Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations
Introduction to Management’s Discussion and Analysis
This Management’s 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 nine-month
periods ended September 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 Company’s 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 November 10, 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 management’s 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.
Development of New Drug Delivery Technologies
17
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 Manufacturing Establishment and Laboratory Expansion 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
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 11, 2016, the Company announced the receipt of the notice of appeal for the buprenorphine/naloxone sublingual film product for the treatment of opiate addiction by Par Pharmaceutical, Inc. (Par) and the Company to the United States Court of
Appeals for the Federal Circuit from the final judgment issued by the U.S. District Court for the District of Delaware on June 28, 2016.
The ruling in the U.S. District Court of Delaware in the ANDA litigation of Par and the Company against Indivior PLC and Monosol Rx, LLC resulted in Par and the Company prevailing on the non-infringement of the U.S. Patent No. 8,017,150, which is
set to expire in 2023, and on the invalidity (all claims) and non-infringement (certain claims) of the U.S. Patent No. 8,475,832, which is set to expire in 2030. The Court also ruled that Par's ANDA product would infringe the asserted claims of U.S.
Patent No. 8,603,514, one of the Orange Book listed patents for Suboxone Film, and that the asserted claims of U.S. Patent No. 8,603,514 were not shown to be invalid.
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.
18
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.
On August 22, 2016, the Company announced the successful completion of a pilot clinical study for Montelukast VersaFilm™ that demonstrated a significantly improved pharmacokinetic profile against the reference product. Montelukast is a unique
drug repurposing opportunity for the treatment of degenerative diseases of the brain, such as mild cognitive impairment and Alzheimer's disease, the most prominent form of dementia.
The study data confirmed that buccal absorption of the drug from the Montelukast film product resulted in a significally improved bioavailability of the drug compared to the commercial tablet. The study was designed as a single-dose, randomized,
two-way cross-over pilot study in 8 healthy subjects. AUC0-inf was 3863 ± 1343 ng/ml*h
-1
for the IntelGenx product vs. 2697 ± 1003 ng/ml*h
-1
for the reference product Singulair
®
tablets,
representing a 52% increase in bioavailability of the drug after administration of the IntelGenx film product. In addition, the study data confirmed that Montelukast crosses the blood/brain barrier when administered using IntelGenx' Versafilm™
delivery technology.
The Company has begun preparation for a phase II-a proof-of-concept (POC) study. Patient enrolment for this study is expected to commence in Q1/2017. The Company expects the results from the study to be available in Q4/2017. Based on the outcome of
this first efficacy trial in humans, The Comapny will be actively seeking a partnership or alliance opportunity to further advance developmental work and commercialization of this product.
On August 5
th
, 2016, the Company announced that it had sold its U.S. royalty on future sales of Forfivo XL
®
to SWK Holdings Corporation (SWK) for $6 million (CAD$8 million). Forfivo XL
®
(Bupropion
extended-release) is the first 450 mg bupropion HCl tablet indicated for Major Depressive Disorder, approved by the FDA.
Under the terms of the agreement, SWK will pay the Company $6 million at closing. In return for, (i) 100% of any and all royalties (as defined in the Edgemont Pharmaceuticals, LLC License Agreement) 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. Patent protection for Forfivo XL
®
in the
United States expires in 2027 with an authorized generic entering the market in January 2018.
SWK is a specialized finance company with a focus on the global healthcare sector. SWK partners with ethical product marketers and royalty holders to provide flexible financing solutions at an attractive cost of capital to create long-term value for
both SWK's business partners and its investors.
On August 11, 2016, the Company announced the appointment of Mr. Mark Nawacki as a new member of the Board of Directors. Mr. Nawacki is currently the President and CEO of Searchlight Pharma Inc., a Canadian-based specialty pharmaceutical company
focused on the acquisition and commercialization of innovative and unique healthcare and pharmaceutical products. Prior to joining Searchlight Pharma, Mr. Nawacki spent over 11 years building out the commercial and geographic footprint of Paladin
Labs, having served until September 2014 as Executive Vice President, Business and Corporate Development. Over the course of his 11-year tenure at Paladin, Mr. Nawacki helped shape the therapeutic focus of Paladin's Canadian business via licensing
and acquisitions, and built Paladin's international expansion and emerging markets strategy. From his arrival at Paladin in 2003, consolidated revenues grew from $20 million to almost $270 million annually, and the company's value increased
from $75 million to over $3 billion when it was acquired by Endo International in 2014.
