Indicate by checkmark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of large accelerated filer,
accelerated filer, non-accelerated filer and smaller reporting company in
Rule 12b-2 of the Exchange Act.
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13, or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of securities
under a plan confirmed by a court.
If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to
Section 13(a) of the Exchange Act. [ ]
70,026,128 shares of the issuers common stock, par value
$.00001 per share, were issued and outstanding as of May 9, 2018.
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 periods ended March 31, 2018 and 2017.
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 Companys MD&A for the year ended December
31, 2017. In preparing this MD&A, we have taken into account information
available to us up to May 10, 2018, 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, 2017 (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 forwardlooking 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 2016 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.
19
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. More recently, we have made the strategic decision to
enter the oral film market and have implemented commercial oral film
manufacturing capability. This enables us to offer our partners a comprehensive
portfolio of pharmaceutical services, including pharmaceutical R&D, clinical
monitoring, regulatory support, tech transfer and manufacturing scale-up, and
commercial manufacturing.
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, license the commercial rights to partners in the
pharmaceutical industry. In certain cases, we rely upon partners in the
pharmaceutical industry to fund the development of the licensed products,
complete the regulatory approval process with the 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 are based on three pillars: (1)
out licensing commercial rights of our existing pipeline products, (2)
partnering on contract development and manufacturing projects leveraging our
VersaFilm technology, (3) expanding our current pipeline through:
|
|
identifying lifecycle management opportunities
for existing market leading pharmaceutical products,
|
|
|
|
|
|
develop oral film products that provide
tangible patient benefits,
|
|
|
|
|
|
development of new drug delivery technologies,
|
|
|
|
|
|
repurposing existing drugs for new indications,
and
|
|
|
|
|
|
developing generic drugs where high technology
barriers to entry exist in reproducing branded films.
|
Contract Development and Manufacturing based on VersaFilm
technology
We have established a state-of-the-art manufacturing facility
for the future manufacture of our VersaFilm products. 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.
With our current manufacturing equipment, we are only able to
manufacture products that do not contain flammable organic solvents. Since
several of our film products are solvent-based, we are in the process of
acquiring manufacturing equipment that is capable of handling organic solvents,
and we are expanding our manufacturing facility in order to create the space
required for this new manufacturing equipment.
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.
20
Product Opportunities that provide Tangible Patient Benefits
Our focus will be on developing oral film products leveraging
our VersaFilm technology that provide tangible patient benefits versus existing
drug delivery forms. Patients with difficulties swallowing medication,
pediatrics or geriatrics may benefit from oral films due to the ease of use.
Similarly, we are working on oral films to improve bio-availability and/or
response time versus existing drugs and thereby reducing side effects.
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.
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.
Corporate
Manufacturing facility
We currently manufacture products only for clinical and testing
purposes in our own facility and we do not yet manufacture products for
commercial use. In order to establish ourselves as a full-service partner for
our thin film products, we invested approximately $6.5 million to establish a
state-of-the-art manufacturing facility for the commercial manufacture of
products developed using our VersaFilm drug delivery technology. Since we
recently received our cGMP-compliant rating from Health Canada for manufacturing
and packaging activities, we anticipate the manufacturing of our products to
commence on the second half of 2018.
Expansion to the existing Manufacturing Facility
On March 6, 2017 IntelGenx executed an agreement to lease
approximately an additional 11,000 square feet in a property located at 6410
Abrams, St-Laurent, Quebec. The Lease has an 8 year and 5-month term commencing
on October 1, 2017 and IntelGenx has retained two options to
extend the Lease, with each option being for an additional five years. Under the
terms of the Lease IntelGenx will be required to pay base rent of approximately
CA$74 thousand (approximately $59 thousand) per year, which will increase at a
rate of CA$0.25 ($0.20) per square foot every two years. IntelGenx plans to use
the newly leased space to expand its manufacture of oral film VersaFilm TM.
21
The Company has initiated a project to expand the existing
manufacturing facility, the timing of which will be dictated in part by the
completion of agreements with our commercial partners. This expansion became
necessary following requests by commercial partners to increase manufacturing
capacity and provide solvent film manufacturing capabilities. The new facility
should create a fivefold increase of our production capacity in addition to
offering a one-stop shopping opportunity to our partners and provide better
protection of our Intellectual Property. The Company has signed agreements in
the amount of Euro1,911 thousand with three suppliers with respect to equipment
for solvent film manufacturing. As at March 31, 2018 an amount of Euro988
thousand has been paid.
