 as at December 31, 2015. The increase
relates to the accrual estimated and recorded for the first half of 2016.
Leasehold improvements and equipment
As at June 30, 2016, the net book value of leasehold
improvements and equipment amounted to $5,895, compared to $4,238 at December
31, 2015. In the six-month period ended June 30, 2016 additions to assets
totaled $1,844 and mainly comprised of $1,540 for manufacturing and packaging
equipment required for our new, state-of-the-art, VersaFilm manufacturing
facility, and $187 for leasehold improvements related to our new manufacturing
facility at 6420 Abrams, St-Laurent, Quebec, Canada, and $90 for laboratory
equipment.
Security deposit
A security deposit in the amount of CAD$300 in respect of an
agreement to lease approximately 17,000 square feet in a property located at
6420 Abrams, St-Laurent, Quebec, Canada was recorded as at June 30, 2016.
Security deposits in the amount of CAD$650 for the term loans were also recorded
as at June 30, 2016.
Accounts payable and accrued liabilities
Accounts payable and accrued liabilities totaled $1,157 as at
June 30, 2016 compared with $1,595 as at December 31, 2015. The decrease is
mainly attributable to the outstanding amount due to the construction Company
related to our new facility located at 6420 Abrams, St-Laurent, Quebec that was
paid in the six-month period ended June 30, 2016.
Long-term debt
Long-term debt totaled $3,390 as at June 30, 2016 (December 31,
2015 - $1,730). An amount of $2,616 is attributable to term loan from the lender
secured by a first ranking movable hypothec on all present and future movable
property of the Company and a 50% guarantee by Export Development Canada, a
Canadian Crown corporation export credit agency.
An amount of $774 is attributable to a second loan secured by a
second ranking on all present and future property of the Company reimbursable in
monthly principal payments starting January 2017 to December 2021.
Shareholders equity
As at June 30, 2016 we had accumulated a deficit of $18,143
compared with an accumulated deficit of $16,557 as at December 31, 2015. Total
assets amounted to $8,735 and shareholders equity totaled $4,143 as at June 30,
2016, compared with total assets and shareholders equity of $8,916 and $5,564
respectively, as at December 31, 2015.
Capital stock
As at June 30, 2016 capital stock amounted to $0.636 (December
31, 2015: $0.636) . Capital stock is disclosed at its par value with the excess of proceeds shown in Additional
Paid-in-Capital.
25
Additional paid-in-capital
Additional paid-in capital totaled $22,938 as at June 30, 2016,
as compared to $22,846 as at December 31, 2015. Additional paid in capital
increased by $92 for stock based compensation attributable to the amortization
of stock options granted to employees and directors.
Taxation
As at December 31, 2015, the date of our latest annual tax
return, we had Canadian and provincial net operating losses of approximately
$6,462 (December 31, 2014: $9,530) and $6,725 (December 31, 2014: $9,683)
respectively, which may be applied against earnings of future years. Utilization
of the net operating losses is subject to significant limitations imposed by the
change in control provisions. Canadian and provincial losses will be expiring
between 2027 and 2035. A portion of the net operating losses may expire before
they can be utilized.
As at December 31, 2015, we had non-refundable tax credits of
$1,022 (December 31, 2014: $1,100) of which $8 is expiring in 2026, $9 is
expiring in 2027, $163 is expiring in 2028, $143 is expiring in 2029, $122 is
expiring in 2030, $129 is expiring in 2031, $162 is expiring in 2032, $108 is
expiring in 2033, $82 expiring in 2034 and $96 is expiring in 2035. We also had
undeducted research and development expenses of $6,315 (December 31, 2014:
$4,805) with no expiration date.
The deferred tax benefit of these items was not recognized in
the accounts as it has been fully provided for.
Key items from the statement of cash flows
|
|
June 30,
|
|
|
June 30,
|
|
|
Increase/
|
|
|
Percentage
|
|
In U.S.$ thousands
|
|
|
|
|
|
|
|
|
|
|
Increase/
|
|
|
|
2016
|
|
|
2015
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
Operating Activities
|
$
|
(1,658
|
)
|
$
|
(479
|
)
|
$
|
(1,179
|
)
|
|
(246%
|
)
|
Financing Activities
|
|
1,499
|
|
|
433
|
|
|
1,066
|
|
|
246%
|
|
Investing Activities
|
|
(1,844
|
)
|
|
(1,425
|
)
|
|
(419
|
)
|
|
(29%
|
)
|
Cash and cash equivalents - end of period
|
|
1,096
|
|
|
2,663
|
|
|
(1,567
|
)
|
|
(59%
|
)
|
Statement of cash flows
Net cash used in operating activities was $1,658 for the
six-month period ended June 30, 2016, compared to $479 for the six-month period
ended June 30, 2015. For the six-month period ended June 30, 2016, net cash used
by operating activities consisted of a net loss of $1,586 (2015: $328) and a
decrease in non-cash operating elements of working capital of $351 (2015:
$263).
The net cash provided by financing activities was $1,499 for
the six-month period ended June 30, 2016, compared to $433 provided in the same
period of the previous year. An amount of $1,569 derives from disbursements of a
term loan negotiated with the Bank for the six-month period ended June 30, 2016
(2015: $399).
Net cash used in investing activities amounted to $1,844 for
the six-month period ended June 30, 2016 compared to $1,425 in the same period
of 2015. The net cash used in investing activities for the six-month period
ended June 30, 2016 relates exclusively to the purchase of fixed assets and
mainly comprised of $1,540 for manufacturing and packaging equipment required
for our new, state-of-the-art, VersaFilm manufacturing facility, and $187 for
leasehold improvements related to our new manufacturing
facility at 6420 Abrams, St-Laurent, Quebec, and $90 for laboratory equipment.
26
The balance of cash and cash equivalents as at June 30, 2016
amounted to $1,096, compared to $2,663 as at June 30, 2015.
Subsequent Event
On August 5, 2016, the Company sold its royalty on future sales
of Forfivo XL
®
to SWK Holdings Corporation for $6 million.
Under the terms of the agreement, SWK has paid IntelGenx $6
million at closing. In return for, (i) 100% of any and all royalties or similar
royalty amounts received on or after April 1, 2016, (ii) 100% of the $2 million
milestone payment upon Edgemont reaching annual net sales of $15 million, and
(iii) 35% of all potential future milestone payments. 10% of the proceeds will
be paid to our former development partner, Cary Pharmaceuticals Inc.
Off-balance sheet arrangements
We have no off-balance sheet arrangements.