19
On September 12, 2016, the Company announced that they had entered into a licensing, development and supply agreement with Chemo Group (Chemo) granting Chemo the exclusive license to commercialize two generic products for the USA market and one
product on a worldwide basis. Under the terms of the agreement, Chemo has obtained certain exclusive rights to market and sell IntelGenx' products in exchange for upfront and milestone payments, together with a share of the profits of
commercialization. Chemo also has a right of first refusal to obtain the exclusive commercialisation rights for two of the products to include any country outside the USA.
Chemo is a privately held global pharmaceutical company with over 5,000 employees and operations in over 40 countries and revenues over $1.2 billion annually. Chemo operates across the entire pharmaceutical value chain, delivering specialized
expertise and experience in scientific research, development, manufacturing, sales and marketing of a wide range of value-adding active pharmaceutical ingredients, finished dosage forms and branded pharmaceuticals, for human and animal health. While
the main offices are located in Spain, Switzerland and Argentina, Chemo is acting worldwide, creating a broad and balanced manufacturing and commercial network across Europe, America, Asia and Africa, to address global opportunities and customers`
needs in all major pharmaceutical markets.
Chemo`s activity is organized in three synergistic business areas: Industrial, Branded and Biotech, with over 5,000 professionals in more than 40 countries, 20 state-of-the-art facilities, 9 specialized R&D centers, 12 commercial offices and
more than 50 pharmaceutical affiliates, serving 1,150 customers in 96 countries around the world.
On September 9, 2016 the Company and RedHill Biopharma Ltd. announced that they had entered into a binding term sheet agreement with Pharmatronic Co. granting Pharmatronic Co. the exclusive license to commercialize RIZAPORT
®
in the
republic of Korea (South Korea). RIZAPORT
®
is a proprietary oral thin film formulation of rizatriptan for the treatment of acute migraines.
Subject to satisfaction of remaining conditions, the parties will endeavor to enter into a definitive agreement within 60 days of the execution of the term sheet.
Pursuant to the signing of a definitive agreement, RedHill will grant Pharmatronic Co. the exclusive rights to register and commercialize RIZAPORT
®
in South Korea. Under the term sheet, IntelGenx and RedHill are to receive an upfront
payment and will be eligible to receive additional milestone payments upon achievement of certain predefined regulatory and commercial targets, as well as tiered royalties. Financial terms of the term sheet were not disclosed. The initial term of
the definitive agreement is expected to be ten years from the date of first commercial sale with an automatic renewal of an additional two years. Commercial launch in South Korea is estimated to take place in the first quarter of 2019.
Pharmatronic Co. is a pharmaceutical company headquartered in Seoul and distributing exclusively licensed pharmaceutical products in Korea. Since established in 2005, Pharmatronic Co. has focused R&D and marketing resources on the specialized
target field of neurology, ENT and urology, building a strong image as a leading provider in the pharmaceutical and healthcare industry.
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 $84 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.
20
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 $2.2 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 September 30, 2016, we have received CAD$3.5 million in cash as part of a credit facility (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, Canada’s 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.
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 nine-month period ended September 30, 2016 report an accumulated other comprehensive loss due to foreign currency translation adjustments of $621 due to the fluctuations in the rates used to prepare our financial statements, $105 of
which positively impacted our comprehensive loss for the nine-month period ended September 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 Company’s 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
consultant’s remuneration and can vary significantly with changes in the market price of the Company’s 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 Company’s operating results over a period of time. Our method for
calculating Adjusted EBITDA may differ from that used by other corporations.