Most recent key developments
On January 09, 2018 the Company and its President and Chief
Executive Officer, Dr. Horst Zerbe presented an overview of the Companys
business at the 10
th
Annual Biotech Showcase conference at the
Hilton San Francisco Union Square Hotel. Andre Godin, Executive Vice President
and Chief Financial Officer, and Dr. Dana Matzen, Vice President Business and
Corporate Development, from the Company were also attending one-on-one meetings
in San Francisco from January 8 through 10.
On January 24, 2018 the Company announced that it had initiated
the Phase 2a proof of concept Montelukast VersaFilm clinical trial in
Alzheimers patients, following clearance of the Clinical Trial Application by
Health Canada. IntelGenx retained the services of Cogstate and JSS Medical
Research as the Contract Research Organizations to support the Montelukast
VersaFilm
TM
study. Cogstate is currently preparing cognitive testing
materials and training for clinical staff and physicians to ensure proper
administration of the cognitive testing. Once completed, it will also proceed
with data analysis. JSS will monitor clinical trial sites to ensure protocol
adherence. Patient screening is expected to begin in Q3 2018. The Phase 2a
Montelukast Versafilm clinical trial is a randomized, double-blind, placebo
controlled POC study that will enroll approximately 70 subjects with mild to
moderate Alzheimers Disease across eight Canadian research sites. The primary
study objectives will be to evaluate the safety, feasibility, tolerability, and
efficacy of Montelukast buccal film following daily dosing for 26 weeks.
IntelGenx is working to repurpose Montelukast as a therapeutic to treat
neurodegenerative diseases by reformulating the drug into an oral film-based
product. Montelukast has been approved by the U.S. Food and Drug Administration
in 1997 for the treatment of asthma and seasonal allergic rhinitis. IntelGenx '
proprietary VersaFilm technology is especially suited for special needs patient
populations, and the Montelukast VersaFilm product therefore offers many
distinct advantages over tablets for Alzheimers Disease patients, including the
avoidance and minimization of first-pass-effects, ease of administration,
improved API bioavailability, lower dosing and toxicity, better acceptability
and improved compliance. In a recent Phase 1 study, IntelGenx demonstrated that
an oral film formulation of Montelukast is safe and tolerable in healthy
subjects, reduces the first-pass-effect and has a 52% higher bioavailability
compared to the regular Montelukast tablet, demonstrating a clear advantage of
delivering Montelukast via film. IntelGenx ' oral film also crossed the
blood-brain barrier, an essential feature for treating degenerative brain
diseases.
On March 19, 2018 the Company announced that IntelGenx Corp.,
the Companys operating subsidiary, had entered into an agreement to acquire
pharmaceutical consulting firm Laboval for total cash consideration of up to
CA$5 million, subject to the acquired business achieving certain revenue
milestones over the two years following closing. The Company intended to finance
the Acquisition and related fees and costs by way of private placement equity
financing. IntelGenx Corp.s obligation to close the Acquisition was conditional
upon the Company raising at least US$10 million under the Offering. Proceeds
raised in addition to those required for the Acquisition would have been used to
finance the Companys Montelukast Phase 2b clinical trial as well as working
capital. Laboval, based in Montreal, Quebec, is engaged in the business of pharmaceutical
product testing, offering a comprehensive range of quality control testing for
finished products and raw materials, as well as in-process testing, stability
studies, forced degradation and regulatory services to the pharmaceutical,
nutraceutical, natural health, cosmetics and healthcare sectors. Laboval holds
all necessary licenses and approvals of the U.S. Food and Drug Administration
and Health Canada to carry on its business. Under the purchase agreement,
approximately 40% of the purchase price would have been paid by the Company as
of the closing date. Additional consideration in the form of an earn-out of up
to 60% of the purchase price would have been payable over the two-year
post-closing period, based on the achievement of certain revenue objectives for
the acquired business. The closing of the Acquisition was expected to occur on
or about March 30, 2018 and was subject to the Company raising at least US$10
million under the Offering and certain other customary closing conditions,
including the approval of the TSX Venture Exchange.
22
On March 27, 2018 the Company announced that, due to market
conditions, it will not be proceeding with the private placement previously
announced on March 20, 2018. As a result, IntelGenx Corp., the Companys
operating subsidiary, will not be proceeding with the previously announced
proposed acquisition of LaboVal Inc., which was subject to the Company obtaining
satisfactory financing.