21
Reconciliation of Non-US-GAAP Financial Information
|
|
|
Three-month period
|
|
|
Nine-month period
|
|
|
|
|
ended September 30,
|
|
|
ended September 30,
|
|
|
In U.S.$ thousands
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
Comprehensive income (loss)
|
|
62
|
|
|
1,157
|
|
|
(1,451
|
)
|
|
566
|
|
|
Add (deduct):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
174
|
|
|
16
|
|
|
361
|
|
|
48
|
|
|
Finance costs
|
|
60
|
|
|
6
|
|
|
146
|
|
|
101
|
|
|
Finance income
|
|
(2
|
)
|
|
(7
|
)
|
|
(2
|
)
|
|
(20
|
)
|
|
Share-based compensation
|
|
49
|
|
|
25
|
|
|
141
|
|
|
105
|
|
|
Foreign currency translation adjustment
|
|
(32
|
)
|
|
195
|
|
|
(105
|
)
|
|
458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
311
|
|
|
1,392
|
|
|
(910
|
)
|
|
1,258
|
|
Adjusted Earnings before Interest, Taxes, Depreciation and
Amortization (Adjusted EBITDA)
Adjusted EBITDA decreased by $1,081 for the three-month period
ended September 30, 2016 to $311 compared to $1,392 for the three-month period
ended September 30, 2015. Adjusted EBITDA decreased by $2,168 for the nine-month
period ended September 30, 2016 to ($910) compared to $1,258 for the nine-month
period ended September 30, 2015. The decrease in Adjusted EBITDA of $1,081 for
the three-month period ended September 30, 2016 is mainly attributable to a
decrease in revenues of $564 and an increase in selling, general and
administrative expenses of $495 before consideration of stock-based compensation
expense. The decrease in Adjusted EBITDA of $2,168 for the nine-month period
ended September 30, 2016 is mainly attributable to an increase in selling,
general and administrative expenses of $1,296 before consideration of
stock-based compensation expense as well as an increase in research and
development expenses of $652 and a decrease in revenues of $284.
22
Results of operations for the three-month and nine-month
periods ended September 30, 2016 compared with the three-month and nine-month
periods ended September 30, 2015.
|
|
|
Three-month
period
|
|
|
Nine-month
period ended
|
|
|
|
|
ended
September 30,
|
|
|
September
30,
|
|
|
In U.S.$ thousands
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
Revenue
|
$
|
1,819
|
|
$
|
2,383
|
|
$
|
3,309
|
|
|
3,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Royalty, License, and
other Revenue
|
|
97
|
|
|
189
|
|
|
228
|
|
|
292
|
|
|
Research and Development Expenses
|
|
388
|
|
|
274
|
|
|
1,295
|
|
|
643
|
|
|
Selling, General and
Administrative Expenses
|
|
1,072
|
|
|
553
|
|
|
2,837
|
|
|
1,505
|
|
|
Depreciation of tangible assets
|
|
174
|
|
|
6
|
|
|
361
|
|
|
19
|
|
|
Amortization of intangible
assets
|
|
-
|
|
|
10
|
|
|
-
|
|
|
29
|
|
|
Operating income (loss)
|
|
88
|
|
|
1,351
|
|
|
(1,412
|
)
|
|
1,105
|
|
|
Net income (loss)
|
|
30
|
|
|
1,352
|
|
|
(1,556
|
)
|
|
1,024
|
|
|
Comprehensive income (loss)
|
|
62
|
|
|
1,157
|
|
|
(1,451
|
)
|
|
566
|
|
Revenue
Total revenues for the three-month period ended September 30,
2016 amounted to $1,819, representing a decrease of $564 or 24% compared to
$2,383 for the three-month period ended September 30, 2015. Total revenues for
the nine-month period ended September 30, 2016 amounted to $3,309, representing
a decrease of $284 or 8% compared to $3,593 for the nine-month period ended
September 30, 2015. The decrease for the three-month period ended September 30,
2016 compared to the last year’s corresponding period is mainly attributable to
a decrease in license and other revenues of $316 and a decrease in royalties of
$248. The decrease in license and other revenues is mainly attributable to a
decrease in milestone revenues of $1,726 and a decrease in deferred license
revenues of $409, offset by an increase in other revenues of $1,819 (upfront and
deferred revenues on monetization). The decrease in royalties is attributable to
the sale of the royalty on future sales of Forfivo XL
®
. The decrease
for the nine-month period ended September 30, 2016 compared to the last year’s
corresponding period is mainly attributable to a decrease in license and other
revenues of $661, offset by an increase in royalties of $377. The decrease in
license and other revenues is mainly attributable to a decrease in milestone
revenues of $1,380 and a decrease in deferred license revenues of $1,181, offset
by an increase in other revenues of $1,900 (upfront and deferred revenues on
monetization).
Cost of royalty, license, and other revenue
We recorded $97 for the cost of royalty license, and other
revenue in the three-month period ended September 30, 2016 compared with $189 in
the same period of 2015. We recorded $228 for the cost of royalty, license, and
other revenue in the nine-month period ended September 30, 2016 compared with
$292 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.
23
Research and development (“R&D”) expenses
R&D expenses for the three-month period ended September 30, 2016 amounted to $388, representing an increase of $114 or 42%, compared to $274 for the three-month period ended September 30, 2015. R&D expenses for the nine-month
period ended September 30, 2016 amounted to $1,295, representing an increase of $652 or 101%, compared to $643 for the nine-month period ended September 30, 2015.
The increase in R&D expenses for the three-month period ended September 30, 2016 is mainly attributable to increases in patent costs of $75 and R&D salaries of $44 mainly related to new hires. The increase in R&D expenses for the
nine-month period ended September 30, 2016 is mainly attributable to increases in patent costs of $349, study costs of $63, analytical costs of $55, lab supplies and consumables of $66 as well as R&D salaries of $109 mainly
related to new hires.
In the three-month period ended September 30, 2016 we recorded estimated Research and Development Tax Credits and refunds of $22, compared with $23 that was recorded in the same period of the previous year. In the nine-month period ended
September 30, 2016 we recorded estimated Research and Development Tax Credits and refunds of $67, compared with $71 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 September 30, 2016 amounted to $1,072, representing an increase of $519 or 94%, compared to $553 for the three-month period ended September 30, 2015. SG&A expenses for the nine-month
period ended September 30, 2016 amounted to $2,837, representing an increase of $1,332 or 89%, compared to $1,505 for the nine-month period ended September 30, 2015.
The increase in SG&A expenses for the three-month period ended September 30, 2016 is mainly attributable to an increase in salaries and benefits of $237 attributable to the hiring of 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 $119, increase in legal fees of $81 and an increase in leasehold expenses of
$41. The increase in SG&A expenses for the nine-month period ended September 30, 2016 is mainly attributable to an increase in salaries and benefits of $700 attributable to the hiring of 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 $233 and an increase in leasehold expenses of $107, an increase in office
expenses of $82 as well as an increase in legal expenses of $79.
Depreciation of tangible assets
In the three-month period ended September 30, 2016 we recorded an expense of $174 for the depreciation of tangible assets, compared with an expense of $6 thousand for the same period of the previous year. In the nine-month period ended
September 30, 2016 we recorded an expense of $361 for the depreciation of tangible assets, compared with an expense of $19 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 September 30, 2016 amounted to $49 compared to $25 for the
three-month period ended September 30, 2015. Share-based compensation warrants
and share-based payments expense for the nine-month period ended September 30,
2016 amounted to $141 compared to $105 for the nine-month period ended September
30, 2015.
24
We expensed approximately $45 in the three-month period ended
September 30, 2016 for options granted to our employees in 2014, 2015 and 2016
under the 2006 Stock Option Plan, and approximately $4 for options granted to
non-employee directors in 2014, 2015 and 2016, compared with $19 and $6
respectively that was expensed in the same period of the previous year. We
expensed approximately $96 in the nine-month period ended September 30, 2016 for
options granted to our employees in 2014, 2015 and 2016 under the 2006 Stock
Option Plan, and approximately $45 for options granted to non-employee directors
in 2014, 2015 and 2016, compared with $44 and $61 respectively that was expensed
in the same period of the previous year.