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 three-month period ended March 31, 2018 report an
accumulated other comprehensive loss due mainly to foreign currency translation
adjustments of $714 due to the fluctuations in the rates used to prepare our
financial statements, $72 of which negatively impacted our comprehensive loss
for the three-month period ended March 31, 2018. The following Management
Discussion and Analysis takes this into consideration whenever material.
Reconciliation of Comprehensive 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 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.
23
Reconciliation of Non-U.S.-GAAP Financial Information
|
|
Three-month period
|
|
|
|
ended March 31,
|
|
In U.S.$ thousands
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Comprehensive Loss
|
$
|
(2,341
|
)
|
$
|
(468
|
)
|
Add (deduct):
|
|
|
|
|
|
|
Depreciation
|
|
183
|
|
|
170
|
|
Finance costs
|
|
243
|
|
|
57
|
|
Finance income
|
|
-
|
|
|
(2
|
)
|
Share-based compensation
|
|
50
|
|
|
170
|
|
Other
comprehensive loss (income)
|
|
77
|
|
|
(44
|
)
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
(1,788
|
)
|
|
(117
|
)
|
Adjusted Earnings before Interest, Taxes, Depreciation and
Amortization (Adjusted EBITDA)
Adjusted EBITDA decreased by $1,671 for the three-month period
ended March 31, 2018 to ($1,788) compared to ($117) for the three-month period
ended March 31, 2017. The decrease in Adjusted EBITDA of $1,671 for the
threemonth period ended March 31, 2018 is mainly attributable to a decrease in
revenues of $1,114, an increase in SG&A expenses of $497 before
consideration of stock-based compensation and an increase in R&D expenses of
$152 before consideration of stock-based compensation.
Results of operations for the three-month period ended March
31, 2018 compared with the three-month period ended March 31, 2017.
|
|
Three-month
period
|
|
|
|
ended March
31,
|
|
|
|
|
|
In U.S.$ thousands
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
239
|
|
$
|
1,353
|
|
|
|
|
|
|
|
|
Cost of Royalty and License
Revenue
|
|
-
|
|
|
92
|
|
|
|
|
|
|
|
|
Research and Development
Expenses
|
|
797
|
|
|
644
|
|
|
|
|
|
|
|
|
Selling, General and
Administrative Expenses
|
|
1,280
|
|
|
904
|
|
|
|
|
|
|
|
|
Depreciation of tangible
assets
|
|
183
|
|
|
170
|
|
|
|
|
|
|
|
|
Operating Loss
|
|
(2,021
|
)
|
|
(457
|
)
|
|
|
|
|
|
|
|
Net Loss
|
|
(2,264
|
)
|
|
(512
|
)
|
|
|
|
|
|
|
|
Comprehensive Loss
|
|
(2,341
|
)
|
|
(468
|
)
|
24
Revenue
Total revenues for the three-month period ended March 31, 2018
amounted to $239, representing an decrease of $1,114 or 82% compared to $1,353
for the three-month period ended March 31, 2017. The decrease for the
three-month period ended March 31, 2018 compared to the last years
corresponding period is mainly attributable to the decrease in upfront revenues
of $408 and deferred revenues on monetization of $922 offset by an increase in
R&D revenues of $218.
Cost of royalty and license revenue
We recorded $Nil for the cost of royalty and license revenue in
the three-month period ended March 31, 2018 compared with $92 in the same period
of 2017. 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.
Following the monetization of Forfivo XL
®
s royalties, we are
required to record 10% of the deferred revenues from the monetization as cost of
royalty and license revenue until December 31, 2017 which represented $Nil for
the first quarter of 2018.
Research and development (R&D) expenses
R&D expenses for the three-month period ended March 31,
2018 amounted to $797, representing an increase of $153 or 24%, compared to $644
for the three-month period ended March 31, 2017.
The increase in R&D expenses for the three-month period
ended March 31, 2018 is mainly attributable to increases in study costs of
$160.
In the three-month period ended March 31, 2018 we recorded
estimated Research and Development Tax Credits and refunds of $79, compared with
$30 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 March 31,
2018 amounted to $1,280, representing an increase of $376 or 41%, compared to
$904 for the three-month period ended March 31, 2017.
The increase in SG&A expenses for the three-month period
ended March 31, 2018 is mainly attributable to an increase in professional fees
of $288 and an increase in manufacturing expenses of $103. The increase in
professional fees were mainly related to costs attributable to the aborted
capital raise as well as the Laboval acquisition. These expenses are deemed to
be non-recurring in nature.