There remains approximately $295 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 2014 to 2016, except for $12
thousand which relates to options granted to a consultant in 2016. We anticipate
the issuance of additional options and warrants in the future, which will
continue to result in stock-based compensation expense.
Key items from the balance sheet
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
|
|
|
|
|
September
|
|
|
December
|
|
|
Increase/
|
|
|
Increase/
|
|
|
In U.S.$ thousands
|
|
30, 2016
|
|
|
31, 2015
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
|
Current Assets
|
$
|
6,643
|
|
$
|
4,172
|
|
$
|
2,471
|
|
|
59%
|
|
|
Leasehold Improvements and Equipment, net
|
|
6,106
|
|
|
4,238
|
|
|
1,868
|
|
|
44%
|
|
|
Security Deposit
|
|
724
|
|
|
506
|
|
|
218
|
|
|
43%
|
|
|
Current Liabilities
1
|
|
6,066
|
|
|
1,779
|
|
|
4,287
|
|
|
241%
|
|
|
Long-term Debt
|
|
2,512
|
|
|
1,546
|
|
|
966
|
|
|
62%
|
|
|
Capital Stock
|
|
1
|
|
|
1
|
|
|
0
|
|
|
0%
|
|
|
Additional Paid-in-Capital
|
|
23,583
|
|
|
22,846
|
|
|
737
|
|
|
3%
|
|
1
Deferred revenue is included in current
liabilities.
Current assets
Current assets totaled $6,643 as at September 30, 2016 compared
with $4,172 at December 31, 2015. The increase of $2,471 is mainly attributable
to increases in short-term investments of $3,002, prepaid expenses of $469, and
investment tax credits receivable of $74, partially offset by decreases in
accounts receivable of $929 and cash and cash equivalents of $145.
Cash and cash equivalents
Cash and cash equivalents totaled $2,720 as at September 30,
2016 representing a decrease of $145 compared with the balance of $2,865 as at
December 31, 2015. The decrease in cash on hand relates to net cash used in
investing
activities of $5,229, offset by net cash provided from operating activities of $3,014 and financing activities of $1,856 and an unrealized foreign exchange gain of $214.
25
The cash used in investing activities of $5,229 was for the purchase of fixed assets mainly comprised of $1,600 for manufacturing and packaging equipment required for our new, state-of-the-art, VersaFilm™ manufacturing facility, and
$442 for leasehold improvements related to our new manufacturing facility at 6420 Abrams, St-Laurent, Quebec, and $160 for laboratory equipment. Cash was also used for the acquisition of short-term investments of $3,000.
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. An amount of $596 derives from the proceeds of exercise of warrants
Accounts receivable
Accounts receivable totaled $211 as at September 30, 2016 representing a decrease of $929 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 Edgemont’s $3,000 milestone payment.
Prepaid expenses
As at September 30, 2016 prepaid expenses totaled $539 compared with $70 as of December 31, 2015. The increase in prepaid expenses is attributable to the payment of 10% of the royalty on future sales made to Cary Pharmaceuticals Inc.
following the August 2016 monetization.
Investment tax credits receivable
R&D investment tax credits receivable totaled approximately $171 as at September 30, 2016 compared with $97 as at December 31, 2015. The increase relates to the accrual estimated and recorded for the first nine months of 2016.
Leasehold improvements and equipment
As at September 30, 2016, the net book value of leasehold improvements and equipment amounted to $6,106, compared to $4,238 at December 31, 2015. In the nine-month period ended September 30, 2016 additions to assets totaled $2,229 and
mainly comprised of $1,600 for manufacturing and packaging equipment required for our new, state-of-the-art, VersaFilm™ manufacturing facility, and $442 for leasehold improvements related to our new manufacturing facility at 6420
Abrams, St-Laurent, Quebec, Canada, and $160 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 September 30, 2016. Security deposits in the
amount of CAD$650 for the term loans were also recorded as at September 30, 2016.
Accounts payable and accrued liabilities
Accounts payable and accrued liabilities totaled $826 as at September 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 nine-month period ended September 30, 2016.
26
Deferred revenue
On August 5, 2016, the Company sold its U.S. 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.
The deferred revenue represents the payment received for the royalty on future sales in the amount of $6 million less the Q2 royalties recognized in the second quarter in the amount of $352, less the amount recognized in other revenue during
the three-month period ended September 30, 2016. The deferred revenue will be recognized as other revenue on a straight-line basis until December 31, 2017.
10% of the proceeds were paid to our former development partner, Cary Pharmaceuticals Inc. This amount is included in prepaid expenses less the portion expensed during the three-month period ended September 30, 2016. This expense will be recognized
as cost of royalty, license and other revenue on a straight-line basis until December 31, 2017.
Long-term debt
Long-term debt totaled $3,101 as at September 30, 2016 (December 31, 2015 - $1,730). An amount of $2,453 is attributable to a 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 $648 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 September 30, 2016 we had accumulated a deficit of $18,113 compared with an accumulated deficit of $16,557 as at December 31, 2015. Total assets amounted to $13,473 and shareholders’ equity totaled $4,850 as at September
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 September 30, 2016 capital stock amounted to $0.647 (December 31, 2015: $0.636) . Capital stock is disclosed at its par value with the excess of proceeds shown in Additional Paid-in-Capital.
Additional paid-in-capital
Additional paid-in capital totaled $23,583 as at September 30, 2016, as compared to $22,846 as at December 31, 2015. Additional paid in capital increased by $596 due to the exercise of warrants and by $141 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.
27
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:
$4,805) with no expiration date.
The deferred tax benefit of these items was not recognized in
the accounts as it has been fully provided for.
Key items from the statement of cash flows
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
|
|
|
In U.S.$ thousands
|
|
September
|
|
|
September
|
|
|
Increase/
|
|
|
Increase/
|
|
|
|
|
30, 2016
|
|
|
30, 2015
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
|
Operating Activities
|
$
|
3,014
|
|
$
|
494
|
|
$
|
2,520
|
|
|
510%
|
|
|
Financing Activities
|
|
1,856
|
|
|
450
|
|
|
1,406
|
|
|
312%
|
|
|
Investing Activities
|
|
(5,229
|
)
|
|
(2,646
|
)
|
|
(2,583
|
)
|
|
98%
|
|
|
Cash and cash equivalents - end of period
|
|
2,720
|
|
|
2,264
|
|
|
456
|
|
|
20%
|
|
Statement of cash flows
Net cash from operating activities was $3,014 for the
nine-month period ended September 30, 2016, compared to $494 for the nine-month
period ended September 30, 2015. For the nine-month period ended September 30,
2016, net cash from operating activities consisted of a net loss of $1,556
(2015: net income of $1,024) and an increase in non-cash operating elements of
working capital of $4,068 (2015: decrease in $683).
The net cash provided by financing activities was $1,856 for
the nine-month period ended September 30, 2016, compared to $450 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 (2015: $394) and $596 derives from the
proceeds of exercise of warrants and stock options (2015: $62) for the
nine-month period ended September 30, 2016
Net cash used in investing activities amounted to $5,229 for
the nine-month period ended September 30, 2016 compared to $2,646 in the same
period of 2015. The investing activities for the nine-month period ended
September 30, 2016 used liquidities in the amount of $2,229 (2015: $2,646) for
the purchase of fixed assets mainly comprised of $1,600 for manufacturing and
packaging equipment required for our new, state-of-the-art, VersaFilm™
manufacturing facility, and $442 for leasehold improvements related to our new
manufacturing facility at 6420 Abrams, St-Laurent, Quebec, and $160 for
laboratory equipment. The increase in cash used in investing activities was also
attributable to the acquisition of short-term investments of $3,000 (2015: nil).
The balance of cash and cash equivalents as at September 30,
2016 amounted to $2,720, compared to $2,264 as at September 30, 2015.
Off-balance sheet arrangements
We have no off-balance sheet arrangements.
28