Depreciation of tangible assets
In the three-month period ended March 31, 2018 we recorded an
expense of $183 for the depreciation of tangible assets, compared with an
expense of $170 thousand for the same period of the previous year.
25
Share-based compensation expense, warrants and stock based
payments
Share-based compensation warrants and share-based payments
expense for the three-month period ended March 31, 2018 amounted to $50 compared
to $170 for the three-month period ended March 31, 2017.
We expensed approximately $45 in the three-month period ended
March 31, 2018 for options granted to our employees in 2016, 2017 and 2018 under
the 2016 Stock Option Plans, approximately $3 for options granted to
non-employee directors in 2016 and 2017, and $2 for options granted to a
consultant in 2016 compared with $49, $119 and $2 respectively that was expensed
in the same period of the previous year.
There remains approximately $181 in stock based compensation to
be expensed in fiscal 2018 and 2019, of which $178 relates to the issuance of
options to our employees and directors during 2015 to 2017 and $3 relates to the
issuance of options to a consultant in 2016. We anticipate the issuance of
additional options and warrants in the future, which will continue to result in
stock-based compensation expense.
Key items from the balance sheet
|
|
|
|
|
|
|
|
|
|
|
Percentage
|
|
|
|
March 31,
|
|
|
December
|
|
|
Increase/
|
|
|
Increase/
|
|
In U.S.$ thousands
|
|
2018
|
|
|
31, 2017
|
|
|
(Decrease)
|
|
|
(Decrease)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets
|
$
|
3,796
|
|
$
|
6,044
|
|
$
|
-2,248
|
|
|
-37%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leasehold improvements and
Equipment
|
|
6,433
|
|
|
6,346
|
|
|
87
|
|
|
1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security Deposits
|
|
737
|
|
|
757
|
|
|
-20
|
|
|
-3%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
2,097
|
|
|
2,077
|
|
|
-20
|
|
|
-1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred lease obligations
|
|
50
|
|
|
50
|
|
|
0
|
|
|
0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
1,755
|
|
|
1,992
|
|
|
-237
|
|
|
-12%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible debentures
|
|
5,131
|
|
|
5,199
|
|
|
-68
|
|
|
-1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Stock
|
|
1
|
|
|
1
|
|
|
0
|
|
|
0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional Paid-in-Capital
|
|
25,698
|
|
|
25,253
|
|
|
445
|
|
|
2%
|
|
Going Concern
The Company has financed its operations to date primarily
through public offerings of its common stock, bank loans, royalty, up-front and
milestone payments, license fees, proceeds from exercise of warrants and
options, research and development revenues and the sale of U.S. royalty on
future sales of Forfivo XL®. The Company has devoted substantially all of its
resources to its drug development efforts, conducting clinical trials to further
advance the product pipeline, the expansion of its facilities, protecting its
intellectual property and general and administrative functions relating to these
operations. The future success of the Company is dependent on its ability to
develop its product pipeline and ultimately upon its ability to attain
profitable operations. As of March 31, 2018, the Company had cash and short-term
investments totaling approximately $2,383. The Company does not have sufficient
existing cash and short-term investments to support operations for the next year
following the issuance of these financial statements. These conditions raise
substantial doubt about the Companys ability to continue as a going
concern.
26
Managements plans to alleviate these conditions include
pursuing one or more of the following steps to raise additional funding, none of
which can be guaranteed or are entirely within the Companys control:
|
|
Raise funding through the possible sale of the
Companys common stock, including public or private equity financings.
|
|
|
Raise funding through debt financing.
|
|
|
Continue to seek partners to advance product
pipeline.
|
|
|
Initiate oral film manufacturing activities.
|
|
|
Initiate contract oral film manufacturing
activities.
|
If the Company is unable to raise capital when needed or on
attractive terms, or if it is unable to procure partnership arrangements to
advance its programs, the Company would be forced to delay, reduce or eliminate
its research and development programs.
The accompanying financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and
satisfaction of liabilities in the ordinary course of business. The accompanying
financial statements do not include any adjustments or classifications that may
result from the possible inability of the Company to continue as a going
concern. Should the Company be unable to continue as a going concern, it may be
unable to realize the carrying value of its assets and to meet its liabilities
as they become due.
Current assets
Current assets totaled $3,796 as at March 31, 2018 compared
with $6,044 at December 31, 2017. The decrease of $2,248 is mainly attributable
to a decrease in cash of approximately $973 and a decrease in short-term
investments of approximately $1,548, offset by an increase in prepaid expenses
of approximately $172.
Cash
Cash totaled $618 as at March 31, 2018 representing a decrease
of $973 compared with the balance of $1,591 as at December 31, 2017. The
decrease in cash on hand relates to net cash used by operating activities of
$2,191 offset by net cash provided by investing activities of $1,077 and net
cash provided by financing activities of $208.
Accounts receivable
Accounts receivable totaled $655 as at March 31, 2018
representing an increase of $32 compared with the balance of $623 as at December
31, 2017.
Prepaid expenses
As at March 31, 2018 prepaid expenses totaled $375 compared
with $203 as of December 31, 2017. The increase in prepaid expenses is
attributable to a payment of CAD$275 with respect to the Laboval acquisition
(from which CAD$200 is refundable if the acquisition does not take place),
offset by the advance payments in December 2017 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
$383 as at March 31, 2018 compared with $314 as at December 31, 2017. The
increase is attributable to the accrual estimated and recorded for the first
quarter of 2018.
27
Leasehold improvements and equipment
As at March 31, 2018, the net book value of leasehold
improvements and equipment amounted to $6,433, compared to $6,346 at December
31, 2017. In the three-month period ended March 31, 2018 additions to assets
totaled $438 and mainly comprised of $428 for manufacturing equipment, $5 for
computer equipment, and $5 for office furniture.
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 March 31, 2017.
Security deposits in the amount of CAD$650 for the term loans were also recorded
as at March 31, 2018
Accounts payable and accrued liabilities
Accounts payable and accrued liabilities totaled $1,345 as at
March 31, 2018 compared with $1,305 as at December 31, 2017.
Long-term debt
Long-term debt totaled $2,507 as at March 31, 2018 (December
31, 2017 - $2,764). An amount of $2,029 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. The reimbursement of
the term loan started in September 2015 and should be fully reimbursed by
October 2021.
An amount of $478 is attributable to a second loan secured by a
second ranking on all present and future property of the Company. The
reimbursement of the loan started in January 2017 and should be fully reimbursed
by March 2021.
Convertible debentures
Convertible debentures totaled $5,131 as at March 31, 2018 as
compared to $5,199 as at December 31, 2017. The Corporation issued a total
aggregate principal amount of CAD$7,600,000 of debentures at a price of
CAD$1,000 per debenture in July 2017 and August 2017. The convertible debentures
have been recorded as a liability. Total transactions costs in the amount of
CAD$1,237,000 were recorded against the liability. The accretion expense for the
three-month period ended March 31, 2018 amounts to CAD$93,000 ($Nil in 2017).
The accrued interest on the convertible debentures as at March 31, 2018 amounts
to CAD$150,000 ($Nil in 2017) and is recorded in Financing and interest expense.
Shareholders equity
As at March 31, 2018 we had accumulated a deficit of $23,052
compared with an accumulated deficit of $20,788 as at December 31, 2017. Total
assets amounted to $10,966 and shareholders equity totaled $1,933 as at March
31, 2018, compared with total assets and shareholders equity of $13,147 and
$3,829 respectively, as at December 31, 2017.
Capital stock
As at March 31, 2018 capital stock amounted to $0.677 (December
31, 2017: $0.670) . Capital stock is disclosed at its par value with the excess
of proceeds shown in Additional Paid-in-Capital.
28
Additional paid-in-capital
Additional paid-in capital totaled $25,698 as at March 31,
2018, as compared to $25,253 as at December 31, 2017. Additional paid in capital
increased by $445 from which $395 came from proceeds from exercise of warrants
and $50 from stock based compensation attributable to the amortization of stock
options granted to employees and directors.
Taxation
As at December 31, 2017, the date of our latest annual tax
return, we had Canadian and provincial net operating losses of approximately
$9,560 (December 31, 2016: $7,585) and $10,052 (December 31, 2016: $7,763)
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 2037. A portion of the net operating losses may expire before
they can be utilized.
As at December 31, 2017, we had non-refundable tax credits of
$1,553 thousand (2016: $1,190 thousand) of which $8 thousand is expiring in
2026, $10 thousand is expiring in 2027, $180 thousand is expiring in 2028, $158
thousand is expiring in 2029, $134 thousand is expiring in 2030, $143 thousand
is expiring in 2031, $179 thousand is expiring in 2032 and $119 thousand is
expiring in 2033, $90 thousand expiring in 2034, $106 thousand is expiring in
2035, $146 thousand expiring in 2036 and $280 thousand expiring in 2037. We also
had undeducted research and development expenses of $7,532 thousand (2016:
$5,438 thousand) with no expiration date.
The deferred tax benefit of these items was not recognized in
the accounts as it has been fully provided for.
Key items from the statement of cash flows
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|
March 31,
|
|
|
March 31,
|
|
|
Increase/
|
|
|
Percentage
|
|
In U.S.$ thousands
|
|
2018
|
|
|
2017
|
|
|
(Decrease)
|
|
|
Increase/
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Activities
|
$
|
(2,191
|
)
|
$
|
(523
|
)
|
$
|
(1,668
|
)
|
|
(319%
|
)
|
Financing Activities
|
|
208
|
|
|
234
|
|
|
(26
|
)
|
|
(11%
|
)
|
Investing Activities
|
|
1,077
|
|
|
78
|
|
|
999
|
|
|
1281%
|
|
Cash - end of period
|
|
618
|
|
|
300
|
|
|
318
|
|
|
106%
|
|
Statement of cash flows
Net cash used in operating activities was $2,191 for the
three-month period ended March 31, 2018, compared to $523 for the three-month
period ended March 31, 2017. For the three-month period ended March 31, 2018,
net cash used by operating activities consisted of a net loss of $2,264 (2017:
$512) before depreciation, stock-based compensation and accretion expense in the
amount of $306 (2017: $340) and a decrease in non-cash operating elements of
working capital of $233 (2017: $351).
The net cash provided by financing activities was $208 for the
three-month period ended March 31, 2018, compared to $234 provided in the same
period of the previous year. An amount of $395 (2017: $337) derives from
proceeds from exercise of warrants and stock options offset by repayment of term
loans for an amount of $187 (2017: $103).
Net cash provided by investing activities amounted to $1,077
for the three-month period ended March 31, 2018 compared to $78 in the same
period of 2017. The net cash provided by investing activities for the
three-month period ended March 31, 2018 relates to the redemption of short term
investments of $1,515 (2017: $300), offset by the purchase of fixed assets of
$438 (2017: $222).
29
The balance of cash as at March 31, 2018 amounted to $618,
compared to $300 at March 31, 2017.
Subsequent event
On April 10, 2018, the Company granted 275,000 options to
purchase common stock to 5 employees. The stock options are exercisable at $0.66
per share and vest over 2 years at 25% every six months.
On May 8, 2018, the Company announced the closing of the
previously announced offering by way of private placement (the Offering). In
connection with the Offering, the Company issued 320 units (the Units) at a
subscription price of U.S.$10,000 per Unit for gross proceeds of U.S.$3,200,000.
A related party of the Company participated in the Offering and subscribed for
an aggregate of two Units. The Corporation intends to use the proceeds for its
Montelukast phase 2a clinical trial and for general working capital purposes.
Each Unit is comprised of (i) 7,940 common shares of the
Corporation (Common Shares), (ii) a U.S.$5,000 convertible 6% note (a Note),
and (iii) 7,690 warrants to purchase common shares of the Corporation
(Warrants). Each Note bears interest at a rate of 6% (payable quarterly, in
arrears, with the first payment being due on September 1, 2018), matures on June
1, 2021 and is convertible into Common Shares at a conversion price of U.S.$0.80
per Common Share. Each Warrant entitles its holder to purchase one Common Share
at a price of U.S.$0.80 per Common Share until June 1, 2021.
In connection with the Offering, the Company paid to the Agents
a cash commission of approximately U.S.$157,800 in the aggregate and issued
non-transferable agents warrants to the Agents, entitling the Agents to
purchase 243,275 common shares at a price of U.S.$0.80 per share until June 1,
2021.
Off-balance sheet arrangements
We have no off-balance sheet arrangements.
Item 3.
|
Controls and Procedures.
|
As of the end of the period covered by this report, we carried
out an evaluation, under the supervision and with the participation of
management, including our chief executive officer and principal financial
officer, of the effectiveness of the design and operation of our disclosure
controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the
Securities Exchange Act of 1934. Based upon that evaluation, our chief executive
officer and principal financial officer concluded that our disclosure controls
and procedures are effective to cause the material information required to be
disclosed by us in the reports that we file or submit under the Exchange Act to
be recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms. There have been no significant changes
in our internal controls or in other factors which could significantly affect
internal controls subsequent to the date we carried out our evaluation.